60000005000000015800000016700000081000000183000000970000001900000066400000015400000081900000020000000015700000010970000000120000001520000003580000008700000065000000004500000072000000429000000418000000false--12-31Q120200001527469270000004300000017000000457000000300000000.0010.0010.0010.0010.0010.0010.0010.0010.0010.0010.0010.00171000005000000750000075000004250000003250000000000425000000033000008000001000000400000014320000025400000000019430000000000194300000006000000011000000039400000030000000080100000059400000037400000015000000310000000240000000500000032100000010000006310000001990000002140000001800000036200000030000001600000050000000042200000095000000590000001400000016000000920000001280000002301000000130200000022590000001313000000120000003000000300000080000005890000009300000013000000300000040000009000000938000000980000001600000002000000001900000036100000080000001600000079000000610000001300000018000000406000000393000000280000000425000000177000000300000030000007700000010600000050000000119920000001528500000010411000000147060000008630000003450000008630000003450000001111345001380034500138000003450001380000034500013800660000006900000010100000018000000500000002050000005000000020000001000000170000001060000001350000001600000014000000Includes cash and cash equivalents, restricted cash, and cash and cash equivalents of consolidated variable interest entities.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
         
Washington, D.C. 20549
         
         
FORM 10-Q
         
         
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
         
For the quarterly period ended March 31, 2019
         
OR
         
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
         
         
   001-37963   
(Commission file number)
         
ATHENE HOLDING LTD.
(Exact name of registrant as specified in its charter)
         
 Bermuda   98-0630022 
 (State or other jurisdiction of   (I.R.S. Employer 
 incorporation or organization)   Identification Number) 
         
96 Pitts Bay Road
Pembroke, HM08, Bermuda
(441) 279-8400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
         
         
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
         
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
         
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
         
 
Large accelerated filer x
 
Accelerated filer ¨
 
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
   
Emerging growth company ¨ 
 
         
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
         
Securities registered pursuant to Section 12(b) of the Act:
         
  Title of each classTrading Symbol Name of each exchange on which registered  
  Class A common sharesATH New York Stock Exchange  
         
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
         
  The number of shares of each class of our common stock outstanding is set forth in the table below, as of April 5, 2019: 
         
  Class A common shares161,698,498
 Class M-2 common shares841,011
  
  Class B common shares25,433,465
 Class M-3 common shares1,001,110
  
  Class M-1 common shares3,339,890
 Class M-4 common shares4,074,026
  
         
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-37963
athenelogoa31.jpg
ATHENE HOLDING LTD.
(Exact name of registrant as specified in its charter)
Bermuda98-0630022
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification Number)
96 Pitts Bay Road
Pembroke, HM 08, Bermuda
(441) 279-8400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A common shares, par value $0.001 per shareATHNew York Stock Exchange
Depositary Shares, each representing a 1/1,000th interest in a
6.35% Fixed-to-Floating Rate Perpetual Non-Cumulative Preference Share, Series AATHPrANew York Stock Exchange
Depositary Shares, each representing a 1/1,000th interest in a
5.625% Fixed Rate Perpetual Non-Cumulative Preference Share, Series BATHPrBNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☑Accelerated filer ☐Non-accelerated filer ☐Smaller reporting company☐Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of April 3, 2020, 194,224,043 of our Class A common shares were outstanding.



TABLE OF CONTENTS




PART I—FINANCIAL INFORMATION


Item 1.
Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
4755
Item 3.
Quantitative and Qualitative Disclosures About Market Risks
8496
Item 4.
Controls and Procedures
8496




PART II—OTHER INFORMATION


Item 1.
Legal Proceedings
8597
Item 1A.
Risk Factors
8597
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
85104
Exhibit Index
 
86105
Signatures
 
87106








Table of Contents






As used in this Quarterly Report on Form 10-Q (report), unless the context otherwise indicates, any reference to “Athene,” “our Company,” “the Company,” “us,” “we” and “our” refer to Athene Holding Ltd. together with its consolidated subsidiaries and any reference to “AHL” refers to Athene Holding Ltd. only.


Forward-Looking Statements


Certain statements in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (Securities Act), as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “seek,” “assume,” “believe,” “may,” “will,” “should,” “could,” “would,” “likely” and other words and terms of similar meaning, including the negative of these or similar words and terms, in connection with any discussion of the timing or nature of future operating or financial performance or other events. However, not all forward-looking statements contain these identifying words. Forward-looking statements appear in a number of places throughout and give our current expectations and projections relating to our business, financial condition, results of operations, plans, strategies, objectives, future performance and other matters.


We caution you that forward-looking statements are not guarantees of future performance and that our actual consolidated financial condition, results of operations, liquidity, and cash flows and performance may differ materially from thosethat made in or suggested by the forward-looking statements contained in this report. A number of important factors could cause actual results or conditions to differ materially from those contained or implied by the forward-looking statements, including the risks discussed in Part II–Item 1A. Risk Factors included in this report and Part I–Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2018 (20182019 (2019 Annual Report). Factors that could cause actual results or conditions to differ from those reflected in the forward-looking statements contained in this report include:


the accuracy of management’s assumptions and estimates;
variability in the amount of statutory capital that our insurance and reinsurance subsidiaries have or are required to hold;
interest rate and/or foreign currency fluctuations;
our potential need for additional capital in the future and the potential unavailability of such capital to us on favorable terms or at all;
major public health issues, and specifically the pandemic caused by the effects of the spread of the Coronavirus Disease of 2019 (COVID-19);
changes in relationships with important parties in our product distribution network;
the activities of our competitors and our ability to grow our retail business in a highly competitive environment;
the impact of general economic conditions on our ability to sell our products and on the fair value of our investments;
our ability to successfully acquire new companies or businesses and/or integrate such acquisitions into our existing framework;
downgrades, potential downgrades or other negative actions by rating agencies;
our dependence on key executives and inability to attract qualified personnel, or the potential loss of Bermudian personnel as a result of Bermuda employment restrictions;
market and credit risks that could diminish the value of our investments;
the impact of changes to the creditworthiness of our reinsurance and derivative counterparties;
the discontinuation of London Inter-bank Offered Rate (LIBOR);
changes in consumer perception regarding the desirability of annuities as retirement savings products;
potential litigation (including class action litigation), enforcement investigations or regulatory scrutiny against us and our subsidiaries, which we may be required to defend against or respond to;
the impact of new accounting rules or changes to existing accounting rules on our business;
interruption or other operational failures in telecommunication and information technology and other operating systems, as well as our ability to maintain the security of those systems;
the termination by Athene AssetApollo Global Management, LLC (AAM)Inc. (AGM) or any of its subsidiaries (collectively, AGM together with its subsidiaries, Apollo) of its investment management agreements with us and limitations on our ability to terminate such arrangements;
AAM’sApollo’s dependence on key executives and inability to attract qualified personnel;
the accuracy of our estimates regarding the future performance of our investment portfolio;
increased regulation or scrutiny of alternative investment advisers and certain trading methods;
potential changes to regulations affecting, among other things, transactions with our affiliates, the ability of our subsidiaries to make dividend payments or distributions to AHL, acquisitions by or of us, minimum capitalization and statutory reserve requirements for insurance companies and fiduciary obligations on parties who distribute our products;
suspensionthe failure to obtain or revocationmaintain licenses and/or other regulatory approvals as required for the operation of our subsidiaries’ insurance and reinsurance licenses or our inability to procure licenses associated with new products or services;subsidiaries;
increases in our tax liability resulting from the Base Erosion and Anti-Abuse Tax (BEAT);
improper interpretation or application of Public Law no. 115-97, the Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (Tax Act) or subsequent changes to, clarifications of or guidance under the Tax Act that is counter to our interpretation and has retroactive effect;
AHL or any of its non-United States (U.S.) subsidiaries becoming subject to U.S. federal income taxation;
adverse changes in U.S. tax law;
our being subject to U.S. withholding tax under the Foreign Account Tax Compliance Act (FATCA);
changes in our potential inabilityability to pay dividends or make distributions; and
other risks and factors discussed elsewhere in this report, Part I—Item 1A. Risk Factors included in our 2018 Annual Report and those discussed elsewhere in our 2018 Annual Report.
failure to recognize the benefits expected to be derived from the share exchange transaction with Apollo;



3
Table of Contents






the failure to achieve the economic benefits expected to be derived from the Athene Co-Invest Reinsurance Affiliate 1A Ltd. (together with its subsidiaries, ACRA) capital raise or future ACRA capital raises;
the failure of third-party ACRA investors to fund their capital commitment obligations; and
•
other risks and factors listed in Part II–Item 1A. Risk Factors included in this report, Part I—Item 1A. Risk Factors included in our 2019 Annual Report and those discussed elsewhere in this report and in our 2019 Annual Report.

We caution you that the important factors referenced above may not be exhaustive. In light of these risks, you should not place undue reliance upon any forward-looking statements contained in this report. TheUnless an earlier date is specified, the forward-looking statements included in this report are made only as of the date hereof.that this report was filed with the U.S. Securities and Exchange Commission (SEC). We undertake no obligation, except as may be required by law, to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.




GLOSSARY OF SELECTED TERMS


Unless otherwise indicated in this report, the following terms have the meanings set forth below:


Entities
Term or Acronym Definition
A-A Mortgage A-A Mortgage Opportunities, L.P.
AAA Investor AAA Guarantor – Athene, L.P.
AAIA Athene Annuity and Life Company
AAMAthene Asset Management LLC
AARe Athene Annuity Re Ltd., a Bermuda reinsurance subsidiary
ACRA Athene Co-Invest Reinsurance Affiliate 1A Ltd., together with its subsidiaries
ADIP Apollo/Athene Dedicated Investment Program
AGM Apollo Global Management, LLCInc.
AHL Athene Holding Ltd.
ALRe Athene Life Re Ltd., a Bermuda reinsurance subsidiary
ALReIAthene Life Re International Ltd., a Bermuda reinsurance subsidiary
AmeriHome AmeriHome Mortgage Company, LLC
AOGApollo Operating Group
Apollo Apollo Global Management, LLC,Inc., together with its subsidiaries
Apollo Group (1) Apollo, (2) the AAA Investor, (3) any investment fund or other collective investment vehicle whose general partner or managing member is owned, directly or indirectly, by Apollo or one or more of Apollo’s subsidiaries, (4) BRH Holdings GP, Ltd. and its shareholders, (5) any executive officer or employee of AGM or its subsidiaries (6) any shareholder that has granted to AGM or any of its affiliates a valid proxy with respect to all of such shareholder’s Class A common shares pursuant to our bye-laws and (5)(7) any affiliate of any of the foregoing (except that AHL andor its subsidiaries and employees of AHL, its subsidiaries or AAM are not members of the Apollo Group)
Athene USA Athene USA Corporation
Athora Athora Holding Ltd., formerly known as AGER Bermuda Holding Ltd.
BMA Bermuda Monetary Authority
CoInvest VI AAA Investments (Co-Invest VI), L.P.
CoInvest VII AAA Investments (Co-Invest VII), L.P.
ISGApollo Insurance Solutions Group LP, formerly known as Athene Asset Management LLC
LIMRA Life Insurance and Market Research Association
MidCap MidCap FinCo LimitedDesignated Activity Company
NAIC National Association of Insurance Commissioners
NYSDFS New York State Department of Financial Services
RLI ReliaStar Life Insurance Company
Treasury United States Department of the Treasury
Voya Voya Financial, Inc.
VIAC Venerable Insurance and Annuity Company, formerly Voya Insurance and Annuity Company
Venerable Venerable Holdings, Inc., together with its subsidiaries




4
Table of Contents






Certain Terms & Acronyms
Term or Acronym Definition
ABS Asset-backed securities
ACL Authorized control level RBC as defined by the model created by the National Association of Insurance Commissioners
ALM Asset liability management
ALRe RBC The risk-based capital ratio of ALRe, when applying the NAIC risk-based capital factors.
Alternative investments Alternative investments, including investment funds, CLO equity positions and certain other debt instruments considered to be equity-like
Base of earnings Earnings generated from our results of operations and the underlying profitability drivers of our business
Bermuda capital The capital of ALRe calculated under U.S. statutory accounting principles, including that for policyholder reserve liabilities which are subjected to U.S. cash flow testing requirements, but excluding certain items that do not exist under our applicable Bermuda requirements, such as interest maintenance reserves
Block reinsurance A transaction in which the ceding company cedes all or a portion of a block of previously issued annuity contracts through a reinsurance agreement
BSCR Bermuda Solvency Capital Requirement
CAL Company action level risk-based capital as defined by the model created by the National Association of Insurance Commissioners
CLO Collateralized loan obligation
CMBS Commercial mortgage-backed securities
CML Commercial mortgage loans
Cost of crediting The interest credited to the policyholders on our fixed annuities, including, with respect to our fixed indexed annuities, option costs, as well as institutional costs related to institutional products, presented on an annualized basis for interim periods
Cost of funds Cost of funds includes liability costs related to cost of crediting on both deferred annuities and institutional products, as well as other liability costs. Cost of funds is computed as the total liability costs divided by the average net invested assets for the relevant period. Presented on an annualized basis for interim periods.
DAC Deferred acquisition costs
Deferred annuities Fixed indexed annuities, annual reset annuities, and multi-year guaranteed annuities and registered index-linked annuities
DSI Deferred sales inducement
Excess capital Capital in excess of the level management believes is needed to support our current operating strategy
FIA Fixed indexed annuity, which is an insurance contract that earns interest at a crediting rate based on a specified index on a tax-deferred basis
Fixed annuities FIAs together with fixed rate annuities
Fixed rate annuity An insurance contract that offers tax-deferred growth and the opportunity to produce a guaranteed stream of retirement income for the lifetime of its policyholder
Flow reinsurance A transaction in which the ceding company cedes a portion of newly issued policies to the reinsurer
GAAP Accounting principles generally accepted in the United States of America
GLWB Guaranteed lifetime withdrawal benefit
GMDB Guaranteed minimum death benefit
IMAInvestment management agreement
IMOIndependent marketing organization
InvestedGross invested assets The sum of (a) total investments on the consolidated balance sheet with available-for-sale securities at amortized cost, excluding derivatives, (b) cash and cash equivalents and restricted cash, (c) investments in related parties, (d) accrued investment income, (e) consolidated variable interest entities’ assets, liabilities and noncontrolling interest and (f) policy loans ceded (which offset the direct policy loans in total investments). InvestedGross invested assets includes investments supporting assumed funds withheld and modco agreements and excludes assets associated with funds withheld liabilities related to business exited through reinsurance agreements and derivative collateral (offsetting the related cash positions). Gross invested assets includes the entire investment balance attributable to ACRA as ACRA is 100% consolidated
IMAInvestment management agreement
IMOIndependent marketing organization
Investment margin on deferred annuities Investment margin applies to deferred annuities and is the excess of our net investment earned rate over the cost of crediting to our policyholders, presented on an annualized basis for interim periods
Liability outflows The aggregate of withdrawals on our deferred annuities, maturities of our funding agreements, payments on payout annuities, and pension risk benefit payments
MMS Minimum margin of solvency
ModcoModified coinsurance


5
Table of Contents






Term or Acronym Definition
ModcoModified coinsurance
MVA Market value adjustment
MYGA Multi-year guaranteed annuity
Net invested assetsThe sum of (a) total investments on the consolidated balance sheet with available-for-sale securities at amortized cost, excluding derivatives, (b) cash and cash equivalents and restricted cash, (c) investments in related parties, (d) accrued investment income, (e) consolidated variable interest entities’ assets, liabilities and noncontrolling interest and (f) policy loans ceded (which offset the direct policy loans in total investments). Net invested assets includes investments supporting assumed funds withheld and modco agreements and excludes assets associated with funds withheld liabilities related to business exited through reinsurance agreements and derivative collateral (offsetting the related cash positions). Net invested assets includes our economic ownership of ACRA investments but does not include the investments associated with the noncontrolling interest
Net investment earned rate Income from our net invested assets divided by the average net invested assets for the relevant period, presented on an annualized basis for interim periods
Net investment spread Net investment spread measures our investment performance less the total cost of our liabilities, presented on an annualized basis for interim periods
Net reserve liabilitiesThe sum of (a) interest sensitive contract liabilities, (b) future policy benefits, (c) dividends payable to policyholders, and (d) other policy claims and benefits, offset by reinsurance recoverable, excluding policy loans ceded. Net reserve liabilities also includes the reserves related to assumed modco agreements in order to appropriately match the costs incurred in the consolidated statements of income with the liabilities. Net reserve liabilities is net of the ceded liabilities to third-party reinsurers as the costs of the liabilities are passed to such reinsurers and therefore we have no net economic exposure to such liabilities, assuming our reinsurance counterparties perform under our agreements. Net reserve liabilities is net of the reserve liabilities attributable to the ACRA noncontrolling interest
Other liability costs Other liability costs include DAC, DSI and VOBA amortization, change in rider reserves, institutional costs, the cost of liabilities on products other than deferred annuities includingand institutional products, excise taxes, as well as offsets for premiums, product charges and other revenues
OTTI Other-than-temporary impairment
Payout annuities Annuities with a current cash payment component, which consist primarily of single premium immediate annuities, supplemental contracts and structured settlements
Policy loan A loan to a policyholder under the terms of, and which is secured by, a policyholder’s policy
PRT Pension risk transfer
RBC Risk-based capital
Reserve liabilitiesThe sum of (a) interest sensitive contract liabilities, (b) future policy benefits, (c) dividends payable to policyholders, and (d) other policy claims and benefits, offset by reinsurance recoverable, excluding policy loans ceded. Reserve liabilities also includes the reserves related to assumed modco agreements in order to appropriately match the costs incurred in the consolidated statements of income with the liabilities. Reserve liabilities is net of the ceded liabilities to third-party reinsurers as the costs of the liabilities are passed to such reinsurers and therefore we have no net economic exposure to such liabilities, assuming our reinsurance counterparties perform under our agreements
Rider reserves Guaranteed lifetime withdrawal benefits and guaranteed minimum death benefits reserves
RMBS Residential mortgage-backed securities
RML Residential mortgage loan
Sales All money paid into an individual annuity, including money paid into new contracts with initial purchase occurring in the specified period and existing contracts with initial purchase occurring prior to the specified period (excluding internal transfers)
SPIA Single premium immediate annuity
Surplus assets Assets in excess of policyholder obligations, determined in accordance with the applicable domiciliary jurisdiction’s statutory accounting principles
TAC Total adjusted capital as defined by the model created by the NAIC
U.S. RBC Ratio The CAL RBC ratio for AADE, our parent U.S. insurance company
VIE Variable interest entity
VOBA Value of business acquired






6
Table of Contents




Item 1. Financial Statements




Index to Condensed Consolidated Financial Statements (unaudited)
   
 
Condensed Consolidated Balance Sheets (unaudited)
8
   
 
Condensed Consolidated Statements of Income (Loss) (unaudited)
10
   
 
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
11
   
 
Condensed Consolidated Statements of Equity (unaudited)
12
   
 
Condensed Consolidated Statements of Cash Flows (unaudited)
13
   
 
Notes to Condensed Consolidated Financial Statements (unaudited)
15
    
  
Note 1. Business, Basis of Presentation and Significant Accounting Policies
15
    
  
Note 2. Investments
1719
    
  
Note 3. Derivative Instruments
2629
    
  
Note 4. Fair Value
2832
    
  
Note 5. Deferred Acquisition Costs, Deferred Sales Inducements and Value of Business Acquired
3944
    
  
Note 6. Earnings Per ShareDebt
3944
    
  
Note 7. EquityEarnings Per Share
4044
    
  
Note 8. Related PartiesEquity
4145
    
  
Note 9. Commitments and ContingenciesRelated Parties
4347
    
  
Note 10. Segment InformationCommitments and Contingencies
4551
Note 11. Segment Information
53






7
Table of Contents


ATHENE HOLDING LTD.
Condensed Consolidated Balance Sheets (Unaudited)




(In millions)March 31, 2019 December 31, 2018
Assets   
Investments   
Available-for-sale securities, at fair value (amortized cost: 2019 – $63,440 and 2018 – $60,025)$64,655
 $59,265
Trading securities, at fair value2,256
 1,949
Equity securities, at fair value252
 216
Mortgage loans, net of allowances (portion at fair value: 2019 – $32 and 2018 – $32)11,042
 10,340
Investment funds (portion at fair value: 2019 – $159 and 2018 – $182)683
 703
Policy loans487
 488
Funds withheld at interest (portion at fair value: 2019 – $446 and 2018 – $57)15,241
 15,023
Derivative assets1,920
 1,043
Short-term investments, at fair value155
 191
Other investments (portion at fair value: 2019 – $52 and 2018 – $52)121
 122
Total investments96,812
 89,340
Cash and cash equivalents3,021
 2,911
Restricted cash497
 492
Investments in related parties   
Available-for-sale securities, at fair value (amortized cost: 2019 – $1,696 and 2018 – $1,462)1,684
 1,437
Trading securities, at fair value239
 249
Equity securities, at fair value301
 120
Mortgage loans291
 291
Investment funds (portion at fair value: 2019 – $232 and 2018 – $201)2,290
 2,232
Funds withheld at interest (portion at fair value: 2019 – $214 and 2018 – $(110))13,683
 13,577
Other investments387
 386
Accrued investment income (related party: 2019 – $22 and 2018 – $25)751
 682
Reinsurance recoverable (related party: 2019 – $334 and 2018 – $344; portion at fair value: 2019 – $1,737 and 2018 – $1,676)5,647
 5,534
Deferred acquisition costs, deferred sales inducements and value of business acquired5,619
 5,907
Other assets (related party: 2019 – $4 and 2018 – $357)962
 1,635
Assets of consolidated variable interest entities   
Investments   
Trading securities, at fair value – related party34
 35
Equity securities, at fair value – related party6
 50
Investment funds (related party: 2019 – $580 and 2018 – $583; portion at fair value: 2019 – $564 and 2018 – $567)619
 624
Cash and cash equivalents2
 2
Other assets12
 1
Total assets$132,857
 $125,505
(In millions)March 31, 2020 December 31, 2019
Assets   
Investments   
Available-for-sale securities, at fair value (amortized cost: 2020 – $67,576 and 2019 – $67,479; allowance for credit losses: 2020 – $78)$65,671
 $71,374
Trading securities, at fair value (consolidated variable interest entities: 2020 – $14 and 2019 – $16)1,979
 2,070
Equity securities, at fair value206
 247
Mortgage loans (allowance for credit losses: 2020 – $394 and 2019 – $11; portion at fair value: 2020 – $26 and 2019 – $27)14,395
 14,306
Investment funds (portion at fair value: 2020 – $157 and 2019 – $154; consolidated variable interest entities: 2020 – $20 and 2019 – $19)740
 750
Policy loans403
 417
Funds withheld at interest (portion at fair value: 2020 – $(374) and 2019 – $801)13,716
 15,181
Derivative assets1,610
 2,888
Short-term investments (portion at fair value: 2020 – $393 and 2019 – $406)583
 596
Other investments (portion at fair value: 2020 – $98 and 2019 – $93)172
 158
Total investments99,475
 107,987
Cash and cash equivalents (consolidated variable interest entities: 2020 – $0 and 2019 – $3)5,419
 4,240
Restricted cash564
 402
Investments in related parties   
Available-for-sale securities, at fair value (amortized cost: 2020 – $4,004 and 2019 – $3,783)3,546
 3,804
Trading securities, at fair value718
 785
Equity securities, at fair value (consolidated variable interest entities: 2020 – $0 and 2019 – $6)49
 64
Mortgage loans (allowance for credit losses: 2020 – $30 and 2019 – $0)623
 653
Investment funds (portion at fair value: 2020 – $1,097 and 2019 – $819; consolidated variable interest entities: 2020 – $0 and 2019 – $664)4,631
 3,550
Funds withheld at interest (portion at fair value: 2020 – $(15) and 2019 – $594)12,452
 13,220
Other investments (allowance for credit losses: 2020 – $12)475
 487
Accrued investment income (related party: 2020 – $43 and 2019 – $27)802
 807
Reinsurance recoverable (portion at fair value: 2020 – $2,115 and 2019 – $1,821)5,087
 4,863
Deferred acquisition costs, deferred sales inducements and value of business acquired6,392
 5,008
Other assets (related party: 2020 – $361 and 2019 – $0; consolidated variable interest entities: 2020 – $19 and 2019 – $20)1,946
 1,005
Total assets$142,179
 $146,875
(Continued)
See accompanying notes to the unaudited condensed consolidated financial statements


8
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ATHENE HOLDING LTD.
Condensed Consolidated Balance Sheets (Unaudited)




(In millions, except per share data)March 31, 2019 December 31, 2018
Liabilities and Equity   
Liabilities   
Interest sensitive contract liabilities (related party: 2019 – $16,533 and 2018 – $16,850; portion at fair value: 2019 – $10,085 and 2018 – $8,901)$98,452
 $96,610
Future policy benefits (related party: 2019 – $1,347 and 2018 – $1,259; portion at fair value: 2019 – $2,226 and 2018 – $2,173)19,016
 16,704
Other policy claims and benefits (related party: 2019 – $15 and 2018 – $10)162
 142
Dividends payable to policyholders118
 118
Long-term debt991
 991
Derivative liabilities85
 85
Payables for collateral on derivatives1,781
 969
Funds withheld liability (related party: 2019 – $327 and 2018 – $337; portion at fair value: 2019 – $12 and 2018 – $(1))724
 721
Other liabilities (related party: 2019 – $51 and 2018 – $59)1,410
 888
Liabilities of consolidated variable interest entities1
 1
Total liabilities122,740
 117,229
Commitments and Contingencies (Note 9)   
Equity   
Common stock   
Class A – par value $0.001 per share; authorized: 2019 and 2018 – 425.0 shares; issued and outstanding: 2019 – 161.5 and 2018 – 162.4 shares—
 —
Class B – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 325.0 shares; issued and outstanding: 2019 – 25.4 and 2018 – 25.4 shares—
 —
Class M-1 – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 7.1 shares; issued and outstanding: 2019 – 3.4 and 2018 – 3.4 shares—
 —
Class M-2 – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 5.0 shares; issued and outstanding: 2019 – 0.8 and 2018 – 0.8 shares—
 —
Class M-3 – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 7.5 shares; issued and outstanding: 2019 – 1.0 and 2018 – 1.0 shares—
 —
Class M-4 – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 7.5 shares; issued and outstanding: 2019 – 4.1 and 2018 – 4.1 shares—
 —
Additional paid-in capital3,448
 3,462
Retained earnings5,963
 5,286
Accumulated other comprehensive income (loss) (related party: 2019 – $(12) and 2018 – $(25))706
 (472)
Total shareholders’ equity10,117
 8,276
Total liabilities and equity$132,857
 $125,505
(In millions, except per share data)March 31, 2020 December 31, 2019
Liabilities and Equity   
Liabilities   
Interest sensitive contract liabilities (related party: 2020 – $14,706 and 2019 – $15,285; portion at fair value: 2020 – $10,411 and 2019 – $11,992)$101,911
 $102,745
Future policy benefits (related party: 2020 – $1,313 and 2019 – $1,302; portion at fair value: 2020 – $2,259 and 2019 – $2,301)23,741
 23,330
Other policy claims and benefits (related party: 2020 – $18 and 2019 – $13)145
 138
Dividends payable to policyholders112
 113
Short-term debt400
 475
Long-term debt986
 992
Derivative liabilities222
 97
Payables for collateral on derivatives and securities to repurchase2,883
 3,255
Funds withheld liability (portion at fair value: 2020 – $24 and 2019 – $31)396
 408
Other liabilities (related party: 2020 – $61 and 2019 – $79)853
 1,181
Total liabilities131,649
 132,734
Commitments and Contingencies (Note 10)   
Equity   
Preferred stock   
Series A – par value $1 per share; $863 aggregate liquidation preference; authorized, issued and outstanding: 2020 and 2019 – 0.0 shares—
 —
Series B – par value $1 per share; $345 aggregate liquidation preference; authorized, issued and outstanding: 2020 and 2019 – 0.0 shares—
 —
Common stock   
Class A – par value $0.001 per share; authorized: 2020 and 2019 – 425.0 shares; issued and outstanding: 2020 – 194.3 and 2019 – 143.2 shares—
 —
Class B – par value $0.001 per share; convertible to Class A; authorized: 2020 – 0.0 and 2019 – 325.0 shares; issued and outstanding: 2020 – 0.0 and 2019 – 25.4 shares—
 —
Class M-1 – par value $0.001 per share; convertible to Class A; authorized: 2020 – 0.0 and 2019 – 7.1 shares; issued and outstanding: 2020 – 0.0 and 2019 – 3.3 shares—
 —
Class M-2 – par value $0.001 per share; convertible to Class A; authorized: 2020 – 0.0 and 2019 – 5.0 shares; issued and outstanding: 2020 – 0.0 and 2019 – 0.8 shares—
 —
Class M-3 – par value $0.001 per share; convertible to Class A; authorized: 2020 – 0.0 and 2019 – 7.5 shares; issued and outstanding: 2020 – 0.0 and 2019 – 1.0 shares—
 —
Class M-4 – par value $0.001 per share; convertible to Class A; authorized: 2020 – 0.0 and 2019 – 7.5 shares; issued and outstanding: 2020 – 0.0 and 2019 – 4.0 shares—
 —
Additional paid-in capital5,501
 4,171
Retained earnings5,613
 6,939
Accumulated other comprehensive income (loss) (related party: 2020 – $(457) and 2019 – $17)(1,174) 2,281
Total Athene Holding Ltd. shareholders’ equity9,940
 13,391
Noncontrolling interests590
 750
Total equity10,530
 14,141
Total liabilities and equity$142,179
 $146,875
(Concluded)
See accompanying notes to the unaudited condensed consolidated financial statements




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ATHENE HOLDING LTD.
Condensed Consolidated Statements of Income (Loss) (Unaudited)




 Three months ended March 31,
(In millions, except per share data)2019 2018
Revenues   
Premiums (related party: 2019 – $66 and 2018 – $0)$1,966
 $278
Product charges (related party: 2019 – $14 and 2018 – $0)125
 96
Net investment income (related party investment income: 2019 – $183 and 2018 – $76; and related party investment expense: 2019 – $92 and 2018 – $83)1,066
 855
Investment related gains (losses) (related party: 2019 – $317 and 2018 – $17)1,772
 (236)
Other-than-temporary impairment investment losses   
Other-than-temporary impairment losses(2) (3)
Other-than-temporary impairment losses reclassified to (from) other comprehensive income1
 —
Net other-than-temporary impairment losses(1)
(3)
Other revenues12
 6
Revenues of consolidated variable interest entities   
Net investment income (related party: 2019 – $16 and 2018 – $10)16
 10
Investment related gains (losses) (related party: 2019 – $4 and 2018 – $5)5
 5
Total revenues4,961
 1,011
Benefits and expenses   
Interest sensitive contract benefits (related party: 2019 – $183 and 2018 – $0)1,516
 31
Amortization of deferred sales inducements5
 20
Future policy and other policy benefits (related party: 2019 – $106 and 2018 – $0)2,295
 401
Amortization of deferred acquisition costs and value of business acquired231
 82
Dividends to policyholders9
 13
Policy and other operating expenses (related party: 2019 – $8 and 2018 – $2)165
 142
Total benefits and expenses4,221
 689
Income before income taxes740
 322
Income tax expense32
 45
Net income$708
 $277
    
Earnings per share   
Basic – Classes A, B, M-1, M-2, M-3 and M-4$3.65
 $1.40
Diluted – Class A3.64
 1.40
Diluted – Class B3.65
 1.40
Diluted – Class M-13.65
 1.40
Diluted – Class M-23.65
 1.39
Diluted – Class M-33.65
 1.38
Diluted – Class M-43.15
 0.97
 Three months ended March 31,
(In millions, except per share data)2020 2019
Revenues   
Premiums (related party: 2020 – $69 and 2019 – $66)$1,140
 $2,000
Product charges (related party: 2020 – $16 and 2019 – $14)140
 125
Net investment income (related party investment income: 2020 – $(214) and 2019 – $199; consolidated variable interest entities: 2020 – $0 and 2019 – $16; and related party investment expense: 2020 – $128 and 2019 – $92)745
 1,082
Investment related gains (losses) (related party: 2020 – $(631) and 2019 – $321; and consolidated variable interest entities: 2020 – $1 and 2019 – $5)(3,572) 1,776
Other revenues(2) 12
Total revenues(1,549) 4,995
Benefits and expenses   
Interest sensitive contract benefits (related party: 2020 – $(97) and 2019 – $183)(1,319) 1,516
Amortization of deferred sales inducements10
 5
Future policy and other policy benefits (related party: 2020 – $50 and 2019 – $106)1,356
 2,329
Amortization of deferred acquisition costs and value of business acquired(413) 231
Dividends to policyholders11
 9
Policy and other operating expenses (related party: 2020 – $16 and 2019 – $8)188
 165
Total benefits and expenses(167) 4,255
Income (loss) before income taxes(1,382) 740
Income tax expense (benefit)(166) 32
Net income (loss)(1,216) 708
Less: Net loss attributable to noncontrolling interests(169) —
Net income (loss) attributable to Athene Holding Ltd. shareholders(1,047) 708
Less: Preferred stock dividends18
 —
Net income (loss) available to Athene Holding Ltd. common shareholders$(1,065) $708
    
Earnings per share   
Basic – Class A$(5.81) $3.65
Basic – Classes B, M-1, M-2, M-3 and M-4(3.87) 3.65
Diluted – Class A(5.81) 3.64
Diluted – Class B(3.87) 3.65
Diluted – Class M-1(3.87) 3.65
Diluted – Class M-2(3.87) 3.65
Diluted – Class M-3(3.87) 3.65
Diluted – Class M-4(3.87) 3.15


See accompanying notes to the unaudited condensed consolidated financial statements




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ATHENE HOLDING LTD.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)




Three months ended March 31,Three months ended March 31,
(In millions)2019 20182020 2019
Net income$708
 $277
Net income (loss)$(1,216) $708
Other comprehensive income (loss), before tax      
Unrealized investment gains (losses) on available-for-sale securities1,478
 (891)
Noncredit component of other-than-temporary impairment losses on available-for-sale securities(1) —
Unrealized investment gains (losses) on available-for-sale securities, net of offsets(4,839) 1,477
Unrealized gains (losses) on hedging instruments(8) (56)401
 (8)
Pension adjustments(1) 3
Foreign currency translation adjustments1
 (8)
Foreign currency translation and other adjustments9
 —
Other comprehensive income (loss), before tax1,469
 (952)(4,429) 1,469
Income tax expense (benefit) related to other comprehensive income (loss)291
 (179)(797) 291
Other comprehensive income (loss)1,178
 (773)(3,632) 1,178
Comprehensive income (loss)$1,886
 $(496)(4,848) 1,886
Less: Comprehensive loss attributable to noncontrolling interests(352) —
Comprehensive income (loss) attributable to Athene Holding Ltd. shareholders$(4,496) $1,886


See accompanying notes to the unaudited condensed consolidated financial statements




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ATHENE HOLDING LTD.
Condensed Consolidated Statements of Equity (Unaudited)




Three months ended
(In millions)Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total shareholders’ equityPreferred stock Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total Athene Holding Ltd. shareholders’ equity Noncontrolling interests Total shareholders’ equity
Balance at December 31, 2017$—
 $3,472
 $4,255
 $1,449
 $9,176
Adoption of accounting standards—
 —
 39
 (42) (3)
Net income—
 —
 277
 —
 277
Other comprehensive loss—
 —
 —
 (773) (773)
Issuance of shares, net of expenses—
 1
 —
 —
 1
Stock-based compensation—
 12
 —
 —
 12
Retirement or repurchase of shares—
 —
 (3) —
 (3)
Balance at March 31, 2018$—
 $3,485
 $4,568
 $634
 $8,687
         
Balance at December 31, 2018$—
 $3,462
 $5,286
 $(472) $8,276
$—
 $—
 $3,462
 $5,286
 $(472) $8,276
 $—
 $8,276
Net income—
 —
 708
 —
 708
—
 —
 —
 708
 —
 708
 —
 708
Other comprehensive income—
 —
 —
 1,178
 1,178
—
 —
 —
 —
 1,178
 1,178
 —
 1,178
Issuance of shares, net of expenses—
 1
 —
 —
 1
Issuance of common shares, net of expenses—
 —
 1
 —
 —
 1
 —
 1
Stock-based compensation—
 5
 —
 —
 5
—
 —
 5
 —
 —
 5
 —
 5
Retirement or repurchase of shares—
 (20) (31) —
 (51)—
 —
 (20) (31) —
 (51) —
 (51)
Balance at March 31, 2019$—
 $3,448
 $5,963
 $706
 $10,117
$—
 $—
 $3,448
 $5,963
 $706
 $10,117
 $—
 $10,117
               
Balance at December 31, 2019$—
 $—
 $4,171
 $6,939
 $2,281
 $13,391
 $750
 $14,141
Adoption of accounting standard—
 —
 —
 (117) (6) (123) (2) (125)
Net loss—
 —
 —
 (1,047) —
 (1,047) (169) (1,216)
Other comprehensive loss—
 —
 —
 —
 (3,449) (3,449) (183) (3,632)
Issuance of common shares, net of expenses—
 —
 1,509
 —
 —
 1,509
 —
 1,509
Stock-based compensation—
 —
 5
 —
 —
 5
 —
 5
Retirement or repurchase of shares—
 —
 (184) (144) 

 (328) 

 (328)
Preferred stock dividends—
 —
 —
 (18) —
 (18) —
 (18)
Contributions from noncontrolling interests—
 —
 —
 —
 —
 —
 240
 240
Distributions to noncontrolling interests—
 —
 —
 —
 —
 —
 (46) (46)
Balance at March 31, 2020$—
 $—
 $5,501
 $5,613
 $(1,174) $9,940
 $590
 $10,530


See accompanying notes to the unaudited condensed consolidated financial statements




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ATHENE HOLDING LTD.
Condensed Consolidated Statements of Cash Flows (Unaudited)




 Three months ended March 31,
(In millions)2019 2018
Cash flows from operating activities   
Net income$708
 $277
Adjustments to reconcile net income to net cash provided by operating activities:   
Amortization of deferred acquisition costs and value of business acquired231
 82
Amortization of deferred sales inducements5
 20
Accretion of net investment premiums, discounts and other(33) (45)
Net investment (income) loss (related party: 2019 – $18 and 2018 – $(43))25
 (29)
Net recognized (gains) losses on investments and derivatives (related party: 2019 – $0 and 2018 – $(24))(944) 209
Policy acquisition costs deferred(173) (122)
Changes in operating assets and liabilities:   
Accrued investment income (related party: 2019 – $3 and 2018 – $0)(69) (27)
Interest sensitive contract liabilities (related party: 2019 – $167 and 2018 – $0)1,403
 (189)
Future policy benefits, other policy claims and benefits, dividends payable to policyholders and reinsurance recoverable (related party: 2019 – $95 and 2018 – $0)653
 333
Funds withheld assets and liabilities (related party: 2019 – $(500) and 2018 – $0)(1,011) (7)
Other assets and liabilities220
 77
Consolidated variable interest entities related:   
Net recognized (gains) losses on investments and derivatives (related party: 2019 – $(5) and 2018 – $(6))(6) (6)
Net cash provided by operating activities1,009
 573
Cash flows from investing activities   
Sales, maturities and repayments of:   
Available-for-sale securities (related party: 2019 – $50 and 2018 – $57)2,231
 3,017
Trading securities (related party: 2019 – $0 and 2018 – $1)31
 24
Equity securities10
 2
Mortgage loans354
 396
Investment funds (related party: 2019 – $87 and 2018 – $52)131
 83
Derivative instruments and other invested assets256
 551
Short-term investments104
 103
Purchases of:   
Available-for-sale securities (related party: 2019 – $(280) and 2018 – $(158))(4,470) (5,907)
Trading securities (related party: 2019 – $(3) and 2018 – $0)(284) (25)
Equity securities (related party: 2019 – $(177) and 2018 – $0)(205) (9)
Mortgage loans(1,049) (463)
Investment funds (related party: 2019 – $(152) and 2018 – $(182))(185) (213)
Derivative instruments and other invested assets(287) (224)
Short-term investments (related party: 2019 – $0 and 2018 – $(72))(67) (209)
Consolidated variable interest entities related:   
Sales, maturities and repayments of investments (related party: 2019 – $51 and 2018 – $59)53
 59
Deconsolidation of Athora Holding Ltd.—
 (296)
Other investing activities, net601
 227
Net cash used in investing activities(2,776) (2,884)
   (Continued)
See accompanying notes to the unaudited condensed consolidated financial statements   
 Three months ended March 31,
(In millions)2020 2019
Cash flows from operating activities   
Net income (loss)$(1,216) $708
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Amortization of deferred acquisition costs and value of business acquired(413) 231
Amortization of deferred sales inducements10
 5
Accretion of net investment premiums, discounts and other(62) (33)
Net investment (income) loss (related party: 2020 – $362 and 2019 – $18)343
 25
Net recognized (gains) losses on investments and derivatives (related party: 2020 – $158 and 2019 – $(5); consolidated variable interest entities: 2020 – $0 and 2019 – $(6))2,144
 (950)
Policy acquisition costs deferred(112) (173)
Changes in operating assets and liabilities:   
Accrued investment income (related party: 2020 – $(16) and 2019 – $3)5
 (69)
Interest sensitive contract liabilities (related party: 2020 – $(81) and 2019 – $167)(1,282) 1,403
Future policy benefits, other policy claims and benefits, dividends payable to policyholders and reinsurance recoverable (related party: 2020 – $59 and 2019 – $95)186
 653
Funds withheld assets and liabilities (related party: 2020 – $422 and 2019 – $(500))1,426
 (1,011)
Other assets and liabilities(258) 220
Net cash provided by operating activities771
 1,009
Cash flows from investing activities   
Sales, maturities and repayments of:   
Available-for-sale securities (related party: 2020 – $205 and 2019 – $50; consolidated variable interest entities: 2020 – $3 and 2019 – $0)4,541
 2,231
Trading securities (related party: 2020 – $17 and 2019 – $1; consolidated variable interest entities: 2020 – $0 and 2019 – $1)48
 32
Equity securities (related party: 2020 – $2 and 2019 – $50; consolidated variable interest entities: 2020 – $0 and 2019 – $50)2
 60
Mortgage loans898
 354
Investment funds (related party: 2020 – $65 and 2019 – $87; consolidated variable interest entities: 2020 – $0 and 2019 – $2)111
 133
Derivative instruments and other invested assets475
 256
Short-term investments139
 104
Purchases of:   
Available-for-sale securities (related party: 2020 – $(425) and 2019 – $(280))(4,226) (4,470)
Trading securities (related party: 2020 – $(77) and 2019 – $(3))(77) (284)
Equity securities (related party: 2020 – $(3) and 2019 – $(177))(3) (205)
Mortgage loans(1,365) (1,049)
Investment funds (related party: 2020 – $(358) and 2019 – $(152))(375) (185)
Derivative instruments and other invested assets(305) (287)
Short-term investments(125) (67)
Deconsolidation of previously consolidated variable interest entities(3) —
Other investing activities, net(113) 601
Net cash used in investing activities(378) (2,776)
   (Continued)
See accompanying notes to the unaudited condensed consolidated financial statements   


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ATHENE HOLDING LTD.
Condensed Consolidated Statements of Cash Flows (Unaudited)




Three months ended March 31,Three months ended March 31,
(In millions)2019 20182020 2019
Cash flows from financing activities      
Proceeds from long-term debt$—
 $998
Deposits on investment-type policies and contracts (related party: 2019 – $101 and 2018 – $0)2,793
 1,774
Withdrawals on investment-type policies and contracts (related party: 2019 – $(106) and 2018 – $0)(1,638) (1,474)
Issuance of common stock$350
 $—
Repayment of short-term debt(75) —
Deposits on investment-type policies and contracts (related party: 2020 – $18 and 2019 – $101)2,838
 2,793
Withdrawals on investment-type policies and contracts (related party: 2020 – $(135) and 2019 – $(106))(1,633) (1,638)
Payments for coinsurance agreements on investment-type contracts, net(25) (10)(6) (25)
Net change in cash collateral posted for derivative transactions812
 (1,178)
Capital contributions from noncontrolling interests240
 —
Capital distributions to noncontrolling interests(46) —
Net change in cash collateral posted for derivative transactions and securities to repurchase(372) 812
Preferred stock dividends(18) —
Repurchase of common stock(51) (3)(328) (51)
Other financing activities, net(9) 32
20
 (9)
Net cash provided by financing activities1,882
 139
970
 1,882
Net increase (decrease) in cash and cash equivalents115
 (2,172)
Effect of exchange rate changes on cash and cash equivalents(22) —
Net increase in cash and cash equivalents1,341
 115
Cash and cash equivalents at beginning of year1
3,405
 4,997
4,642
 3,405
Cash and cash equivalents at end of period1
$3,520
 $2,825
$5,983
 $3,520
      
Supplementary information      
Non-cash transactions      
Deposits on investment-type policies and contracts through reinsurance agreements (related party: 2019 – $45 and 2018 – $0)$208
 $108
Withdrawals on investment-type policies and contracts through reinsurance agreements (related party: 2019 – $429 and 2018 – $0)888
 91
Deposits on investment-type policies and contracts through reinsurance agreements (related party: 2020 – $72 and 2019 – $45)$131
 $208
Withdrawals on investment-type policies and contracts through reinsurance agreements (related party: 2020 – $418 and 2019 – $429)923
 888
Investments received from settlements on reinsurance agreements12
 —
—
 12
Investments received from pension risk transfer premiums1,363
 —
627
 1,363
Investment in Athora Holding Ltd. received upon deconsolidation—
 108
Related party investments received in exchange for the issuance of Class A common shares1,147
 —
      
1 Includes cash and cash equivalents, restricted cash, and cash and cash equivalents of consolidated variable interest entities.
1 Includes cash and cash equivalents and restricted cash.
1 Includes cash and cash equivalents and restricted cash.
(Concluded)
See accompanying notes to the unaudited condensed consolidated financial statements






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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)






1. Business, Basis of Presentation and Significant Accounting Policies


Athene Holding Ltd. (AHL), a Bermuda exempted company, together with its subsidiaries (collectively, Athene, we, our, us, or the Company), is a leading retirement services company that issues, reinsures and acquires retirement savings products in all United States (U.S.) states and the District of Columbia.Columbia, and the United Kingdom (UK).


We conduct business primarily through the following consolidated subsidiaries:


Our non-U.S. reinsurance subsidiaries, to which AHL’s other insurance subsidiaries and third-party ceding companies directly and indirectly reinsure a portion of their liabilities, including Athene Life Re Ltd. (ALRe), a Bermuda exempted company;company, and Athene Life Re International Ltd. (ALReI); and
Athene USA Corporation, an Iowa corporation (together with its subsidiaries, Athene USA).


In addition, we consolidate certain variable interest entities (VIEs), for which we determined we are the primary beneficiary.


Consolidation and Basis of Presentation—We have prepared the accompanying condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the United States Securities and Exchange Commission’s rules and regulations for Form 10-Q and Article 10 of Regulation S-X. The accompanying condensed consolidated financial statements are unaudited and reflect all adjustments, consisting only of normal recurring items, considered necessary for fair statement of the results for the interim periods presented. All significant intercompany accounts and transactions have been eliminated. Interim operating results are not necessarily indicative of the results expected for the entire year.year, particularly in light of the material risks and uncertainties surrounding the spread of the Coronavirus Disease of 2019 (COVID-19), which has resulted in significant volatility in the financial markets.


The condensed consolidated balance sheet as of December 31, 20182019 has been derived from the audited financial statements, but does not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. The preparation of financial statements requires the use of management estimates. Our estimates may vary as more information about the extent to which COVID-19 and the resulting impact on economic conditions and the financial markets become known. Actual results may differ from estimates used in preparing the condensed consolidated financial statements.


VIE Deconsolidation – During the first quarter 2020, as a result of the Apollo Global Management, Inc. (AGM and, together with its subsidiaries, Apollo) share transaction discussed further in Note 9 – Related Parties, we reassessed the consolidation conclusions for the following VIEs which are managed by Apollo affiliates:

AAA Investments (Co-Invest VI), L.P. (CoInvest VI);
AAA Investments (Co-Invest VII), L.P. (CoInvest VII);
AAA Investments (Other), L.P. (CoInvest Other);
Entities included under our agreement to purchase funds managed by Apollo entities (Strategic Partnership).

Following the share transaction we determined that we are no longer the primary beneficiary of these entities, as a result of Apollo receiving significant economics of these entities through their increased economic ownership in the Company. We did not recognize a gain or loss upon deconsolidation, as the deconsolidated VIEs accounted for their assets and liabilities at fair value. As of March 31, 2020, the deconsolidated VIEs are included at net asset value (NAV) in related party investment funds on the condensed consolidated balance sheets.


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Notes to Condensed Consolidated Financial Statements (Unaudited)


Summary of Significant Accounting Policies

The following accounting policies have been updated for the adoption of Accounting Standards Update (ASU) 2016-13 and related ASUs, and apply for reporting periods beginning January 1, 2020.

Investments

Purchased Credit Deteriorated (PCD) Investments – We purchase certain structured securities, primarily residential mortgage backed securities (RMBS), and re-performing mortgage loans having experienced a more-than-insignificant deterioration in credit quality since their origination which upon our assessment have been determined to meet the definition of PCD investments. Additionally, structured securities classified as beneficial interests follow the initial measurement guidance for PCD investments if there is a significant difference between contractual cash flows adjusted for expected prepayments and expected cash flows at the date of recognition. The initial allowance for credit losses for PCD investments is recorded through a gross-up adjustment to the initial amortized cost. For mortgage loans, the initial allowance is determined using the methodology described in the Credit Losses – Assets Held at Amortized Cost and Off-Balance Sheet Credit Exposures section. For structured securities classified as beneficial interests, the initial allowance is calculated as the present value of the difference between contractual cash flows adjusted for expected prepayments and expected cash flows at the date of recognition. The non-credit purchase discount or premium is amortized into investment income using the effective interest method. The credit discount, represented by the allowance for expected credit losses, is remeasured each period following the policies for measuring credit losses described in the Credit Losses – Assets Held at Amortized Cost and Off-Balance Sheet Credit Exposures and Credit Losses – Available-for-Sale Securities sections below.

Credit Losses – Assets Held at Amortized Cost and Off-Balance Sheet Credit Exposures – We establish an allowance for expected credit losses at the time of purchase for assets held at amortized cost, which primarily includes our residential and commercial mortgage loan portfolios, but also includes certain other loans and reinsurance assets. The allowance for expected credit losses represents the portion of the asset's amortized cost basis that we do not expect to collect due to credit losses over the asset's contractual life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions or macroeconomic forecasts. We use a quantitative probability of default and loss given default methodology to develop our estimate of expected credit loss. We develop the estimate on a collective basis factoring in the risk characteristics of the assets in the portfolio. If an asset does not share similar risk characteristics with other assets, the asset is individually assessed.

Allowance estimates are highly dependent on expectations of future economic conditions and macroeconomic forecasts, which involve significant judgment and subjectivity. We use quantitative modeling to develop the allowance for expected credit losses. Key inputs into the model include data pertaining to the characteristics of the assets, historical losses and current market conditions. Additionally, the model incorporates management’s expectations around future economic conditions and macroeconomic forecasts over a reasonable and supportable forecast period, after which the model reverts to historical averages. These inputs, the reasonable and supportable forecast period, and reversion to historical average technique are subject to a formal governance and review process by management. Additionally, management considers qualitative adjustments to the model output to the extent that any relevant information regarding the collectability of the asset is available and not already considered in the quantitative model. If we determine that a financial asset has become collateral dependent, which we determine to be when foreclosure is probable, the allowance is measured as the difference between amortized cost and the fair value of the collateral, less any expected costs to sell.

The initial allowance for invested assets held at amortized cost other than for PCD investments, and subsequent changes in the allowance including PCD investments, are recorded through a charge to credit loss expense within investment related gains (losses) on the condensed consolidated statements of income (loss). Credit loss expense for reinsurance assets held at amortized cost is recorded through policy and other operating expenses on the condensed consolidated statements of income (loss).

We limit accrued interest income on loans to 90 days of interest. Once a loan becomes 90 days past due, the loan is put on non-accrual status and any accrued interest is written off. Once a loan is on non-accrual status, we first apply any payments received to the principal of the loan, and once the principal is repaid, we include amounts received in net investment income. We have elected to present accrued interest receivable separately in accrued investment income on the condensed consolidated balance sheets. We have also elected the practical expedient to exclude the accrued interest receivable from the amortized cost balance used to calculate the allowance given our policy to write off such balances in a timely manner. Any write-off of accrued interest is recorded through a reversal of net investment income on the condensed consolidated statements of income (loss).

Upon determining that all or a portion of the amortized cost of an asset is uncollectible, which is generally when all efforts for collection are exhausted, the amortized cost is written off against the existing allowance. Any write off in excess of the existing allowance is recorded through credit loss expense within investment related gains (losses) on the condensed consolidated statements of income (loss).

We also have certain off-balance sheet credit exposures for which we establish a liability for expected future credit losses. These exposures primarily relate to commitments to fund commercial or residential mortgage loans that are not unconditionally cancelable. The methodology for estimating the liability for these credit exposures is consistent with that described above, with the additional consideration pertaining to the probability of funding. At the time the commitment expires or is funded, the liability is reversed and an allowance for expected credit losses is established, as applicable. The liability for off-balance sheet credit exposures is included in other liabilities on the condensed consolidated balance sheets. The establishment of the initial liability and all subsequent changes are recorded through credit loss expense within investment related gains (losses) on the condensed consolidated statements of income (loss).

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Notes to Condensed Consolidated Financial Statements (Unaudited)



Credit Losses – Available-for-Sale Securities – We evaluate available-for-sale (AFS) securities with a fair value that has declined below amortized cost to determine how the decline in fair value should be recognized. If we determine, based on the facts and circumstances related to the specific security, that we intend to sell a security or it is more likely than not that we would be required to sell a security before the recovery of its amortized cost, any existing allowance for credit losses is reversed and the amortized cost of the security is written down to fair value. If neither of these conditions exist, we evaluate whether the decline in fair value has resulted from a credit loss or other factors.

For non-structured AFS securities, we qualitatively consider relevant facts and circumstances in evaluating whether a decline below fair value is credit-related. Relevant facts and circumstances include but are not limited to: (1) the extent to which the fair value is less than amortized cost; (2) changes in agency credit ratings, (3) adverse conditions related to the security’s industry or geographical area, (4) failure to make scheduled payments, and (5) other known changes in the financial condition of the issuer or quality of any underlying collateral or credit enhancements. For structured AFS securities meeting the definition of beneficial interests, the qualitative assessment is bypassed, and any securities having experienced a decline in fair value below amortized cost move directly to a quantitative analysis.

If upon completion of this analysis it is determined that a potential credit loss exists, an allowance for expected credit losses is established equal to the amount by which the present value of expected cash flows is less than amortized cost, limited by the amount by which fair value is less than amortized cost. A non-structured security’s cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or the disposition of assets using security-specific facts and circumstances including timing, security interests and loss severity. A structured security’s cash flow estimates are based on security-specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity, prepayments and structural support, including subordination and guarantees. The expected cash flows are discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete a structured security. For securities with a contractual interest rate that varies based on changes in an independent factor, such as an index or rate, the effective interest rate is calculated based on the factor as it changes over the life of the security. Inherently under the discounted cash flow model, both the timing and amount of cash flows affect the measurement of the allowance for expected credit losses.

The allowance for expected credit losses is remeasured each period for the passage of time, any change in expected cash flows, and changes in the fair value of the security. All impairments, whether intent or requirement to sell or credit-related, are recorded through a charge to credit loss expense within investment related gains (losses) on the condensed consolidated statements of income (loss). All changes in the allowance for expected credit losses are recorded through credit loss expense within investment related gains (losses) on the condensed consolidated statements of income (loss).

We have elected to present accrued interest receivable separately in accrued investment income on the condensed consolidated balance sheets. We have also elected the practical expedient to exclude the accrued interest receivable from the amortized cost balance used to calculate the allowance for expected credit losses, as we have a policy to write off such balances in a timely manner, when they become 90 days past due. Any write-off of accrued interest is recorded through a reversal of net investment income on the condensed consolidated statements of income (loss).

Upon determining that all or a portion of the amortized cost of an asset is uncollectible, which is generally when all efforts for collection are exhausted, the amortized cost is written off against the existing allowance. Any write off in excess of the existing allowance is recorded through credit loss expense within investment related gains (losses) on the condensed consolidated statements of income (loss).

Adopted Accounting Pronouncements

Leases (ASU 2019-01, ASU 2018-20, ASU 2018-11, ASU 2018-10, ASU 2018-01, ASU 2017-13 and ASU 2016-02)
These updates increase transparency and comparability for lease transactions. ASU 2016-02 requires a lessee to recognize a right-of-use asset and lease liability on the balance sheet for all leases with an original term longer than twelve months and disclose key information about leasing arrangements. Lessor accounting is largely unchanged.

ASU 2016-02 requires the adoption on a modified retrospective basis. However, ASU 2018-11 provides the option to recognize the cumulative effect as an adjustment to the opening balance of retained earnings in the year of adoption, while continuing to present all prior periods under the previous lease guidance. These updates also provide optional practical expedients in transition.

We adopted these updates effective January 1, 2019 by recording a lease liability and right-of-use asset related to office space, copiers, reserved areas and equipment at data centers, and other agreements. We will continue to present all prior periods under the previous lease guidance. We elected the “package of practical expedients,” which permits us to maintain our prior conclusions about lease identification, classification and initial direct costs. We also elected the short-term lease exception, which allows us to exclude contracts with a lease term of 12 months or less, including any reasonably certain renewal options, from consideration under the new guidance. This update did not have a material effect on our consolidated financial statements.

Derivatives and Hedging (ASU 2018-16)
The amendments in this update allow entities to use the Overnight Index Swap rate based on the Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes, in addition to the previously acceptable rates. We adopted this update prospectively for qualifying new or redesignated hedging relationships entered into on or after January 1, 2019. This update did not have an effect on our consolidated financial statements.

Stock Compensation – Nonemployee Share-Based Payments (ASU 2018-07)
The amendments in this update simplify the accounting for share-based payments to nonemployees by aligning with the accounting for share-based payments to employees, with certain exceptions. We adopted this update on a modified retrospective basis effective January 1, 2019. This update did not have a material effect on our consolidated financial statements.


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Notes to Condensed Consolidated Financial Statements (Unaudited)


Recently Issued Accounting Pronouncements


Financial Instruments – Credit Losses (ASU 2019-05, ASU 2019-04, ASU 2018-19 and ASU 2016-13)
This update is designed to reduce complexity by limitinglimits the number of credit impairment models used for different assets. The model will resultassets and results in accelerated credit loss recognition on assets held at amortized cost, which primarily includes our commercial and residential mortgage investments.loans, but also includes certain other loans and reinsurance assets. The identification of credit-deteriorated securities will includePCD financial assets includes all assets that have experienced a more-than-insignificant deterioration in credit since origination. Additionally, any changes in the expected cash flows of purchased credit-deteriorated securities will befinancial assets are recognized immediately in the income statement. Available-for-sale (AFS)AFS securities are not in scope of the new credit loss model, but will undergowere subject to targeted improvements to the current reporting model including the establishment of a valuation allowance for credit losses versus the currentprevious direct write down approach. We will be required to adoptadopted this update effective January 1, 2020. We are currently evaluating2020 with a cumulative-effect adjustment that decreased retained earnings by $117 million net of tax and offsetting impacts to DAC, DSI, VOBA and the impactSOP 03-1 reserve. The adjustment to retained earnings primarily relates to the establishment of this guidancean allowance on our consolidated financial statements.commercial mortgage loan portfolio, which represented approximately 1.59% of the amortized cost of the portfolio, but also includes immaterial impacts relating to other assets in scope, including residential mortgage loans, funds withheld at interest, and reinsurance recoverable.


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Notes to Condensed Consolidated Financial Statements (Unaudited)



Additionally, the update requires investments previously considered purchased credit impaired (PCI), which includes certain of our residential mortgage loans and RMBS to become subject to a modified PCD framework at the transition date. Any required allowance at transition for these assets is to be recorded through a gross-up of the amortized cost, rather than a charge to retained earnings. Additionally, under the AFS impairment model, the recording of an allowance is prohibited in instances where fair value exceeds amortized cost as such securities are not considered impaired under the AFS impairment model. Therefore, no allowance was recorded at transition for PCI RMBS that were in an unrealized gain position. The transition increase of amortized cost and corresponding valuation allowance for residential mortgage loans and RMBS was $36 million and $17 million, respectively.

Collaborative Arrangements (ASU 2018-18)
The amendments in this update provide guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606, providing comparability in the presentation of revenue for certain transactions. TheWe adopted this update is effective January 1, 2020. Early adoption is permitted. We are currently evaluating the impact of this guidanceThis update did not have a material effect on our consolidated financial statements.


Consolidation (ASU 2018-17)
The amendments in this update expand certain discussions in the VIE guidance, including considerations necessary for determining when a decision-making fee is a variable interest. We will be required to adoptadopted this update retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The update is effective January 1, 2020. EarlyThe adoption is permitted. We are currently evaluating the impact of this guidanceupdate did not have a material effect on our consolidated financial statements.


Cloud Computing Arrangements (ASU 2018-15)
The amendments in this update align the requirements for capitalizing implementation costs incurred in a cloud computing service arrangement with the requirements for capitalizing implementation costs incurred for internal-use software. We will be required to adoptadopted this update on a prospective basis effective January 1, 2020, and we can elect to adopt this2020. This update either prospectively or retrospectively. Early adoption is permitted. We are currently evaluating the impact of this guidancedid not have a material effect on our consolidated financial statements.


Fair Value Measurement – Disclosure Requirements (ASU 2018-13)
The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. We will be required to adopt this update on JanuaryOn October 1, 2020, and depending on the specific amendment will be required to adopt prospectively or retrospectively. We2018, we early adopted the removal and modification of certain disclosures as permitted. We are currently evaluatingThe additional disclosures in the impactupdate were adopted effective January 1, 2020. The adoption of the remaining guidancethis update did not have a material effect on our consolidated financial statements.


Intangibles – Simplifying the Test for Goodwill Impairment (ASU 2017-04)
The amendments in this update simplify the subsequent measurement of goodwill by eliminating the comparison of the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill to determine the goodwill impairment loss. With the adoption of this guidance, a goodwill impairment is the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill allocated to that reporting unit. Entities continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. We do not have material goodwill and adopted this update on a prospective basis effective January 1, 2020. The adoption of this update did not have a material effect on our consolidated financial statements.

Recently Issued Accounting Pronouncements

Insurance – Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2019-09, ASU 2018-12)
This update amendsThese updates amend four key areas pertaining to the accounting and disclosures for long-duration insurance and investment contracts.
The update requires cash flow assumptions used to measure the liability for future policy benefits to be updated at least annually and no longer allows a provision for adverse deviation. The remeasurement of the liability associated with the update of assumptions is required to be recognized in net income. Loss recognition testing is eliminated for traditional and limited-payment contracts. The update also requires the discount rate utilizedused in measuring the liability to be an upper-medium grade fixed-income instrument yield, which is to be updated at each reporting date. The change in liability due to changes in the discount rate is to be recognized in other comprehensive income.
The update simplifies the amortization of deferred acquisition costs and other balances amortized in proportion to premiums, gross profits, or gross margins, requiring such balances to be amortized on a constant level basis over the expected term of the contracts. Deferred costs are required to be written off for unexpected contract terminations but are not subject to impairment testing.
The update requires certain contract features meeting the definition of market risk benefits to be measured at fair value. Among the features included in this definition are the guaranteed lifetime withdrawal benefits (GLWB) and guaranteed minimum death benefit (GMDB) riders attached to the Company’sour annuity products. The change in fair value of the market risk benefits is to be recognized in net income, excluding the portion attributable to changes in instrument-specific credit risk which is recognized in other comprehensive income.
The update also introduces disclosure requirements around the liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs. This includes disaggregated rollforwards of these balances and information about significant inputs, judgments, assumptions and methods used in their measurement.


WeThe amendments in ASU 2018-12 were originally intended to become effective January 1, 2021; however, with the issuance of ASU 2019-09, we will not be required to adopt this update effectivethe amendments until January 1, 2021.2022. Certain provisions of the update are required to be adopted on a fully retrospective basis, while others may be adopted on a modified retrospective basis. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.




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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)




IntangiblesIncome Taxes – Simplifying the TestAccounting for Goodwill ImpairmentIncome Taxes (ASU 2017-04)2019-12)
The amendments in this update simplify the subsequent measurementaccounting for income taxes by eliminating certain exceptions to the tax accounting guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities related to foreign investment ownership changes. It also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill by eliminating the comparisonand allocating consolidated income taxes to separate financial statements of the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwillentities not subject to determine the goodwill impairment loss. With the adoption of this guidance, a goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary.income tax. We will be required to adopt this update prospectively effective January 1, 2020.2021 and apply certain aspects of the update retrospectively while other aspects will be applied on a modified retrospective basis. Early adoption is permitted. We do not expectare currently evaluating the adoptionimpact of this update will have a material effectguidance on our consolidated financial statements.




2. Investments


AFS Securities—Our AFS investment portfolio includes bonds, collateralized loan obligations (CLO), asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS)RMBS and redeemable preferred stock. Our AFS investment portfolio includes related party investments that are primarily a result of investments over which Apollo Global Management, LLC (AGM and, together with its subsidiaries, Apollo) can exercise significant influence. These investments are presented as investments in related parties on the condensed consolidated balance sheets, and are separately disclosed below.


The following table represents the amortized cost, allowance for credit losses, gross unrealized gains and losses and fair value of our AFS investments by asset type:
 March 31, 2020
(In millions)Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value
AFS securities         
U.S. government and agencies$37
 $—
 $3
 $—
 $40
U.S. state, municipal and political subdivisions815
 —
 102
 (8) 909
Foreign governments278
 —
 14
 (1) 291
Corporate44,315
 (15) 2,138
 (1,970) 44,468
CLO8,057
 —
 4
 (1,420) 6,641
ABS4,970
 (5) 32
 (434) 4,563
CMBS2,431
 (4) 65
 (201) 2,291
RMBS6,673
 (54) 116
 (267) 6,468
Total AFS securities67,576
 (78) 2,474
 (4,301) 65,671
AFS securities – related party         
Corporate18
 —
 1
 —
 19
CLO1,226
 —
 —
 (186) 1,040
ABS2,760
 —
 1
 (274) 2,487
Total AFS securities – related party4,004
 —
 2
 (460) 3,546
Total AFS securities including related party$71,580
 $(78) $2,476
 $(4,761) $69,217



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Notes to Condensed Consolidated Financial Statements (Unaudited)


The following table represents the amortized cost, gross unrealized gains and losses, fair value and other than temporary impairments (OTTI) in accumulated other comprehensive income (AOCI) of our AFS investments by asset type:
 December 31, 2019
(In millions)Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value 
OTTI
in AOCI
AFS securities         
U.S. government and agencies$35
 $1
 $—
 $36
 $—
U.S. state, municipal and political subdivisions1,322
 220
 (1) 1,541
 —
Foreign governments298
 29
 —
 327
 —
Corporate44,106
��3,332
 (210) 47,228
 1
CLO7,524
 21
 (196) 7,349
 —
ABS5,018
 124
 (24) 5,118
 4
CMBS2,304
 104
 (8) 2,400
 1
RMBS6,872
 513
 (10) 7,375
 19
Total AFS securities67,479

4,344

(449)
71,374

25
AFS securities – related party         
Corporate18
 1
 —
 19
 —
CLO951
 3
 (18) 936
 —
ABS2,814
 37
 (2) 2,849
 —
Total AFS securities – related party3,783
 41
 (20) 3,804
 —
Total AFS securities including related party$71,262
 $4,385
 $(469) $75,178
 $25

 March 31, 2019
(In millions)Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value 
OTTI
in AOCI
AFS securities         
U.S. government and agencies$48
 $2
 $—
 $50
 $—
U.S. state, municipal and political subdivisions1,209
 161
 (5) 1,365
 —
Foreign governments262
 9
 —
 271
 —
Corporate40,727
 1,218
 (534) 41,411
 —
CLO6,320
 6
 (184) 6,142
 —
ABS5,023
 85
 (33) 5,075
 1
CMBS2,394
 50
 (20) 2,424
 7
RMBS7,457
 480
 (20) 7,917
 12
Total AFS securities63,440
 2,011
 (796) 64,655
 20
AFS securities – related party         
Corporate3
 —
 —
 3
 —
CLO654
 —
 (16) 638
 —
ABS1,039
 11
 (7) 1,043
 —
Total AFS securities – related party1,696
 11
 (23) 1,684
 —
Total AFS securities including related party$65,136
 $2,022
 $(819) $66,339
 $20



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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


 December 31, 2018
(In millions)Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value 
OTTI
in AOCI
AFS securities         
U.S. government and agencies$57
 $—
 $—
 $57
 $—
U.S. state, municipal and political subdivisions1,183
 117
 (7) 1,293
 —
Foreign governments162
 2
 (3) 161
 —
Corporate38,018
 394
 (1,315) 37,097
 1
CLO5,658
 2
 (299) 5,361
 —
ABS4,915
 53
 (48) 4,920
 —
CMBS2,390
 27
 (60) 2,357
 7
RMBS7,642
 413
 (36) 8,019
 11
Total AFS securities60,025

1,008

(1,768)
59,265

19
AFS securities – related party         
CLO587
 —
 (25) 562
 —
ABS875
 4
 (4) 875
 —
Total AFS securities – related party1,462
 4
 (29) 1,437
 —
Total AFS securities including related party$61,487
 $1,012
 $(1,797) $60,702
 $19

The amortized cost and fair value of AFS securities, including related party, are shown by contractual maturity below:    
 March 31, 2020
(In millions)Amortized Cost Fair Value
AFS securities   
Due in one year or less$1,070
 $1,064
Due after one year through five years9,168
 9,050
Due after five years through ten years11,040
 10,823
Due after ten years24,167
 24,771
CLO, ABS, CMBS and RMBS22,131
 19,963
Total AFS securities67,576
 65,671
AFS securities – related party   
Due after one year through five years18
 19
CLO and ABS3,986
 3,527
Total AFS securities – related party4,004
 3,546
Total AFS securities including related party$71,580
 $69,217

 March 31, 2019
(In millions)Amortized Cost Fair Value
AFS securities   
Due in one year or less$1,081
 $1,082
Due after one year through five years8,855
 8,988
Due after five years through ten years11,209
 11,339
Due after ten years21,101
 21,688
CLO, ABS, CMBS and RMBS21,194
 21,558
Total AFS securities63,440
 64,655
AFS securities – related party   
Due after five years through ten years3
 3
CLO and ABS1,693
 1,681
Total AFS securities – related party1,696
 1,684
Total AFS securities including related party$65,136
 $66,339


Actual maturities can differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.




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Notes to Condensed Consolidated Financial Statements (Unaudited)




Unrealized Losses on AFS Securities—The following summarizes the fair value and gross unrealized losses for AFS securities, including related party, for which an allowance for credit losses has not been recorded, aggregated by asset type and length of time the fair value has remained below amortized cost:
 March 31, 2020
 Less than 12 months 12 months or more Total
(In millions)Fair Value 
Gross
Unrealized
Losses
 Fair Value Gross
Unrealized
Losses		 Fair Value Gross
Unrealized
Losses
AFS securities           
U.S. state, municipal and political subdivisions$157
 $(7) $10
 $(1) $167
 $(8)
Foreign governments43
 (1) —
 —
 43
 (1)
Corporate15,956
 (1,842) 335
 (127) 16,291
 (1,969)
CLO3,996
 (751) 2,436
 (637) 6,432
 (1,388)
ABS3,255
 (395) 108
 (24) 3,363
 (419)
CMBS1,082
 (183) 36
 (5) 1,118
 (188)
RMBS2,856
 (176) 30
 (4) 2,886
 (180)
Total AFS securities27,345
 (3,355) 2,955
 (798) 30,300
 (4,153)
AFS securities – related party           
Corporate3
 —
 —
 —
 3
 —
CLO887
 (144) 153
 (42) 1,040
 (186)
ABS2,389
 (274) —
 —
 2,389
 (274)
Total AFS securities – related party3,279
 (418) 153
 (42) 3,432
 (460)
Total AFS securities including related party$30,624
 $(3,773) $3,108
 $(840) $33,732
 $(4,613)

The following summarizes the fair value and gross unrealized losses for AFS securities, including related party, aggregated by class of securityasset type and length of time the fair value has remained below amortized cost:
 December 31, 2019
 Less than 12 months 12 months or more Total
(In millions)Fair Value 
Gross
Unrealized
Losses
 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses
AFS securities           
U.S. government and agencies$3
 $—
 $—
 $—
 $3
 $—
U.S. state, municipal and political subdivisions78
 (1) 10
 —
 88
 (1)
Corporate2,898
 (140) 902
 (70) 3,800
 (210)
CLO1,959
 (38) 3,241
 (158) 5,200
 (196)
ABS642
 (6) 255
 (18) 897
 (24)
CMBS220
 (4) 41
 (4) 261
 (8)
RMBS445
 (6) 163
 (4) 608
 (10)
Total AFS securities6,245

(195)
4,612

(254)
10,857

(449)
AFS securities – related party           
CLO362
 (7) 242
 (11) 604
 (18)
ABS357
 (2) —
 —
 357
 (2)
Total AFS securities – related party719
 (9) 242
 (11) 961
 (20)
Total AFS securities including related party$6,964
 $(204) $4,854
 $(265) $11,818
 $(469)

 March 31, 2019
 Less than 12 months 12 months or more Total
(In millions)Fair Value 
Gross
Unrealized
Losses
 Fair Value Gross
Unrealized
Losses		 Fair Value Gross
Unrealized
Losses
AFS securities           
U.S. government and agencies$2
 $—
 $7
 $—
 $9
 $—
U.S. state, municipal and political subdivisions19
 —
 75
 (5) 94
 (5)
Foreign governments8
 —
 19
 —
 27
 —
Corporate4,840
 (141) 8,191
 (393) 13,031
 (534)
CLO4,782
 (179) 161
 (5) 4,943
 (184)
ABS719
 (10) 562
 (23) 1,281
 (33)
CMBS439
 (8) 463
 (12) 902
 (20)
RMBS942
 (16) 138
 (4) 1,080
 (20)
Total AFS securities11,751
 (354) 9,616
 (442) 21,367
 (796)
AFS securities – related party           
Corporate—
 —
 3
 —
 3
 —
CLO553
 (16) —
 —
 553
 (16)
ABS324
 (6) 72
 (1) 396
 (7)
Total AFS securities – related party877
 (22) 75
 (1) 952
 (23)
Total AFS securities including related party$12,628
 $(376) $9,691
 $(443) $22,319
 $(819)

 December 31, 2018
 Less than 12 months 12 months or more Total
(In millions)Fair Value 
Gross
Unrealized
Losses
 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses
AFS securities           
U.S. government and agencies$32
 $—
 $2
 $—
 $34
 $—
U.S. state, municipal and political subdivisions139
 (2) 82
 (5) 221
 (7)
Foreign governments97
 (2) 15
 (1) 112
 (3)
Corporate20,213
 (942) 4,118
 (373) 24,331
 (1,315)
CLO5,054
 (297) 90
 (2) 5,144
 (299)
ABS1,336
 (23) 506
 (25) 1,842
 (48)
CMBS932
 (27) 497
 (33) 1,429
 (60)
RMBS1,417
 (31) 140
 (5) 1,557
 (36)
Total AFS securities29,220

(1,324)
5,450

(444)
34,670

(1,768)
AFS securities – related party           
CLO534
 (25) —
 —
 534
 (25)
ABS306
 (2) 116
 (2) 422
 (4)
Total AFS securities – related party840
 (27) 116
 (2) 956
 (29)
Total AFS securities including related party$30,060
 $(1,351) $5,566
 $(446) $35,626
 $(1,797)


As of March 31, 2019,2020, we held 2,6384,327 AFS securities that were in an unrealized loss position. Of this total, 1,377346 were in an unrealized loss position 12 months or more. As of March 31, 2019,2020, we held 38104 related party AFS securities that were in an unrealized loss position. Of this total, six8 were in an unrealized loss position 12 months or more. The unrealized losses on AFS securities can primarily be attributed to changes in market interest rates since acquisition. We did not recognize the unrealized losses in income as we intend to hold these securities and it is not more likely than not we will be required to sell a security before the recovery of its amortized cost.




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Notes to Condensed Consolidated Financial Statements (Unaudited)




Other-Than-Temporary ImpairmentsAllowance for Credit Losses—For the three months ended March 31, 2019, we incurred $1 million of net OTTI, none of which related to intent-to-sell impairments. The net OTTI of $1 million related to credit impairments where a portion was bifurcated in AOCI. Any credit loss impairments not bifurcated in AOCI are excluded from the rollforward below.

The following table represents a rollforward ofsummarizes the cumulative amounts recognized onactivity in the condensed consolidated statements of incomeallowance for OTTI related to pre-tax credit loss impairments onlosses for AFS securities for which a portion of the securities’ total OTTI was recognized in AOCI:by asset type:
 Three months ended March 31, 2020
   Additions Reductions  
(In millions)Beginning balance Initial credit losses Initial credit losses on PCD securities Additions for previously impaired securities Securities sold during the period Ending Balance
AFS securities           
Corporate$—
 $15
 $—
 $—
 $—
 $15
ABS—
 5
 —
 —
 —
 5
CMBS—
 4
 —
 —
 —
 4
RMBS17
 35
 1
 2
 (1) 54
Total AFS securities$17

$59

$1

$2

$(1)
$78

 Three months ended March 31,
(In millions)2019 2018
Beginning balance$10
 $14
Initial impairments – credit loss OTTI recognized on securities not previously impaired—
 1
Additional impairments – credit loss OTTI recognized on securities previously impaired1
 —
Reduction in impairments from securities sold, matured or repaid—
 (8)
Ending balance$11
 $7

Net Investment Income—Net investment income by asset class consists of the following:
 Three months ended March 31,
(In millions)2020 2019
AFS securities$837
 $753
Trading securities48
 42
Equity securities4
 3
Mortgage loans186
 151
Investment funds(278) 26
Funds withheld at interest41
 163
Other37
 39
Investment revenue875
 1,177
Investment expenses(130) (95)
Net investment income$745
 $1,082

 Three months ended March 31,
(In millions)2019 2018
AFS securities$753
 $668
Trading securities42
 44
Equity securities3
 2
Mortgage loans151
 91
Investment funds10
 65
Funds withheld at interest163
 46
Other39
 23
Investment revenue1,161
 939
Investment expenses(95) (84)
Net investment income$1,066
 $855


Investment Related Gains (Losses)—Investment related gains (losses) by asset class consists of the following:
 Three months ended March 31,
(In millions)2020 2019
AFS securities   
Gross realized gains on investment activity$164
 $17
Gross realized losses on investment activity(134) (13)
Net realized investment gains on AFS securities30
 4
Net recognized investment gains (losses) on trading securities(223) 56
Net recognized investment gains (losses) on equity securities(50) 18
Derivative gains (losses)(3,019) 1,692
Provision for credit losses(284) —
Other gains (losses)(26) 6
Investment related gains (losses)$(3,572) $1,776

 Three months ended March 31,
(In millions)2019 2018
AFS securities   
Gross realized gains on investment activity$17
 $21
Gross realized losses on investment activity(13) (6)
Net realized investment gains on AFS securities4
 15
Net recognized investment gains (losses) on trading securities49
 (89)
Net recognized investment gains on equity securities18
 1
Derivative gains (losses)1,692
 (184)
Other gains9
 21
Investment related gains (losses)$1,772
 $(236)


Proceeds from sales of AFS securities were $1,253$1,807 million and $1,547$1,253 million for the three months ended March 31, 2020 and 2019, and 2018, respectively. Proceeds from sales of AFS securities for the three months ended March 31, 2018 have been revised for immaterial misstatements to be comparable to current year balances.


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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)



The following table summarizes the change in unrealized gains (losses) on trading and equity securities including related party and consolidated VIEs, we still held as of the respective period end:
 Three months ended March 31,
(In millions)2020 2019
Trading securities$(73) $71
Trading securities – related party(109) (2)
Equity securities(37) 18
Equity securities – related party—
 3


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Notes to Condensed Consolidated Financial Statements (Unaudited)

 Three months ended March 31,
(In millions)2019 2018
Trading securities$71
 $(69)
Trading securities – related party(3) (2)
VIE trading securities – related party1
 —
Equity securities18
 —
Equity securities – related party3
 —
VIE equity securities – related party—
 25



Purchased Financial Assets with Credit Impaired (PCI) InvestmentsDeterioration—The following table summarizes our PCI investments:
 Fixed maturity securities Mortgage loans
(In millions)March 31, 2019 December 31, 2018 March 31, 2019 December 31, 2018
Contractually required payments receivable$7,931
 $8,179
 $2,870
 $2,675
Less: Cash flows expected to be collected1
(6,968) (7,195) (2,829) (2,628)
Non-accretable difference$963
 $984
 $41
 $47
        
Cash flows expected to be collected1
$6,968
 $7,195
 $2,829
 $2,628
Less: Amortized cost(5,392) (5,518) (2,117) (1,931)
Accretable difference$1,576
 $1,677
 $712
 $697
        
Fair value$5,774
 $5,828
 $2,138
 $1,933
Outstanding balance6,619
 6,773
 2,395
 2,210
        
1 Represents the undiscounted principal and interest cash flows expected.

During the period,three months ended March 31, 2020, we acquired PCIpurchased PCD investments with the following amounts at the time of purchase:
 March 31, 2019
(In millions)Fixed maturity securities Mortgage loans
Contractually required payments receivable$66
 $382
Cash flows expected to be collected51
 382
Fair value44
 292
(In millions)Fixed maturity securities Mortgage loans
Purchase price$14
 $—
Allowance for credit losses at acquisition1
 —
Discount (premiums) attributable to other factors1
 —
Par value$16
 $—


Repurchase Agreements—The following table summarizes the activitymaturities of our repurchase agreements:
 March 31, 2020
 Remaining Contractual Maturity
(In millions)Overnight and continuous Up to 30 days 30-90 days Greater than 90 days Total
Payables for repurchase agreements1
$—
 $—
 $293
 $1,001
 $1,294
          
1 Included in payables for collateral on derivatives and securities to repurchase on the condensed consolidated balance sheets.

 December 31, 2019
 Remaining Contractual Maturity
(In millions)Overnight and continuous Up to 30 days 30-90 days Greater than 90 days Total
Payables for repurchase agreements1
$—
 $102
 $200
 $210
 $512
          
1 Included in payables for collateral on derivatives and securities to repurchase on the condensed consolidated balance sheets.


The following table summarizes the securities pledged as collateral for repurchase agreements:
 March 31, 2020 December 31, 2019
(In millions)Amortized Cost Fair Value Amortized Cost Fair Value
AFS securities – Corporate$1,328
 $1,435
 $498
 $534
Total securities pledged under repurchase agreements$1,328
 $1,435
 $498
 $534

Reverse Repurchase Agreements—Reverse repurchase agreements represent the purchase of investments from a seller with the agreement that the investments will be repurchased by the seller at a specified price and date or within a specified period of time. The investments purchased, which represent collateral on a secured lending arrangement, are not reflected in our condensed consolidated balance sheets; however, the secured lending arrangement is recorded as a short-term investment for the accretable yield on PCI investments:
principal amount loaned under the agreement. As of March 31, 2020 and December 31, 2019, amounts loaned under reverse repurchase agreements were $190 million and collateral backing the agreement was $616 million and $630 million, respectively.
 Three months ended March 31, 2019
(In millions)Fixed maturity securities Mortgage loans
Beginning balance at January 1$1,677
 $697
Purchases of PCI investments, net of sales8
 40
Accretion(91) (32)
Net reclassification from (to) non-accretable difference(18) 7
Ending balance at March 31$1,576
 $712




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Notes to Condensed Consolidated Financial Statements (Unaudited)




Mortgage Loans, including related party—Mortgage loans, net of allowances, consists of the following:
(In millions)March 31, 2020 December 31, 2019
Commercial mortgage loans$11,281
 $10,422
Commercial mortgage loans under development140
 93
Total commercial mortgage loans11,421
 10,515
Allowance for credit losses on commercial mortgage loans(343) (10)
Commercial mortgage loans, net of allowances11,078
 10,505
Residential mortgage loans4,021
 4,455
Allowance for credit losses on residential mortgage loans(81) (1)
Residential mortgage loans, net of allowances3,940
 4,454
Mortgage loans, net of allowances$15,018
 $14,959

(In millions)March 31, 2019 December 31, 2018
Commercial mortgage loans$7,693
 $7,217
Commercial mortgage loans under development86
 80
Total commercial mortgage loans7,779
 7,297
Residential mortgage loans3,554
 3,334
Mortgage loans, net of allowances$11,333
 $10,631


We primarily invest in commercial mortgage loans on income producing properties including office and retail buildings, apartments, hotels and industrial properties and apartments.properties. We diversify the commercial mortgage loan portfolio by geographic region and property type to reduce concentration risk. We evaluate mortgage loans based on relevant current information to confirm if properties are performing at a consistent and acceptable level to secure the related debt.


The distribution of commercial mortgage loans, including those under development, net of valuation allowances, by property type and geographic region, is as follows:
 March 31, 2020 December 31, 2019
(In millions, except for percentages)Net Carrying Value Percentage of Total Net Carrying Value Percentage of Total
Property type       
Office building$3,465
 31.2% $2,899
 27.6%
Retail2,117
 19.1% 2,182
 20.8%
Apartment2,333
 21.1% 2,142
 20.4%
Hotels1,062
 9.6% 1,104
 10.5%
Industrial1,402
 12.7% 1,448
 13.8%
Other commercial699
 6.3% 730
 6.9%
Total commercial mortgage loans$11,078
 100.0% $10,505
 100.0%
        
U.S. Region       
East North Central$1,200
 10.8% $1,036
 9.9%
East South Central422
 3.8% 428
 4.1%
Middle Atlantic2,953
 26.6% 2,580
 24.6%
Mountain508
 4.6% 528
 5.0%
New England336
 3.0% 340
 3.2%
Pacific2,559
 23.1% 2,502
 23.8%
South Atlantic1,980
 17.9% 1,920
 18.3%
West North Central140
 1.3% 146
 1.4%
West South Central770
 7.0% 791
 7.5%
Total U.S. Region10,868
 98.1% 10,271
 97.8%
International Region210
 1.9% 234
 2.2%
Total commercial mortgage loans$11,078
 100.0% $10,505
 100.0%



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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 March 31, 2019 December 31, 2018
(In millions, except for percentages)Net Carrying Value Percentage of Total Net Carrying Value Percentage of Total
Property type       
Office building$2,527
 32.4% $2,221
 30.5%
Retail1,797
 23.1% 1,660
 22.7%
Hotels1,040
 13.4% 1,040
 14.3%
Industrial1,232
 15.8% 1,196
 16.4%
Apartment899
 11.6% 791
 10.8%
Other commercial284
 3.7% 389
 5.3%
Total commercial mortgage loans$7,779
 100.0% $7,297
 100.0%
        
U.S. Region       
East North Central$846
 10.9% $855
 11.7%
East South Central200
 2.6% 295
 4.0%
Middle Atlantic1,434
 18.4% 1,131
 15.5%
Mountain603
 7.8% 616
 8.4%
New England373
 4.8% 374
 5.1%
Pacific1,791
 23.0% 1,540
 21.1%
South Atlantic1,518
 19.5% 1,468
 20.2%
West North Central158
 2.0% 173
 2.4%
West South Central856
 11.0% 845
 11.6%
Total U.S. Region7,779
 100.0% 7,297
 100.0%
Total commercial mortgage loans$7,779
 100.0% $7,297
 100.0%


Our residential mortgage loan portfolio includes first lien residential mortgage loans collateralized by properties located in the U.S.various geographic locations and is summarized by proportion of the portfolio in the following table:
 March 31, 2020 December 31, 2019
U.S. States   
California26.5% 27.0%
Florida13.5% 12.7%
Texas5.3% 6.2%
Other1
41.3% 41.7%
Total U.S. residential mortgage loan percentage86.6% 87.6%
International – Ireland13.4% 12.4%
Total residential mortgage loan percentage100.0% 100.0%
    
1Represents all other states, with each individual state comprising less than 5% of the portfolio.

 March 31, 2019 December 31, 2018
California33.7% 30.3%
Florida15.7% 16.3%
New York7.2% 7.7%
Texas6.4% 3.3%
Other1
37.0% 42.4%
Total residential mortgage loan percentage100.0% 100.0%
    
1Represents all other states, with each individual state comprising less than 5% of the portfolio.

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Notes to Condensed Consolidated Financial Statements (Unaudited)


Mortgage Loan Valuation Allowance—The assessment ofallowances for our mortgage loan impairmentsportfolio and valuation allowancesother loans is substantially the samesummarized as follows:
 Three months ended March 31, 2020
(In millions)Commercial Mortgage Residential Mortgage Related Party Other Investments Total
Beginning balance$10
 $1
 $—
 $11
Adoption of accounting standard167
 43
 11
 221
Provision for expected credit losses166
 37
 1
 204
Ending balance$343
 $81
 $12
 $436


Residential mortgage loans – Our allowance model for residential mortgage loans is based on the characteristics of the loans in our portfolio, historical economic data and loss information, and current and forecasted economic conditions. Key loan characteristics affecting the estimate include, among others: time to maturity, delinquency status, original credit scores and loan-to-value ratios. Key macroeconomic variables include unemployment rates and the housing price index. Management reviews and approves forecasted macroeconomic variables, along with the reasonable and supportable forecast period and mean reversion technique. Management also evaluates assumptions from independent third parties and these assumptions have a high degree of subjectivity. The mean reversion technique varies by macroeconomic variable and may vary by geographic location. As of March 31, 2020, our reasonable and supportable forecast period ranged from 3 months – 1 year, after which, we revert to the 30-year or greater historical average over a period of up to 9 months and then continue at those averages through the contractual life of the loan.

Commercial mortgage loans – Our allowance model for commercial mortgage loans.loans is based on the characteristics of the loans in our portfolio, historical economic data and loss information, and current and forecasted economic conditions. Key loan characteristics affecting the estimate include, among others: time to maturity, delinquency status, loan-to-value ratios, debt service coverage ratios, etc. Key macroeconomic variables include unemployment rates, rent growth, capitalization rates, and the housing price index. Management reviews and approves forecasted macroeconomic variables, along with the reasonable and supportable forecast period and mean reversion technique. Management also evaluates assumptions from independent third parties and these assumptions have a high degree of subjectivity. The valuation allowance was $2 million asmean reversion technique varies by macroeconomic variable and may vary by geographic location. As of March 31, 20192020, our reasonable and December 31, 2018. We did not record any material activity supportable forecast period ranged from 3 months – 2 years, after which, we revert to the 30-year or greater historical average over a period of up to 10 years.

Related party other investments – The allowance model for the loans included in the valuation allowance during the three months ended March 31, 2019 or2018.related party other investments derives an estimate based on historical loss data available for similarly rated unsecured corporate debt obligations, while also incorporating management’s expectations around prepayment.


Credit Quality Indicators

Residential mortgage loans – The underwriting process for our residential mortgage loans includes an evaluation of relevant credit information including past loan performance, credit scores, loan-to-value and other relevant information. Subsequent to purchase or origination, we closely monitor economic conditions and loan performance to manage and evaluate our exposure to credit risk in our residential mortgage loan portfolio. The primary credit quality indicator ofmonitored for residential mortgage loans is loan performance. Nonperforming residential mortgage loans are 90 days or more past due and/or are in non-accrual status.


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Notes to Condensed Consolidated Financial Statements (Unaudited)


The following represents our residential loan portfolio by origination year and performance status:
 March 31, 2020
(In millions)2020 2019 2018 2017 2016 Prior Total
Current (less than 30 days past due)$38
 $998
 $2,042
 $547
 $151
 $9
 $3,785
30 to 59 days past due—
 47
 36
 32
 15
 1
 131
60 to 89 days past due—
 7
 11
 8
 4
 —
 30
Over 90 days past due—
 9
 17
 32
 15
 2
 75
Total residential mortgages$38
 $1,061
 $2,106
 $619
 $185
 $12
 $4,021


As of MarchDecember 31, 2019, and December 31, 2018, $56 $67 million and $48 million, respectively, of our residential mortgage loans were nonperforming.


The following represents our residential loan portfolio in non-accrual status:
(In millions)March 31, 2020
Beginning amortized cost of residential mortgage loans in non-accrual status$67
Ending amortized cost of residential mortgage loans in non-accrual status75
Amortized cost of residential mortgage loans in non-accrual status without a related allowance for credit losses6


During the three months ended March 31, 2020, we recognized $1 million of interest income on residential mortgage loans in non-accrual status.

Commercial mortgage loans – The following represents our commercial mortgage loan portfolio by origination year and loan performance status:
 March 31, 2020
(In millions)2020 2019 2018 2017 2016 Prior Total
Current (less than 30 days past due)$1,103
 $4,537
 $2,846
 $1,050
 $160
 $1,725
 $11,421


As of MarchDecember 31, 2019, and December 31, 2018, noneNaN of our commercial loans were 30 days or more past due.


The following represents our commercial mortgage loan portfolio in non-accrual status:
(In millions)March 31, 2020
Beginning amortized cost of commercial mortgage loans in non-accrual status$—
Ending amortized cost of commercial mortgage loans in non-accrual status40
Amortized cost of commercial mortgage loans in non-accrual status without a related allowance for credit losses—


During the three months ended March 31, 2020, 0 interest income was recognized on commercial mortgage loans in non-accrual status.

Loan-to-value and debt service coverage ratios are measures we use to assess the risk and quality of commercial mortgage loans other than those under development. Loans under development are not evaluated using these ratios as the properties underlying these loans are generally not yet income-producing and the value of the underlying property significantly fluctuates based on the progress of construction. Therefore, the risk and quality of loans under development are evaluated based on the aging and geographical distribution of such loans as shown above.


The loan-to-value ratio is expressed as a percentage of the amount of the loan relative to the value of the underlying property. A loan-to-value ratio in excess of 100% indicates the unpaid loan amount exceeds the value of the underlying collateral. Loan-to-value information is updated annually as part of the re-underwriting process supporting the NAIC risk based capital rating criteria. The following represents the loan-to-value ratio of the commercial mortgage loan portfolio, excluding those under development, by origination year:    
 March 31, 2020
(In millions)2020 2019 2018 2017 2016 Prior Total
Less than 50%$149
 $760
 $207
 $147
 $74
 $1,351
 $2,688
50% to 60%143
 1,128
 786
 332
 40
 172
 2,601
61% to 70%441
 2,023
 1,481
 476
 46
 108
 4,575
71% to 80%342
 599
 287
 95
 —
 54
 1,377
81% to 100%—
 —
 —
 —
 —
 40
 40
Commercial mortgage loans$1,075
 $4,510
 $2,761
 $1,050
 $160
 $1,725
 $11,281



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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


The following represents the loan-to-value ratio of the commercial mortgage loan portfolio, excluding those under development, net of valuation allowances:    
(In millions)December 31, 2019
Less than 50%$2,640
50% to 60%2,486
61% to 70%4,093
71% to 80%1,162
81% to 100%31
Commercial mortgage loans$10,412

(In millions)March 31, 2019 December 31, 2018
Less than 50%$2,060
 $1,883
50% to 60%1,986
 1,988
61% to 70%2,856
 2,394
71% to 80%702
 898
81% to 100%89
 54
Commercial mortgage loans$7,693
 $7,217


The debt service coverage ratio based upon the most recent financial statements, is expressed as a percentage of a property’s net operating income to its debt service payments. A debt service ratio of less than 1.0 indicates a property’s operations do not generate enough income to cover debt payments. Debt service coverage ratios are updated as more recent financial statements become available, at least annually or as frequently as quarterly in some cases. The following represents the debt service coverage ratio of the commercial mortgage loan portfolio, excluding those under development, by origination year:    
 March 31, 2020
(In millions)2020 2019 2018 2017 2016 Prior Total
Greater than 1.20x$860
 $3,661
 $2,703
 $974
 $160
 $1,599
 $9,957
1.00x – 1.20x149
 849
 58
 53
 —
 114
 1,223
Less than 1.00x66
 —
 —
 23
 —
 12
 101
Commercial mortgage loans$1,075
 $4,510
 $2,761
 $1,050
 $160
 $1,725
 $11,281


The following represents the debt service coverage ratio of the commercial mortgage loan portfolio, excluding those under development, net of valuation allowances:    
(In millions)December 31, 2019
Greater than 1.20x$9,212
1.00x – 1.20x1,166
Less than 1.00x34
Commercial mortgage loans$10,412

(In millions)March 31, 2019 December 31, 2018
Greater than 1.20x$7,057
 $6,576
1.00x – 1.20x360
 474
Less than 1.00x276
 167
Commercial mortgage loans$7,693
 $7,217




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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)




Investment Funds—Our investment fund portfolio consists of funds that employ various strategies and include investments in real estate, and other real assets, credit, equity and natural resources and hedge funds.resources. Investment funds can meet the definition of VIEs. Our investment funds do not specify timing of distributions on the funds’ underlying assets.


The following summarizes our investment funds, including related party and those owned by consolidated VIEs:party:
 March 31, 2020 December 31, 2019
(In millions, except for percentages)Carrying value Percent of total Carrying value Percent of total
Investment funds       
Real estate$284
 38.4% $277
 36.9%
Credit funds122
 16.5% 153
 20.4%
Private equity244
 33.0% 236
 31.5%
Real assets89
 12.0% 83
 11.1%
Natural resources1
 0.1% 1
 0.1%
Total investment funds740
 100.0% 750
 100.0%
Investment funds – related parties       
Differentiated investments       
MidCap FinCo Designated Activity Company (MidCap)1
508
 11.0% 547
 15.4%
AmeriHome Mortgage Company, LLC (AmeriHome)1
508
 11.0% 487
 13.7%
Catalina Holdings Ltd. (Catalina)296
 6.4% 271
 7.6%
Athora Holding Ltd. (Athora)1
130
 2.8% 132
 3.7%
Venerable Holdings, Inc. (Venerable)1
110
 2.4% 99
 2.8%
Other281
 6.1% 222
 6.3%
Total differentiated investments1,833
 39.7% 1,758
 49.5%
Real estate775
 16.7% 853
 24.0%
Credit funds446
 9.6% 370
 10.4%
Private equity227
 4.9% 105
 3.0%
Real assets256
 5.5% 182
 5.1%
Natural resources200
 4.3% 163
 4.6%
Public equities44
 1.0% 119
 3.4%
Investment in Apollo1
850
 18.3% —
 —%
Total investment funds – related parties4,631
 100.0% 3,550
 100.0%
Total investment funds including related party$5,371
   $4,300
  
        
1 See further discussion on MidCap, AmeriHome, Athora, Venerable and our investment in Apollo in Note 9 – Related Parties.

 March 31, 2019 
December 31, 20181
(In millions, except for percentages and years)Carrying value Percent of total Carrying value Percent of total
Investment funds       
Real estate$224
 32.8% $215
 30.6%
Credit funds155
 22.7% 172
 24.5%
Private equity239
 35.0% 253
 36.0%
Real assets64
 9.4% 56
 7.9%
Natural resources1
 0.1% 4
 0.6%
Other—
 —% 3
 0.4%
Total investment funds683
 100.0% 703
 100.0%
Investment funds – related parties       
Differentiated investments       
AmeriHome Mortgage Company, LLC (AmeriHome)2
436
 19.0% 463
 20.7%
Catalina Holdings Ltd. (Catalina)232
 10.1% 233
 10.4%
Athora Holding Ltd. (Athora)2
124
 5.4% 105
 4.7%
Venerable Holdings, Inc. (Venerable)2
87
 3.8% 92
 4.1%
Other171
 7.5% 162
 7.3%
Total differentiated investments1,050
 45.8% 1,055
 47.2%
Real estate498
 21.8% 506
 22.7%
Credit funds340
 14.8% 341
 15.3%
Private equity52
 2.3% 18
 0.8%
Real assets144
 6.3% 145
 6.5%
Natural resources123
 5.4% 104
 4.7%
Public equities83
 3.6% 63
 2.8%
Total investment funds – related parties2,290
 100.0% 2,232
 100.0%
Investment funds owned by consolidated VIEs       
MidCap FinCo Limited (MidCap)2
550
 88.8% 552
 88.4%
Credit funds1
 0.2% 1
 0.2%
Real estate29
 4.7% 30
 4.8%
Real assets39
 6.3% 41
 6.6%
Total investment funds owned by consolidated VIEs619
 100.0% 624
 100.0%
Total investment funds including related parties and funds owned by consolidated VIEs$3,592
   $3,559
  
        
1 Certain reclassifications have been made to conform with current year presentation.
2 See further discussions on AmeriHome, Athora, Venerable and MidCap in Note 8 – Related Parties.

The following table presents the carrying value by ownership percentage of equity method investment funds, including related party investment funds and investment funds owned by consolidated VIEs:
(In millions)March 31, 2019 December 31, 2018
Ownership Percentage   
100%$15
 $17
50% – 99%1,017
 1,044
3% – 49%1,684
 1,617
Equity method investment funds$2,716
 $2,678


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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


The following table presents the carrying value by ownership percentage of investment funds where we elected the fair value option, including related party investment funds and investment funds owned by consolidated VIEs:
(In millions)March 31, 2019 December 31, 2018
Ownership Percentage   
3% – 49%$699
 $687
Less than 3%177
 194
Fair value option investment funds$876
 $881


Non-Consolidated Securities and Investment Funds


Fixed maturity securities – We invest in securitization entities as a debt holder or an investor in the residual interest of the securitization vehicle. These entities are deemed VIEs due to insufficient equity within the structure and lack of control by the equity investors over the activities that significantly impact the economics of the entity. In general, we are a debt investor within these entities and, as such, hold a variable interest; however, due to the debt holders’ lack of ability to control the decisions within the trust that significantly impact the entity, and the fact the debt holders are protected from losses due to the subordination of the equity tranche, the debt holders are not deemed the primary beneficiary. Securitization vehicles in which we hold the residual tranche are not consolidated because we do not unilaterally have substantive rights to remove the general partner, or when assessing related party interests, we are not under common control, as defined by GAAP, with the related party, nor are substantially all of the activities conducted on our behalf; therefore, we are not deemed the primary beneficiary. Debt investments and investments in the residual tranche of securitization entities are considered debt instruments and are held at fair value on the balance sheet and classified as AFS or trading.


Investment funds – Investment funds include non-fixed income, alternative investments in the form of limited partnerships or similar legal structures.


Equity securities – We invest in preferred equity securities issued by entities deemed to be VIEs due to insufficient equity within the structure.


Our risk of loss associated with our non-consolidated investments depends on the investment. Investment funds, equity securities and trading securities are limited to the carrying value plus unfunded commitments. AFS securities are limited to amortized cost plus unfunded commitments.



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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


The following summarizes the carrying value and maximum loss exposure of these non-consolidated investments:
 March 31, 2020 December 31, 2019
(In millions)Carrying Value Maximum Loss Exposure Carrying Value Maximum Loss Exposure
Investment funds$740
 $1,232
 $750
 $1,265
Investment in related parties – investment funds4,631
 6,724
 3,550
 5,955
Investment in fixed maturity securities20,380
 22,548
 22,694
 22,170
Investment in related parties – fixed maturity securities4,245
 5,177
 4,570
 4,878
Investment in related parties – equity securities49
 49
 58
 58
Total non-consolidated investments$30,045
 $35,730
 $31,622
 $34,326

 March 31, 2019 December 31, 2018
(In millions)Carrying Value Maximum Loss Exposure Carrying Value Maximum Loss Exposure
Investment funds$683
 $1,271
 $703
 $1,329
Investment in related parties – investment funds2,290
 4,301
 2,232
 4,331
Assets of consolidated VIEs – investment funds619
 722
 624
 727
Investment in fixed maturity securities22,107
 21,748
 21,188
 21,139
Investment in related parties – fixed maturity securities1,920
 2,010
 1,686
 1,788
Investment in related parties – equity securities301
 301
 120
 120
Total non-consolidated investments$27,920
 $30,353
 $26,553
 $29,434





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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


3. Derivative Instruments


We use a variety of derivative instruments to manage risks, primarily equity, interest rate, credit, foreign currency and market volatility. See Note 4 – Fair Value for information about the fair value hierarchy for derivatives.


The following table presents the notional amount and fair value of derivative instruments:
 March 31, 2020 December 31, 2019
 Notional Amount Fair Value Notional Amount Fair Value
(In millions) Assets Liabilities  Assets Liabilities
Derivatives designated as hedges           
Foreign currency swaps3,226
 $519
 $58
 3,158
 $113
 $56
Foreign currency forwards801
 6
 2
 717
 1
 9
Foreign currency forwards on net investments136
 4
 —
 139
 —
 2
Total derivatives designated as hedges  529
 60
   114
 67
Derivatives not designated as hedges           
Equity options48,654
 999
 11
 49,549
 2,746
 5
Futures7
 19
 7
 8
 10
 1
Total return swaps124
 —
 25
 106
 6
 —
Foreign currency swaps11
 2
 —
 35
 2
 1
Interest rate swaps776
 9
 88
 776
 3
 4
Credit default swaps10
 —
 7
 10
 —
 3
Foreign currency forwards3,230
 52
 24
 1,924
 7
 16
Embedded derivatives           
Funds withheld including related party  (389) 24
   1,395
 31
Interest sensitive contract liabilities  —
 9,089
   —
 10,942
Total derivatives not designated as hedges  692
 9,275
   4,169
 11,003
Total derivatives  $1,221
 $9,335
   $4,283
 $11,070



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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 March 31, 2019 December 31, 2018
 Notional Amount Fair Value Notional Amount Fair Value
(In millions) Assets Liabilities  Assets Liabilities
Derivatives designated as hedges           
Foreign currency swaps2,275
 $68
 $49
 2,041
 $83
 $55
Foreign currency forwards154
 2
 —
 85
 —
 1
Total derivatives designated as hedges  70
 49
   83
 56
Derivatives not designated as hedges           
Equity options49,566
 1,824
 22
 49,821
 942
 11
Futures6
 8
 1
 4
 9
 3
Total return swaps60
 4
 —
 62
 —
 3
Foreign currency swaps38
 3
 1
 38
 3
 2
Interest rate swaps310
 —
 1
 326
 —
 1
Credit default swaps10
 —
 4
 10
 —
 4
Foreign currency forwards795
 11
 7
 646
 6
 5
Embedded derivatives           
Funds withheld including related party—
 660
 12
 —
 (53) (1)
Interest sensitive contract liabilities—
 —
 9,106
 —
 —
 7,969
Total derivatives not designated as hedges  2,510
 9,154
   907
 7,997
Total derivatives  $2,580
 $9,203
   $990
 $8,053


Derivatives Designated as Hedges


Foreign currency swaps–We use foreign currency swaps to convert foreign currency denominated cash flows of an investment to U.S. dollars to reduce cash flow fluctuations due to changes in currency exchange rates. Certain of these swaps are designated and accounted for as cash flow hedges, which will expire by July 2049. December 2050. During the three months ended March 31, 20192020 and 20182019, we had foreign currency swap gains of $401 million and losses of $8 million and $56 million, respectively, recorded in AOCI. There were no0 amounts reclassified to income and no amounts deemed ineffective for the three months ended March 31, 2020 and2019and2018. As of March 31, 2019, no2020, 0 amounts are expected to be reclassified to income within the next 12 months.


Foreign currency forwards – We use foreign currency forward contracts to hedge certain exposures to foreign currency risk. The price is agreed upon at the time of the contract and payment is made at a specified future date. Certain of these forwards entered into during the fourth quarter of 2018 are designated and accounted for as fair value hedges. As of March 31, 2019 2020 andDecember 31, 2018,2019, the carrying amount of the hedged AFS securities – CLOs was$154 $659 million and $88$456 million, respectively, and the cumulative amount of fair value hedging adjustments included in the hedged AFS securities – CLOs included losses of $8 million and gains of $2 million and $1 million, respectively. The gains and losses on derivatives and the related hedged items in fair value hedge relationships are recorded in investment related gains (losses) on the condensed consolidated statements of income. The derivatives had gains of $3 million duringincome (loss). During the three months ended March 31, 2019,2020 and 2019, the derivatives had gains of $12 million and $3 million, respectively, and the related hedged items had losses of $8 million and $3 million, duringrespectively.

Foreign currency forwards on net investments – We have foreign currency forwards designated as net investment hedges. These forwards hedge the foreign currency exchange rate risk of our investments in subsidiaries that have a reporting currency other than the U.S. dollar. We assess hedge effectiveness based on the changes in forward rates. During the three months ended March 31, 2020, these derivatives had gains of $13 million, which are included in foreign currency translation and other adjustments on the condensed consolidated statements of comprehensive income (loss). As of March 31, 2020 and December 31, 2019., the cumulative foreign currency translation recorded in AOCI related to these net investment hedges were gains of $11 million and losses of $2 million, respectively. During the three months ended March 31, 2020, there were 0 amounts deemed ineffective.

Derivatives Not Designated as Hedges


Equity options – We use equity indexed options to economically hedge fixed indexed annuity products that guarantee the return of principal to the policyholder and credit interest based on a percentage of the gain in a specified market index, primarily the S&P 500. To hedge against adverse changes in equity indices, we enter into contracts to buy equity indexed options. The contracts are net settled in cash based on differentials in the indices at the time of exercise and the strike price.


Futures –Futures contracts are purchased to hedge the growth in interest credited to the customer as a direct result of increases in the related indices. We enter into exchange-traded futures with regulated futures commission clearing brokers who are members of a trading exchange. Under exchange-traded futures contracts, we agree to purchase a specified number of contracts with other parties and to post variation margin on a daily basis in an amount equal to the difference in the daily fair values of those contracts.



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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


Total return swaps – We purchase total rate of return swaps to gain exposure and benefit from a reference asset or index without ownership. Total rate of return swaps are contracts in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of the underlying asset or index, which includes both the income it generates and any capital gains.


Interest rate swaps – We use interest rate swaps to reduce market risks from interest rate changes and to alter interest rate exposure arising from duration mismatches between assets and liabilities. With an interest rate swap, we agree with another party to exchange the difference between fixed-rate and floating-rate interest amounts tied to an agreed-upon notional principal amount at specified intervals. Certain of these swaps entered into during the fourth quarter of 2016 were designated as fair value hedges. These fair value hedges were dedesignated during the second quarter of 2018 and there was no material impact as a result.


Credit default swaps – Credit default swaps provide a measure of protection against the default of an issuer or allow us to gain credit exposure to an issuer or traded index. We use credit default swaps coupled with a bond to synthetically create the characteristics of a reference bond. These transactions have a lower cost and are generally more liquid relative to the cash market. We receive a periodic premium for these transactions as compensation for accepting credit risk.


Hedging credit risk involves buying protection for existing credit risk. The exposure resulting from the agreements, which is usually the notional amount, is equal to the maximum proceeds that must be paid by a counterparty for a defaulted security. If a credit event occurs on a reference entity, then a counterparty who sold protection is required to pay the buyer the trade notional amount less any recovery value of the security.


Embedded derivatives – We have embedded derivatives which are required to be separated from their host contracts and reported as derivatives. Host contracts include reinsurance agreements structured on a modified coinsurance (modco) or funds withheld basis and indexed annuity products.



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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


The following is a summary of the gains (losses) related to derivatives not designated as hedges:
 Three months ended March 31,
(In millions)2020 2019
Equity options$(1,581) $849
Futures16
 (11)
Swaps(75) 18
Foreign currency forwards67
 6
Embedded derivatives on funds withheld(1,446) 830
Amounts recognized in investment related gains (losses)(3,019) 1,692
Embedded derivatives in indexed annuity products1
1,177
 (1,017)
Total gains (losses) on derivatives not designated as hedges$(1,842) $675
    
1 Included in interest sensitive contract benefits on the condensed consolidated statements of income (loss).

 Three months ended March 31,
(In millions)2019 2018
Equity options$849
 $(142)
Futures(11) (5)
Swaps18
 2
Foreign currency forwards6
 (7)
Embedded derivatives on funds withheld830
 (32)
Amounts recognized in investment related gains (losses)1,692
 (184)
Embedded derivatives in indexed annuity products1
(1,017) 247
Total gains (losses) on derivatives not designated as hedges$675
 $63
    
1 Included in interest sensitive contract benefits.


Credit Risk—We may be exposed to credit-related losses in the event of counterparty nonperformance on derivative financial instruments. Generally, the current credit exposure of our derivative contracts is the fair value at the reporting date less any collateral received from the counterparty.


We manage credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties. Where possible, we maintain collateral arrangements and use master netting agreements that provide for a single net payment from one counterparty to another at each due date and upon termination. We have also established counterparty exposure limits, where possible, in order to evaluate if there is sufficient collateral to support the net exposure.


Collateral arrangements typically require the posting of collateral in connection with its derivative instruments. Collateral agreements often contain posting thresholds, some of which may vary depending on the posting party’s financial strength ratings. Additionally, a decrease in our financial strength rating to a specified level can result in settlement of the derivative position.


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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)



The estimated fair value of our net derivative and other financial assets and liabilities after the application of master netting agreements and collateral were as follows:
    Gross amounts not offset on the condensed consolidated balance sheets      
(In millions)
Gross amount recognized1
 
Financial instruments2
 Collateral (received)/pledged Net amount 
Off-balance sheet securities collateral3
 Net amount after securities collateral
March 31, 2020           
Derivative assets$1,610
 $(64) $(1,589) $(43) $(170) $(213)
Derivative liabilities(222) 64
 15
 (143) —
 (143)
             
December 31, 2019           
Derivative assets$2,888
 $(67) $(2,743) $78
 $(145) $(67)
Derivative liabilities(97) 67
 31
 1
 —
 1
             
1 
 The gross amounts of recognized derivative assets and derivative liabilities are reported on the condensed consolidated balance sheets. As of March 31, 2020 and December 31, 2019, amounts not subject to master netting or similar agreements were immaterial.
2 
Represents amounts offsetting derivative assets and derivative liabilities that are subject to an enforceable master netting agreement or similar agreement that are not netted against the gross derivative assets or gross derivative liabilities for presentation on the condensed consolidated balance sheets.
3 
For non-cash collateral received, we do not recognize the collateral on our balance sheet unless the obligor (transferor) has defaulted under the terms of the secured contract and is no longer entitled to redeem the pledged asset. Amounts do not include any excess of collateral pledged or received.




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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)

    Gross amounts not offset on the condensed consolidated balance sheets      
(In millions)
Gross amount recognized1
 
Financial instruments2
 Collateral received/pledged Net amount 
Off-balance sheet securities collateral3
 Net amount after securities collateral
March 31, 2019           
Derivative assets$1,920
 $(65) $(1,781) $74
 $(3) $71
Derivative liabilities(85) 65
 14
 (6) —
 (6)
             
December 31, 2018           
Derivative assets$1,043
 $(52) $(969) $22
 $(4) $18
Derivative liabilities(85) 52
 24
 (9) —
 (9)
             
1 
 The gross amounts of recognized derivative assets and derivative liabilities are reported on the condensed consolidated balance sheets. As of March 31, 2019 and December 31, 2018, amounts not subject to master netting or similar agreements were immaterial.
2 
Represents amounts offsetting derivative assets and derivative liabilities that are subject to an enforceable master netting agreement or similar agreement that are not netted against the gross derivative assets or gross derivative liabilities for presentation on the condensed consolidated balance sheets.
3 
For non-cash collateral received, we do not recognize the collateral on our balance sheet unless the obligor (transferor) has defaulted under the terms of the secured contract and is no longer entitled to redeem the pledged asset. Amounts do not include any excess of collateral pledged or received.



4. Fair Value


Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction between market participants. We determine fair value based on the following fair value hierarchy:


Level 1 – Unadjusted quoted prices for identical assets or liabilities in an active market.


Level 2 – Quoted prices for inactive markets or valuation techniques that require observable direct or indirect inputs for substantially the full term of the asset or liability. Level 2 inputs include the following:


Quoted prices for similar assets or liabilities in active markets,
Observable inputs other than quoted market prices, and
Observable inputs derived principally from market data through correlation or other means.


Level 3 – Prices or valuation techniques with unobservable inputs significant to the overall fair value estimate. These valuations use critical assumptions not readily available to market participants. Level 3 valuations are based on market standard valuation methodologies, including discounted cash flows, matrix pricing or other similar techniques.


NAV – Investment funds are typically measured using NAV as a practical expedient in determining fair value and are not classified in the fair value hierarchy. The underlying investments of the investment funds may have significant unobservable inputs, which may include but are not limited to, comparable multiples and weighted average cost of capital rates applied in valuation models or a discounted cash flow model.


The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the instrument’s fair value measurement.


We use a number of valuation sources to determine fair values. Valuation sources can include quoted market prices; third-party commercial pricing services; third-party brokers; industry-standard, vendor modeling software that uses market observable inputs; and other internal modeling techniques based on projected cash flows. We periodically review the assumptions and inputs of third-party commercial pricing services through internal valuation price variance reviews, comparisons to internal pricing models, back testing to recent trades, or monitoring trading volumes.




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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)




The following represents the hierarchy for our assets and liabilities measured at fair value on a recurring basis:
March 31, 2019March 31, 2020
(In millions)Total NAV Level 1 Level 2 Level 3Total NAV Level 1 Level 2 Level 3
Assets                  
AFS securities                  
U.S. government and agencies$50
 $—
 $49
 $1
 $—
$40
 $—
 $40
 $—
 $—
U.S. state, municipal and political subdivisions1,365
 —
 —
 1,365
 —
909
 —
 —
 872
 37
Foreign governments271
 —
 —
 271
 —
291
 —
 —
 291
 —
Corporate41,411
 —
 —
 40,376
 1,035
44,468
 —
 —
 43,235
 1,233
CLO6,142
 —
 —
 6,032
 110
6,641
 —
 —
 6,519
 122
ABS5,075
 —
 —
 3,461
 1,614
4,563
 —
 —
 3,646
 917
CMBS2,424
 —
 —
 2,250
 174
2,291
 —
 —
 2,246
 45
RMBS7,917
 —
 —
 7,860
 57
6,468
 —
 —
 6,426
 42
Total AFS securities64,655
 —
 49
 61,616
 2,990
65,671
 —
 40
 63,235
 2,396
Trading securities                  
U.S. government and agencies5
 —
 3
 2
 —
11
 —
 8
 3
 —
U.S. state, municipal and political subdivisions130
 —
 —
 130
 —
112
 —
 —
 112
 —
Foreign governments17
 —
 —
 17
 —
Corporate1,555
 —
 —
 1,545
 10
1,425
 —
 —
 1,393
 32
CLO20
 —
 —
 12
 8
3
 —
 —
 —
 3
ABS100
 —
 —
 94
 6
94
 —
 —
 80
 14
CMBS50
 —
 —
 50
 —
51
 —
 —
 51
 —
RMBS379
 —
 —
 293
 86
283
 —
 —
 213
 70
Total trading securities2,256
 —
 3
 2,143
 110
1,979
 —
 8
 1,852
 119
Equity securities252
 —
 47
 202
 3
206
 —
 23
 176
 7
Mortgage loans32
 —
 —
 —
 32
26
 —
 —
 —
 26
Investment funds159
 134
 —
 —
 25
157
 136
 —
 —
 21
Funds withheld at interest – embedded derivative446
 —
 —
 —
 446
(374) —
 —
 —
 (374)
Derivative assets1,920
 —
 8
 1,912
 —
1,610
 —
 19
 1,591
 —
Short-term investments155
 —
 50
 105
 —
393
 —
 42
 284
 67
Other investments52
 —
 —
 52
 —
98
 —
 —
 98
 —
Cash and cash equivalents3,021
 —
 3,021
 —
 —
5,419
 —
 5,419
 —
 —
Restricted cash497
 —
 497
 —
 —
564
 —
 564
 —
 —
Investments in related parties                  
AFS securities                  
Corporate3
 —
 —
 3
 —
19
 —
 —
 19
 —
CLO638
 —
 —
 638
 —
1,040
 —
 —
 1,040
 —
ABS1,043
 —
 —
 546
 497
2,487
 —
 —
 600
 1,887
Total AFS securities – related party1,684
 —
 —
 1,187
 497
3,546
 —
 —
 1,659
 1,887
Trading securities                  
CLO101
 —
 —
 46
 55
42
 —
 —
 10
 32
ABS138
 —
 —
 —
 138
676
 —
 —
 —
 676
Total trading securities – related party239
 —
 —
 46
 193
718
 —
 —
 10
 708
Equity securities301
 —
 —
 —
 301
49
 —
 —
 —
 49
Investment funds232
 108
 —
 —
 124
1,097
 118
 —
 —
 979
Funds withheld at interest – embedded derivative214
 —
 —
 —
 214
(15) —
 —
 —
 (15)
Reinsurance recoverable1,737
 —
 —
 —
 1,737
2,115
 —
 —
 —
 2,115
Assets of consolidated VIEs         
Trading securities34
 —
 —
 —
 34
Equity securities6
 —
 —
 —
 6
Investment funds564
 550
 —
 —
 14
Cash and cash equivalents2
 —
 2
 —
 —
Total assets measured at fair value$78,458
 $792
 $3,677
 $67,263
 $6,726
$83,259
 $254
 $6,115
 $68,905
 $7,985
        (Continued)
        (Continued)


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March 31, 2019March 31, 2020
(In millions)Total NAV Level 1 Level 2 Level 3Total NAV Level 1 Level 2 Level 3
Liabilities                  
Interest sensitive contract liabilities                  
Embedded derivative$9,106
 $—
 $—
 $—
 $9,106
$9,089
 $—
 $—
 $—
 $9,089
Universal life benefits979
 —
 —
 —
 979
1,322
 —
 —
 —
 1,322
Future policy benefits                  
AmerUs Life Insurance Company (AmerUs) Closed Block1,483
 —
 —
 —
 1,483
1,481
 —
 —
 —
 1,481
Indianapolis Life Insurance Company (ILICO) Closed Block and life benefits743
 —
 —
 —
 743
778
 —
 —
 —
 778
Derivative liabilities85
 —
 1
 80
 4
222
 —
 7
 208
 7
Funds withheld liability – embedded derivative12
 —
 —
 12
 —
24
 —
 —
 24
 —
Total liabilities measured at fair value$12,408
 $—
 $1
 $92
 $12,315
$12,916
 $—
 $7
 $232
 $12,677
        (Concluded)
        (Concluded)


 December 31, 2019
(In millions)Total NAV Level 1 Level 2 Level 3
Assets         
AFS securities         
U.S. government and agencies$36
 $—
 $36
 $—
 $—
U.S. state, municipal and political subdivisions1,541
 —
 —
 1,501
 40
Foreign governments327
 —
 —
 327
 —
Corporate47,228
 —
 —
 46,503
 725
CLO7,349
 —
 —
 7,228
 121
ABS5,118
 —
 —
 3,744
 1,374
CMBS2,400
 —
 —
 2,354
 46
RMBS7,375
 —
 —
 7,375
 —
Total AFS securities71,374
 —
 36
 69,032
 2,306
Trading securities         
U.S. government and agencies11
 —
 8
 3
 —
U.S. state, municipal and political subdivisions135
 —
 —
 135
 —
Corporate1,456
 —
 —
 1,456
 —
CLO6
 —
 —
 —
 6
ABS108
 —
 —
 92
 16
CMBS51
 —
 —
 51
 —
RMBS303
 —
 —
 251
 52
Total trading securities2,070
 —
 8
 1,988
 74
Equity securities247
 —
 43
 201
 3
Mortgage loans27
 —
 —
 —
 27
Investment funds154
 132
 —
 —
 22
Funds withheld at interest – embedded derivative801
 —
 —
 —
 801
Derivative assets2,888
 —
 10
 2,878
 —
Short-term investments406
 —
 46
 319
 41
Other investments93
 —
 —
 93
 —
Cash and cash equivalents4,240
 —
 4,240
 —
 —
Restricted cash402
 —
 402
 —
 —
         (Continued)

 December 31, 2018
(In millions)Total NAV Level 1 Level 2 Level 3
Assets         
AFS securities         
U.S. government and agencies$57
 $—
 $54
 $3
 $—
U.S. state, municipal and political subdivisions1,293
 —
 —
 1,293
 —
Foreign governments161
 —
 —
 161
 —
Corporate37,097
 —
 —
 36,199
 898
CLO5,361
 —
 —
 5,254
 107
ABS4,920
 —
 —
 3,305
 1,615
CMBS2,357
 —
 —
 2,170
 187
RMBS8,019
 —
 —
 7,963
 56
Total AFS securities59,265
 —
 54
 56,348
 2,863
Trading securities         
U.S. government and agencies5
 —
 3
 2
 —
U.S. state, municipal and political subdivisions126
 —
 —
 126
 —
Corporate1,287
 —
 —
 1,287
 —
CLO9
 —
 —
 8
 1
ABS87
 —
 —
 87
 —
CMBS49
 —
 —
 49
 —
RMBS386
 —
 —
 252
 134
Total trading securities1,949
 —
 3
 1,811
 135
Equity securities216
 —
 40
 173
 3
Mortgage loans32
 —
 —
 —
 32
Investment funds182
 153
 —
 —
 29
Funds withheld at interest – embedded derivative57
 —
 —
 —
 57
Derivative assets1,043
 —
 9
 1,034
 —
Short-term investments191
 —
 66
 125
 —
Other investments52
 —
 —
 52
 —
Cash and cash equivalents2,911
 —
 2,911
 —
 —
Restricted cash492
 —
 492
 —
 —
         (Continued)


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 December 31, 2019
(In millions)Total NAV Level 1 Level 2 Level 3
Investments in related parties         
AFS securities         
Corporate19
 —
 —
 19
 —
CLO936
 —
 —
 936
 —
ABS2,849
 —
 —
 525
 2,324
Total AFS securities – related party3,804
 —
 —
 1,480
 2,324
Trading securities         
CLO74
 —
 —
 36
 38
ABS711
 —
 —
 —
 711
Total trading securities – related party785
 —
 —
 36
 749
Equity securities64
 —
 —
 —
 64
Investment funds819
 687
 —
 —
 132
Funds withheld at interest – embedded derivative594
 —
 —
 —
 594
Short-term investments—
 —
 —
 —
 —
Reinsurance recoverable1,821
 —
 —
 —
 1,821
Total assets measured at fair value$90,589
 $819
 $4,785
 $76,027
 $8,958
Liabilities         
Interest sensitive contract liabilities         
Embedded derivative$10,942
 $—
 $—
 $—
 $10,942
Universal life benefits1,050
 —
 —
 —
 1,050
Future policy benefits         
AmerUs Closed Block1,546
 —
 —
 —
 1,546
ILICO Closed Block and life benefits755
 —
 —
 —
 755
Derivative liabilities97
 —
 1
 93
 3
Funds withheld liability – embedded derivative31
 —
 —
 31
 —
Total liabilities measured at fair value$14,421
 $—
 $1
 $124
 $14,296
         (Concluded)



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Notes to Condensed Consolidated Financial Statements (Unaudited)

 December 31, 2018
(In millions)Total NAV Level 1 Level 2 Level 3
Investments in related parties         
AFS securities         
CLO562
 —
 —
 562
 —
ABS875
 —
 —
 547
 328
Total AFS securities – related party1,437
 —
 —
 1,109
 328
Trading securities         
CLO100
 —
 —
 22
 78
ABS149
 —
 —
 —
 149
Total trading securities – related party249
 —
 —
 22
 227
Equity securities120
 —
 —
 —
 120
Investment funds201
 96
 —
 —
 105
Funds withheld at interest - embedded derivative(110) —
 —
 —
 (110)
Reinsurance recoverable1,676
 —
 —
 —
 1,676
Assets of consolidated VIEs         
Trading securities35
 —
 —
 —
 35
Equity securities50
 —
 37
 —
 13
Investment funds567
 552
 —
 —
 15
Cash and cash equivalents2
 —
 2
 —
 —
Total assets measured at fair value$70,617
 $801
 $3,614
 $60,674
 $5,528
Liabilities         
Interest sensitive contract liabilities         
Embedded derivative$7,969
 $—
 $—
 $—
 $7,969
Universal life benefits932
 —
 —
 —
 932
Future policy benefits         
AmerUs Closed Block1,443
 —
 —
 —
 1,443
ILICO Closed Block and life benefits730
 —
 —
 —
 730
Derivative liabilities85
 —
 3
 78
 4
Funds withheld liability – embedded derivative(1) —
 —
 (1) —
Total liabilities measured at fair value$11,158
 $—
 $3
 $77
 $11,078
         (Concluded)


Fair Value Valuation Methods—We used the following valuation methods and assumptions to estimate fair value:


AFS and trading securities –We obtain the fair value for most marketable securities without an active market from several commercial pricing services. These are classified as Level 2 assets. The pricing services incorporate a variety of market observable information in their valuation techniques, including benchmark yields, trading activity, credit quality, issuer spreads, bids, offers and other reference data. This category typically includes U.S. and non-U.S. corporate bonds, U.S. agency and government guaranteed securities, CLO, ABS, CMBS and RMBS.


We also have fixed maturity securities priced based on indicative broker quotes or by employing market accepted valuation models. For certain fixed maturity securities, the valuation model uses significant unobservable inputs and are included in Level 3 in our fair value hierarchy.  Significant unobservable inputs used include: issue specific credit adjustments, material non-public financial information, estimation of future earnings and cash flows, default rate assumptions, liquidity assumptions and indicative quotes from market makers. These inputs are usually considered unobservable, as not all market participants have access to this data.


We value privately placed fixed maturity securities based on the credit quality and duration of comparable marketable securities, which may be securities of another issuer with similar characteristics. In some instances, we use a matrix-based pricing model. These models consider the current level of risk-free interest rates, corporate spreads, credit quality of the issuer and cash flow characteristics of the security. We also consider additional factors such as net worth of the borrower, value of collateral, capital structure of the borrower, presence of guarantees and our evaluation of the borrower’s ability to compete in its relevant market. Privately placed fixed maturity securities are classified as Level 2 or 3.


Equity securities–Fair values of publicly traded equity securities are based on quoted market prices and classified as Level 1. Other equity securities, typically private equities or equity securities not traded on an exchange, we value based on other sources, such as commercial pricing services or brokers, and are classified as Level 2 or 3.


Mortgage loans – Mortgage loans for which we have elected the fair value option or those held for sale are carried at fair value. We estimate fair value on a monthly basis using discounted cash flow analysis and rates being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. The discounted cash flow model uses unobservable inputs, including estimates of discount rates and loan prepayments. Mortgage loans are classified as Level 3.


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Notes to Condensed Consolidated Financial Statements (Unaudited)



Investment funds – Certain investment funds for which we elected the fair value option are included in Level 3 and are priced based on market accepted valuation models. The valuation models use significant unobservable inputs, which include material non-public financial information, estimation of future distributable earnings and demographic assumptions. These inputs are usually considered unobservable, as not all market participants have access to this data.


Funds withheld (embedded derivative)at interest embedded derivative – We estimate the fair value of the embedded derivative based on the change in the fair value of the assets supporting the funds withheld payable under the combined coinsurance, modco and coinsurance funds withheld reinsurance agreements. As a result, the fair value of the embedded derivative is classified as Level 2 or 3 based on the valuation methods used for the assets held supporting the reinsurance agreements.


Derivatives –Derivative contracts can be exchange traded or over-the-counter. Exchange-traded derivatives typically fall within Level 1 of the fair value hierarchy depending on trading activity. Over-the-counter derivatives are valued using valuation models or an income approach using third-party broker valuations. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, prepayment rates and correlation of the inputs. We consider and incorporate counterparty credit risk in the valuation process through counterparty credit rating requirements and monitoring of overall exposure. We also evaluate and include our own nonperformance risk in valuing derivatives. The majority of our derivatives trade in liquid markets; therefore, we can verify model inputs and model selection does not involve significant management judgment. These are typically classified within Level 2 of the fair value hierarchy.


Cash and cash equivalents, including restricted cash – The carrying amount for cash equals fair value. We estimate the fair value for cash equivalents based on quoted market prices. These assets are classified as Level 1.


Interest sensitive contract liabilities (embedded derivative)embedded derivative– Embedded derivatives related to interest sensitive contract liabilities with fixed indexed annuity products are classified as Level 3. The valuations include significant unobservable inputs associated with economic assumptions and actuarial assumptions for policyholder behavior.


AmerUs Closed Block– We elected the fair value option for the future policy benefits liability in the AmerUs Closed Block. Our valuation technique is to set the fair value of policyholder liabilities equal to the fair value of assets. There is an additional component which captures the fair value of the open block’s obligations to the closed block business. This component is the present value of the projected release of required capital and future earnings before income taxes on required capital supporting the AmerUs Closed Block, discounted at a rate which represents a market participant’s required rate of return, less the initial required capital. Unobservable inputs include estimates for these items. The AmerUs Closed Block policyholder liabilities and any corresponding reinsurance recoverable are classified as Level 3.



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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


ILICO Closed Block – We elected the fair value option for the ILICO Closed Block. Our valuation technique is to set the fair value of policyholder liabilities equal to the fair value of assets. There is an additional component which captures the fair value of the open block’s obligations to the closed block business. This component uses the present value of future cash flows which include commissions, administrative expenses, reinsurance premiums and benefits, and an explicit cost of capital. The discount rate includes a margin to reflect the business and nonperformance risk. Unobservable inputs include estimates for these items. The ILICO Closed Block policyholder liabilities and corresponding reinsurance recoverable are classified as Level 3.


Universal life liabilities and other life benefits– We elected the fair value option for certain blocks of universal and other life business ceded to Global Atlantic. We use a present value of liability cash flows. Unobservable inputs include estimates of mortality, persistency, expenses, premium payments and a risk margin used in the discount rates that reflects the riskiness of the business. These universal life policyholder liabilities and corresponding reinsurance recoverable are classified as Level 3.


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Notes to Condensed Consolidated Financial Statements (Unaudited)



Fair Value Option—The following represents the gains (losses) recorded for instruments for which we have elected the fair value option, including related parties and consolidated VIEs:parties:
 Three months ended March 31,
(In millions)2020 2019
Trading securities$(223) $56
Investment funds(300) (4)
Future policy benefits65
 (40)
Total gains (losses)$(458) $12

 Three months ended March 31,
(In millions)2019 2018
Trading securities$50
 $(89)
Investment funds(4) 2
Future policy benefits(40) 84
Total gains (losses)$6
 $(3)


Gains and losses on trading securities are recorded in investment related gains (losses) on the condensed consolidated statements of income.income (loss). For fair value option mortgage loans, we record interest income in net investment income and subsequent changes in fair value in investment related gains (losses) on the condensed consolidated statements of income.income (loss). Gains and losses related to investment funds, including related party investment funds, are recorded in net investment income on the condensed consolidated statements of income.income (loss). We record the change in fair value of future policy benefits to future policy and other policy benefits on the condensed consolidated statements of income.income (loss).


The following summarizes information for fair value option mortgage loans:
(In millions)March 31, 2020 December 31, 2019
Unpaid principal balance$23
 $25
Mark to fair value3
 2
Fair value$26
 $27

(In millions)March 31, 2019 December 31, 2018
Unpaid principal balance$30
 $30
Mark to fair value2
 2
Fair value$32
 $32


There were no0 fair value option mortgage loans 90 days or more past due as of March 31, 20192020 and December 31, 2018.2019.




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Level 3 Financial Instruments—The following is a reconciliationtables are reconciliations for all Level 3 assets and liabilities measured at fair value on a recurring basis:basis. All transfers in and out of Level 3 are based on changes in the availability of pricing sources, as described in the valuation methods above.
 Three months ended March 31, 2020
   Total realized and unrealized gains (losses)          
(In millions)Beginning balance Included in income Included in OCI Net purchases, issuances, sales and settlements Net transfers in (out) Ending balance 
Total gains (losses) included in income1
 
Total gains (losses) included in OCI1
Assets               
AFS securities               
U.S. state, municipal and political subdivisions$40
 $—
 $(3) $—
 $—
 $37
 $—
 $(3)
Corporate725
 (5) (33) 33
 513
 1,233
 —
 (31)
CLO121
 —
 (9) 30
 (20) 122
 —
 (9)
ABS1,374
 22
 (119) (183) (177) 917
 —
 (103)
CMBS46
 —
 (5) 4
 —
 45
 —
 (5)
RMBS—
 —
 —
 —
 42
 42
 —
 —
Trading securities               
Corporate—
 —
 —
 —
 32
 32
 —
 —
CLO6
 (3) —
 —
 —
 3
 (3) —
ABS16
 —
 —
 (2) —
 14
 —
 —
RMBS52
 (1) —
 —
 19
 70
 1
 —
Equity securities3
 4
 —
 —
 —
 7
 4
 —
Mortgage loans27
 —
 —
 (1) —
 26
 —
 —
Investment funds22
 (1)
 —
 —
 —
 21
 (1)
 —
Funds withheld at interest – embedded derivative801
 (1,175) —
 —
 —
 (374) —
 —
Short-term investments41
 —
 (1) 27
 —
 67
 —
 —
Investments in related parties               
AFS securities, ABS2,324
 (3) (220) (50) (164) 1,887
 —
 (205)
Trading securities               
CLO38
 (16) —
 1
 9
 32
 (24) —
ABS711
 (101) —
 66
 —
 676
 (101) —
Equity securities64
 (10) —
 1
 (6) 49
 (10) —
Investment funds132
 (300) —
 1,147
 —
 979
 (300) —
Funds withheld at interest – embedded derivative594
 (609) —
 —
 —
 (15) —
 —
Reinsurance recoverable1,821
 294
 —
 —
 —
 2,115
 —
 —
Total Level 3 assets$8,958
 $(1,904) $(390) $1,073
 $248
 $7,985
 $(434) $(356)
                
Liabilities               
Interest sensitive contract liabilities               
Embedded derivative$(10,942) $1,177
 $—
 $676
 $—
 $(9,089) $—
 $—
Universal life benefits(1,050) (272) —
 —
 —
 (1,322) —
 —
Future policy benefits               
AmerUs Closed Block(1,546) 65
 —
 —
 —
 (1,481) —
 —
ILICO Closed Block and life benefits(755) (23) —
 —
 —
 (778) —
 —
Derivative liabilities(3) (4) —
 —
 —
 (7) —
 —
Total Level 3 liabilities$(14,296) $943
 $—
 $676
 $—
 $(12,677) $—
 $—
                
1 Related to instruments held at end of period.
  

 Three months ended March 31, 2019
   Total realized and unrealized gains (losses)   Transfers    
(In millions)Beginning Balance Included in income Included in OCI Net purchases, issuances, sales and settlements In (Out) Ending Balance 
Total gains (losses) included in earnings1
Assets               
AFS securities               
Corporate$898
 $(2) $5
 $165
 $—
 $(31) $1,035
 $—
CLO107
 —
 2
 30
 —
 (29) 110
 —
ABS1,615
 3
 16
 57
 19
 (96) 1,614
 —
CMBS187
 —
 2
 (6) 8
 (17) 174
 —
RMBS56
 —
 1
 —
 —
 —
 57
 —
Trading securities               
Corporate—
 —
 —
 —
 10
 —
 10
 —
CLO1
 —
 —
 —
 7
 —
 8
 1
ABS—
 —
 —
 6
 —
 —
 6
 —
RMBS134
 (3) —
 —
 38
 (83) 86
 2
Equity securities3
 —
 —
 —
 —
 —
 3
 —
Mortgage loans32
 —
 —
 —
 —
 —
 32
 —
Investment funds29
 (3) —
 (1) —
 —
 25
 (3)
Funds withheld at interest – embedded derivative57
 389
 —
 —
 —
 —
 446
 —
Investments in related parties               
AFS securities, ABS328
 —
 —
 169
 —
 —
 497
 —
Trading securities               
CLO78
 (1) —
 —
 —
 (22) 55
 4
ABS149
 (11) —
 —
 —
 —
 138
 (11)
Equity securities120
 4
 —
 177
 —
 —
 301
 4
Investment funds105
 —
 —
 19
 —
 —
 124
 —
Funds withheld at interest – embedded derivative(110) 324
 —
 —
 —
 —
 214
 —
Reinsurance recoverable1,676
 61
 —
 —
 —
 —
 1,737
 —
Investments of consolidated VIEs               
Trading securities35
 —
 —
 (1) —
 —
 34
 —
Equity securities13
 (3) —
 (4) —
 —
 6
 —
Investment funds15
 (1)
 —
 —
 —
 —
 14
 —
Total Level 3 assets$5,528
 $757
 $26
 $611
 $82
 $(278) $6,726
 $(3)
                
Liabilities               
Interest sensitive contract liabilities               
Embedded derivative$(7,969) $(1,017) $—
 $(120) $—
 $—
 $(9,106) $—
Universal life benefits(932) (47) —
 —
 —
 —
 (979) —
Future policy benefits               
AmerUs Closed Block(1,443) (40) —
 —
 —
 —
 (1,483) —
ILICO Closed Block and life benefits(730) (13) —
 —
 —
 —
 (743) —
Derivative liabilities(4) —
 —
 —
 —
 —
 (4) —
Total Level 3 liabilities$(11,078) $(1,117) $—
 $(120) $—
 $—
 $(12,315) $—
                
1 Related to instruments held at end of period.


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Notes to Condensed Consolidated Financial Statements (Unaudited)




 Three months ended March 31, 2019
   Total realized and unrealized gains (losses)          
(In millions)Beginning balance Included in income Included in OCI Net purchases, issuances, sales and settlements Net transfers in (out) Ending balance 
Total gains (losses) included in earnings1
 
Total gains (losses) included in OCI1
Assets               
AFS securities               
Corporate$898
 $(2) $5
 $165
 $(31) $1,035
 $—
 $—
CLO107
 —
 2
 30
 (29) 110
 —
 —
ABS1,615
 3
 16
 57
 (77) 1,614
 —
 —
CMBS187
 —
 2
 (6) (9) 174
 —
 —
RMBS56
 —
 1
 —
 —
 57
 —
 —
Trading securities               
Corporate—
 —
 —
 —
 10
 10
 —
 —
CLO1
 —
 —
 —
 7
 8
 1
 —
ABS—
 —
 —
 6
 —
 6
 —
 —
RMBS134
 (3) —
 —
 (45) 86
 2
 —
Equity securities3
 —
 —
 —
 —
 3
 —
 —
Mortgage loans32
 —
 —
 —
 —
 32
 —
 —
Investment funds29
 (3) —
 (1) —
 25
 (3) —
Funds withheld at interest – embedded derivative57
 389
 —
 —
 —
 446
 —
 —
Investments in related parties               
AFS securities, ABS328
 —
 —
 169
 —
 497
 —
 —
Trading securities          
    
CLO113
 (1) —
 (1) (22) 89
 4
 —
ABS149
 (11) —
 —
 —
 138
 (11) —
Equity securities133
 1
 —
 173
 —
 307
 4
 —
Investment funds120
 (1) —
 19
 —
 138
 —
 —
Funds withheld at interest – embedded derivative(110) 324
 —
 —
 —
 214
 —
 —
Reinsurance recoverable1,676
 61
 —
 —
 —
 1,737
 —
 —
Total Level 3 assets$5,528
 $757
 $26
 $611
 $(196) $6,726
 $(3) $—
                
Liabilities               
Interest sensitive contract liabilities               
Embedded derivative$(7,969) $(1,017) $—
 $(120) $—
 $(9,106) $—
 $—
Universal life benefits(932) (47) —
 —
 —
 (979) —
 —
Future policy benefits               
AmerUs Closed Block(1,443) (40) —
 —
 —
 (1,483) —
 —
ILICO Closed Block and life benefits(730) (13) —
 —
 —
 (743) —
 —
Derivative liabilities(4) —
 —
 —
 —
 (4) —
 —
Total Level 3 liabilities$(11,078) $(1,117) $—
 $(120) $—
 $(12,315) $—
 $—
                
1 Related to instruments held at end of period.
  

 Three months ended March 31, 2018
   Total realized and unrealized gains (losses)   Transfers    
(In millions)Beginning balance Included in income Included in OCI Net purchases, issuances, sales and settlements In Out Ending balance 
Total gains (losses) included in earnings1
Assets               
AFS Securities               
Corporate578
 4
 (4) 58
 53
 (8) 681
 —
CLO64
 —
 2
 131
 —
 (30) 167
 —
ABS1,457
 2
 (7) (104) —
 (58) 1,290
 —
CMBS137
 —
 (1) —
 —
 (73) 63
 —
RMBS301
 1
 (5) 23
 7
 (289) 38
 —
Trading securities               
U.S. state, municipal and political subdivisions17
 —
 —
 —
 —
 —
 17
 —
CLO17
 —
 —
 1
 —
 (17) 1
 —
ABS77
 —
 —
 —
 —
 (77) —
 (3)
RMBS342
 (21) —
 —
 —
 —
 321
 —
Equity Securities8
 —
 —
 (8) —
 —
 —
 —
Mortgage loans41
 —
 —
 —
 —
 —
 41
 —
Investment funds41
 (9) —
 (7) —
 —
 25
 —
Funds withheld at interest – embedded derivative312
 (105) —
 —
 —
 —
 207
 —
Investments in related parties               
AFS Securities               
CLO—
 —
 —
 62
 —
 —
 62
 —
ABS4
 —
 —
 —
 —
 —
 4
 —
Trading securities            
  
CLO105
 1
 —
 (1) 18
 (32) 91
 (1)
ABS—
 —
 —
 —
 171
 —
 171
 —
Investment funds—
 3
 —
 108
 —
 —
 111
 3
Reinsurance recoverable1,824
 (111) —
 —
 —
 —
 1,713
 —
Investments of consolidated VIEs               
Trading securities48
 —
 —
 (1) —
 —
 47
 —
Equity securities28
 —
 —
 —
 —
 —
 28
 —
Investment funds21
 1
 —
 (2) —
 —
 20
 1
Total Level 3 assets$5,422
 $(234) $(15) $260
 $249
 $(584) $5,098
 $—
                
Liabilities               
Interest sensitive contract liabilities               
Embedded derivative$(7,411) $247
 $—
 $(56) $—
 $—
 $(7,220) $—
Universal life benefits(1,005) 71
 —
 —
 —
 —
 (934) —
Future policy benefits               
AmerUs Closed Block(1,625) 84
 —
 —
 —
 —
 (1,541) —
ILICO Closed Block and life benefits(803) 39
 —
 —
 —
 —
 (764) —
Derivative liabilities(5) —
 —
 —
 —
 —
 (5) —
Total Level 3 liabilities$(10,849) $441
 $—
 $(56) $—
 $—
 $(10,464) $—
                
1 Related to instruments held at end of period.


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Notes to Condensed Consolidated Financial Statements (Unaudited)




The following represents the gross components of purchases, issuances, sales and settlements, net, and net transfers in (out) shown above:
 Three months ended March 31, 2020
(In millions)Purchases Issuances Sales Settlements Net purchases, issuances, sales and settlements Transfers in Transfers out Net transfers in (out)
Assets               
AFS securities               
Corporate$74
 $—
 $(10) $(31) $33
 $548
 $(35) $513
CLO33
 —
 —
 (3) 30
 3
 (23) (20)
ABS73
 —
 (14) (242) (183) 13
 (190) (177)
CMBS4
 —
 —
 —
 4
 —
 —
 —
RMBS—
 —
 —
 —
 —
 42
 —
 42
Trading securities               
Corporate—
 —
 —
 —
 —
 32
 —
 32
ABS—
 —
 (2) —
 (2) —
 —
 —
RMBS—
 —
 —
 —
 —
 20
 (1) 19
Mortgage loans—
 —
 —
 (1) (1) —
 —
 —
Short-term investments41
 —
 —
 (14) 27
 —
 —
 —
Investments in related parties               
AFS securities, ABS5
 —
 —
 (55) (50) —
 (164) (164)
Trading securities               
CLO13
 —
 (12) —
 1
 9
 —
 9
ABS66
 —
 —
 —
 66
 —
 —
 —
Equity securities3
 —
 —
 (2) 1
 —
 (6) (6)
Investment funds1,147
 —
 —
 ��
 1,147
 —
 —
 —
Total Level 3 assets$1,459
 $—
 $(38) $(348) $1,073
 $667
 $(419) $248
                
Liabilities               
Interest sensitive contract liabilities – embedded derivative$—
 $(116) $—
 $792
 $676
 $—
 $—
 $—
Total Level 3 liabilities$—
 $(116) $—
 $792
 $676
 $—
 $—
 $—



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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 Three months ended March 31, 2019
(In millions)Purchases Issuances Sales Settlements Net purchases, issuances, sales and settlements
Assets         
AFS securities         
Corporate$238
 $—
 $(1) $(72) $165
CLO30
 —
 —
 —
 30
ABS189
 —
 (33) (99) 57
CMBS—
 —
 —
 (6) (6)
Trading securities, ABS6
 —
 —
 —
 6
Investment funds—
 —
 —
 (1) (1)
Investments in related parties         
AFS securities, ABS170
 —
 —
 (1) 169
Equity securities177
 —
 —
 —
 177
Investment funds19
 —
 —
 —
 19
Investments of consolidated VIEs         
Trading securities—
 —
 (1) —
 (1)
Equity securities—
 —
 (4) —
 (4)
Total Level 3 assets$829
 $—
 $(39) $(179) $611
          
Liabilities         
Interest sensitive contract liabilities         
Embedded derivative$—
 $(233) $—
 $113
 $(120)
Total Level 3 liabilities$—
 $(233) $—
 $113
 $(120)


 Three months ended March 31, 2019
(In millions)Purchases Issuances Sales Settlements Net purchases, issuances, sales and settlements Transfers in Transfers out Net transfers in (out)
Assets               
AFS securities               
Corporate$238
 $—
 $(1) $(72) $165
 $—
 $(31) $(31)
CLO30
 —
 —
 —
 30
 —
 (29) (29)
ABS189
 —
 (33) (99) 57
 19
 (96) (77)
CMBS—
 —
 —
 (6) (6) 8
 (17) (9)
Trading securities               
Corporate—
 —
 —
 —
 —
 10
 —
 10
CLO—
 —
 —
 —
 —
 7
 —
 7
ABS6
 —
 —
 —
 6
 —
 —
 —
RMBS—
 —
 —
 —
 —
 38
 (83) (45)
Investment funds—
 —
 —
 (1) (1) —
 —
 —
Investments in related parties               
AFS securities, ABS170
 —
 —
 (1) 169
 —
 —
 —
Trading securities, CLO—
 —
 (1) —
 (1) —
 (22) (22)
Equity securities177
 —
 (4) —
 173
 —
 —
 —
Investment funds19
 —
 —
 —
 19
 —
 —
 —
Total Level 3 assets$829
 $—
 $(39) $(179) $611
 $82
 $(278) $(196)
                
Liabilities               
Interest sensitive contract liabilities – embedded derivative$—
 $(233) $—
 $113
 $(120) $—
 $—
 $—
Total Level 3 liabilities$—
 $(233) $—
 $113
 $(120) $—
 $—
 $—

 Three months ended March 31, 2018
(In millions)Purchases Issuances Sales Settlements Net purchases, issuances, sales and settlements
Assets         
AFS securities         
Corporate$68
 $—
 $(5) $(5) $58
CLO131
 —
 —
 —
 131
ABS40
 —
 (20) (124) (104)
RMBS31
 —
 —
 (8) 23
Trading securities, CLO13
 —
 —
 (12) 1
Equity securities—
 —
 (8) —
 (8)
Investment funds—
 —
 —
 (7) (7)
Investments in related parties         
AFS securities, CLO62
 —
 —
 —
 62
Trading securities, CLO—
 —
 (1) —
 (1)
Investment funds108
 —
 —
 —
 108
Investments of consolidated VIEs         
Trading securities—
 —
 (1) —
 (1)
Investment funds—
 —
 (2) —
 (2)
Total Level 3 assets$453
 $—
 $(37) $(156) $260
          
Liabilities         
Interest sensitive contract liabilities         
Embedded derivative$—
 $(126) $—
 $70
 $(56)
Total Level 3 liabilities$—
 $(126) $—
 $70
 $(56)


Significant Unobservable Inputs—Significant unobservable inputs occur when we could not obtain or corroborate the quantitative detail of the inputs. This applies to fixed maturity securities, equity securities, mortgage loans and certain derivatives, as well as embedded derivatives in liabilities. Additional significant unobservable inputs are described below.


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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


AFS and trading securities – For certain fixed maturity securities, internal models are used to calculate the fair value. We use a discounted cash flow approach. The discount rate is the significant unobservable input due to the determined credit spread being internally developed, illiquid, or as a result of other adjustments made to the base rate. The base rate represents a market comparable rate for securities with similar characteristics. As of March 31, 2019, discounts ranged from 4% to 7%, and as of December 31, 2018, discounts ranged from 5% to 9%. This excludes assets for which significant unobservable inputs are not developed internally, primarily consisting of broker quotes.


Interest sensitive contract liabilities – embedded derivative – Significant unobservable inputs we use in the fixed indexed annuities embedded derivative of the interest sensitive contract liabilities valuation include:


1.Nonperformance risk – For contracts we issue, we use the credit spread, relative to the U.S. Department of the Treasury (Treasury) curve, based on our public credit rating as of the valuation date. This represents our credit risk for use in the estimate of the fair value of embedded derivatives.
2.Option budget – We assume future hedge costs in the derivative’s fair value estimate. The level of option budgets determines the future costs of the options and impacts future policyholder account value growth.
3.Policyholder behavior – We regularly review the lapse and withdrawal assumptions (surrender rate). These are based on our initial pricing assumptions updated for actual experience. Actual experience may be limited for recently issued products.



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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


The following summarizes the unobservable inputs for AFS and trading securities and the embedded derivatives of fixed indexed annuities:
  March 31, 2020
(In millions, except for percentages) Fair value Valuation technique Unobservable inputs Minimum Maximum Weighted average Impact of an increase in the input on fair value
AFS and trading securities $3,522
 Discounted cash flow Discount 3.8% 19.0% 7.8%
1 
 Decrease
                
Interest sensitive contract liabilities – fixed indexed annuities embedded derivatives $9,089
 Option budget method Nonperformance risk 1.9% 2.5% 2.3%
2 
 Decrease
      Option budget 0.7% 3.7% 1.9%
3 
 Increase
      Surrender rate 5.0% 10.4% 7.2%
4 
 Decrease
                
  December 31, 2019
  Fair value
 Valuation technique Unobservable inputs Minimum
 Maximum
 Weighted average Impact of an increase in the input on fair value
AFS and trading securities $1,289
 Discounted cash flow Discount 3.0% 9.0% 6.6%
1 
 Decrease
                
Interest sensitive contract liabilities – fixed indexed annuities embedded derivatives $10,942
 Option budget method Nonperformance risk 0.2% 1.1% 0.6%
2 
 Decrease
      Option budget 0.7% 3.7% 1.9%
3 
 Increase
      Surrender rate 3.5% 8.1% 7.1%
4 
 Decrease
                
1 The discount weighted average is calculated based on the relative fair values of the securities.
2 The nonperformance risk weighted average is based on the projected excess benefits of reserves used in the calculation of the embedded derivative.
3 The option budget weighted average is calculated based on the indexed account values.
4 The surrender rate weighted average is calculated based on projected account values.

 March 31, 2019
(In millions, except for percentages)Fair valueValuation techniqueUnobservable inputsInput/range of
inputs		Impact of an increase in the input on fair value
Interest sensitive contract liabilities – fixed indexed annuities embedded derivatives$9,106
Option budget methodNonperformance risk0.1%–1.3%Decrease
   Option budget0.7%–3.7%Increase
   Surrender rate3.6%–7.5%Decrease


 December 31, 2018
(In millions, except for percentages)Fair valueValuation techniqueUnobservable inputsInput/range of
inputs		Impact of an increase in the input on fair value
Interest sensitive contract liabilities – fixed indexed annuities embedded derivatives$7,969
Option budget methodNonperformance risk0.3%–1.5%Decrease
   Option budget0.7%–3.7%Increase
   Surrender rate3.6%–7.3%Decrease


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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


Fair Value of Financial Instruments Not Carried at Fair Value—The following represents our financial instruments not carried at fair value on the condensed consolidated balance sheets:
 March 31, 2020
(In millions)Carrying Value Fair Value NAV Level 1 Level 2 Level 3
Financial assets           
Mortgage loans$14,369
 $14,948
 $—
 $—
 $—
 $14,948
Investment funds583
 583
 583
 —
 —
 —
Policy loans403
 403
 —
 —
 403
 —
Funds withheld at interest14,090
 14,090
 —
 —
 —
 14,090
Short-term investments190
 190
 —
 —
 —
 190
Other investments74
 74
 —
 —
 —
 74
Investments in related parties           
Mortgage loans623
 648
 —
 —
 —
 648
Investment funds3,534
 3,534
 3,534
 —
 —
 —
Funds withheld at interest12,467
 12,467
 —
 —
 —
 12,467
Other investments475
 444
 —
 —
 —
 444
Total financial assets not carried at fair value$46,808
 $47,381
 $4,117
 $—
 $403
 $42,861
            
Financial liabilities           
Interest sensitive contract liabilities$58,277
 $58,762
 $—
 $—
 $—
 $58,762
Short-term debt400
 400
 —
 —
 400
 —
Long-term debt986
 903
 —
 —
 903
 —
Securities to repurchase1,294
 1,294
 —
 —
 1,294
 —
Funds withheld liability372
 372
 —
 —
 372
 —
Total financial liabilities not carried at fair value$61,329
 $61,731
 $—
 $—
 $2,969
 $58,762



42
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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 March 31, 2019
(In millions)Carrying Value Fair Value NAV Level 1 Level 2 Level 3
Financial assets           
Mortgage loans$11,010
 $11,190
 $—
 $—
 $—
 $11,190
Investment funds524
 524
 524
 —
 —
 —
Policy loans487
 487
 —
 —
 487
 —
Funds withheld at interest14,795
 14,795
 —
 —
 —
 14,795
Other investments69
 69
 —
 —
 —
 69
Investments in related parties           
Mortgage loans291
 286
 —
 —
 —
 286
Investment funds2,058
 2,058
 2,058
 —
 —
 —
Funds withheld at interest13,469
 13,469
 —
 —
 —
 13,469
Other investments387
 389
 —
 —
 —
 389
Assets of consolidated VIEs           
Investment funds55
 55
 55
 —
 —
 —
Total financial assets not carried at fair value$43,145
 $43,322
 $2,637
 $—
 $487
 $40,198
            
Financial liabilities           
Interest sensitive contract liabilities$55,220
 $53,504
 $—
 $—
 $—
 $53,504
Long-term debt991
 962
 —
 —
 962
 —
Funds withheld liability712
 712
 —
 —
 712
 —
Total financial liabilities not carried at fair value$56,923
 $55,178
 $—
 $—
 $1,674
 $53,504


 December 31, 2019
(In millions)Carrying Value Fair Value NAV Level 1 Level 2 Level 3
Financial assets           
Mortgage loans$14,279
 $14,719
 $—
 $—
 $—
 $14,719
Investment funds596
 596
 596
 —
 —
 —
Policy loans417
 417
 —
 —
 417
 —
Funds withheld at interest14,380
 14,380
 —
 —
 —
 14,380
Short-term investments190
 190
 —
 —
 —
 190
Other investments65
 65
 —
 —
 —
 65
Investments in related parties           
Mortgage loans653
 641
 —
 —
 —
 641
Investment funds2,731
 2,731
 2,731
 —
 —
 —
Funds withheld at interest12,626
 12,626
 —
 —
 —
 12,626
Other investments487
 537
 —
 —
 —
 537
Total financial assets not carried at fair value$46,424
 $46,902
 $3,327
 $—
 $417
 $43,158
            
Financial liabilities           
Interest sensitive contract liabilities$57,272
 $58,027
 $—
 $—
 $—
 $58,027
Short-term debt475
 475
 —
 —
 475
 —
Long-term debt992
 1,036
 —
 —
 1,036
 —
Securities to repurchase512
 512
 —
 —
 512
 —
Funds withheld liability377
 377
 —
 —
 377
 —
Total financial liabilities not carried at fair value$59,628
 $60,427
 $—
 $—
 $2,400
 $58,027

 December 31, 2018
(In millions)Carrying Value Fair Value NAV Level 1 Level 2 Level 3
Financial assets           
Mortgage loans$10,308
 $10,424
 $—
 $—
 $—
 $10,424
Investment funds521
 521
 521
 —
 —
 —
Policy loans488
 488
 —
 —
 488
 —
Funds withheld at interest14,966
 14,966
 —
 —
 —
 14,966
Other investments70
 70
 —
 —
 —
 70
Investments in related parties           
Mortgage loans291
 290
 —
 —
 —
 290
Investment funds2,031
 2,031
 2,031
 —
 —
 —
Funds withheld at interest13,687
 13,687
 —
 —
 —
 13,687
Other investments386
 361
 —
 —
 —
 361
Assets of consolidated VIEs           
Investment funds57
 57
 57
 —
 —
 —
Total financial assets not carried at fair value$42,805
 $42,895
 $2,609
 $—
 $488
 $39,798
            
Financial liabilities           
Interest sensitive contract liabilities$54,655
 $51,655
 $—
 $—
 $—
 $51,655
Long-term debt991
 910
 —
 —
 910
 —
Funds withheld liability722
 722
 —
 —
 722
 —
Total financial liabilities not carried at fair value$56,368
 $53,287
 $—
 $—
 $1,632
 $51,655


We estimate the fair value for financial instruments not carried at fair value using the same methods and assumptions as those we carry at fair value. The financial instruments presented above are reported at carrying value on the condensed consolidated balance sheets; however, in the case of policy loans, and funds withheld at interest and liability, short-term investments, short-term debt, and securities to repurchase, the carrying amount approximates fair value.


Investment in related parties – Other investments – The fair value of related party other investments is determined using a discounted cash flow model using discount rates for similar investments.



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Notes to Condensed Consolidated Financial Statements (Unaudited)


Interest sensitive contract liabilities– The carrying and fair value of interest sensitive contract liabilities above includes fixed indexed and traditional fixed annuities without mortality or morbidity risks, funding agreements and payout annuities without life contingencies. The embedded derivatives within fixed indexed annuities without mortality or morbidity risks are excluded, as they are carried at fair value. The valuation of these investment contracts is based on discounted cash flow methodologies using significant unobservable inputs. The estimated fair value is determined using current market risk-free interest rates, adding a spread to reflect our nonperformance risk and subtracting a risk margin to reflect uncertainty inherent in the projected cash flows.


Long-term debt – We obtain the fair value of long-term debt from commercial pricing services. These are classified as Level 2. The pricing services incorporate a variety of market observable information in their valuation techniques including benchmark yields, trading activity, credit quality, issuer spreads, bids, offers and other reference data.





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Notes to Condensed Consolidated Financial Statements (Unaudited)


5. Deferred Acquisition Costs, Deferred Sales Inducements and Value of Business Acquired


The following represents a rollforward of deferred acquisition costs (DAC), deferred sales inducements (DSI) and value of business acquired (VOBA):
(In millions)DAC DSI VOBA TotalDAC DSI VOBA Total
Balance at December 31, 2018$3,921
 $799
 $1,187
 $5,907
Balance at December 31, 2019$3,274
 $820
 $914
 $5,008
Adoption of accounting standard12
 5
 5
 22
Additions173
 60
 —
 233
112
 38
 —
 150
Amortization(226) (5) (5) (236)436
 (10) (23) 403
Impact of unrealized investment (gains) losses(149) (49) (87) (285)489
 139
 181
 809
Balance at March 31, 2019$3,719
 $805
 $1,095
 $5,619
Balance at March 31, 2020$4,323
 $992
 $1,077
 $6,392


(In millions)DAC DSI VOBA Total
Balance at December 31, 2018$3,921
 $799
 $1,187
 $5,907
Additions173
 60
 —
 233
Amortization(226) (5) (5) (236)
Impact of unrealized investment (gains) losses(149) (49) (87) (285)
Balance at March 31, 2019$3,719
 $805
 $1,095
 $5,619

(In millions)DAC DSI VOBA Total
Balance at December 31, 2017$1,375
 $520
 $1,077
 $2,972
Additions122
 46
 —
 168
Amortization(33) (20) (49) (102)
Impact of unrealized investment (gains) losses67
 22
 79
 168
Balance at March 31, 2018$1,531
 $568
 $1,107
 $3,206




6. Debt

Short-term Borrowing—As of March 31, 2020, we had $400 million of short-term debt outstanding with the Federal Home Loan Bank (FHLB) through their variable rate short-term federal funds program. As of March 31, 2020, the borrowings had maturity dates ranging from May 4, 2020 to May 11, 2020 and a weighted average interest rate of 1.80%, with interest due at maturity. In connection with short-term borrowings, the FHLB requires the borrower to purchase member stock and post sufficient collateral to secure the borrowing. See Note 10 – Commitments and Contingencies for further discussion regarding existing collateral posting with the FHLB.

Senior Notes—In the second quarter of 2020, AHL issued $500 million of senior unsecured notes due April 3, 2030. The senior notes have a 6.150% coupon rate, payable semi-annually. The senior notes are callable, in whole or in part, at any time prior to January 3, 2030 by AHL, at a price equal to the greater of (1) 100% of the principal and any accrued and unpaid interest and (2) an amount equal to the sum of the present values of remaining scheduled payments, discounted from the scheduled payment date to the redemption date at the Treasury Rate (as defined in the second supplemental indenture, dated April 3, 2020) plus 50 basis points, and any accrued and unpaid interest. Thereafter, the notes are callable, in whole or in part, by AHL at a price equal to 100% of the principal and any accrued and unpaid interest.


7. Earnings Per Share


The following represents our basic and diluted earnings per share (EPS) calculations:calculations, which are calculated using unrounded amounts:
 Three months ended March 31, 2019
(In millions, except per share data)Class A Class B Class M-1 Class M-2 Class M-3 Class M-4
Net income – basic and diluted$589
 $93
 $12
 $3
 $3
 $8
            
Basic weighted average shares outstanding161.3
 25.4
 3.4
 0.8
 1.0
 2.1
Dilutive effect of stock compensation plans0.4
 —
 —
 —
 —
 0.3
Diluted weighted average shares outstanding161.7
 25.4
 3.4
 0.8
 1.0
 2.4
            
Earnings per share1
           
Basic$3.65
 $3.65
 $3.65
 $3.65
 $3.65
 $3.65
Diluted$3.64
 $3.65
 $3.65
 $3.65
 $3.65
 $3.15
            
1 Calculated using whole figures.
 Three months ended March 31, 2020
(In millions, except share and per share data)Class A Class B Class M-1 Class M-2 Class M-3 Class M-4
Net loss available to Athene Holding Ltd. common shareholders – basic and diluted$(938) $(98) $(13) $(3) $(4) $(9)
            
Basic weighted average shares outstanding161.4
 25.4
 3.3
 0.8
 1.0
 2.4
Dilutive effect of stock compensation plans1
—
 —
 —
 —
 —
 —
Diluted weighted average shares outstanding161.4
 25.4
 3.3
 0.8
 1.0
 2.4
            
Earnings per share           
Basic$(5.81) $(3.87) $(3.87) $(3.87) $(3.87) $(3.87)
Diluted$(5.81) $(3.87) $(3.87) $(3.87) $(3.87) $(3.87)
            
1 The dilutive effect of stock compensation plans is antidilutive as a result of the net loss available to Athene Holding Ltd. common shareholders for the three months ended March 31, 2020.





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Notes to Condensed Consolidated Financial Statements (Unaudited)




 Three months ended March 31, 2019
(In millions, except per share data)Class A Class B Class M-1 Class M-2 Class M-3 Class M-4
Net income available to Athene Holding Ltd. common shareholders – basic and diluted$589
 $93
 $12
 $3
 $3
 $8
            
Basic weighted average shares outstanding161.3
 25.4
 3.4
 0.8
 1.0
 2.1
Dilutive effect of stock compensation plans0.4
 —
 —
 —
 —
 0.3
Diluted weighted average shares outstanding161.7
 25.4
 3.4
 0.8
 1.0
 2.4
            
Earnings per share           
Basic$3.65
 $3.65
 $3.65
 $3.65
 $3.65
 $3.65
Diluted$3.64
 $3.65
 $3.65
 $3.65
 $3.65
 $3.15

 Three months ended March 31, 2018
(In millions, except per share data)Class A Class B Class M-1 Class M-2 Class M-3 Class M-4
Net income – basic and diluted$209
 $58
 $5
 $1
 $1
 $3
            
Basic weighted average shares outstanding148.7
 41.1
 3.4
 0.8
 1.0
 2.1
Dilutive effect of stock compensation plans0.3
 —
 —
 —
 —
 0.9
Diluted weighted average shares outstanding149.0
 41.1
 3.4
 0.8
 1.0
 3.0
            
Earnings per share1
           
Basic$1.40
 $1.40
 $1.40
 $1.40
 $1.40
 $1.40
Diluted$1.40
 $1.40
 $1.40
 $1.39
 $1.38
 $0.97
            
1 Calculated using whole figures.


During the first quarter of 2020, as a result of the closing of the share transaction discussed further in Note 9 – Related Parties, we converted outstanding Class B shares to Class A shares and Class M shares were converted to Class A shares and warrants. As a result, the EPS calculation for the first quarter of 2020 uses the weighted average shares for the quarter for all classes to allocate net income; however, for Class B and Class M shares, the weighted average shares outstanding represents only that period of time that the shares were outstanding. The warrants issued as part of the conversion of the Class M shares are evaluated for dilution within the dilutive effect of stock compensation plans.

We use the two-class method for allocating net income available to Athene Holding Ltd. common shareholders to each class of our common stock. Dilutive shares are calculated using the treasury stock method. For Class A shares, this method takes into account shares that can be settled into Class A shares, net of a conversion price. The diluted EPS calculations for Class A shares excluded the following11.1 million and 34.8 million shares, restricted stock units, (RSUs)options and options:warrants as of March 31, 2020 and 2019, respectively.

 Three months ended March 31,
(In millions)2019 2018
Antidilutive shares, RSUs and options excluded from diluted EPS calculation34.7
 35.2
Shares, RSUs and options excluded from diluted EPS calculation as a performance condition had not been met0.1
 0.3
Total shares, RSUs and options excluded from diluted EPS calculation34.8
 35.5
    
Note: Shares, RSUs and options are as of period end.



7.8. Equity


Share Repurchase Authorization—InPreferred Stock—We have two series of preferred stock: 6.35% Fixed-to-Floating Rate Perpetual Non-Cumulative Preference Shares, Series A (Series A) and 5.625% Fixed Rate Perpetual Non-Cumulative Preference Shares, Series B (Series B) as summarized below:
 Series A Series B
Authorized, issued and outstanding34,500
 13,800
Liquidation preference per share$25,000
 $25,000
Dividends declared and paid per share during the period$396.88
 $351.56
Aggregate dividends declared and paid during the period (in millions)
$13
 $5


Preferred stock dividends are payable on a non-cumulative basis only when, as and if declared, quarterly in arrears on the 30th day of March, June, September and December 2018,of each year. Preferred stock ranks senior to our common stock with respect to dividends, to the extent declared, and in liquidation, to the extent of the liquidation preference.

Common Stock—During the first quarter of 2020, shareholders approved amendments to our bye-laws which eliminated our multi-class share structure at closing of the share transaction with Apollo. See Note 9 – Related Parties for further information on this transaction. On February 28, 2020, all Class B shares were converted to Class A shares on a one-to-one basis. Class M shares were converted to Class A shares representing 5% of the Class M value and warrants representing 95% of the Class M value. The warrants were issued with substantially the same terms, including the same economic terms, as the Class M shares.

Our bye-laws place certain restrictions on Class A shares such that a holder of Class A shares, except for shareholders permitted by our board of directors, which include members of the Apollo Group, as defined in our bye-laws, cannot control greater than 9.9% of the total outstanding vote and if a holder of Class A shares were to control greater than 9.9%, then a holder’s voting power is automatically reduced to 9.9% and the other holders of Class A shares would vote the remainder on a prorated basis.

Share Repurchase Authorization

Our board of directors has approved an authorizationauthorizations of $1,567 million for the repurchase of our Class A shares under our repurchase program. In the first quarter of 2019, our board of directors approved an additional authorization, which was conditioned upon the further approval by a committee of our board of directors. Such further approval was granted during the second quarter of 2019. We may repurchase shares in open market transactions, in privately negotiated transactions or otherwise. The size and timing of repurchases will depend on legal requirements, market and economic conditions and other factors, and are solely at our discretion. The program has no expiration date, but may be modified, suspended or terminated by the board at any time.



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Notes to Condensed Consolidated Financial Statements (Unaudited)


The following summarizes the activity on our share repurchase authorization:
 Three months ended March 31,
(In millions)2020 2019
Beginning balance at January 1$640
 $150
Repurchases(319) (47)
Ending balance at March 31$321
 $103


The table below shows the changes in each class of shares issued and outstanding:
(In millions)Three months ended March 31, 2020
Class A
Beginning balance143.2
Issued shares35.9
Forfeited shares(0.1)
Repurchased shares(10.4)
Converted from Class B shares25.4
Converted from Class M shares0.3
Ending balance194.3
Class B
Beginning balance25.4
Converted to Class A shares(25.4)
Ending balance—
Class M-1
Beginning balance3.3
Converted to Class A shares(0.2)
Converted to warrants(3.1)
Ending balance—
Class M-2
Beginning balance0.8
Converted to Class A shares0.0
Converted to warrants(0.8)
Ending balance—
Class M-3
Beginning balance1.0
Converted to Class A shares0.0
Converted to warrants(1.0)
Ending balance—
Class M-4
Beginning balance4.0
Converted to Class A shares(0.1)
Converted to warrants(3.6)
Repurchased shares(0.3)
Ending balance—




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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions) 
Initial authorization$250
Repurchases(100)
Remaining authorization at December 31, 2018150
Repurchases(47)
Remaining authorization at March 31, 2019103
Additional authorization247
Remaining authorization at May 7, 2019$350


Accumulated Other Comprehensive Income (Loss)—The following provides the details of AOCI and changes in AOCI:
(In millions)March 31, 2019 December 31, 2018
AFS securities$1,223
 $(766)
DAC, DSI, VOBA and future policy benefits adjustments on AFS securities(357) 154
Noncredit component of OTTI losses on AFS securities(20) (19)
Hedging instruments43
 51
Pension adjustments(3) (2)
Foreign currency translation adjustments(2) (3)
Accumulated other comprehensive income (loss), before taxes884
 (585)
Deferred income taxes(178) 113
Accumulated other comprehensive income (loss)$706
 $(472)
(In millions)Unrealized investment gains (losses) on AFS securities without a credit allowance Unrealized investment gains (losses) on AFS securities with a credit allowance DAC, DSI, VOBA and future policy benefits adjustments on AFS securities Unrealized gains (losses) on hedging instruments Foreign currency translation and other adjustments Accumulated other comprehensive income (loss)
Balance at December 31, 2019$3,102
 $—
 $(879) $61
 $(3) $2,281
Adoption of accounting standards4
 (4) (6) —
 —
 (6)
Other comprehensive income (loss) before reclassifications(5,762) (273) 1,352
 401
 9
 (4,273)
Less: Reclassification adjustments for gains (losses) realized in net income (loss)1
171
 —
 (15) —
 —
 156
Less: Income tax expense (benefit)(1,128) (53) 287
 97
 —
 (797)
Less: Other comprehensive income (loss) attributable to NCI(159) —
 —
 (30) 6
 (183)
Balance at March 31, 2020$(1,540) $(224) $195
 $395
 $—
 $(1,174)
            
1 Recognized in investment related gains (losses) on the condensed consolidated statements of income (loss).


40
(In millions)Unrealized investment gains (losses) on AFS securities DAC, DSI, VOBA and future policy benefits adjustments on AFS securities Unrealized gains (losses) on hedging instruments Foreign currency translation and other adjustments Accumulated other comprehensive income (loss)
Balance at December 31, 2018$(628) $121
 $39
 $(4) $(472)
Other comprehensive income (loss) before reclassifications1,981
 (509) (8) —
 1,464
Less: Reclassification adjustments for gains (losses) realized in net income (loss)1
(7) 2
 —
 —
 (5)
Less: Income tax expense (benefit)401
 (108) (2) —
 291
Balance at March 31, 2019$959
 $(282) $33
 $(4) $706
          
1 Recognized in investment related gains (losses) on the condensed consolidated statements of income (loss).
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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)



Changes in AOCI are presented below:
 Three months ended March 31,
(In millions)2019 2018
Unrealized investment gains (losses) on AFS securities   
Unrealized investment gains (losses) on AFS securities$1,982
 $(1,282)
Change in DAC, DSI, VOBA and future policy benefits adjustment(511) 410
Less: Reclassification adjustment for gains (losses) realized in net income1
(7) 19
Less: Income tax expense (benefit)293
 (159)
Net unrealized investment gains (losses) on AFS securities1,185
 (732)
Noncredit component of OTTI losses on AFS securities   
Noncredit component of OTTI losses on AFS securities(1) (1)
Less: Reclassification adjustment for losses realized in net income1
—
 (1)
Net noncredit component of OTTI losses on AFS securities(1) —
Unrealized gains (losses) on hedging instruments   
Unrealized gains (losses) on hedging instruments(8) (56)
Less: Income tax benefit(2) (20)
Net unrealized gains (losses) on hedging instruments(6) (36)
Pension adjustments(1) 3
Foreign currency translation adjustments1
 (8)
Change in AOCI from other comprehensive income (loss)1,178
 (773)
Adoption of accounting standards—
 (42)
Change in AOCI$1,178
 $(815)
    
1 Recognized in investment related gains (losses) on the condensed consolidated statements of income.



8.9. Related Parties


Athene Asset ManagementApollo


Investment related expenses Current fee structure – Substantially all of our investments are managed by Athene Asset Management LLC (AAM), a subsidiary of AGM. AAMApollo, which provides direct investment management, asset allocation, mergers and acquisition asset diligence and certain operational support services for our investment portfolio, including investment compliance, tax, legal and risk management support. As

During the second quarter of March 31, 2019, AAM directly managed $90,287 million of our investment portfolio assets, of which 86% are designated one or two (the two highest designations) by the National Association of Insurance Commissioners (NAIC).

For the services it renders, AAM earns a fee on all assets managed in accounts owned by or related to us, including sub-advised assets, subject to certain limited exceptions. Additionally, AAM recharges the sub-advisory fees it incurs with respect to our sub-advised assets to us. We currently pay AAM an annual fee of 0.40%, subject to certain discounts and exceptions, on all assets that AAM manages in accounts owned by us in the U.S. and Bermuda or in accounts supporting reinsurance ceded to our U.S. and Bermuda subsidiaries by third-party insurers (North American Accounts) up to $65,846 million and 0.30% per year on assets managed in excess of such amount.

For certain assets which require specialized sourcing and underwriting capabilities, AAM has chosen to mandate sub-advisors rather than building out in-house capabilities. AAM haswe entered into Master Sub-Advisory Agreements (MSAAs) with certainthe Seventh Amended and Restated Fee Agreement, dated as of June 10, 2019, between us and AGM’s subsidiary, Apollo affiliatesInsurance Solutions Group LP (ISG) (Fee Agreement). Under the Fee Agreement, effective retroactive to sub-advise AAM with respect to a portion of our assets, with the fees recharged to us, in addition to the gross fee paid to AAM as described above.January 1, 2019, we pay Apollo:


(1)a base management fee equal to the sum of (i) 0.225% per year of the lesser of (A) the aggregate market value of substantially all of the assets in substantially all of the investment accounts of or relating to us (collectively, the Accounts) on December 31, 2018 of $103.4 billion (Backbook Value) and (B) the aggregate market value of substantially all of the assets in the Accounts at the end of the respective month, plus (ii) 0.15% per year of the amount, if any (Incremental Value), by which the aggregate market value of substantially all of the assets in the Accounts at the end of the respective month exceeds the Backbook Value; plus


(2)with respect to each asset in an Account, subject to certain exceptions, that is managed by Apollo and that belongs to a specified asset class tier (Core, Core Plus, Yield, and High Alpha), a sub-allocation fee as follows, which will, in the case of assets acquired after January 1, 2019, be subject to a cap of 10% of the applicable asset’s gross book yield:

(i)0.065% of the market value of Core assets, which include public investment grade corporate bonds, municipal securities, agency RMBS or CMBS, and obligations of governmental agencies or government sponsored entities that are not expressly backed by the U.S. government;

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(ii)0.13% of the market value of Core Plus assets, which include private investment grade corporate bonds, fixed rate first lien commercial mortgage loans (CML), and certain obligations issued or assumed by financial institutions and determined by Apollo to be “Tier 2 Capital” under Basel III, a set of recommendations for international banking regulations developed by the Bank for International Settlements;
(iii)0.375% of the market value of Yield assets, which include non-agency RMBS, investment grade CLO, CMBS and other ABS (other than RMBS and CLO), emerging market investments, below investment grade corporate bonds, subordinated debt obligations, hybrid securities or surplus notes issued or assumed by a financial institution, rated preferred equity, residential mortgage loans (RML), bank loans, investment grade infrastructure debt, and floating rate CMLs on slightly transitional or stabilized traditional real estate;
(iv)0.70% of the market value of High Alpha assets, which include subordinated CML, below investment grade CLO, unrated preferred equity, debt obligations originated by MidCap, CMLs for redevelopment or construction loans or secured by non-traditional real estate, below investment grade infrastructure debt, certain loans originated directly by Apollo (other than MidCap loans), and agency mortgage derivatives; and
(v)0.00% of the market value of cash and cash equivalents, U.S. treasuries, non-preferred equities and alternatives.

The MSAAs cover services renderedfollowing represents assets based on the above sub-allocation structure:
(In millions, except percentages)March 31, 2020 Percent of Total December 31, 2019 Percent of Total
Core$28,858
 23.8% $32,474
 25.5%
Core Plus29,717
 24.5% 30,155
 23.6%
Yield44,269
 36.4% 48,557
 38.0%
High Alpha5,390
 4.4% 5,062
 4.0%
Other13,290
 10.9% 11,302
 8.9%
Total sub-allocation assets$121,524
 100.0% $127,550
 100.0%


Additionally, the Fee Agreement provides for a possible payment by Apollo-affiliated sub-advisors relatingApollo to us, or a possible payment by us to Apollo, equal to 0.025% of the Incremental Value as of the end of each year, beginning on December 31, 2019, depending upon the percentage of our investments that consist of Core and Core Plus assets. If more than 60% of our invested assets that are subject to the following investments:sub-allocation fees are invested in Core and Core Plus assets, we will receive a 0.025% fee reduction on the Incremental Value. If less than 50% of our invested assets that are subject to the sub-allocation fee are invested in Core and Core Plus assets, we will pay an additional fee of 0.025% on Incremental Value.

(In millions, except for percentages)March 31, 2019 December 31, 2018
AFS securities   
Foreign governments$240
 $153
Corporate3,680
 3,398
CLO6,487
 5,703
ABS654
 663
CMBS1,011
 880
Trading securities88
 87
Equity securities2
 2
Mortgage loans3,856
 3,507
Investment funds309
 157
Funds withheld at interest4,935
 4,126
Other investments69
 70
Total assets sub-advised by Apollo affiliates$21,331
 $18,746
Percent of assets sub-advised by Apollo affiliates to total AAM-managed assets19% 18%

AAM pays Apollo 0.40% per year on all assets inDuring the North American Accounts explicitly sub-advised by Apollo up to $10,000 million, 0.35% per year on all assets in such accounts explicitly sub-advised by Apollo in excessthree months ended March 31, 2020 and 2019, we incurred management fees, inclusive of $10,000 million up to $12,441 million, 0.40% per year on all assets in such accounts explicitly sub-advised by Apollo in excessthe base and sub-allocation fees, of $12,441 million up to $16,000$128 million and 0.35% per year on all assets in such accounts explicitly sub-advised by Apollo in excess of $16,000$92 million, subject to certain exceptions.

Asset management and sub-advisory fees—The following summarizes the asset management fees and sub-advisory fees we have incurred related to AAM and other Apollo affiliates:
 Three months ended March 31,
(In millions)2019 2018
Asset management fees$75
 $70
Sub-advisory fees17
 13

The management and sub-advisoryrespectively. Management fees are included within net investment income on the condensed consolidated statements of income.income (loss). As of March 31, 20192020 and December 31, 2018, the2019, management fees payable was $35were $43 million and $34$42 million, respectively, and the sub-advisory fees payable was $16 million and $20 million, respectively. Both the management and sub-advisory fees payables are included in other liabilities on the condensed consolidated balance sheets.


Investment management agreement (IMA) termination – Our bye-laws currently provide that we may not, and will cause our subsidiaries not to, terminate any investment management agreement (IMA)IMA among us or any of our subsidiaries, on the one hand, and AAM,a member of the Apollo Group (as defined in our bye-laws), on the other hand, beforeother than on June 4, 2023 or any annualtwo year anniversary of October 31such date (each such date, an IMA Termination Election Date) and any termination on an IMA Termination Election Date requires (i) the approval of two-thirds of our Independent Directors (as defined in the bye-laws) and (ii) prior written notice to AAMthe applicable Apollo subsidiary of such termination at least 30 days’days, but not more than 90 days, prior to an IMA Termination Election Date. If our Independent Directors make such election to terminate and notice of such termination is delivered, the termination will be effective onno earlier than the second anniversary of the applicable IMA Termination Election Date (IMA Termination Effective Date). Notwithstanding the foregoing, (A) except as set forth in clause (B) below, our Independent Directorsboard of directors may only elect to terminate an IMA on an IMA Termination Election Date if two-thirds of our Independent Directors determine, in their sole discretion and acting in good faith, that either (i) there has been unsatisfactory long-term performance materially detrimental to us by AAMthe applicable Apollo subsidiary or (ii) the fees being charged by AAMthe applicable Apollo subsidiary are unfair and excessive compared to a comparable asset manager (provided, that in either case such Independent Directors must deliver notice of any such determination to AAMthe applicable Apollo subsidiary and AAMthe applicable Apollo subsidiary will have until the applicable IMA Termination Effective Date to address such concerns, and provided, further, that in the case of such a determination that the fees being charged by the applicable Apollo subsidiary are unfair and excessive, the applicable Apollo subsidiary has the right to lower its fees to match the fees of such comparable asset manager) and (B) upon the determination by two-thirds of our Independent Directors, we or our subsidiaries may also terminate an IMA with AAMthe applicable Apollo subsidiary, on a date other than an IMA Termination Effective Date, as a result of either (i) a material violation of law relating to AAM’sthe applicable Apollo subsidiary’s advisory business, or (ii) AAM’sthe applicable Apollo subsidiary’s gross negligence, willful misconduct or reckless disregard of its obligations under the relevant agreement, in each case of this clause (B), that is materially detrimental to us, and in either case of this clause (B), subject to the delivery of written notice at least 30 days’days prior to such terminationtermination; provided, that in connection with an event described in clause (B)(i) or (B)(ii), the applicable Apollo subsidiary shall have the right to dispute such determination of the Independent Directors within 30 days after receiving notice from us of such determination, in which case the matter will be submitted to binding arbitration and such termination will be effective atIMA shall continue to remain in effect during the endperiod of such 30-day periodthe arbitration (the events described in the foregoing clauses (A) and (B) are referred to in more detail in our bye-laws as “AHL Cause”).



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Governance – We have a management investment committee, which includes members of our senior management and reports to the risk committee of our board of directors. The committee focuses on strategic decisions involving our investment portfolio, such as approving investment limits, new asset classes and our allocation strategy, reviewing large asset transactions, as well as monitoring our credit risk, and the management of our assets and liabilities.


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A significant voting interest in the Company is held by shareholders who are members of the Apollo Group, as defined in our bye-laws.Group. Also, James Belardi, our Chief Executive Officer, is also an employee of AAM,ISG and receives remuneration from acting as Chief Executive Officer of AAM, andISG. Mr. Belardi also owns a profits5% profit interest in AAM.ISG (Interest). It is expected that the Interest will be revised such that Mr. Belardi will receive a lesser interest in the equity of ISG and also receive a specified percentage of other fee streams earned by Apollo, potentially comprised of or including the sub-allocation fees. Additionally, six of the fifteen members of our board of directors are employees of or consultants to Apollo (including Mr. Belardi). In order to protect against potential conflicts of interest resulting from transactions into which we have entered and will continue to enter into with the Apollo Group, our bye-laws require us to maintain a conflicts committee comprised solely of directors who are not officers or employees of any member of the Apollo Group. The conflicts committee reviews and approves material transactions between us and the Apollo Group, subject to certain exceptions.


Other related party transactions


A-A Mortgage Opportunities, L.P. (A-A Mortgage) – We have an equity method investment of $436$508 million and $463$487 million as of March 31, 20192020 and December 31, 2018,2019, respectively, in A-A Mortgage, which has an investment in AmeriHome. We have a loan purchase agreement with AmeriHome. The agreement allows us to purchase residential mortgage loans which AmeriHome has purchased from correspondent sellers and pooled for sale in the secondary market. AmeriHome retains the servicing rights to the sold loans. We purchased $0$169 million and $44$0 million of residential mortgage loans under this agreement during the three months ended March 31, 2020 and 2019, respectively. Additionally, we hold ABS securities issued by AmeriHome affiliates of $164 million and 2018, respectively.$170 million as of March 31, 2020 and December 31, 2019, respectively, which are included in related party AFS securities on the condensed consolidated balances sheets. We also have commitments to make additional equity investments in A-A Mortgage of $169 million as of March 31, 2019.2020.


MidCap – AAA Investment (Co Invest VII), L.P. (CoInvest VII) holds a significant investment in MidCap, which was $508 million and $547 million as of March 31, 2020 and December 31, 2019, respectively. CoInvest VII is included in related party investment funds of consolidated VIEs on the condensed consolidated balance sheets.sheets and was reflected as a consolidated VIE in prior periods. We have also advanced amounts under a subordinated debt facility to Midcap and, as of March 31, 20192020 and December 31, 2018,2019, the principal balance was $245$345 million and, net of discounts and allowances, was $330 million and $339 million, respectively, which is included in other related party investments on the condensed consolidated balance sheets. Our total investment in MidCap, including amounts advanced under credit facilities, was $789$838 million and $791$886 million as of March 31, 20192020 and December 31, 2018,2019, respectively. Additionally, we purchasedhold ABS and CLO securities issued by MidCap affiliates during the three months ended of $524 million and $624 million as of March 31, 20192020 and 2018 of $2 million and $62 million,December 31, 2019, respectively, which are included in related party AFS securities on the condensed consolidated balance sheets.


Athora – We have a cooperation agreement with Athora, pursuant to which, among other things, (1) for a period of 30 days from the receipt of notice of a cession, we have the right of first refusal to reinsure approximately(i) up to 50% of the liabilities ceded from Athora’s reinsurance subsidiaries to Athora Life Re Ltd. and (ii) up to 20% of the spread business written or reinsured byliabilities ceded from a third party to any insurance or reinsurance company owned or acquired by Athora, (2)of Athora’s insurance subsidiaries, are requiredsubject to a limitation in the aggregate of 20% of Athora’s liabilities, (2) Athora agreed to cause its insurance subsidiaries to consider the purchase of certain funding agreements and/or other spread instruments issued by our insurance subsidiaries, subject to a limitation that the fair market value of such funding agreements purchased by any of Athora’s insurance subsidiaries may generally not exceed 3% of the fair market value of such subsidiary’s total assets, (3) we provide Athora with a right of first refusal to pursue acquisition and reinsurance transactions in Europe (other than the United Kingdom)UK) and (4) Athora provides us and our subsidiaries with a right of first refusal to pursue acquisition and reinsurance transactions in North America and the United Kingdom. UK. Notwithstanding the foregoing, pursuant to the cooperation agreement, Athora is only required to use its reasonable best efforts to cause its subsidiaries to adhere to the provisions set forth in the cooperation agreement and therefore Athora’s ability to cause its subsidiaries to act pursuant to the cooperation agreement may be limited by, among other things, legal prohibitions or the inability to obtain the approval of the board of directors or other applicable governing body of the applicable subsidiary, which approval is solely at the discretion of such governing body. As of March 31, 2020, we have not exercised our right of first refusal to reinsure liabilities ceded to Athora’s insurance or reinsurance subsidiaries.

Our investment in Athora, which is included in related party investment funds on the condensed consolidated balance sheets, was $124$130 million and $105$132 million as of March 31, 20192020 and December 31, 2018,2019, respectively. Additionally, as of March 31, 20192020 and December 31, 2018,2019, we had $163$110 million and $166$146 million, respectively, of funding agreements outstanding to Athora. During the first quarter of 2020, Athora called capital and we remitted $361 million to Athora. We did not receive shares from Athora until April 1, 2020; therefore, we recorded a receivable in other assets on the consolidated balance sheets as of March 31, 2020 for the capital funding. We also have commitments to make additional equity investments in Athora of $300$364 million as of March 31, 2019.2020.



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Venerable– In connection with ourWe have coinsurance and modco agreements with Venerable Insurance and Annuity Company (VIAC, formerly Voya Insurance and Annuity Company). VIAC is a related party due to our minority equity investment in its holding company’s parent, VA Capital Company (VIAC)LLC (VA Capital), we have an $87which was $110 million and $99 million as of March 31, 2020 and December 31, 2019, respectively. The minority equity investment in VA Capital Company LLC (VA Capital), which is included in related party investment funds on the condensed consolidated balance sheets and accounted for as an equity method investment. VA Capital is owned by a consortium of investors, led by affiliates of AGM, Crestview Partners and Reverence Capital Partners, and is the holding companyparent of Venerable.Venerable, which is the parent of VIAC. Additionally, we have a $148 million, 15-year term loan receivable from Venerable due in 2033, which is held at amortized cost and included in related party other investments on the condensed consolidated balance sheets. The loan is held at the principal balance less allowances and was $145 million and $148 million as of March 31, 2020 and December 31, 2019, respectively. While management views the overall transactions with VIAC and Venerable as favorable to us, the stated interest rate of 6.257% on the term loan to Venerable represents a below-market interest rate, and management considered such rate as part of its evaluation and pricing of the Voya reinsurance transactions. Venerable is the holding company of VIAC.


Strategic Partnership – On October 24, 2018, we entered into an agreement pursuant to which we may invest up to $2.5 billion over three years in funds managed by Apollo entities (Strategic Partnership). This arrangement is intended to permit us to invest across the Apollo alternatives platform into credit-oriented, strategic and other alternative investments in a manner and size that is consistent with our existing investment strategy. Fees for such investments payable by us to Apollo would be more favorable to us than market rates, and consistent with our existing alternative investments, investments made under the Strategic Partnership require approval of AAMISG and remain subject to our existing governance processes, including approval by our conflicts committee where applicable. As of March 31, 20192020 and December 31, 2018,2019, we had $16$162 million and $97 million, respectively, of investments under the Strategic Partnership and these investments are classified asincluded in related party investment funds on the condensed consolidated balance sheets and were reflected as consolidated VIEs in prior periods.

PK AirFinance – During the fourth quarter of 2019, we and Apollo purchased PK AirFinance (PK), an aviation lending business, including PK’s in force loan portfolio (Aviation Loans), from the Aviation Services Unit of GE Capital (GE). The Aviation Loans are generally fully secured by aircraft leases and aircraft. In connection with such transaction, Apollo acquired the PK loan origination platform, including personnel and systems and, pursuant to certain agreements entered into between us, Apollo, and certain entities managed by Apollo (collectively, PK Transaction Agreements), the existing Aviation Loans were acquired and securitized by a newly formed SPV for which Apollo acts as ABS manager (ABS-SPV). The ABS-SPV issued tranches of senior notes and subordinated notes, which are secured by the Aviation Loans.

In connection with the acquisition of the existing Aviation Loans by the ABS-SPV (i) a tranche of senior notes was acquired by third-party investors and (ii) we purchased mezzanine tranches of the senior notes and the subordinated notes. As of March 31, 2020 and December 31, 2019, our investment in securitizations of loans originated by PK was $1,141 million and $1,282 million, respectively, and are included in related party AFS or trading securities on the condensed consolidated VIEs.balance sheets.



In addition to the investment in the senior notes and subordinated notes, we also have a right to acquire, whether directly, through the ABS-SPV or through a similar vehicle, all Aviation Loans originated by PK (Forward Flow Loans). All servicing and administrative costs and expenses of Apollo (determined at cost, without mark-up) that are incurred in connection with the sourcing, origination, servicing and maintaining the Forward Flow Loans, net of any service fees and servicing and administrative cost and expense reimbursement amounts received directly from the ABS-SPV or other entities investing in the Forward Flow Loans are allocated to, and reimbursed by the ABS-SPV or us, as applicable, subject to an agreed-upon annual cap.

In addition to the payment of the expenses described in the preceding paragraph and the base management fee paid to Apollo on all assets managed by Apollo, we have paid or expect to pay the following fees to Apollo or certain service providers that are affiliates of, or are companies managed by, Apollo in connection with the PK Transaction Agreements:
(A)To Apollo, sub-allocation fees on the senior notes based on the rates applicable to Yield assets and sub-allocation fees on the subordinated notes based on the rates applicable to High Alpha assets.
(B)To Redding Ridge Asset Management LLC, a company in which certain funds managed by Apollo have an interest, as consideration for assistance with the structuring, monitoring, support and maintenance of the securitization transactions, a one-time structuring fee, as well as ongoing support fees equal to 1.5 bps on the total capitalization amount and certain other fees, which may become due upon the occurrence of certain events; and
(C)To Merx Aviation Servicing Limited, a company externally managed by Apollo Investment Management, L.P., with respect to certain diligence, technical support and enforcement, remarketing and restructuring services with respect to the existing Aviation Loans and the Forward Flow Loans, a one-time servicing fee, as well as certain special situations fees, which may become due upon the occurrence of certain events.

Apollo/Athene Dedicated Investment Program (ADIP) – Our subsidiary, Athene Co-Invest Reinsurance Affiliate 1A Ltd. (together with its subsidiaries, ACRA) is partially owned by ADIP, which is managed by AGM. As of March 31, 2020, ADIP owned 67% of the equity interests, while we retained 100% of the voting power and 33% of the equity interests in ACRA. During the first quarter of 2020, we received capital of $240 million from and paid a dividend of $46 million to ADIP. On April 1, 2020, ALRe purchased 14,000 newly issued ACRA shares for $66 million, which resulted in ALRe holding 36.55% of the economic interests in ACRA. The remaining 63.45% of the economic interests in ACRA are held by ADIP.


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Apollo Share Exchange and Related Transactions – On February 28, 2020, we closed a strategic transaction with AGM and certain affiliates of AGM which collectively comprise the Apollo Operating Group (AOG), pursuant to which we sold 27,959,184 newly issued Class A common shares to the AOG for an investment in Apollo of 29,154,519 newly issued AOG units valued at $1.1 billion and we sold 7,575,758 newly issued Class A common shares to the AOG for $350 million. Pursuant to the underlying transaction agreements, among other things (1) AGM has the right to purchase additional Class A common shares until August 26, 2020 to the extent AOG and certain affiliates, employees and consultants of AGM do not beneficially own at least 35% of the issued and outstanding Class A common shares (inclusive of Class A common shares over which any such persons have a valid proxy), on a fully diluted basis, in a number to achieve such 35% ownership level at a price based upon a weighted average price during the 30 days prior to the exercise of the purchase right and (2) Apollo Management Holdings, L.P. (AMH) has the right to purchase up to that number of Class A common shares that would increase by 5 percentage points the percentage of the issued and outstanding Class A common shares beneficially owned by the AOG and certain affiliates, employees and consultants of AGM (inclusive of Class A common shares over which any such persons have a valid proxy), calculated on a fully diluted basis. In connection with the closing of the transaction, we made certain amendments to our bye-laws which, among other things, eliminated our current multi-class share structure.

Concurrently with our entry into the transaction agreements, AMH, James Belardi, our Chief Executive Officer, and William Wheeler, our President (each an “Other Shareholder”), entered into a voting agreement, pursuant to which each Other Shareholder irrevocably appointed AMH as its proxy and attorney-in-fact (Proxy) to vote all of such Other Shareholder’s Class A common shares at any meeting of our shareholders occurring following the closing date and in connection with any written consent of our shareholders following the closing date. The Proxy will be of no force and effect if Apollo and certain affiliates thereof cease to hold some minimum level of ownership not to exceed 7.5% of our Class A common shares.

AA Infrastructure Fund 1 LLC (AA Infrastructure) – We have an investment in preferred shares of AA Infrastructure, which is a fund managed by ISG. As of March 31, 2020 and December 31, 2019, we held $49 million and $58 million, respectively, of preferred shares, which are included in related party equity securities on the consolidated balance sheets and also held AA Infrastructure ABS securities of $284 million and $267 million, respectively, which are included in related party trading securities on the consolidated balance sheets.


9.10. Commitments and Contingencies


Contingent Commitments—We had commitments to make investments, primarily capital contributions to investment funds, inclusive of related party commitments discussed previously, of $2,938 $4,939 million and $3,036$4,793 million as of March 31, 20192020 and December 31, 2018,2019, respectively. We expect most of our current commitments will be invested over the next five years; however, these commitments could become due any time upon counterparty request.


Funding Agreements—We are a member of the Federal Home Loan Bank (FHLB)FHLB and, through membership, we have issued funding agreements to the FHLB in exchange for cash advances. As of March 31, 20192020 and December 31, 2018,2019, we had $926$1,426 million and $1,226 million, respectively, of FHLB funding agreements outstanding. We are required to provide collateral in excess of the funding agreement amounts outstanding, considering any discounts to the securities posted and prepayment penalties.


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We have a funding agreement backed notes (FABN) program, which allows Athene Global Funding, a special-purpose, unaffiliated statutory trust, to offer up to $10 billion of its senior secured medium-term notes. Athene Global Funding uses the net proceeds from each sale to purchase one or more funding agreements from us. As of March 31, 20192020andDecember 31, 2018,2019, we had $2,7004,325 million and $3,700 million, respectively, of FABN funding agreements outstanding. We had $5,375 million of remaining FABN capacity as of March 31, 2020.


Pledged Assets and Funds in Trust (Restricted Assets)—The total restricted assets included on the condensed consolidated balance sheets are as follows:
(In millions)March 31, 2020 December 31, 2019
AFS securities$8,877
 $9,369
Trading securities46
 45
Equity securities16
 22
Mortgage loans2,964
 2,535
Investment funds7
 84
Derivative assets60
 105
Short-term investments101
 92
Other investments93
 88
Restricted cash564
 402
Total restricted assets$12,728
 $12,742



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(In millions)March 31, 2019 December 31, 2018
AFS securities$6,543
 $5,439
Trading securities277
 68
Equity securities2
 2
Mortgage loans1,967
 1,830
Investment funds56
 53
Derivative assets68
 24
Short-term investments56
 77
Other investments47
 47
Restricted cash497
 492
Total restricted assets$9,513
 $8,032


The restricted assets are primarily related to reinsurance trusts established in accordance with coinsurance agreements, and the FHLB funding agreements described above.


Letter of Credit—We have an unusedundrawn letter of credit for$219188 million as of March 31, 2019.2020. This letter of credit was issued for our reinsurance program and expires by December 31, 2020.


Litigation, Claims and Assessments


Corporate-owned Life Insurance (COLI) Matter – In 2000 and 2001, two insurance companies, which were subsequently merged into Athene Annuity and Life Company (AAIA), purchased broad based variable COLI policies from American General Life Insurance Company (American General) broad based variable COLI policies that, as of March 31, 2019,2020, had an asset value of $373$382 million, and is included in other assets on the condensed consolidated balance sheets. In January 2012, the COLI policy administrator delivered to AAIA a supplement to the existing COLI policies and advised that American General and ZC Resource Investment Trust (ZC Trust) had unilaterally implemented changes set forth in the supplement that, if effective, would: (1) potentially negatively impact the crediting rate for the policies and (2) change the exit and surrender protocols set forth in the policies. In March 2013, AAIA filed suit against American General, ZC Trust, and ZC Resource LLC in Chancery Court in Delaware, seeking, among other relief, a declaration that the changes set forth in the supplement were ineffectual and in breach of the parties’ agreement. The parties filed cross motions for judgment as a matter of law, and the court granted defendants’ motion and dismissed without prejudice on ripeness grounds. The issue that negatively impacts the crediting rate for one of the COLI policies has subsequently been triggered and, on April 3, 2018, we filed suit against the same defendants in Chancery Court in Delaware seeking substantially similar relief, which the defendants haverelief. Defendants moved to dismiss. The Courtdismiss and the court heard oral arguments on February 13, 2019. The court issued an opinion on July 31, 2019 that did not address the merits, but found that the Chancery Court did not have jurisdiction over our claims and directed us to either amend our complaint or transfer the matter to Delaware Superior Court. The matter has takenbeen transferred to the Delaware Superior Court. Defendants renewed their motion to dismiss and the Superior Court heard oral arguments on December 18, 2019. The Superior Court took the matter under advisement.advisement and we expect an opinion in the next few months. If the supplement is ultimately deemed to be effective, the purported changes to the policies could impair AAIA’s ability to access the value of guarantees associated with the policies. The value of the guarantees included within the asset value reflected above is $185$202 million as of March 31, 20192020.


Regulatory Matters – OurBeginning in 2015, our U.S. insurance subsidiaries have experienced increased service and administration complaints related to the conversion and administration of the block of life insurance business acquired in connection with our acquisition of Aviva USA and reinsured to affiliates of Global Atlantic. The life insurance policies included in this block have been and are currently being administered by AllianceOne Inc. (AllianceOne), a subsidiary of DXC Technology Company, which was retained by such Global Atlantic affiliates to provide third party administration services on such policies. AllianceOne also administers certaina small block of annuity policies that were on Aviva USA’s legacy policy administration systems that were also converted in connection with the acquisition of Aviva USA and have experienced some similar service and administration issues.issues, but on a reduced scale.

As a result of the difficulties experienced with respect to the administration of such policies, we have received notifications from several state regulators, including but not limited to the New York State Department of Financial Services (NYSDFS), the California Department of Insurance (CDI) and the Texas Department of Insurance, indicating, in each case, that the respective regulator planned to undertake a market conduct examinationexaminations or enforcement proceeding of the applicable U.S. insurance subsidiary relating to the treatment of policyholders subject to our reinsurance agreements with affiliates of Global Atlantic and the conversion of suchthe life and annuity policies, including the administration of such blocks by AllianceOne. On June 28, 2018 weWe have entered into a consent orderorders with several states, including the NYSDFS, to resolve underlying matters in those states. All fines and costs, including those associated with remediation plans, paid in connection with the NYSDFS resolving that matter in a manner that, when considering theconsent orders are subject to indemnification received fromby Global Atlantic or affiliates of Global Atlantic. Global Atlantic did not have a material impact on our financial condition, results of operations or cash flows.


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Notesis currently in negotiation with the CDI to Condensed Consolidated Financial Statements (Unaudited)


In additionresolve the pending joint action related to the foregoing, we have received inquiries, and expect to continue to receive inquiries, from other regulatory authorities regarding the conversion matter. converted life insurance policies.

In addition to the examinations and proceedings initiated to date, it is possible that other regulators may pursue similar formal examinations, inquiries or enforcement proceedings and that any examinations, inquiries and/or enforcement proceedings may result in fines, administrative penalties and payments to policyholders. While we do not expect the amount of any such fines, penalties or payments arising from these matters to be material to our financial condition, results of operations or cash flows, it is possible that such amounts could be material.


Pursuant to the terms of the reinsurance agreements between us and the relevant affiliates of Global Atlantic, the applicable affiliates of Global Atlantic have financial responsibility for the ceded life block and are subject to significant administrative service requirements, including compliance with applicable law. The agreements also provide for indemnification to us, including for administration issues.


On January 23, 2019, we received a letter from the NYSDFS, with respect to a recent pension risk transfer (PRT) transaction, which expressed concerns with our interpretation and reliance upon certain exemptions from licensing in New York in connection with certain activities performed by employees in our PRT channel, including specific activities performed within New York. We are currently in discussionsOn April 13, 2020, we entered into a consent order with the NYSDFS to identify approachesresolve this matter. Pursuant to resolve its concerns. Reasonably possible losses, if any, cannot be estimated at this time.the consent order, the NYSDFS imposed a fine of $45 million, which was accrued in other liabilities on the consolidated balance sheets as of December 31, 2019.


Caldera Matters – On May 3, 2018, AHL filed a writ commencing litigation in the Supreme Court of Bermuda against a former officer of AHL, a former director of AHL (who is also considered a former officer pursuant to Bermuda law), and Caldera Holdings, Ltd. (Caldera). AHL alleges in the writ, among other things, that the defendants breached various duties owed to AHL under Bermuda law by using AHL’s confidential information in their attempted acquisition of a company referred to in the litigation as Company A. AHL is seeking injunctive relief and damages.

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damages. Athene amended its writ on October 16, 2018. The trial court denied two separate motions to dismiss made by defendant Caldera on June 28, 2018 and by the former officer and former director defendants on January 14, 2019. On September 20, 2019, the Bermuda Court of Appeal affirmed both trial court rulings and dismissed the defendants’ appeal. Defendants have not further pursued an appeal of this decision to the Judicial Committee of the Privy Council, the court of final appeal for matters litigated in Bermuda. On March 17, 2020, we filed an application for leave to amend the complaint to more broadly assert defendants’ breaches of duties.

On May 3, 2018, following AHL’s filing of the writ in Bermuda described above, Caldera, Caldera Life Reinsurance Company, and Caldera Shareholder, L.P., commenced an action in the Supreme Court of the State of New York, County of New York, by filing a Summons with Notice against AHL, Apollo, certain affiliates of Apollo and Leon Black, a founder of Apollo. On July 12, 2018, plaintiffs filed a complaint alleging claims for tortious interference with prospective business relations, defamation, and unfair competition related to plaintiffs’ attempt to purchase Company A and seeking alleged damages of “no less than $1.5 billion.” AHL has moved to dismiss the complaint. On January 21, 2019, plaintiffs filed an amended complaint, which revised certain allegations about jurisdiction, venue and the merits of the plaintiffs’ claims. We have renewed our motion to dismiss and, on December 20, 2019, the matter is fully briefed.court granted our motion to dismiss. Plaintiffs have filed an appeal. We believe we have meritorious defenses to the claims and intend to vigorously defend the litigation. In light of the inherent uncertainties involved in this matter, reasonably possible losses, if any, cannot be estimated at this time.




10.11. Segment Information


We operate our core business strategies out of one1 reportable segment, Retirement Services. In addition to Retirement Services, we report certain other operations in Corporate and Other.


Retirement Services—Retirement Services is comprised of our U.S. and Bermuda operations, which issue and reinsure retirement savings products and institutional products. Retirement Services has retail operations, which provide annuity retirement solutions to our policyholders. Retirement Services also has reinsurance operations, which reinsure multi-year guaranteed annuities, fixed indexed annuities, traditional one-year guarantee fixed deferred annuities, immediate annuities and institutional products from our reinsurance partners. In addition, our institutional operations, including funding agreements and group annuities, are included in our Retirement Services segment.


Corporate and Other—Corporate and Other includes certain other operations related to our corporate activities. Included in Corporate and Other areactivities such as corporate allocated expenses, merger and acquisition costs, debt costs, preferred stock dividends, certain integration and restructuring costs, certain stock-based compensation and intersegment eliminations. In addition, we also hold capital in excess of the level of capital we hold in Retirement Services to support our operating strategy.


Financial Measures—Segment adjusted operating income available to common shareholders is an internal measure used by the chief operating decision maker to evaluate and assess the results of our segments.


Adjusted operating revenue is a component of adjusted operating income available to common shareholders and excludes market volatility and adjustments for other non-operating activity. Our adjusted operating revenue equals our total revenue, adjusted to eliminate the impact of the following non-operating adjustments:


Change in fair values of derivatives and embedded derivatives – index annuities, net of offsets;
Investment gains (losses), net of offsets; and
VIE expenses, noncontrolling interests and noncontrolling interest; and
Otherother adjustments to revenues.


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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)



The table below reconciles segment adjusted operating revenues to total revenues presented on the condensed consolidated statements of income:income (loss):
 Three months ended March 31,
(In millions)2020 2019
Retirement Services$2,469
 $3,306
Corporate and Other(330) 32
Non-operating adjustments   
Change in fair values of derivatives and embedded derivatives – index annuities, net of offsets(1,671) 940
Investment gains (losses), net of offsets(1,685) 713
VIE expenses, noncontrolling interest and other adjustments to revenues(332) 4
Total revenues$(1,549) $4,995



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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 Three months ended March 31,
(In millions)2019 2018
Retirement Services$3,306
 $1,257
Corporate and Other32
 27
Non-operating adjustments   
Change in fair values of derivatives and embedded derivatives – index annuities, net of offsets940
 (158)
Investment gains (losses), net of offsets713
 (106)
Other adjustments to revenues(30) (9)
Total revenues$4,961
 $1,011


Adjusted operating income available to common shareholders is an internal measure used to evaluate our financial performance excluding market volatility and expenses related to integration, restructuring, stock compensation and certain other expenses. Our adjusted operating income available to common shareholdersequals net income available to Athene Holding Ltd. common shareholders adjusted to eliminate the impact of the following non-operating adjustments:


Investment gains (losses), net of offsets;
Change in fair values of derivatives and embedded derivatives – index annuities, net of offsets;
Integration, restructuring and other non-operating expenses;
Stock-based compensation, excluding the long-term incentive plan (LTIP); and
Income tax (expense) benefit – non-operating.


The table below reconciles segment adjusted operating income available to common shareholders to net income available to Athene Holding Ltd. common shareholders presented on the condensed consolidated statements of income:income (loss):
 Three months ended March 31,
(In millions)2020 2019
Retirement Services$204
 $286
Corporate and Other(312) 1
Non-operating adjustments   
Investment gains (losses), net of offsets(1,139) 458
Change in fair values of derivatives and embedded derivatives – index annuities, net of offsets65
 (27)
Integration, restructuring and other non-operating expenses(4) (1)
Stock-based compensation, excluding LTIP(10) (3)
Income tax (expense) benefit – non-operating131
 (6)
Net income (loss) available to Athene Holding Ltd. common shareholders$(1,065) $708

 Three months ended March 31,
(In millions)2019 2018
Retirement Services$286
 $239
Corporate and Other1
 2
Non-operating adjustments   
Investment gains (losses), net of offsets458
 (33)
Change in fair values of derivatives and embedded derivatives – index annuities, net of offsets(27) 86
Integration, restructuring and other non-operating expenses(1) (8)
Stock-based compensation, excluding LTIP(3) (3)
Income tax (expense) benefit – non-operating(6) (6)
Net income$708
 $277


The following represents total assets by segment:
(In millions)March 31, 2020 December 31, 2019
Retirement Services$139,097
 $143,881
Corporate and Other3,082
 2,994
Total assets$142,179
 $146,875

(In millions)March 31, 2019 December 31, 2018
Retirement Services$130,965
 $123,498
Corporate and Other1,892
 2,007
Total assets$132,857
 $125,505




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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations




Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
Overview
4856
  
Industry Trends and Competition
4957
  
Key Operating and Non-GAAP Measures
5163
  
Consolidated Results of Operations
5566
  
Consolidated Investment Portfolio
5970
  
Non-GAAP Measure Reconciliations
7585
  
Liquidity and Capital Resources
7890
  
Balance Sheet and Other Arrangements
8294
  
Critical Accounting Estimates and Judgments
8295
  






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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations




Overview


We are a leading retirement services company that issues, reinsures and acquires retirement savings products designed for the increasing number of individuals and institutions seeking to fund retirement needs. We generate attractive financial results for our policyholders and shareholders by combining our two core competencies of (1) sourcing long-term, generally illiquid liabilities and (2) investing in a high-quality investment portfolio, which takes advantage of the illiquid nature of our liabilities. Our steady and significant base of earnings generates capital that we opportunistically invest across our business to source attractively-priced liabilities and capitalize on opportunities.


We have established a significant base of earnings and, as of March 31, 2019,2020, have an expected Retirement Services annual net investment spread for our Retirement Services segment, which measures our investment performance less the total cost of our liabilities, of 1–2% over the 9.69.3 year weighted-average life of our reserve liabilities. The weighted-average life includes deferred annuities, PRT group annuities, funding agreements, payout annuities and other products.


We operate our core business strategies out of one reportable segment, Retirement Services. In addition to Retirement Services, we report certain other operations in Corporate and Other. Retirement Services is comprised of our U.S. and Bermuda operations which issue and reinsure retirement savings products and institutional products. Corporate and Other includes certain other operations related to our corporate activities.


Our consolidated annualized ROE for the three months ended March 31, 20192020 and the year ended December 31, 20182019 was 30.8%(36.5)% and 12.1%19.7%, respectively, and our consolidated annualized adjusted operating ROE was 12.8%(4.4)% and 13.9%14.1%, respectively. For the three months ended March 31, 20192020 and the year ended December 31, 2018,2019, in our Retirement Services segment, we generated an annualized net investment spread of 1.36%1.03% and 1.70%1.50%, respectively, and an annualized adjusted operating ROE of 14.4%10.6% and 18.4%17.3%, respectively. Our Retirement Services segment generated an annualized investment margin on deferred annuities of 2.23%2.13% and 2.65%2.46% for the three months ended March 31, 20192020 and the year ended December 31, 2018,2019, respectively. As of March 31, 2019,2020, our deferred annuities had a weighted-average life of 9.08.7 years and made up a significant portion of our reserve liabilities. We currently maintain what we believe to be high capital ratios for our rating and, as of March 31, 2019, hold approximately $1 billion of excess capital, which we view as strategic capital available to reinvest into organic and inorganic growth opportunities.


The following table presents the deposits generated from our organic and inorganic channels:
Three months ended March 31,Three months ended March 31,
(In millions)2019 20182020 2019
Retail sales$1,816
 $1,286
$1,246
 $1,816
Flow reinsurance1,020
 204
861
 1,020
Funding agreements—
 300
823
 —
Pension risk transfer1,923
 266
1,017
 1,923
Total organic deposits4,759
 2,056
Inorganic deposits—
 —
Total deposits$4,759
 $2,056
Net deposits$3,947
 $4,759


Our organic channels, including retail, flow reinsurance and institutional products, provided deposits of $4.8$3.9 billion and $2.1$4.8 billion in the three months ended March 31, 20192020 and 2018,2019, respectively. Withdrawals on our deferred annuities, maturities of our funding agreements, payments on payout annuities and pension risk benefit payments (collectively, liability outflows), in the aggregate, were $2.8$2.7 billion and $1.8$2.8 billion for the three months ended March 31, 20192020 and 2018,2019, respectively. We believe that our improving credit profile, our current product offerings and product design capabilities as well as our growing reputation as both a seasoned funding agreement issuer and a reliable PRT counterparty will continue to enable us to grow our existing organic channels and allow us to source additional volumes of profitably underwritten liabilities in various market environments. We plan to continue to grow organically by expanding each of our retail, flow reinsurance and institutional distribution channels. We believe that we have the right people, infrastructure and scale to position us for continued growth.


Within our retail channel, we had fixed annuity sales of $1.8$1.2 billion and $1.3$1.8 billion for the three months ended March 31, 20192020 and 2018,2019, respectively. The increasedecrease in our retail channel was primarily driven by significant growthcompetitive positioning and our disciplined approach to pricing and maintaining targets in our bank channel including the addition of new bank partners, the risinga low interest rate environment and new product introductions.environment. We aim to grow our retail channel by deepening our relationships with our approximately 5550 independent marketing organizations (IMO); more than 40,000approximately 51,000 independent agents; and our growing network of 1092 small and mid-sized banks and 7913 regional broker-dealers. Our strong financial position and capital efficient products allow us to be dependable partners with IMOs, banks and broker-dealers as well as consistently write new business. We work with our IMOs to develop customized, and at times exclusive, products that help drive sales. We expect our retail channel to continue to benefit from our improving credit profile and recent product launches. We believe this should support growth in sales at our desired cost of creditingfunds through increased volumes via current IMOs, while also allowing us to continue to expand our bank and broker-dealer channels. We have recently implemented a new technology platform for our retail business and continue to expand our capabilities. Additionally, we focusare focusing on hiring and training a specialized sales force and continuously createcreating products to capture new potential distribution opportunities.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations



In our flow reinsurance channel, we target reinsurance business consistent with our preferred liability characteristics and, as such, flow reinsurance provides another opportunistic channel for us to source long-term liabilities with attractive crediting rates. We generated deposits through our flow reinsurance channel of $861 million and $1.1 billion and $204 million for the three months ended March 31, 20192020 and 2018,2019, respectively. The increasedecrease in our flow reinsurance channel from prior year was driven by the addition of new partners, new product launches by our partners and thecompetitive positioning while maintaining rate discipline in a low interest rate environment, while prior year benefited from a rising interest rate environment. We expect that our improving credit profile and our reputation as a solutions provider will help us continue to source additional reinsurance partners, which will further diversify our flow reinsurance channel.



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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Within our institutional channel, we generated deposits of $1.9$1.8 billion and $566 million$1.9 billion for the three months ended March 31, 20192020 and 2018,2019, respectively. The increaseslight decrease in our institutional channel is driven by lower PRT deposits being largely offset by higher PRTfunding agreement deposits. During the three months ended March 31, 2019,2020, we closed twoone PRT transactionstransaction and issued group annuity contracts in the aggregate principal amount of $1.9$1.0 billion, compared to $266 million$1.9 billion during the three months ended March 31, 2018. Unfavorable market conditions2019. Since entering the PRT channel in 2017 through March 31, 2020, we have limited our issuancesclosed 17 deals involving more than 178,000 plan participants resulting in the issuance of funding agreements.group annuities of $11.9 billion. We issued funding agreements in the aggregate principal amount of $0$823 million and $300$0 million for the three months ended March 31, 20192020 and 2018,three months ended March 31, 2019, respectively. We expect to grow our institutional channel by continuing to engage in PRT transactions and opportunistic issuances of funding agreements.


Our inorganic channel has contributed significantly to our growth through both acquisitions and in 2018, we generated $27.0 billion of deposits driven by two block reinsurance transactions. On June 1, 2018, we closed on the Voya reinsurance transaction pursuant to which we entered into coinsurance and modco agreements with VIAC and ReliaStar Life Insurance Company (RLI) to reinsure a block of fixed and fixed indexed annuities providing $19.1 billion of deposits. On December 7, 2018, we entered into a modified coinsurance agreement with Lincoln, with an effective date of October 1, 2018, to reinsure an 80% quota share of fixed deferred and fixed indexed annuities providing $7.9 billion of deposits. Our inorganic channels have contributed significantly to our growth, and weWe expect that theseour inorganic channels will continue to be important sources of profitable growth in the future. We believe our internal transactions team, with support from Apollo, has an industry-leading ability to source, underwrite and expeditiously close transactions. With our relationship withsupport from Apollo, we are a solutions provider with a proven track record to closeof closing transactions, which we believe makes us the ideal partner to insurance companies seeking to restructure their business.



Executing our growth strategy requires that we have sufficient capital available to deploy. We believe that we have significant capital available to us to support our growth aspirations. As of March 31, 2020, we estimate that we have $7.4 billion in capital available to deploy, consisting of approximately $2.7 billion in excess capital, $2.3 billion in untapped debt capacity (assuming a peer average adjusted debt to capitalization ratio of 25%) and $2.4 billion in uncalled capital at ACRA, subject, in the case of debt capacity, to favorable market conditions and general availability. Excess capital includes the capital from the $500 million debt issuance completed in early April, while the untapped debt capacity includes the impact of the debt issuance and excludes the short-term debt with repayment due in the second quarter.

In order to support our growth strategies and capital deployment opportunities, we established ACRA as a long-duration, on-demand capital vehicle. As of March 31, 2020, we owned 33% of the economic interests and 100% of the voting interests of ACRA, with the remaining 67% of the economic interests being owned by ADIP, a series of funds managed by an affiliate of Apollo. ACRA is expected to participate in qualifying transactions and certain other transactions by drawing a portion of the required capital for such transactions from third-party investors equal to ADIP’s proportionate economic interest in ACRA. This shareholder-friendly, strategic capital solution is expected to allow us the flexibility to simultaneously deploy capital across multiple accretive avenues, while maintaining a strong financial position.

Strategic Transaction with Apollo

On February 28, 2020, we closed a transaction with Apollo in which Apollo acquired an incremental stake in us for AOG units valued at approximately $1.1 billion, upon close, and approximately $350 million of cash. Additionally, we converted our Class B common shares to Class A common shares and our Class M common shares to Class A common shares and warrants, eliminating our multi-class share structure. The AOG units are reflected within the change in fair value of Apollo investment, net of tax line item and may present future volatility in our results of operations due to changes in the valuation of the AOG units. See Note 9 – Related Parties to the consolidated financial statements for further discussion.


Industry Trends and Competition


Market Conditions


After itsOn March meeting,3, 2020, the U.S. Federal Reserve brought(Federal Reserve) decreased interest rates by 50 basis points in its tighteningfirst emergency rate cut since 2008. That action was quickly followed by a 100 basis point emergency rate cut on March 15, 2020, bringing the target federal funds rate range to 0% – 0.25%. The emergency rate cuts were in response to economic uncertainty resulting from the spread of COVID-19 and follows three separate 25 basis point rate cuts that occurred during 2019. The economic uncertainty has created considerable volatility in both the credit and equity markets, which has been amplified by a recently concluded price war among major oil producing countries, which when combined with a collapse in demand for oil and storage capacity constraints, has resulted in significant declines in oil prices. Unprecedented fiscal and monetary measures have been undertaken in the form of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) and Federal Reserve programs implemented with funding provided by the CARES Act, respectively. The programs implemented by the Federal Reserve have provided significant liquidity to the capital markets and together with the broader CARES Act have reduced the volatility experienced in the credit and equity markets. It is unclear whether current fiscal and monetary policy to an end, while also abandoning projections of any future rate hikes for the current year. Additionally, over the last few months, the ongoing flattening of the Treasury curve at one point gave way to a curve inversion. Whether signaling low long-term inflation expectations, or an impending recession, or simply due to supply dynamicsmeasures adopted in the global search for asset yield,future will be effective at continuing to abate the levelmarket volatility brought about by the spread of longer dated Treasury yields affectsCOVID-19.

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To the yieldextent that we earn on invested assets. Whileit has not already been so affected, current economic fundamentals appear strong,market volatility may be exacerbated by a number of factors, including market illiquidity, an inability to curtail the advancement of COVID-19, changes in the political environment or a lack thereof, uncertainty about future fiscal policy, further changes in oil prices or the factors impacting oil prices, changes in tax policy, the scope of potential deregulation or increased regulation, the imposition of additional tariffs or other barriers to international trade and levels of global trade, the future path of the Federal Reserve’s quantitative tightening or easing along withand uncertainty about the Federal Reserve’s ability to manage its normalization process and the impact on inflation and wage growth, may trigger continued volatility across financial markets, and specificallygrowth. In particular, equity market volatility whichhas and may adversely affectfurther place upward pressure on the hedging costs of our liability policy hedging program. Decreases in the risk-free rate have offset some of this upward pressure in the near-term, but this offsetting impact is not likely to persist into future periods. In addition, equity market volatility has and may further result in increases in rider reserves as we are required to fund more of the interest credited. Credit market volatility, which has and may further widen credit spreads, generally benefits our investment purchases but may negatively affect the valuations of our in-force investment portfolio.


A volatile market environment, such as the one brought about by the spread of COVID-19, may affect our ability to produce liability products that are profitable, have our desired risk profile, and are desirable to consumers. As a company with strong retirement, investment management and insurance capabilities, we expect that over the long term, market conditions resulting in higher Treasury yields and credit spreads will enhance the attractiveness of our portfolio of annuity products. We continue to monitor the behavior of our customers and other factors that react to market conditions, including annuitization rates and lapse rates, in order to best serve our customers and generate strong profitability to our shareholders.


Interest Rate Environment


As a retirement services company focused on issuing and reinsuring fixed annuities, we are affected by the monetary policy of the Federal Reserve in the United States as well as other central banks around the world. The Federal Reserve did not increaseaggressively cut rates during March 2020 after cutting rates on a more normalized basis on three separate occasions in March and also changed expectations2019. Consequently, most treasury tenors, except the 30 year, are trading below 1%. Increased demand for treasury securities as a source of security amidst economic uncertainty has driven a further increase for the current year. Interest ratesdecrease in the United Statesten-year yield to below 1%, which is unprecedented. With the Federal Reserve undertaking extraordinary market intervention measures, it is anticipated that treasury yields will remain lower than historical levels.low in the near term.


Our investment portfolio consists predominantly of fixed maturity investments. See –Consolidated Investment Portfolio. If prevailing interest rates were to rise, we believe the yield on our new investment purchases may also rise and our investment income from floating rate investments would increase, while the value of our existing investments may decline. If prevailing interest rates were to decline, it is likely that the yield on our new investment purchases may decline and our investment income from floating rate investments would decrease, while the value of our existing investments may increase. Recent trends have entailed decreasing interest rates leading to a decrease in our investment income from floating rate investments, whereas widening credit spreads have resulted in an overall increase in asset yields, which we expect would result in an increase in the yield on our new investment purchases and a decline in the value of our existing investments.

We address interest rate risk through managing the duration of the liabilities we source with assets we acquire through asset liability management (ALM)ALM modeling. As part of our investment strategy, we purchase floating rate investments, which we expect willwould perform well in a rising interest rate environment.environment and which we expect would underperform in a declining rate environment, such as has been experienced during the first quarter of 2020. Our investment portfolio includes $20.2$22.0 billion of floating rate investments, or 18% of our totalnet invested assets as of March 31, 2019. The percentage of floating rate investments increased from December 31, 2018 due to the redeployment of the Lincoln reinsurance investment portfolio, as well as block growth.2020.


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If prevailing interest rates were to rise, we believe our products would be more attractive to consumers and our sales would likely increase. If prevailing interest rates were to decline, it is likely that our products would be less attractive to consumers and our sales would likely decrease. In periods of prolonged low interest rates, the net investment spread may be negatively impacted by reduced investment income to the extent that we are unable to adequately reduce policyholder crediting rates due to policyholder guarantees in the form of minimum crediting rates or otherwise due to market conditions. As of March 31, 2019,2020, most of our products were fixed annuities with 24%22% of our FIAs at the minimum guarantees and 45%39% of our fixed rate annuities at the minimum crediting rates. As of March 31, 2019,2020, minimum guarantees on all of our deferred annuities, including those with crediting rates already at their minimum guarantees, were, on average, greater than 100 to 110 basis points below the crediting rates on such deferred annuities, allowing us room to reduce rates before reaching the minimum guarantees. Our remaining liabilities are associated with immediate annuities, pension risk transfer obligations, funding agreements orand life contracts for which we have little to no discretionary ability to change the rates of interest payable to the respective policyholder. A significant majority of our deferred annuity products have crediting rates that we may reset annually upon renewal, following the expiration of the current guaranteed period. While we have the contractual ability to lower these crediting rates to the guaranteed minimum levels, our willingness to do so may be limited by competitive pressures.


See Part I—Item 3. Quantitative and Qualitative Disclosures About Market Risks to this report and Part II—Item 7A. Quantitative and Qualitative Disclosures About Market Risks in our 20182019 Annual Report, which includes a discussion regarding interest rate and other significant risks and our strategies for managing these risks.


COVID-19
The spread of COVID-19 has resulted in significant volatility in the financial markets. The extent to which COVID-19 and the resulting impact on economic conditions and the financial markets may impact our business will depend on future developments and represents a material uncertainty to our business.


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Risks and Mitigation Measures

The spread of COVID-19 presents three principal risks to our business: 1) business continuity risk; 2) market risk and 3) liquidity risk, including that resulting from policyholder behavior.

Business Continuity Risk.The spread of COVID-19 threatens the health and safety of our most valuable asset, our people. To mitigate the risk that the virus infects members of our workforce, to ensure the continuity of our operations throughout the duration of this pandemic and to ensure uninterrupted servicing of the policyholders who have entrusted us for their retirement needs, we have implemented our business continuity plan. Pursuant to that plan, as of May 8, 2020, the significant majority of our employees were working remotely, with only certain operationally essential employees working at our facilities, to the extent lawfully permitted. The essential employees who continue to work at our facilities are required to adhere to social distancing and other Center for Disease Control guidelines and government mandates, and we have designed certain operational redundancies and sterilization protocols to minimize the risk of disruption in the event that certain critical facilities, such as our mailroom, become contaminated. We have been successful in implementing our business continuity plan and to date have experienced no material impairment to our business operations. We have commenced planning for the return of non-operationally essential employees to our facilities. Currently, we expect that these employees will return in several separate phases. The timeframe over which these phases will occur is uncertain at this time and is subject to national and local orders, recommendations and guidelines.

Market Risk. The effects of the spread of COVID-19 on economic conditions and the financial markets may trigger or increase the market risks to which we are subject, namely interest rate risk, credit risk and public equity risk. The spread of COVID-19 and the Federal Reserve’s responsive measures have resulted in abrupt and significant decreases in interest rates and abrupt and significant increases in credit spreads. Changes in interest rates and credit spreads may result in a decrease in the value of our invested assets. To the extent that we needed to sell assets at these decreased values in order to satisfy our obligations, we would realize losses. However, approximately 78% of our deferred annuities have surrender charges, and 63% have market value adjustment features, which we believe greatly reduce the livelihood and magnitude of unexpected withdrawals. Further, our PRT and funding agreement obligations are predominantly non-surrenderable. In addition, we mitigate interest rate risk by managing the effective duration of our assets and liabilities. In doing so, we closely monitor and manage our net duration mismatch as well as our cash inflows and outflows. Decreases in interest rates impact the interest income that we receive on our floating rate assets. For the three months ended March 31, 2020, we recognized $15 million less in floating rate income than we recognized for the three months ended December 31, 2019, primarily as a result of the declines in interest rates occurring during the three months ended March 31, 2020.

A greater proportion of the companies that issued the securities that we hold in our investment portfolio are more likely to experience financial hardship as a result of the economic effects of COVID-19. We mitigate such risk by actively managing our investment portfolio and attempting to exit or reduce exposures we deem to carry disproportionate risk when compared to their return profile. For the three months ended March 31, 2020, we recognized increased intent to sell impairments of $13 million when compared to the three months ended March 31, 2019, as a result of our active portfolio management.

We are exposed to public equity risk through the index crediting on our FIA products, our AOG unit holdings and our common stock holdings in OneMain Holdings, Inc. (OneMain). We effectively eliminate the public equity risk arising from the index crediting on our FIA products by hedging the relevant index performance over the crediting period. Though this results in an effective hedge for economic purposes, because the instruments used to hedge the index crediting period are for a shorter term than the FIA contract, the hedge is not deemed effective for accounting purposes and results in the recognition of gains and losses from period to period. The public equity volatility arising from our holdings of AOG Units and OneMain stock is unhedged. During the three months ended March 31, 2020, we recognized an income statement impact of $(289) million resulting from our FIA products (net of offsets) and declines in the market value of our AOG and OneMain holdings.

Liquidity Risk. In the current market environment, liquidity risk can arise in several areas of our business, including but not limited to asset-liability mismatch and policyholder behavior risk. As noted above, most of our deferred annuities have surrender charges and market value adjustments, which reduce the likelihood and magnitude of expected withdrawals, and our PRT and funding agreement obligations are predominantly non-surrenderable.

To be prepared to capitalize on growth opportunities that may arise in the current market environment as well as to manage any near-term liquidity risk, we have strategically increased our available liquidity. As of April 30, 2020, we had approximately $6.3 billion of available liquidity comprised of $5.1 billion of cash and $1.25 billion of undrawn capacity under our credit agreement. We intend to further increase our available liquidity to approximately $10 billion. We have taken measures to achieve this objective, including negotiating new committed lending facilities and retaining a portion of the proceeds received from our organic channels in cash and other highly liquid assets. We have also entered into several new securities repurchase arrangements with different financial institutions to provide access to additional short-term liquidity, to the extent available.

With a record number of individuals finding themselves abruptly out of work and searching for sources of liquidity, we face policyholder behavior risk in the form of increased withdrawal levels and lapse rates may be elevated. We have been closely monitoring policyholder behavior on a daily basis. As of April 30, 2020, we had noticed no material adverse change in policyholder behavior. We mitigate policyholder behavior risk by monitoring and projecting cash inflows and outflows and by maintaining greater levels of available liquidity.


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Emerging Trends

As a result of the spread of COVID-19, the resulting impact on economic conditions and the financial markets and the mitigation efforts we have undertaken in response, we expect to see several trends impacting our future operating results.

First, we could hold a greater proportion of our invested assets in cash and other liquid assets which could impact our net investment earned rates and net spread.

Second, we expect that the current market environment will cause certain issuers of securities held in our investment portfolio to experience financial hardship, resulting in recognition of credit losses or impairments. During the three months ended March 31, 2020, we recorded a provision for credit losses of $284 million, post-adoption of the new accounting standard regarding accounting for current expected credit losses, more commonly referred to as “CECL.” While we cannot predict the duration or severity of the current economic downturn, we regularly perform stress testing of our investment portfolio under two hypothetical scenarios: a baseline recession scenario and a deep recession scenario. The assumptions for each hypothetical scenario and past experience are included in the chart below.
 Athene Assumptions Sample Historical Recession Data Peak to Trough for Calendar Year
 
Baseline
Recession
Scenario
 
Deep
Recession
Scenario
 1990 2001 2008 Euro 2016
10 Yr US Treasury YieldDown 60% Down 83% Up 4% Down 21% Down 43% 
Down 84%1
Absolute Spreads
(BBB / B)
279bps /
802bps
 636bps / 1,789bps 
240bps /
NA
 
318bps /
1,083bps
 
642bps /
1,913bps
 
317bps /
876bps
Equity Markets2
(25)% (49)% (20)% (30)% (49)% (12)%
FI Defaults
(BBB / B)
0.70% /
12.9%
 
1.4% /
13.7%
 
0.30% /
13.7%
 
1.01% /
9.2%
 
0.9% /
7.1%
 
0.0% /
 2.4%
Housing Price
(Peak to Trough)
(3)% (27)% (3)% No Decline (33)% No Decline
            
1 German 10-year bund yield.
2 Primarily for representative purposes. Stress scenarios apply customized stresses as relevant for Alternatives sub-categories.

In March 2020, we evaluated our investment portfolio under these hypothetical stress scenarios and estimated that absent any management intervention, we would recognize credit losses and impairments, net of DAC and tax offsets, as well as losses in our alternatives portfolio, of approximately $1 billion and $2 billion under the baseline recession scenario and deep recession scenario, respectively. These scenarios are hypothetical and are not representative of the current economic environment and even if representative, actual results may differ materially from estimates.

Third, we have experienced downward pressure on the valuation of our alternatives portfolio. During the three months ended March 31, 2020, we experienced a decrease in net income of $37 million attributed to mark-to-market performance of our alternative investments. With approximately 60% of our alternatives portfolio accounted for on a one to three month lag, we expect to see any adverse impact of the economic environment during the three months ended March 31, 2020 largely reflected in our second quarter performance for those alternatives reported on a lag.

Fourth, the substantial and sudden decrease in interest rates during March 2020 will have a negative impact on adjusted operating income if the current rates persist for a prolonged period. Currently, we estimate that a 25 basis point decrease in interest rates that persists for a 12-month period will result in an approximate $30 – $35 million decrease in adjusted operating income.
The spread of COVID-19, the resulting impact on economic conditions and the financial markets and the mitigating efforts we have and will undertake may have consequences to our business that are unforeseen at this time. The emerging trends identified above do not purport to be complete and actual experience may differ materially from our current expectations.

Discontinuation of LIBOR
The UK Financial Conduct Authority (FCA) has announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. It is expected that a number of private-sector banks currently reporting information used to set LIBOR will stop doing so after 2021 when their current reporting commitment ends, which could either cause LIBOR to stop publication immediately or cause the FCA to determine that the quality of LIBOR has degraded to the degree that LIBOR is no longer representative of its underlying market. With an estimated $200 trillion in notional transactions referencing USD LIBOR in the cash and derivatives markets, including more than $35 trillion extending past 2021, the discontinuation of LIBOR could have a significant impact on the financial markets and represents a material uncertainty to our business.

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To manage the uncertainty surrounding the discontinuation of LIBOR we have established a plan, which involves the following six phases: (1) identify and quantify our exposure to LIBOR; (2) establish a counterparty communication strategy; (3) evaluate the specific risks to our business arising as a result of the transition; (4) identify actions that we can take to mitigate the risks identified in phase 3; (5) monitor market developments regarding the adoption of a replacement rate; and (6) transition to the market consensus rate or rates once such rate or rates emerge and are operational.
The phases of our plan are not discrete and need not occur in chronological order. Our plan is subject to change as we gain additional information. We have created an Executive Steering Committee composed of senior executives to coordinate and oversee the execution of our plan.

As of March 31, 2020, we had contracts tied to LIBOR in the notional amounts set forth in the table below:
(In millions)Total Exposure Extending Beyond 2021
Investments$21,402
 $18,103
“Excess Return” Product Liabilities7,671
 880
Derivatives Hedging “Excess Return” Product Liabilities7,456
 —
Other Derivatives1,886
 453
Other Contracts2,963
 2,663
Total notional of contracts tied to LIBOR$41,378
 $22,099

Investments

As of March 31, 2020, our investments tied to LIBOR were in the following asset classes:
(In millions)Total Exposure Extending Beyond 2021
Multi-lateral Arrangements   
Corporates$1,014
 $495
RMBS4,168
 3,864
CMBS274
 30
CLO10,521
 10,448
ABS1,402
 1,324
Bank Loans402
 277
Total Multi-lateral Arrangements17,781
 16,438
Bi-lateral Arrangements

  
CML3,479
 1,523
RML142
 142
Total Bi-lateral Arrangements3,621
 1,665
Total investments tied to LIBOR$21,402
 $18,103

Of the total notional value of investment-related contracts tied to LIBOR, extending beyond 2021, $16.4 billion or 90.8% relate to multi-lateral arrangements. These arrangements are typically characterized by a large, diverse set of unrelated holders, the majority or all of whom must consent to amendments to the terms of the underlying investment instrument. Generally, when the amendments concern a material term such as the determination of interest, consent must be unanimous. Given the collective action issues inherent in such structures, such consent is impracticable and beyond our control. To the extent that such legacy arrangements do not contemplate the permanent discontinuation of LIBOR, we would look to some broad-based solution, such as the Alternative Reference Rates Committee’s proposed New York law amendment, to rectify such deficiency. To the extent that the fallback rates ultimately used to determine interest payable on such investments do not align with the fallback rates used to determine interest payable on the underlying assets, economic losses could be sustained on the overall structure.
The remaining notional value of investment-related contracts tied to LIBOR extending beyond 2021 of $1.7 billion or 9.2% relates to bi-lateral arrangements for which we, or some party acting on our behalf, such as a mortgage servicer, are able to negotiate directly with the applicable counterparty for amendments to the terms of the arrangement. For these arrangements, we will evaluate the need for amendments to legacy contracts.

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“Excess Return” Product Liabilities and Associated Hedging Instruments

As of March 31, 2020, we had product liabilities with a notional value of approximately $7.7 billion for which interest credited is computed on “excess return” indices (return of index in excess of LIBOR) and for which we expect product liabilities with a notional value of approximately $880 million to extend beyond 2021. The “excess return” indices to which these products are tied are primarily proprietary indices for which key inputs are determined by the index sponsor. The index sponsor has the right to unilaterally change the reference rate upon the discontinuation of LIBOR. As a result, we do not anticipate any administrative concerns in connection with the transition from LIBOR to a replacement rate with respect to these products.

As of March 31, 2020, we held derivatives with a notional value of approximately $7.5 billion to hedge our exposure to these product liabilities. As these derivatives are primarily purchased to hedge the current crediting period, we expect that substantially all of such derivatives will expire before the end of 2021. We will be required to purchase new derivatives in future periods to hedge future crediting periods associated with existing product liabilities, which will expose us to potential basis mismatch to the extent that the reference rate for the product liability is not the same as the reference rate for the derivative instrument.

Other Derivatives

Our other derivative contracts tied to LIBOR are generally entered into pursuant to an ISDA Master Agreement. We believe that fallbacks contemplating a permanent discontinuation of LIBOR will be integrated into the ISDA Master Agreement and applied to our outstanding obligations via standard protocol counterparty consent. To the extent that the fallbacks ultimately incorporated into our other derivative contracts result in the use of a replacement rate that differs from that employed in the contract being hedged, we will experience basis mismatch. We will continue to evaluate this risk as fallbacks become better defined.

Other Contracts

Other contracts is comprised of our credit agreement, floating rate funding agreements and fixed-to-float Series A preference shares, all of which contemplate the permanent discontinuation of LIBOR.

We can provide no assurance that we will be successful at completing all the phases of our plan prior to the discontinuation of LIBOR. Completion of certain phases of our plan are contingent upon market developments and are therefore not fully within our control. To the extent management effort and attention is focused on other matters, such as responding to the risks posed by COVID-19, the timely completion of our plan could become more difficult. Failure to complete all phases of our plan prior to the discontinuation of LIBOR may have a material adverse effect on our business, financial position, results of operations and cash flows.

Demographics


Over the next four decades, the retirement-age population is expected to experience unprecedented growth. Technological advances and improvements in healthcare are projected to continue to contribute to increasing average life expectancy, and aging individuals must be prepared to fund retirement periods that will last longer than ever before. Further, many working households in the United States do not have adequate retirement savings. As a tool for addressing the unmet need for retirement planning, we believe that many Americans have begun to look to tax-efficient savings products with low-risk or guaranteed return features and potential equity market upside. Our tax-efficient savings products are well positioned to meet this increasing customer demand.


Competition


We operate in highly competitive markets. We face a variety of large and small industry participants, including diversified financial institutions and insurance and reinsurance companies. These companies compete in one form or another for the growing pool of retirement assets driven by a number of external factors such as the continued aging of the population and the reduction in safety nets provided by governments and private employers. In the markets in which we operate, scale and the ability to provide value-added services and build long-term relationships are important factors to compete effectively. We believe that our leading presence in the retirement market, diverse range of capabilities and broad distribution network uniquely position us to effectively serve consumers’ increasing demand for retirement solutions, particularly in the FIA market.


According to LIMRA, total fixed annuity market sales in the United States were $133.5$139.8 billion for the year ended December 31, 2018,2019, a 26.8%4.7% increase over 2017.from the same time period in 2018. In the total fixed annuity market, for the year ended December 31, 20182019 (the most recent period for which specific market share data is available), we were the 5th largest company based on sales of $7.5$6.8 billion, translating to a 5.6%4.8% market share. For the year ended December 31, 2017,2018, our market share was 5.1%5.6% with sales of $5.4$7.5 billion.


FIAs have been one of the fastest growing annuity products, having grown from $27.3 billion in sales for the year ended December 31, 2005 to $69.6$73.5 billion in sales for the year ended December 31, 2018.2019. FIA sales grew $3.9 billion in the one year period from December 31, 2018 to December 31, 2019. According to LIMRA data, for the year ended December 31, 20182019 (the most recent period for which specific market share data is available), we were the 2nd largest provider of FIAs based on sales of $6.6$6.1 billion, and our market share for the same period was 9.4%8.3%. For the year ended December 31, 2017,2018, we were the 2nd largest provider of FIAs based on sales of $4.9$6.6 billion, translating to an 8.8%a 9.4% market share.

Recent Developments

In order to enhance our capital position and further support our stated business objectives, including continued profitable organic growth, acting as a solutions provider in the restructuring of the fixed annuity industry, maintaining capital for opportunistic investment, pursuing ratings upgrades and facilitating the repurchase of our common shares at attractive returns, we expect that ALRe would enter into a framework agreement (the Framework Agreement) with Athene Co-Invest Reinsurance Affiliate 1A Ltd. (ACRA). Under the Framework Agreement and related transaction documents, ACRA would receive capital commitments from ALRe and funds referred to as the Apollo/Athene Dedicated Investment Program (ADIP), which are managed by AGM. Entry into the Framework Agreement and related agreements are subject to ADIP’s continuing private fundraising efforts and final approvals from a special committee of our board of directors, acting under authority granted by our board of directors.

For a period expiring approximately three years following the one-year anniversary of the first ADIP fund closing (subject to two one-year extension periods by ADIP, the Commitment Period), ACRA would have the right to participate (through itself or other legal entities formed pursuant to the Framework Agreement for purposes of entering into such transactions) in any legal entity acquisition transactions, third-party block reinsurance transactions and pension risk transfer transactions involving a sizable amount of liabilities, as well as certain flow reinsurance transactions with third-party counterparties (each, a Qualifying Transaction). ALRe would be permitted to offer ACRA the right to participate in other smaller acquisitions, block reinsurance and pension risk transfer transactions, and it is anticipated that all such transactions would be offered to ACRA for the foreseeable future. ALRe may also offer ACRA the right to participate in flow reinsurance transactions with existing


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third-party counterparties and reinsurance transactions involving new funding agreements from time to time, subject to certain conditions. ACRA’s election to participate in Qualifying Transactions would be determined by the Transaction Committee of ACRA, which would be a committee of the board of directors of ACRA comprised of our representatives and those of AGM. If ACRA elects not to participate in a Qualifying Transaction, we would have the right to pursue the Qualifying Transaction without ACRA. ACRA’s right to participate in Qualifying Transactions would be subject to capital requirements and other terms and conditions.

ACRA would be jointly owned (directly or indirectly) by ALRe and ADIP. It is expected that ALRe would hold shares representing 100% of the voting power and 33% of the economic interests in ACRA and that ADIP would hold non-voting shares representing the remaining 67% of the economic interests in ACRA. These economic ownership percentages have been sized based on our current and expected capital position during the Commitment Period, after considering the full array of our growth and capital objectives. ACRA is expected to be our consolidated subsidiary and managed consistent with our operating model and environment for all of our subsidiaries.

In connection with each transaction in which ACRA elects to participate (each, a Participating Transaction), subject to the applicable terms and conditions of the Framework Agreement and related transaction documents, ACRA would pay ALRe a fee (Wrap Fee) expected to be approximately 15 basis points per annum multiplied by the total reserves with respect to the assumed or acquired business, under a schedule where the Wrap Fee increases from 10 basis points as business assumed or acquired by ACRA increases.

In general, (a) on the 10th anniversary of the effective date of any Participating Transaction (other than a flow reinsurance transaction) or (b) on the 10th anniversary of the date on which reinsurance is terminated as to new business under any Participating Transaction that is a flow reinsurance transaction (which would occur no later than the end of the Commitment Period), ALRe or its applicable affiliate would have the right (Commutation Right) to terminate ACRA’s participation in such Participating Transaction based on a book value pricing mechanism and subject to ADIP achieving a minimum return with respect to such Participating Transaction. If ALRe does not exercise the Commutation Right with respect to a Participating Transaction, then ACRA’s obligation to pay the Wrap Fee in connection with such Participating Transaction would terminate, and, subject to certain exceptions (and the applicable terms and conditions of the Framework Agreement and related transaction documents), ALRe would be required to pay ACRA a fee calculated in the same manner as the Wrap Fee. In addition, if ACRA fails to satisfy minimum aggregate capital requirements, ALRe would have the right to recapture or assign to another of our subsidiaries a portion of the business retroceded to ACRA (and/or any of its insurance or reinsurance subsidiaries) to the extent necessary to cure such failure.

ALRe currently retrocedes, and following any sale by ALRe of an economic interest in ACRA to ADIP would continue to retrocede, to ACRA 100% of approximately $8 billion of certain fixed deferred and fixed indexed annuities. In connection with future Participating Transactions, ACRA would draw from ADIP and from ALRe their respective share of the amount of capital necessary to consummate such Participating Transactions.

ACRA is expected to have a board of directors comprised of eleven directors (the ACRA Board). ALRe would be permitted to nominate seven directors to serve on the ACRA Board: (i) one would be the Chairman, (ii) one would be a representative of AGM, (iii) one would be our representative, (iv) two would be representatives of AGM or us and (v) two would be independent directors. ADIP would be permitted to nominate the other four directors to serve on the ACRA Board.

In addition, ACRA is expected to agree to pay a monthly fee to AAM for asset management services in an amount equal to the marginal base investment management fees and sub-advisory fees we expect to pay to AAM following the approval of such fees by our shareholders, as more fully described in “Proposal 9: Approval of the Twelfth Amended and Restated Bye-laws of the Company–IMA Termination Provisions” of our definitive proxy statement filed with the Securities Exchange Commission on April 22, 2019.


Key Operating and Non-GAAP Measures


In addition to our results presented in accordance with GAAP, we present certain financial information that includes non-GAAP measures. Management believes the use of these non-GAAP measures, together with the relevant GAAP measures, provides information that may enhance an investor’s understanding of our results of operations and the underlying profitability drivers of our business. The majority of these non-GAAP measures are intended to remove from the results of operations the impact of market volatility (other than with respect to alternative investments) as well as integration, restructuring and certain other expenses which are not part of our underlying profitability drivers, as such items fluctuate from period to period in a manner inconsistent with these drivers. These measures should be considered supplementary to our results in accordance with GAAP and should not be viewed as a substitute for the corresponding GAAP measures. See Non-GAAP Measure Reconciliations for the appropriate reconciliations to the corresponding GAAP measures.



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Adjusted Operating Income (Loss) Available to Common Shareholders


Adjusted operating income (loss) available to common shareholders is a non-GAAP measure used to evaluate our financial performance excluding market volatility and expenses related to integration, restructuring, stock compensation and other expenses. Our adjusted operating income (loss) available to common shareholders equals net income (loss) available to AHL common shareholders adjusted to eliminate the impact of the following (collectively, the “non-operating adjustments”)non-operating adjustments):


•
Investment Gains (Losses), Net of Offsets—Consists of the realized gains and losses on the sale of AFS securities, the change in fair value of reinsurance assets, unrealized gains and losses, allowances, and other investment gains and losses. Unrealized, allowances and other investment gains and losses are comprised of the fair value adjustments of trading securities (other than CLOs) and investments held under the fair value option, derivative gains and losses not hedging FIA index credits, and the change in credit loss allowances recognized in operations net of the change in AmerUs Closed Block fair value reserve related to the corresponding change in fair value of investments and the change in unit-linked reserves related to the corresponding trading securities. Investment gains and losses are net of offsets related to DAC, DSI, and VOBA amortization and changes to guaranteed lifetime withdrawal benefit (GLWB) and guaranteed minimum death benefit (GMDB) reserves (together, GLWB and GMDB reserves represent rider reserves) as well as the market value adjustments (MVA) associated with surrenders or terminations of contracts.

•
Change in Fair Values of Derivatives and Embedded Derivatives – FIAs, Net of Offsets—Consists of impacts related to the fair value accounting for derivatives hedging the FIA index credits and the related embedded derivative liability fluctuations from period to period. The index reserve is measured at fair value for the current period and all periods beyond the current policyholder index term. However, the FIA hedging derivatives are purchased to hedge only the current index period. Upon policyholder renewal at the end of the period, new FIA hedging derivatives are purchased to align with the new term. The difference in duration between the FIA hedging derivatives and the index credit reserves creates a timing difference in earnings. This timing difference of the FIA hedging derivatives and index credit reserves is included as a non-operating adjustment, net of offsets related to DAC, DSI, and VOBA amortization and changes to rider reserves.

Investment Gains (Losses), Net of Offsets—Investment gains (losses), net of offsets, consist of the realized gains and losses on the sale of AFS securities, the change in fair value of reinsurance assets, unrealized gains and losses, impairments, and other investment gains and losses. Unrealized, impairments and other investment gains and losses are comprised of the fair value adjustments of trading securities (other than CLOs) and investments held under the fair value option, derivative gains and losses not hedging FIA index credits, and the net other-than-temporary impairment (OTTI) impacts recognized in operations net of the change in AmerUs Closed Block fair value reserve related to the corresponding change in fair value of investments and the change in unit-linked reserves related to the corresponding trading securities. Investment gains and losses are net of offsets related to DAC, DSI, and VOBA amortization and changes to guaranteed lifetime withdrawal benefit (GLWB) and guaranteed minimum death benefit (GMDB) reserves (together, GLWB and GMDB reserves represent rider reserves) as well as the market value adjustments (MVA) associated with surrenders or terminations of contracts.

Change in Fair Values of Derivatives and Embedded Derivatives – FIAs, Net of Offsets—Impacts related to the fair value accounting for derivatives hedging the FIA index credits and the related embedded derivative liability fluctuations from period to period. The index reserve is measured at fair value for the current period and all periods beyond the current policyholder index term. However, the FIA hedging derivatives are purchased to hedge only the current index period. Upon policyholder renewal at the end of the period, new FIA hedging derivatives are purchased to align with the new term. The difference in duration between the FIA hedging derivatives and the index credit reserves creates a timing difference in earnings. This timing difference of the FIA hedging derivatives and index credit reserves is included as a non-operating adjustment, net of offsets related to DAC, DSI, and VOBA amortization and changes to rider reserves.

We primarily hedge with options that align with the index terms of our FIA products (typically 1–2 years). From an economic basis, we believe this is suitable because policyholder accounts are credited with index performance at the end of each index term. However, because the “valueterm of an embedded derivative”derivative in an FIA contract is longer-dated, there is a duration mismatch which may lead to mismatches for accounting purposes.


•
Integration, Restructuring, and Other Non-operating Expenses—Consists of restructuring and integration expenses related to acquisitions and block reinsurance costs as well as certain other expenses, which are not predictable or related to our underlying profitability drivers.

•
Stock Compensation Expense—Consists of stock compensation expenses associated with our share incentive plans, excluding our long-term incentive plan, which are not related to our underlying profitability drivers and fluctuate from time to time due to the structure of our plans.

•
Bargain Purchase Gain—Consists of adjustments to net income (loss) available to AHL common shareholders as they are not related to our underlying profitability drivers.

•
Income Tax (Expense) Benefit – Non-operating—Consists of the income tax effect of non-operating adjustments and is computed by applying the appropriate jurisdiction’s tax rate to the non-operating adjustments that are subject to income tax.

Integration, Restructuring, and Other Non-operating Expenses—Integration, restructuring, and other non-operating expenses consist of restructuring and integration expenses related to acquisitions and block reinsurance costs as well as certain other expenses which are not related to our underlying profitability drivers or likely to re-occur in the foreseeable future.

Stock Compensation Expense—Stock compensation expenses associated with our share incentive plans, excluding our long-term incentive plan, are not related to our underlying profitability drivers and fluctuate from time to time due to the structure of our plans.

Bargain Purchase Gain—Bargain purchase gains associated with acquisitions are adjustments to net income as they are not related to our underlying profitability drivers.

Income Tax (Expense) Benefit – Non-operating—The non-operating income tax expense represents the income tax effect of non-operating adjustments and is computed by applying the appropriate jurisdiction’s tax rate to the non-operating adjustments that are subject to income tax.

We consider these non-operating adjustments to be meaningful adjustments to net income (loss) available to AHL common shareholders for the reasons discussed in greater detail above. Accordingly, we believe using a measure which excludes the impact of these items is useful in analyzing our business performance and the trends in our results of operations. Together with net income (loss) available to AHL common shareholders, we believe adjusted operating income (loss) available to common shareholders provides a meaningful financial metric that helps investors understand our underlying results and profitability. Adjusted operating income (loss) available to common shareholders should not be used as a substitute for net income.income (loss) available to AHL common shareholders.




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Adjusted ROE, Adjusted Operating ROE and Adjusted Net Income


Adjusted ROE, adjusted operating ROE and adjusted net income areis a non-GAAP measures measure used to evaluate our financial performance excluding the impacts of AOCI and the cumulative change in fair value of funds withheld and modco reinsurance assets, in each case net of DAC, DSI, rider reserve and tax offsets. Adjusted ROE is calculated as adjusted net income, divided by average adjusted shareholders’ equity. AdjustedAHL common shareholders’ equity is calculated as the ending AHL shareholders’ equity excluding AOCI, and the cumulative change in fair value of funds withheld and modco reinsurance assets.assets and preferred stock. Adjusted operating ROE is calculated as the adjusted operating income (loss) available to common shareholders, divided by average adjusted AHL common shareholders’ equity. Adjusted net income is calculated as net income excluding the change in fair value of funds withheld and modco reinsurance assets, net of DAC, DSI, rider reserve and tax offsets. These adjustments fluctuate period to period in a manner inconsistent with our underlying profitability drivers as the majority of such fluctuation is related to the market volatility of the unrealized gains and losses associated with our AFS securities. Except with respect to reinvestment activity relating to acquired blocks of businesses, we typically buy and hold AFS investments to maturity throughout the duration of market fluctuations, therefore, the period-over-period impacts in unrealized gains and losses are not necessarily indicative of current operating fundamentals or future performance. Accordingly, we believe using measures which exclude AOCI and the cumulative change in fair value of funds withheld and modco reinsurance assets are useful in analyzing trends in our operating results. To enhance the ability to analyze these measures across periods, interim periods are annualized. Adjusted ROE, adjusted operating ROE and adjusted net income should not be used as a substitute for ROE and net income.ROE. However, we believe the adjustments to net income (loss) available to AHL common shareholders and equity are significant to gaining an understanding of our overall financial performance.


Adjusted Operating Earnings (Loss) Per Common Share, Weighted Average Common Shares Outstanding – Adjusted Operating and Adjusted Book Value Per Common Share


Adjusted operating earnings (loss) per common share, weighted average common shares outstanding – adjusted operating and adjusted book value per common share are non-GAAP measures used to evaluate our financial performance and financial condition. The non-GAAP measures adjust the number of shares included in the corresponding GAAP measures to reflect the conversion or settlement of all shares and other stock-based awards outstanding. We believe using these measures representsrepresent an economic view of our share counts and providesprovide a simplified and consistent view of our outstanding shares. Adjusted operating earnings (loss) per common share is calculated as the adjusted operating income (loss) available to common shareholders, over the weighted average common shares outstanding – adjusted operating. Adjusted book value per common share is calculated as the adjusted AHL common shareholders’ equity divided by the adjusted operating common shares outstanding. Effective February 28, 2020, all Class B common shares were converted into Class A common shares and all Class M common shares were converted into warrants and Class A common shares. Our Class B common shares arewere economically equivalent to Class A common shares and can becould have been converted to Class A common shares on a one-for-one basis at any time. Our Class M common shares arewere in the legal form of shares but economically functionfunctioned as options as they arewere convertible into Class A common shares after vesting and paymentsettlement of the conversion price. In calculating Class A diluted earnings per share on a GAAP basis, we are required to apply sequencing rules to determine the dilutive impacts, if any, of our Class B common shares, Class M common shares and any other stock-based awards. To the extent our Class B common shares, Class M common shares and/or any other stock-based awards arewere not dilutive, after considering the dilutive effects of the more dilutive securities in the sequence, they arewere excluded. Weighted average common shares outstanding – adjusted operating and adjusted operating common shares outstanding assume conversion or settlement of all outstanding items that are able to be converted to or settled in Class A common shares, including the impacts of Class B common shares on a one-for-one basis, the impacts of all Class M common shares net of the conversion price and any other stock-based awards, but excluding any awards for which the exercise or conversion price exceeds the market value of our Class A common shares on the applicable measurement date. For certain historical periods, Class M shares were not included due to issuance restrictions which were contingent upon our IPO. Adjusted operating earnings (loss) per common share, weighted average common shares outstanding – adjusted operating and adjusted book value per common share should not be used as a substitute for basic earnings (loss) per share – Class A common shares, basic weighted average common shares outstanding – Class A or book value per common share. However, we believe the adjustments to the shares and equity are significant to gaining an understanding of our overall results of operations and financial condition.


Adjusted Debt to Capital Ratio


Adjusted debt to capital ratio is a non-GAAP measure used to evaluate our capital structure excluding the impacts of AOCI and the cumulative change in fair value of funds withheld and modco reinsurance assets, net of DAC, DSI, rider reserve and tax offsets. Adjusted debt to capital ratio is calculated as total debt excluding consolidated variable interest entities (VIEs) divided by adjusted AHL shareholders’ equity. Adjusted debt to capital ratio should not be used as a substitute for the debt to capital ratio. However, we believe the adjustments to total debt and shareholders’ equity are significant to gaining an understanding of our capitalization, debt utilization and debt capacity.


Retirement Services Net Investment Spread, Investment Margin on Deferred Annuities and Operating Expenses
    
Net investment spread is a key measurement of the financial healthprofitability of our Retirement Services profitability.segment. Net investment spread measures our investment performance less the total cost of our liabilities. Net investment earned rate is a key measure of our investment performance, while cost of funds is a key measure of the cost of our policyholder benefits and liabilities. Investment margin on our deferred annuities measures our investment performance less the cost of crediting for our deferred annuities, which make up a significant portion of our net reserve liabilities.




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Net investment earned rate is a non-GAAP measure we use to evaluate the performance of our net invested assets that does not correspond to GAAP net investment income. Net investment earned rate is computed as the income from our net invested assets divided by the average net invested assets, excluding the impacts of our investment in Apollo, for the relevant period. To enhance the ability to analyze these measures across periods, interim periods are annualized. The adjustments to arrive at our net investment earned rate add (a) alternative investment gains and losses, (b) gains and losses related to trading securities for CLOs, (c) net VIE impacts (revenues, expenses and noncontrolling interest), (d) forward points gains and losses on foreign exchange derivative hedges and (e) the change in fair value of reinsurance assets.assets, and removes the proportionate share of the ACRA net investment income associated with the ACRA noncontrolling interest as well as the gain or loss on our investment in Apollo. We include the income and assets supporting our change in fair value of reinsurance assets by evaluating the underlying investments of the funds withheld at interest receivables and we include the net investment income from those underlying investments which does not correspond to the GAAP presentation of change in fair value of reinsurance assets. We exclude the income and assets supporting business that we have exited through ceded reinsurance including funds withheld agreements. We believe the adjustments for reinsurance provide a net investment earned rate on the assets for which we have economic exposure.


Cost of funds includes liability costs related to cost of crediting on both deferred annuities and institutional products as well as other liability costs.costs, but does not include the proportionate share of the ACRA cost of funds associated with the noncontrolling interest. Cost of funds is computed as the total liability costs divided by the average net invested assets, excluding our investment in Apollo, for the relevant period. To enhance the ability to analyze these measures across periods, interim periods are annualized.


Cost of crediting includes the costs for both deferred annuities and institutional products. Cost of crediting on deferred annuities is the interest credited to the policyholders on our fixed strategies as well as the option costs on the indexed annuity strategies. With respect to FIAs, the cost of providing index credits includes the expenses incurred to fund the annual index credits, and where applicable, minimum guaranteed interest credited. Cost of crediting on institutional products is comprised of PRT costs including interest credited, benefit payments and other reserve changes, net of premiums received when issued, as well as funding agreement costs including the interest payments and other reserve changes. Cost of crediting is computed as the cost of crediting for deferred annuities and institutional products divided by the average net invested assets, excluding the investment in Apollo, for the relevant periods. Cost of crediting on deferred annuities is computed as the net interest credited on fixed strategies and option costs on indexed annuity strategies divided by the average net account value of our deferred annuities. Cost of crediting on institutional products is computed as the PRT and funding agreement costs divided by the average net institutional reserve liabilities. Our average net invested assets, excluding our investment in Apollo, net account values and net institutional reserve liabilities are averaged over the number of quarters in the relevant period to obtain our associated cost of crediting for such period. To enhance the ability to analyze these measures across periods, interim periods are annualized.


Other liability costs include DAC, DSI and VOBA amortization, change in rider reserves, the cost of liabilities on products other than deferred annuities and institutional products, excise taxes, premiums, product charges and other revenues. We believe a measure like other liability costs is useful in analyzing the trends of our core business operations and profitability. While we believe other liability costs is a meaningful financial metric and enhances our understanding of the underlying profitability drivers of our business, it should not be used as a substitute for total benefits and expenses presented under GAAP.


Net investment earned rate, cost of funds, net investment spread and investment margin on deferred annuities are non-GAAP measures we use to evaluate the profitability of our business. We believe these metrics are useful in analyzing the trends of our business operations, profitability and pricing discipline. While we believe each of these metrics are meaningful financial metrics and enhance our understanding of the underlying profitability drivers of our business, they should not be used as a substitute for net investment income, interest sensitive contract benefits or total benefits and expenses presented under GAAP.


Operating expenses excludes integration, restructuring and other non-operating expenses, stock compensation expense, interest expense and policy acquisition expenses. We believe a measure like operating expenses is useful in analyzing the trends of our core business operations and profitability. While we believe operating expenses is a meaningful financial metric and enhances our understanding of the underlying profitability drivers of our business, it should not be used as a substitute for policy and other operating expenses presented under GAAP.



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Net Invested Assets


In managing our business, we analyze net invested assets, which does not correspond to total investments, including investments in related parties, as disclosed in our consolidated financial statements and notes thereto. InvestedNet invested assets represents the investments that directly back our net reserve liabilities as well as surplus assets. InvestedNet invested assets, excluding our investment in Apollo, is used in the computation of net investment earned rate, which allows us to analyze the profitability of our investment portfolio. InvestedNet invested assets includes (a) total investments on the consolidated balance sheets with AFS securities at cost or amortized cost, excluding derivatives, (b) cash and cash equivalents and restricted cash, (c) investments in related parties, (d) accrued investment income, (e) the consolidated VIE assets, liabilities and noncontrolling interest adjustments, (f) net investment payables and receivables, and (g) policy loans ceded (which offset the direct policy loans in total investments). Invested and (h) an allowance for credit losses. Net invested assets also excludes assets associated with funds withheld liabilities related to business exited through reinsurance agreements and derivative collateral (offsetting the related cash positions). We include the underlying investments supporting our assumed funds withheld and modco agreements in our net invested assets calculation in order to match the assets with the income received. We believe the adjustments for reinsurance provide a view of the assets for which we have economic exposure. OurNet invested assets includes our proportionate share of ACRA investments, based on our economic ownership, but does not include the proportionate share of investments associated with the noncontrolling interest. Net invested assets also includes our investment in Apollo. Our net invested assets, excluding our investment in Apollo, are averaged over the number of quarters in the relevant period to compute our net investment earned rate for such period. While we believe net invested assets is a meaningful financial metric and enhances our understanding of the underlying drivers of our investment portfolio, it should not be used as a substitute for total investments, including related parties, presented under GAAP.



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Net Reserve Liabilities


In managing our business, we also analyze net reserve liabilities, which does not correspond to total liabilities as disclosed in our consolidated financial statements and notes thereto. ReserveNet reserve liabilities representsrepresent our policyholder liability obligations net of reinsurance and is used to analyze the costs of our liabilities. ReserveNet reserve liabilities includesinclude (a) the interest sensitive contract liabilities, (b) future policy benefits, (c) dividends payable to policyholders, and (d) other policy claims and benefits, offset by reinsurance recoverable, excluding policy loans ceded. ReserveNet reserve liabilities include our proportionate share of ACRA reserve liabilities, based on our economic ownership, but does not include the proportionate share of reserve liabilities associated with the noncontrolling interest. Net reserve liabilities is net of the ceded liabilities to third-party reinsurers as the costs of the liabilities are passed to such reinsurers and, therefore, we have no net economic exposure to such liabilities, assuming our reinsurance counterparties perform under our agreements. The majority of our ceded reinsurance is a result of reinsuring large blocks of life business following acquisitions. For such transactions, GAAP requires the ceded liabilities and related reinsurance recoverables to continue to be recorded in our consolidated financial statements despite the transfer of economic risk to the counterparty in connection with the reinsurance transaction. While we believe net reserve liabilities is a meaningful financial metric and enhances our understanding of the underlying profitability drivers of our business, it should not be used as a substitute for total liabilities presented under GAAP.


Sales


Sales statistics do not correspond to revenues under GAAP but are used as relevant measures to understand our business performance as it relates to deposits generated during a specific period of time. Our sales statistics include deposits for fixed rate annuities and FIAs and align with the LIMRA definition of all money paid into an individual annuity, including money paid into new contracts with initial purchase occurring in the specified period and existing contracts with initial purchase occurring prior to the specified period (excluding internal transfers). While we believe sales is a meaningful metric and enhances our understanding of our business performance, it should not be used as a substitute for premiums presented under GAAP.




Consolidated Results of Operations


The following summarizes the consolidated results of operations:
Three months ended March 31,Three months ended March 31,
(In millions, except percentages)2019 20182020 2019
Revenues$4,961
 $1,011
$(1,549) $4,995
Benefits and expenses4,221
 689
(167) 4,255
Income before income taxes740
 322
Income tax expense32
 45
Net income$708
 $277
Income (loss) before income taxes(1,382) 740
Income tax expense (benefit)(166) 32
Net income (loss)(1,216) 708
Less: Net loss attributable to noncontrolling interests(169) —
Net income (loss) attributable to Athene Holding Ltd.(1,047) 708
Less: Preferred stock dividends18
 —
Net income (loss) available to AHL common shareholders$(1,065) $708
      
ROE30.8% 12.4%(36.5)% 30.8%
Adjusted ROE14.5% 17.1%


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Three Months Ended March 31, 20192020Compared to the Three Months Ended March 31, 20182019


In this section, references to 20192020 refer to the three months ended March 31, 2020 and references to 2019 refer to the three months ended March 31, 2019 and references.

Net Income (Loss) Available to 2018 refer to the three months ended March 31, 2018.AHL Common Shareholders


Net Income

Net income increased(loss) available to AHL common shareholdersdecreased by $431 million,$1.8 billion, or 156%250%, to $(1.1) billion in 2020 from $708 million in 2019 from $277 million in 2018. ROE increaseddecreased to 30.8%(36.5)% from 12.4%30.8% in 2018, and adjusted ROE decreased to 14.5% from 17.1% in 20182019. The increasedecrease in net income (loss) available to AHL common shareholders was driven by a $4.0$6.5 billion increasedecrease in revenues, partially offset by an increasea decrease of $3.5$4.4 billion in benefits and expenses and a $198 million decrease in income tax expenses.


Revenues


Revenues increaseddecreased by $4.0$6.5 billion to $(1.5) billion in 2020 from $5.0 billion in 2019 from $1.0 billion in 2018. The increasedecrease was driven by an increasea decrease in investment related gains and losses, increasea decrease in premiums, higherand a decrease in net investment income and higher product charges.income.


Investment related gains and losses increaseddecreased by $2.0$5.3 billion to $1.8$(3.6) billion in 20192020 from $(236) million$1.8 billion in the prior year, primarily due to the change in fair value of FIA hedging derivatives, the change in fair value of reinsurance assets and a favorableassets, the provision for credit losses, the change in fair value of trading securities.securities and a decrease in equity securities reflecting the decline in financial markets. The change in fair value of FIA hedging derivatives increased $991 milliondecreased $2.4 billion driven by the strongunfavorable performance of the indices upon which our call options are based. The majority of our call options are based on the S&P 500 index which increaseddecreased 20.0% in 2020, compared to an increase of 13.1% in 2019, compared to a decrease of 1.2% in 2018.2019. The change in fair value of reinsurance assets increased by $862 milliondecreased $2.3 billion primarily driven by the change in the value of the underlying assets related to credit spreads widening, partially offset by the decrease in U.S. Treasury rates andrates. The unfavorable provision for credit spreads tightening.losses of $284 million was primarily a result of the forecasted economic downturn from the spread of COVID-19. The favorableunfavorable change in fair value of trading securities of $138$279 million was comprised primarily by an increaseof a decrease in AmerUs Closed Block assets of $106$97 million, relatedCLO equity securities, non-redeemable preferred stock and other trading securities primarily due to higher gains resulting from acredit spreads widening, partially offset by the decrease in U.S. Treasury rates and credit spreads tightening compared to prior year.rates.


Premiums increaseddecreased by $1.7 billion to $2.0 billion in 2019 from $278 million in the prior period, driven by higher PRT premiums and an increase in premiums from flow reinsurance.

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Net investment income increased by $211$860 million to $1.1 billion in 20192020from $855$2.0 billion in the prior year, driven by lower PRT premiums compared to prior year.

Net investment income decreased by $337 million to $745 millionin 2018,2020from$1.1 billion in the prior year, primarily driven by earnings from growth inan unrealized loss on our investment portfolio attributedin Apollo of $297 million due to the Voyadecrease in share price and Lincoln reinsurance transactions, as well as a strongan increase in deposits overthe liquidity discount, alternative investment losses, higher investment management fees due primarily to increased invested assets compared to the prior twelve months. Additionally, net investmentyear and lower floating rate income increased due to higher floatingthe lower interest rate investment income of $17 million related to higher short-term interest rates.environment.

Product charges increased by $29 million to $125 million in 2019 from $96 million in 2018, primarily driven by growth in the block of business and charges related to the addition of the Voya reinsurance liabilities.


Benefits and Expenses


Benefits and expenses increaseddecreased by $3.5$4.4 billion to $4.2$(167) million in 2020 from $4.3 billion in 2019 from $689 million in 2018.2019. The increasedecrease was driven by an increase in future policy benefits, an increasea decrease in interest sensitive contract benefits, and an increasea decrease in amortization of DAC and VOBA.

Futurefuture policy and other policy benefits increased by $1.9 billion to $2.3 billionand a decrease in 2019 from $401 million in 2018, primarily attributable to higher PRT obligations, an increase in the change in AmerUs Closed Block fair value liability,DAC, DSI and higher benefits for payout annuities with life contingencies due to the Voya reinsurance transaction. The unfavorable change in the AmerUs Closed Block fair value liability of $124 million was primarily driven by the increase in unrealized gains on the underlying investments related to the change in U.S. Treasury rates compared to prior year and credit spreads tightening.VOBA amortization.


Interest sensitive contract benefits increaseddecreased by $1.5$2.8 billion to $(1.3) billion in 2020 from $1.5 billion in 2019, from $31 million in 2018, driven by an increaseby a decrease in FIA fair value embedded derivativesderivatives of $1.4 billion and growth in the block of business.$2.8 billion. The change in the FIA fair value embedded derivatives was primarily due to the performance of the equity indices to which our FIA policies are linked, primarily the S&P 500 index, which experienced a 13.1% increasedecrease of 20.0% in 2019,2020, compared to a decreasean increase of 1.2%13.1% in 2018,2019, as well as an unfavorablea favorable change in discount rates used in our embedded derivative calculations as the current quarteryear experienced an increase in discount rates compared to 2019, which experienced a decrease in discount rates.

Future policy and other policy benefits decreased by $973 million to $1.4 billion in 2020 from $2.3 billion in 2019, primarily attributable to lower PRT obligations, a decrease in the change in AmerUs Closed Block fair value liability and a decrease in the change in rider reserves. The favorable change in the AmerUs Closed Block fair value liability of $105 million was primarily driven by the increase in unrealized losses on the underlying investments related to credit spreads widening, partially offset by the decrease in U.S. Treasury rates compared to 2018, which experienced an increaseprior year. The change in discount rates.rider reserve of $46 million was primarily due to the unfavorable change in reinsurance embedded derivatives, partially offset by the favorable net change in FIA derivatives, unfavorable impacts from equity market performance and growth in the block of business.


DAC, DSI and VOBA amortization increaseddecreased by $149$639 million to $231$(403) million in 2020 from $236 million in 2019, from $82 million in 2018, primarily due to the unfavorable change in investment related gains and losses as a result of a favorablean unfavorable change in reinsurance embedded derivatives, partially offset by the unfavorablefavorable net change in FIA derivatives.derivatives, unfavorable impacts from equity market performance and growth in the block of business.


Taxes


Income tax expense (benefit) decreased by $13$198 million to$(166) million in 2020 from $32 million in 2019 from $45 million in 2018.2019. The income tax expensebenefit for 2019 reflects2020 was primarily driven by lower income before tax resulting from the implementationunfavorable change in reinsurance embedded derivatives and unrealized losses on our investment in Apollo.

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Table of additional reinsurance arrangements in the third quarterContents

Item 2. Management’s Discussion and Analysis of 2018, which are common in the insurance industry.Financial Condition and Results of Operations




Our effective tax rate in the first quarter of 20192020 was 4%(12%) and 14%4% in 2018.2019. Our effective tax rates may vary period to period depending upon the relationship of income and loss subject to tax compared to consolidated income and loss before income taxes.



Noncontrolling Interest

56
TableNoncontrolling interest decreased by $169 million to $(169) million in 2020 from $0 million in 2019, driven by a net loss related to noncontrolling interests in ACRA following the sale of Contentsa 67% interest in ACRA to ADIP on October 1, 2019. There was no significant noncontrolling interest prior to the ACRA sale to ADIP.


Item 2. Management’s DiscussionPreferred Stock Dividends

Preferred stock dividends increased by $18 million to $18 million in 2020 from $0 million in 2019, driven by our issuance of preferred stock in in June and AnalysisSeptember of Financial Condition and Results of Operations2019.




Results of Operations by Segment


The following summarizes our adjusted operating income (loss) available to common shareholders by segment:
Three months ended March 31,Three months ended March 31,
(In millions, except percentages)2019 20182020 2019
Net income$708
 $277
Net income (loss) available to AHL common shareholders$(1,065) $708
      
Non-operating adjustments      
Realized gains (losses) on sale of AFS securities12
 17
12
 12
Unrealized, impairments and other investment gains (losses)29
 6
Unrealized, allowances and other investment gains (losses)(369) 29
Change in fair value of reinsurance assets616
 (78)(1,277) 616
Offsets to investment gains (losses)(199) 22
495
 (199)
Investment gains (losses), net of offsets458
 (33)(1,139) 458
Change in fair values of derivatives and embedded derivatives – FIAs, net of offsets(27) 86
65
 (27)
Integration, restructuring and other non-operating expenses(1) (8)(4) (1)
Stock compensation expense(3) (3)(10) (3)
Income tax (expense) benefit – non-operating(6) (6)131
 (6)
Less: Total non-operating adjustments421
 36
(957) 421
Adjusted operating income$287
 $241
Adjusted operating income (loss) available to common shareholders$(108) $287
      
Adjusted operating income (loss) by segment   
Adjusted operating income (loss) available to common shareholders by segment   
Retirement Services$286
 $239
$204
 $286
Corporate and Other1
 2
(312) 1
Adjusted operating income$287
 $241
Adjusted operating income (loss) available to common shareholders$(108) $287
      
Adjusted operating ROE12.8% 12.4%(4.4)% 12.8%
Retirement Services adjusted operating ROE14.4% 17.8%10.6 % 14.4%



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Three Months Ended March 31, 20192020 Compared to the Three Months Ended March 31, 20182019


Adjusted Operating Income (Loss) Available to Common Shareholders

Adjusted operating income increased(loss) available to common shareholders decreased by $46$395 million, or 19%138%, to $(108) million in 2020 from $287 million in 2019 from $241 million in 2018. 2019. Adjusted operating ROE was 12.8%(4.4)%, updown from 12.4%12.8% in 2018.2019. Adjusted operating income (loss) available to common shareholders excluding the investment in Apollo, net of tax was $131 million for the three months ended March 31, 2020. The increasedecrease in adjusted operating income (loss) available to common shareholders was primarily driven by an increasea decrease in our Corporate and Other segment of $313 million, as well as a decrease in our Retirement Services segment of $47 million, while Corporate and Other decreased $1$82 million.


Our consolidated net investment earned rate was 3.87% in 2020, a decrease from 4.28% in 2019, a decrease from 4.60% in 2018, primarily due to the lowerunfavorable performance in our alternative investment performanceportfolio as well as slightly lowerless favorable performance of our fixed and other investment performance.portfolio. Alternative net investment earned rate was(2.58)% in 2020, a decrease from 4.36% in 2019, driven by a decrease from 10.38% in 2018, driven by the lower credit fund income, partially offset by an increase in market value of publicthe equity positionsposition in OneMain Holdings, Inc. (OneMain)as well as decreases in credit fund and Caesars Entertainment Corporation (Caesars).MidCap returns. Fixed and other net investment earned rate was 4.20% in 2020, a decrease from 4.28% in 2019, a decrease from 4.32% in 2018, driven by cash drags from significant asset growth in bothlower floating rate investment income and higher investment management fees due primarily to increased invested assets compared to the fourth quarter of 2018 and first quarter of 2019, and lower returns on assets from the Voya and Lincoln reinsurance transactions,prior year, partially offset by higher floating rate investmentbond call income in 2019.and mortgage prepayments.


Non-operating Adjustments


Non-operating adjustments increaseddecreased by $385$1.4 billion to $(957) million toin 2020 from $421 million in 2019 from $36 million in 2018.2019. The increasedecrease in non-operating adjustments was primarily driven by the unfavorable changes in fair value of reinsurance assets and credit loss allowances, partially offset by the favorable change in net FIA derivatives. The change in fair value of reinsurance assets were unfavorable by $1.9 billion due to credit spreads widening, partially offset by unfavorable FIA fair value embedded derivatives. Change in fair value of reinsurance assets impacts were favorable by $694 million due to a decrease in U.S. Treasury rates,rates. The change in provision for credit spreads tightening, and growthloss in 2020 of $284 million was primarily a result of the reinsurance blockforecasted economic downturn from the Voya and Lincoln transactions.spread of COVID-19. Net FIA fair value embedded derivatives were unfavorablefavorable by $113$92 million primarily due to an unfavorablethe favorable change in discount rates used in our embedded derivative calculations, as the current quarter experienced a decrease in discount rates compared to 2018, partially offset by the unfavorable performance of the equity indices to which our FIA policies are linked, primarily the S&P 500 index, which experienced a 13.1% increase in 2019, compared to a decrease of 1.2% in 2018.index.


Retirement Services


Retirement Services is comprised of our United States and Bermuda operations which issue and reinsure retirement savings products and institutional products. Retirement Services has retail operations, which provide annuity retirement solutions to our policyholders. Retirement Services also has reinsurance operations, which reinsure FIAs, MYGAs, traditional one year guarantee fixed deferred annuities, immediate annuities and institutional products from our reinsurance partners. In addition, our institutional operations, including funding agreements and PRT obligations, are included in our Retirement Services segment.

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Three Months Ended March 31, 20192020 Compared to the Three Months Ended March 31, 20182019


Adjusted Operating Income Available to Common Shareholders


Adjusted operating income increasedavailable to common shareholders decreased by $47$82 million, or 20%29%, to $204 million in 2020, from $286 million in 2019, from $239 million in 2018. 2019. Adjusted operating ROE was 14.4%10.6%, down from 17.8%14.4% in the prior period. The increasedecrease in adjusted operating income available to common shareholderswas driven by higher cost of funds, partially offset by $37.6 billion of growth in our invested assets deliveringhigher net investment spread accretion over prior year primarily attributed to inorganic deposits from the Voya and Lincoln reinsurance transactions as well as strong organic deposits over the prior twelve months. Net investment earnings also benefited from higher floating rate income of $17 million related to higher short-term interest rates.earnings. Cost of funds benefited from lowerwere $87 million higher primarily related to unfavorable rider reserves and DAC amortization related to unfavorable impacts from equity market performance and lower than expected gross profits,higher k-factors, partially offset by actuarial experience on certain policies. Alternativelower gross profits. Net investment earnings increased $13 million primarily driven by $5.9 billion of growth in our average net invested assets from prior year attributed to a strong growth in deposits as well as higher bond call income and mortgage prepayments, partially offset by lower floating rate investment income, decreasedalternative investment losses and higher investment management fees due primarily as a result of a decrease in one of our credit funds related to unrealized gains recognized in 2018. Additionally, credit fund income was lower dueincreased invested assets compared to credit spreads widening in Q4 2018 impacting alternative investments reported on a lag.the prior year.


Net Investment Spread
Three months ended March 31,Three months ended March 31,
2019 20182020 2019
Net investment earned rate4.21% 4.63%4.04% 4.21%
Cost of funds2.85% 2.84%3.01% 2.85%
Net investment spread1.36% 1.79%1.03% 1.36%



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Net investment spread, which measures the spread on our investment performance less the total cost of our liabilities, decreased 4333 basis points to 1.03% in 2020 from 1.36% in 2019 from 1.79% in 2018.2019. Net investment earned rate decreased due to a decline in our alternative net investment earned rate as well as a slight decline in theand fixed and other net investment earned rate.The alternative net investments earned rate decreased in 2020 to 0.56% from 2.13% in 2019, to 2.13% from 12.34% in 2018, driven byby lower credit fund income.returns, mainly PK AirFinance equities, as well as a lower MidCap return mainly due to a decrease in valuation reflecting an increase in loan loss assumptions and lower origination volumes due to the current interest rate environment. The fixed and other net investment earned rate decreased in 2019,2020 to 4.20% from 4.28% from 4.32% in 20182019, primarily attributed to cash drag from significant asset growth in bothlower floating rate income and higher investment management fees due primarily to increased invested assets compared to the fourth quarter of 2018 and first quarter of 2019, and lower returns on the assets from the Voya and Lincoln reinsurance transactions,prior year, partially offset by higher floating rate investment income.bond call income and mortgage prepayments.


Cost of funds increased by one16 basis pointpoints to 3.01% in 2020, from 2.85% in 2019, from 2.84% in 2018, primarily driven by growth in our institutional channel at a higher rate and actuarial experience on certain policies, partially offset by lowerunfavorable rider reserves and DAC amortization relateddue to unfavorable impacts from equity market performance and higher k-factors, partially offset by lower than expected gross profits. Weprofits and lower cost of crediting. Cost of crediting decreased 8 basis points primarily driven by favorable rate actions on deferred annuities, a decrease in floating rate funding agreement rates and a decrease in PRT rates.

Investment Margin on Deferred Annuities
 Three months ended March 31,
 2020 2019
Net investment earned rate4.04% 4.21%
Cost of crediting on deferred annuities1.91% 1.98%
Investment margin on deferred annuities2.13% 2.23%

Investment margin on deferred annuities, which measures our investment performance less the cost of crediting for our deferred annuities, decreased by 10 basis points to 2.13% in 2020, from 2.23% in 2019, driven by a decrease in the net investment earned rate, partially offset by a decrease in the cost of crediting on deferred annuities from the prior year as we continue to focus on pricing discipline, managing interest rates credited to policyholders and managing the cost of options to fund the annual index credits on our FIA products.

Investment Margin on Deferred Annuities
 Three months ended March 31,
 2019 2018
Net investment earned rate4.21% 4.63%
Cost of crediting on deferred annuities1.98% 1.87%
Investment margin on deferred annuities2.23% 2.76%

Investment margin on deferred annuities, which measures our investment performance less the cost of crediting for our deferred annuities, decreased by 53 basis points to 2.23% in 2019, from 2.76% in 2018, primarily driven by a decrease in net investment earned rate as well as an increase in cost of crediting on deferred annuities. Cost of crediting on deferred annuities increased 11 basis points primarily due to higher option costs as a result of higher volatility and short-term interest rates and a higher cost of crediting rate on the Voya reinsurance liabilities.


Corporate and Other


Corporate and Other includes certain other operations related to our corporate activities. Included in Corporate and Other areactivities such as corporate allocated expenses, merger and acquisition costs, debt costs, preferred stock dividends, certain integration and restructuring costs, certain stock-based compensation and intersegment eliminations. In addition, we also hold capital in excess of the level of capital we hold in Retirement Services to support our operating strategystrategy.


Adjusted Operating Income (Loss) Available to Common Shareholders


Adjusted operating income (loss) available to common shareholdersdecreased by $1$313 million to $(312) million in 2020, from $1 million in 2019, from $2 million in 2018.2019. The decrease in adjusted operating income (loss) available to common shareholders was mainlyprimarily driven by lower earnings from a $239 million loss on the strategic investment in Apollo, net of tax, alternative investment losses attributed to a decrease in excess capital due to the deployment into inorganic opportunities and share buybacks, offset by the increase in market value of publicthe equity positionsposition in two of our funds.OneMain and lower credit fund income related to CLO equity declines, as well as preferred stock dividends.



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Consolidated Investment Portfolio
 
We had consolidated investments, including related parties, of $115.7$122.0 billion and $107.6$130.6 billion as of March 31, 20192020 and December 31, 2018,2019, respectively. Our investment strategy seeks to achieve sustainable risk-adjusted returns through the disciplined management of our investment portfolio against our long-duration liabilities, coupled with the diversification of risk. The investment strategies utilized by our investment managers focus primarily on a buy and hold asset allocation strategy that may be adjusted periodically in response to changing market conditions and the nature of our liability profile. Substantially all of our investment portfolio is managed by AAM, an indirect subsidiary of Apollo. AAMApollo, which provides a full suite of services, for our investment portfolio, including direct investment management, asset allocation, mergers and acquisition asset diligence, and certain operational support services, including investment compliance, tax, legal and risk management support. Our relationship with AAM and Apollo allows us to take advantage of our generally illiquid liability profile by identifying investment opportunities with an emphasis on earning incremental yield by taking liquidity and complexity risk rather than assuming solely credit risk. The deep experience of the AAMApollo’s investment team and Apollo’s credit portfolio managers assistsutilize their deep experience to assist us in sourcing and underwriting complex asset classes. AAMApollo has selected a diverse array of corporate bonds and more structured, but highly rated asset classes. We also maintain holdings in floating rate and less rate-sensitive instruments, including CLOs, non-agency RMBS and various types of structured products. In addition to our fixed income portfolio, we opportunistically allocate 5–10% of our portfolio to alternative investments where we primarily focus on fixed income-like, cash flow-based investments.



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Our net invested assets, which are those that directly back our net reserve liabilities as well as surplus assets, (as previously discussed in Key Operating and Non-GAAP Measures), were $113.8$121.2 billion and $111.0$117.5 billion as of March 31, 20192020 and December 31, 2018,2019, respectively. AAM managed, directly and indirectly, substantially all of our invested assets as of March 31, 2019, comprising a diversified portfolio of fixed maturity and other securities. AAM’sApollo’s knowledge of our funding structure and regulatory requirements allows it to design customized strategies and investments for our portfolio.

Our Apollo manages our asset portfolio is managed within the limits and constraints set forth in our Investment and Credit Risk Policy. Under this policy, we set limits on investments in our portfolio by asset class, such as corporate bonds, emerging markets securities, municipal bonds, non-agency RMBS, CMBS, CLOs, commercial mortgage whole loans and mezzanine loans and investment funds. We also set credit risk limits for exposure to a single issuer that vary based on the issuer’s ratings. In addition, our investment portfolio is constrained by its scenario-based capital ratio limit and its stressed liquidity limit.


The following table presents the carrying values of our total investments and investments in related parties:
March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
(In millions, except percentages)Carrying Value Percent of Total Carrying Value Percent of TotalCarrying Value Percent of Total Carrying Value Percent of Total
AFS securities, at fair value$64,655
 55.9% $59,265
 55.1%$65,671
 53.9% $71,374
 54.7%
Trading securities, at fair value2,256
 2.0% 1,949
 1.8%1,979
 1.6% 2,070
 1.6%
Equity securities, at fair value252
 0.2% 216
 0.2%206
 0.2% 247
 0.2%
Mortgage loans, net of allowances11,042
 9.5% 10,340
 9.6%14,395
 11.8% 14,306
 11.0%
Investment funds683
 0.6% 703
 0.6%740
 0.6% 750
 0.6%
Policy loans487
 0.4% 488
 0.4%403
 0.3% 417
 0.3%
Funds withheld at interest15,241
 13.2% 15,023
 14.0%13,716
 11.3% 15,181
 11.6%
Derivative assets1,920
 1.7% 1,043
 1.0%1,610
 1.3% 2,888
 2.2%
Short-term investments, at fair value155
 0.1% 191
 0.2%
Short-term investments583
 0.5% 596
 0.5%
Other investments121
 0.1% 122
 0.1%172
 0.1% 158
 0.1%
Total investments96,812
 83.7% 89,340
 83.0%99,475
 81.6% 107,987
 82.8%
Investment in related parties       
Investments in related parties       
AFS securities, at fair value1,684
 1.5% 1,437
 1.3%3,546
 2.9% 3,804
 2.9%
Trading securities, at fair value239
 0.2% 249
 0.2%718
 0.6% 785
 0.6%
Equity securities, at fair value301
 0.3% 120
 0.1%49
 —% 64
 0.0%
Mortgage loans291
 0.2% 291
 0.3%
Mortgage loans, net of allowances623
 0.5% 653
 0.5%
Investment funds2,290
 2.0% 2,232
 2.1%4,631
 3.8% 3,550
 2.7%
Funds withheld at interest13,683
 11.8% 13,577
 12.6%12,452
 10.2% 13,220
 10.1%
Other investments387
 0.3% 386
 0.4%
Other investments, net of allowances475
 0.4% 487
 0.4%
Total related party investments18,875
 16.3% 18,292
 17.0%22,494
 18.4% 22,563
 17.2%
Total investments including related party$115,687
 100.0% $107,632
 100.0%$121,969
 100.0% $130,550
 100.0%


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The increasedecrease in our total investments, including related party, as of March 31, 20192020 of $8.1$8.6 billion compared to December 31, 20182019 was mainly driven by unrealized losses on AFS securities of $6.0 billion attributed to significant widening of credit spreads, partially offset by a decrease in U.S. Treasury rates, a decrease in derivative assets due to unfavorable equity market performance and a decrease in asset purchases from the prior quarter driven by the low interest rate environment as well as an effort to increase liquidity. The decrease was partially offset by growth from organic deposits of $4.8$3.9 billion lessin excess of liability outflows of $2.8$2.7 billion as well as an increase in unrealized gains and losses on AFS securitiesinvestment funds driven by our investment in Apollo of $2.0 billion attributed to the decrease in U.S. Treasury rates and credit spreads tightening, an increase in derivatives assets due to favorable equity market performance and reinvestment of earnings.$850 million.


Our investment portfolio consists largely of high quality fixed maturity securities, loans and short-term investments, as well as additional opportunistic holdings in investment funds and other instruments, including a small amount of equity holdings. Fixed maturity securities and loans include publicly issued corporate bonds, government and other sovereign bonds, privately placed corporate bonds and loans, mortgage loans, CMBS, RMBS, CLOs, and ABS.


While the substantial majority of our investment portfolio has been allocated to corporate bonds and structured credit products, a key component of our investment strategy is the opportunistic acquisition of investment funds with attractive risk and return profiles. Our investment fund portfolio consists of funds that employ various strategies including real estate and other real asset funds, credit funds and private equity funds. We have a strong preference for assets that have some or all of the following characteristics, among others: (1) investments that constitute a direct investment or an investment in a fund with a high degree of co-investment; (2) investments with credit- or debt-like characteristics (for example, a stipulated maturity and par value), or alternatively, investments with reduced volatility when compared to pure equity; or (3) investments that we believe have less downside risk. We acquired certain investment funds from AAA Guarantor – Athene, L.P. (AAA Investor) (which are classified as private equity investments


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Item 2. Management’s Discussion and consolidated VIEs) as a one-time capital contribution by our largest shareholder in advanceAnalysis of the Aviva USA acquisition. With respect to investment fund portfolios that we received in these transactions, we actively reinvest these investments in our preferred credit-oriented strategies over time as we liquidate these holdings.Financial Condition and Results of Operations



We hold derivatives for economic hedging purposes to reduce our exposure to the cash flow variability of assets and liabilities, equity market risk, interest rate risk, credit risk and to a lesser extent, foreign exchange risk. Our primary use of derivative instruments relates to providing the income needed to fund the annual indexed credits on our FIA products. We primarily use fixed indexed options to economically hedge FIA products that guarantee the return of principal to the policyholder and credit interest based on a percentage of the gain in a specific market index.


With respect to derivative positions, we transact with highly rated counterparties, and do not expect the counterparties to fail to meetfulfill their obligations under the contracts. We generally use industry standard agreements and annexes with bilateral collateral provisions to further reduce counterparty credit exposure.


AFS Securities


We invest in AFS securities with the intent to hold investments to maturity. In selecting investments we attempt to source investments that match our future cash flow needs. However, we may sell any of our investments in advance of maturity in order to timely satisfy our liabilities as they become due or in order to respond to a change in the credit profile or other characteristics of the particular investment.


AFS securities are carried at fair value on our condensed consolidated balance sheets. Changes in fair value of our AFS securities, net of related DAC, DSI and VOBA amortization and the change in rider reserves, are charged or credited to other comprehensive income, net of tax. DeclinesAll changes in the allowance for expected credit losses, whether due to passage of time, change in expected cash flows, or change in fair value that are other than temporary are recorded as realized losses inthrough credit loss expense within investment related gains (losses) on the condensed consolidated statements of income net of any applicable non-credit component of the loss, which is recorded as an adjustment to other comprehensive income.(loss).


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The distribution of our AFS securities, including related parties, by type is as follows:
March 31, 2019March 31, 2020
(In millions, except percentages)Amortized Cost Unrealized Gains Unrealized Losses Fair Value Percent of TotalAmortized Cost Allowance for Credit Losses Unrealized Gains Unrealized Losses Fair Value Percent of Total
AFS securities                    
U.S. government and agencies$48
 $2
 $—
 $50
 0.1%$37
 $—
 $3
 $—
 $40
 0.1%
U.S. state, municipal and political subdivisions1,209
 161
 (5) 1,365
 2.1%815
 —
 102
 (8) 909
 1.3%
Foreign governments262
 9
 —
 271
 0.4%278
 —
 14
 (1) 291
 0.4%
Corporate40,727
 1,218
 (534) 41,411
 62.4%44,315
 (15) 2,138
 (1,970) 44,468
 64.3%
CLO6,320
 6
 (184) 6,142
 9.2%8,057
 —
 4
 (1,420) 6,641
 9.6%
ABS5,023
 85
 (33) 5,075
 7.7%4,970
 (5) 32
 (434) 4,563
 6.6%
CMBS2,394
 50
 (20) 2,424
 3.7%2,431
 (4) 65
 (201) 2,291
 3.3%
RMBS7,457
 480
 (20) 7,917
 11.9%6,673
 (54) 116
 (267) 6,468
 9.3%
Total AFS securities63,440
 2,011
 (796) 64,655
 97.5%67,576
 (78) 2,474
 (4,301) 65,671
 94.9%
AFS securities – related party                    
Corporate3
 —
 —
 3
 0.0%18
 —
 1
 —
 19
 —%
CLO654
 —
 (16) 638
 0.9%1,226
 —
 —
 (186) 1,040
 1.5%
ABS1,039
 11
 (7) 1,043
 1.6%2,760
 —
 1
 (274) 2,487
 3.6%
Total AFS securities – related party1,696
 11
 (23) 1,684
 2.5%4,004
 —
 2
 (460) 3,546
 5.1%
Total AFS securities including related party$65,136
 $2,022
 $(819) $66,339
 100.0%$71,580
 $(78) $2,476
 $(4,761) $69,217
 100.0%



 December 31, 2018
(In millions, except percentages)Cost or Amortized Cost Unrealized Gains Unrealized Losses Fair Value Percent of Total
AFS securities         
U.S. government and agencies$57
 $—
 $—
 $57
 0.1%
U.S. state, municipal and political subdivisions1,183
 117
 (7) 1,293
 2.1%
Foreign governments162
 2
 (3) 161
 0.3%
Corporate38,018
 394
 (1,315) 37,097
 61.1%
CLO5,658
 2
 (299) 5,361
 8.8%
ABS4,915
 53
 (48) 4,920
 8.1%
CMBS2,390
 27
 (60) 2,357
 3.9%
RMBS7,642
 413
 (36) 8,019
 13.2%
Total AFS securities60,025
 1,008
 (1,768) 59,265
 97.6%
AFS securities – related party         
CLO587
 —
 (25) 562
 0.9%
ABS875
 4
 (4) 875
 1.5%
Total AFS securities – related party1,462
 4
 (29) 1,437
 2.4%
Total AFS securities including related party$61,487
 $1,012
 $(1,797) $60,702
 100.0%


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 December 31, 2019
(In millions, except percentages)Amortized Cost Unrealized Gains Unrealized Losses Fair Value Percent of Total
AFS securities         
U.S. government and agencies$35
 $1
 $—
 $36
 0.0%
U.S. state, municipal and political subdivisions1,322
 220
 (1) 1,541
 2.1%
Foreign governments298
 29
 —
 327
 0.4%
Corporate44,106
 3,332
 (210) 47,228
 62.8%
CLO7,524
 21
 (196) 7,349
 9.8%
ABS5,018
 124
 (24) 5,118
 6.8%
CMBS2,304
 104
 (8) 2,400
 3.2%
RMBS6,872
 513
 (10) 7,375
 9.8%
Total AFS securities67,479
 4,344
 (449) 71,374
 94.9%
AFS securities – related party         
Corporate18
 1
 —
 19
 0.0%
CLO951
 3
 (18) 936
 1.3%
ABS2,814
 37
 (2) 2,849
 3.8%
Total AFS securities – related party3,783
 41
 (20) 3,804
 5.1%
Total AFS securities including related party$71,262
 $4,385
 $(469) $75,178
 100.0%

We maintain a diversified AFS portfolio of corporate fixed maturity securities across industries and issuers, and a diversified portfolio of structured securities. The composition of our AFS securities, including related parties, is as follows:
March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
(In millions, except percentages)Fair Value Percent of Total Fair Value Percent of TotalFair Value Percent of Total Fair Value Percent of Total
Corporate              
Industrial other1
$13,235
 19.9% $11,706
 19.3%$14,483
 20.9% $14,956
 19.9%
Financial13,020
 19.6% 11,809
 19.5%14,243
 20.6% 15,286
 20.3%
Utilities10,218
 15.4% 9,055
 14.9%10,255
 14.8% 11,217
 14.9%
Communication2,518
 3.8% 2,313
 3.8%2,592
 3.8% 2,739
 3.7%
Transportation2,423
 3.7% 2,214
 3.6%2,914
 4.2% 3,049
 4.1%
Total corporate41,414
 62.4% 37,097
 61.1%44,487
 64.3% 47,247
 62.9%
Other government-related securities              
U.S. state, municipal and political subdivisions1,365
 2.1% 1,293
 2.1%909
 1.3% 1,541
 2.1%
Foreign governments271
 0.4% 161
 0.3%291
 0.4% 327
 0.4%
U.S. government and agencies50
 0.1% 57
 0.1%40
 0.1% 36
 —%
Total non-structured securities43,100
 65.0% 38,608
 63.6%45,727
 66.1% 49,151
 65.4%
Structured securities              
CLO6,780
 10.1% 5,923
 9.8%7,681
 11.1% 8,285
 11.0%
ABS6,118
 9.3% 5,795
 9.5%7,050
 10.2% 7,967
 10.6%
CMBS2,424
 3.7% 2,357
 3.9%2,291
 3.3% 2,400
 3.2%
RMBS              
Agency60
 0.1% 59
 0.1%10
 —% 3
 —%
Non-agency7,857
 11.8% 7,960
 13.1%6,458
 9.3% 7,372
 9.8%
Total structured securities23,239
 35.0% 22,094
 36.4%23,490
 33.9% 26,027
 34.6%
Total AFS securities including related party$66,339
 100.0% $60,702
 100.0%$69,217
 100.0% $75,178
 100.0%
              
1 Includes securities within various industry segments including capital goods, basic industry, consumer cyclical, consumer non-cyclical, industrial and technology.
1 Includes securities within various industry segments including capital goods, basic industry, consumer cyclical, consumer non-cyclical, industrial and technology.
1 Includes securities within various industry segments including capital goods, basic industry, consumer cyclical, consumer non-cyclical, industrial and technology.



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The fair value of our AFS securities, including related parties, was $66.3$69.2 billion and $60.7$75.2 billion as of March 31, 20192020 and December 31, 2018,2019, respectively. The increasedecrease was mainly driven by the change in unrealized gains andlosses on AFS securities. The decrease in unrealized losses on AFS securities as well as strongwas attributed to the significant widening of credit spreads, partially offset by a decrease in U.S. Treasury rates. The overall decrease in AFS securities was partially offset by growth in deposits over liability outflows. Unrealized gains and losses on AFS securities increased attributed to the decrease in U.S. Treasury rates and credit spreads tightening.


The Securities Valuation Office (SVO) of the NAIC is responsible for the credit quality assessment and valuation of securities owned by state regulated insurance companies. Insurance companies report ownership of securities to the SVO when such securities are eligible for filing on the relevant schedule of the NAIC Financial Statement Blank.Statement. The SVO conducts credit analysis on these securities for the purpose of assigning an NAIC designation and/or unit price. Generally, the process for assigning an NAIC designation varies based upon whether a security is considered “filing exempt” (General Designation Process). Subject to the importantcertain exceptions, discussed below,a security is typically considered “filing exempt” if a securityit has been rated by a Nationally Recognized Statistical Rating Organization (NRSRO),. For securities that are not “filing exempt,” insurance companies assign temporary designations based upon a subjective evaluation of credit quality. The insurance company must then submit the securities to the SVO within 120 days of acquisition to receive an NAIC designation. For securities considered “filing exempt,” the SVO utilizes thatthe NRSRO rating and assigns an NAIC designation based upon the following system (General Ratings Process):system:
NAIC designation NRSRO equivalent rating
1 AAA/AA/A
2 BBB
3 BB
4 B
5 CCC
6 CC and lower



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Item 2. Management’s Discussioncertain loan-backed and Analysis of Financial Condition and Results of Operations


structured securities (LBaSS). The NRSRO ratings methodology is focused on the likelihood of recovery of all contractual payments, including principal at par, regardless of an investor’s carrying value. In effect, the NRSRO rating assumes that the holder is the original purchaser at par. In contrast, the SVO’s loan-backed and structured securities (LBaSS)LBaSS methodology is focused on determining the risk associated with the recovery of the amortized cost of each security. Because the NAIC’s methodology explicitly considers amortized cost and the likelihood of recovery of such amount, we view the NAIC’s methodology as the most appropriate way to viewmeans of evaluating the credit quality of our fixed maturity portfolio for purposes of evaluating credit quality since a large portion of our holdings were purchased and are carried at significant discounts to par.


The SVO has developed a ratingsdesignation process and provides instruction on both modeled and non-modeled LBaSS. For modeled LBaSS, the process is specific to the non-agency RMBS and CMBS asset classes. In order to establish ratings at the individual security level, the SVO obtains loan-level analysis of each RMBS and CMBS using a selected vendor’s proprietary financial model. The SVO ensures that the vendor has extensive internal quality-control processes in place and the SVO conducts its own quality-control checks of the selected vendor’s valuation process. The SVO has retained the services of Blackrock, Inc. (Blackrock) to model non-agency RMBS and CMBS owned by U.S. insurers for all years presented herein. Blackrock provides five prices (breakpoints), based on each U.S. insurer’s statutory book value price, to utilize in determining the NAIC designation for each modeled LBaSS.


Prior to January 1, 2019, certain non-modeled LBaSS (including CLOs and ABS, other than RMBS and CMBS) underwent ratings evaluation by an NAIC credit rating provider (CRP). Such securities were subject to an exemption from the General RatingsDesignation Process (MFE Exemption) and received NAIC designations through a prescribed process (MFE Process). Pursuant to the MFE Process, CRP ratings were translated to an NAIC designation equivalent. If the translation process resulted in an NAIC designation equivalent of NAIC 1 or NAIC 6, then such designation was considered the final NAIC designation. If the translation process resulted in an NAIC designation equivalent of NAIC 2 through NAIC 5, then the NAIC designation equivalent was used to select the appropriate breakpoint from a pricing matrix and such breakpoint was applied to the amortized cost or fair value (in each instance, as a percentage of par), as applicable, to determine the final NAIC designation. Effective January 1, 2019, the MFE Exemption was eliminated, and as a result, NAIC designations for all non-modeled LBaSS are thereafter determined through the General RatingsDesignation Process.


The NAIC designation determines the associated level of risk-based capital (RBC) that an insurer is required to hold for modeled LBaSSall securities owned by the insurer. In general, under the modeled LBassLBaSS process and, prior to January 1, 2019, the non-modeled LBaSS processes,process, the larger the discount to par value at the time of determination, the higher the NAIC designation the LBaSS will have.


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A summary of our AFS securities, including related parties, by NAIC designation is as follows:
March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
(In millions, except percentages)Amortized Cost Fair Value Percent of Total Amortized Cost Fair Value Percent of TotalAmortized Cost Fair Value Percent of Total Amortized Cost Fair Value Percent of Total
NAIC designation                      
1$32,944
 $34,021
 51.3% $31,106
 $31,311
 51.6%$36,068
 $35,844
 51.8% $36,392
 $38,667
 51.4%
228,457
 28,659
 43.2% 26,682
 25,871
 42.6%30,894
 29,432
 42.5% 30,752
 32,336
 43.0%
Total investment grade61,401
 62,680
 94.5% 57,788
 57,182
 94.2%66,962
 65,276
 94.3% 67,144
 71,003
 94.4%
32,757
 2,711
 4.1% 2,866
 2,746
 4.5%3,677
 3,117
 4.5% 3,237
 3,300
 4.4%
4720
 689
 1.0% 591
 533
 0.9%805
 710
 1.0% 740
 740
 1.0%
5250
 248
 0.4% 235
 232
 0.4%93
 72
 0.1% 102
 94
 0.1%
68
 11
 0.0% 7
 9
 0.0%43
 42
 0.1% 39
 41
 0.1%
Total below investment grade3,735
 3,659
 5.5% 3,699
 3,520
 5.8%4,618
 3,941
 5.7% 4,118
 4,175
 5.6%
Total AFS securities including related party$65,136
 $66,339
 100.0% $61,487
 $60,702
 100.0%$71,580
 $69,217
 100.0% $71,262
 $75,178
 100.0%


Substantially allA significant majority of our AFS portfolio, 94.5%94.3% and 94.2%94.4% as of March 31, 20192020 and December 31, 2018,2019, respectively, was invested in assets considered investment grade with a NAIC designation of 1 or 2.


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A summary of our AFS securities, including related parties, by NRSRO ratings is set forth below:
March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
(In millions, except percentages)Fair Value Percent of Total Fair Value Percent of TotalFair Value Percent of Total Fair Value Percent of Total
NRSRO rating agency designation              
AAA/AA/A$22,804
 34.3% $19,690
 32.4%$26,515
 38.3% $28,299
 37.7%
BBB25,773
 38.9% 23,326
 38.4%25,198
 36.4% 29,032
 38.6%
Non-rated1
9,723
 14.7% 9,624
 15.9%10,268
 14.8% 10,014
 13.3%
Total investment grade58,300
 87.9% 52,640
 86.7%61,981
 89.5% 67,345
 89.6%
BB2,729
 4.1% 2,670
 4.4%3,193
 4.6% 3,403
 4.5%
B888
 1.3% 875
 1.4%810
 1.2% 813
 1.1%
CCC2,253
 3.4% 2,340
 3.9%1,722
 2.5% 1,981
 2.6%
CC and lower1,320
 2.0% 1,296
 2.1%918
 1.3% 1,076
 1.4%
Non-rated1
849
 1.3% 881
 1.5%593
 0.9% 560
 0.8%
Total below investment grade8,039
 12.1% 8,062
 13.3%7,236
 10.5% 7,833
 10.4%
Total AFS securities including related party$66,339
 100.0% $60,702
 100.0%$69,217
 100.0% $75,178
 100.0%
              
1 Securities denoted as non-rated by the NRSRO were classified as investment or non-investment grade according to the security’s respective NAIC designation.
1 Securities denoted as non-rated by the NRSRO were classified as investment or non-investment grade according to the security’s respective NAIC designation. With respect to modeled LBaSS, and prior to January 1, 2019, non-modeled LBaSS, the NAIC designation methodology differs in significant respects from the NRSRO rating methodology.
1 Securities denoted as non-rated by the NRSRO were classified as investment or non-investment grade according to the security’s respective NAIC designation. With respect to modeled LBaSS, and prior to January 1, 2019, non-modeled LBaSS, the NAIC designation methodology differs in significant respects from the NRSRO rating methodology.


Consistent with the NAIC Process and Procedures Manual, an NRSRO rating was assigned based on the following criteria: (a) the equivalent S&P rating when the security is rated by one NRSRO; (b) the equivalent S&P rating of the lowest NRSRO when the security is rated by two NRSROs; and (c) the equivalent S&P rating of the second lowest NRSRO when the security is rated by three or more NRSROs. If the lowest two NRSRO ratings are equal, then such rating will be the assigned rating. NRSRO ratings available for the periods presented were S&P, Fitch, Moody’s Investor Service, DBRS, and Kroll Bond Rating Agency, Inc.


The portion of our AFS portfolio that was considered below investment grade based on NRSRO ratings was 12.1%10.5% and 13.3%10.4% as of March 31, 20192020 and December 31, 2018,2019, respectively. The primary driver of the difference in the percentage of securities considered below investment grade by NRSROs as compared to the securities considered below investment grade by the NAIC is the difference in methodologies between the NRSRO and NAIC for RMBS due to investments acquired and/or carried at a discount to par value, as discussed above.


As of each of March 31, 20192020 and December 31, 2018, the2019, non-rated securities shown above were comprised of 56%64% and 61%, respectively, of corporate private placement securities for which we have not sought individual ratings from the NRSRO, and 29%21% and 30%24%, respectively, were comprised of RMBS, many of which were acquired at a significant discount to par. We rely on internal analysis of credit risk and designations assigned by the NAIC.NAIC to evaluate the credit risk of our portfolio. As of each of March 31, 20192020 and December 31, 2018, 92%2019, 95% and 95%, respectively, of the non-rated securities were designated NAIC 1 or 2.



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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Asset-backed Securities– We invest in ABS which are securitized by pools of assets such as consumer loans, automobile loans, student loans, insurance-linked securities, operating cash flows of corporations and cash flows from various types of business equipment. Our AFS ABS holdings were $6.1$7.1 billion and $5.8$8.0 billion as of March 31, 20192020 and December 31, 2018,2019, respectively. The increasedecrease in our AFS ABS portfolio is mainly driven by sales and maturities in excess of new purchases in an effort to increase liquidity as well as unrealized losses due to attractive investments made duringcredit spreads widening, partially offset by the period as new deposits and the Voya and Lincoln investment portfolios are deployed.lower interest rate environment. As of March 31, 20192020 and December 31, 2018,2019, our AFS ABS portfolio included $5.5$6.6 billion (90%(94% of the total) and $5.4$7.4 billion (92% of the total), respectively, of securities that are considered investment grade based on NAIC designations, while $5.5$6.6 billion (90%(93% of the total) and $5.2$7.4 billion (89%(92% of the total), respectively, of securities were considered investment grade based on NRSRO ratings.



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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Collateralized Loan Obligations– We also invest in CLOs which pay principal and interest from cash flows received from underlying corporate loans. These holdings were $6.8$7.7 billion and $5.9$8.3 billion as of March 31, 20192020 and December 31, 2018,2019, respectively.


A summary of our AFS CLO portfolio, including related parties, by NAIC designations and NRSRO quality ratings is as follows:
March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
(In millions, except percentages)Fair Value Percent of Total Fair Value Percent of TotalFair Value Percent of Total Fair Value Percent of Total
NAIC designation              
1$3,577
 52.7% $3,005
 50.7%$4,888
 63.6% $4,626
 55.9%
23,029
 44.7% 2,498
 42.2%2,738
 35.7% 3,499
 42.2%
Total investment grade6,606
 97.4% 5,503
 92.9%7,626
 99.3% 8,125
 98.1%
3146
 2.2% 393
 6.7%48
 0.6% 133
 1.6%
421
 0.3% 20
 0.3%7
 0.1% 20
 0.2%
57
 0.1% 7
 0.1%—
 —% 7
 0.1%
6—
 —% —
 —%—
 —% —
 —%
Total below investment grade174
 2.6% 420
 7.1%55
 0.7% 160
 1.9%
Total AFS CLO including related party$6,780
 100.0% $5,923
 100.0%$7,681
 100.0% $8,285
 100.0%
              
NRSRO rating agency designation              
AAA/AA/A$3,567
 52.6% $2,921
 49.3%$4,888
 63.6% $4,626
 55.9%
BBB3,039
 44.8% 2,829
 47.8%2,738
 35.7% 3,499
 42.2%
Non-rated—
 —% —
 —%
Total investment grade6,606
 97.4% 5,750
 97.1%7,626
 99.3% 8,125
 98.1%
BB146
 2.2% 146
 2.4%48
 0.6% 133
 1.6%
B21
 0.3% 27
 0.5%7
 0.1% 20
 0.2%
CCC7
 0.1% —
 —%—
 —% 7
 0.1%
CC and lower—
 —% —
 —%—
 —% —
 —%
Non-rated—
 —% —
 —%
Total below investment grade174
 2.6% 173
 2.9%55
 0.7% 160
 1.9%
Total AFS CLO including related party$6,780
 100.0% $5,923
 100.0%$7,681
 100.0% $8,285
 100.0%


As of March 31, 20192020 and December 31, 2018,2019, a substantial majority of our AFS CLO portfolio, 97.4%99.3% and 92.9%98.1%, respectively, was invested in assets considered to be investment grade based upon an application of the NAIC’s methodology. As of March 31, 2019methodology and December 31, 2018, 97.4% and 97.1%, respectively, of of our AFS CLO portfolio was considered investment grade based on NRSRO ratings. The decrease in our CLO portfolio is mainly driven by unrealized losses due to credit spreads widening, partially offset by the lower interest rate environment.


Commercial Mortgage-backed Securities– A portion of our AFS portfolio is invested in CMBS. CMBS are constructed from pools of commercial mortgages. These holdings were $2.3 billion and $2.4 billion as of each of March 31, 20192020 and December 31, 2018.2019. As of March 31, 20192020 and December 31, 2018,2019, our AFS CMBS portfolio included $2.2$2.1 billion (91%(90% of the total) and $2.1 billion (91%(89% of the total), respectively, of securities that are considered investment grade based on NAIC designations, while $1.6$1.7 billion (67%(74% of the total) and $1.6$1.7 billion (66%(72% of the total), respectively, of securities were considered investment grade based on NRSRO ratings.


Residential Mortgage-backed Securities– As part of our core investment strategy, aA portion of our AFS portfolio is invested in RMBS. RMBS, which are securities constructed from pools of residential mortgages and backed by payments from those pools.mortgages. These holdings were $7.9$6.5 billion and $8.0$7.4 billion as of March 31, 20192020 and December 31, 2018,2019, respectively.




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A summary of our AFS RMBS portfolio by NAIC designations and NRSRO quality ratings is as follows:
March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
(In millions, except percentages)Fair Value Percent of Total Fair Value Percent of TotalFair Value Percent of Total Fair Value Percent of Total
NAIC designation              
1$7,236
 91.4% $7,415
 92.5%$5,915
 91.4% $6,701
 90.9%
2318
 4.0% 269
 3.3%239
 3.7% 330
 4.5%
Total investment grade7,554
 95.4% 7,684
 95.8%6,154
 95.1% 7,031
 95.4%
3222
 2.8% 207
 2.6%258
 4.0% 289
 3.9%
4118
 1.5% 106
 1.3%49
 0.8% 52
 0.7%
522
 0.3% 22
 0.3%5
 0.1% 3
 —%
61
 0.0% —
 —%2
 —% —
 —%
Total below investment grade363
 4.6% 335
 4.2%314
 4.9% 344
 4.6%
Total AFS RMBS$7,917
 100.0% $8,019
 100.0%$6,468
 100.0% $7,375
 100.0%
              
NRSRO rating agency designation              
AAA/AA/A$496
 6.3% $487
 6.1%$668
 10.3% $715
 9.7%
BBB270
 3.4% 220
 2.7%507
 7.8% 606
 8.2%
Non-rated1
2,874
 36.3% 2,932
 36.6%2,116
 32.7% 2,428
 32.9%
Total investment grade3,640
 46.0% 3,639
 45.4%3,291
 50.8% 3,749
 50.8%
BB325
 4.1% 332
 4.1%266
 4.1% 281
 3.8%
B279
 3.5% 301
 3.8%217
 3.4% 232
 3.2%
CCC2,163
 27.3% 2,259
 28.2%1,643
 25.4% 1,890
 25.6%
CC and lower1,315
 16.6% 1,292
 16.1%918
 14.2% 1,074
 14.6%
Non-rated1
195
 2.5% 196
 2.4%133
 2.1% 149
 2.0%
Total below investment grade4,277
 54.0% 4,380
 54.6%3,177
 49.2% 3,626
 49.2%
Total AFS RMBS$7,917
 100.0% $8,019
 100.0%$6,468
 100.0% $7,375
 100.0%
              
1 Securities denoted as non-rated by the NRSRO were classified as investment or non-investment grade according to the security’s respective NAIC designations.
1 Securities denoted as non-rated by the NRSRO were classified as investment or non-investment grade according to the security’s respective NAIC designations. The NAIC designation methodology differs in significant respects from the NRSRO rating methodology.
1 Securities denoted as non-rated by the NRSRO were classified as investment or non-investment grade according to the security’s respective NAIC designations. The NAIC designation methodology differs in significant respects from the NRSRO rating methodology.


A significant majority of our AFS RMBS portfolio, 95.4%95.1% and 95.8%95.4% as of March 31, 20192020 and December 31, 2018,2019, respectively, was invested in assets considered to be investment grade based upon an application of the NAIC’s methodology to our holdings of RMBS.NAIC designations. The NAIC’s methodology with respect to RMBS gives explicit effect to the amortized cost at which an insurance company carries each such investment. Because we invested in RMBS after the stresses related to U.S. housing had caused significant downward pressure on prices of RMBS, we carry most of our investments in RMBS at significant discounts to par value, which results in an investment grade NAIC designation. In contrast, our understanding is that in setting ratings, NRSROs focus on the likelihood of recovering all contractual payments including principal at par value. As a result of a fundamental difference in approach, as of March 31, 20192020 and December 31, 2018,2019, NRSRO characterized 46.0%50.8% and 45.4%50.8%, respectively, of our AFS RMBS portfolio as investment grade. The decrease in our RMBS portfolio is mainly driven by unrealized losses due to credit spreads widening, partially offset by the lower interest rate environment.


Unrealized Losses


Our investments in AFS securities, including related parties, are reported at fair value with changes in fair value recorded in other comprehensive income. Certain of our AFS securities, including related parties, have experienced declines in fair value that we consider temporary in nature. As of March 31, 2020, our AFS securities, including related party, had a fair value of $69.2 billion, which was 3.3% below amortized cost of $71.6 billion. As of December 31, 2019, our AFS securities, including related party, had a fair value of $66.3$75.2 billion, which was 1.8%5.5% above amortized cost of $65.1 billion. As of December 31, 2018, our AFS securities, including related party, had a fair value of $60.7 billion, which was 1.3% below amortized cost of $61.5$71.3 billion. These investments are held to support our product liabilities, and we currently have the intent and ability to hold these securities until sale or maturity, and believe the securities will recover the amortized cost basis prior to sale or maturity.


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The following tables reflect the unrealized losses on the AFS portfolio, including related parties, for which an allowance for credit losses has not been recorded, by NAIC designations:
 March 31, 2020
(In millions, except percentages)Amortized Cost of AFS Securities with Unrealized Loss Gross Unrealized Losses Fair Value of AFS Securities with Unrealized Loss Fair Value to Amortized Cost Ratio Fair Value of Total AFS Securities Gross Unrealized Losses to Total AFS Fair Value
NAIC designation           
1$17,205
 $(1,595) $15,610
 90.7% $35,844
 (4.4)%
217,337
 (2,358) 14,979
 86.4% 29,432
 (8.0)%
Total investment grade34,542
 (3,953) 30,589
 88.6% 65,276
 (6.1)%
33,027
 (554) 2,473
 81.7% 3,117
 (17.8)%
4671
 (88) 583
 86.9% 710
 (12.4)%
566
 (16) 50
 75.8% 72
 (22.2)%
639
 (2) 37
 94.9% 42
 (4.8)%
Total below investment grade3,803
 (660) 3,143
 82.6% 3,941
 (16.7)%
Total$38,345
 $(4,613) $33,732
 88.0% $69,217
 (6.7)%

The following tables reflect the unrealized losses on the AFS portfolio, including related parties, by NAIC designations:
March 31, 2019December 31, 2019
(In millions, except percentages)Amortized Cost of AFS Securities with Unrealized Loss Gross Unrealized Losses Fair Value of AFS Securities with Unrealized Loss Fair Value to Amortized Cost Ratio Fair Value of Total AFS Securities Gross Unrealized Losses to Total AFS Fair ValueAmortized Cost of AFS Securities with Unrealized Loss Gross Unrealized Losses Fair Value of AFS Securities with Unrealized Loss Fair Value to Amortized Cost Ratio Fair Value of Total AFS Securities Gross Unrealized Losses to Total AFS Fair Value
NAIC designation                      
1$8,572
 $(216) $8,356
 97.5% $34,021
 (0.6)%$5,672
 $(160) $5,512
 97.2% $38,667
 (0.4)%
212,336
 (451) 11,885
 96.3% 28,659
 (1.6)%5,252
 (223) 5,029
 95.8% 32,336
 (0.7)%
Total investment grade20,908
 (667) 20,241
 96.8% 62,680
 (1.1)%10,924
 (383) 10,541
 96.5% 71,003
 (0.5)%
31,596
 (91) 1,505
 94.3% 2,711
 (3.4)%945
 (41) 904
 95.7% 3,300
 (1.2)%
4446
 (53) 393
 88.1% 689
 (7.7)%338
 (34) 304
 89.9% 740
 (4.6)%
5186
 (8) 178
 95.7% 248
 (3.2)%79
 (11) 68
 86.1% 94
 (11.7)%
62
 —
 2
 100.0% 11
 — %1
 —
 1
 100.0% 41
 — %
Total below investment grade2,230
 (152) 2,078
 93.2% 3,659
 (4.2)%1,363
 (86) 1,277
 93.7% 4,175
 (2.1)%
Total$23,138
 $(819) $22,319
 96.5% $66,339
 (1.2)%$12,287
 $(469) $11,818
 96.2% $75,178
 (0.6)%

 December 31, 2018
(In millions, except percentages)Amortized Cost of AFS Securities with Unrealized Loss Gross Unrealized Losses Fair Value of AFS Securities with Unrealized Loss Fair Value to Amortized Cost Ratio Fair Value of Total AFS Securities Gross Unrealized Losses to Total AFS Fair Value
NAIC designation           
1$15,373
 $(545) $14,828
 96.5% $31,311
 (1.7)%
219,152
 (1,035) 18,117
 94.6% 25,871
 (4.0)%
Total investment grade34,525
 (1,580) 32,945
 95.4% 57,182
 (2.8)%
32,308
 (147) 2,161
 93.6% 2,746
 (5.4)%
4500
 (65) 435
 87.0% 533
 (12.2)%
588
 (5) 83
 94.3% 232
 (2.2)%
62
 —
 2
 100.0% 9
 — %
Total below investment grade2,898
 (217) 2,681
 92.5% 3,520
 (6.2)%
Total$37,423
 $(1,797) $35,626
 95.2% $60,702
 (3.0)%


The gross unrealized losses on AFS securities, including related parties, were $819$4.6 billion and $469 million and $1.8 billion as of March 31, 20192020 and December 31, 2018,2019, respectively. The decreaseincrease in unrealized losses was driven by credit spreads widening, partially offset by the decrease in U.S. Treasury rates and credit spreads tightening during the three months ended March 31, 2019.2020.


Other-Than-Temporary ImpairmentsAs of March 31, 2020 and December 31, 2019, we held $4.4 billion and $5.6 billion, respectively in energy sector fixed maturity securities, or 6% and 7% of the total fixed maturity securities, respectively, including related parties for each period. The gross unrealized capital losses on these securities were $839 million and $65 million, or 18% and 14% of the total unrealized losses, respectively.


Provision for Credit Losses

For our OTTI policycredit loss accounting policies and the identification of securities that could potentially have impairments,assumptions used in the allowances, see Note 1 – Business, Basis of Presentation and Significant Accounting Policies and Note 2 – Investments to the condensed consolidated financial statements, as well as Critical Accounting Estimates and Judgments.



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During the three months ended March 31, 2020, we recorded a change in provision for credit losses on AFS securities of $61 million, which were primarily driven by an increase in RMBS and corporate allowances. The intent-to-sell impairments for the three months ended March 31, 2020 were $13 million primarily related to corporates. During the three months ended March 31, 2019, and 2018, we recorded $1 million and $3 million, respectively, of OTTI losses, primarily related to corporate fixed maturities.impairments. The annualized intent-to-sell impairments we experienced for the three months ended March 31, 2020 translate into 4 basis points of average net invested assets, which exclude the ACRA noncontrolling interest. The annualized OTTI losses we have experienced for the three months ended March 31, 2019 and 2018 translate into less than 1 basis point and 2 basis points, respectively, of average net invested assets.


International Exposure


A portion of our AFS securities are invested in securities with international exposure. As of March 31, 20192020 and December 31, 2018, 31% and 30%2019, 32% of the carrying value of our AFS securities, including related parties, was comprised of securities of issuers based outside of the United States and debt securities of foreign governments. These securities are either denominated in U.S. dollars or do not expose us to significant foreign currency risk as a result of foreign currency swap arrangements.


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The following table presents our international exposure in our AFS portfolio, including related parties, by country or region:
March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
(In millions, except percentages)Amortized Cost Fair Value Percent of Total Amortized Cost Fair Value Percent of TotalAmortized Cost Fair Value Percent of Total Amortized Cost Fair Value Percent of Total
Country of risk                      
Ireland$631
 $624
 3.1% $578
 $552
 3.0%$1,242
 $1,076
 4.8% $1,109
 $1,137
 4.7%
Italy36
 36
 0.2% 36
 35
 0.2%6
 7
 —% 6
 7
 —%
Spain67
 68
 0.3% 62
 62
 0.4%66
 67
 0.3% 66
 71
 0.2%
Total Ireland, Italy, Greece, Spain and Portugal1
734
 728
 3.6% 676
 649
 3.6%1,314
 1,150
 5.1% 1,181
 1,215
 4.9%
Other Europe6,597
 6,639
 32.4% 6,335
 6,133
 33.3%7,245
 7,044
 31.7% 7,333
 7,711
 32.1%
Total Europe7,331
 7,367
 36.0% 7,011
 6,782
 36.9%8,559
 8,194
 36.8% 8,514
 8,926
 37.0%
Non-U.S. North America10,126
 10,016
 48.9% 9,261
 8,906
 48.4%12,326
 10,736
 48.3% 11,650
 11,670
 48.5%
Australia & New Zealand1,864
 1,888
 9.2% 1,731
 1,696
 9.2%1,821
 1,842
 8.3% 1,853
 1,966
 8.2%
Central & South America442
 457
 2.2% 448
 445
 2.4%487
 460
 2.1% 473
 501
 2.1%
Africa & Middle East247
 255
 1.3% 228
 226
 1.2%411
 402
 1.8% 350
 379
 1.6%
Asia/Pacific474
 485
 2.4% 351
 345
 1.9%610
 598
 2.7% 580
 616
 2.6%
Total$20,484
 $20,468
 100.0% $19,030
 $18,400
 100.0%$24,214
 $22,232
 100.0% $23,420
 $24,058
 100.0%
                      
1 As of each of the respective periods, we had no holdings in Greece or Portugal.
1 As of each of the respective periods, we had no holdings in Greece or Portugal.
1 As of each of the respective periods, we had no holdings in Greece or Portugal.


Approximately 95.3%96.2% and 93.9%95.8% of these securities are investment grade by NAIC designation as of March 31, 20192020 and December 31, 2018,2019, respectively. As of March 31, 2019,2020, 10% of our fixed maturityAFS securities, including related parties, were invested in CLOs of Cayman Islands issuers (for(included in Non-U.S. North America for which underlying investments are largely loans to U.S. issuers) and 21%22% were invested in securities of other non-U.S. issuers.


Portugal, Ireland, Italy, Greece and Spain continue to represent credit risk as economic conditions in these countries continue to be volatile, especially within the financial and banking sectors. We had $728 million and $649 million$1.2 billion of exposure in these countries as of March 31, 20192020 and December 31, 2018, respectively, of exposure in these countries.2019.


As of March 31, 2019,2020, we held United Kingdom and Channel Islands AFS securities of $2.5$2.9 billion, or 3.7%4.2% of our AFS securities, including related parties. As of March 31, 2019,2020, these securities were in a net unrealized loss position of $4$141 million. Our investment managers analyze each holding for credit risk by economic and other factors of each country and industry.


Trading Securities


Trading securities, including related parties, were $2.5$2.7 billion and $2.2$2.9 billion as of March 31, 20192020 and December 31, 20182019, respectively. Trading securities are primarily comprised of AmerUs Closed Block securities for which we have elected the fair value option valuation, CLO equity tranche securities, structured securities with embedded derivatives, and investments which support various reinsurance arrangements.



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Mortgage Loans


The following is a summary of our mortgage loan portfolio by collateral type:
March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
(In millions, except percentages)Net Carrying Value Percent of Total Net Carrying Value Percent of TotalNet Carrying Value Percent of Total Net Carrying Value Percent of Total
Property type              
Office building$2,527
 22.3% $2,221
 20.9%$3,465
 23.1% $2,899
 19.3%
Retail1,797
 15.8% 1,660
 15.6%2,117
 14.1% 2,182
 14.6%
Apartment2,333
 15.5% 2,142
 14.3%
Hotels1,040
 9.2% 1,040
 9.8%1,062
 7.1% 1,104
 7.4%
Industrial1,232
 10.9% 1,196
 11.2%1,402
 9.3% 1,448
 9.7%
Apartment899
 7.9% 791
 7.4%
Other commercial1
284
 2.5% 389
 3.7%699
 4.7% 730
 4.9%
Total net commercial mortgage loans7,779
 68.6% 7,297
 68.6%11,078
 73.8% 10,505
 70.2%
Residential loans3,554
 31.4% 3,334
 31.4%3,940
 26.2% 4,454
 29.8%
Total mortgage loans, net of allowances$11,333
 100.0% $10,631
 100.0%$15,018
 100.0% $14,959
 100.0%
              
1 Other commercial loans include investments in nursing homes, other healthcare institutions, parking garages, storage facilities and other commercial properties.
1 Other commercial loans include investments in nursing homes, other healthcare institutions, parking garages, storage facilities and other commercial properties.
1 Other commercial loans include investments in nursing homes, other healthcare institutions, parking garages, storage facilities and other commercial properties.

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We invest a portion of our investment portfolio in mortgage loans, which are generally comprised of high quality commercial first lien and mezzanine real estate loans. Our mortgage loan holdings were $11.3 billion and $10.6$15.0 billion as of both March 31, 20192020 and December 31, 2018, respectively.2019. This included $2.2$2.0 billion and $2.1$1.9 billion of mezzanine mortgage loans as of March 31, 20192020 and December 31, 2018,2019, respectively. The increase in mortgage loans is mainly driven by an increase in commercial mortgage loan (CML) and residential mortgage loan (RML) purchases during the period. We have acquired mortgage loans through acquisitions and reinsurance arrangements, as well as through an active program to invest in new mortgage loans. We invest in CMLs on income producing properties including hotels, apartments, retail and office buildings, and other commercial and industrial properties. Our RML portfolio primarily consists of first lien RMLs collateralized by properties located in the U.S. Loan-to-value ratios at the time of loan approval are generally 75% or less.


Our mortgage loans are primarily stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of valuationcredit loss allowances. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Amortization of premiums and discounts is recorded using the effective interest method. Interest income, amortization of premiums and discounts, and prepayment fees are reported in net investment income.


It is our policy to cease to accrue interest on loans that are over 90 days delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes over 90 days delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. As of March 31, 20192020 and December 31, 2018,2019, we had $56$75 million and $48$67 million, respectively, of mortgage loans that were 90 days past due, of which $20$36 million and $15$33 million, respectively, were in the process of foreclosure. We will continue to evaluate these policies with regard to the economic downturn brought about by the spread of COVID-19.


See Note 2 – Investments to the condensed consolidated financial statements for information regarding valuationcredit loss allowance for collection loss, impairments, loan-to-value, and debt service coverage.


As of March 31, 2019 and December 31, 2018,2020, we had not recorded any new specific loan valuation allowances of $424 million comprising of $343 million of CML and $81 million of RML allowances. For each ofDuring the three months ended March 31, 2019 and 2018,2020, we recorded $0a change in provision for credit losses on CMLs of $166 million and RMLs of impairments through net income. We have established$37 million. The increase in provision for credit losses was primarily a general and specific loanresult of the economic downturn experienced from the spread of COVID-19. As of December 31, 2019, we had a valuation allowance in the aggregate amount of $2 million as of each of March 31, 2019 and December 31, 2018.$11 million.


Investment Funds and Variable Interest Entities


Our investment funds investment strategy primarily focuses on funds with core holdings of credit assets, real assets, real estate, preferred equity and income producing assets. Our investment strategy focuses on sourcing assets with some or all of the following characteristics, among others: (1) investments that constitute a direct investment or an investment in a fund with a high degree of co-investment; (2) investments with credit- or debt-like characteristics (for example, a stipulated maturity and par value), or alternatively, investments with reduced volatility when compared to pure equity; or (3) investments that have less downside risk.

Our investment funds generally meet the definition of a VIE, and in certain cases these investment funds are consolidated in our financial statements because we meet the criteria of the primary beneficiary.


The following table illustrates our consolidated VIE positions:

 March 31, 2019 December 31, 2018
(In millions, except percentages)Carrying Value Percent of Total Carrying Value Percent of Total
Assets of consolidated VIEs       
Investments       
Trading securities$34
 5.0% $35
 4.9%
Equity securities6
 0.9% 50
 7.0%
Investment funds619
 92.0% 624
 87.7%
Cash and cash equivalents2
 0.3% 2
 0.3%
Other assets12
 1.8% 1
 0.1%
Total assets of consolidated VIEs$673
 100.0% $712
 100.0%
        
Liabilities of consolidated VIEs       
Other liabilities$1
 100.0% $1
 100.0%
Total liabilities of consolidated VIEs$1
 100.0% $1
 100.0%



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The following table illustrates our investment funds, including related party positions of our non-consolidated VIEs and investment funds owned by consolidated VIEs:party:
March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
(In millions, except percentages)Carrying Value Percent of Total Carrying Value Percent of TotalCarrying Value Percent of Total Carrying Value Percent of Total
Investment funds              
Real estate$224
 6.2% $215
 6.0%$284
 5.3% $277
 6.4%
Credit funds155
 4.3% 172
 4.8%122
 2.3% 153
 3.6%
Private equity239
 6.7% 253
 7.1%244
 4.5% 236
 5.5%
Real assets64
 1.8% 56
 1.6%89
 1.7% 83
 2.0%
Natural resources1
 0.0% 4
 0.1%1
 —% 1
 —%
Other—
 —% 3
 0.1%
Total investment funds683
 19.0% 703
 19.7%740
 13.8% 750
 17.5%
Investment funds – related parties              
Differentiated investments              
MidCap508
 9.5% 547
 12.7%
AmeriHome436
 12.1% 463
 13.0%508
 9.5% 487
 11.3%
Catalina232
 6.5% 233
 6.5%296
 5.5% 271
 6.3%
Athora124
 3.5% 105
 3.0%130
 2.4% 132
 3.1%
Venerable87
 2.4% 92
 2.6%110
 2.1% 99
 2.3%
Other171
 4.8% 162
 4.6%281
 5.2% 222
 5.2%
Total differentiated investments1,050
 29.3% 1,055
 29.7%1,833
 34.2% 1,758
 40.9%
Real estate498
 13.9% 506
 14.2%775
 14.4% 853
 19.8%
Credit funds340
 9.5% 341
 9.6%446
 8.3% 370
 8.6%
Private equity52
 1.4% 18
 0.5%227
 4.2% 105
 2.4%
Real assets144
 4.0% 145
 4.1%256
 4.8% 182
 4.2%
Natural resources123
 3.4% 104
 2.9%200
 3.7% 163
 3.8%
Public equities83
 2.3% 63
 1.8%44
 0.8% 119
 2.8%
Investment in Apollo850
 15.8% —
 —%
Total investment funds – related parties2,290
 63.8% 2,232
 62.8%4,631
 86.2% 3,550
 82.5%
Investment funds owned by consolidated VIEs       
MidCap550
 15.3% 552
 15.5%
Credit funds1
 0.0% 1
 0.0%
Real estate29
 0.8% 30
 0.8%
Real assets39
 1.1% 41
 1.2%
Total investment funds owned by consolidated VIEs619
 17.2% 624
 17.5%
Total investment funds, including related parties and funds owned by consolidated VIEs$3,592
 100.0% $3,559
 100.0%
Total investment funds including related parties$5,371
 100.0% $4,300
 100.0%


Overall, the total investment funds, including related party, were $5.4 billion and consolidated VIEs, were $3.6$4.3 billion, respectively, as of each of March 31, 20192020 and December 31, 2018.2019. See Note 2 – Investments to the condensed consolidated financial statements for further discussion regarding how we account for our investment funds. Our investment fund portfolio is subject to a number of market related risks including interest rate risk and equity market risk. Interest rate risk represents the potential for changes in the investment fund’s net asset values resulting from changes in the general level of interest rates. Equity market risk represents potential for changes in the investment fund’s net asset values resulting from changes in equity markets or from other external factors which influence equity markets. Our investment funds are subject to interest rate risk and equity market risk whichThese risks expose us to potential volatility in our earnings period-over-period. We actively monitor our exposure to these risks. The increase in investment funds, including related party, was primarily driven by our investment in Apollo of $850 million at March 31, 2020.


Funds Withheld at Interest


Funds withheld at interest represents a receivable for amounts contractually withheld by ceding companies in accordance with modco and funds withheld reinsurance agreements in which we act as the reinsurer. Generally, assets equal to statutory reserves are withheld and legally owned by the ceding company. We hold funds withheld at interest receivables, with related parties including those held with VIAC.VIAC and Lincoln. As of March 31, 2019,2020, the significant majority of the ceding companies holding the assets pursuant to such reinsurance agreements had a financial strength rating of A-B+ or better.better (based on an A.M. Best scale).


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The funds withheld at interest is comprised of the host contract and an embedded derivative. We are subject to the investment performance on the withheld assets with the total return directly impacting the host contract and the embedded derivative. Interest accrues at a risk-free rate on the host receivable and is recorded as net investment income in the condensed consolidated statements of income.income (loss). The embedded derivative in our reinsurance agreements is similar to a total return swap on the income generated by the underlying assets held by the ceding companies. The change in the embedded derivative is recorded in investment related gains (losses). Although we do not directly control the underlying investments in the funds withheld at interest, in each instance the ceding company has hired AAMApollo to manage the withheld assets in accordance with our investment guidelines.



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The following summarizes the underlying investment composition of the funds withheld at interest, including related parties:
March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
(In millions, except percentages)Carrying Value Percent of Total Carrying Value Percent of TotalCarrying Value Percent of Total Carrying Value Percent of Total
Fixed maturity securities              
U.S. government and agencies$55
 0.2 % $77
 0.3 %$15
 0.1 % $15
 0.1 %
U.S. state, municipal and political subdivisions556
 1.9 % 563
 2.0 %324
 1.2 % 482
 1.7 %
Foreign governments179
 0.6 % 145
 0.5 %134
 0.5 % 143
 0.5 %
Corporate15,787
 54.6 % 16,267
 56.9 %13,156
 50.3 % 14,590
 51.4 %
CLO2,420
 8.4 % 1,990
 7.0 %2,283
 8.7 % 2,586
 9.1 %
ABS2,023
 7.0 % 1,601
 5.6 %2,149
 8.2 % 2,510
 8.8 %
CMBS615
 2.1 % 575
 2.0 %475
 1.8 % 756
 2.7 %
RMBS1,924
 6.7 % 1,876
 6.6 %1,302
 5.0 % 1,482
 5.2 %
Equity securities242
 0.8 % 66
 0.2 %61
 0.2 % 74
 0.3 %
Mortgage loans3,929
 13.6 % 3,815
 13.3 %4,411
 16.9 % 4,357
 15.3 %
Investment funds591
 2.0 % 660
 2.3 %927
 3.6 % 807
 2.8 %
Derivative assets174
 0.6 % 77
 0.3 %65
 0.2 % 224
 0.8 %
Short-term investments514
 1.8 % 641
 2.2 %127
 0.5 % 157
 0.6 %
Cash and cash equivalents373
 1.3 % 455
 1.6 %807
 3.1 % 239
 0.8 %
Other assets and liabilities(458) (1.6)% (208) (0.8)%(68) (0.3)% (21) (0.1)%
Total funds withheld at interest including related party$28,924
 100.0 % $28,600
 100.0 %$26,168
 100.0 % $28,401
 100.0 %


As of March 31, 20192020 and December 31, 2018,2019, we held $28.9$26.2 billion and $28.6$28.4 billion, respectively, of funds withheld at interest receivables, including related party. Approximately 96.1%94.1% and 96.6%94.4% of the fixed maturity securities within the funds withheld at interest are investment grade by NAIC designation as of March 31, 20192020 and December 31, 2018,2019, respectively. The decrease in funds withheld at interest receivables, including related party, was primarily driven by unrealized losses on fixed maturity securities due to credit spreads widening, partially offset by the decrease in U.S. Treasury rates, as well as run-off in the underlying blocks of business.


Derivative Instruments


We hold derivative instruments for economic hedging purposes to reduce our exposure to cash flow variability of assets and liabilities, equity market risk, interest rate risk, credit risk and foreign exchange risk. The types of derivatives we may use include interest rate swaps, foreign currency swaps and forward contracts, total return swaps, credit default swaps, variance swaps, futures and fixed indexed options.


A discussion regarding our derivative instruments and how such instruments are used to manage risk is included in Note 3 – Derivative Instruments to the condensed consolidated financial statements.


As part of our risk management strategies, management continually evaluates our derivative instrument holdings and the effectiveness of such holdings in addressing risks identified in our operations.




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Net Invested Assets


The following summarizes our net invested assets:
March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
(In millions, except percentages)
Invested Asset Value1
 Percent of Total 
Invested Asset Value1
 Percent of Total
Net Invested Asset Value1
 Percent of Total 
Net Invested Asset Value1
 Percent of Total
Corporate$57,142
 50.2% $55,772
 50.2%$54,666
 45.1% $55,077
 46.9%
CLO9,192
 8.1% 8,275
 7.5%11,118
 9.2% 10,223
 8.7%
Credit66,334
 58.3% 64,047
 57.7%65,784
 54.3% 65,300
 55.6%
RMBS9,636
 8.5% 9,814
 8.9%8,123
 6.7% 8,394
 7.1%
Mortgage loans15,207
 13.3% 14,423
 13.0%
CML14,954
 12.3% 14,038
 12.0%
RML4,112
 3.4% 4,490
 3.8%
CMBS3,046
 2.7% 3,018
 2.7%2,846
 2.3% 2,930
 2.5%
Real estate27,889
 24.5% 27,255
 24.6%30,035
 24.7% 29,852
 25.4%
ABS8,294
 7.3% 7,706
 6.9%10,292
 8.5% 10,317
 8.8%
Alternative investments4,390
 3.9% 4,492
 4.1%5,787
 4.8% 5,586
 4.8%
State, municipal, political subdivisions and foreign government2,256
 2.0% 2,122
 1.9%1,557
 1.3% 2,260
 1.9%
Equity securities832
 0.7% 467
 0.4%369
 0.3% 365
 0.3%
Short-term investments613
 0.5% 765
 0.7%604
 0.5% 624
 0.5%
U.S. government and agencies102
 0.1% 134
 0.1%51
 —% 49
 —%
Other investments16,487
 14.5% 15,686
 14.1%18,660
 15.4% 19,201
 16.3%
Cash and equivalents1,853
 1.6% 2,881
 2.6%4,718
 3.9% 1,958
 1.7%
Policy loans and other1,208
 1.1% 1,165
 1.0%1,153
 1.0% 1,175
 1.0%
Total invested assets$113,771
 100.0% $111,034
 100.0%
Net invested assets excluding investment in Apollo120,350
 99.3% 117,486
 100.0%
Investment in Apollo850
 0.7% —
 —%
Net invested assets$121,200
 100.0% $117,486
 100.0%
              
1 See Key Operating and Non-GAAP Measures for the definition of invested assets.
1 See Key Operating and Non-GAAP Measures for the definition of net invested assets.
1 See Key Operating and Non-GAAP Measures for the definition of net invested assets.


Our totalnet invested assets were $113.8$121.2 billion and $111.0$117.5 billion as of March 31, 20192020 and December 31, 2018,2019, respectively. As of March 31, 2019,2020, our totalnet invested assets were mainly comprised of 50.2%45.1% of corporate securities, 26.6%26.7% of structured securities, 13.3%15.7% of mortgage loans and 3.9%4.8% of alternative investments. Corporate securities included $15.2$16.0 billion of private placements, which represented 13.4%13.2% of our totalnet invested assets. The increase in totalnet invested assets as of March 31, 20192020 from December 31, 20182019 was primarily driven by strong growth in deposits which exceededover liability outflows.outflows, and our investment in Apollo of $850 million and reinvestment of earnings.


In managing our business we utilize net invested assets as presented in the above table. InvestedNet invested assets do not correspond to the total investments, including related parties, on our condensed consolidated balance sheets, as discussed previously in –Key Operating and Non-GAAP Measures. InvestedNet invested assets represent the investments that directly back our net reserve liabilities and surplus assets. We believe this view of our portfolio provides a view of the assets for which we have economic exposure. We adjust the presentation for funds withheld and modco transactions to include or exclude the underlying investments based upon the contractual transfer of economic exposure to such underlying investments. We also deconsolidate anyadjust for VIEs in order to show the net investment in the funds, which are included in the alternative investments line above.above as well as adjust for the allowance for credit losses. Net invested assets includes our proportionate share of ACRA investments, based on our economic ownership, but excludes the proportionate share of investments associated with the noncontrolling interest.


InvestedNet invested assets is utilized by management to evaluate our investment portfolio. Invested asset figures areNet invested assets, excluding our strategic investment in Apollo, is used in the computation of net investment earned rate, which allows us to analyze the profitability of our investment portfolio. InvestedNet invested assets is also used in our risk management processes for asset purchases, product design and underwriting, stress scenarios, liquidity, and ALM.




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Net Alternative Investments


The following summarizes our alternative investments:

March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
(In millions, except percentages)Invested Asset Value Percent of Total Invested Asset Value Percent of TotalNet Invested Asset Value Percent of Total Net Invested Asset Value Percent of Total
Retirement Services              
Differentiated investments              
AmeriHome$535
 12.2% $568
 12.6%$621
 10.7% $595
 10.7%
MidCap550
 12.5% 552
 12.3%508
 8.8% 547
 9.8%
Catalina232
 5.3% 232
 5.2%296
 5.1% 271
 4.9%
Venerable87
 2.0% 92
 2.1%110
 1.9% 99
 1.8%
Other207
 4.7% 195
 4.3%332
 5.7% 208
 3.7%
Total differentiated investments1,611
 36.7% 1,639
 36.5%1,867
 32.2% 1,720
 30.9%
Real estate955
 21.8% 1,024
 22.8%1,410
 24.4% 1,430
 25.6%
Credit550
 12.5% 563
 12.5%950
 16.4% 968
 17.3%
Private equity309
 7.0% 279
 6.2%495
 8.6% 378
 6.8%
Real assets283
 6.4% 276
 6.2%385
 6.6% 349
 6.2%
Natural resources55
 1.3% 55
 1.2%61
 1.1% 51
 0.9%
Other2
 0.0% 4
 0.1%58
 1.0% 58
 1.0%
Total Retirement Services alternative investments3,765
 85.7% 3,840
 85.5%5,226
 90.3% 4,954
 88.7%
Corporate and Other              
Athora131
 3.0% 130
 2.9%140
 2.4% 140
 2.5%
Credit194
 4.4% 203
 4.5%88
��1.5% 128
 2.3%
Natural resources215
 4.9% 213
 4.8%289
 5.0% 245
 4.4%
Public equities1
83
 1.9% 100
 2.2%44
 0.8% 119
 2.1%
Other2
 0.1% 6
 0.1%
Total Corporate and Other alternative investments625
 14.3% 652
 14.5%561
 9.7% 632
 11.3%
Total alternative investments$4,390
 100.0% $4,492
 100.0%
Net alternative investments$5,787
 100.0% $5,586
 100.0%
              
1 As of March 31, 2019, public equities primarily includes an investment in OneMain Holdings, Inc. (ticker: OMF).
1 As of March 31, 2020, public equities is exclusively comprised of an investment in OneMain Holdings, Inc. (ticker: OMF).
1 As of March 31, 2020, public equities is exclusively comprised of an investment in OneMain Holdings, Inc. (ticker: OMF).


AlternativeNet alternative investments were $4.4$5.8 billion and $4.5$5.6 billion as of March 31, 20192020 and December 31, 2018,2019, respectively, representing 3.9% and 4.1%4.8% of our totalnet invested assets portfolio as of both March 31, 20192020 and December 31, 2018,2019, respectively.


AlternativeNet alternative investments do not correspond to the total investment funds, including related parties and VIEs, on our condensed consolidated balance sheets. As discussed above in the net invested assets section, we adjust the GAAP presentation for funds withheld, and modco and de-consolidate VIEs. We alsoThe investment in Apollo is excluded from our alternative investments, while we include CLO equity tranche securities in alternative investments due to their underlying characteristics and equity-like features.


Through our relationship with Apollo, and AAM, we have indirectly invested in companies that meet the key characteristics we look for in net alternative investments. Two of our largest alternative investments are in asset originators, MidCap and AmeriHome, both of which, from time to time, provide us with access to assets for our investment portfolio.


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MidCap


Our equity investment in MidCap is held indirectly through CoInvest VII, of which MidCap constitutes substantially all of the fund’s investments. MidCap is a commercial finance company that provides various financial products to middle-market businesses in multiple industries, primarily located in the U.S. MidCap primarily originates and invests in commercial and industrial loans, including senior secured corporate loans, working capital loans collateralized mainly by accounts receivable and inventory, senior secured loans collateralized by portfolios of commercial and consumer loans and related products and secured loans to highly capitalized pharmaceutical and medical device companies, and commercial real estate loans, including multifamily independent-living properties, assisted living, skilled nursing and medical office properties, warehouse, office building, hotel and other commercial use properties and multifamily properties. MidCap originates and acquires loans using borrowings under financing arrangements that it has in place with numerous financial institutions. MidCap’s earnings are primarily driven by the difference between the interest earned on its loan portfolio and the interest accrued under its outstanding borrowings. As a result, MidCap is primarily exposed to the credit risk of its loan counterparties and prepayment risk. Additionally, financial results are influenced by related levels of middle-market business investment and interest rates.


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Our alternative investment in CoInvest VII is substantially comprised of its investment in MidCap, which had a carrying value of $550$508 million and $552$547 million as of March 31, 20192020 and December 31, 2018,2019, respectively. Our investment in CoInvest VII largely reflects any contributions to and distributions from CoInvest VII and the fair value of MidCap. CoInvest VII returned a net investment earned rate of 9.50%(16.06)% and 11.79%9.50% for the three months ended March 31, 20192020 and 2018,2019, respectively. Alternative investment income (loss) from CoInvest VII was $14$(21) million and $16$14 million for the three months ended March 31, 2020 and 2019, respectively. The decrease in alternative investment income for the three months ended March 31, 2020 compared to 2019 was mainly due to a decrease in valuation reflecting an increase in loan loss assumptions and 2018, respectively.lower origination volumes due to the current interest rate environment.


AmeriHome


Our equity investment in AmeriHome is held indirectly through A-A Mortgage, of which AmeriHome is currently the fund’s only investment. AmeriHome is a mortgage origination platform and an aggregator of mortgage servicing rights. AmeriHome acquires mortgage loans from retail originators and re-sells the loans to the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association and other investors. AmeriHome retains the mortgage servicing rights on the loans that it sells and employs a subservicer to perform servicing operations, including payment collection. AmeriHome’s earnings are primarily driven by two sources: gains or losses on the sale of mortgage loans and the difference between the fee that it charges for mortgage servicing and the fee charged by the subservicer. As a result, AmeriHome’s financial results are influenced by interest rates and related housing demand. AmeriHome is primarily exposed to credit risk related to the accuracy of the representations and warranties in the loans that AmeriHome acquires and prepayment risk, which prematurely terminates fees related to mortgage servicing.


Our alternative investment in A-A Mortgage had a carrying value of $535$621 million and $568$595 million as of March 31, 20192020 and December 31, 2018,2019, respectively. Our investment in A-A Mortgage represents our proportionate share of its net asset value, which largely reflects any contributions to and distributions from A-A Mortgage and the fair value of AmeriHome. A-A Mortgage returned a net investment earned rate of 14.27%16.93% and 13.75%14.27% for the three months ended March 31, 20192020 and 2018,2019, respectively. Alternative investment income from A-A Mortgage was $20$26 million and $18$20 million for the three months ended March 31, 2020 and 2019, and 2018, respectively. The increase in alternative investment income for the three months ended March 31, 2019 compared to 2018 was driven by gain on sale of mortgage service rights.


Public Equities


We indirectly hold public equity positions through our equity investments in a few alternative investments. Although the carryingnet invested asset value of these securities is minor, such securities have resulted in volatility in our statements of income (loss) in recent periods. As of March 31, 20192020 and December 31, 2018,2019, we indirectly held public equity positions of $83$44 million and $100$119 million, respectively. As of March 31, 20192020 and December 31, 2018,2019, we held approximately 2.8 million and 2.8 million shares of OneMain respectively, with a market value of $83$44 million and $63$119 million, respectively. As of December 31, 2018, we held approximately 5.5 million shares of Caesars, with aThe decrease in market value of $37 million. Caesars was held indirectly through our investmentis driven by the decline in AAA Investment (Co Invest VI), L.P. (CoInvest VI). In the first quarter of 2019, CoInvest VI sold its remaining shares of Caesars.share price, partially offset by dividend received in 2020.





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Non-GAAP Measure Reconciliations

The reconciliations to the nearest GAAP measure for adjusted operating income (loss) available to common shareholders is included in the Consolidated Results of Operations section.

The reconciliation of total AHL shareholders’ equity to total adjusted AHL common shareholders’ equity, which is included in adjusted book value per common share, adjusted debt to capital ratio and adjusted operating ROE, is as follows:
(In millions)March 31, 2020 December 31, 2019
Total AHL shareholders’ equity$9,940
 $13,391
Less: Preferred stock1,172
 1,172
Total AHL common shareholders’ equity8,768
 12,219
Less: AOCI(1,174) 2,281
Less: Accumulated change in fair value of reinsurance assets(155) 493
Total adjusted AHL common shareholders’ equity$10,097
 $9,445
    
Segment adjusted AHL common shareholders’ equity   
Retirement Services$8,002
 $7,443
Corporate and Other2,095
 2,002
Total adjusted AHL common shareholders’ equity$10,097
 $9,445


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Non-GAAP Measure Reconciliations

The reconciliations to the nearest GAAP measure for adjusted operating income is included in the Consolidated Results of Operations section.

The reconciliation of average AHL shareholders’ equity to average adjusted AHL common shareholders’ equity, which is included in adjusted book value per share, adjusted debt to capital ratio, adjusted ROE and adjusted operating ROE is as follows:
(In millions)March 31, 2019 December 31, 2018
Total shareholders’ equity$10,117
 $8,276
Less: AOCI706
 (472)
Less: Accumulated change in fair value of reinsurance assets309
 (75)
Total adjusted shareholders’ equity$9,102
 $8,823
    
Segment adjusted shareholders’ equity   
Retirement Services$8,201
 $7,807
Corporate and Other901
 1,016
Total adjusted shareholders’ equity$9,102
 $8,823
 Three months ended March 31,
(In millions)2020 2019
Average AHL shareholders’ equity$11,666
 $9,197
Less: Average preferred stock1,172
 —
Less: Average AOCI554
 117
Less: Average accumulated change in fair value of reinsurance assets169
 117
Average adjusted AHL common shareholders’ equity$9,771
 $8,963
    
Segment average adjusted AHL common shareholders’ equity   
Retirement Services$7,722
 $8,004
Corporate and Other2,049
 959
Average adjusted AHL common shareholders’ equity$9,771
 $8,963


The reconciliation of average shareholders’ equity to average adjusted shareholders’ equity, which is included in adjusted ROE and adjusted operating ROE is as follows:
 Three months ended March 31,
(In millions)2019 2018
Average shareholders’ equity$9,197
 $8,932
Less: Average AOCI117
 1,042
Less: Average accumulated change in fair value of reinsurance assets117
 134
Average adjusted shareholders’ equity$8,963
 $7,756
    
Segment average adjusted shareholders’ equity   
Retirement Services$8,004
 $5,366
Corporate and Other959
 2,390
Average adjusted shareholders’ equity$8,963
 $7,756

The reconciliation of net income to adjusted net income, which is included in adjusted ROE is as follows:
 Three months ended March 31,
(In millions)2019 2018
Net income$708
 $277
Change in fair value of reinsurance assets(384) 54
Adjusted net income$324
 $331

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The reconciliation of net investment income to net investment earnings and earned rate is as follows:
Three months ended March 31,Three months ended March 31,
2019 20182020 2019
(In millions, except percentages)Dollar Rate Dollar RateDollar Rate Dollar Rate
GAAP net investment income$1,066
 3.79 % $855
 4.41 %$745
 2.51 % $1,082
 3.85 %
Change in fair value of reinsurance assets132
 0.47 % 45
 0.22 %270
 0.90 % 132
 0.47 %
Net VIE earnings21
 0.08 % 15
 0.08 %
Alternative income gain (loss)(5) (0.02)% 1
 0.01 %(101) (0.34)% (5) (0.02)%
Held for trading amortization(11) (0.04)% (23) (0.12)%
ACRA noncontrolling interest(72) (0.24)% —
 — %
Apollo investment (income) loss297
 1.00 % —
 — %
Held for trading amortization and other12
 0.04 % (6) (0.02)%
Total adjustments to arrive at net investment earnings/earned rate137
 0.49 % 38
 0.19 %406
 1.36 % 121
 0.43 %
Total net investment earnings/earned rate$1,203
 4.28 % $893
 4.60 %$1,151
 3.87 % $1,203
 4.28 %
              
Retirement Services$1,171
 4.21 % $866
 4.63 %$1,184
 4.04 % $1,171
 4.21 %
Corporate and Other32
 13.19 % 27
 3.76 %(33) (8.14)% 32
 13.19 %
Total net investment earnings/earned rate$1,203
 4.28 % $893
 4.60 %$1,151
 3.87 % $1,203
 4.28 %
              
Retirement Services average invested assets$111,443
   $74,735
  
Corporate and Other average invested assets959
   2,844
  
Consolidated average invested assets$112,402
   $77,579
  
Retirement Services average net invested assets$117,295
   $111,443
  
Corporate and Other average net invested assets ex. Apollo investment1,624
   959
  
Consolidated average net invested assets ex. Apollo investment$118,919
   $112,402
  


The reconciliation of interest sensitive contract benefits to Retirement Services’ cost of crediting, and the respective rates, is as follows:
 Three months ended March 31,
 2019 2018
(In millions, except percentages)Dollar Rate Dollar Rate
GAAP interest sensitive contract benefits$1,516
 5.44 % $31
 0.16 %
Interest credited other than deferred annuities and institutional products55
 0.20 % 7
 0.04 %
FIA option costs278
 1.00 % 174
 0.93 %
Product charges (strategy fees)(28) (0.10)% (22) (0.12)%
Reinsurance embedded derivative impacts15
 0.05 % 3
 0.02 %
Change in fair value of embedded derivatives – FIAs(1,311) (4.70)% 121
 0.65 %
Negative VOBA amortization12
 0.04 % 10
 0.05 %
Other changes in interest sensitive contract liabilities(2) (0.01)% (2) (0.01)%
Total adjustments to arrive at cost of crediting(981) (3.52)% 291
 1.56 %
Retirement Services cost of crediting$535
 1.92 % $322
 1.72 %
        
Retirement Services cost of crediting on deferred annuities$444
 1.98 % $275
 1.87 %
Retirement Services cost of crediting on institutional products91
 3.69 % 47
 3.14 %
Retirement Services cost of crediting$535
 1.92 % $322
 1.72 %
        
Retirement Services average invested assets$111,443
   $74,735
  
Average account value on deferred annuities$89,809
   $58,993
  
Average institutional reserve liabilities$9,809
   $5,955
  


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The reconciliation of GAAPinterest sensitive contract benefits to Retirement Services’ cost of crediting, and expenses to other liability coststhe respective rates, is as follows:
 Three months ended March 31,
(In millions)2019 2018
GAAP benefits and expenses$4,221
 $689
Premiums(1,966) (278)
Product charges(125) (96)
Other revenues(12) (6)
Cost of crediting(242) (145)
Change in fair value of embedded derivatives – FIA, net of offsets(1,260) 66
DAC, DSI and VOBA amortization related to investment gains and losses(173) 20
Rider reserves related to investment gains and losses(28) 1
Policy and other operating expenses, excluding policy acquisition expenses(103) (97)
AmerUs closed block fair value liability(53) 54
Other1
 —
Total adjustments to arrive at other liability costs(3,961) (481)
Other liability costs$260
 $208
    
Retirement Services$260
 $208
Corporate and Other—
 —
Consolidated other liability costs$260
 $208

The reconciliation of policy and other operating expenses to operating expenses is as follows:
 Three months ended March 31,
(In millions)2019 2018
Policy and other operating expenses$165
 $142
Interest expense(17) (13)
Policy acquisition expenses, net of deferrals(62) (45)
Integration, restructuring and other non-operating expenses(1) (8)
Stock compensation expenses(3) (3)
Total adjustments to arrive at operating expenses(83) (69)
Operating expenses$82
 $73
    
Retirement Services$62
 $58
Corporate and Other20
 15
Consolidated operating expenses$82
 $73

The reconciliation of total investments, including related parties, to invested assets is as follows:
(In millions)March 31, 2019 December 31, 2018
Total investments, including related parties$115,687
 $107,632
Derivative assets(1,920) (1,043)
Cash and cash equivalents (including restricted cash)3,518
 3,403
Accrued investment income751
 682
Payables for collateral on derivatives(1,781) (969)
Reinsurance funds withheld and modified coinsurance(578) 223
VIE and VOE assets, liabilities and noncontrolling interest676
 718
Unrealized (gains) losses(1,254) 808
Ceded policy loans(283) (281)
Net investment receivables (payables)(1,045) (139)
Total adjustments to arrive at invested assets(1,916) 3,402
Total invested assets$113,771
 $111,034
 Three months ended March 31,
 2020 2019
(In millions, except percentages)Dollar Rate Dollar Rate
GAAP interest sensitive contract benefits$(1,319) (4.50)% $1,516
 5.44 %
Interest credited other than deferred annuities and institutional products63
 0.21 % 55
 0.20 %
FIA option costs266
 0.91 % 278
 1.00 %
Product charges (strategy fees)(32) (0.11)% (28) (0.10)%
Reinsurance embedded derivative impacts14
 0.05 % 15
 0.05 %
Change in fair value of embedded derivatives – FIAs1,504
 5.13 % (1,311) (4.70)%
Negative VOBA amortization7
 0.02 % 12
 0.04 %
ACRA noncontrolling interest38
 0.13 % —
 — %
Other changes in interest sensitive contract liabilities(1) 0.00 % (2) (0.01)%
Total adjustments to arrive at cost of crediting1,859
 6.34 % (981) (3.52)%
Retirement Services cost of crediting$540
 1.84 % $535
 1.92 %
        
Retirement Services cost of crediting on deferred annuities$422
 1.91 % $444
 1.98 %
Retirement Services cost of crediting on institutional products118
 3.31 % 91
 3.69 %
Retirement Services cost of crediting$540
 1.84 % $535
 1.92 %
        
Retirement Services average net invested assets$117,295
   $111,443
  
Average account value on deferred annuities88,119
   89,809
  
Average net institutional reserve liabilities14,250
   9,809
  




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The reconciliation of GAAP benefits and expenses to other liability costs is as follows:
 Three months ended March 31,
(In millions)2020 2019
GAAP benefits and expenses$(167) $4,255
Premiums(1,140) (2,000)
Product charges(140) (125)
Other revenues2
 (12)
Cost of crediting(259) (242)
Change in fair value of embedded derivatives – FIA, net of offsets1,456
 (1,260)
DAC, DSI and VOBA amortization related to investment gains and losses425
 (173)
Rider reserves related to investment gains and losses76
 (28)
Policy and other operating expenses, excluding policy acquisition expenses(117) (103)
AmerUs closed block fair value liability45
 (53)
ACRA noncontrolling interest165
 —
Other(4) 1
Total adjustments to arrive at other liability costs509
 (3,995)
Other liability costs$342
 $260
    
Retirement Services$342
 $260
Corporate and Other—
 —
Consolidated other liability costs$342
 $260

The reconciliation of policy and other operating expenses to operating expenses is as follows:
 Three months ended March 31,
(In millions)2020 2019
GAAP policy and other operating expenses$188
 $165
Interest expense(20) (17)
Policy acquisition expenses, net of deferrals(71) (62)
Integration, restructuring and other non-operating expenses(4) (1)
Stock compensation expenses(10) (3)
ACRA noncontrolling interest(4) —
Total adjustments to arrive at operating expenses(109) (83)
Operating expenses$79
 $82
    
Retirement Services$68
 $62
Corporate and Other11
 20
Consolidated operating expenses$79
 $82


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The reconciliation of total investments, including related parties, to net invested assets is as follows:
(In millions)March 31, 2020 December 31, 2019
Total investments, including related parties$121,969
 $130,550
Derivative assets(1,610) (2,888)
Cash and cash equivalents (including restricted cash)5,983
 4,639
Accrued investment income802
 807
Payables for collateral on derivatives(1,589) (2,743)
Reinsurance funds withheld and modified coinsurance355
 (1,440)
VIE and VOE assets, liabilities and noncontrolling interest23
 25
Unrealized (gains) losses2,292
 (4,095)
Ceded policy loans(229) (235)
Net investment receivables (payables)(238) (57)
Allowance for credit losses505
 —
Total adjustments to arrive at gross invested assets6,294
 (5,987)
Gross invested assets128,263
 124,563
ACRA noncontrolling interest(7,063) (7,077)
Net invested assets$121,200
 $117,486

The reconciliation of total investment funds, including related parties, and VIEs, to net alternative investments within net invested assets is as follows:
(In millions)March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
Investment funds, including related parties and VIEs$3,592
 $3,559
CLO equities included in trading securities124
 125
Investment funds, including related parties$5,371
 $4,300
Nonredeemable preferred stock included in equity securities65
 78
CLO and ABS equities included in trading securities308
 405
Investment in Apollo(850) —
Investment funds within funds withheld at interest591
 660
927
 807
Royalties and other assets included in other investments69
 71
64
 67
Net assets of the VIE, excluding investment funds18
 50
Unrealized (gains) losses and other adjustments(4)
 27
14
 8
ACRA noncontrolling interest(112) (79)
Total adjustments to arrive at alternative investments798
 933
416

1,286
Alternative investments$4,390
 $4,492
Net alternative investments$5,787
 $5,586


The reconciliation of total liabilities to net reserve liabilities is as follows:
(In millions)March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
Total liabilities$122,740
 $117,229
$131,649
 $132,734
Short-term debt(400) (475)
Long-term debt(991) (991)(986) (992)
Derivative liabilities(85) (85)(222) (97)
Payables for collateral on derivatives(1,781) (969)
Payables for collateral on derivatives and securities to repurchase(2,883) (3,255)
Funds withheld liability(724) (721)(396) (408)
Other liabilities(1,410) (888)(853) (1,181)
Liabilities of consolidated VIEs(1) (1)
Reinsurance ceded receivables(5,647) (5,534)(5,087) (4,863)
Policy loans ceded(283) (281)(229) (235)
ACRA noncontrolling interest(6,322) (6,574)
Other(27) (27)2
 (2)
Total adjustments to arrive at reserve liabilities(10,949) (9,497)
Total reserve liabilities$111,791
 $107,732
Total adjustments to arrive at net reserve liabilities(17,376) (18,082)
Net reserve liabilities$114,273
 $114,652





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Liquidity and Capital Resources


There are two forms of liquidity relevant to our business, funding liquidity and balance sheet liquidity. Funding liquidity relates to the ability to fund operations. Balance sheet liquidity relates to our ability to liquidate or rebalance our balance sheet without incurring significant costs from fees, bid-offer spreads, or market impact. We manage our liquidity position by matching projected cash demands with adequate sources of cash and other liquid assets. Our principal sources of liquidity, in the ordinary course of business, are operating cash flows and holdings of cash, cash equivalents and other readily marketable assets.


Our investment portfolio is structured to ensure a strong liquidity position over time in order to permit timely payment of policy and contract benefits without requiring asset sales at inopportune times or at depressed prices. In general, liquid assets include cash and cash equivalents, highly rated corporate bonds, unaffiliated preferred stock and unaffiliated public common stock, all of which generally have liquid markets with a large number of buyers. The carrying value of these assets as of March 31, 20192020 was $54.3$69.6 billion. Although our investment portfolio does contain assets that are generally considered illiquid for liquidity monitoring purposes (primarily mortgage loans, policy loans, real estate, investment funds, and affiliated common stock), there is some ability to raise cash from these assets if needed. In periods of economic downturn, such as the one brought about by the spread of COVID-19, we may maintain higher cash balances than required to manage our liquidity risk and to take advantage of market dislocations as they arise. We have access to additional liquidity through our $1.0$1.25 billion revolving credit facility,agreement, which was undrawn as of March 31, 20192020 and hashad a remaining term of approximately five years, subject to up to two years.one-year extensions. Our registration statement on Form S-3 ASR (Shelf Registration Statement) provides us access to the capital markets, subject to market conditions and other factors. We are also party to agreements with several different financial institutions, pursuant to which we may engage in secured repurchase transactions to obtain short-term liquidity, to the extent available. In addition, through our membership in the FHLB, we are eligible to borrow under variable rate short-term federal funds arrangements to provide additional liquidity.


We proactively manage our liquidity position to meet cash needs while minimizing adverse impacts on investment returns. We analyze our cash-flow liquidity over the upcoming 12 months by modeling potential demands on liquidity under a variety of scenarios, taking into account the provisions of our policies and contracts in force, our cash flow position, and the volume of cash and readily marketable securities in our portfolio. We also monitor our liquidity profile under more severe scenarios.


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We perform a number of stress tests and analyses to assess our ability to meet our cash flow requirements, as well as the ability of our reinsurance and insurance subsidiaries to meet their collateral obligations. Among these analyses, we manage to the following ALM limits:


our projected net cumulative cash flows, including both new business and target levels of new investments under a “plan scenario” and a “moderately severe scenario” event, are non-negative over a rolling 12-month horizon;
we hold enough cash, cash equivalents and other discounted liquid limit assets to cover 12 months of AHL’s and Athene USA’s projected obligations, including debt servicing costscosts:
▪minimum of 50% of expenses and 100% of debt servicing to be held in cash and cash equivalents at AHL operating accounts
▪minimum of 50% of any required AHL – Athene USA inter-company loan commitments to be held in cash and cash equivalents by AHL
▪dividends from ALRe sufficient to support the ongoing operations of AHL must be available under moderate and substantial stress scenarios
▪for purposes of administering this test, liquid limit assets are discounted by 25% and include public corporate bonds rated A- or above, liquid ABS (defined as prime auto, auto floorplan, Tier 1 subprime auto, auto lease, prime credit cards, equipment lease or utility stranded assets); RMBS with weighted average lives less than three years rated A- or above and CMBS with weighted average lives less than three years rated AAA- or above
we seek to maintain sufficient capital and surplus at ALRe to meet the following collateral and capital maintenance calls under a substantial stress event, such as the failure of a major financial institution (Lehman event):
▪collateral calls from modco and third-party reinsurance contracts
▪Athene Annuity Re Ltd. (AARe)AARe capital maintenance calls arising from AARe collateral calls from modco reinsurance contracts; and
▪U.S. regulated entity capital maintenance calls from nonmodco activity.


Insurance Subsidiaries’ Liquidity


Operations


The primary cash flow sources for our insurance subsidiaries include retirement services product inflows (premiums), investment income, principal repayments on our investments, and net transfers from separate accounts and financial product deposits. Uses of cash include investment purchases, payments to policyholders for surrenders and withdrawals, maturity payments on funding agreements, policy acquisition costs and general operating costs.



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Our policyholder obligations are generally long-term in nature. However, one liquidity risk is an extraordinary level of early policyholder withdrawals. We include provisions within our annuity policies, such as surrender charges and MVAs, which are intended to protect us from early withdrawals. As of each ofboth March 31, 20192020 and December 31, 2018,2019, approximately 78%, of our deferred annuity liabilities were subject to penalty upon surrender. In addition, as of March 31, 20192020 and December 31, 2018,2019, approximately 64%63% and 65%64%, respectively, of policies contained MVAs that may also have the effect of limiting early withdrawals if interest rates increase.increase, but may encourage early withdrawals by effectively subsidizing a portion of surrender charges when interest rates decrease. Our funding agreements, group annuities and payout annuities are generally non-surrenderable.


Membership in Federal Home Loan Bank


Through our membership in the FHLB, we are eligible to borrow under variable rate short-term federal funds arrangements to provide additional liquidity. The borrowings must be secured by eligible collateral such as mortgage loans, eligible CMBS or RMBS, government or agency securities and guaranteed loans. There were noAs of March 31, 2020 or December 31, 2019, we had $400 million and $475 million, respectively, of outstanding borrowings under these arrangements as of March 31, 2019 or December 31, 2018.arrangements.


We have issued funding agreements to the FHLB in exchange for cash advances. These funding agreements were issued in an investment spread strategy, consistent with other investment spread operations. As of March 31, 20192020 and December 31, 2018,2019, we had funding agreements outstanding with the FHLB in the aggregate principal amount of $926 million.$1.4 billion and $1.2 billion, respectively.


The maximum FHLB indebtedness by a member is determined by the amount of collateral pledged, and cannot exceed a specified percentage of the member’s total statutory assets dependent on the internal credit rating assigned to the member by the FHLB. As of March 31, 2019,2020, the total maximum borrowings under the FHLB facility were limited to $17.4$19.7 billion. However, our ability to borrow under the facility is constrained by the availability of assets that qualify as eligible collateral under the facility and by the Iowa Code requirement that we maintain funds equivalent to our legal reserve in certain permitted investments, from which we exclude pledged assets. Considering these limitations, we estimate that as of March 31, 20192020 we had the ability to draw up to a total of approximately $1.5$2.0 billion, inclusive of borrowings then outstanding. This estimate is based on our internal analysis and assumptions, and may not accurately measure collateral which is ultimately acceptable to the FHLB. Drawing such amounts would have an adverse impact on AAIA’s RBC ratio, which may further restrict our ability or willingness to draw up to our estimated capacity.



Securities Repurchase Agreements

We engage in repurchase transactions whereby we sell fixed income securities to third parties, primarily major brokerage firms or commercial banks, with a concurrent agreement to repurchase such securities at a determined future date. We require that, at all times during the term of the repurchase agreements, we maintain sufficient cash or other liquid assets sufficient to allow us to fund substantially all of the repurchase price. Proceeds received from the sale of securities pursuant to these arrangements are generally invested in short-term investments, with the offsetting obligation to repurchase the security included within payables for collateral on derivatives and securities to repurchase on the condensed consolidated balance sheets. As per the terms of the repurchase agreements, we monitor the market value of the securities sold and may be required to deliver additional collateral (which may be in the form of cash or additional securities) to the extent that the value of the securities sold decreases prior to the repurchase date.

As of March 31, 2020, the fair value of securities and collateral held by counterparties and payables for repurchase agreements was $1.4 billion and $1.3 billion, respectively.

On May 1, 2020, we signed a $1.0 billion committed repurchase facility with BNP Paribas. The facility has an initial commitment period of 12 months and automatically renews for successive 12-month periods until terminated by either party. During the commitment period, we may sell and BNP Paribas is required to purchase eligible investment grade corporate bonds pursuant to repurchase transactions at pre-agreed discounts in exchange for a 41 basis points per annum commitment fee.



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Cash Flows


Our cash flows were as follows:
Three months ended March 31,Three months ended March 31,
(In millions)2019 20182020 2019
Net income$708
 $277
Net income (loss)$(1,216) $708
Non-cash revenues and expenses301
 296
1,987
 301
Net cash provided by operating activities1,009
 573
771
 1,009
Sales, maturities and repayments of investments3,170
 4,235
6,214
 3,170
Purchases of investments(6,547) (7,050)(6,476) (6,547)
Other investing activities601
 (69)(116) 601
Net cash used in investing activities(2,776) (2,884)(378) (2,776)
Issuance of common stock350
 —
Net proceeds and repayments of debt(75) —
Deposits on investment-type policies and contracts2,793
 1,774
2,838
 2,793
Withdrawals on investment-type policies and contracts(1,638) (1,474)(1,633) (1,638)
Net change in cash collateral posted for derivative transactions812
 (1,178)
Net proceeds and repayment of debt—
 998
Net capital contributions and distributions to/from noncontrolling interests194
 —
Net change in cash collateral posted for derivative transactions and securities to repurchase(372) 812
Preferred stock dividends(18) —
Repurchase of common stock(328) (51)
Other financing activities(85) 19
14
 (34)
Net cash provided by financing activities1,882
 139
970
 1,882
Effect of exchange rate changes on cash and cash equivalents(22) —
Net increase (decrease) in cash and cash equivalents1
$115
 $(2,172)$1,341
 $115
      
1 Includes cash and cash equivalents, restricted cash, and cash and cash equivalents of consolidated VIEs.
1 Includes cash and cash equivalents and restricted cash.
1 Includes cash and cash equivalents and restricted cash.


Cash flows from operating activities


The primary cash inflows from operating activities include net investment income, annuity considerations and insurance premiums. The primary cash outflows from operating activities are comprised of benefit payments and operating expenses. Our operating activities generated cash flows totaling $771 million and $1.0 billion and $573 million for the three months ended March 31, 20192020 and 2018,2019, respectively. The increasedecrease in cash provided by operating activities was primarily driven by an increaselower cash received from PRT transactions as well as a decrease in net investment income reflecting growth in our investment portfolio and an increase in PRT premiums.income.


Cash flows from investing activities


The primary cash inflows from investing activities are the sales, maturities and repayments of investments. The primary cash outflows from investing activities are the purchases and acquisitions of new investments. Our investing activities used cash flows totaling $2.8 billion$378 million and $2.9$2.8 billion for the three months ended March 31, 20192020 and 2018,2019, respectively. The changedecrease in cash used in investing activities was primarily attributed to an increase in the deconsolidationsales. maturities and repayments of Germanyinvestments to increase liquidity in 2018response to the current economic environment and capitalize on growth opportunities as well as the investment of proceeds from our debt issuance in 2018.they may arise.


Cash flows from financing activities


The primary cash inflows from financing activities are deposits on our investment-type policies, changes of cash collateral posted for derivative transactions, capital contributions and proceeds from borrowing activities. The primary cash outflows from financing activities are withdrawals on our investment-type policies, changes of cash collateral posted for derivative transactions, and repayments of borrowing activities.outstanding borrowings, repurchases of common stock and payment of preferred stock dividends. Our financing activities provided cash flows totaling $1.9$1.0 billion and $139 million$1.9 billion for the three months ended March 31, 20192020 and 2018,2019, respectively. The changedecrease in cash provided fromby financing activities was primarily attributed to the change in cash collateral posted for derivative transactions driven by favorableunfavorable equity market performance in 20192020, an increase in repurchases of common stock, the repayment of $75 million of short-term debt and the payment of preferred stock dividends, partially offset by higher investment-type deposits from retail, and flow reinsurance and funding agreement deposits, partially offset by 2018 proceeds from the issuance of debt and the repurchase$350 million of common stock in 2019.as part of the strategic Apollo transaction and net capital contributions from noncontrolling interests.



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Holding Company Liquidity


Dividends from Subsidiaries

AHL is a holding company whose primary liquidity needs include the cash-flow requirements relating to its corporate activities, including its day-to-day operations, debt servicing, preferred stock dividend payments and strategic transactions, such as acquisitions. The primary source of AHL’s cash flow is dividends from its subsidiaries, which are expected to be adequate to fund cash flow requirements based on current estimates of future obligations.


The ability of AHL’s insurance subsidiaries to pay dividends is limited by applicable laws and regulations of the jurisdictions where the subsidiaries are domiciled, as well as agreements entered into with regulators. These laws and regulations require, among other things, the insurance subsidiaries to maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay.


Subject to these limitations and prior notification to the appropriate regulatory agency, the U.S. insurance subsidiaries are permitted to pay ordinary dividends based on calculations specified under insurance laws of the relevant state of domicile. Any distributions above the amount

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permitted by statute in any twelve month period are considered to be extraordinary dividends, and require the approval of the appropriate regulator is required prior to payment. AHL does not currently plan on having the U.S. subsidiaries pay any dividends to ALRe.


Dividends from ALRe are projected to be the primary source of AHL’s liquidity. Under the Bermuda Insurance Act, ALRe is prohibited from paying a dividend in an amount exceeding 25% of the prior year’s statutory capital and surplus, unless at least two members of ALRe’s board of directors and its principal representative in Bermuda sign and submit to the Bermuda Monetary Authority (BMA) an affidavit attesting that a dividend in excess of this amount would not cause ALRe to fail to meet its relevant margins. In certain instances, ALRe would also be required to provide prior notice to the BMA in advance of the payment of dividends. In the event that such an affidavit is submitted to the BMA in accordance with the Bermuda Insurance Act, and further subject to ALRe meeting its relevant margins, ALRe is permitted to distribute up to the sum of 100% of statutory surplus and an amount less than 15% of its total statutory capital. Distributions in excess of this amount require the approval of the BMA.


The maximum distribution permitted by law or contract is not necessarily indicative of our actual ability to pay such distributions, which may be further restricted by business and other considerations, such as the potential imposition of withholding tax and the impact of such distributions on surplus, which could affect our ratings or competitive position and the amount of premiums that can be written. Specifically, the level of capital needed to maintain desired financial strength ratings from rating agencies, including S&P, A.M. Best and Fitch, is of particular concern when determining the amount of capital available for distributions. AHL believes its insurance subsidiaries have sufficient statutory capital and surplus, combined with additional capital available to be provided by AHL, to meet their financial strength ratings objectives. Finally, state insurance laws and regulations require that the statutory surplus of our insurance subsidiaries following any dividend or distribution must be reasonable in relation to their outstanding liabilities and adequate for the insurance subsidiaries’ financial needs.


Other Sources of Funding


If needed, we may seek to secure additional funding at the holding company level by means other than dividends from subsidiaries, such as by drawing on our undrawn $1.0$1.25 billion credit facilityagreement or by pursuing future issuances of debt or equity securities to third-party investors. However, such additional funding may not be available on terms favorable to us or at all, depending on our financial condition, results of operations or prevailing market conditions. In addition, certain covenants in our credit facility prohibit us from incurring any debt not expressly permitted thereby, which may limit our ability to pursue future issuances of debt. Specifically, our credit facility prohibits us from incurring any debt if, on a pro-forma basis, the debt would cause us to exceed a Consolidated Debt to Capitalization Ratio (as such term is defined in the credit facility) of 35%. Certain other sources of liquidity potentially available at the holding company level are discussed below.


Shelf Registration

– Under our Shelf Registration Statement, subject to market conditions, we have the ability to issue, in indeterminate amounts, debt securities, preferredpreference shares, depositary shares, Class A common shares, warrants and units.

Debt – On January 12, 2018, we issued $1.0 billion in aggregate principal amount of 4.125% Senior Notes due January 2028 under our Shelf Registration Statement.(2028 Notes). On April 3, 2020, we issued $500 million in aggregate principal amount of 6.150% senior unsecured notes due 2030 (2030 Notes).


Preferred Stock – On June 10, 2019, we issued 34,500 6.35% Fixed-to-Floating Rate Perpetual Non-Cumulative Preference Shares, Series A, par value of $1.00 per share with a liquidation preference of $25,000 per share, for aggregate proceeds of $839 million, net of the underwriters’ discount and expenses.

On September 19, 2019, we issued 13,800 5.625% Fixed Rate Perpetual Non-Cumulative Preference shares, Series B, par value of $1.00 per share with a liquidation preference of $25,000 per share, for aggregate proceeds of $333 million, net of the underwriters’ discount and expenses. See Note 8 – Equity to the condensed consolidated financial statements for further information.

Intercompany Note

– AHL has an unsecured revolving note payable with ALRe, which permits AHL to borrow up to $1 billion with a fixed interest rate of 1.25% and a maturity date of March 31, 2024. As of March 31, 20192020 and December 31, 2018,2019, the revolving note payable had an outstanding balance of $174$553 million and $105$38 million, respectively.



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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


In light of the spread of COVID-19 and the resulting impact on economic conditions and the financial markets, additional funding of the type described above may not be available on terms favorable to us or at all. As a result of the economic consequences of the spread of COVID-19, we have observed an increase in our cost of debt. At the time of issuance, our 2028 Notes had a yield to maturity of 4.14% and a spread to benchmark treasury of T + 160 basis points. At the time of issuance, our 2030 Notes had a yield to maturity of 6.18% and a spread to benchmark treasury of T + 550 basis points. In addition, certain covenants in our credit agreement prohibit us from maintaining debt in excess of specified thresholds. Specifically, our credit agreement prohibits us from permitting the Consolidated Debt to Capitalization Ratio (as such term is defined in the credit agreement) to exceed 35% as of the end of any quarter.

Capital Resources


As of December 31, 20182019 and 2017,2018, our U.S. insurance companies’ total adjusted capital (TAC),TAC, as defined by the NAIC, was $2.2$2.4 billion and $1.9$2.2 billion, respectively, and our U.S. RBC ratio was 421%429% and 490%.421%, respectively. Each U.S. domestic insurance subsidiary’s state of domicile imposes minimum RBC requirements that were developed by the NAIC. The formulas for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of TAC to its authorized control level RBC (ACL). Our TAC was significantly in excess of all regulatory standards as of December 31, 20182019 and 2017,2018, respectively.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations



ALRe statutory capital was $9.7$11.0 billion and $7.0$9.7 billion as of December 31, 2019 and 2018, and 2017, respectively. During 2018, AHL contributed its wholly owned subsidiary, Athene USA, to ALRe. ALRe adheres to BMA regulatory capital requirements to maintain statutory capital and surplus to meet the MMSminimum margin of solvency and maintain minimum EBSeconomic balance sheet (EBS) capital and surplus to meet the enhanced capital requirement. Under the EBS framework, ALRe’s assets are recorded at market value and its insurance reserves are determined by reference to nine prescribed scenarios, with the scenario resulting in the highest reserve balance being ultimately required to be selected. ALRe’s EBS capital and surplus was $12.0$14.1 billion and $7.7$12.0 billion, resulting in a BSCR ratio of 340%310% and 354%340% as of December 31, 20182019 and 2017,2018, respectively. An insurer must have a BSCR ratio of 100% or greater to be considered solvent by the BMA. As of December 31, 20182019 and 2017,2018, ALRe held the appropriate capital to adhere to these regulatory standards. In evaluating our capital position and the amount of capital needed to support our Retirement Services segment, we review our ALRe capital by applying the NAIC RBC factors.factors to the statutory financial statements of AHL’s non-U.S. reinsurance subsidiaries, on an aggregate basis. As of December 31, 20182019 and 2017,2018, our ALRe RBC was 405%443% and 562%405%, respectively. The decrease in ALRe RBC was driven by the capital charges related to the Voya and Lincoln reinsurance agreements, alternative investment deployment, the increase in deposits and impacts resulting from the Tax Act. Although the updates to the RBC factors to reflect the reduction in the corporate income tax rate from 35% to 21% lowered our ALRe RBC ratio, we do not believe this materially impacted the level of capital that we deem appropriate to run our business. We believe that we enjoy a strong capital position in light of our risks and that we are well positioned to meet policyholder and other obligations. We also believe that our strong capital position, as well as our excess capital position providesand access to uncalled capital commitments at ACRA, may provide us the opportunity to take advantage of market dislocations as they arise.


Repurchase of Securities

Share Repurchase Program


In December 2018, our board of directors approvedestablished a share repurchase program with an initial authorization for the repurchase of up to $250 million of our Class A shares. In the first quarter of 2019, our board of directors approved an authorizationfour additional authorizations under our share repurchase program for the purchase of up to an additional $247 million$1.3 billion of our Class A common shares, under our share repurchase program, which was conditioned uponin the further approval byaggregate, for a committeetotal authorization of our board of directors. Such further approval was granted during the second quarter of 2019.$1.6 billion. Pursuant to our share repurchase program, we have repurchased 3.710.4 million Class A common shares for $147$319 million as ofduring the three months ended March 31, 2019,2020. As of which 1.2May 8, 2020, we have repurchased, in the aggregate, 32.8 million Class A common shares were repurchased in 2019for $47 million. Asapproximately $1.2 billion since inception of May 7, 2019, weour share repurchase program and have $350$321 million of repurchase authorization remaining. In connection with our strategic initiative to increase available liquidity in response to the spread of COVID-19, during March 2020, management temporarily halted share repurchases under our program.



Repurchase of Other Securities

We may from time to time seek to retire or purchase our other outstanding debt or equity securities through cash purchases and/or exchanges for other securities, purchases in the open market, privately negotiated transactions or otherwise. Any such repurchases will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions and applicable regulatory, legal and accounting factors. Whether or not we repurchase any of our other securities and the size and timing of any such repurchases will be determined at our discretion.


Balance Sheet and Other Arrangements


Contractual Obligations


There have been no material changes to our contractual obligations from those previously disclosed in the 20182019 Annual Report.


Off Balance Sheet Arrangements


None.



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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Critical Accounting Estimates and Judgments


The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Amounts based on such estimates involve numerous assumptions subject to varying and potentially significant degrees of judgment and uncertainty, particularly related to the future performance of the underlying business, and will likely change in the future as additional information becomes available. Critical estimates and assumptions are evaluated on an ongoing basis based on historical developments, market conditions, industry trends and other information that is reasonable under the circumstances. There can be no assurance that actual results will conform to estimates and assumptions and that reported results of operations will not be materially affected by the need to make future accounting adjustments to reflect periodic changes in these estimates and assumptions. Critical accounting estimates are impacted significantly by our methods, judgments and assumptions used in the preparation of the consolidated financial statements and should be read in conjunction with our significant accounting policies described in Note 1 – Business, Basis of Presentation and Significant Accounting Policies to the consolidated financial statements of our 20182019 Annual Report. The most critical accounting estimates and judgments include those used in determining:


fair value of investments;
impairment of investments and valuationcredit loss allowances;
future policy benefit reserves;
derivatives valuation, including embedded derivatives;
deferred acquisition costs, deferred sales inducements and value of business acquired;
stock-based compensation;
consolidation of VIEs; and
valuation allowances on deferred tax assets.


TheExcept as described below under –Investments, the above critical accounting estimates and judgments are discussed in detail in Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations—Critical Accounting Estimates and Judgments of our 20182019 Annual Report.



See Note 1 – Business, Basis of Presentation and Significant Accounting Policies to the condensed consolidated financial statements for adoption of new and future accounting pronouncements.

Investments

Credit Loss Allowances

Establishing allowances for expected credit losses is a quantitative and qualitative process, which is subject to risks and uncertainties and involves significant estimates and judgments by management. Changes in the estimates and judgments used in such analysis can have a significant impact on our consolidated results of operations.

The allowance for expected credit losses on assets held at amortized cost and off-balance sheet credit exposures is established utilizing quantitative modeling. Key inputs into the model include data pertaining to the characteristics of the assets, historical losses and current market conditions. Additionally, the model incorporates management’s expectations around future economic conditions and macroeconomic forecasts over a reasonable and supportable forecast period, after which the model reverts to historical averages. For residential mortgage loans, key loan characteristics impacting the estimate include among others: time to maturity, delinquency status, original credit scores and loan-to-value ratios. Key macroeconomic variables include unemployment rates and the housing price index. For commercial mortgage loans, key loan characteristics impacting the estimate include among others: time to maturity, delinquency status, loan-to-value ratios and debt service coverage ratios. Key macroeconomic variables include unemployment rates, rent growth, capitalization rates, and the housing price index. These inputs, the reasonable and supportable forecast period, and reversion to historical average technique are subject to a formal governance and review process by management. Additionally, management considers qualitative adjustments to the model output to the extent that any relevant information regarding the collectability of the asset is available and not already considered in the quantitative model. If we determine that a financial asset has become collateral dependent, which we determine to occur when foreclosure is probable, the allowance is measured as the difference between amortized cost and the fair value of the collateral, less any expected costs to sell.

We evaluate AFS securities with a fair value that has declined below amortized cost to determine how the decline in fair value should be recognized. If we determine, based on the facts and circumstances related to the specific security, that we intend to sell a security or it is more likely than not that we would be required to sell a security before the recovery of its amortized cost, any existing allowance for credit losses is reversed and the amortized cost of the security is written down to fair value. If neither of these conditions exist, we evaluate whether the decline in fair value has resulted from a credit loss or other factors.

For non-structured AFS securities, we qualitatively consider relevant facts and circumstances in evaluating whether a decline below fair value is credit-related. Relevant facts and circumstances include but are not limited to: (1) the extent to which the fair value is less than amortized cost; (2) changes in agency credit ratings, (3) adverse conditions related to the security’s industry or geographical area, (4) failure to make scheduled payments, and (5) other known changes in the financial condition of the issuer or quality of any underlying collateral or credit enhancements. For structured AFS securities meeting the definition of beneficial interests, the qualitative assessment is bypassed, and any securities having experienced a decline in fair value below amortized cost is subject solely to a quantitative analysis.

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See Note 1 – Business, Basis
If upon completion of Presentation and Significant Accounting Policiesthis analysis it is determined that a potential credit loss exists, an allowance for expected credit losses is established equal to the condensed consolidated financial statementsamount by which the present value of expected cash flows is less than amortized cost, limited by the amount by which fair value is less than amortized cost. A non-structured security’s cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or the disposition of assets using security-specific facts and circumstances including timing, security interests and loss severity. A structured security’s cash flow estimates are based on security-specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity, prepayments and structural support, including subordination and guarantees. The expected cash flows are discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete a structured security. For securities with a contractual interest rate that varies based on changes in an independent factor, such as an index or rate, the effective interest rate is calculated based on the factor as it changes over the life of the security. Inherently under the discounted cash flow model, both the timing and amount of cash flows affect the measurement of the allowance for adoption of new and future accounting pronouncements.expected credit losses.




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Item 3. Quantitative and Qualitative Disclosures About Market Risks


We regularly analyze our exposure to market risks, which reflect potential losses in value due to credit and counterparty risk, interest rate risk, currency risk, commodity price risk and equity price risk. As a result of that analysis, we have determined that we are primarily exposed to credit risk, interest rate risk and to a lesser extent, equity price risk. A description of our market risk exposures, including strategies used to manage our exposure to market risk, may be found under Part II—Item 7A. Quantitative and Qualitative Disclosures About Market Risk of the 20182019 Annual Report.

There have been no material changes to our market risk exposures from those previously disclosed in the 20182019 Annual Report.




Item 4. Controls and Procedures


Evaluation of Disclosure Controls and Procedures


We maintain disclosure controls and procedures as such term is defined under Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation, as of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at attaining the level of reasonable assurance noted above.


Changes in Internal Control Over Financial Reporting

During the quarter ended March 31, 2019, management designed and implemented a new control to address the material weakness described in Part II—Item 9A. Controls and Procedures included in our 2018 Annual Report. This new control operated effectively and based upon management’s evaluation of the newly implemented control, management assessed the material weakness was remediated during the quarter ended March 31, 2019.


There were no other changes to our internal control over financial reporting during the quarter ended March 31, 2019,2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.reporting, except as described below.



Effective January 1, 2020, we implemented ASU 2016-13, Financial Instruments – Credit Losses, and other related ASUs, as disclosed in Note 1 – Business, Basis of Presentation and Significant Accounting Policies of the condensed consolidated financial statements. With the implementation, we enhanced our business processes and related control activities to consider new financial reporting requirements, including use of credit loss models, assumptions used in developing our credit loss estimates and new disclosure requirements. Certain of these business processes and control activities, such as the development and maintenance of certain credit loss models, have been outsourced to Apollo, a related party.





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PART II—OTHER INFORMATION


Item 1. Legal Proceedings


We are subject to litigation arising in the ordinary course of our business, including litigation principally relating to our FIA business. We cannot assure you that our insurance coverage will be adequate to cover all liabilities arising out of such claims. The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. There is significant judgment required in assessing both the probability of an adverse outcome and the determination as to whether an exposure can be reasonably estimated. In management’s opinion, the ultimate disposition of any current legal proceedingsproceeding or claimsclaim brought against us will not have a material effect on our financial condition, results of operations or cash flows. Litigation is, however, inherently uncertain and an adverse outcome from such litigation could have a material effect on the operating results of a particular reporting period.


From time to time, in the ordinary course of business and like others in the insurance and financial services industries, we receive requests for information from government agencies in connection with such agencies’ regulatory or investigatory authority. Such requests can include financial or market conduct examinations, subpoenas or demand letters for documents to assist the government in audits or investigations. We and each of our U.S. insurance subsidiaries review such requests and notices and take appropriate action. We have been subject to certain requests for information and investigations in the past and could be subject to them in the future.


For a description of certain legal proceedings affecting us, see Note 910 – Commitments and Contingencies – Litigation, Claims and Assessments to the condensed consolidated financial statements.




Item 1A. Risk Factors


ThereThe following should be read in conjunction with, and supplement and amend, the factors that may affect our business or operations described in Part I–Item 1A. Risk Factors of our 2019 Annual Report. Other than as described in this Item 1A, there have been no material changes to our risk factors from the risk factors previously disclosed in Part I—Item 1A. Risk Factorsour 20182019 Annual Report.



Certain metrics discussed in this section are based on management view and therefore may not correspond to amounts disclosed in our condensed consolidated financial statements or the notes thereto. For example, investment figures cited represent our invested assets, which include assets held by cedants that correspond to liabilities ceded to us. We believe that these metrics provide the most comprehensive view of our risk exposures. See Part 1–Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Key Operating and Non-GAAP Measures–Net Invested Assets for further discussion.

The following updates and supplements the risk factors described in our 2019 Annual Report:
Major public health issues, and specifically the pandemic caused by the spread of COVID-19, could have an adverse impact on our financial condition, results of operations, liquidity, cash flows and other aspects of our business.
We are closely monitoring developments related to the COVID-19 pandemic to assess its impact on our business. While still evolving, the COVID-19 pandemic has caused significant economic and financial turmoil both in the U.S. and around the world, and has fueled concerns that it will lead to a global recession. These conditions are expected to continue in the near term. At this time, it is not possible to estimate how long it will take to halt the spread of the virus or the longer term-effects that the COVID-19 pandemic could have on our business. The extent to which the COVID-19 pandemic impacts our business, results of operations, financial condition, liquidity or prospects will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic and the actions taken to contain or address its impact, and may cause us to revisit or revise estimates of future earnings or other guidance we have previously provided to the markets. In particular, certain projected financial information previously provided to our shareholders in connection with our recent share issuance transaction with Apollo may as a result of the impact from the COVID-19 pandemic materially differ from our actual results, and should not be relied upon.
While we have implemented risk management and contingency plans and taken preventive measures and other precautions, no predictions of specific scenarios can be made with respect to the COVID-19 pandemic and such measures may not adequately predict the impact on our business from such events. Currently, most of our employees are working remotely with only operationally critical employees working at our facilities for business continuity purposes, to the extent lawfully permitted. An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business. We also outsource certain critical business activities to third parties. As a result, we rely upon the successful implementation and execution of the business continuity planning of such entities in the current environment. While we closely monitor the business continuity activities of these third parties, successful implementation and execution of their business continuity strategies are largely outside our control. If one or more of the third parties to whom we outsource certain critical business activities experience operational failures as a result of the impacts from the spread of COVID-19, or claim that they cannot perform due to a force majeure, it may have a material adverse effect on our business, financial condition, results of operations, liquidity and cash flows.
With one exception, each of the Non-U.S. Companies (as defined below) currently intends to operate in a manner that will not cause it to be subject to current U.S. federal income taxation on its net income, and certain of them intend to be UK tax resident by reason of having their central management and control exercised in the UK. However, our directors and personnel reside in various jurisdictions and often must travel

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to carry out their duties in accordance with such intended tax positions. Travel restrictions imposed as a result of the COVID-19 pandemic have limited, and may continue to limit, such travel. While we have implemented contingency plans to mitigate the impact of such travel restrictions, no assurances can be provided that we will not become subject to greater tax liabilities than anticipated due to restrictions on the ability of our directors and personnel to carry out their activities from the intended jurisdictions.
Increased economic uncertainty and increased unemployment resulting from the economic impacts of the spread of COVID-19 may also result in policyholders seeking sources of liquidity and withdrawing at rates greater than we previously expected. If policyholder lapse and surrender rates significantly exceed our expectations, it could have a material adverse effect on our business, financial condition, results of operations, liquidity and cash flows. Such events or conditions could also have an adverse effect on our sales of new policies. In addition, such events or conditions could result in a decrease or halt in economic activity in large geographic areas, adversely affecting our business within such geographic areas and/or adversely affecting the general economic climate.
The effects of the spread of COVID-19 on economic conditions and the financial markets may trigger or exacerbate the market risk discussed elsewhere in this report and in our 2019 Annual Report. Specifically, our investment portfolio (and, namely, the valuations of invested assets we hold) has been, and may continue to be, adversely affected. Moreover, changes in interest rates, reduced liquidity or a continued slowdown in the U.S. or in global economic conditions may also adversely affect the values and cash flows of these assets. Within our investment portfolio, there is exposure to certain segments of the economy that have been disproportionately affected by the spread of COVID-19, including but not limited to, aviation, real estate (including CMLs, triple net lease investments, RMLs, CMBS, RMBS and related servicer investments), retail, energy and financial services. These investments are subject to increased credit or valuation risk, which could ultimately result in increased investment losses. Our investments in mortgages and mortgage-backed securities could be negatively affected by delays or failures of borrowers to make payments of principal and interest when due or delays or moratoriums on foreclosures or enforcement actions with respect to delinquent or defaulted mortgages imposed by governmental authorities. Further, extreme market volatility may leave us unable to react to market events in a prudent manner consistent with our historical investment practices in dealing with more orderly markets. Market dislocations, decreases in observable market activity or unavailability of information, in each case, arising from the spread of COVID-19, may restrict our access to key inputs used to derive certain estimates and assumptions made in connection with financial reporting or otherwise, including estimates and changes in long term macro-economic assumptions relating to accounting for CECL. Restricted access to such inputs may make our financial statement balances and estimates and assumptions used to run our business subject to greater variability and subjectivity.
While governmental and non-governmental organizations are engaging in efforts to combat the spread and severity of the COVID-19 pandemic and related public health issues, these measures may not be effective. We also cannot predict how legal and regulatory responses to concerns about the COVID-19 pandemic and related public health issues will impact our business. Such events or conditions could result in additional regulation or restrictions affecting the conduct of our business in the future.
As a financial services company, we are exposed to liquidity risk, which is the risk that we are unable to meet near-term obligations as they come due.
Liquidity risk is a manifestation of events that are driven by other risk types (e.g. market, policyholder behavior, operational). A liquidity shortfall may arise in the event of insufficient funding sources or an immediate and significant need for cash or collateral. In addition, it is possible that expected liquidity sources, such as our credit agreement, may be unavailable or inadequate to satisfy the liquidity demands described below. In particular, the spread of COVID-19 has introduced tremendous volatility into the financial markets and may restrict the liquidity sources available to us and further may result in an increase of our liquidity demands.
We have four primary sources of liquidity exposure and associated drivers that trigger material liquidity demand. Those sources are:
Collateral market exposure: Abrupt changes to interest rate, equity, and/or currency markets, such as that experienced during the three months ended March 31, 2020, have and may further increase collateral requirements to counterparties and may create liquidity risk.
Asset liability mismatch: There are liquidity risks associated with liabilities coming due prior to the matching asset cash flows. Structural maturities mismatch can occur in activities such as securities lending, where the liabilities are effectively overnight open transactions or otherwise short-term in nature and may be used to fund longer-term assets.
Funding Availability: We have availed ourselves of the financial markets for funding (such as through the issuance of senior notes, securities lending and repurchase arrangements and other forms of borrowing in the capital markets). These sources might not be available during times of stress, or may only be available on unfavorable terms, which can result in a decrease in our profitability and a significant reduction in our financial flexibility.
Policyholder cash flows: We face potential liquidity risks from unexpected cash demands due to severe mortality, policyholder withdrawals or lapse events. If such events were to occur, we may face unexpectedly high levels of claim payments to policyholders.

If a material liquidity demand is triggered and we are unable to satisfy the demand with the sources of liquidity readily available to us, it may have a material adverse impact on our business, financial condition, results of operations, liquidity and cash flows.
See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources for a discussion of our liquidity and sources and uses of liquidity, including information about legal and regulatory limits on the ability of our subsidiaries to pay dividends.
The following updates and replaces the final paragraph of the similarly named risk factor in our 2019 Annual Report:

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Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the value of our investment portfolio, our ability to achieve our hedging objectives and our ability to issue funding agreements bearing a floating rate of interest.
To manage the uncertainty surrounding the discontinuation of LIBOR, we have established a six-phase plan. Our plan is subject to change as we gain additional information. We have created an Executive Steering Committee composed of senior executives to coordinate and oversee execution of our plan. To the extent that management effort and attention is focused on other matters, such as responding to the risk posed by COVID-19, successfully completing all of the phases of our plan prior to the discontinuation of LIBOR could become more difficult. Although we expect that we will be successful at completing all the phases of our plan prior to the discontinuation of LIBOR, we can provide no assurance at this time. Failure to complete all phases of our plan prior to the discontinuation of LIBOR may have a material adverse effect on our business, financial position, results of operations and cash flows. See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Industry Trends and Competition-Discontinuation of LIBOR for further discussion.
The following updates and replaces, in their entirety, the similarly named risk factors in our 2019 Annual Report:
Our investment portfolio may be subject to concentration risk, particularly with respect to single issuers, including MidCap, AmeriHome, Athora and PK AirFinance; industries, including financial services; and asset classes, including real estate.
Concentration risk arises from exposure to significant asset defaults of a single issuer, industry or class of securities, based on economic conditions, geography or as a result of adverse regulatory or court decisions. When an investor’s assets are concentrated and that particular asset or class of assets experiences significant defaults, the default of such assets could threaten the investor’s financial condition, results of operations and cash flows. Our most significant potential exposures to concentration risk of single issuers are our investments in MidCap, a provider of revolving and term debt facilities to middle market companies in North America and Europe; A-A Mortgage and its indirect investment in AmeriHome, a mortgage lender and mortgage servicer; Athora, an insurance holding company focused on the European life insurance market; and PK AirFinance, a provider and arranger of loans principally to airlines and aircraft leasing companies secured by commercial aircraft.

As of March 31, 2020, our exposure, including loaned amounts, to MidCap was $838 million, which represented 0.7% of our net invested assets and 8.4% of total Athene Holding Ltd. shareholders’ equity. In addition, on April 30, 2020, we committed to invest $110 million in preferred shares to be issued by MidCap. As of March 31, 2020, our exposure to A-A Mortgage was $621 million, which represented 0.5% of our net invested assets and 6.2% of total Athene Holding Ltd. shareholders’ equity. On April 1, 2020, pursuant to a capital call, we made an incremental investment in Athora of $361 million. Pro forma for this investment, as of March 31, 2020, our exposure to Athora was $491 million, which represented 0.4% of our net invested assets and 4.9% of total Athene Holding Ltd. shareholders’ equity. As of March 31, 2020, our exposure to securitizations of loans originated by PK AirFinance was $1.4 billion, which represented 1.2% of our net invested assets and 14.4% of total Athene Holding Ltd. shareholders’ equity.

Given our significant exposure to these issuers, we are subject to the idiosyncratic risk inherent in their business. For example:
AmeriHome relies upon a subservicer to perform servicing operations on the loans for which it has mortgage servicing rights. If the subservicer were to experience financial distress or fail to provide adequate or timely services, AmeriHome may have difficulty finding another subservicer to perform servicing operations and may experience a significant decline in its financial performance. Such risks may be heightened in the current economic environment. In addition, mortgage servicers are obligated to advance certain amounts not paid by borrowers, including amounts arising from the forbearance of certain payments as mandated by the CARES Act. AmeriHome may require significant liquidity in order to make these advances and adequate sources of liquidity could be unavailable to AmeriHome to satisfy these obligations.

As a life insurer, Athora is subject to credit risk with respect to its investment portfolio and mortality risk with respect to its product liabilities, each of which may be exacerbated by unforeseen events, including but not limited to the spread of the COVID-19 pandemic. Further, Athora has significant European operations, which expose it to volatile economic conditions and risks relating to European member countries and withdrawals thereof, such as the UK. In addition, Athora is subject to multiple legal and regulatory regimes that may hinder or prevent it from achieving its business objectives.

Our investment in the PK AirFinance securitization of loans is subject to risks to the aircraft and airline industries generally, and specifically in connection with the decrease in air travel as a result of the spread of COVID-19, which has likely resulted in a reduction in aircraft valuations and/or delinquent loan payments. While our investment is supported by significant equity subordination provided by borrowers, if borrowers default on their loans, PK AirFinance may pursue foreclosure and re-market the related aircraft or may restructure the defaulted loans. To the extent that the proceeds from any such restructuring or re-marketing were not sufficient to satisfy the corresponding principal balance in the securitization, significant losses on our investment could be recognized, beginning with the equity tranche of the securitization that we hold.

To the extent that we suffer a significant loss on our investment in MidCap, A-A Mortgage, Athora or the securities issued by PK AirFinance, our financial condition, results of operations and cash flows could be adversely affected.

MidCap, AmeriHome and PK AirFinance are nonbank lenders focused on providing financing to individuals or entities. As a result, through these investments, we have significant exposure to credit risk, which has increased as a result of the economic conditions brought about by the

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spread of COVID-19. As a result of the current economic environment, our investees in this sector have experienced a decrease in origination volumes and may experience increased credit and liquidity risk as borrowers defer loan payments or default on their obligations. To the extent that the current downturn causes a deterioration in the creditworthiness of the counterparties of such investees or adversely affects the securitization market for the loans originated by these entities, we may suffer significant losses on our investments in these entities and our financial condition, results of operations and cash flows could be adversely affected. In addition to the concentration risk arising from our investments in single issuers within the nonbank lending sector of the financial services industry, we have significant exposure to the financial services industry more broadly as a result of the composition of investments in our investment portfolio. As of March 31, 2020, 13% of our net invested assets were invested in issuers within the financial services industry, excluding CLOs. The current economic downturn or any further macroeconomic, regulatory or other changes having an adverse impact on the financial services industry more broadly, could have a material and adverse effect on our business, financial condition, results of operations and cash flows.
As of March 31, 2020, 25% of our net invested assets were invested in real estate-related assets. Any significant decline in the value of real estate generally or the occurrence of any of the risks described above with respect to our real estate-related investments could materially and adversely affect our financial condition and results of operations.
The BEAT may significantly increase our tax liability.
The Tax Act introduced a new tax called the BEAT. The BEAT operates as a minimum tax and is generally calculated as a percentage (10% in 2019 – 2025, and 12.5% in 2026 and thereafter) of the “modified taxable income” of an “applicable taxpayer.” Modified taxable income is calculated by adding back to a taxpayer’s regular taxable income the amount of certain “base erosion tax benefits” with respect to certain payments made to foreign affiliates of the taxpayer, as well as the “base erosion percentage” of any net operating loss deductions. The BEAT applies for a taxable year only to the extent it exceeds a taxpayer’s regular corporate income tax liability for such year (determined without regard to certain tax credits).
Certain of our reinsurance agreements require our U.S. subsidiaries (including any non-U.S. subsidiaries subject to U.S. federal income taxation) to pay or accrue substantial amounts to our non-U.S. reinsurance subsidiaries that would be characterized as “base erosion payments” with respect to which there are “base erosion tax benefits.” However, in certain types of reinsurance transactions, it is not clear whether any amounts paid or accrued by non-U.S. reinsurance entities would be netted against amounts paid or accrued to such entities for purposes of calculating the “base erosion payments” and “base erosion tax benefits.”
In light of the possibility of material additional tax cost to our U.S. subsidiaries and the lack of clear guidance regarding the appropriate method by which to compute the BEAT, we have undertaken certain actions intended to mitigate the potential effect of the BEAT on our results of operations. Such actions may have adverse consequences to our business, such as subjecting income in respect of our affiliate reinsurance to a layer of withholding tax of up to 30%, which would not have been payable under our prior structure. There can be no assurances that our efforts to mitigate the BEAT will be successful, and our consideration of any further actions may be expensive and time consuming. In addition, we have been, and may continue to be, required to take action before the uncertainty regarding the BEAT is resolved, and accordingly any action we take may, in hindsight, prove to have been unnecessary, ineffective or counterproductive.
The application of the BEAT to our reinsurance arrangements could be affected by further legislative action (including possibly a “technical corrections” bill), administrative guidance or court decisions, any of which could have retroactive effect. In addition, tax authorities may disagree with our BEAT calculations, or the interpretations on which those calculations are based, and assess additional taxes, interest and penalties, and the uncertainty regarding the correct interpretation of the BEAT may make such disagreements more likely. We will establish our tax provision in accordance with GAAP.
However, there can be no assurance that this provision will accurately reflect the amount of federal income tax that we ultimately pay, as that amount could differ materially from the estimate. There may be material adverse consequences to our business if tax authorities successfully challenge our BEAT calculations, in light of the uncertainties described above.
In addition, we have made estimates regarding the effective tax rate we expect to experience, which take into account the impacts of federal income tax and the BEAT. The determination of each such figure, or range of figures, involves numerous estimates and assumptions, including estimates and assumptions regarding our BEAT calculations. Such estimates and assumptions may prove incorrect. To the extent that actual experience differs from the estimates and assumptions inherent in our projections, our future effective tax rate may deviate materially from the estimates provided and our financial condition and results of operations may be materially less favorable than are implied by the projections provided.
AHL or its non-U.S. subsidiaries may be subject to U.S. federal income taxation in an amount greater than expected.
AHL and certain of its subsidiaries are treated as foreign corporations under the Internal Revenue Code (such subsidiaries, the Non-U.S. Subsidiaries, and together with AHL, the Non-U.S. Companies). Any Non-U.S. Company that is considered to be engaged in a trade or business in the U.S. generally will be subject to U.S. federal income taxation on a net basis on its income that is effectively connected with such U.S. trade or business (including branch profits tax on the portion of its earnings and profits that is attributable to such income), unless otherwise provided under an applicable income tax treaty. In addition, a Non-U.S. Company generally will be subject to U.S. federal income taxation on a gross basis on certain U.S.-source income, and certain premiums earned on insurance with respect to U.S. risks, that are not effectively connected with a U.S. trade or business, unless otherwise provided under an applicable income tax treaty.
With one exception, each of the Non-U.S. Companies currently intends to operate in a manner that will not cause it to be treated as being engaged in a trade or business within the U.S. However, the enactment of the BEAT, the reduction of the federal income tax rate applicable to

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corporations included in the Tax Act and other factors may cause some or all of the Non-U.S. Companies to conduct business differently. Moreover, there is considerable uncertainty as to when a foreign corporation is engaged in a trade or business within the United States, as the law is unclear and the determination is highly factual and must be made annually, and therefore there can be no assurance that the IRS will not successfully contend that a Non-U.S. Company that does not intend to be treated as engaged in a trade or business in the U.S. is nonetheless so engaged. If any such Non-U.S. Company is treated as engaged in a trade or business in the U.S., it may incur greater tax costs than expected on any income not exempt from taxation under an applicable income tax treaty, which could have a material adverse effect on our financial condition, results of operations and cash flows.
AHL is a UK tax resident and expects to qualify for the benefits of the income tax treaty between the U.S. and the UK (UK Treaty) because its Class A common shares are listed and regularly traded on the NYSE. In addition, certain of the Non-U.S. Subsidiaries are UK tax residents (together with AHL, the UK Resident Companies) and expect to qualify for the benefits of the UK Treaty by reason of being subsidiaries of AHL or by reason of satisfying an ownership and base erosion test. Accordingly, our UK Resident Companies are expected to qualify for certain exemptions from, or reduced rates of, the U.S. taxes described above that are provided for by the UK Treaty. However, there can be no assurances that our UK Resident Companies will continue to qualify for treaty benefits or satisfy all of the requirements for the tax exemptions and reductions they intend to claim. If any of our UK Resident Companies fails to qualify for such benefits or satisfy such requirements, it may incur greater tax costs than expected, which could have a material adverse effect on our financial condition, results of operations and cash flows.
U.S. persons who own our equity securities may be subject to U.S. federal income taxation at ordinary income rates on our undistributed earnings and profits.
For any taxable year in which a Non-U.S. Company is treated as a controlled foreign corporation (CFC), a “10% U.S. Shareholder” of the Non-U.S. Company that held our equity securities directly or indirectly through non-U.S. entities as of the last day in such taxable year that the Non-U.S. Company was a CFC would generally be required to include in gross income as ordinary income its pro rata share of the Non-U.S. Company’s income, regardless of whether that income was actually distributed to such U.S. person (with certain adjustments). A “10% U.S. Shareholder” of an entity treated as a foreign corporation for U.S. federal income tax purposes is a U.S. person who owns (directly, indirectly through non-U.S. entities or constructively) 10% or more of the total value of all classes of shares of the corporation or 10% or more of the total combined voting power of all classes of voting shares of the corporation. Any U.S. person that owns (or is treated as owning) 10% or more of the value of AHL should consult with their tax advisor regarding their investment in AHL.
In general, a non-U.S. corporation is a CFC if 10% U.S. Shareholders, in the aggregate, own (or are treated as owning) stock of the non-U.S. corporation possessing more than 50% of the voting power or value of such corporation’s stock. However, this threshold is lowered to 25% for purposes of taking into account the insurance income of a non-U.S. corporation. Further, special rules apply for purposes of taking into account any related person insurance income (RPII) of a non-U.S. corporation, as described below.
In addition, if a U.S. person disposes of shares in a non-U.S. corporation and the U.S. person owned (directly, indirectly through non-U.S. entities or constructively) 10% or more of the total combined voting power of the voting stock of the corporation at any time when the corporation was a CFC during the five-year period ending on the date of disposition, any gain from the disposition will generally be treated as a dividend to the extent of the U.S. person’s share of the corporation’s undistributed earnings and profits that were accumulated during the period or periods that the U.S. person owned the shares while the corporation was a CFC (with certain adjustments). Also, a U.S. person may be required to comply with specified reporting requirements, regardless of the number of shares owned.
We do not believe that AHL is a CFC. However, we believe that all of the Non-U.S. Subsidiaries are CFCs, except that we believe ALRe is a CFC only for purposes of taking into account certain insurance income. Specifically, the Tax Act eliminated the prohibition on “downward attribution” from non-U.S. persons to U.S. persons under former Section 958(b)(4) of the Code for purposes of determining constructive stock ownership under the CFC rules. As a result, our U.S. subsidiaries are deemed to own all of the stock of the Non-U.S. Subsidiaries (other than ALRe) for CFC purposes. Further, we believe that 10% U.S. Shareholders of ALRe collectively own more than 25%, but less than 50%, of the vote and value of ALRe by reason of downward attribution from certain of our direct or indirect shareholders. The legislative history under the Tax Act indicates that this change in law was not intended to cause a foreign corporation to be treated as a CFC with respect to a 10% U.S. Shareholder that is not related to the U.S. persons receiving such downward attribution. However, it is not clear whether a court would interpret the change made by the Tax Act in a manner consistent with such indicated intent. Moreover, no assurances can be provided that any of the Non-U.S. Companies would not be a CFC, even without regard to the downward attribution of stock from non-U.S. persons to U.S. persons, as such classification depends upon the identity and relationships of the beneficial owners of our equity securities, over which we have limited knowledge and control. Accordingly, any U.S. person that owns (or is treated as owning) 10% or more of the voting power or value of AHL should consult with their tax advisor regarding their investment in AHL.
U.S. persons who own our equity securities may be subject to U.S. federal income taxation at ordinary income rates on a disproportionate share of our undistributed earnings and profits attributable to RPII.
If any of the Non-U.S. Companies is treated as recognizing RPII in a taxable year and is also treated as a CFC for such taxable year, each U.S. person that owns our equity securities directly or indirectly through non-U.S. entities as of the last day in such taxable year must generally include in gross income its pro rata share of the RPII, determined as if the RPII were distributed proportionately only to all such U.S. persons, regardless of whether that income is distributed (with certain adjustments). For this purpose, a Non-U.S. Company generally will be treated as a CFC if U.S. persons in the aggregate are treated as owning (directly or indirectly through non-U.S. entities) 25% or more of the total voting power or value of the Non-U.S. Company’s stock at any time during the taxable year. We believe that the Non-U.S. Companies are treated as CFCs for this purpose, based on the current ownership of our equity securities.

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RPII generally is any income of a non-U.S. corporation attributable to insuring or reinsuring risks of a U.S. person that owns (or is treated as owning) stock of such non-U.S. corporation, or risks of a person that is “related” to such a U.S. person. For this purpose, (1) a person is “related” to another person if such person “controls,” or is “controlled” by, such other person, or if both are “controlled” by the same persons, and (2) “control” of a corporation means ownership (or deemed ownership) of stock possessing more than 50% of the total voting power or value of such corporation’s stock and “control” of a partnership, trust or estate for U.S. federal income tax purposes means ownership (or deemed ownership) of more than 50% by value of the beneficial interests in such partnership, trust or estate.
The Non-U.S. Companies that are insurance enterprises (the “Non-U.S. Insurance Companies”) may derive income that is considered RPII. We believe that an exception under the RPII rules for CFCs with de minimis RPII currently applies to such Non-U.S. Insurance Companies, such that U.S. persons are not required to include any RPII in their gross income with respect to any of the Non-U.S. Companies. However, AGM and its affiliates and related parties own a substantial number of our Class A common shares, have rights to acquire additional Class A common shares and hold proxies to vote Class A common shares owned by certain of our employees. Further, Athene and AGM may have considerable overlap in ownership. If it is determined that AGM controls Athene, or that the same persons control both Athene and AGM through owning (or being treated as owning) more than 50% of the vote or value of both Athene and AGM, substantially all of the income of the Non-U.S. Insurance Companies derived from the reinsurance of affiliates likely will constitute RPII. This would trigger the adverse RPII consequences described above to all U.S. persons that hold our equity securities directly or indirectly through non-U.S. entities and could have a material adverse effect on the value of their investment in our equity securities.

Our bye-laws currently limit to 9.9% the voting power of AHL owned by persons who, together with their affiliates, beneficially own more than 9.9% of the voting power of AHL, subject to exemptions authorized by our board of directors (the “9.9% Voting Cutback”). If the 9.9% Voting Cutback is applicable to any person, excess voting power generally will be reallocated to all other Class A common shares, including those held by AGM and its affiliates. Further, the voting power of Class A common shares that are owned (or treated as owned) by certain persons who own (or are treated as owning) any AGM stock would also be reallocated to all other Class A common shares, including those held by AGM and its affiliates. Our bye-laws limit these reallocations of voting power so that AGM, and any person or persons who control AGM, would not own (or be treated as owning) more than 49.9% of the total voting power of our stock if they do not own (and are not treated as owning) more than 50% of the total value of our stock. These rules are intended to prevent any such reallocation of voting power from causing AGM to be considered to control us or to be controlled by the same persons who control us for purposes of the RPII provisions. However, because the relevant attribution rules are complex and there is no definitive legal authority on whether these voting provisions are effective for these purposes, there can be no assurance that this will be the case.
Our bye-laws also generally provide that no person (nor certain direct or indirect beneficial owners or related persons to such person) who owns our equity securities may acquire any shares of AGM or otherwise make any investment that would cause such person, or any other person that is a U.S. person, to own (or be treated as owning) more than 50% of the vote or value of our equity securities. Any holder of our equity securities that violates this restriction may be required, at the discretion of our board of directors, to sell its equity securities or take any other reasonable action that our board of directors deems necessary. However, this restriction does not apply to members of the Apollo Group.
We have only a limited ability to determine whether any of the Non-U.S. Insurance Companies is treated as recognizing RPII in a taxable year, the amount of any such RPII or any U.S. person’s share of such RPII, and to obtain the information necessary to accurately make such determinations or fully enforce the voting provisions and ownership restrictions described above. We will take reasonable steps to obtain such information, but there can be no assurances that such steps will be adequate or that we will be successful in this regard. Accordingly, no assurances can be provided that the adverse RPII consequences described above will not apply to all U.S. persons that hold our equity securities directly or indirectly through non-U.S. entities.
The following updates and replaces, in its entirety, the risk factor entitled Our bye-laws contain provisions that cause a holder of Class A common shares to lose the right to vote the shares if the holder owns an equity interest in Apollo, AP Alternative Assets, L.P. (AAA) or certain other entities in our 2019 Annual Report:
Our bye-laws contain provisions that may cause a holder of Class A common shares to lose the right to vote the shares if the holder or certain connected persons own an equity interest in AGM.
Our bye-laws contain a voting restriction that can result in any “Restricted Common Shares” having no right to vote. A holder’s Class A common shares are considered “Restricted Common Shares” if and when the holder or any person who is considered to indirectly or constructively own any of the holder’s shares (other than certain members of the Apollo Group) owns (directly, indirectly or constructively) any stock of AGM. This voting restriction applies only if there is a person who (together with its affiliates) beneficially owns Class A common shares that would, absent the voting adjustments in our bye-laws, possess more than 9.9% of the total voting power of our Class A common shares and who has not received the consent of at least 70% (75% after March 31, 2021) of our board of directors to exceed such voting threshold. This voting restriction does not affect the transferability of Class A common shares and will not apply after any date identified as the “Restriction Termination Date” by at least 70% (75% after March 31, 2021) of our board of directors.
The following updates and replaces, in their entirety, the similarly named risk factors in our 2019 Annual Report:
Our bye-laws contain provisions that could discourage takeovers and business combinations that our shareholders might consider in their best interests, including provisions that prevent a holder of Class A common shares from having a significant stake in Athene.
Our bye-laws include certain provisions that could have the effect of delaying, deferring, preventing or rendering more difficult a change of control that holders of our Class A common shares might consider in their best interests. For example, our bye-laws contain voting adjustments

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that may reduce the votes of a holder’s Class A common shares to the extent necessary to prevent any person (together with its affiliates) from beneficially owning Class A common shares having more than 9.9% of the total voting power of our Class A common shares, unless such person has received the consent of at least 70% (75% after March 31, 2021) of our board of directors to exceed such threshold. In addition, if the votes of any Class A common shares are required to be reduced pursuant to these adjustments, the votes of all Class A common shares that are “Restricted Common Shares” generally are reduced to zero. The votes of all Class A common shares that did not suffer a reduction in votes are then increased, pro rata based on their then current voting power, in an aggregate amount equal to the aggregate reduction in votes under the voting adjustments described above, except that the increase in votes of any Class A common share is limited to the extent necessary to avoid triggering further voting reductions and to avoid creating a “RPII Control Group,” as defined in our bye-laws. Such adjustments, if implicated, would result in some Class A common shares having more than one vote per share. Therefore, a shareholder’s voting rights may increase above 5% of the aggregate voting power of our Class A common shares, even if the shareholder holds fewer than 5% of our Class A common shares, thereby possibly resulting in the shareholder becoming a reporting person subject to Schedule 13D or 13G filing requirements under the Exchange Act. These requirements could discourage any potential investment in our Class A common shares. In addition, our board of directors is classified into three classes of directors, with directors of each class serving staggered three-year terms. Any change in the number of directors is required by our bye-laws to be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class or from the removal of a director will hold such directorship for a term that coincides with the remaining term of that class. Moreover, our bye-laws require specific advance notice procedures and other protocols for holders of common shares to make shareholder proposals and nominate directors. Among other requirements, a shareholder must meet the minimum requirements for eligible shareholders to submit shareholder proposals under Rule 14a-8 of the Exchange Act, and submit specific information and make specific undertakings in relation to the shareholder proposal or director nomination.
Any or all of these provisions could prevent holders of our Class A common shares from receiving the benefit from any premium to the market price of our Class A common shares offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of any of these provisions could adversely affect the prevailing market price of our Class A common shares if they were viewed as discouraging takeover attempts in the future.
Future sales of common shares by existing shareholders could cause our share price to decline.
Sales of substantial amounts of our Class A common shares in the public market, or the perception that these sales could occur, could cause the market price of our Class A common shares to decline. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
We have filed registration statements on Form S-8 under the Securities Act to register the Class A common shares to be issued under our 2017 employee stock purchase plan (ESPP) and our equity compensation plans and, as a result, all Class A common shares acquired upon the purchase of shares under our ESPP and the vesting of share awards or the exercise of stock options granted under our equity compensation plans will also be freely tradeable under the Securities Act, subject to the terms of any lock-up agreements, unless purchased by our affiliates. As of March 31, 2020, 6.1 million common shares are reserved for future issuances under our ESPP and equity incentive plans, in the aggregate. The issuance of these shares or their subsequent sale may cause our share price to decline.
Pursuant to the shareholders agreement among us and certain members of the Apollo group that was entered into in connection with the share issuance transaction with Apollo, AGM and certain of its affiliates agreed not to directly or indirectly transfer any Class A common share prior to February 28, 2023, subject to certain exceptions (Apollo Lock-up). As of March 31, 2020, there more than 50 million shares subject to the Apollo Lock-up. When the Apollo Lock-up ends, the market price of our common shares could decline if the holders of those shares sell them or are perceived by the market as intending to sell them. Furthermore, Apollo has the right to require, subject to the expiration or waiver of the Apollo Lock-up, us to register Class A common shares for resale in certain circumstances pursuant to the registration rights agreements we have entered into with Apollo.
In the future, we may issue additional common shares or other equity or debt securities convertible into or exercisable or exchangeable for Class A common shares in connection with a financing, strategic investment, litigation settlement or employee arrangement or otherwise. Any of these issuances could result in substantial dilution to our existing shareholders and could cause the trading price of our Class A common shares to decline.



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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


Recent Sales of Unregistered Securities

Previously reported in the Current Report on Form 8-K filed with the SEC on March 2, 2020.

Issuer Purchases of Securities


Purchases of common stock made by or on behalf of us or our affiliates during the three months ended March 31, 20192020 are set forth below:
Period
(a) Total number of shares purchased1
(b) Average price paid per share
(c) Total number of shares purchased as part of publicly announced programs1,2
(d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs2
January 1 – January 31, 20191,199,445
$40.84
1,162,262
$102,632,284
February 1 – February 28, 2019175
$44.33
—
$102,632,284
March 1 – March 31, 201960,728
$44.54
—
$102,632,284
     
1 Differences in amounts between column (a) and (c) relate to shares withheld (under the terms of employee stock-based compensation plans) to offset tax withholding obligations that occur upon the delivery of outstanding shares underlying equity awards or upon the exercise of stock options.
2 On December 10, 2018, we announced that our board of directors had approved an authorization for the repurchase of up to $250 million of our Class A shares (Previous Authorization). On May 7, 2019, we announced that our board of directors had approved an authorization for the repurchase of up to $350 million of our Class A shares, inclusive of the remaining shares authorized for repurchase under the Previous Authorization. Neither authorization has a definitive expiration date, but may be terminated at any time at the sole discretion of our board of directors. See Note 7 – Equity to the condensed consolidated financial statements for more information.
Period
(a) Total number of shares purchased1,3,4
(b) Average price paid per share3
(c) Total number of shares purchased as part of publicly announced programs1,2
(d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs2
January 1 – January 31, 202051,723
$46.88
2,193
$640,063,226
February 1 – February 29, 202036,416,090
$42.71
821,749
$600,462,375
March 1 – March 31, 20209,628,573
$32.03
9,624,573
$321,408,033
     
1 Except as described in footnotes 3 and 4 below, differences in amounts between column (a) and (c) relate to shares withheld (under the terms of employee stock-based compensation plans) to offset tax withholding obligations that occur upon the delivery of outstanding shares underlying equity awards or upon the exercise of stock options.
2 Prior to August 5, 2019, we had announced approvals by our board of directors for $617 million of aggregate repurchases under our share repurchase program. Amounts authorized for repurchase under those approvals had been fully used prior to December 31, 2019. On August 5, 2019, we announced that our board of directors had approved an additional $350 million authorization for the repurchase of our Class A common shares. On October 28, 2019, we announced that our board of directors had approved an additional $600 million authorization for the repurchase of our Class A common shares. Neither of the remaining authorizations have a definitive expiration date, but may be terminated at any time at the sole discretion of our board of directors. See Note 8 – Equity to the condensed consolidated financial statements for more information.
3 AOG, our affiliate, purchased 35,534,942 Class A common shares on February 28, 2020. The average price paid per share is calculated based on the fair value of the AOG units and cash consideration we received upon closing of the transaction. See Note 9 – Related Parties to the condensed consolidated financial statements for further detail.
4 Marty Klein, our Chief Financial Officer, purchased 4,000 Class A common shares on March 13, 2020.




Purchases of depositary shares made by or on behalf of us or our affiliates during the three months ended March 31, 2020:
85
Period 
(a) Total number of shares purchased1
 (b) Average price paid per share 
(c) Total number of shares purchased as part of publicly announced programs2
 
(d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs2
January 1 – January 31, 2020 —
 $—
 —
 $—
February 1 – February 29, 2020 —
 $—
 —
 $—
March 1 – March 31, 2020 800
 $22.41
 —
 $—
         
1 Purchases relate to certain executive officers or members of our board of directors as our affiliates.
2 As of March 31, 2020, our board of directors had not authorized any purchases of depositary shares in connection with a publicly announced plan or program.


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EXHIBIT INDEX


Exhibit No.Description
3.1
Thirteenth Amended and Restated Bye-laws of Athene Holding Ltd., effective February 28, 2020 (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on March 2, 2020 dated February 28, 2020).
4.1
Form of Warrant (incorporated by reference to Exhibit 4.2 to the Form S-3ASR filed on March 17, 2020).
4.2
Second Supplemental Indenture, dated April 3, 2020, between Athene Holding Ltd. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Form 8-K filed on April 6, 2020).
4.3
Form of 6.150% Senior Notes due 2030 (incorporated by reference to Exhibit 4.3, as included in Exhibit 4.2, to the Form 8-K filed on April 6, 2020).
10.1
Shareholders Agreement, dated as of February 28, 2020, among Athene Holding Ltd. and each person identified on the signature pages thereto as an Apollo Shareholder.
10.2
Registration Rights Agreement, dated as of February 28, 2020, between Athene Holding Ltd. and Apollo Global Management, Inc.
10.3
Liquidity Agreement, dated as of February 28, 2020, between Apollo Global Management, Inc. and Athene Holding Ltd.
10.4
Third Amendment to Shareholders Agreement, effective as of February 13, 2020, by and among Athene Co-Invest Reinsurance Affiliate 1A Ltd., ADIP Holdings (A), L.P., ADIP Holdings (B), L.P., ADIP Holdings (C), L.P., ADIP Holdings (D), L.P., ADIP Holdings (E), L.P., ADIP Holdings (Lux), L.P. and Athene Life Re Ltd.
31.1
Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Principal Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Principal Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document.Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema.
101.CALXBRL Taxonomy Extension Calculation Linkbase.
101.LABXBRL Taxonomy Extension Label Linkbase.
101.PREXBRL Taxonomy Extension Presentation Linkbase.
101.DEFXBRL Taxonomy Extension Definition Linkbase.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)





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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 ATHENE HOLDING LTD.
  
Date: May 7, 20198, 2020/s/ Martin P. Klein
 Martin P. Klein
 Executive Vice President and Chief Financial Officer
 (principal financial officer and duly authorized signatory)






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