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 September 30, 2017
         
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o
         
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 x (Do not check if a smaller reporting company)
 
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 o No x
         
  The number of shares of each class of our common stock outstanding is set forth in the table below, as of September 30, 2017: 
         
  Class A common shares120,108,463
 Class M-2 common shares867,923
  
  Class B common shares69,544,914
 Class M-3 common shares1,253,000
  
  Class M-1 common shares3,388,890
 Class M-4 common shares4,793,212
  
         
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'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
6155
Item 3.
Quantitative and Qualitative Disclosures About Market Risks
10096
Item 4.
Controls and Procedures
10096




PART II—OTHER INFORMATION


Item 1.
Legal Proceedings
10197
Item 1A.
Risk Factors
10197
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
104
Exhibit Index
105
Item 3.
Defaults Upon Senior Securities
105
Item 4.
Mine Safety Disclosures
105
Item 5.
Other Information
105
Signatures
 
106
Exhibit Index
107







Table of Contents



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


Forward-Looking Statements


Certain statements in this Quarterly Report on Form 10-Q (report), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results and the assumptions upon which those statements are based,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), and Section 21E of the Securities Exchange Act of 1934, as amended.

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,“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 business 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, financial conditionliquidity, cash flows and liquidityperformance may differ materially from thosethat made in or suggested by the forward-looking statements contained in this report. There can be no assurance that actual developments will be those anticipated by us. In addition, even if our consolidated results of operations, financial condition and liquidity are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods. 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—II–Item 1A. Risk Factorsincluded in this report and Part I—I–Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2016 (20162019 (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;
foreign currency fluctuations;
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;
introduction of the proposed European Union financial transaction tax;
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, L.P. (AAM)Inc. (AGM) or Apollo Asset Management Europe, LLP (AAME)any of its subsidiaries (collectively, AGM together with its subsidiaries, Apollo) of its investment management or advisory agreements with us and limitations on our ability to terminate such arrangements;
AAM’s or AAME’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 us,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 subsidiaries;
increases in our tax liability resulting from the Base Erosion and reinsurance licenses;Anti-Abuse Tax (BEAT);
Athene Holding Ltd. (AHL)improper interpretation or Athene Life Re Ltd. (ALRe)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;Act (FATCA);
changes in our potential inabilityability to pay dividends or make distributions;
our 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.
other risks and factors listed under Part II—Item 1A. Risk Factors included in this report, Part I—Item 1A. Risk Factors included
in our 2016 Annual Report and elsewhere in this report and in our 2016 Annual Report.



We caution you that the important factors referenced above may not be exhaustive. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect or anticipate. 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:


Athene Holding Ltd. and Related Entities
Term or Acronym Definition
A-A Mortgage A-A Mortgage Opportunities, LP
AAAAP Alternative Assets, L.P.
AAA Investor AAA Guarantor – Athene, L.P.
AADEAthene Annuity & Life Assurance Company, formerly known as Liberty Life Insurance Company, the parent insurance company of our U.S. insurance subsidiaries
AAIA Athene Annuity and Life Company formerly known as Aviva Life and Annuity Company
AAMAARe Athene Asset Management, L.P.Annuity Re Ltd., a Bermuda reinsurance subsidiary
AAMEACRAAthene Co-Invest Reinsurance Affiliate 1A Ltd., together with its subsidiaries
ADIPApollo/Athene Dedicated Investment Program
AGM Apollo AssetGlobal Management, Europe, LLP (together with certain of its affiliates)
ADKGAthene Deutschland Holding GmbH & Co. KG
AGERAGER Bermuda Holding Ltd.Inc.
AHL Athene Holding Ltd.
ALICAthene Life Insurance Company
ALRe Athene Life Re Ltd., a Bermuda reinsurance subsidiary
ALVALReI Athene Lebensversicherung AG, formerly known as Delta Lloyd Lebensversicherung AGLife Re International Ltd., a Bermuda reinsurance subsidiary
AmeriHome AmeriHome Mortgage Company, LLC
APKAOG Athene Pensionskasse AG, formerly known as Delta Lloyd Pensionskasse AGApollo Operating Group
Apollo Apollo Global Management, LLCInc., 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 formerly known as Aviva USA Corporation
AthoraAthora Holding Ltd.
BMABermuda Monetary Authority
CoInvest VI AAA Investments (Co-Invest VI), L.P.
CoInvest VII AAA Investments (Co-Invest VII), L.P.
CoInvest OtherISG AAA Investments (Other), L.P.
DLDDelta Lloyd Deutschland AG, nowApollo Insurance Solutions Group LP, formerly known as Athene Deutschland GmbHAsset Management LLC
German Group CompaniesLIMRA Athene Deutschland GmbH, Athene Deutschland Holding GmbH & Co. KG, Athene Deutschland Verwaltungs GmbH, Athene Lebensversicherung AGLife Insurance and Athene Pensionskasse AG
London PrimeLondon Prime Apartments Guernsey Holdings LimitedMarket Research Association
MidCap MidCap FinCo LimitedDesignated Activity Company
NCL LLCNAIC NCL Athene, LLCNational Association of Insurance Commissioners
SprintNYSDFS Apollo Asia Sprint Co-Investment Fund, L.P.New York State Department of Financial Services
RLIReliaStar Life Insurance Company
TreasuryUnited States Department of the Treasury
VoyaVoya Financial, Inc.
VIACVenerable Insurance and Annuity Company, formerly Voya Insurance and Annuity Company
VenerableVenerable 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
AUMALRe RBC Assets under managementThe 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
BMABermuda Monetary Authority
BSCR Bermuda Solvency Capital Requirement
CAL Company action level RBCrisk-based capital as defined by the model created by the National Association of Insurance Commissioners
CLO Collateralized loan obligation
CMBS Commercial mortgage-backed securities
Capital ratioCML Ratios calculated (1) with respect to our U.S. insurance subsidiaries, by reference to RBC, (2) with respect to ALRe, by reference to BSCR, and (3) with respect to our German Group Companies, by reference to SCRCommercial mortgage loans
Cost of crediting The interest credited to the policyholders on our fixed annuities, including, with respect to our FIAs,fixed indexed annuities, option costs, as well as institutional costs related to institutional products, presented on an annualized basis for interim periods
Cost of fundsCost 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 FIAs,Fixed indexed annuities, annual reset annuities, multi-year guaranteed annuities and MYGAsregistered 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 Fixed rate annuity is anAn 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
GAAPAccounting principles generally accepted in the United States of America
GLWB Guaranteed livinglifetime withdrawal benefitsbenefit
GMDB Guaranteed minimum death benefitsbenefit
IMOIndependent marketing organization
InvestedGross invested assets The sum of (a) total investments on the consolidated balance sheet with AFSavailable-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'entities’ assets, liabilities and noncontrolling interest and (f) policy loans ceded (which offset the direct policy loans in total investments). InvestedGross invested assets alsoincludes 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, and payments on payout annuities,
LIMRALife Insurance and Market Research Association
MCRMinimum capital requirementspension risk benefit payments
MMS Minimum margin of solvency

5
Table of Contents



Term or AcronymDefinition
Modco Modified coinsurance
MVA Market value adjustment
MYGA Multi-year guaranteed annuity

Term or AcronymNet invested assets Definition
NAICNational AssociationThe sum of Insurance Commissioners(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
Other liability costsNet investment spread Other liability costs include DAC, DSI and VOBA amortization and change in GLWB and GMDB reserves for all products,Net investment spread measures our investment performance less the total cost of our liabilities, presented on products other than deferred annuities including offsetsan annualized basis for premiums, product charges and other revenuesinterim periods
OTTIOther-than-temporary impairment
Payout annuitiesAnnuities with a current cash payment component, which consist primarily of SPIAs, supplemental contracts and structured settlements
PRTPension risk transfer
Policy loanA loan to a policyholder under the terms of, and which is secured by, a policyholder’s policy
RBCRisk-based capital
ReserveNet reserve liabilities The 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 recoverables,recoverable, excluding policy loans ceded. ReserveNet 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. ReserveNet 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 agreementsagreements. Net reserve liabilities is net of the reserve liabilities attributable to the ACRA noncontrolling interest
Other liability costsOther 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, as well as offsets for premiums, product charges and other revenues
OTTIOther-than-temporary impairment
Payout annuitiesAnnuities with a current cash payment component, which consist primarily of single premium immediate annuities, supplemental contracts and structured settlements
Policy loanA loan to a policyholder under the terms of, and which is secured by, a policyholder’s policy
PRTPension risk transfer
RBCRisk-based capital
Rider reserves Guaranteed livinglifetime 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)
1615
    
  
Note 1. Business, Basis of Presentation and Significant Accounting Policies
1615
    
  
Note 2. Investments
2119
    
  
Note 3. Derivative Instruments
2829
    
  
Note 4. Variable Interest EntitiesFair Value
3032
    
  
Note 5. FairDeferred Acquisition Costs, Deferred Sales Inducements and Value of Business Acquired
3744
    
  
Note 6. ReinsuranceDebt
44
Note 7. Earnings Per Share
44
Note 8. Equity
45
Note 9. Related Parties
47
Note 10. Commitments and Contingencies
51
    
  
Note 7. Deferred Acquisition Costs, Deferred Sales Inducements and Value of Business Acquired
51
Note 8. Common Stock
51
Note 9. Earnings Per Share
52
Note 10. Accumulated Other Comprehensive Income11. Segment Information
53
Note 11. Income Taxes
54
Note 12. Related Parties
54
Note 13. Commitments and Contingencies
57
Note 14. Segment Information
59




7
Table of Contents

ATHENE HOLDING LTD.
Condensed Consolidated Balance Sheets(Unaudited)




(In millions)September 30, 2017 December 31, 2016
Assets   
Investments   
Available-for-sale securities, at fair value   
Fixed maturity securities (amortized cost: 2017 – $56,217 and 2016 – $51,110)$58,516
 $52,033
Equity securities (cost: 2017 – $262 and 2016 – $319)318
 353
Trading securities, at fair value2,709
 2,581
Mortgage loans, net of allowances (portion at fair value: 2017 – $42 and 2016 – $44)6,445
 5,470
Investment funds (portion at fair value: 2017 – $127 and 2016 – $99)747
 689
Policy loans571
 602
Funds withheld at interest (portion at fair value: 2017 – $303 and 2016 – $140)6,964
 6,538
Derivative assets1,982
 1,370
Real estate (portion held for sale: 2017 – $32 and 2016 – $23)621
 542
Short-term investments, at fair value (cost: 2017 – $108 and 2016 – $189)108
 189
Other investments77
 81
Total investments79,058
 70,448
Cash and cash equivalents3,607
 2,445
Restricted cash100
 57
Investments in related parties   
Available-for-sale securities, at fair value   
Fixed maturity securities (amortized cost: 2017 – $404 and 2016 – $341)409
 335
Equity securities (cost: 2017 – $0 and 2016 – $20)—
 20
Trading securities, at fair value140
 195
Investment funds (portion at fair value: 2017 – $27 and 2016 – $0)1,330
 1,198
Short-term investments, at fair value (cost: 2017 – $8 and 2016 – $0)8
 —
Other investments238
 237
Accrued investment income (related party: 2017 – $9 and 2016 – $9)626
 554
Reinsurance recoverable (portion at fair value: 2017 – $1,783 and 2016 – $1,692)5,768
 6,001
Deferred acquisition costs, deferred sales inducements and value of business acquired2,903
 2,940
Current income tax recoverable29
 107
Deferred tax assets12
 372
Other assets868
 869
Assets of consolidated variable interest entities   
Investments   
Available-for-sale securities, at fair value   
Equity securities – related party (cost: 2017 – $121 and 2016 – $143)173
 161
Trading securities, at fair value – related party195
 167
Investment funds (related party: 2017 – $583 and 2016 – $562; portion at fair value: 2017 – $562 and 2016 – $562)593
 573
Cash and cash equivalents1
 14
Other assets3
 6
Total assets$96,061
 $86,699
(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
Table of Contents

ATHENE HOLDING LTD.
Condensed Consolidated Balance Sheets(Unaudited)




(In millions, except share and per share data)September 30, 2017 December 31, 2016
Liabilities and Equity   
Liabilities   
Interest sensitive contract liabilities (portion at fair value: 2017 – $8,081 and 2016 – $6,574)$67,024
 $61,532
Future policy benefits (portion at fair value: 2017 – $2,427 and 2016 – $2,400)15,687
 14,592
Other policy claims and benefits211
 217
Dividends payable to policyholders1,017
 974
Derivative liabilities92
 40
Payables for collateral on derivatives1,896
 1,383
Funds withheld liability (portion at fair value: 2017 – $18 and 2016 – $6)394
 380
Other liabilities (related party: 2017 – $67 and 2016 – $56)1,024
 688
Liabilities of consolidated variable interest entities47
 34
Total liabilities87,392
 79,840
Equity   
Common stock   
Class A – par value $0.001 per share; authorized: 2017 and 2016 – 425,000,000 shares; issued and outstanding: 2017 – 120,108,463 and 2016 – 77,319,381 shares—
 —
Class B – par value $0.001 per share; convertible to Class A; authorized: 2017 and 2016 – 325,000,000 shares; issued and outstanding: 2017 – 69,544,914 and 2016 – 111,805,829 shares—
 —
Class M-1 – par value $0.001 per share; contingently convertible to Class A; authorized: 2017 and 2016 – 7,109,560 shares; issued and outstanding: 2017 – 3,388,890 and 2016 – 3,474,205 shares—
 —
Class M-2 – par value $0.001 per share; contingently convertible to Class A; authorized: 2017 and 2016 – 5,000,000 shares; issued and outstanding: 2017 – 867,923 and 2016 – 1,067,747 shares—
 —
Class M-3 – par value $0.001 per share; contingently convertible to Class A; authorized: 2017 and 2016 – 7,500,000 shares; issued and outstanding: 2017 – 1,253,000 and 2016 – 1,346,300 shares—
 —
Class M-4 – par value $0.001 per share; contingently convertible to Class A; authorized: 2017 and 2016 – 7,500,000 shares; issued and outstanding: 2017 – 4,793,212 and 2016 – 5,397,802 shares—
 —
Additional paid-in capital3,461
 3,421
Retained earnings4,046
 3,070
Accumulated other comprehensive income (related party: 2017 – $56 and 2016 – $12)1,162
 367
Total Athene Holding Ltd. shareholders' equity8,669
 6,858
Noncontrolling interest—
 1
Total equity8,669
 6,859
Total liabilities and equity$96,061
 $86,699
(Concluded)
See accompanying notes to unaudited condensed consolidated financial statements

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


 Three months ended September 30, Nine months ended September 30,
(In millions, except per share data)2017 2016 2017 2016
Revenues       
Premiums$72
 $85
 $503
 $205
Product charges86
 71
 252
 206
Net investment income (related party investment income of $50 and $62 for the three months ended and $179 and $164 for the nine months ended September 30, 2017 and 2016, respectively, and related party investment expense of $81 and $73 for the three months ended and $235 and $226 for the nine months ended September 30, 2017 and 2016, respectively)820
 743
 2,427
 2,137
Investment related gains (losses) (related party of $(2) and $(2) for the three months ended and $(10) and $(32) for the nine months ended September 30, 2017 and 2016, respectively)473
 380
 1,615
 523
Other-than-temporary impairment investment losses       
Other-than-temporary impairment losses(11) (7) (23) (31)
Other-than-temporary impairment losses recognized in other comprehensive income(2) 1
 (2) 4
Net other-than-temporary impairment losses(13) (6) (25) (27)
Other revenues8
 8
 24
 25
Revenues of consolidated variable interest entities       
Net investment income (related party of $10 and $0 for the three months ended and $30 and $17 for the nine months ended September 30, 2017 and 2016, respectively)10
 7
 30
 40
Investment related gains (losses) (related party of $17 and $(11) for the three months ended and $29 and $(48) for the nine months ended September 30, 2017 and 2016, respectively)17
 (16) 29
 (70)
Total revenues1,473
 1,272
 4,855
 3,039
Benefits and Expenses       
Interest sensitive contract benefits621
 491
 1,866
 1,081
Amortization of deferred sales inducements13
 13
 42
 19
Future policy and other policy benefits259
 391
 1,051
 873
Amortization of deferred acquisition costs and value of business acquired80
 120
 251
 210
Dividends to policyholders48
 35
 129
 65
Policy and other operating expenses (related party of $4 and $10 for the three months ended and $10 and $18 for the nine months ended September 30, 2017 and 2016, respectively)158
 180
 479
 447
Operating expenses of consolidated variable interest entities—
 4
 —
 13
Total benefits and expenses1,179
 1,234
 3,818
 2,708
Income before income taxes294
 38
 1,037
 331
Income tax expense (benefit)20
 (88) 53
 (73)
Net income274
 126
 984
 404
Less: Net income attributable to noncontrolling interests—
 —
 —
 —
Net income available to Athene Holding Ltd. shareholders$274
 $126
 $984
 $404
        
Earnings per share       
Basic – Classes A, B, M-1, M-2, M-3 and M-41
$1.40
 $0.68
 $5.05
 $2.18
Diluted – Class A1.39
 0.68
 5.00
 2.17
Diluted – Class B1.40
 0.68
 5.05
 2.18
Diluted – Class M-11
1.40
 N/A
 5.05
 N/A
Diluted – Class M-21
1.39
 N/A
 3.26
 N/A
Diluted – Class M-31
1.07
 N/A
 2.27
 N/A
Diluted – Class M-41
0.79
 N/A
 1.91
 N/A
        
N/A – Not applicable
1 Basic and diluted earnings per share for Class M-1, M-2, M-3 and M-4 were applicable only for the periods ended September 30, 2017. Refer to Note 9 – Earnings Per Share for further discussion.

See accompanying notes to the unaudited condensed consolidated financial statements


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



Three months ended September 30, Nine months ended September 30,
(In millions)2017 2016 2017
2016
Net income$274
 $126
 $984

$404
Other comprehensive income, before tax       
Unrealized investment gains (losses) on available-for-sale securities171
 499
 1,172

1,705
Noncredit component of other-than-temporary impairment losses on available-for-sale securities2
 (1) 2

(4)
Unrealized gains (losses) on hedging instruments(31) (6) (69)
(13)
Pension adjustments1
 —
 —

(1)
Foreign currency translation adjustments4
 1
 14
 1
Other comprehensive income, before tax147
 493
 1,119
 1,688
Income tax expense related to other comprehensive income45
 142
 324

531
Other comprehensive income, after tax102
 351
 795
 1,157
Comprehensive income376
 477
 1,779
 1,561
Less: Comprehensive income attributable to noncontrolling interests—
 —
 —
 —
Comprehensive income available to Athene Holding Ltd. shareholders$376
 $477
 $1,779
 $1,561

See accompanying notes to the unaudited condensed consolidated financial statements


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


(In millions)Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total Athene Holding Ltd. shareholders' equity Noncontrolling interest Total equity
Balance at December 31, 2015$—
 $3,281
 $2,308
 $(237) $5,352
 $1
 $5,353
Net income—
 —
 404
 —
 404
 —
 404
Other comprehensive income—
 —
 —
 1,157
 1,157
 —
 1,157
Issuance of shares, net of expenses—
 1
 —
 —
 1
 —
 1
Stock-based compensation—
 135
 —
 —
 135
 —
 135
Retirement or repurchase of shares—
 (14) (5) —
 (19) —
 (19)
Balance at September 30, 2016$—
 $3,403
 $2,707
 $920
 $7,030
 $1
 $7,031
              
Balance at December 31, 2016$—
 $3,421
 $3,070
 $367
 $6,858
 $1
 $6,859
Net income—
 —
 984
 —
 984
 —
 984
Other comprehensive income—
 —
 —
 795
 795
 —
 795
Stock-based compensation—
 40
 —
 —
 40
 —
 40
Retirement or repurchase of shares—
 —
 (8) —
 (8) —
 (8)
Other changes in equity of noncontrolling interests—
 —
 —
 —
 —
 (1) (1)
Balance at September 30, 2017$—
 $3,461
 $4,046
 $1,162
 $8,669
 $—
 $8,669

See accompanying notes to the unaudited condensed consolidated financial statements


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


 Nine months ended September 30,
(In millions)2017 2016
Cash flows from operating activities   
Net income$984
 $404
Adjustments to reconcile net income to net cash provided by operating activities:   
Amortization of deferred acquisition costs and value of business acquired251
 210
Amortization of deferred sales inducements42
 19
Amortization (accretion) of net investment premiums, discounts, and other(141) (136)
Stock-based compensation40
 61
Net investment income (related party: 2017 – $(66) and 2016 – $(30))(65) (4)
Net recognized (gains) losses on investments and derivatives (related party: 2017 – $2 and 2016 – $23)(1,271) (226)
Policy acquisition costs deferred(371) (449)
Deferred income tax expense (benefit)50
 (45)
Changes in operating assets and liabilities:   
Accrued investment income(67) (20)
Interest sensitive contract liabilities1,655
 995
Future policy benefits, other policy claims and benefits, dividends payable to policyholders and reinsurance recoverable460
 222
Current income tax recoverable78
 10
Funds withheld assets and liabilities(327) (133)
Other assets and liabilities51
 (21)
Consolidated variable interest entities related:   
Amortization (accretion) of net investment premiums, discounts, and other—
 3
Net investment loss1
 4
Net recognized (gains) losses on investments and derivatives (related party: 2017 – $(29) and 2016 – $48)(28) 70
Net cash provided by operating activities1,342
 964
   (Continued)
See accompanying notes to the unaudited condensed consolidated financial statements   

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


 Nine months ended September 30,
(In millions)2017 2016
Cash flows from investing activities   
Sales, maturities and repayments of:   
Available-for-sale securities   
Fixed maturity securities (related party: 2017 – $126 and 2016 – $12)$9,199
 $6,401
Equity securities (related party: 2017 – $22 and 2016 – $0)530
 295
Trading securities (related party: 2017 – $52 and 2016 – $16)333
 557
Mortgage loans950
 615
Investment funds (related party: 2017 – $219 and 2016 – $215)300
 277
Derivative instruments and other invested assets (related party: 2017 – $0 and 2016 – $8)1,083
 226
Real estate—
 7
Short-term investments (related party: 2017 – $28 and 2016 – $55)289
 720
Purchases of:   
Available-for-sale securities   
Fixed maturity securities (related party: 2017 – $(186) and 2016 – $0)(13,668) (8,306)
Equity securities (related party: 2017 – $0 and 2016 – $(20))(426) (244)
Trading securities (related party: 2017 – $0 and 2016 – $(33))(308) (698)
Mortgage loans(1,925) (633)
Investment funds (related party: 2017 – $(244) and 2016 – $(258))(366) (322)
Derivative instruments and other invested assets(562) (447)
Real estate(19) (32)
Short-term investments (related party: 2017 – $(37) and 2016 – $0)(222) (699)
Consolidated variable interest entities related:   
Sales, maturities, and repayments of investments (related party: 2017 – $40 and 2016 – $15)40
 497
Purchases of investments (related party: 2017 – $(22) and 2016 – $(10))(22) (10)
Cash settlement of derivatives(4) 29
Change in restricted cash(43) 53
Other investing activities, net339
 32
Net cash used in investing activities(4,502) (1,682)
   (Continued)
See accompanying notes to the unaudited condensed consolidated financial statements   

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


 Nine months ended September 30,
(In millions)2017 2016
Cash flows from financing activities   
Capital contributions$—
 $1
Deposits on investment-type policies and contracts7,521
 4,189
Withdrawals on investment-type policies and contracts(3,701) (3,516)
Payments for coinsurance agreements on investment-type contracts, net(17) (66)
Consolidated variable interest entities related repayment on borrowings—
 (500)
Net change in cash collateral posted for derivative transactions513
 254
Repurchase of common stock(8) (2)
Other financing activities, net(29) 207
Net cash provided by financing activities4,279
 567
Effect of exchange rate changes on cash and cash equivalents30
 (2)
Net increase (decrease) in cash and cash equivalents1,149
 (153)
Cash and cash equivalents at beginning of year1
2,459
 2,720
Cash and cash equivalents at end of period1
$3,608
 $2,567
    
Supplementary information   
Non-cash transactions   
Deposits on investment-type policies and contracts through reinsurance agreements$511
 $3,089
Withdrawals on investment-type policies and contracts through reinsurance agreements390
 281
Investments received from settlements on reinsurance agreements36
 47
Purchase interests in investment funds in kind26
 —
    
1 Includes cash and cash equivalents of consolidated variable interest entities
(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




9
Table of Contents

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


 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


10
Table of Contents

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


 Three months ended March 31,
(In millions)2020 2019
Net income (loss)$(1,216) $708
Other comprehensive income (loss), before tax   
Unrealized investment gains (losses) on available-for-sale securities, net of offsets(4,839) 1,477
Unrealized gains (losses) on hedging instruments401
 (8)
Foreign currency translation and other adjustments9
 —
Other comprehensive income (loss), before tax(4,429) 1,469
Income tax expense (benefit) related to other comprehensive income (loss)(797) 291
Other comprehensive income (loss)(3,632) 1,178
Comprehensive income (loss)(4,848) 1,886
Less: Comprehensive loss attributable to noncontrolling interests(352) —
Comprehensive income (loss) attributable to Athene Holding Ltd. shareholders$(4,496) $1,886

See accompanying notes to the unaudited condensed consolidated financial statements


11
Table of Contents

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


 Three months ended
(In millions)Preferred 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, 2018$—
 $—
 $3,462
 $5,286
 $(472) $8,276
 $—
 $8,276
Net income—
 —
 —
 708
 —
 708
 —
 708
Other comprehensive income—
 —
 —
 —
 1,178
 1,178
 —
 1,178
Issuance of common shares, net of expenses—
 —
 1
 —
 —
 1
 —
 1
Stock-based compensation—
 —
 5
 —
 —
 5
 —
 5
Retirement or repurchase of shares—
 —
 (20) (31) —
 (51) —
 (51)
Balance at March 31, 2019$—
 $—
 $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


12
Table of Contents

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


 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,
(In millions)2020 2019
Cash flows from financing activities   
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(6) (25)
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(328) (51)
Other financing activities, net20
 (9)
Net cash provided by financing activities970
 1,882
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
4,642
 3,405
Cash and cash equivalents at end of period1
$5,983
 $3,520
    
Supplementary information   
Non-cash transactions   
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 agreements—
 12
Investments received from pension risk transfer premiums627
 1,363
Related party investments received in exchange for the issuance of Class A common shares1,147
 —
    
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 U.S.United States (U.S.) states and the District of Columbia, and Germany.the United Kingdom (UK).


We conduct business primarily through the following consolidated subsidiaries:


Athene Life Re Ltd. (ALRe), a Bermuda exempted companyOur non-U.S. reinsurance subsidiaries, to which AHL'sAHL’s other insurance subsidiaries and third partythird-party ceding companies directly and indirectly reinsure a portion of their liabilities;liabilities, including Athene Life Re Ltd. (ALRe), a Bermuda exempted company, and Athene Life Re International Ltd. (ALReI); and
Athene USA Corporation, an Iowa corporation and(together with its subsidiaries, (AtheneAthene USA); and
AGER Bermuda Holding Ltd. and its subsidiaries (AGER), which includes Athene Deutschland GmbH & Co. KG, a German partnership and its subsidiaries (ADKG).


In addition, we consolidate certain variable interest entities (VIEs), for which we determined we are the primary beneficiary, as discussed in Note 4 – Variable Interest Entities.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'sCommission’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, except as noted below, 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, 20162019 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 revised audited consolidated financial statements included as Exhibit 99.1 toin our CurrentAnnual Report on Form 8-K, filed on June 13, 2017.10-K for the year ended December 31, 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 ended September 30, 2017, we recorded out-of-period adjustments that affected the condensed consolidated statements of income. These adjustments, related to DAC and VOBA amortization and actuarial reserves, increased consolidated income before taxes for the three and nine months ended September 30, 2017 by $13 million and $28 million, respectively. We evaluated these out-of-period adjustments and determined they were not material to the condensed consolidated financial statements for either the three or nine months ended September 30, 2017, or any other previously reported period.

Revisions—As part of our continuing initiative to improve controls in our business processes and confirm the accuracy of our data relating to blocks of businesses acquired from Aviva USA as well as deposits since the acquisition, we identified an error in May 2017 relating to the impact of certain inputs used to calculate certain actuarial balances, which had the result of misstating our net investment earned rate used in the amortization calculation of deferred acquisition costs and the change in future policy benefits. We have revised our condensed consolidated financial statements and notes for the three and nine months ended September 30, 20162020, as a result of correcting this errorthe Apollo Global Management, Inc. (AGM and, other immaterial errors. We assessedtogether with its subsidiaries, Apollo) share transaction discussed further in Note 9 – Related Parties, we reassessed the materialityconsolidation 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 errorsentities, 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 concluded these errorsliabilities at fair value. As of March 31, 2020, the deconsolidated VIEs are not material toincluded at net asset value (NAV) in related party investment funds on the condensed consolidated financial statements as a whole. However, we elected to revise the condensed consolidated financial statements to increase their accuracy, as well as provide consistency and comparability with balances and activities to be reported in future periods.balance sheets.




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ATHENE HOLDING LTD.
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 summarysignificant 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 revisionsdifference 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:
 Three months ended September 30, 2016
(In millions, except per share data)As Previously Reported Revisions As Adjusted
Revenue     
Net investment income$747
 $(4) $743
Total revenues1,276
 (4) 1,272
Benefits and Expenses     
Interest sensitive contract benefits482
 9
 491
Amortization of deferred sales inducements14
 (1) 13
Future policy and other policy benefits377
 14
 391
Amortization of deferred acquisition costs and value of business acquired113
 7
 120
Total benefits and expenses1,205
 29
 1,234
Income before income taxes71
 (33) 38
Income tax benefit(87) (1) (88)
Net income158
 (32) 126
Less: Net income attributable to noncontrolling interests—
 —
 —
Net income available to Athene Holding Ltd. shareholders$158
 $(32) $126
      
Earnings per share on Class A and B shares     
Basic$0.85
 $(0.17) $0.68
Diluted0.85
 (0.17) 0.68
      

 Nine months ended September 30, 2016
(In millions, except per share data)As Previously Reported Revisions As Adjusted
Revenue     
Net investment income$2,143
 $(6) $2,137
Total revenues3,045
 (6) 3,039
Benefits and Expenses     
Interest sensitive contract benefits1,068
 13
 1,081
Amortization of deferred sales inducements20
 (1) 19
Future policy and other policy benefits862
 11
 873
Amortization of deferred acquisition costs and value of business acquired203
 7
 210
Total benefits and expenses2,678
 30
 2,708
Income before income taxes367
 (36) 331
Income tax benefit(70) (3) (73)
Net income437
 (33) 404
Less: Net income attributable to noncontrolling interests—
 —
 —
Net income available to Athene Holding Ltd. shareholders$437
 $(33) $404
      
Earnings per share on Class A and B shares     
Basic – Classes A and B$2.35
 $(0.17) $2.18
Diluted – Class A2.35
 (0.18) 2.17
Diluted – Class B2.35
 (0.17) 2.18
      

We revisedincome (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 comprehensive income for(loss).

We limit accrued interest income on loans to 90 days of interest. Once a loan becomes 90 days past due, the threeloan is put on non-accrual status and nine months ended September 30, 2016any 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 statementbalance 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 equityaccrued 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 nine months ended September 30, 2016 onlyamortized 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 to netare recorded through credit loss expense within investment related gains (losses) on the condensed consolidated statements of income presented above.(loss).



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ATHENE HOLDING LTD.
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 followingallowance for expected credit losses is a summaryremeasured each period for the passage of time, any change in expected cash flows, and changes in the fair value of the revisionssecurity. 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 statementstatements of cash flows: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).

 Nine months ended September 30, 2016
(In millions)As Previously Reported Revisions As Adjusted
Cash flows from operating activities     
Net income$437
 $(33) $404
Adjustments to reconcile net income to net cash provided by operating activities:     
Amortization of deferred acquisition costs and value of business acquired203
 7
 210
Amortization of deferred sales inducements20
 (1) 19
Deferred income tax benefit(42) (3) (45)
Changes in operating assets and liabilities:     
Interest sensitive contract liabilities982
 13
 995
Future policy benefits, other policy claims and benefits, dividends payable to policyholders and reinsurance recoverable211
 11
 222
Other assets and liabilities(23) 2
 (21)
Net cash provided by operating activities968
 (4) 964
Cash flows from investing activities     
Other investing activities, net28
 4
 32
Net cash used in investing activities(1,686) 4
 (1,682)
Cash flows from financing activities     
Other financing activities, net200
 7
 207
Net cash provided by financing activities560
 7
 567
Effect of exchange rate changes on cash and cash equivalents(2) —
 (2)
Net decrease in cash and cash equivalents(160) 7
 (153)
Cash and cash equivalents at beginning of year1
2,720
 —
 2,720
Cash and cash equivalents at end of period1
$2,560
 $7
 $2,567
      
1 Includes cash and cash equivalents of consolidated variable interest entities
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


Stock CompensationFinancial Instruments – ScopeCredit Losses (ASU 2019-05, ASU 2019-04, ASU 2018-19 and ASU 2016-13)
This update limits the number of Modification Accountingcredit impairment models used for different assets and results in accelerated credit loss recognition on assets held at amortized cost, which primarily includes our commercial and residential mortgage loans, but also includes certain other loans and reinsurance assets. The identification of PCD financial assets includes all assets that have experienced a more-than-insignificant deterioration in credit since origination. Additionally, changes in the expected cash flows of purchased credit-deteriorated financial assets are recognized immediately in the income statement. AFS securities are not in scope of the new credit loss model, but were subject to targeted improvements including the establishment of a valuation allowance for credit losses versus the previous direct write down approach. We adopted this update effective January 1, 2020 with a cumulative-effect adjustment that decreased retained earnings by $117 million net of tax and offsetting impacts to DAC, DSI, VOBA and the SOP 03-1 reserve. The adjustment to retained earnings primarily relates to the establishment of an allowance on our 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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ATHENE HOLDING LTD.
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 2017-09)2018-18)
The amendments in this update clarify and simplify when to apply modification accounting for a change to the terms or conditions of a share-based payment award. These amendments are required to be adopted prospectively to awards modified after the date of adoption. The amendments are effective January 1, 2018. Early adoption is permitted and we have elected to early adopt effective April 1, 2017. The adoption did not have an impactprovide guidance on our consolidated financial statements.

Receivables – Nonrefundable Fees and Other Costs (ASU 2017-08)
The amendments in this update shorten the amortization period forwhether certain callable debt securities held at a premium to the earliest call date. These amendments are required to be adopted on a modified retrospective basis effective January 1, 2019. Early adoption is permitted and we have elected to early adopt effective January 1, 2017. The adoption did not have a material impact on our consolidated financial statements.

Business Combinations – Clarifying the Definition of a Business (ASU 2017-01)
The amendments in this update clarify the definition of a business with the objective of assisting entities with evaluating whether transactions between collaborative arrangement participants should be accounted for as acquisitions (or disposals)revenue under Topic 606, providing comparability in the presentation of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. These amendments are required to berevenue for certain transactions. We adopted prospectively to any transactions after the date of adoption. The amendments arethis update effective January 1, 2018. Early adoption is permitted and we have elected to early adopt effective April 1, 2017. The adoption did not have an impact on our consolidated financial statements.

Consolidation – Interest Held through Related Parties under Common Control (ASU 2016-17)
2020. This update amends the consolidation guidance to change how indirect interests in VIEs are evaluated by a reporting entity when determining whether or not it is the primary beneficiary of that VIE. The primary beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the VIE. A reporting entity has an indirect interest in a VIE if it has a direct interest in a related party that, in turn, has a direct interest in the VIE. Previously, if a single decision maker and its related parties were under common control, the single decision maker was required to consider indirect interests held through related parties to be the equivalent of direct interests in their entirety. The amendments change the evaluation of indirect interests to be considered on a proportionate basis. We adopted this standard effective January 1, 2017, and the adoption did not have a material effect on our consolidated financial statements.



Consolidation (ASU 2018-17)
ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)

Improvements to Employee Share-Based Payment Accounting (ASU 2016-09)
ThisThe amendments in this update simplifies several aspects ofexpand certain discussions in the accountingVIE guidance, including considerations necessary for share-based payment award transactions, including income tax consequences, forfeitures and classification on the statement of cash flows. The standard requires entities to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeituresdetermining when they occur. We have elected to account for forfeitures when they occur.a decision-making fee is a variable interest. We adopted this standardupdate effective January 1, 2017, and the2020. The adoption of this update did not have a material effect on our consolidated financial statements.


Equity Method and Joint VenturesCloud Computing Arrangements (ASU 2016-07)2018-15)
ThisThe amendments in this update eliminatesalign the retroactive adjustments to an investment upon it qualifyingrequirements for capitalizing implementation costs incurred in a cloud computing service arrangement with the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence by the investor.requirements for capitalizing implementation costs incurred for internal-use software. We adopted this standardupdate on a prospective basis effective January 1, 2017, and the adoption2020. This update did not have a material effect on our consolidated financial statements.


Derivatives and HedgingFair Value Measurement – Contingent Put and Call OptionsDisclosure Requirements (ASU 2016-06)2018-13)
ThisThe amendments in this update is intended to clarifymodify the disclosure requirements for assessing whether contingent call (put) options that can acceleratefair value measurements by removing, modifying or adding certain disclosures. On October 1, 2018, we early adopted the paymentremoval and modification of principal on debt instruments are clearly and closely related to debt hosts. Wecertain disclosures as permitted. The additional disclosures in the update were adopted this standard effective January 1, 2017, and the2020. The adoption of this update did not have a material effect on our consolidated financial statements.


Derivatives and HedgingIntangibles – EffectsSimplifying the Test for Goodwill Impairment (ASU 2017-04)
The amendments in this update simplify the subsequent measurement of Derivative Contract Novation (ASU 2016-05)
This update is intended to clarify thatgoodwill by eliminating the comparison of the implied fair value of a change inreporting unit’s goodwill with the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require a de-designationcarrying amount of that hedging relationship provided all other hedge accounting criteriagoodwill 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 be met.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 standardupdate on a prospective basis effective January 1, 2017, and the2020. The adoption of this update did not have a material effect on our consolidated financial statements.


Recently Issued Accounting Pronouncements


Derivatives and HedgingInsurance – Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2017-12)2019-09, ASU 2018-12)
These 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 used 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 our 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.

The amendments in this update contain improvementsASU 2018-12 were originally intended to become effective January 1, 2021; however, with the financial reportingissuance of hedging relationships that more closely reflect the economic results of an entity's risk management activities in its financial statements. Additionally, the amendments in this update make certain targeted improvements to simplify the application of hedge accounting. WeASU 2019-09, we will not be required to adopt this standard effectivethe amendments until January 1, 2019.2022. 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.


Gains and Losses from
18
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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


Income Taxes – Simplifying the Derecognition of Nonfinancial AssetsAccounting for Income Taxes (ASU 2017-05)2019-12)
The amendments in this update clarifysimplify the scope of asset derecognition guidance and accounting for partial salesincome 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 nonfinancial assets.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 and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. We will be required to adopt this standardupdate January 1, 2021 and apply certain aspects of the update retrospectively while other aspects will be applied on a retrospective or modified retrospective basis effective January 1, 2018.basis. Early adoption is permitted. We are currently evaluating the impact of this guidance 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 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. We will be required to adopt this standard prospectively effective January 1, 2020. Early adoption is permitted. We do not expect the adoption of this update to have a material effect on our consolidated financial statements.

Revenue Recognition (ASU 2016-20, ASU 2016-12, ASU 2016-11, ASU 2016-10, ASU 2016-08, ASU 2015-14 and ASU 2014-09)
ASU 2014-09 indicates an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14 provided for a one-year deferral of the effective date, which will require us to adopt this standard effective January 1, 2018. ASU 2016-08 amends the principal-versus-agent implementation guidance and illustrations in ASU 2014-09. ASU 2016-10 clarifies the identification of performance obligations as well as licensing implementation guidance. ASU 2016-11 brings existing Securities and Exchange Commission (SEC) guidance into conformity with revenue recognition accounting guidance of ASU 2014-09 discussed above. ASU 2016-12 provides clarification on assessing collectability, presentation of sales tax, non-cash consideration and transition. ASU 2016-20 addresses necessary technical corrections and improvements to clarify codification amended by ASU 2014-09 within Topic 606. The revenue recognition updates replace all general and most industry-specific revenue recognition guidance, excluding insurance contracts, leases, financial instruments and guarantees, which have been scoped out of the update. Since the guidance does not apply to revenue on contracts accounted for under the financial instruments or insurance contracts standards, only a portion of our revenues are impacted by this guidance. Our remaining implementation efforts are focused on less than 0.3% of our revenues and our transition approach. We do not currently expect the adoption of this update to have a material impact on our consolidated financial statements.

Statement of Cash Flows – Restricted Cash (ASU 2016-18)
This update requires amounts generally described as restricted cash or restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the consolidated statements of cash flows. We will be required to adopt this standard retrospectively for each period presented effective January 1, 2018. Early adoption is permitted. The adoption of this update will require us to change the presentation on the consolidated statements of cash flows for restricted cash or restricted cash equivalents; however, we do not expect the adoption of this update to have a material effect on our consolidated financial statements.

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


Income Taxes – Intra-Entity Transfers (ASU 2016-16)
This update requires the immediate recognition of current and deferred income tax effects of intra-entity transfers of assets, other than inventory. Currently, recognition of the income tax consequence is not recognized until the asset is sold to an outside party. We will be required to adopt this standard on a modified retrospective basis effective January 1, 2018. We are currently evaluating the impact of this guidance on our consolidated financial statements.

Statement of Cash Flows (ASU 2016-15)
This update provides specific guidance to clarify how entities should classify certain cash receipts and cash payments on the statement of cash flows. The update also clarifies the application of the predominance principle when cash receipts and cash payments have aspects of more than one class of cash flows. We will be required to adopt this standard effective January 1, 2018. We do not expect the adoption of this update to have a material effect on our consolidated financial statements.

Financial Instruments – Credit Losses (ASU 2016-13)
This update is designed to reduce complexity by limiting the number of credit impairment models used for different assets. The model will result in accelerated credit loss recognition on assets held at amortized cost, which includes our commercial and residential mortgage investments. The identification of credit-deteriorated securities will include all assets that have experienced a more-than-insignificant deterioration in credit since origination. Additionally, any changes in the expected cash flows of credit-deteriorated securities will be recognized immediately in the income statement. Available-for-sale (AFS) fixed maturity securities are not in scope of the new credit loss model, but will undergo targeted improvements to the current reporting model including the establishment of a valuation allowance for credit losses versus the current direct write down approach. We will be required to adopt this standard effective January 1, 2020. Early adoption is permitted effective January 1, 2019. We are currently evaluating the impact of this guidance on our consolidated financial statements.

Leases (ASU 2016-02)
This update is intended to increase transparency and comparability for lease transactions. A lessee is required to recognize an asset and a liability for all lease arrangements longer than 12 months. Lessor accounting is largely unchanged. We will be required to adopt this standard on a modified retrospective basis effective January 1, 2019. Early adoption is permitted. Our implementation efforts are primarily focused on the review of existing lease contracts and assessing the impact of this guidance on our consolidated financial statements.

Financial Instruments – Recognition and Measurement (ASU 2016-01)
This update changes the current accounting for certain equity investments, the presentation of changes in the fair value of liabilities measured under the fair value option due to instrument-specific credit risk, and certain disclosures. For liabilities measured under the fair value option, changes in fair value attributable to instrument-specific credit risk will no longer affect net income, but will be recognized separately in OCI. Additionally, this update requires equity investments to be measured at fair value with subsequent changes recognized in net income, except for those accounted for under the equity method or requiring consolidation. We currently recognize changes in fair value related to AFS equity securities in accumulated other comprehensive income (AOCI) on the consolidated balance sheets. We will be required to adopt this standard with a cumulative-effect adjustment to beginning retained earnings effective January 1, 2018. Refer to Note 2 – Investments for further information on the unrealized gains and losses of our AFS equity securities. We are currently evaluating the impact of this guidance on our consolidated financial statements.


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

2. Investments


Available-for-saleAFS 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, and equity securities. Additionally, itstock. Our AFS investment portfolio includes directrelated party investments in affiliatesthat are primarily a result of Apollo Global Management, LLC (AGM and, together with its subsidiaries, Apollo) whereinvestments over which Apollo can exercise significant influence over the affiliates.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, orallowance 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



19
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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


The following table represents the amortized cost, gross unrealized gains and losses, fair value and other-than-temporaryother than temporary impairments (OTTI) in AOCIaccumulated other comprehensive income (AOCI) of our AFS investments by asset type:
 September 30, 2017
(In millions)Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value 
OTTI
in AOCI
Fixed maturity securities         
U.S. government and agencies$59
 $1
 $(2) $58
 $—
U.S. state, municipal and political subdivisions993
 153
 (1) 1,145
 —
Foreign governments2,515
 90
 (16) 2,589
 —
Corporate33,115
 1,520
 (177) 34,458
 1
CLO4,963
 47
 (14) 4,996
 —
ABS3,885
 57
 (42) 3,900
 1
CMBS1,849
 54
 (13) 1,890
 1
RMBS8,838
 650
 (8) 9,480
 12
Total fixed maturity securities56,217
 2,572
 (273) 58,516
 15
Equity securities262
 57
 (1)
 318
 —
Total AFS securities56,479
 2,629
 (274) 58,834
 15
Fixed maturity securities – related party         
CLO352
 4
 —
 356
 —
ABS52
 1
 —
 53
 —
Total fixed maturity securities – related party404
 5
 —
 409
 —
Total AFS securities including related party$56,883
 $2,634
 $(274) $59,243
 $15

 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

 December 31, 2016
(In millions)Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value 
OTTI
in AOCI
Fixed maturity securities         
U.S. government and agencies$59
 $1
 $—
 $60
 $—
U.S. state, municipal and political subdivisions1,024
 117
 (1) 1,140
 —
Foreign governments2,098
 143
 (6) 2,235
 —
Corporate29,433
 901
 (314) 30,020
 2
CLO4,950
 14
 (142) 4,822
 —
ABS2,980
 25
 (69) 2,936
 —
CMBS1,835
 38
 (26) 1,847
 —
RMBS8,731
 313
 (71) 8,973
 15
Total fixed maturity securities51,110
 1,552
 (629) 52,033
 17
Equity securities319
 35
 (1) 353
 —
Total AFS securities51,429
 1,587
 (630) 52,386
 17
Fixed maturity securities – related party         
CLO284
 1
 (6) 279
 —
ABS57
 —
 (1) 56
 —
Total fixed maturity securities – related party341
 1
 (7) 335
 —
Equity securities – related party20
 —
 —
 20
 —
Total AFS securities – related party361
 1
 (7) 355
 —
Total AFS securities including related party$51,790
 $1,588
 $(637) $52,741
 $17



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

The amortized cost and fair value of fixed maturity 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

 September 30, 2017
(In millions)Amortized Cost Fair Value
Due in one year or less$984
 $988
Due after one year through five years8,048
 8,246
Due after five years through ten years11,218
 11,605
Due after ten years16,432
 17,411
CLO, ABS, CMBS and RMBS19,535
 20,266
Total AFS fixed maturity securities56,217
 58,516
Fixed maturity securities – related party, CLO and ABS404
 409
Total AFS fixed maturity securities including related party$56,621
 $58,925


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.



20
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ATHENE HOLDING LTD.
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 cost or 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)

 September 30, 2017
 Less than 12 months 12 months or greater Total
(In millions)Fair Value 
Gross
Unrealized
Losses
 Fair Value Gross
Unrealized
Losses		 Fair Value Gross
Unrealized
Losses
Fixed maturity securities           
U.S. government and agencies$17
 $(1) $6
 $(1)
 $23
 $(2)
U.S. state, municipal and political subdivisions81
 (1) 3
 —
 84
 (1)
Foreign governments822
 (16) 25
 —
 847
 (16)
Corporate4,127
 (90) 1,465
 (87) 5,592
 (177)
CLO303
 (1) 671
 (13) 974
 (14)
ABS541
 (4) 573
 (38) 1,114
 (42)
CMBS345
 (6) 169
 (7) 514
 (13)
RMBS393
 (5) 166
 (3) 559
 (8)
Total fixed maturity securities6,629
 (124) 3,078
 (149) 9,707
 (273)
Equity securities72
 (1)
 —
 —
 72
 (1)
Total AFS securities6,701
 (125) 3,078
 (149) 9,779
 (274)
Fixed maturity securities, CLO – related party61
 —
 —
 —
 61
 —
Total AFS securities including related party$6,762
 $(125) $3,078
 $(149) $9,840
 $(274)


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

 December 31, 2016
 Less than 12 months 12 months or greater Total
(In millions)Fair Value 
Gross
Unrealized
Losses
 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses
Fixed maturity securities           
U.S. government and agencies$1
 $—
 $—
 $—
 $1
 $—
U.S. state, municipal and political subdivisions85
 (1) 2
 —
 87
 (1)
Foreign governments137
 (5) 9
 (1) 146
 (6)
Corporate6,136
 (228) 1,113
 (86) 7,249
 (314)
CLO388
 (2) 3,102
 (140) 3,490
 (142)
ABS865
 (17) 767
 (52) 1,632
 (69)
CMBS576
 (18) 183
 (8) 759
 (26)
RMBS1,143
 (19) 1,727
 (52) 2,870
 (71)
Total fixed maturity securities9,331
 (290) 6,903
 (339) 16,234
 (629)
Equity securities179
 (1) —
 —
 179
 (1)
Total AFS securities9,510
 (291) 6,903
 (339) 16,413
 (630)
Fixed maturity securities – related party           
CLO68
 —
 100
 (6) 168
 (6)
ABS—
 —
 56
 (1) 56
 (1)
Total fixed maturity securities – related party68
 —
 156
 (7) 224
 (7)
Equity securities – related party14
 —
 —
 —
 14
 —
Total AFS securities – related party82
 —
 156
 (7) 238
 (7)
Total AFS securities including related party$9,592
 $(291) $7,059
 $(346) $16,651
 $(637)


As of September 30, 2017,March 31, 2020, we held 1,4134,327 AFS securities that were in an unrealized loss position. Of this total, 432346 were in an unrealized loss position longer than 12 months.months or more. As of September 30, 2017,March 31, 2020, we held one104 related party AFS securitysecurities that waswere in an unrealized loss position. Of this total, 8 were in an unrealized loss position less than 12 months.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.


Other-Than-Temporary Impairments—For the nine months ended September 30, 2017, we incurred $25 million of net OTTI, of which $6 million related to intent-to-sell impairments. These securities were impaired to fair value as of the impairment date. The remaining net OTTI of $19 million related to credit impairments, of which $9 million related to credit loss impairments that we impaired to fair value and did not bifurcate a portion of the impairment in AOCI. Any credit loss impairments not bifurcated in AOCI are excluded from the rollforward below.

The following table represents a rollforward of the cumulative amounts recognized on the condensed consolidated statements of income for OTTI related to pre-tax credit loss impairments on AFS fixed maturity securities, for which a portion of the securities' total OTTI was recognized in AOCI:
21
 Three months ended September 30, Nine months ended September 30,
(In millions)2017 2016 2017 2016
Beginning balance$16
 $32
 $16
 $22
Initial impairments – credit loss OTTI recognized on securities not previously impaired4
 —
 10
 8
Additional impairments – credit loss OTTI recognized on securities previously impaired—
 1
 —
 3
Reduction in impairments from securities sold, matured or repaid(2) (9) (8) (9)
Reduction for credit loss that no longer has a portion of the OTTI loss recognized in AOCI(6) —
 (6) —
Ending balance$12
 $24
 $12
 $24
Table of Contents



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



Allowance for Credit Losses—The following table summarizes the activity in the allowance for credit losses for AFS securities 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

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 September 30, Nine months ended September 30,
(In millions)2017 2016 2017
2016
AFS securities       
Fixed maturity securities$646
 $563
 $1,901
 $1,703
Equity securities3
 2
 7
 6
Trading securities50
 59
 154
 184
Mortgage loans, net of allowances98
 93
 273
 264
Investment funds55
 65
 175
 122
Funds withheld at interest35
 22
 105
 47
Other18
 14
 56
 43
Investment revenue905
 818
 2,671
 2,369
Investment expenses(85) (75) (244) (232)
Net investment income$820
 $743
 $2,427
 $2,137


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 September 30, Nine months ended September 30,
(In millions)2017 2016 2017
2016
AFS fixed maturity securities       
Gross realized gains on investment activity$31
 $31
 $94
 $102
Gross realized losses on investment activity(10) (9) (31) (51)
Net realized investment gains on fixed maturity securities21
 22
 63

51
Net realized investment gains (losses) on trading securities(1) 28
 45
 93
Derivative gains456
 336
 1,516
 387
Other losses(3) (6) (9) (8)
Investment related gains (losses)$473
 $380
 $1,615
 $523


Proceeds from sales of AFS securities were $1,863$1,807 million and $972$1,253 million for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and $4,629 million and $3,202 million for the nine months ended September 30, 2017 and 2016,2019, respectively.


The following table summarizes the change in unrealized gains and losses(losses) on trading and equity securities we still held as of the respective period end resulted in unrealized gainsend:
 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


22
Table of $18 million and $37 million during the three months ended September 30, 2017 and 2016, respectively, and unrealized gains of $90 million and $143 million during the nine months ended September 30, 2017 and 2016, respectively, which are included in net realized investment gains (losses) on trading securities in the table above. The change in unrealized gains and losses on related party trading securities we still held as of the respective period end resulted in related party unrealized gains of $2 million and $0 million during the three months ended September 30, 2017 and 2016, respectively, and related party unrealized gains of $2 million and losses of $23 million during the nine months ended September 30, 2017 and 2016, respectively, which are included in net realized investment gains (losses) on trading securities in the table above.Contents

Purchased Credit Impaired (PCI) Investments—The following table summarizes our PCI investments:
 Fixed maturity securities Mortgage loans
(In millions)September 30, 2017 
December 31, 20163
 September 30, 2017 December 31, 2016
Contractually required payments1
$11,477
 $11,202
 $1,544
 $424
Less: Cash flows expected to be collected2
(8,247) (7,948) (1,066) (286)
Non-accretable difference$3,230
 $3,254
 $478
 $138
        
Cash flows expected to be collected2
$8,247
 $7,948
 $1,066
 $286
Less: Amortized cost(6,175) (5,868) (802) (220)
Accretable difference$2,072
 $2,080
 $264
 $66
        
Fair value$6,699
 $6,049
 $831
 $221
        
1 Includes principal and accrued interest.
2 Represents the undiscounted principal and interest cash flows expected.
3 Prior period balances have been revised for immaterial misstatements to be comparable to current year balances.


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





Purchased Financial Assets with Credit Deterioration—During the period,three months ended March 31, 2020, we acquired PCIpurchased PCD investments with the following amounts at the time of purchase:
 Nine months ended September 30, 2017
(In millions)Fixed maturity securities Mortgage loans
Contractually required principal and interest$2,230
 $1,194
Expected cash flows1,502
 835
Estimated fair value1,131
 609
(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 maturities 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 activitysecurities pledged as collateral for the accretable yield on PCI investments:repurchase agreements:
 Three months ended September 30, 2017 Nine months ended September 30, 2017
(In millions)
Fixed maturity securities1
 Mortgage loans 
Fixed maturity securities1
 Mortgage loans
Beginning balance$2,098
 $259
 $2,080
 $66
Purchases of PCI investments, net of sales53
 25
 289
 223
Accretion(41) (1) (138) (1)
Changes in expected cash flows(38) (19) (159) (24)
Ending balance$2,072
 $264
 $2,072
 $264
        
1 Prior period beginning balances have been revised for immaterial misstatements to be comparable to current year balances.
 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 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.


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ATHENE HOLDING LTD.
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)September 30, 2017 December 31, 2016
Commercial mortgage loans$5,503
 $5,058
Commercial mortgage loans under development—
 74
Total commercial mortgage loans5,503
 5,132
Residential mortgage loans942
 338
Mortgage loans, net of allowances$6,445
 $5,470


We primarily invest in commercial mortgage loans on income producing properties including hotels, industrial propertiesoffice and retail buildings, apartments, hotels and office buildings.industrial 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.


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


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)

 September 30, 2017 December 31, 2016
(In millions, except for percentages)Net Carrying Value Percentage of Total Net Carrying Value Percentage of Total
Property type       
Office building$1,340
 24.4% $1,217
 23.7%
Retail1,130
 20.5% 1,135
 22.1%
Hotels1,108
 20.1% 1,025
 20.0%
Industrial940
 17.1% 742
 14.5%
Apartment580
 10.5% 616
 12.0%
Other commercial405
 7.4% 397
 7.7%
Total commercial mortgage loans$5,503
 100.0% $5,132
 100.0%
        
U.S. Region       
East North Central$553
 10.0% $450
 8.8%
East South Central146
 2.7% 158
 3.1%
Middle Atlantic915
 16.6% 628
 12.2%
Mountain599
 10.9% 543
 10.6%
New England163
 3.0% 194
 3.8%
Pacific1,075
 19.5% 833
 16.2%
South Atlantic1,053
 19.1% 1,284
 25.0%
West North Central278
 5.1% 306
 6.0%
West South Central635
 11.5% 662
 12.9%
Total U.S. Region5,417
 98.4% 5,058
 98.6%
International Region86
 1.6% 74
 1.4%
Total commercial mortgage loans$5,503
 100.0% $5,132
 100.0%


Our residential mortgage loan portfolio includes first lien residential mortgage loans collateralized by properties located in the U.S. As of September 30, 2017, California, Floridavarious geographic locations and New York represented 33.3%, 15.6% and 6.2%, respectively,is summarized by proportion of the portfolio andin the remaining 44.9% represented all other states, with each individual state comprising less than 5% of the portfolio. As of December 31, 2016, California, Florida and New York represented 38.9%, 9.1% and 5.1%, respectively, of the portfolio, and the remaining 46.9% represented all other states, with each individual state comprising less than 5% of the portfolio.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.

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 valuationmean 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 – 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 was $2 million as of September 30, 2017and December 31, 2016. We did not record any material activitymodel for the loans included in the valuation allowance during the three or nine months ended September 30, 2017 or2016.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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ATHENE HOLDING LTD.
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 September 30, 2017, $16December 31, 2019, $67 million of our residential mortgage loans were non-performing. Asnonperforming.

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 December 31, 2016, all of ourinterest income on residential mortgage loans were performing.in non-accrual status.


Commercial mortgage loans – The following provides the aging ofrepresents our commercial mortgage loan portfolio including those under development, netby 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 valuation allowances:
December 31, 2019, NaN of our commercial loans were 30 days or more past due.
(In millions)September 30, 2017 December 31, 2016
Current (less than 30 days past due)$5,497
 $5,111
Over 90 days past due6
 21
Total commercial mortgage loans$5,503
 $5,132


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—



ATHENE HOLDING LTD.During the three months ended March 31, 2020, 0 interest income was recognized on commercial mortgage loans in non-accrual status.
Notes to Condensed Consolidated Financial Statements (Unaudited)


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



26
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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)September 30, 2017 December 31, 2016
Less than 50%$1,836
 $1,787
50% to 60%1,353
 1,337
61% to 70%1,902
 1,401
71% to 100%402
 492
Greater than 100%10
 41
Commercial mortgage loans$5,503
 $5,058


The debt service coverage ratio based upon the most recent financial statements, is expressed as a percentage of a property'sproperty’s net operating income to its debt service payments. A debt service ratio of less than 1.0 indicates a property'sproperty’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



27
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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions)September 30, 2017 December 31, 2016
Greater than 1.20x$4,992
 $4,378
1.00x – 1.20x233
 353
Less than 1.00x278
 327
Commercial mortgage loans$5,503
 $5,058


Investment Funds—Our investment fund portfolio consists of funds that employ various strategies and include investments in real estate, and other real assets, credit, private equity and natural resources and hedge funds.resources. Investment funds typicallycan meet the definition of variable interest entities and are discussed further in Note 4 – Variable Interest Entities.VIEs. Our investment funds do not specify timing of distributions on the funds’ underlying assets.



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 5 – Fair Value for information about the fair value hierarchy for derivatives.
The following table presents the notional amount and fair value of derivative instruments:
 September 30, 2017 December 31, 2016
 Notional Amount Fair Value Notional Amount Fair Value
(In millions) Assets Liabilities  Assets Liabilities
Derivatives designated as hedges           
Foreign currency swaps648
 $1
 $63
 289
 $11
 $4
Interest rate swaps302
 —
 —
 302
 —
 14
Total derivatives designated as hedges  1
 63
   11
 18
Derivatives not designated as hedges           
Equity options30,323
 1,957
 10
 26,822
 1,336
 —
Futures19
 8
 1
 —
 9
 —
Total return swaps114
 2
 —
 41
 2
 —
Foreign currency swaps41
 3
 3
 43
 5
 —
Interest rate swaps406
 —
 2
 568
 1
 5
Credit default swaps10
 —
 6
 10
 —
 7
Foreign currency forwards1,096
 11
 7
 805
 6
 10
Embedded derivatives           
Funds withheld—
 303
 18
 —
 140
 6
Interest sensitive contract liabilities—
 —
 6,652
 —
 —
 5,283
Total derivatives not designated as hedges
 2,284
 6,699
 
 1,499
 5,311
Total derivatives
 $2,285
 $6,762
 
 $1,510
 $5,329

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 June 2044. During the three months ended September 30, 2017 and 2016, we had foreign currency swap losses of $31 million and $6 million, respectively, recorded in AOCI. During the nine months ended September 30, 2017 and 2016, we had foreign currency swap losses of $69 million and $13 million, respectively, recorded in AOCI. There were no amounts reclassified to income and no amounts deemed ineffective for the three and nine months ended September 30, 2017 and2016. As of September 30, 2017, no amounts are expected to be reclassified to income within the next 12 months.

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. Certain of these swaps entered into during the fourth quarter of 2016 are designated as fair value hedges. 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.

The following table represents the gains and losses on derivatives and the related hedged items in fair value hedge relationships, recorded in interest sensitive contract benefits on the condensed consolidated statements of income:
(In millions)Three months ended September 30, 2017 Nine months ended September 30, 2017
Gains recognized on derivative$2
 $4
Losses recognized on hedged item(3) (4)
Ineffectiveness recognized on fair value hedges$(1) $—

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 the equity indexed options within a limited time at a contracted price. The contracts are net settled in cash based on differentials in the indices at the time of exercise and the strike price.


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

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.

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.

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.

Variance swaps – We use variance swaps to hedge the growth in interest credited to the customer as a direct result of changes in the volatility of the specified market index, primarily the S&P 500. In a variance swap transaction, we agree to exchange future realized volatility for current implied volatility. This type of contract pays the difference between the realized variance and a predefined strike multiplied by a notional value.

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.

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 modco or funds withheld basis and indexed annuity products.

The following is a summary of the gains (losses) related to derivatives not designated as hedges:
 Three months ended September 30, Nine months ended September 30,
(In millions)2017 2016 2017 2016
Equity options$367
 $197
 $1,154
 $105
Futures(5) (7) (19) (14)
Total return swaps5
 2
 12
 4
Foreign currency swaps1
 (1) 7
 10
Interest rate swaps2
 (2) 1
 (5)
Credit default swaps—
 1
 1
 —
Variance swaps—
 4
 1
 —
Foreign currency forwards4
 8
 24
 16
Embedded derivatives on funds withheld82
 134
 335
 271
Amounts recognized in investment related gains (losses)456
 336
 1,516
 387
Embedded derivatives in indexed annuity products1
(344) (243) (1,077) (390)
Total gains (losses) for derivatives not designated as hedges$112
 $93
 $439
 $(3)
        
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 ofsummarizes 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. As of September 30, 2017 and December 31, 2016, we had $50 million and $25 million, respectively, of collateral pledged to counterparties.


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
September 30, 2017           
Derivative assets$1,982
 $(34) $(1,896) $52
 $(19) $33
Derivative liabilities(92) 34
 50
 (8) —
 (8)
            
December 31, 2016           
Derivative assets$1,370
 $(8) $(1,383) $(21) $(26) $(47)
Derivative liabilities(40) 8
 25
 (7) —
 (7)
            
1 The gross amounts of recognized derivative assets and derivative liabilities are reported on the condensed consolidated balance sheets. As of September 30, 2017 and December 31, 2016, 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 securities collateral received, we do not have the right to sell or re-pledge the collateral. As such, we do not record the securities on the condensed consolidated balance sheets.


4. Variable Interest Entities

Our investment funds, typically 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.

Consolidated VIEs—We consolidate 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), London Prime Apartments Guernsey Holdings Limited (London Prime), NCL Athene, LLC (NCL LLC) and Apollo Asia Sprint Co-Investment Fund, L.P. (Sprint), which are investment funds. We are the only limited partner or Class A member in these investment funds and receive all of the economic benefits and losses, other than management fees and carried interest, as applicable, paid to the general partner in each entity, or a related entity, which are related parties. We do not have any voting rights as limited partner and, as the limited partner or Class A member, do not solely satisfy the power criteria to direct the activities that significantly impact the economics of the VIE. However, the criteria for the primary beneficiary are satisfied by our related party group and because substantially all of the activities are conducted on our behalf, we consolidate the investment funds.

No arrangement exists requiring us to provide additional funding in excess of our committed capital investment, liquidity, or the funding of losses or an increase to our loss exposure in excess of our investment in the VIEs. We elected the fair value option for certain fixed maturity and equity securities, and investment funds, which are reported in the consolidated variable interest entity sections on the condensed consolidated balance sheets.

CoInvest VI, CoInvest VII and CoInvest Other were formed to make investments, including co-investments alongside private equity funds sponsored by Apollo. We received our interests in CoInvest VI, CoInvest VII and CoInvest Other as part of a contribution agreement in 2012 with AAA Guarantor – Athene, L.P. and its subsidiary, Apollo Life Re Ltd., in order to provide a capital base to support future acquisitions. London Prime was formed for the purpose of investing in Prime London Ventures Limited, a Guernsey limited company, which purchases rental residential assets across prime central London.

CoInvest VII holds a significant investment in MidCap FinCo Limited (MidCap), which is included in investment funds of consolidated VIEs on the condensed consolidated balance sheets. We have purchased pools of loans sourced by MidCap and contemporaneously sold subordinated participation interests in the loans to a subsidiary of MidCap. As of September 30, 2017 and December 31, 2016, we had $14 million due to MidCap under the subordinated participation agreement which is reflected as a secured borrowing in other liabilities on the condensed consolidated balance sheets.


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

During the third quarter of 2016, CoInvest VI contributed its largest investment, Norwegian Cruise Line Holdings Ltd. (NCLH) shares, to a newly formed entity, NCL LLC, in exchange for 100% of the membership interests in this entity. Subsequent to this contribution, CoInvest VI distributed its Class A membership interests in NCL LLC to us and the Class B membership interests in NCL LLC to the general partner of CoInvest VI. NCL LLC is subject to the same management fees, selling restrictions with respect to shares of NCLH, and carried interest calculation as CoInvest VI. NCL LLC classifies its NCLH shares as AFS equity securities. We are the primary beneficiary and consolidate NCL LLC, as substantially all of its activities are conducted on our behalf.

During the first quarter of 2017, we acquired a 100% limited partnership interest in Sprint, an entity formed to make a co-investment alongside private equity funds sponsored by Apollo. The underlying investment is a structured credit facility on a nearly completed skyscraper in Southeast Asia. We are the primary beneficiary and consolidate Sprint, as substantially all of its activities are conducted on our behalf.

We previously consolidated 2012 CMBS-I Fund L.P., a Delaware limited partnership, and 2012 CMBS-II Fund L.P., a Delaware limited partnership (collectively, CMBS Funds). The CMBS Funds were originally formed with the objective of generating high risk-adjusted investment returns by investing primarily in a portfolio of eligible CMBS and using leverage through repurchase agreements treated as collateralized financing. During the third quarter of 2016, the CMBS Funds each sold investments to fully settle the borrowings under their respective repurchase agreements of $500 million. The remaining investments of $167 million were distributed directly to us. During the fourth quarter of 2016, the CMBS Funds were fully dissolved.

Trading securities – related party – Trading securities represents investments in fixed maturity and equity securities with changes in fair value recognized in investment related gains (losses) within revenues of consolidated variable interest entities on the condensed consolidated statements of income. The change in unrealized gains and losses on trading securities we still held as of the respective period end resulted in unrealized gains of $8 million and $2 million for the three months ended September 30, 2017 and 2016, respectively, and unrealized gains of $14 million and losses of $51 million for the nine months ended September 30, 2017 and 2016, respectively. Trading securities held by CoInvest VI, CoInvest VII and CoInvest Other are related party investments because Apollo affiliates exercise significant influence over the operations of these investees.

Investment funds –including related party – Investment funds include non-fixed income, alternative investments in the form of limited partnerships or similar legal structures that meet the definition of VIEs; however, our consolidated VIEs are not considered the primary beneficiary of these investment funds. Changes in fair value for certain of these investment funds are included in investment related gains (losses) within revenues of consolidated variable interest entities on the condensed consolidated statements of income. Investment funds held by CoInvest VII, CoInvest Other and Sprint are related party investments as they are sponsored or managed by Apollo affiliates.


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

Fair Value—See Note 5 – Fair Value for a description of the levels of our fair value hierarchy and our process for determining the level we assign our assets and liabilities carried at fair value.

The following represents the hierarchy for assets and liabilities of our consolidated VIEs measured at fair value on a recurring basis: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.

 September 30, 2017
(In millions)Total 
NAV1
 Level 1 Level 2 Level 3
Assets of consolidated variable interest entities         
Investments         
AFS securities         
Equity securities$173
 $—
 $173
 $—
 $—
Trading securities         
Fixed maturity securities50
 —
 —
 —
 50
Equity securities145
 —
 116
 —
 29
Investment funds562
 529
 —
 —
 33
Cash and cash equivalents1
 —
 1
 —
 —
Total assets of consolidated VIEs measured at fair value$931
 $529
 $290
 $—
 $112
          
1 Investments measured at NAV as a practical expedient in determining fair value have not been classified in the fair value hierarchy.


 December 31, 2016
(In millions)Total 
NAV1
 Level 1 Level 2 Level 3
Assets of consolidated variable interest entities         
Investments         
AFS securities         
Equity securities$161
 $—
 $161
 $—
 $—
Trading securities         
Fixed maturity securities50
 —
 —
 —
 50
Equity securities117
 —
 74
 —
 43
Investment funds2
562
 524
 —
 —
 38
Cash and cash equivalents14
 —
 14
 —
 —
Total assets of consolidated VIEs measured at fair value$904
 $524
 $249
 $—
 $131
          
1 Investments measured at NAV as a practical expedient in determining fair value have not been classified in the fair value hierarchy.
2 Prior period balances have been revised for immaterial misstatements to be comparable to current year balances.

Fair Value Valuation Methods – Refer to Note 5 – Fair Value for the valuation methods used to determine the fair value of AFS securities, trading securities, investment funds and cash and cash equivalents.


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

Level 3 Financial Instruments – The following is a reconciliation for all VIE Level 3 assets and liabilities measured at fair value on a recurring basis:
 Three months ended September 30, 2017
(In millions)Beginning Balance 
Total realized and unrealized gains (losses)
included in income
 Purchases Sales Transfers in (out) Ending Balance 
Total gains (losses) included in earnings1
Assets of consolidated variable interest entities             
Trading securities             
Fixed maturity securities$51
 $—
 $—
 $(1)
 $—
 $50
 $—
Equity securities30
 (1) —
 —
 —
 29
 (1)
Investment funds2 
33
 —
 —
 —
 —
 33
 —
Total Level 3 assets of consolidated VIEs$114
 $(1) $—
 $(1) $—
 $112
 $(1)
              
1 Related to instruments held at end of period.
2 Beginning balance has been revised for immaterial misstatements to be comparable to current year balances.
 Three months ended September 30, 2016
(In millions)Beginning Balance 
Total realized and unrealized gains (losses)
included in income
 Purchases Sales Transfers in (out) Ending Balance 
Total gains (losses) included in earnings1
Assets of consolidated variable interest entities             
Trading securities             
Fixed maturity securities$53
 $(1) $—
 $(1) $—
 $51
 $—
Equity securities52
 (5) —
 —
 —
 47
 —
Investment funds2
38
 1
 1
 (10) —
 30
 —
Total Level 3 assets of consolidated VIEs$143
 $(5) $1
 $(11) $—
 $128
 $—
              
1 Related to instruments held at end of period.
2 Prior period balances have been revised for immaterial misstatements to be comparable to current year balances.
 Nine months ended September 30, 2017
(In millions)Beginning Balance 
Total realized and unrealized gains (losses)
included in income
 Purchases Sales Transfers in (out) Ending Balance 
Total gains (losses) included in earnings1
Assets of consolidated variable interest entities             
Trading securities             
Fixed maturity securities$50
 $1
 $—
 $(1)
 $—
 $50
 $1
Equity securities43
 (15) 1
 —
 —
 29
 (15)
Investment funds2
38
 —
 1
 (6) —
 33
 —
Total Level 3 assets of consolidated VIEs$131
 $(14) $2
 $(7) $—
 $112
 $(14)
              
1 Related to instruments held at end of period.
2 Beginning balance has been revised for immaterial misstatements to be comparable to current year balances.
 Nine months ended September 30, 2016
(In millions)Beginning Balance 
Total realized and unrealized gains (losses)
included in income
 Purchases Sales Transfers in (out) Ending Balance 
Total gains (losses) included in earnings1
Assets of consolidated variable interest entities             
Trading securities             
Fixed maturity securities$53
 $(1) $—
 $(1) $—
 $51
 $(1)
Equity securities38
 8
 1
 —
 —
 47
 8
Investment funds2
34
 1
 9
 (14) —
 30
 —
Total Level 3 assets of consolidated VIEs$125
 $8
 $10
 $(15) $—
 $128
 $7
              
1 Related to instruments held at end of period.
2 Prior period balances have been revised for immaterial misstatements to be comparable to current year balances.

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


There were no transfers between Level 1 or Level 2 during the three and nine months ended September 30, 2017 and 2016.

Significant Unobservable Inputs– For certain Level 3 trading securities and investment funds, the valuations have significant unobservable inputs for comparable multiples and weighted average cost of capital rates applied in the valuation models. These inputs in isolation can cause significant increases or decreases in fair value. Specifically, the comparable multiples are multiplied by the underlying investment's earnings before interest, tax, depreciation and amortization to establish the total enterprise value of the underlying investments. We use a comparable multiple consistent with the implied trading multiple of public industry peers.

For other Level 3 trading securities, valuations are performed using a discounted cash flow model. For a discounted cash flow model, the significant input is the discount rate applied to present value the projected cash flows. An increase in the discount rate can significantly lower the fair value; a decrease in the discount rate can significantly increase the fair value. The discount rate is determined by considering the weighted average cost of capital calculation of companies in similar industries with comparable debt to equity ratios.

Fair Value Option – The following represents the gains (losses) recorded for instruments within the consolidated VIEs for which we have elected the fair value option:
 Three months ended September 30, Nine months ended September 30,
(In millions)2017 2016 2017 2016
Trading securities       
Fixed maturity securities$—
 $(1) $1
 $(1)
Equity securities7
 (33) 12
 (77)
Investment funds—
 23
 5
 31
Total gains (losses)$7
 $(11) $18
 $(47)

Fair Value of Financial Instruments Not Held at Fair Value – Assets of consolidated variable interest entities includes $31 million and $11 million of investment funds accounted for under the equity method and not carried at fair value as of September 30, 2017 and December 31, 2016, respectively; however, the carrying amount approximates fair value.

Commitments and Contingencies – Assets of CoInvest VI included equity investments in publicly traded shares of Caesars Entertainment Corporation (CEC) and Caesars Acquisition Company (CAC). We received the CEC and CAC shares as part of a contribution agreement in 2012 with AAA Guarantor – Athene, L.P. and its subsidiary, Apollo Life Re Ltd., in order to provide a capital base to support future acquisitions. Claims had been pending (which now have been dismissed with prejudice) against CEC, CAC and/or others, related to certain guaranties issued for debt of Caesars Entertainment Operating Company, Inc. (CEOC) and/or certain transactions involving CEOC and certain of its subsidiaries (collectively, Debtors), CEC, CAC and others. CEC and the Debtors announced on or about September 26, 2016 that CEC and CEOC had received confirmations from representatives of CEOC's major creditor groups of those groups' support for a term sheet that describes the key economic terms of a proposed consensual chapter 11 plan for the Debtors. The plan, containing such terms and further including such other terms respecting, among other things, the merger of CAC into CEC, that CoInvest VI and others will not retain their pre-merger CEC shares, that CoInvest VI and others will retain the value of their CAC shares when receiving shares in the merged CEC, and that CoInvest VI and others will receive releases to the fullest extent permitted by law, was confirmed by the Bankruptcy Court by order dated January 17, 2017. Conditions precedent to the effective date of the plan included regulatory approvals from the various gaming regulators, CEC and CAC shareholders' approval of the proposed merger between CEC and CAC with CEC being the surviving entity, and securing required financings. All of the conditions precedent to the effective date of the plan were fulfilled, and the plan became effective on October 6, 2017. As of September 30, 2017, CoInvest VI recorded a liability of $42 million for the entire carrying value of its pre-merger CEC shares. Also as of September 30, 2017, CoInvest VI's investment in CAC was carried at its fair value of $72 million. On or about October 6, 2017, CoInvest VI received 5,465,733 shares in the merged CEC derived from the value of CoInvest VI's investment in CAC.

Non-Consolidated Securities and Investment Funds—We invest in certain other entities meeting the definition of a VIE or voting interest entity (VOE). We do not consolidate VIEs for which we do not meet the criteria of primary beneficiary as described below. We also do not consolidate VOEs for which we do not have control.


Fixed Maturity Securitiesmaturity securities – We invest in securitization entities as a debt holder or an investor in the residual interest of the securitization vehicle, which are included in fixed maturity securities on the condensed consolidated balance sheets.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'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 byof 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.



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

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


A portion of these investment funds are sponsored and managedEquity securities – We invest in preferred equity securities issued by unrelated parties in which we, as limited partner, do not have the power to direct the activities that most significantly impact the economic performance of the fund, nor do we unilaterally have substantive rights to remove the general partner or dissolve the entity without cause. As a result, we do not meet the power criterion to be considered the primary beneficiary and do not consolidate these VIEs in our financial statements. Investment funds managed by unrelated parties and classified as VOEs are not consolidated as we do not own a majority voting interest and have no other substantive rights that would provide control.

We also have equity interests in investment funds where the general partner or investment manager is a related party. We have determined we are not under common control, as defined by GAAP, with the related party, nor are weentities deemed to be VIEs due to insufficient equity within the primary beneficiary. As a result, investments in these VIEs are not consolidated.structure.

We account for non-consolidated investment funds where we are able to exercise significant influence over the entity under the equity method or by electing the fair value option. For non-consolidated investment funds where we are not able to exercise significant influence, we elect the fair value option. Our investments in investment funds are generally passive in nature as we do not take an active role in the investment fund's management.


Our risk of loss associated with our non-consolidated VIEs and VOEs is limited andinvestments depends on the investment as follows: (1) investmentinvestment. Investment funds, accounted for under the equity method are limited to our initial investment plus unfunded commitments; (2) investment funds under the fair value option are limited to the fair value plus unfunded commitments; (3) AFS securities and other investments are limited to cost or amortized cost; and (4) trading securities are limited to the carrying value.value plus unfunded commitments. AFS securities are limited to amortized cost plus unfunded commitments.



28
Table of Contents

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


The following summarizes the carrying value and maximum loss exposure of these non-consolidated VIEsinvestments:
 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



3. Derivative Instruments

We use a variety of derivative instruments to manage risks, primarily equity, interest rate, credit, foreign currency and VOEs:market volatility. See Note 4 – Fair Value for information about the fair value hierarchy for derivatives.
 September 30, 2017 December 31, 2016
(In millions)Carrying Value Maximum Loss Exposure Carrying Value Maximum Loss Exposure
Investment funds$747
 $1,154
 $689
 $1,026
Investment in related parties – investment funds1,330
 2,083
 1,198
 1,485
Assets of consolidated variable interest entities – investment funds593
 622
 573
 593
Investment in fixed maturity securities20,862
 20,131
 19,171
 19,090
Investment in related parties – fixed maturity securities549
 544
 530
 536
Total non-consolidated VIEs and VOEs$24,081
 $24,534
 $22,161
 $22,730


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

The following summarizes our investment funds, including related party investment funds and investment funds owned by consolidated VIEs:
 September 30, 2017 December 31, 2016
(In millions, except for percentages and years)Carrying value Percent of total Remaining life in years Carrying value Percent of total Remaining life in years
Investment funds               
Private equity$279
 37.3% 0–7 $268
 38.9% 0–7
Real estate and other real assets166
 22.2% 0–6 118
 17.2% 0–4
Natural resources5
 0.7% 0–1 5
 0.7% 1–2
Hedge funds62
 8.3% 0–3 72
 10.4% 0–3
Credit funds235
 31.5% 0–5 226
 32.8% 0–5
Total investment funds747
 100.0%     689
 100.0%    
Investment funds – related parties               
Private equity – A-A Mortgage1
396
 29.8% 3–3 343
 28.6% 3–3
Private equity – other176
 13.2% 0–10 131
 11.0% 0–10
Real estate and other real assets245
 18.4% 0–7 247
 20.6% 1–4
Natural resources78
 5.9% 5–8 49
 4.1% 5–5
Hedge funds163
 12.2% 9–10 192
 16.0% 9–9
Credit funds272
 20.5% 1–4 236
 19.7% 2–3
Total investment funds – related parties1,330
 100.0%     1,198
 100.0%    
Investment funds owned by consolidated VIEs               
Private equity – MidCap2
529
 89.2% N/A 524
 91.4% N/A
Credit funds32
 5.4% 0–3 38
 6.7% 0–3
Real estate and other real assets32
 5.4% 2–3 11
 1.9% 2–3
Total investment funds owned by consolidated VIEs593
 100.0%     573
 100.0%    
Total investment funds including related parties and funds owned by consolidated VIEs$2,670
       $2,460
      
                
1 A-A Mortgage Opportunities, LP (A-A Mortgage) is a platform to originate residential mortgage loans and mortgage servicing rights.
2 Our total investment in MidCap, including amounts advanced under credit facilities, totaled $767 million and $761 million as of September 30, 2017 and December 31, 2016, respectively, which was less than 10% of total AHL shareholder's equity at September 30, 2017, but greater than 10% at December 31, 2016.

Summarized Ownership of Investment Funds—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)September 30, 2017 December 31, 2016
Ownership Percentage   
100%$25
 $27
50% – 99%605
 478
Greater than 3% – 49%1,324
 1,294
Equity method investment funds$1,954
 $1,799


The following table presents the carrying value by ownership percentage of investment funds where we elected thenotional amount and fair value option, including related party investment funds and investment funds owned by consolidated VIEs: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



29
(In millions)September 30, 2017 December 31, 2016
Ownership Percentage   
Greater than 3% – 49%$562
 $562
3% or less154
 99
Fair value option investment funds$716
 $661
Table of Contents




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



5.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 December 2050. During the three months ended March 31, 2020 and 2019, we had foreign currency swap gains of $401 million and losses of $8 million, respectively, recorded in AOCI. There were 0 amounts reclassified to income and no amounts deemed ineffective for the three months ended March 31, 2020 and2019. As of March 31, 2020, 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 are designated and accounted for as fair value hedges. As of March 31, 2020 andDecember 31, 2019, the carrying amount of the hedged AFS securities was $659 million and $456 million, respectively, and the cumulative amount of fair value hedging adjustments included in the hedged AFS securities included losses of $8 million and gains of $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 (loss). During the three months ended March 31, 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, respectively.

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.

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.

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.


30
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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).


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.

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.




31
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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


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'sinstrument’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.



32
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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:
September 30, 2017March 31, 2020
(In millions)Total 
NAV1
 Level 1 Level 2 Level 3Total NAV Level 1 Level 2 Level 3
Assets                  
AFS securities                  
Fixed maturity securities         
U.S. government and agencies$58
 $—
 $26
 $32
 $—
$40
 $—
 $40
 $—
 $—
U.S. state, municipal and political subdivisions1,145
 —
 —
 1,145
 —
909
 —
 —
 872
 37
Foreign governments2,589
 —
 —
 2,589
 —
291
 —
 —
 291
 —
Corporate34,458
 —
 —
 33,989
 469
44,468
 —
 —
 43,235
 1,233
CLO4,996
 —
 —
 4,800
 196
6,641
 —
 —
 6,519
 122
ABS3,900
 —
 —
 2,521
 1,379
4,563
 —
 —
 3,646
 917
CMBS1,890
 —
 —
 1,803
 87
2,291
 —
 —
 2,246
 45
RMBS9,480
 —
 —
 9,158
 322
6,468
 —
 —
 6,426
 42
Total AFS fixed maturity securities58,516
 —
 26
 56,037
 2,453
Equity securities318
 —
 114
 199
 5
Total AFS securities58,834
 —
 140

56,236
 2,458
65,671
 —
 40
 63,235
 2,396
Trading securities                  
Fixed maturity securities         
U.S. government and agencies3
 —
 3
 —
 —
11
 —
 8
 3
 —
U.S. state, municipal and political subdivisions137
 —
 —
 120
 17
112
 —
 —
 112
 —
Corporate1,475
 —
 —
 1,475
 —
1,425
 —
 —
 1,393
 32
CLO29
 —
 —
 8
 21
3
 —
 —
 —
 3
ABS90
 —
 —
 90
 —
94
 —
 —
 80
 14
CMBS59
 —
 —
 59
 —
51
 —
 —
 51
 —
RMBS418
��—
 —
 317
 101
283
 —
 —
 213
 70
Total trading fixed maturity securities2,211
 —
 3
 2,069
 139
Total trading securities1,979
 —
 8
 1,852
 119
Equity securities498
 —
 —
 498
 —
206
 —
 23
 176
 7
Total trading securities2,709
 —
 3
 2,567
 139
Mortgage loans42
 —
 —
 —
 42
26
 —
 —
 —
 26
Investment funds127
 127
 —
 —
 —
157
 136
 —
 —
 21
Funds withheld at interest – embedded derivative303
 —
 —
 —
 303
(374) —
 —
 —
 (374)
Derivative assets1,982
 —
 8
 1,974
 —
1,610
 —
 19
 1,591
 —
Short-term investments108
 —
 39
 69
 —
393
 —
 42
 284
 67
Other investments98
 —
 —
 98
 —
Cash and cash equivalents3,607
 —
 3,607
 —
 —
5,419
 —
 5,419
 —
 —
Restricted cash100
 —
 100
 —
 —
564
 —
 564
 —
 —
Investments in related parties                  
AFS, fixed maturity securities         
AFS securities         
Corporate19
 —
 —
 19
 —
CLO356
 —
 —
 346
 10
1,040
 —
 —
 1,040
 —
ABS53
 —
 —
 53
 —
2,487
 —
 —
 600
 1,887
Total AFS securities – related party409
 —
 —
 399
 10
3,546
 —
 —
 1,659
 1,887
Trading securities, CLO140
 —
 —
 49
 91
Trading securities         
CLO42
 —
 —
 10
 32
ABS676
 —
 —
 —
 676
Total trading securities – related party718
 —
 —
 10
 708
Equity securities49
 —
 —
 —
 49
Investment funds27
 27
 —
 —
 —
1,097
 118
 —
 —
 979
Short-term investments8
 —
 —
 —
 8
Funds withheld at interest – embedded derivative(15) —
 —
 —
 (15)
Reinsurance recoverable1,783
 —
 —
 —
 1,783
2,115
 —
 —
 —
 2,115
Total assets measured at fair value$70,179
 $154
 $3,897
 $61,294
 $4,834
$83,259
 $254
 $6,115
 $68,905
 $7,985
        (Continued)
        (Continued)


33
Table of Contents

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



September 30, 2017March 31, 2020
(In millions)Total 
NAV1
 Level 1 Level 2 Level 3Total NAV Level 1 Level 2 Level 3
Liabilities                  
Interest sensitive contract liabilities

                 
Embedded derivative$6,652
 $—
 $—
 $—
 $6,652
$9,089
 $—
 $—
 $—
 $9,089
Universal life benefits957
 —
 —
 —
 957
1,322
 —
 —
 —
 1,322
Unit-linked contracts472
 —
 —
 472
 —
Future policy benefits                  
AmerUs Closed Block1,616
 —
 —
 —
 1,616
ILICO Closed Block and life benefits811
 —
 —
 —
 811
AmerUs Life Insurance Company (AmerUs) Closed Block1,481
 —
 —
 —
 1,481
Indianapolis Life Insurance Company (ILICO) Closed Block and life benefits778
 —
 —
 —
 778
Derivative liabilities92
 —
 1
 85
 6
222
 —
 7
 208
 7
Funds withheld liability – embedded derivative18
 —
 —
 18
 —
24
 —
 —
 24
 —
Total liabilities measured at fair value$10,618
 $—
 $1
 $575
 $10,042
$12,916
 $—
 $7
 $232
 $12,677
                 (Concluded)
1 Investments measured at NAV as a practical expedient in determining fair value have not been classified in the fair value hierarchy.
        (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)


34
 December 31, 2016
(In millions)Total 
NAV1
 Level 1 Level 2 Level 3
Assets         
AFS securities         
Fixed maturity securities         
U.S. government and agencies$60
 $—
 $29
 $31
 $—
U.S. state, municipal and political subdivisions1,140
 —
 —
 1,135
 5
Foreign governments2,235
 —
 —
 2,221
 14
Corporate30,020
 —
 —
 29,650
 370
CLO4,822
 —
 —
 4,664
 158
ABS2,936
 —
 —
 1,776
 1,160
CMBS1,847
 —
 —
 1,695
 152
RMBS8,973
 —
 —
 8,956
 17
Total AFS fixed maturity securities52,033
 —
 29
 50,128
 1,876
Equity securities353
 —
 79
 269
 5
Total AFS securities52,386
 —
 108
 50,397
 1,881
Trading securities         
Fixed maturity securities         
U.S. government and agencies3
 —
 3
 —
 —
U.S. state, municipal and political subdivisions137
 —
 —
 120
 17
Corporate1,423
 —
 —
 1,423
 —
CLO43
 —
 —
 —
 43
ABS82
 —
 —
 82
 —
CMBS81
 —
 —
 81
 —
RMBS387
 —
 —
 291
 96
Total trading fixed maturity securities2,156
 —
 3
 1,997
 156
Equity securities425
 —
 —
 425
 —
Total trading securities2,581
 —
 3
 2,422
 156
         (Continued)
Table of Contents


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



 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)



35
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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 December 31, 2016
(In millions)Total 
NAV1
 Level 1 Level 2 Level 3
Mortgage loans44
 —
 —
 —
 44
Investment funds99
 99
 —
 —
 —
Funds withheld at interest – embedded derivative140
 —
 —
 —
 140
Derivative assets1,370
 —
 9
 1,361
 —
Short-term investments189
 —
 19
 170
 —
Cash and cash equivalents2,445
 —
 2,445
 —
 —
Restricted cash57
 —
 57
 —
 —
Investments in related parties

        
AFS, fixed maturity securities         
CLO279
 —
 —
 279
 —
ABS56
 —
 —
 —
 56
Total AFS fixed maturity securities335
 —
 —
 279
 56
AFS, equity securities20
 —
 20
 —
 —
Total AFS securities – related party355
 —
 20
 279
 56
Trading securities, CLO195
 —
 —
 —
 195
Reinsurance recoverable1,692
 —
 —
 —
 1,692
Total assets measured at fair value$61,553
 $99
 $2,661
 $54,629
 $4,164
Liabilities         
Interest sensitive contract liabilities

        
Embedded derivative$5,283
 $—
 $—
 $—
 $5,283
Universal life benefits883
 —
 —
 —
 883
Unit-linked contracts408
 —
 —
 408
 —
Future policy benefits

        
AmerUs Closed Block1,606
 —
 —
 —
 1,606
ILICO Closed Block and life benefits794
 —
 —
 —
 794
Derivative liabilities40
 —
 —
 33
 7
Funds withheld liability – embedded derivative6
 —
 —
 6
 —
Total liabilities measured at fair value$9,020
 $—
 $—
 $447
 $8,573
          
1 Investments measured at NAV as a practical expedient in determining fair value have not been classified in the fair value hierarchy.
         (Concluded)

Refer to Note 4 – Variable Interest Entities for fair value disclosures associated with consolidated VIEs.

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


AFS and trading securities
Fixed maturity –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'sborrower’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.


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



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 in trust 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.


Unit-linked contracts– Unit-linked contracts are valued based on the fair value of the investments supporting the contract. The underlying investments are trading securities comprised primarily of mutual funds. The valuations of these are based on quoted market prices for similar assets and are classified as Level 2, resulting in a corresponding classification for the unit-linked contracts.

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 costblock’s obligations to hold capital in excess of existing liabilities on the closed block.block business. This component uses ais the present value of the projected release of required capital and future cash flows,earnings before income taxes on required capital supporting the AmerUs Closed Block, discounted at a rate which includes investment earnings and policyholder liability movements.represents a market participant’s required rate of return, less the initial required capital. Unobservable inputs include estimates for these items. The target surplus as a percentage of statutory reserves is 3.85% based on the statutory risk-based capital ratio applicable to this block of business. The AmerUs Closed Block policyholder liabilities and any corresponding reinsurance recoverable are classified as Level 3.



36
Table of Contents

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'sblock’s obligations to the closed block business. This component uses the present value of future cash flows. The 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 explicit cost of capital assumption is 9% of required capital, post tax. A margin of 8.94% is included in the discount rates to reflect the business risk. An additional 0.25% is included to reflect non-performance risk. 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 Financial Group Limited (together with its subsidiaries, Global Atlantic).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. The risk margin was 0.09%. These universal life policyholder liabilities and corresponding reinsurance recoverable are classified as Level 3.



ATHENE HOLDING LTD.
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:option, including related 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 September 30, Nine months ended September 30,
(In millions)2017 2016 2017 2016
Trading securities$(1) $28
 $45
 $93
Mortgage loans(1) (1) (1) (1)
Investment funds5
 4
 19
 4
Future policy benefits5
 (28) (10) (129)
Total gains (losses)$8
 $3
 $53
 $(33)


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)September 30, 2017 December 31, 2016
Unpaid principal balance$40
 $42
Mark to fair value2
 2
Fair value$42
 $44


There were no0 fair value option mortgage loans 90 days or more past due as of September 30, 2017March 31, 2020 and December 31, 2016.2019.


Transfers Between Levels—Transfers into Level 3 generally represent securities that were valued using pricing sources which, due to changing market conditions, were less observable than in prior periods as indicated by the increased volatility, which was reflected in vendor prices obtained for individual securities. Additionally, changes in pricing sources also led to securities transferring into Level 3.

37
Table of Contents
Transfers out of Level 3 generally represent securities that were valued using pricing sources which, due to changing market conditions, were more observable than in prior periods as indicated by decreased volatility, which was reflected in vendor prices obtained for individual securities. Additionally, changes in pricing sources also led to securities transferring into Level 2.

Transfers into or out of any level are assumed to occur at the end of the period. For the three and nine months ended September 30, 2017 and 2016, there were no transfers between Level 1 and Level 2.



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



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.
  


38
 Three months ended September 30, 2017
   Total realized and unrealized gains (losses)   Transfers    
(In millions)Beginning Balance Included in income Included in OCI Purchases, issuances, sales and settlements, net In (Out) Ending Balance 
Total gains (losses) included in earnings1
Assets               
AFS securities               
Fixed maturity               
Foreign governments$14
 $—
 $—
 $—
 $—
 $(14) $—
 $—
Corporate452
 5
 —
 (13) 37
 (12) 469
 —
CLO81
 —
 1
 47
 86
 (19) 196
 —
ABS1,093
 3
 1
 240
 83
 (41) 1,379
 —
CMBS122
 1
 (1) (18) 26
 (43) 87
 —
RMBS312
 1
 13
 (11) 14
 (7) 322
 —
Equity securities6
 (1)
 —
 —
 —
 —
 5
 —
Trading securities               
Fixed maturity               
U.S. state, municipal and political subdivisions17
 —
 —
 —
 —
 —
 17
 —
CLO22
 (4) —
 —
 11
 (8) 21
 (3)
RMBS100
 (2) —
 4
 15
 (16) 101
 3
Mortgage loans43
 (1) —
 —
 —
 —
 42
 (1)
Funds withheld at interest – embedded derivative279
 24
 —
 —
 —
 —
 303
 —
Investments in related parties               
AFS securities, fixed maturity, CLO—
 —
 —
 10
 —
 —
 10
 —
Trading securities, CLO123
 3
 —
 (24) 19
 (30) 91
 2
Short-term investments28
 —
 —
 (20) —
 —
 8
 —
Reinsurance recoverable1,782
 1
 —
 —
 —
 —
 1,783
 —
Total Level 3 assets$4,474
 $30
 $14
 $215
 $291
 $(190) $4,834
 $1
                
Liabilities               
Interest sensitive contract liabilities               
Embedded derivative$(6,207) $(344) $—
 $(101) $—
 $—
 $(6,652) $—
Universal life benefits(954) (3) —
 —
 —
 —
 (957) —
Future policy benefits               
AmerUs Closed Block(1,621) 5
 —
 —
 —
 —
 (1,616) —
ILICO Closed Block and life benefits(812) 1
 —
 —
 —
 —
 (811) —
Derivative liabilities(6) —
 —
 —
 —
 —
 (6) —
Total Level 3 liabilities$(9,600) $(341) $—
 $(101) $—
 $—
 $(10,042) $—
                
1 Related to instruments held at end of period.
Table of Contents



ATHENE HOLDING LTD.
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.
  


39
 Three months ended September 30, 2016
   Total realized and unrealized gains (losses)   Transfers    
(In millions)Beginning balance Included in income Included in OCI Purchases, issuances, sales and settlements, net In Out Ending balance 
Total gains (losses) included in earnings1
Assets               
AFS securities               
Fixed maturity               
U.S. state, municipal and political subdivisions$—
 $—
 $—
 $—
 $5
 $—
 $5
 $—
Foreign governments16
 —
 —
 (1) —
 —
 15
 —
Corporate402
 1
 1
 24
 3
 (89) 342
 —
CLO285
 1
 15
 4
 11
 (193) 123
 —
ABS1,238
 3
 11
 30
 —
 (188) 1,094
 —
CMBS80
 —
 3
 4
 —
 —
 87
 —
RMBS—
 —
 —
 —
 —
 —
 —
 —
Equity securities10
 —
 (1)
 (4) —
 —
 5
 —
Trading securities               
Fixed maturity               
U.S. state, municipal and political subdivisions17
 —
 —
 —
 —
 —
 17
 —
Corporate1
 —
 —
 —
 —
 (1) —
 —
CLO104
 (1) —
 (44) —
 —
 59
 4
ABS89
 (2) —
 —
 —
 —
 87
 —
RMBS122
 (4) —
 16
 —
 (6) 128
 (1)
Mortgage loans45
 —
 —
 —
 —
 —
 45
 —
Funds withheld at interest – embedded derivative122
 83
 —
 —
 —
 —
 205
 —
Investments in related parties               
AFS securities               
Fixed maturity               
CLO—
 —
 —
 —
 —
 —
 —
 —
ABS58
 —
 —
 (1) —
 —
 57
 —
Trading securities, CLO211
 —
 —
 —
 —
 (22) 189
 7
Reinsurance recoverable1,898
 (20) —
 —
 —
 —
 1,878
 —
Total Level 3 assets$4,698
 $61
 $29
 $28
 $19
 $(499) $4,336
 $10
                
Liabilities               
Interest sensitive contract liabilities               
Embedded derivative$(4,807) $(243) $—
 $(209) $—
 $—
 $(5,259) $—
Universal life benefits(1,059) 9
 —
 —
 —
 —
 (1,050) —
Future policy benefits               
AmerUs Closed Block(1,682) (28) —
 —
 —
 —
 (1,710) —
ILICO Closed Block and life benefits(823) 11
 —
 —
 —
 —
 (812) —
Derivative liabilities(8) —
 —
 —
 —
 —
 (8) —
Total Level 3 liabilities$(8,379) $(251) $—
 $(209) $—
 $—
 $(8,839) $—
                
1 Related to instruments held at end of period.
Table of Contents



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


 Nine months ended September 30, 2017
   Total realized and unrealized gains (losses)   Transfers    
(In millions)Beginning Balance Included in income Included in OCI Purchases, issuances, sales and settlements, net In (Out) Ending Balance 
Total gains (losses) included in earnings1
Assets               
AFS securities               
Fixed maturity               
U.S. state, municipal and political subdivisions$5
 $17
 $(1) $(21) $—
 $—
 $—
 $—
Foreign governments14
 —
 —
 —
 —
 (14) —
 —
Corporate370
 10
 10
 107
 23
 (51) 469
 —
CLO158
 1
 9
 40
 53
 (65) 196
 —
ABS1,160
 11
 18
 237
 6
 (53) 1,379
 —
CMBS152
 1
 (4) 28
 —
 (90) 87
 —
RMBS17
 1
 1
 12
 300
 (9) 322
 —
Equity securities5
 (1)
 1
 —
 —
 —
 5
 —
Trading securities               
Fixed maturity               
U.S. state, municipal and political subdivisions17
 —
 —
 —
 —
 —
 17
 —
CLO43
 (2) —
 (12) —
 (8) 21
 1
RMBS96
 (11) —
 26
 7
 (17) 101
 2
Mortgage loans44
 (1) —
 (1) —
 —
 42
 (1)
Funds withheld at interest – embedded derivative140
 163
 —
 —
 —
 —
 303
 —
Investments in related parties               
AFS securities               
Fixed maturity               
CLO—
 —
 —
 10
 —
 —
 10
 —
ABS56
 —
 2
 (5) —
 (53) —
 —
Trading securities, CLO195
 (3) —
 (52) —
 (49) 91
 (1)
Short-term investments—
 —
 —
 8
 —
 —
 8
 —
Reinsurance recoverable1,692
 91
 —
 —
 —
 —
 1,783
 —
Total Level 3 assets$4,164
 $277
 $36
 $377
 $389
 $(409) $4,834
 $1
                
Liabilities               
Interest sensitive contract liabilities               
Embedded derivative$(5,283) $(1,077) $—
 $(292) $—
 $—
 $(6,652) $—
Universal life benefits(883) (74) —
 —
 —
 —
 (957) —
Future policy benefits               
AmerUs Closed Block(1,606) (10) —
 —
 —
 —
 (1,616) —
ILICO Closed Block and life benefits(794) (17) —
 —
 —
 —
 (811) —
Derivative liabilities(7) 1
 —
 —
 —
 —
 (6) 1
Total Level 3 liabilities$(8,573) $(1,177) $—
 $(292) $—
 $—
 $(10,042) $1
                
1 Related to instruments held at end of period.

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

 Nine months ended September 30, 2016
   Total realized and unrealized gains (losses)   Transfers    
(In millions)Beginning balance Included in income Included in OCI Purchases, issuances, sales and settlements, net In Out Ending balance 
Total gains (losses) included in earnings1
Assets               
AFS securities               
Fixed maturity               
U.S. state, municipal and political subdivisions$—
 $—
 $—
 $—
 $5
 $—
 $5
 $—
Foreign governments17
 1
 (1) (2) —
 —
 15
 —
Corporate636
 4
 27
 (71) 4
 (258) 342
 —
CLO517
 3
 38
 7
 10
 (452) 123
 —
ABS1,813
 78
 (7) (755) 103
 (138) 1,094
 —
CMBS67
 1
 3
 10
 53
 (47) 87
 —
RMBS758
 3
 16
 (249) —
 (528) —
 —
Equity securities9
 —
 —
 (4) —
 —
 5
 —
Trading securities               
Fixed maturity               
U.S. state, municipal and political subdivisions17
 —
 —
 —
 —
 —
 17
 —
Corporate16
 —
 —
 (4) —
 (12) —
 5
CLO108
 (4) —
 (45) —
 —
 59
 8
ABS98
 (11) —
 —
 —
 —
 87
 —
RMBS29
 (7) —
 111
 —
 (5) 128
 1
Mortgage loans48
 —
 —
 (3) —
 —
 45
 —
Funds withheld at interest – embedded derivative36
 169
 —
 —
 —
 —
 205
 —
Investments in related parties               
AFS securities               
Fixed maturity               
CLO7
 —
 —
 —
 —
 (7) —
 —
ABS60
 —
 —
 (3) —
 —
 57
 —
Trading securities, CLO191
 (23) —
 17
 26
 (22) 189
 21
Reinsurance recoverable2,377
 (499) —
 —
 —
 —
 1,878
 —
Total Level 3 assets$6,804
 $(285) $76
 $(991) $201
 $(1,469) $4,336
 $35
                
Liabilities               
Interest sensitive contract liabilities               
Embedded derivative$(4,464) $(390) $—
 $(405) $—
 $—
 $(5,259) $—
Universal life benefits(1,464) 414
 —
 —
 —
 —
 (1,050) —
Future policy benefits               
AmerUs Closed Block(1,581) (129) —
 —
 —
 —
 (1,710) —
ILICO Closed Block and life benefits(897) 85
 —
 —
 —
 —
 (812) —
Derivative liabilities(7) (1) —
 —
 —
 —
 (8) —
Total Level 3 liabilities$(8,413) $(21) $—
 $(405) $—
 $—
 $(8,839) $—
                
1 Related to instruments held at end of period.

ATHENE HOLDING LTD.
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
 $—
 $—
 $—

 Three months ended September 30, 2017
(In millions)Purchases Issuances Sales Settlements Purchases, issuances, sales and settlements, net
Assets         
AFS securities         
Fixed maturity         
Corporate$27
 $—
 $(36) $(4) $(13)
CLO72
 —
 —
 (25) 47
ABS275
 —
 —
 (35) 240
CMBS—
 —
 (18) —
 (18)
RMBS—
 —
 —
 (11) (11)
Trading securities, fixed maturity, RMBS4
 —
 —
 —
 4
Investments in related parties         
AFS securities, fixed maturity, CLO10
 —
 —
 —
 10
Trading securities, CLO—
 —
 (24) —
 (24)
Short-term investments8
 —
 —
 (28) (20)
Total Level 3 assets$396
 $—
 $(78) $(103) $215
          
Liabilities         
Interest sensitive contract liabilities         
Embedded derivative$—
 $(142) $—
 $41
 $(101)
Total Level 3 liabilities$—
 $(142) $—
 $41
 $(101)



40
 Three months ended September 30, 2016
(In millions)Purchases Issuances Sales Settlements Purchases, issuances, sales and settlements, net
Assets         
AFS securities         
Fixed maturity         
Foreign governments$—
 $—
 $—
 $(1) $(1)
Corporate25
 —
 —
 (1) 24
CLO12
 —
 —
 (8) 4
ABS60
 —
 —
 (30) 30
CMBS4
 —
 —
 —
 4
Equity securities—
 —
 (4) —
 (4)
Trading securities         
Fixed maturity         
CLO—
 —
 (44) —
 (44)
RMBS16
 —
 —
 —
 16
Investments in related parties         
AFS securities, fixed maturity, ABS—
 —
 —
 (1) (1)
Total Level 3 assets$117
 $—
 $(48) $(41) $28
          
Liabilities         
Interest sensitive contract liabilities         
Embedded derivative$—
 $(244) $—
 $35
 $(209)
Total Level 3 liabilities$—
 $(244) $—
 $35
 $(209)
Table of Contents


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 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) $—
 $—
 $—

 Nine months ended September 30, 2017
(In millions)Purchases Issuances Sales Settlements Purchases, issuances, sales and settlements, net
Assets         
AFS securities         
Fixed maturity         
U.S. state, municipal and political subdivisions$—
 $—
 $—
 $(21) $(21)
Corporate152
 —
 (37) (8) 107
CLO83
 —
 (2) (41) 40
ABS495
 —
 —
 (258) 237
CMBS29
 —
 —
 (1) 28
RMBS14
 —
 —
 (2) 12
Trading securities         
Fixed maturity         
CLO4
 —
 (16) —
 (12)
RMBS26
 —
 —
 —
 26
Mortgage loans—
 —
 —
 (1) (1)
Investments in related parties         
AFS securities         
Fixed maturity         
CLO10
 —
 —
 —
 10
ABS5
 —
 —
 (10) (5)
Trading securities, CLO—
 —
 (52) —
 (52)
Short-term investments37
 —
 —
 (29) 8
Total Level 3 assets$855
 $—
 $(107) $(371) $377
          
Liabilities         
Interest sensitive contract liabilities         
Embedded derivative$—
 $(412) $—
 $120
 $(292)
Total Level 3 liabilities$—
 $(412) $—
 $120
 $(292)



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

 Nine months ended September 30, 2016
(In millions)Purchases Issuances Sales Settlements Purchases, issuances, sales and settlements, net
Assets         
AFS securities         
Fixed maturity         
Foreign governments$—
 $—
 $—
 $(2) $(2)
Corporate47
 —
 (55) (63) (71)
CLO24
 —
 (9) (8) 7
ABS102
 —
 —
 (857) (755)
CMBS10
 —
 —
 —
 10
RMBS—
 —
 —
 (249) (249)
Equity securities—
 —
 (4) —
 (4)
Trading securities         
Fixed maturity         
Corporate—
 —
 (4) —
 (4)
CLO—
 —
 (45) —
 (45)
RMBS111
 —
 —
 —
 111
Mortgage loans—
 —
 —
 (3) (3)
Investments in related parties         
AFS securities, fixed maturity, ABS—
 —
 —
 (3) (3)
Trading securities, CLO33
 —
 (16) —
 17
Total Level 3 assets$327
 $—
 $(133) $(1,185) $(991)
          
Liabilities         
Interest sensitive contract liabilities         
Embedded derivative$—
 $(517) $—
 $112
 $(405)
Total Level 3 liabilities$—
 $(517) $—
 $112
 $(405)

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


Fixed maturityAFS 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 September 30, 2017, discounts ranged from 2% to 6%. 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.Non-performanceNonperformance risk – For contracts we issue, we use the credit spread, fromrelative to the U.S. treasuryDepartment 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. For contracts reinsured through funds withheld reinsurance, the cedant company holds collateral against its exposure; therefore, immaterial non-performance risk is ascribed to these contracts.
2.Option budget – We assume future hedge costs in the derivative'sderivative’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.




41
Table of Contents

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.

 September 30, 2017
(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$6,652
Option budget methodNon-performance risk0.3%–1.3%Decrease
   Option budget0.7%–3.7%Increase
   Surrender rate0.0%–19.6%Decrease


 December 31, 2016
(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$5,283
Option budget methodNon-performance risk0.7%–1.5%Decrease
   Option budget0.8%–3.8%Increase
   Surrender rate0.0%–16.3%Decrease

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
Table of Contents

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

   September 30, 2017 December 31, 2016
(In millions)Fair Value Level Carrying Value Fair Value Carrying Value Fair Value
Assets         
Mortgage loans3 $6,403
 $6,568
 $5,426
 $5,560
Investment funds
NAV1
 620
 620
 590
 590
Policy loans2 571
 571
 602
 602
Funds withheld at interest3 6,661
 6,661
 6,398
 6,398
Other investments3 77
 77
 81
 81
Investments in related parties         
Investment funds
NAV1
 1,303
 1,303
 1,198
 1,198
Other investments3 238
 260
 237
 262
Total assets not carried at fair value  $15,873
 $16,060
 $14,532
 $14,691
Liabilities         
Interest sensitive contract liabilities3 $31,328
 $30,932
 $27,628
 $26,930
Funds withheld liability2 376
 376
 374
 374
Total liabilities not carried at fair value  $31,704
 $31,308
 $28,002
 $27,304
          
1 Investments measured at NAV as a practical expedient in determining fair value have not been classified in the fair value hierarchy.


 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


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, funds withheld at interest and liability, short-term investments, short-term debt, and other investments,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.


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



6. Reinsurance

During the nine months ended September 30, 2017, we novated certain open blocks of business ceded to Global Atlantic, in accordance with the terms of the coinsurance and assumption agreement. As a result of the novation, interest sensitive contract liabilities decreased $278 million, future policy benefits decreased $26 million, policy loans decreased $7 million, and reinsurance recoverable decreased $297 million.


7.5. 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, 2016$1,142
 $462
 $1,336
 $2,940
Balance at December 31, 2019$3,274
 $820
 $914
 $5,008
Adoption of accounting standard12
 5
 5
 22
Additions371
 121
 —
 492
112
 38
 —
 150
Unlocking13
 4
 (1) 16
Amortization(142) (46) (121) (309)436
 (10) (23) 403
Impact of unrealized investment (gains) losses(90) (36) (110) (236)489
 139
 181
 809
Balance at September 30, 2017$1,294
 $505
 $1,104
 $2,903
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, 2015$705
 $320
 $1,627
 $2,652
Additions449
 145
 —
 594
Unlocking(12) (3) (23) (38)
Amortization(76) (16) (99) (191)
Impact of unrealized investment (gains) losses(81) (39) (207) (327)
Balance at September 30, 2016$985
 $407
 $1,298
 $2,690




8. Common Stock6. Debt


DuringShort-term Borrowing—As of March 31, 2020, we had $400 million of short-term debt outstanding with the nine months ended September 30, 2017,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 totalweighted average interest rate of 42,260,915 Class B shares were converted to Class A shares, primarily in connection1.80%, with two public follow-on offerings that included sales by holders of Class B shares,interest due at which time the shares automatically converted to Class A common shares.maturity. In connection with each follow-on offering, AP Alternative Assets, L.P. distributed Class B shares to its unitholders and certain of such unitholders participated inshort-term borrowings, the applicable follow-on offering. ToFHLB requires the extent that such shares were distributed to unitholders other than a member of the Apollo Group (as defined by our bye-laws), such shares automatically converted to Class A shares. We did not sell any shares in the offerings.

Stock-based Compensation—Stock-based compensation expense was $11 million and $47 million for the three months ended September 30, 2017 and 2016, respectively, and $40 million and $61 million for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the stock-based compensation plans had unrecognized compensation expense of $39 million. The cost is expected to be recognized over a weighted-average period of 1.2 years.

Employee Stock Purchase Plan – Eligible employees may participate in our 2017 Employee Stock Purchase Plan (ESPP), which provides the opportunityborrower to purchase our Class A sharesmember 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 a discount from the market price through payroll deductions. Pursuantany time prior to the ESPP, employees are permitted to purchase sharesJanuary 3, 2030 by AHL, at a price equal to 85%the greater of (1) 100% of the fair value of such shares as determined by referenceprincipal and any accrued and unpaid interest and (2) an amount equal to the closing price of our Class A shares on the New York Stock Exchange on the last daysum of the relevant purchase period. Underpresent values of remaining scheduled payments, discounted from the ESPP we may make available for sale upscheduled payment date to 3,800,000 Class A shares over the termredemption 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 ESPP, which may extend for up to 10 years. As of September 30, 2017, we had not soldprincipal and any shares under the ESPP.accrued and unpaid interest.





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

9.7. 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 September 30, 2017Three 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-4Class A Class B Class M-1 Class M-2 Class M-3 Class M-4
Net income available to AHL shareholders – basic and diluted$167
 $98
 $5
 $1
 $1
 $2
Net loss available to Athene Holding Ltd. common shareholders – basic and diluted$(938) $(98) $(13) $(3) $(4) $(9)
                      
Basic weighted average shares outstanding119,519,911
 69,862,355
 3,388,890
 857,831
 928,870
 1,776,455
161.4
 25.4
 3.3
 0.8
 1.0
 2.4
Dilutive effect of stock compensation plans372,358
 —
 —
 7,191
 289,284
 1,362,388
Dilutive effect of stock compensation plans1
—
 —
 —
 —
 —
 —
Diluted weighted average shares outstanding119,892,269
 69,862,355
 3,388,890
 865,022
 1,218,154
 3,138,843
161.4
 25.4
 3.3
 0.8
 1.0
 2.4
                      
Earnings per share1
           
Earnings per share           
Basic$1.40
 $1.40
 $1.40
 $1.40
 $1.40
 $1.40
$(5.81) $(3.87) $(3.87) $(3.87) $(3.87) $(3.87)
Diluted$1.39
 $1.40
 $1.40
 $1.39
 $1.07
 $0.79
$(5.81) $(3.87) $(3.87) $(3.87) $(3.87) $(3.87)
                      
1 Calculated using whole figures.
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.
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.

44
 Three months ended September 30, 2016
(In millions, except share and per share data)Class A Class B
Net income available to AHL shareholders – basic and diluted$34
 $92
    
Basic weighted average shares outstanding49,798,963
 135,963,975
Dilutive effect of stock compensation plans107,485
 —
Diluted weighted average shares outstanding49,906,448
 135,963,975
    
Earnings per share1
   
Basic$0.68
 $0.68
Diluted$0.68
 $0.68
    
1 Calculated using whole figures.
  
Table of Contents

 Nine months ended September 30, 2017
(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 income available to AHL shareholders – basic$513
 $443
 $17
 $3
 $3
 $5
Effect of stock compensation plans on allocated net income11
 —
 —
 —
 —
 —
Net income available to AHL shareholders – diluted$524
 $443
 $17
 $3
 $3
 $5
            
Basic weighted average shares outstanding101,506,304
 87,703,973
 3,416,703
 604,722
 559,987
 1,078,282
Dilutive effect of stock compensation plans3,297,329
 —
 —
 331,206
 686,268
 1,768,169
Diluted weighted average shares outstanding104,803,633
 87,703,973
 3,416,703
 935,928
 1,246,255
 2,846,451
            
Earnings per share1
           
Basic$5.05
 $5.05
 $5.05
 $5.05
 $5.05
 $5.05
Diluted$5.00
 $5.05
 $5.05
 $3.26
 $2.27
 $1.91
            
1 Calculated using whole figures.


ATHENE HOLDING LTD.
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

 Nine months ended September 30, 2016
(In millions, except share and per share data)Class A Class B
Net income available to AHL shareholders – basic and diluted$108
 $296
    
Basic weighted average shares outstanding49,960,549
 135,963,975
Dilutive effect of stock compensation plans92,338
 —
Diluted weighted average shares outstanding50,052,887
 135,963,975
    
Earnings per share1
   
Basic$2.18
 $2.18
Diluted$2.17
 $2.18
    
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 AHLAthene Holding Ltd. common shareholders to each class of our common stock. Our Class M shares do not become eligible to participate in dividends until a return of investment (ROI) condition has been met for each class. Once eligible, each class of our common stock has equal dividend rights. Prior to the fourth quarter of 2016, the ROI condition had not been met for any of our Class M shares and, as a result, no earnings were attributable to those classes. In conjunction with our IPO in the fourth quarter of 2016, the ROI condition for Class M-1 was met. The ROI conditions were subsequently met for Class M-2 on March 28, 2017, and for Class M-3 and Class M-4 on April 20, 2017. For purposes of calculating basic weighted average shares outstanding and the allocation of basic income, shares are deemed to be participating in earnings for only the portion of the period after the condition is met. However, as shares are considered dilutive as of the beginning of the period, the resulting diluted EPS is comparatively lower if the ROI condition is met after the beginning of the period than it would have been had the ROI condition been met at the beginning of the period.

Dilutive shares are calculated using the treasury stock method. For Class A common shares, this method takes into account shares that can be settled into Class A common 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 September 30, Nine months ended September 30,
 2017 2016 2017 2016
Antidilutive shares, RSUs and options excluded from diluted EPS calculation79,931,099
 135,963,975
 73,016,963
 135,963,975
Shares, RSUs and options excluded from diluted EPS calculation as a performance condition had not been met187,046
 —
 1,425,926
 —
Shares, RSUs and options excluded from diluted EPS calculation as issuance restrictions had not been satisfied as of the end of the period—
 12,720,694
 —
 12,720,694
Total Shares, RSUs and options excluded from diluted EPS calculation80,118,145
 148,684,669
 74,442,889
 148,684,669
        
Note: Shares, RSUs and options are as of period end.



10. Accumulated Other Comprehensive Income8. Equity
The following is a detail
Preferred Stock—We have two series of AOCI: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 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 authorizations of $1,567 million for the repurchase of our Class A shares under our repurchase program. 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.


45
(In millions)September 30, 2017 December 31, 2016
AFS securities$2,428
 $972
DAC, DSI, VOBA, future policy benefits and dividends payable to policyholders adjustments on AFS securities(692) (408)
Noncredit component of OTTI losses on AFS securities(15) (17)
Hedging instruments(59) 10
Pension adjustments(4) (4)
Foreign currency translation adjustments2
 (12)
Accumulated other comprehensive income, before taxes1,660
 541
Deferred income tax liability(498) (174)
Accumulated other comprehensive income$1,162
 $367
Table of Contents



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



ChangesThe 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—




46
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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


Accumulated Other Comprehensive Income (Loss)—The following provides the details of AOCI are presented below:and changes in AOCI:
 Three months ended September 30, Nine months ended September 30,
(In millions)2017 2016 2017 2016
Unrealized investment gains (losses) on AFS securities       
Unrealized investment gains (losses) on AFS securities$249
 $800
 $1,500
 $2,674
Change in DAC, DSI, VOBA, future policy benefits and dividends payable to policyholders adjustment(61) (294) (284) (970)
Less: Reclassification adjustment for gains (losses) realized in net income1
17
 7
 44
 (1)
Less: Income tax expense55
 144
 347
 537
Net unrealized investment gains (losses) on AFS securities116
 355
 825
 1,168
Noncredit component of OTTI losses on AFS securities       
Noncredit component of OTTI losses on AFS securities(7) (1) (5) (11)
Less: Reclassification adjustment for losses realized in net income1
(9) —
 (7) (7)
Less: Income tax expense (benefit)1
 (1) 1
 (2)
Net noncredit component of OTTI losses on AFS securities1
 —
 1
 (2)
Unrealized gains (losses) on hedging instruments       
Unrealized gains (losses) on hedging instruments(31) (6) (69) (13)
Less: Income tax benefit(11) (1) (24) (4)
Net unrealized gains (losses) on hedging instruments(20) (5) (45) (9)
Pension adjustments1
 —
 —
 (1)
Foreign currency translation adjustments4
 1
 14
 1
Change in AOCI$102
 $351
 $795
 $1,157
        
1 Recognized in investment related gains (losses) on the condensed consolidated statements of income.
(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).



(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).



11. Income Taxes

Our effective tax rates were 7% and (232)% for the three months ended September 30, 2017 and 2016, respectively, and 5% and (22)% for the nine months ended September 30, 2017, and 2016, respectively. 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. Our prior period effective tax rates reflect the significant effect of releasing $102 million of deferred tax valuation allowance. During the third quarter of 2016, we identified a tax plan that, when implemented, will allow us to use a significant portion of the U.S. non-life insurance companies’ net operating losses, which are scheduled to expire beginning in 2022, and other deductible temporary differences. As a result, we released the corresponding deferred tax valuation allowance in the third quarter of 2016, as it is more likely than not that these attributes will be realized.

The Internal Revenue Service is currently auditing the 2013 consolidated tax return filed by Athene USA Corporation, and recently initiated a limited scope audit of the 2015 consolidated tax return filed by Athene Annuity & Life Assurance Company. No material proposed adjustments have been issued with respect to either exam.

Under current Bermuda law, we are not required to pay any taxes in Bermuda on either income or capital gains. We have received an undertaking from the Minister of Finance in Bermuda that, in the event of any such taxes being imposed, we will be exempted from taxation until the year 2035.


12.9. Related Parties


Athene Asset ManagementApollo


Investment related expenses Current fee structure – Substantially all of our investments with the exception of the investments of ADKG, are managed by Athene Asset Management, L.P. (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 of September 30, 2017, AAM directly managed $59,315 million of our investment portfolio assets, of which 89% are designated one or two (the two highest designations) by the National Association of Insurance Commissioners (NAIC).


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

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, but excluding assets of ADKG and certain other limited exceptions. Additionally, AAM recharges the sub-advisory fees it incurs with respect to our sub-advised assets to us. Historically, AAM generally earned an annual fee of 0.40% of assets under management. In the second quarter of 2017, following shareholder approval of an amendment to our bye-laws, we entered into the Fifth Amended and Restated Fee Agreement (Revised Fee Agreement), retroactive to January 1, 2017. The Revised Fee Agreement amended certain fee arrangements we previously had in place with AAM to provide for, among other things, an annual fee of 0.30% (reduced from 0.40%) on all assets that Apollo 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) in excess of $65,846 million (the level of assets in the North American Accounts as of December 31, 2016). The fee to be paid by us to AAM on the first $65,846 million of assets in the North American Accounts remains 0.40% per year, subject to certain discounts and exceptions.

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 has entered into Master Sub-Advisory Agreements (MSAAs) with certain Apollo affiliates 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. The MSAAs cover services rendered by Apollo-affiliated sub-advisors relating to the following investments:
(In millions, except for percentages)September 30, 2017 December 31, 2016
Fixed maturity securities   
U.S. state, municipal and political subdivisions$—
 $5
Foreign governments153
 149
Corporate2,648
 2,032
CLO5,021
 4,727
ABS803
 911
CMBS869
 975
Mortgage loans2,284
 1,767
Investment funds25
 23
Trading securities119
 126
Funds withheld at interest1,762
 1,682
Other investments77
 81
Total assets sub-advised by Apollo affiliates$13,761
 $12,478
Percent of assets sub-advised by Apollo affiliates to total AAM-managed assets19% 19%


During the second quarter of 2017, AAM and certain other Apollo affiliates2019, we entered into addendums to the MSAAs currently in effect, pursuant to which, with limited exceptions,Seventh Amended and Restated Fee Agreement, dated as of June 10, 2019, between us and AGM’s subsidiary, Apollo will earn 0.40% per year on all assets inInsurance Solutions Group LP (ISG) (Fee Agreement). Under 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 excess of $10,000 million up to $12,441 million (the level of fee-paying sub-advised assets in the North American Accounts at December 31, 2016), 0.40% per year on all assets in such accounts explicitly sub-advised by Apollo in excess of $12,441 million up to $16,000 million, and 0.35% per year on all assets in such accounts explicitly sub-advised by Apollo in excess of $16,000 million. The addendums wereFee Agreement, effective retroactive to January 1, 2017.2019, 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;

Apollo Asset Management Europe
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ADKG has an investment advisory agreement with Apollo Asset Management Europe (together with certain of its affiliates, AAME), also a subsidiary of AGM. AAME provides advisory services for all of ADKG's investment portfolio other than operating cash, mortgage loans secured by residential and commercial properties that are not identified and advised by AAME, and assets related to unit-linked policies. Also excluded are assets held in German special investment funds managed or advised by Apollo, AAM and any of the respective affiliates of Apollo, AAM or AAME, to the extent the entity receives a management or advisory fee in connection with the fund. In providing these services, AAME has access to Apollo's European expertise and capabilities. The ADKG investments sub-advised by AAME consist primarily of corporate and sovereign bonds, as compared to the more diverse range of assets managed by AAM or those held in the German special investment funds. As compensation for the investment advisory services rendered, AAME receives a fee of 0.10% per year on the assets it sub-advises. Affiliates of AAME receive an advisory fee of 0.35% per year on certain German special investment funds and our investment in a sub-fund of Apollo Capital Efficient Fund I (ACE fund), as well as a pro rata share of operating expenses up to 0.30% on the ACE fund. As of September 30, 2017 and December 31, 2016, the German special investment funds totaled $1,050 million and $258 million, respectively, and the ACE fund totaled $96 million and $84 million, respectively. The fees incurred for management of these funds are included in sub-advisory fees in the table below.



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



(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 following represents assets based on the assets sub-advised by AAME: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%

(In millions)September 30, 2017 December 31, 2016
Fixed maturity securities   
Foreign governments$2,095
 $2,062
Corporate1,216
 1,567
Equity securities53
 187
Investment funds38
 34
Policy loans6
 6
Real estate621
 541
Other investments169
 153
Cash and cash equivalents31
 25
Total assets sub-advised by AAME$4,229
 $4,575


Additionally, the Fee Agreement provides for a possible payment by Apollo 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 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.
The following summarizes
During the assetthree months ended March 31, 2020 and 2019, we incurred management fees, inclusive of the base and sub-advisorysub-allocation fees, we have incurred related to AAM, AAMEof $128 million and other Apollo affiliates:
 Three months ended September 30, Nine months ended September 30,
(In millions)2017 2016 2017 2016
Asset management fees$67
 $61
 $193
 $176
Sub-advisory fees14
 12
 42
 50

The management and sub-advisory$92 million, respectively. Management fees are included within net investment income on the condensed consolidated statements of income.income (loss). As of September 30, 2017March 31, 2020 and December 31, 2016, the2019, management fees payable was $34were $43 million and $28$42 million, respectively, and the sub-advisory fees payable was $17 million and $11 million, respectively. Both the management and sub-advisory fees payables are included in other liabilities on the condensed consolidated balance sheets.


The investmentInvestment management or advisory agreements with AAM or AAME have no stated term and any party can terminate upon notice. However, ouragreement (IMA) termination – Our bye-laws currently provide that we may not, and will cause our subsidiaries not exercise our termination rights under the agreements until October 31, 2018to, terminate any IMA among us or any annualof our subsidiaries, on the one hand, and a member of the Apollo Group (as defined in our bye-laws), on the other hand, other than on June 4, 2023 or any two year anniversary thereafterof such date (each such date, an IMA Termination Election Date) and any termination thereonon 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 thereof to the 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 theour Independent Directors make such election to terminate and notice of such noticetermination is timely delivered, the termination will be effective onno earlier than the second anniversary of the applicable IMA Termination Election Date (an IMA(IMA Termination Effective Date). Notwithstanding the foregoing, (1) the Independent Directors(A) except as set forth in clause (B) below, our board of directors may only elect to terminate an investment management agreement or advisory agreementIMA on an IMA Termination Election Date if two-thirds of theour 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 the applicable Apollo subsidiary or (ii) the fees being charged by the 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 the applicable Apollo subsidiary and the applicable Apollo shallsubsidiary 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 (2)(B) upon the determination by two-thirds of theour Independent Directors, we or our subsidiaries may also terminate an investment management agreement or advisory agreementIMA with the 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 Apollo’sthe applicable Apollo subsidiary’s advisory business, or (ii) Apollo’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 writtento such termination; 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 to Apollofrom us of such terminationdetermination, 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 period.the 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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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


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.


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 ISG and receives substantial remuneration from acting as Chief Executive Officer of AAM, andISG. Mr. Belardi also owns a 5% profitsprofit 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, fivesix of the twelvefifteen 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 createdrequire us to maintain a conflicts committee consistingcomprised solely of three of our directors who are not officers or employees of any member of the Apollo Group. The conflicts committee reviews and a majority of the committee members must approveapproves material transactions between us and the Apollo Group, subject to certain exceptions.



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

Other related party transactions—

A-A Mortgage Opportunities, L.P. (A-A Mortgage) – We have an equity method investment of $508 million and $487 million as of March 31, 2020 and December 31, 2019, respectively, in A-A Mortgage, which has an investment in AmeriHome. We have a loan purchase agreement with AmeriHome Mortgage Company, LLC (AmeriHome), an investee of A-A Mortgage, an equity method investee.AmeriHome. The agreement allows us to purchase residential mortgage loans which they haveAmeriHome has purchased from correspondent sellers and pooled for sale in the secondary market. AmeriHome retains the servicing rights to the sold loans. We purchased $21$169 million and $19$0 million of residential mortgage loans under this agreement during the ninethree months ended SeptemberMarch 31, 2020 and 2019, respectively. Additionally, we hold ABS securities issued by AmeriHome affiliates of $164 million and $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, 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 on the condensed consolidated balance 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, 2020 and December 31, 2019, the principal balance was $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 $838 million and $886 million as of March 31, 2020 and December 31, 2019, respectively. Additionally, we hold ABS and CLO securities issued by MidCap affiliates of $524 million and $624 million as of March 31, 2020 and 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 2017days from the receipt of notice of a cession, we have the right of first refusal to reinsure (i) up to 50% of the liabilities ceded from Athora’s reinsurance subsidiaries to Athora Life Re Ltd. and 2016,(ii) up to 20% of the liabilities ceded from a third party to any of Athora’s insurance subsidiaries, subject 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 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 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 $130 million and $132 million as of March 31, 2020 and December 31, 2019, respectively. Additionally, as of March 31, 2020 and December 31, 2019, we had $110 million and $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 $364 million as of March 31, 2020.




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


Venerable– We 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 LLC (VA Capital), which was $110 million and $99 million as of March 31, 2020 and December 31, 2019, respectively. The minority equity investment in VA Capital 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 parent of Venerable, which is the parent of VIAC. Additionally, we have a 15-year term loan receivable from Venerable due in 2033, which is 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 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 reinsurance transactions.

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 ISG and remain subject to our existing governance processes, including approval by our conflicts committee where applicable. As of March 31, 2020 and December 31, 2019, we had $162 million and $97 million, respectively, of investments under the Strategic Partnership and these investments are included 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 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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Notes to Condensed Consolidated Financial Statements (Unaudited)


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.


13.10. Commitments and Contingencies


Contingent Commitments—We had commitments to make investments, primarily capital contributions to investment funds, exclusiveinclusive of AGERrelated party commitments as discussed below,previously, of $1,761 $4,939 million and $962$4,793 million as of September 30, 2017March 31, 2020 and December 31, 2016,2019, 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.


On April 14, 2017 (Subscription Date), in connection with a private offering, AGER entered into subscription agreements with AHL, certain affiliates of AGM and a number of other third-party investors pursuant to which AGER secured commitments from such parties to purchase new common shares in AGER (AGER Offering). AHL's capital commitment includes the valuation of the AGER Group (comprised of our European operations which includes ADKG) at approximately €90 million, which approximated our invested capital in the AGER Group on the Subscription Date. Additionally, AHL has committed to purchase an additional €285 million of common shares (which may be reduced to €260 million if certain conditions are met), as well as an additional profits interest in securities which, upon meeting certain vesting triggers, will be convertible into additional common shares.

On August 9, 2017, our Bermuda subsidiaries, AGER and NewRe Life Re Ltd. (NewRe) entered into a stock purchase agreement with Aegon Ireland Holding B.V. and Aegon Europe Holding B.V., pursuant to which NewRe agreed to purchase all of the outstanding stock of Aegon Ireland plc. Prior to the closing of the transaction, which is expected in the first quarter of 2018, subject to regulatory approvals and other customary closing conditions, AGER expects to call capital from its investors, which is expected to result in the issuance by AGER of new common shares to affiliates of Apollo and other third-party investors, such that our interest in the AGER Group will be reduced, causing the AGER Group to thereafter be held by us as an investment rather than as a consolidated subsidiary.

The valuation of the AGER Group was fixed at approximately €90 million as of the Subscription Date, and is unaffected by any profit or loss or other increase or decrease in value of the AGER Group during the period between the Subscription Date and the date on which the AGER Group is deconsolidated. As a result, to the extent that our invested capital and/or the fair value of the AGER Group increases or decreases during such time period, we may incur a gain or loss upon deconsolidation.

Funding Agreements—We are a member of the Federal Home Loan Bank (FHLB) of Indianapolis and Des MoinesFHLB and, through membership, we have issued funding agreements to the FHLB in exchange for cash advances. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, we had $623$1,426 million and $691$1,226 million, respectively, of FHLB funding agreements outstanding with the FHLB.outstanding. We are required to provide collateral in excess of the funding agreements,agreement amounts outstanding, considering any discounts to the securities posted and prepayment penalties.


We have a funding agreement backed notes (FABN) program, which allows Athene Global Funding, a special purpose, non-affiliated statutory-trustspecial-purpose, unaffiliated statutory trust, to offer up to $5 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. FundingAs of March 31, 2020andDecember 31, 2019, we had $4,325 million and $3,700 million, respectively, of FABN funding agreements outstanding under this program. We had a carrying value $5,375 million of $2,996 million and $246 millionremaining FABN capacity as of September 30, 2017andDecemberMarch 31, 2016, respectively.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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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In millions)September 30, 2017 December 31, 2016
AFS securities   
Fixed maturity$1,479
 $1,535
Equity38
 40
Investment funds22
 25
Mortgage loans798
 1,003
Short-term investments13
 15
Restricted cash100
 57
Total restricted assets$2,450
 $2,675


The restricted assets are primarily a result ofrelated to reinsurance trusts established in accordance with coinsurance agreements, and the FHLB funding agreements described above. Additionally, we

Letter of Credit—We have establishedan undrawn letter of credit for$188 million as of March 31, 2020. This letter of credit was issued for our reinsurance trusts of assets in accordance with coinsurance agreements, which are typically based on corresponding statutory reserves.program and expires by December 31, 2020.



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

Litigation, Claims and Assessments—On June 12, 2015, Don Hudson, on behalf of himself and others similarly situated, filed a putative class action complaint in the United States District Court for the Northern District of California against us. The complaint, which was similar to complaints recently filed against other large insurance companies, primarily alleged that captive reinsurance and other transactions had the effect of misrepresenting the financial condition of Athene Annuity and Life Company (AAIA). The complaint purported to be brought on behalf of a class of purchasers of annuity products issued by AAIA between 2007 and the present and asserts claims against AHL, ALRe, AUSA and AAIA in addition to Apollo and AAM. There were also various allegations related to the purchase of Aviva USA and concerning entry into a modco transaction with ALRe in October 2013. The suit asserted claims of violation of the Racketeer Influenced and Corrupt Organizations Act and sought compensatory damages, trebled, in an amount to be determined, costs and attorneys' fees. On March 25, 2016, the matter was transferred to the United States District Court for the Southern District of Iowa (S.D. IA Court). On May 25, 2016, the court granted plaintiff’s motion to file an amended complaint dropping plaintiff Silva and defendant Aviva plc. We moved to dismiss the amended complaint on June 30, 2016. On May 11, 2017, the putative class action complaint filed by Don Hudson, on behalf of himself and others similarly situated, against us was dismissed in a written decision by the S.D. IA Court. Plaintiff did not appeal the district court’s decision and this matter is concluded.


On July 27, 2015, John Griffiths, on behalf of himself and others similarly situated, filed a putative class action complaint in the United States District Court for the District of Massachusetts, against us. An amended complaint was filed on December 18, 2015. The complaint asserts claims against AHL, AAIA and Athene London Assignment Corporation (Athene London), in addition to an Aviva defendant. AHL is a named defendant due to its purchase of Aviva USA, and AAIA and Athene London are named as successors to AvivaCorporate-owned Life Insurance Company and Aviva London Assignment Corporation, respectively. The complaint alleges a putative class of all persons who are the beneficial owners of assets which were used to purchase structured settlement annuities that Aviva Life Insurance Company, Aviva London Assignment Corporation, and Aviva International Insurance Limited (collectively, the Aviva Entities) or their predecessors, as applicable, delivered to purchasers on or after April 1, 2003 that were backed by a capital maintenance agreement issued by Aviva International Insurance Limited or its predecessor (the CMA). The complaint alleges that the Aviva Entities sold structured settlement annuities to the public on the basis that such products were backed by the CMA, which was alleged to be a source of great financial strength. The complaint further alleges that the Aviva Entities used the CMA to enhance the sales volume and raise the price of the annuities. The complaint claims that, as a result of Aviva USA’s sale to AHL, the CMA terminated. According to the complaint, no notice of this termination was provided to the owners of the structured settlement annuities. The complaint alleges that the termination of the CMA gave rise to claims for breach of contract, breach of fiduciary duty, promissory estoppel, and unjust enrichment. AHL and plaintiff recently agreed to a term sheet settlement on a class wide basis. Terms of the settlement, which is subject to court approval, include: (1) AHL entering into a capital maintenance agreement with Athene London requiring AHL to provide capital to Athene London upon a missed structured settlement payment that is not timely cured and (2) AHL paying a monetary amount that is immaterial to us. The case against AHL has been stayed in totality and the case has been stayed against co-defendant Aviva until November 27, 2017 while the parties engage in a magistrate settlement conference.

The Internal Revenue Service (IRS) has completed its examinations of the 2006 through 2010 Aviva USA tax years. Aviva USA agreed to all adjustments that were proposed with respect to those tax years with two exceptions: (1) AAIA’s treatment of call options used to hedge fixed indexed annuity (FIA) liabilities for the tax years 2008–2010 and (2) the disallowance of offsetting tax deductions taken by AAIA and taxable income reported by the non-life subgroup with respect to unpaid independent marketing organization commissions. The first adjustment to which Aviva USA did not agree would disallow deductions of $191 million, $154 million and $76 million for 2008, 2009 and 2010, respectively. The second adjustment to which Aviva USA did not agree would increase non-life net operating losses and decrease AAIA net operating losses by $16 million in each of 2009 and 2010. Taxes, penalties and interest with respect to these two issues for the years under audit are subject to indemnification by Aviva plc under the Stock Purchase Agreement (SPA) between Aviva plc and AHL, dated December 21, 2012 assuming the SPA requirements are satisfied. Athene USA has been unable to negotiate a favorable settlement of this issue with the IRS, and is contesting the adjustment in federal court. If the IRS position is upheld in federal court, Athene USA expects that it would owe tax of $120 million, plus interest, for tax years ending on or before October 2, 2013, which are subject to indemnification by Aviva plc as described above.

The IRS also recently completed its examination of the 2011 through 2012 Aviva USA tax years, proposing adjustments that would increase taxable income by approximately $16 million in the aggregate for these two tax years. Athene USA agreed to all adjustments that were proposed with respect to those tax years except for adjustments relating to the same two issues that were not agreed to during the prior examination as discussed above. The first adjustment to which Athene USA did not agree would disallow deductions of $16 million in 2011 and increase deductions by $12 million in 2012. The second adjustment to which Athene USA did not agree would increase non-life net operating losses and decrease AAIA net operating losses by $15 million in 2011 and $12 million in 2012. Taxes, penalties and interest with respect to these two tax years are subject to indemnification by Aviva plc under the SPA, assuming the SPA requirements are satisfied. The treatment of FIA hedges is a recurring issue as to the timing of the related deductions and could affect the current income tax incurred in periods after October 2, 2013, which are not subject to indemnification by Aviva plc. Given that the disallowance of a deduction in one period results in an increased deduction in a future period, we do not expect that there will be any material impact to our financial condition resulting from this issue.


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

(COLI) Matter – In 2000 and 2001, two insurance companies, which were subsequently merged into AAIAAthene Annuity and Life Company (AAIA), purchased broad based variable COLI policies from American General Life Insurance Company (American General) broad based variable corporate-owned life insurance (COLI) policies that, as of September 30, 2017,March 31, 2020, had an asset value of $344$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 will pursue further adjudication.filed suit against the same defendants in Chancery Court in Delaware seeking substantially similar relief. Defendants moved to dismiss 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 been 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 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 $164$202 million as of March 31, 2020.

Regulatory Matters – Beginning in 2015, our U.S. insurance subsidiaries have experienced increased 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 a 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, 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 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 examinations 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 the life and annuity policies, including the administration of such blocks by AllianceOne. We have entered into consent orders 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 consent orders are subject to indemnification by Global Atlantic or affiliates of Global Atlantic. Global Atlantic is currently in negotiation with the CDI to resolve the pending joint action related to the 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 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. On April 13, 2020, we entered into a consent order with the NYSDFS to resolve this matter. Pursuant to 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

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


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 30, 2017.20, 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 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.


14.11. 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 United StatesU.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 pension risk transfer (PRT) obligations,group annuities, are included in our Retirement Services segment.


Corporate and Other—Corporate and Other includes certain other operations related to our corporate activities and our German operations, which is primarily comprised of participating long-duration savings products. In addition to our German operations, included in Corporate and Other aresuch 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 Corporate and Other,addition, we also hold capital in excess of the level of capital we hold in Retirement Services to support our operating strategy.


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


OperatingAdjusted operating revenue is a component of adjusted operating income net of tax,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.


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



53
 Three months ended September 30, Nine months ended September 30,
(In millions)2017 2016 2017 2016
Operating revenue by segment       
Retirement Services$936
 $876
 $3,078
 $2,464
Corporate and Other94
 69
 265
 166
Total segment operating revenues1,030
 945
 3,343
 2,630
Non-operating adjustments       
Change in fair values of derivatives and embedded derivatives – index annuities, net of offsets379
 200
 1,181
 100
Investment gains (losses), net of offsets63
 121
 326
 293
VIE expenses and noncontrolling interest—
 4
 —
 13
Other adjustments to revenues1
 2
 5
 3
Total non-operating adjustments443
 327
 1,512
 409
Total revenues$1,473
 $1,272
 $4,855
 $3,039
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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements(Unaudited)



OperatingAdjusted operating income net of tax,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 net of tax,available to common shareholders equals net income available to AHL'sAthene 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 net of tax,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 September 30, Nine months ended September 30,
(In millions)2017 2016 2017 2016
Operating income, net of tax by segment       
Retirement Services$244
 $142
 $786
 $535
Corporate and other(13) (25) (9) (87)
Total segment operating income, net of tax231
 117
 777
 448
Non-operating adjustments       
Investment gains (losses), net of offsets25
 58
 140
 98
Change in fair values of derivatives and embedded derivatives – index annuities, net of offsets46
 (1) 155
 (88)
Integration, restructuring and other non-operating expenses(14) (2) (34) (8)
Stock-based compensation, excluding LTIP(7) (46) (30) (59)
Income tax (expense) benefit – non-operating(7) —
 (24) 13
Total non-operating adjustments43
 9
 207
 (44)
Net income available to Athene Holding Ltd. shareholders$274
 $126
 $984
 $404


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)September 30, 2017 December 31, 2016
Total assets by segment   
Retirement Services$88,034
 $79,298
Corporate and Other8,027
 7,401
Total assets$96,061
 $86,699





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



Index to Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
  
Overview
6256
  
Industry Trends and Competition
57
Key Operating and Non-GAAP Measures
63
  
Key Operating and Non-GAAP MeasuresConsolidated Results of Operations
66
  
Results of OperationsConsolidated Investment Portfolio
6970
  
Consolidated Investment PortfolioNon-GAAP Measure Reconciliations
7685
  
Non-GAAP Measure ReconciliationsLiquidity and Capital Resources
9290
  
LiquidityBalance Sheet and Capital ResourcesOther Arrangements
94
  
Balance Sheet and Other Arrangements
98
Critical Accounting Estimates and Judgments
9995
  






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Item 2. Management'sManagement’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 qualityhigh-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. Our differentiated investment strategy benefits from our strategic relationship with Apollo and its indirect subsidiary, AAM. AAM 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 Apollo and AAM also provides us with access to Apollo’s investment professionals across the world as well as Apollo’s global asset management infrastructure that, as of September 30, 2017, supported more than $241 billion of AUM across a broad array of asset classes. We are led by a highly skilled management team with extensive industry experience. We are based in Bermuda with our U.S. subsidiaries' headquarters located in Iowa.


We began operating in 2009 when the burdens of the financial crisis and resulting capital demands caused many companies to exit the retirement market, creating the need for a well-capitalized company with an experienced management team to fill the void. Taking advantage of this market dislocation, we have been able to acquire substantial blocks of long-duration liabilities and reinvest the related investments to produce profitable returns. We have established a significant base of earnings and, as of September 30, 2017,March 31, 2020, have an expected annual net investment marginspread for our Retirement Services segment, which measures our investment performance less the total cost of 2-3%our liabilities, of 1–2% over the 8.29.3 year weighted-average life of our reserve liabilities. The weighted-average life includes deferred annuities, which make up a substantial portion of our reserve liabilities. Even as we have grown to $81.2 billion in investments, including related parties, $78.8 billion in invested assetsPRT group annuities, funding agreements, payout annuities and total assets as of $96.1 billion as of September 30, 2017, we have continued to approach both sides of the balance sheet with an opportunistic mindset because we believe quickly identifying and capitalizing on market dislocations allows us to generate attractive, risk-adjusted returns for our shareholders. Further, our multiple distribution channels support growing origination across market environments and better enable us to achieve continued balance sheet growth while maintaining attractive profitability. We believe that in a typical market environment, we will be able to profitably grow through our organic channels, including retail, flow reinsurance and institutionalother products. In more challenging market environments, we believe that we will see additional opportunities to grow through our inorganic channels, including acquisitions and block reinsurance, due to market stress during those periods.

We are diligent in setting our return targets based on market conditions and risks inherent to our products offered and acquisitions or block reinsurance transactions. Generally, we target mid-teen returns for sources of organic growth and mid-teen or higher returns for sources of inorganic growth. However, specific return targets are established with due consideration to the facts and circumstances surrounding each growth opportunity and may be higher or lower than those that we target more generally. Factors that we consider in establishing return targets for a given growth opportunity include, but are not limited to, the certainty of the return profile, the strategic nature of the opportunity, the size and scale of the opportunity, the alignment and fit of the opportunity with our existing business, the opportunity for risk diversification and the existence of increased opportunities for higher returns or growth. If market conditions or risks inherent to a product or transaction create return profiles that are not acceptableto us, we generally will not sacrifice our profitability merely to facilitate growth.


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 and our German operations, which is primarily comprised of participating long-duration savings products.activities.


Our consolidated annualized ROE for the ninethree months ended September 30, 2017March 31, 2020 and the year ended December 31, 20162019 was 16.9%(36.5)% and 12.6%19.7%, respectively, and our consolidated annualized adjusted operating ROE excluding AOCI was 14.8%(4.4)% and 12.1%14.1%, respectively. As a result of our focus on issuing, reinsuring and acquiring attractively-priced liabilities, our differentiated investment strategy and our significant scale, forFor the ninethree months ended September 30, 2017March 31, 2020 and the year ended the year ended December 31, 2016,2019, in our Retirement Services segment, we generated an annualized net investment spread of 1.03% and 1.50%, respectively, and an annualized adjusted operating ROE of 10.6% and 17.3%, respectively. Our Retirement Services segment generated an annualized investment margin on deferred annuities of 2.86%2.13% and 2.76%, respectively2.46% for the three months ended March 31, 2020 and annualized operating ROE excluding AOCIthe year ended December 31, 2019, respectively. As of 21.3%March 31, 2020, our deferred annuities had a weighted-average life of 8.7 years and 18.5%, respectively. We currently maintain what we believe to be high capital ratios formade up a significant portion of our rating and hold more than $1.5 billion of excess capital, and view this excess as strategic capital available to reinvest intoreserve liabilities.

The following table presents the deposits generated from our organic and inorganic growth opportunities.channels:


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


 Three months ended March 31,
(In millions)2020 2019
Retail sales$1,246
 $1,816
Flow reinsurance861
 1,020
Funding agreements823
 —
Pension risk transfer1,017
 1,923
Net deposits$3,947
 $4,759
We have developed organic and inorganic channels to address the retirement services market and grow our assets and liabilities. By focusing on the retirement services market, we believe that we will benefit from several demographic and economic trends, including the increasing number of retirees in the United States, the lack of tax advantaged alternatives for people trying to save for retirement and expectations of a rising interest rate environment. To date, most of our products sold and acquired have been fixed annuities, which offer people saving for retirement a product that is tax advantaged, has a minimum guaranteed rate of return or minimum cash value and provides protection against investment loss. Our policies often include surrender charges (86% of our deferred annuity products, as of September 30, 2017) or MVAs (72% of our deferred annuity products, as of September 30, 2017), both of which increase persistency and protect our ability to meet our obligations to policyholders.
Our organic channels, including retail, flow reinsurance and institutional products, provided deposits of $8.0$3.9 billion and $6.9$4.8 billion forin the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. Withdrawals on our deferred annuities, maturities of our funding agreements, and payments on payout annuities and pension risk benefit payments (collectively, liability outflows), in the aggregate, were $4.4$2.7 billion and $4.0$2.8 billion for the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. We believe that our improving credit profile, our current product lineofferings and product design capabilities andas well as our growing reputation as both a seasoned funding agreement issuer and a reliable PRT counterparty will continue to enable us to further penetrategrow our existing organic channels and allow us to source additional volumes of profitably underwritten liabilities in various market environments. Our inorganic channels, including acquisitions and block reinsurance, have contributed significantlyWe plan to our growth. We believe our internal acquisitions team, with support from Apollo, has an industry-leading ability to source, underwrite, and expeditiously close transactions, which makes us a competitive counterparty for acquisition or block reinsurance transactions.

We plancontinue to grow organically by expanding each of our retail, flow reinsurance and institutional product 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 $4.1$1.2 billion and $3.8$1.8 billion for the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. The decrease in our retail channel was primarily driven by competitive positioning and our disciplined approach to pricing and maintaining targets in a low interest rate environment. We aim to grow our retail channel in the United States by deepening our relationships with our approximately 67 IMOs50 independent marketing organizations (IMO); approximately 51,000 independent agents; and approximately 34,000 independent agents.our growing network of 92 small and mid-sized banks and 13 regional broker-dealers. Our strong financial position and capital efficient products allow us to be a dependable partnerpartners 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 access to new distribution channels, including small to mid-sized banks and regional broker-dealers. Webroker-dealer channels. Additionally, we are implementing the necessary technology platform,focusing on hiring and training a specialized sales force and have createdcreating products to capture new potential distribution opportunities.

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 $570$861 million and $3.1$1.1 billion for the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. We believe theThe decrease in our flow reinsurance has been impactedchannel from prior year was driven by the recent declinecompetitive positioning while maintaining rate discipline in overall MYGA volumes over the last several months, reflective of tighter investment spreads, the recent stock market rallya low interest rate environment, while prior year benefited from a rising interest rate environment. We expect that our credit profile and expectations of higher interest rates. As weour reputation as a solutions provider will help us continue to source additional reinsurance partners, we expect towhich will further diversify our flow reinsurance channelchannel.


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Item 2. Management’s Discussion and expect that our improving credit profile will help us attract additional reinsurance partners. InAnalysis of Financial Condition and Results of Operations


Within our institutional channel, we generated deposits of $3.3$1.8 billion and $0 million$1.9 billion for the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. Our ability to issueThe slight decrease in our institutional channel is driven by lower PRT deposits being largely offset by higher funding agreements, namely thoseagreement deposits. During the three months ended March 31, 2020, we closed one PRT transaction and issued through our FABN program, has benefited from our public company status and improving credit profile, allowing us to generate depositsgroup annuity contracts in the aggregate principal amount of $3.0$1.0 billion, and $0 million forcompared to $1.9 billion during the ninethree months ended September 30, 2017 and 2016, respectively. In addition, growth in our institutional channel was attributed to our entry intoMarch 31, 2019. Since entering the PRT marketchannel in 2017 during whichthrough March 31, 2020, we have closed our inaugural transaction pursuant to which we17 deals involving more than 178,000 plan participants resulting in the issuance of group annuities of $11.9 billion. We issued a group annuity contractfunding agreements in the aggregate principal amount of approximately $320 million. Additionally, subsequent to quarter-end, we entered into two PRT agreements totaling approximately $1.0 billion of pension obligations.$823 million and $0 million for the three months ended March 31, 2020 and 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 agreementsagreements.

Our inorganic channel has contributed significantly to our growth through both acquisitions and block reinsurance transactions. We expect that our 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 support from Apollo, we are a solutions provider with a proven track record of 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 continuingADIP, a series of funds managed by an affiliate of Apollo. ACRA is expected to engageparticipate in PRT transactions.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


Our businessOn March 3, 2020, the U.S. Federal Reserve (Federal Reserve) decreased interest rates by 50 basis points in its first 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 results of operations are materially affectedfollows 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 conditionsa recently concluded price war among major oil producing countries, which when combined with a collapse in the global capital marketsdemand for oil and the economy generally. A general economic slowdown could adversely affect usstorage capacity constraints, has resulted in significant declines in oil prices. Unprecedented fiscal and monetary measures have been undertaken in the form of changes in consumer behaviorthe Coronavirus Aid, Relief and decreases inEconomic Security Act (CARES Act) and Federal Reserve programs implemented with funding provided by the returns onCARES Act, respectively. The programs implemented by the Federal Reserve have provided significant liquidity to the capital markets and value of our investment portfolio. Concerns overtogether with the slow economic recovery,broader CARES Act have reduced the level of U.S. national debt, currency fluctuations and volatility the stability of the EU, Brexit and the potential exit of certain other EU members, the rate of growth of China and other Asian economies, unemployment, the availability and cost of credit, the U.S. housing market, inflation levels, low or negative interest rates, energy costs and geopolitical issues have contributed to increased volatility and diminished expectations for the economy and the markets. Market conditions have generally improved since the U.S. elections in November of 2016 on hopes of improved economic growth, however the long term outlook remains uncertain. Declining economic growth rates globally and resultant diverging paths of monetary policy could increase volatilityexperienced in the credit markets, potentially impactingand equity markets. It is unclear whether current fiscal and monetary policy or measures adopted in the availability and cost of credit. Factors such as equity prices, equityfuture will be effective at continuing to abate the market volatility interest rates, counterparty risks, availabilitybrought about by the spread of credit, inflation rates, economic uncertainty, changes in laws or regulations (including laws relating to the financial markets generally or the taxation or regulationCOVID-19.

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Table of the insurance industry), trade barriers, commodity prices, currency exchange rates and controls and national and international political circumstances (including governmental instability, wars, terrorist acts or security operations) can have a material impact on the value of our investment portfolio and our ability to sell our products. We adjust the structure of our products depending on the economic environment, the behavior of customers and other factors, including mortality rates, morbidity rates, cap rates, rollup rates, annuitization rates and lapse rates, which can vary in response to changes in market conditions. We believe continued economic growth, stable financial markets and a potentially rising interest rate environment may ultimately enhance the attractiveness of our product portfolio. However, we remain exposed to potential slowdowns in economic activity, which could be characterized by rising unemployment, falling interest rates, widening credit spreads and an increase in corporate credit and real estate-related defaults.Contents


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





To the extent that it has not already been so affected, current 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 and uncertainty about the Federal Reserve’s ability to manage its normalization process and the impact on inflation and wage growth. In particular, equity market volatility has and may further 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. 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. In spiteThe Federal Reserve aggressively cut rates during March 2020 after cutting rates on a more normalized basis on three separate occasions in 2019. 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 decrease in the ten-year yield to below 1%, which is unprecedented. With the Federal Reserve increasing federal funds rates in December 2015, December 2016 and March and June of 2017, interest ratesundertaking extraordinary market intervention measures, it is anticipated that treasury yields will remain low in the United States remain lower than historical levels. The lower interest rates in part are due to a number of actions taken in recent years by the Federal Reserve in an effort to stimulate economic activity. Any future increases in federal funds rates are uncertain and will depend on the economic outlook.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 and through asset liability management (ALM)ALM modeling. We endeavor to limit reinvestment risk related to cash flows by managing our asset portfolio to ensure it provides adequate cash flows to meet our expected policyholder benefit cash flows to within tolerable risk management limits. Our strategy is to achieve sustainable yields that allow us to maintain an attractive investment margin. 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 $22.0 billion of floating rate investments, or approximately 28%18% of our totalnet invested assets as of September 30, 2017. As part of our reinvestment strategy for the investment portfolios of our acquired companies, we generally seek to reinvest assets at yields higher than the related assets being liquidated for reinvestment. We continuously seek to optimize our investment portfolio to achieve favorable returns over the long term.March 31, 2020.


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 margin earned on deferred annuitiesspread 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 September 30, 2017,March 31, 2020, most of our products were fixed annuities with approximately 36%22% of our FIAs at the minimum guarantees and approximately 49%39% of our fixed rate annuities at the minimum crediting rates. As of September 30, 2017,March 31, 2020, minimum guarantees on all of our deferred annuities, including those with crediting rates already at their minimum guarantees, were, on average, 80 to 90greater than 100 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 20162019 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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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


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


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, particularly as federal, state and local marginal tax rates have increased.upside. Our tax-efficient savings products are well positioned to meet this increasing customer demand.

We believe that our strong presence in the FIA market and strength of our relationships with IMOs position us to effectively serve consumers' demand in the rapidly growing retirement savings market. We expect that our retail channel will continue to benefit from our improving credit profile and recent product launches. We believe this should help us to grow sales at our desired cost of crediting through increased volumes via current IMOs and access to new distribution channels, including small to mid-sized banks and regional broker-dealers. We also believe that our improving credit profile has enabled and will continue to enable us to increase penetration in our existing organic channels, such as flow reinsurance and funding agreements, while also helping us to increase our presence in the PRT market.


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.

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




According to LIMRA, total fixed annuity market sales in the United States were $56.7$139.8 billion for the six monthsyear ended June 30, 2017,December 31, 2019, a 11.1% decrease4.7% increase from the same time period in 2016. This decrease was driven by a decrease in traditional fixed rate deferred annuities of $3.1 billion, or 13.8% over prior year fixed rate deferred annuities, and a decrease in FIA products of $2.7 billion, or 8.5% over prior year FIAs.2018. In the total fixed annuity market, for the six monthsyear ended June 30, 2017December 31, 2019 (the most recent period for which specific market share data is available), we were the 5th largest company based on sales withof $6.8 billion, translating to a 4.8% market share and $2.7 billion in sales.share. For the six monthsyear ended June 30, 2016,December 31, 2018, our market share was 2.8%5.6% with sales of $1.8$7.5 billion.


FIAs arehave been one of the fastest growing annuity products, having grown from $27.3 billion in sales for the year ended December 31, 2005 to $60.9$73.5 billion in sales for the year ended December 31, 2016.2019. 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 six monthsyear ended June 30, 2017December 31, 2019 (the most recent period for which specific market share data is available), we were the 2nd largest provider of FIAs in termsbased on sales of sales,$6.1 billion, and our market share for the same period was 8.4% with8.3%. For the year ended December 31, 2018, we were the 2nd largest provider of FIAs based on sales of $2.5 billion. For the six months ended June 30, 2016, our market share was 5.0% with sales of $1.6 billion.

Regulatory Developments

Department of Labor

On April 6, 2016, the U.S. Department of Labor (DOL) issued a new regulation (fiduciary rule) more broadly defining the circumstances under which a person is considered to be a fiduciary by reason of giving investment advice or recommendations to an employee benefit plan or a plan’s participants or to IRA holders. In addition to releasing the investment advice regulation, the DOL: (1) issued a new prohibited transaction class exemption titled the “Best Interest Contract Exemption,” to be used in connection with the sale of FIAs or variable annuities, and (2) updated the previously prohibited transaction class exemption 84-24, to be used in connection with the sale of traditional fixed rate annuities. The April 10, 2017 applicability date for the fiduciary rule was delayed to June 9, 2017 in response$6.6 billion, translating to a memorandum issued to the DOL by President Trump. In addition to delaying the applicability date9.4% market share.

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Table of the fiduciary rule, the DOL revised both exemptions, most notably allowing all annuity products, fixed, FIAs and variable annuities, to rely on an updated version of the prohibited transaction class exemption 84-24 from June 9, 2017 through January 1, 2018, at which time full implementation of the fiduciary rule is required. On August 9, 2017, the DOL submitted to the Office of Management and Budget a proposal to extend the January 1, 2018 full implementation date to July 1, 2019. In order for the extension to become effective, the proposal must be finalized and issued in the Federal Register before January 1, 2018. We cannot predict with any certainty the impact of the new fiduciary rule and exemptions, but the fiduciary rule and exemptions could alter the way our products and services are marketed and sold, particularly to purchasers of IRAs and individual retirement annuities. If implemented in its current form, the fiduciary rule could have an adverse effect on our ability to write new business. In addition, the NAIC has implemented a working group to update the current Suitability in Annuity Transactions Model Regulation to address the fiduciary standard and the SEC has indicated that it may propose rules creating a uniform standard of conduct applicable to broker-dealers and investment advisers. If either or both of these entities create rules or standards applicable to our business, it may affect the distribution of our products. Should the SEC or NAIC rules or standards, if adopted, not align with each other or the finalized fiduciary rule, the distribution of our products could be further complicated.Contents

Tax Reform

We continue to face material uncertainty regarding the substance and timing of tax reform. See Part II—Other Information—Item1A. Risk Factors—Risks Relating to Taxation—Changes in the U.S. tax law might adversely affect us or our shareholders for further discussion regarding tax reform.




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




Key Operating and Non-GAAP Measures


In addition to our results presented in accordance with GAAP, our results of operations includewe present certain financial information that includes non-GAAP measures commonly used in our industry.measures. Management believes the use of these non-GAAP measures, together with the relevant GAAP measures, provides information that may enhance an investor'sinvestor’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, or likely to re-occur in the foreseeable future, as such items fluctuate from period-to-periodperiod 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 GAAP measures.


Adjusted Operating Income Net of Tax(Loss) Available to Common Shareholders


OperatingAdjusted operating income net of tax, a commonly used term in the life insurance industry,(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 net of tax,(loss) available to common shareholders equals net income (loss) available to AHL’sAHL 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 assumed modco and funds withheld reinsurance embedded derivatives, 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 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 living withdrawal benefits (GLWB) and guaranteed minimum death benefits (GMDB) reserves (together, GLWB and GMDB reserves represent rider reserves) as well as the MVAs 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 fluctuate 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 1-21–2 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 mergers and acquisitions as well as certain other expenses which are not part of our core operations 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 part of our core operating expenses 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 consistent with our core operations.

Income Taxes (Expense) Benefit – Non-operating—The non-operating income tax expense is comprised of the appropriate jurisdiction's tax rate applied to the non-operating adjustments that are subject to income tax.


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


We consider these non-operating adjustments to be meaningful adjustments to net income (loss) available to AHL'sAHL common shareholders for the reasons discussed in greater detail above. Operating income, net of tax excluding notable items equals net income available to AHL's shareholders adjusted for non-operating adjustments and certain notable items in the period that facilitate the evaluation of our underlying profitability. Accordingly, we believe using these measuresa measure which excludes the impact of these items is effectiveuseful in analyzing our business performance and the trends in our results of operations. Together with net income (loss) available to AHL'sAHL common shareholders, we believe adjusted operating income net of tax, and operating income, net of tax excluding notable items provide(loss) available to common shareholders provides a meaningful financial metricsmetric that helphelps investors understand our underlying results and profitability. Operating income, net of tax, andAdjusted operating income net of tax excluding notable items(loss) available to common shareholders should not be used as a substitute for net income (loss) available to AHL'sAHL common shareholders.


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


Adjusted Operating ROE Excluding AOCI


ROE excluding AOCI andAdjusted operating ROE excluding AOCI areis a non-GAAP measuresmeasure used to evaluate our financial performance excluding the impacts of AOCI. AOCI fluctuates period-to-periodand the cumulative change in fair value of funds withheld and modco reinsurance assets, net of DAC, DSI, rider reserve and tax offsets. Adjusted AHL common shareholders’ equity is calculated as the ending AHL shareholders’ equity excluding AOCI, the cumulative change in fair value of funds withheld and modco reinsurance 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. 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. Once we have reinvestedExcept 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 isand the cumulative change in fair value of funds withheld and modco reinsurance assets are useful in analyzing the trends ofin our operations.operating results. To enhance the ability to analyze these measures across periods, interim periods are annualized. ROE excluding AOCI andAdjusted operating ROE excluding AOCI should not be used as a substitute for 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 results of operations.financial performance.


Adjusted Operating Earnings (Loss) Per Common Share, - Operating Diluted Class A, Weighted Average Common Shares Outstanding -– Adjusted Operating Diluted Class A Common Shares and Adjusted Book Value Per Common Share Excluding AOCI


OperatingAdjusted operating earnings (loss) per common share, - operating diluted Class A, weighted average common shares outstanding -– adjusted operating diluted Class A common shares and adjusted book value per common share excluding AOCI 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 represent an economic view of our share counts and provide a simplified and consistent view of our outstanding shares. OperatingAdjusted operating earnings (loss) per common share - operating diluted Class A is calculated as the adjusted operating income net of tax(loss) available to common shareholders, over the weighted average common shares outstanding - operating diluted Class A common shares. Book– adjusted operating. Adjusted book value per common share excluding AOCI is calculated as the endingadjusted AHL shareholders'common shareholders’ equity excluding AOCI divided by the adjusted operating dilutedcommon shares outstanding. Effective February 28, 2020, all Class B common shares were converted into Class A common shares outstanding.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 settlement 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 diluted Class A common shares and adjusted operating diluted Class A 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. OperatingAdjusted operating earnings (loss) per common share, - operating diluted Class A, weighted average common shares outstanding -– adjusted operating diluted Class A common shares and adjusted book value per common share excluding AOCI 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 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 Earned Rate, Cost of Crediting andSpread, Investment Margin on Deferred Annuities and Operating Expenses
    
Investment marginNet investment spread is a key measurement of the financial healthprofitability of our Retirement Services core deferred annuities. Investment margin onsegment. Net investment spread measures our deferred annuities is generated frominvestment performance less the excesstotal cost of our net investment earned rate over the cost of crediting to our policyholders.liabilities. Net investment earned rate is a key measure of our investment returns andperformance, while cost of creditingfunds is a key measure of the cost of our policyholder benefits and liabilities. Investment margin on our deferred annuities. 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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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


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 embedded derivatives.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 assumedchange 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 embedded derivatives.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, 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.
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations


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 indexindexed 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. TheCost 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 indexindexed annuity strategies are 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 creditingfunds, net investment spread and investment margin on deferred annuities are non-GAAP measures we use to evaluate the profitability of our core deferred annuities business.Deferred annuities include our fixed rate annuities and FIAs, which account for approximately 78% of our Retirement Services reserve liabilities as of September 30, 2017. We believe measures like net investment earned rate, cost of crediting and investment margin on deferred annuitiesthese metrics are effectiveuseful in analyzing the trends of our core business operations, profitability and pricing discipline. While we believe net investment earned rate, costeach of crediting and investment margin on deferred annuitiesthese 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, and 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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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Net Invested Assets


In managing our business, we analyze net invested assets, which dodoes not correspond to total investments, including investments in related parties, as disclosed in our consolidated financial statements and notes thereto. InvestedNet invested assets representrepresents the investments that directly back our policyholdernet 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.


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 recoverables,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.





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


Consolidated Results of Operations


The following summarizes the consolidated results of operations:
 Three months ended September 30, Nine months ended September 30,
(In millions, except percentages)2017 2016 2017 2016
Revenues$1,473
 $1,272
 $4,855
 $3,039
Benefits and expenses1,179
 1,234
 3,818
 2,708
Income before income taxes294
 38
 1,037
 331
Income tax expense (benefit)20
 (88) 53
 (73)
Net income274
 126
 984
 404
Less: Net income attributable to noncontrolling interests—
 —
 —
 —
Net income available to AHL shareholders$274
 $126
 $984
 $404
        
Operating income, net of tax by segment       
Retirement Services$244
 $142
 $786
 $535
Corporate and Other(13) (25) (9) (87)
Operating income, net of tax231
 117
 777
 448
Non-operating adjustments       
Realized gains (losses) on sale of AFS securities29
 18
 64
 37
Unrealized, impairments, and other investment gains (losses)(3) (12) (15) (36)
Assumed modco and funds withheld reinsurance embedded derivatives20
 73
 153
 144
Offsets to investment gains (losses)(21) (21) (62) (47)
Investment gains (losses), net of offsets25
 58
 140
 98
Change in fair values of derivatives and embedded derivatives – FIAs, net of offsets46
 (1) 155
 (88)
Integration, restructuring and other non-operating expenses(14) (2) (34) (8)
Stock compensation expense(7) (46) (30) (59)
Income tax (expense) benefit – non-operating(7) —
 (24) 13
Total non-operating adjustments43
 9
 207
 (44)
Net income available to AHL shareholders$274
 $126
 $984
 $404
        
ROE13.0% 7.5% 16.9% 8.7%
ROE excluding AOCI14.9% 8.4% 18.7% 9.2%
Operating ROE excluding AOCI12.5% 7.9% 14.8% 10.2%
 Three months ended March 31,
(In millions, except percentages)2020 2019
Revenues$(1,549) $4,995
Benefits and expenses(167) 4,255
Income (loss) before income taxes(1,382) 740
Income tax expense (benefit)(166) 32
Net income (loss)(1,216) 708
Less: Net loss attributable to noncontrolling interests(169) —
Net income (loss) attributable to Athene Holding Ltd.(1,047) 708
Less: Preferred stock dividends18
 —
Net income (loss) available to AHL common shareholders$(1,065) $708
    
ROE(36.5)% 30.8%


We operate our core business strategies out
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Table of one reportable segment, Retirement Services. In addition to Retirement Services, we report certain other operations in Corporate and Other. See Results of Operations by Segment for further detail on the results of the segments.Contents

Three Months Ended September 30, 2017 Compared to the Three Months Ended September 30, 2016

In this section, references to 2017 refer to the three months ended September 30, 2017 and references to 2016 refer to the three months ended September 30, 2016.

Net Income Available to AHL Shareholders

Net income available to AHL shareholders increased by $148 million, or 117%, to $274 million for the three months ended September 30, 2017 from $126 million in the prior period. ROE and ROE excluding AOCI increased to 13.0% and 14.9%, respectively, from 7.5% and 8.4% in 2016, respectively. The increase in net income available to AHL shareholders was driven by a $114 million increase in operating income, net of tax, a favorable net change in FIA derivatives and a favorable decrease in stock compensation expense, partially offset by an unfavorable change in investment gains related to the assumed reinsurance embedded derivative. The net change in FIA derivatives was primarily driven by the performance of the equity indices to which our FIA policies are linked and a favorable change in model and assumption impacts compared to the prior year. The decrease in stock compensation expense was primarily due to the expense resulting from the accelerated vesting of shares in 2016. The change in the assumed reinsurance embedded derivative impacts were related to more favorable credit spread tightening in 2016.



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




Our annual process of unlocking assumptions resulted
Three Months Ended March 31, 2020Compared to the Three Months Ended March 31, 2019

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

Net Income (Loss) Available to AHL Common Shareholders

Net income (loss) available to AHL common shareholdersdecreased by $1.8 billion, or 250%, to $(1.1) billion in 2020 from $708 million in 2019. ROE decreased to (36.5)% from 30.8% in 2019. The decrease in net income (loss) available to AHL common shareholders was driven by a $6.5 billion decrease in pre-tax income of $33 million compared torevenues, partially offset by a decrease of $171$4.4 billion in benefits and expenses and a $198 million decrease in 2016.income tax expenses.


Operating Income, Net of TaxRevenues


Operating income, net of tax increasedRevenues decreased by $114 million, or 97%,$6.5 billion to $231 million for the three months ended September 30, 2017$(1.5) billion in 2020 from $117 million$5.0 billion in the prior period. Operating income, net of tax, excluding notable items was $254 million, an increase of $85 million, or 50%, over the prior year. Operating ROE excluding AOCI was 12.5%, up from 7.9% in the prior period.2019. The increase in operating income, net of tax, excluding notable itemsdecrease was driven by higher investment income. Investment income increased due to growth in our Retirement Services invested assets of $6.4 billion and higher short-term interest rates resulting in increased floating rate investment income.

Notable items for the quarter included unlocking, out of period actuarial adjustments of $13 million and a $17 million loss from our German operation compared to a loss of $7 million in the prior year. Our annual unlocking of assumptions resulted in an increase to other liability costs of $20 million compared to an increase of $158 million in prior year. The tax effect of these notable items for the quarter was $1 million compared to $11 million in the prior year. Additionally, in 2016 we recognized a $102 million deferred tax valuation allowance release.

Our consolidated net investment earned rate was 4.45% in three months ended September 30, 2017, an increase from 4.40% in the prior period, primarily attributed to the strong performance from our fixed income and other investment portfolios. Our alternative investment net investment earned rate was 9.07% in three months ended September 30, 2017, a decrease from 9.56% in the prior period as the prior year benefited from higher credit fund income due to more favorable credit spread tightening which was partially offset by decline in the market value of public equity positions in one of our funds in the prior year.

Revenues

Total revenue increased by $201 million to $1.5 billion in the three months ended September 30, 2017 from $1.3 billion in the prior period. The increase was driven by favorable changes in investment related gains and losses, an increasea decrease in premiums, and a decrease in net investment income and a favorable change in VIE investment related gains and losses.income.


Investment related gains and losses increaseddecreased by $93 million$5.3 billion to $473 million$(3.6) billion in the three months ended September 30, 20172020 from $380 million$1.8 billion in the prior period,year, primarily due to the change in fair value of FIA hedging derivatives, partially offset by the change in assumedfair value of reinsurance embedded derivatives.assets, the provision for credit losses, the change in fair value of trading securities and a decrease in equity securities reflecting the decline in financial markets. The change in fair value of FIA hedging derivatives increased by $167 milliondecreased $2.4 billion driven by the unfavorable 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 experienced a 4.0% increasedecreased 20.0% in 2017,2020, compared to an 3.3% increase of 13.1% in 2016.2019. The assumed reinsurance embedded derivatives are based on the change in the fair value of the underlying investments held in modco and funds withheld portfolios (see Note 3 - Derivative Instruments to the condensed consolidated financial statements) whichreinsurance assets decreased by $61 million$2.3 billion primarily driven by the change in reinsurance embedded derivativesthe value of the underlying assets related to credit spreads widening, partially offset by the decrease in U.S. Treasury rates. The unfavorable provision for credit losses of $284 million was primarily a result of the forecasted economic downturn from the spread of COVID-19. The unfavorable change in fair value of trading securities of$279 million was comprised primarily of a decrease in AmerUs Closed Block assets of $97 million, CLO equity securities, non-redeemable preferred stock and other trading securities primarily due to credit spreads widening, partially offset by the decrease in U.S. Treasury rates.

Premiums decreased by $860 million to $1.1 billion in 2020from$2.0 billion in the three months ended September 30, 2017,prior year, driven by lower PRT premiums compared to prior year.

Net investment income decreased by $337 million to $745 million in 2020from$1.1 billion in the prior year, primarily driven by an unrealized loss on our investment in Apollo of $297 million due to the decrease in share price and an increase in the liquidity discount, alternative investment losses, higher investment management fees due primarily to increased invested assets compared to the prior year benefiting from both credit spreads tightening and a decrease in U.S. treasury rates.

Net investment income increased by $77 million to $820 million in the three months ended September 30, 2017 from $743 million in the prior period, primarily driven by an increase in fixed income and other investment income. The increase in fixed income and other investment income was driven by earnings from growth in our investment portfolio attributed to a strong increase in deposits over the prior twelve months and higher short-term interest rates resulting in higherlower floating rate investment income.

VIE investment related gains and losses increased by $33 million to $17 million in the three months ended September 30, 2017 from $(16) million in the prior period, primarily driven by losses in the prior year resulting from a decline in market value of public equity positions in one of our funds, partially offset by the prior year benefiting from higher credit fund income due to more favorable credit spread tightening.the lower interest rate environment.


Benefits and Expenses


Total benefitsBenefits and expenses decreased by $55$4.4 billion to $(167) million to $1.2in 2020 from $4.3 billion in the three months ended September 30, 2017 from $1.2 billion in the prior period.2019. The decrease was driven by a decrease in interest sensitive contract benefits, a decrease in future policy and other policy benefits and a decrease in DAC, DSI and VOBA amortization and lower policy and other operating expenses, offset by an increase in interest sensitive contract benefits.amortization.


Future policy and other policy benefits decreased by $132 million to $259 million in the three months ended September 30, 2017 from $391 million in the prior period, primarily attributable to a favorable change in the rider reserves and a favorable change in AmerUs Closed Block fair value liability. The favorable change in rider reserves of $126 million was primarily driven by a decrease of $84 million related to our annual unlocking of assumptions and an unfavorable impact from higher than expected persistency in the prior year, partially offset by the growth in the block of business. Unlocking in the third quarter of 2017 was unfavorable $49 million related to impacts of the net investment earned rate and mortality assumptions, while 2016 unlocking impact was unfavorable by $133 million. The favorable change in the AmerUs Closed Block fair value liability of $33 million was primarily driven by higher earnings on the block of business compared to prior year. We have elected the fair value option to value the AmerUs Closed Block whereby the fair value of liabilities is the sum of the fair value of the assets plus our cost of capital in the AmerUs Closed Block.


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


DAC, DSI and VOBA amortization decreased by $40 million to $93 million for the three months ended September 30, 2017 from $133 million in the prior period, primarily attributable to the $54 million favorable change in unlocking of assumptions of our DAC, DSI and VOBA assets, partially offset by growth in the FIA block increasing our DAC asset. Unlocking in the third quarter of 2017 was favorable $16 million primarily related to impacts of the net investment earned rate and mortality assumptions, while the 2016 unlocking impact was unfavorable by $38 million.

Policy and other operating expenses decreased by $22 million to $158 million in the three months ended September 30, 2017 from $180 million in the prior period, primarily due to a decrease in stock compensation expense of $39 million driven by the expense resulting from the accelerated vesting of shares in the prior year, partially offset by higher integration, restructuring and other non-operating expenses mainly due to Germany restructuring costs.

Interest sensitive contract benefits increaseddecreased by $130 million$2.8 billion to $621 million$(1.3) billion in the three months ended September 30, 20172020 from $491 million$1.5 billion in the prior period, primarily due to the change2019, driven by a decrease in FIA fair value embedded derivatives.derivatives of $2.8 billion. The change in the FIA fair value embedded derivatives increased by $138 million,was primarily driven bydue the performance of the equity indices to which our FIA policies are linked, primarily the S&P 500 index, which experienced a 4.0% increasedecrease of 20.0% in 2017,2020, compared to a 3.3%an increase of 13.1% in the prior period. Additionally,2019, as well as a favorable change in model and assumption impactsdiscount rates used in our embedded derivative calculations as the current year 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 prior yearyear. The change in 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 decreased by $639 million to $(403) million in 2020 from $236 million in 2019, primarily due to the unfavorable change in investment related gains and losses as a result of an 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 FIA block attributed to the increase.of business.


Taxes


Income tax expense increased(benefit) decreased by $108$198 million to $20$(166) million in 2020 from $32 million in the three months ended September 30, 2017 from a2019. The income tax benefit of $88 million in the prior period. The increasefor 2020 was primarily driven by a releaselower income before tax resulting from the unfavorable change in reinsurance embedded derivatives and unrealized losses on our investment in Apollo.

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Table of a deferred tax valuation allowanceContents

Item 2. Management’s Discussion and Analysis of $102 million in third quarterFinancial Condition and Results of 2016 and the increase in income subject to U.S. income taxes of $20 million, or approximately $7 million of tax based on a 35% U.S. statutory rate. During 2016, we identified a tax plan that, when implemented, will allow us to use a significant portion of the U.S. non-life insurance companies’ net operating losses, which are scheduled to expire beginning in 2022.Operations




Our effective tax rates were 7% in three months ended September 30, 2017 and (232)%rate in the prior period.first quarter of 2020 was (12%) and 4% in 2019. Our effective tax rates may vary year-to-yearperiod to period depending upon the relationship of income and loss subject to tax compared to consolidated income and loss before income taxes.


Nine Months Ended September 30, 2017 ComparedNoncontrolling Interest

Noncontrolling interest decreased by $169 million to the Nine Months Ended September 30, 2016

In this section, references to 2017 refer to the nine months ended September 30, 2017 and references to 2016 refer to the nine months ended September 30, 2016.

Net Income Available to AHL Shareholders

Net income available to AHL shareholders increased by $580$(169) million or 144%, to $984 million for the nine months ended September 30, 2017 in 2020 from $404$0 million in the prior period. ROE and ROE excluding AOCI increased to 16.9% and 18.7%, respectively, from 8.7% and 9.2% in 2016, respectively. The increase in net income available to AHL shareholders was2019, driven by a $329 million increasenet loss related to noncontrolling interests in operating income, net of tax, a favorable net change in FIA derivatives and favorable investment gain and losses. The net change in FIA derivatives was primarily driven by the performance of the equity indices to which our FIA policies are linked, year-over-year change in discount rates and a favorable change in model and assumption impacts compared to the prior year. Investment gains and losses was favorable primarily driven by the higher realized gains onACRA following the sale of securities and favorable changea 67% interest in derivative and foreign currency gains and losses.

Operating Income, Net of Tax

Operating income, net of tax increased by $329 million, or 73%,ACRA to $777 million for the nine months ended September 30, 2017 from $448 million in theADIP on October 1, 2019. There was no significant noncontrolling interest prior period. Operating ROE excluding AOCI was 14.8%, up from 10.2% in the prior period. The increase in operating income, net of tax, was primarily driven by a strong increase in investment income and lower other liability costs. Additionally, in 2016 we recognized a $102 million deferred tax valuation allowance release. The increase in investment income was primarily due to growth in our Retirement Services invested assets of $6.4 billion, higher short-term interest rates resulting in higher floating rate investment income, proceeds from a bond previously written down and higher alternative investment income, partially offset by lower bond call income. The increase in alternative investment income was primarily driven by higher income from our investment in AmeriHome, higher real estate income and a decline in the market value of public equity positions in one of our funds in the prior year, partially offset by lower credit fund income. Cost of crediting was higher by $40 million due to growth in our deferred annuity block of business which was partially offset by recent rate actions and lower option costs. The lower other liability costs were primarily due to lower DAC, DSI, VOBA and rider reserves attributed to unlocking and favorable impacts related to improved equity market performance, partially offset by growth in the block of business and higher gross profits. Our annual unlocking of assumptions resulted in an increase to other liability costs of $20 million compared to an increase of $158 million in prior year.

Our consolidated net investment earned rate was 4.55% in the nine months ended September 30, 2017, an increase from 4.21% in the prior period, primarily attributed to strong performance from our fixed income and other investment portfolios and our alternative investment portfolio. Our alternative investment net investment earned rate was 9.92% in the nine months ended September 30, 2017, an increase from 5.51% in the prior period, primarily attributed to the strong performance of AmeriHome, higher real estate income and lower returns in the prior year dueACRA sale to a decline in the market value of public equity positions in one of our funds, partially offset by lower credit fund income.ADIP.



Preferred Stock Dividends
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations


Revenues

Total revenuePreferred stock dividends increased by $1.9 billion to $4.9 billion in the nine months ended September 30, 2017 from $3.0 billion in the prior period. The increase was driven by favorable changes in investment related gains and losses, an increase in premiums, an increase in net investment income and an increase in VIE investment related gains and losses.

Investment related gains and losses increased by $1.1 billion to $1.6 billion in the nine months ended September 30, 2017 from $523 million in the prior period, primarily due to the change in fair value of FIA hedging derivatives, the change in assumed reinsurance embedded derivatives, higher realized gains on AFS securities and other derivative and foreign currency gains and losses. The change in fair value of FIA hedging derivatives increased by $1.0 billion driven by the 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 experienced a 12.5% increase in 2017, compared to an 6.1% increase in 2016. The assumed reinsurance embedded derivatives increased by $31 million driven by growth in the reinsurance block, partially offset by the prior year benefiting from both credit spreads tightening and a decrease in U.S. treasury rates. The increase in investment gains and losses was partially offset by the change in unrealized gains and losses on trading securities which was comprised of an unfavorable decrease in AmerUs Closed Block assets of $77 million related to higher unrealized gains in the prior year due to the decrease in U.S. treasury rates partially offset by $18 million of gains related to unit-linked investments.

Premiums increased by $298 million to $503$18 million in the nine months ended September 30, 20172020 from $205$0 million in the prior period,2019, driven by approximately $320 millionour issuance of premiums from our inaugural PRT transaction.preferred stock in in June and September of 2019.


Net investment income increased by $290 million to $2.4 billion in the nine months ended September 30, 2017 from $2.1 billion in the prior period, primarily driven by a strong increase in fixed income and other investment income and an increase in alternative investment income. The increase in fixed income and other investment income was driven by earnings from growth in our investment portfolio attributed to a strong increase in deposits over the prior twelve months, higher short-term interest rates resulting in higher floating rate investment income and proceeds on the recovery of a bond previously written down, partially offset by lower bond call income. The increase in alternative investment income was primarily due to the strong performance in AmeriHome, driven by increases in its overall balance sheet size, origination volumes and retained mortgage servicing rights, as well as an increase in real estate income.

VIE investment related gains and losses increased by $99 million to $29 million in the nine months ended September 30, 2017 from $(70) million in the prior period, primarily driven by losses in the prior year resulting from a decline in market value of public equity positions in one of our funds, partially offset by the prior year benefiting from a favorable increase in the fair value of certain underlying investments in three of our consolidated VIEs, reflecting the removal of liquidity discounts related to marketability assumptions used in the determination of the fair value of certain of the investments.

Benefits and Expenses

Total benefits and expenses increased by $1.1 billion to $3.8 billion in the nine months ended September 30, 2017 from $2.7 billion in the prior period. The increase was driven by an unfavorable change in interest sensitive contract benefits, an increase in future policy and other policy benefits, an increase in DAC, DSI and VOBA amortization, an increase in dividends payable to policyholders and higher policy and other operating expenses.

Interest sensitive contract benefits increased by $785 million to $1.9 billion in the nine months ended September 30, 2017 from $1.1 billion in the prior period, primarily due to the change in FIA fair value embedded derivatives and higher interest credited to policyholders related to strong growth in deposits. The change in FIA fair value embedded derivatives increased by $728 million primarily driven by the performance of the equity indices to which our FIA policies are linked, primarily the S&P 500 index, which experienced a 12.5% increase in 2017, compared to a 6.1% increase in the prior period. Additionally, the FIA fair value embedded derivatives were impacted by a favorable change in discount rates used in our embedded derivative calculations as the decrease in the prior year were more favorable than the decrease in 2017, as well as a favorable change in model and assumption impacts compared to the prior year.

Future policy and other policy benefits increased by $178 million to $1.1 billion in the nine months ended September 30, 2017 from $873 million in the prior period, primarily attributable to approximately $320 million of policyholder obligations from our inaugural PRT transaction, partially offset by a favorable change in AmerUs Closed Block fair value liability and a favorable change in the rider reserves. The favorable change in the AmerUs Closed Block fair value liability of $120 million was primarily driven by higher unrealized gains in the prior year primarily due to the decrease in U.S. treasury rates and earnings on the block of business. We have elected the fair value option to value the AmerUs Closed Block whereby the fair value of liabilities is the sum of the fair value of the assets plus our cost of capital in the AmerUs Closed Block. The favorable change in rider reserves of $65 million was primarily driven by a decrease related to our annual unlocking of assumptions of $84 million and favorable impacts related to improved equity market performance compared to the prior period resulting in increased index credits to policyholder accounts, which lowered the amount needed to fund the rider reserve. The favorable change in rider reserves was partially offset by growth in the block of business, higher gross profits and an increase related to the net change in FIA derivatives. Unlocking in 2017 was unfavorable $49 million related to impacts of the net investment earned rate and mortality assumptions, while 2016 unlocking impacts were unfavorable by $133 million.


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


DAC, DSI and VOBA amortization increased by $64 million to $293 million in the nine months ended September 30, 2017 from $229 million in the prior period, primarily due to the favorable net change in FIA derivatives and growth in the DAC asset balance related to block growth, partially offset by $54 million favorable change in unlocking of assumptions as well as favorable impacts related to improved equity market performance. Unlocking in 2017 was favorable $16 million primarily related to impacts of the net investment earned rate and mortality assumptions, while the 2016 unlocking impacts were unfavorable by $38 million.

Dividends to policyholders increased by $64 million to $129 million in the nine months ended September 30, 2017 from $65 million in the prior period, primarily attributed to higher Germany dividends to policyholders due to a timing difference in the recognition of participating income under US GAAP compared to German GAAP.

Policy and other operating expenses increased by $32 million to $479 million in 2017 from $447 million in 2016, primarily attributed to higher integration, restructuring and other non-operating expenses mainly due to Germany restructuring costs, partially offset by lower stock compensation due to the expense resulting from the accelerated vesting of shares in the prior year. The remaining increase was primarily attributed to growing our business and expanding our distribution channels.

Taxes    

Income tax expense increased by $126 million to $53 million in nine months ended September 30, 2017 from a benefit of $73 million in the prior period. The increase was primarily driven by a release of a deferred tax valuation allowance of $102 million in third quarter of 2016 and the increase in income subject to U.S. income taxes of $87 million, or approximately $31 million of tax based on a 35% U.S. statutory rate, partially offset by a Germany income tax benefit in 2017.

Our effective tax rates were 5% in nine months ended September 30, 2017 and (22)% in the prior period. Our effective tax rates may vary year-to-year depending upon the relationship of income and loss subject to tax compared to consolidated income and loss before income taxes.


Results of Operations by Segment


The following summarizes our adjusted operating income (loss) available to common shareholders by segment:
 Three months ended March 31,
(In millions, except percentages)2020 2019
Net income (loss) available to AHL common shareholders$(1,065) $708
    
Non-operating adjustments   
Realized gains (losses) on sale of AFS securities12
 12
Unrealized, allowances and other investment gains (losses)(369) 29
Change in fair value of reinsurance assets(1,277) 616
Offsets to investment gains (losses)495
 (199)
Investment gains (losses), net of offsets(1,139) 458
Change in fair values of derivatives and embedded derivatives – FIAs, net of offsets65
 (27)
Integration, restructuring and other non-operating expenses(4) (1)
Stock compensation expense(10) (3)
Income tax (expense) benefit – non-operating131
 (6)
Less: Total non-operating adjustments(957) 421
Adjusted operating income (loss) available to common shareholders$(108) $287
    
Adjusted operating income (loss) available to common shareholders by segment   
Retirement Services$204
 $286
Corporate and Other(312) 1
Adjusted operating income (loss) available to common shareholders$(108) $287
    
Adjusted operating ROE(4.4)% 12.8%
Retirement Services adjusted operating ROE10.6 % 14.4%


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


Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

Adjusted Operating Income (Loss) Available to Common Shareholders

Adjusted operating income (loss) available to common shareholders decreased by $395 million, or 138%, to $(108) million in 2020 from $287 million in 2019. Adjusted operating ROE was (4.4)%, down from 12.8% in 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 decrease in adjusted operating income (loss) available to common shareholders was primarily driven by segment:a decrease in our Corporate and Other segment of $313 million, as well as a decrease in our Retirement Services segment of $82 million.

 Three months ended September 30, Nine months ended September 30,
(In millions, except percentages)2017 2016 2017 2016
Operating income, net of tax by segment       
Retirement Services$244
 $142
 $786
 $535
Corporate and Other(13) (25) (9) (87)
Operating income, net of tax$231
 $117
 $777
 $448
        
Retirement Services operating ROE excluding AOCI18.5% 13.0% 21.3% 16.8%
Our consolidated net investment earned rate was 3.87% in 2020, a decrease from 4.28% in 2019, primarily due to the unfavorable performance in our alternative portfolio as well as less favorable performance of our fixed and other investment portfolio. Alternative net investment earned rate was(2.58)% in 2020, a decrease from 4.36% in 2019, driven by a decrease in the market value of the equity position in OneMain as well as decreases in credit fund and MidCap returns. Fixed and other net investment earned rate was 4.20% in 2020, a decrease from 4.28% in 2019, driven by lower floating rate investment income and higher investment management fees due primarily to increased invested assets compared to the prior year, partially offset by higher bond call income and mortgage prepayments.


Non-operating Adjustments

Non-operating adjustments decreased by $1.4 billion to $(957) million in 2020 from $421 million in 2019. The decrease 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 a decrease in U.S. Treasury rates. The change in provision for credit loss in 2020 of $284 million was primarily a result of the forecasted economic downturn from the spread of COVID-19. Net FIA derivatives were favorable by $92 million primarily due to the favorable change in discount rates used in our embedded derivative calculations, partially offset by the unfavorable performance of the equity indices to which our FIA policies are linked, primarily the S&P 500 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, FIAs, 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.


Three Months Ended September 30, 2017March 31, 2020 Compared to the Three Months Ended September 30, 2016March 31, 2019


Adjusted Operating Income Net of TaxAvailable to Common Shareholders


OperatingAdjusted operating income net of tax increasedavailable to common shareholders decreased by $102$82 million, or 72%29%, to $244$204 million in the three months ended September 30, 2017,2020, from $142$286 million in the prior period. Operating income, net of tax, excluding notable items2019. Adjusted operating ROE was $250 million, an increase of $63 million, or 34%10.6%, over the prior year. Operating ROE excluding AOCI was 18.5%, updown from 13.0%14.4% in the prior period. The increasedecrease inadjusted operating income netavailable to common shareholders was driven by higher cost of tax excluding notable items was primarily drivenfunds, partially offset by higher fixednet investment earnings. Cost of funds were $87 million higher primarily related to unfavorable rider reserves and other investment income,DAC amortization related to unfavorable impacts from equity market performance and higher k-factors, partially offset by lower alternative investment income.

gross profits. Net investment incomeearnings increased $57$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 fixedbond call income and other investment income,mortgage prepayments, partially offset by lower alternative investment income. Fixed income and other investment income increased primarily attributed to earnings from growth in invested assets of $6.4 billion and higher short-term interest rates resulting in higher floating rate investment income. Alternativeincome, alternative investment income decreasedlosses and higher investment management fees due primarily dueto increased invested assets compared to the prior year benefiting from higher credit fund income due to more favorable credit spread tightening.year.


Net Investment Spread
 Three months ended March 31,
 2020 2019
Net investment earned rate4.04% 4.21%
Cost of funds3.01% 2.85%
Net investment spread1.03% 1.36%


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





Notable items forNet investment spread, which measures the quarter included unlocking and outspread on our investment performance less the total cost of period actuarial adjustments of $13 million. Our annual unlocking of assumptions resultedour liabilities, decreased 33 basis points to 1.03% in an increase2020 from 1.36% in 2019. Net investment earned rate decreased due to other liability costs of $20 million compared to an increase of $158 milliona decline in prior year. Unlocking in the third quarter of 2017 related to impacts of thealternative net investment earned rate and mortality assumptions, while 2016 relatedfixed and other net investment earned rate.The alternative net investments earned rate decreased in 2020 to 0.56% from 2.13% in 2019, driven by lower credit fund 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 projectedcurrent interest rate environment. The fixed and other net investment earned rate decreased in 2020 to 4.20% from 4.28% in 2019, primarily attributed to lower floating rate income and higher investment management fees due primarily to increased invested assets compared to the prior year, partially offset by higher bond call income and mortgage prepayments.

Cost of funds increased by 16 basis points to 3.01% in 2020, from 2.85% in 2019, primarily driven by unfavorable rider reserves and DAC amortization due to unfavorable impacts from equity market performance and higher k-factors, partially offset by lower gross profits 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 lower projected lapse rate assumptions. The tax effect of these notable items for the quarter was $1 million compared to $11 milliona decrease in the prior year. Additionally, in 2016 we recognized a $102 million deferred tax valuation allowance release.PRT rates.


Investment Margin on Deferred Annuities
Three months ended September 30,Three months ended March 31,
2017 20162020 2019
Net investment earned rate4.64% 4.75%4.04% 4.21%
Cost of crediting1.88% 1.96%
Cost of crediting on deferred annuities1.91% 1.98%
Investment margin on deferred annuities2.76% 2.79%2.13% 2.23%


Investment margin on deferred annuities, which measures our investment performance less the cost of crediting for our deferred annuities, decreased by 310 basis points to 2.76%2.13% in the three months ended September 30, 2017,2020, from 2.79%2.23% in the prior period. The2019, driven by a decrease in the investment margin on deferred annuities was driven by the decrease in net investment earned rate of 11 basis points, partially offset by a favorable decrease in cost of crediting of 8 basis points.

Net investment earned rate decreased due to the decrease in alternative investment net investment earned rate, partially offset by the increase in fixed income and other investment income earned rate. The fixed income and other net investment earned rate increaseda decrease in the three months ended September 30, 2017, to 4.44% from 4.36% in the prior period primarily attributed to higher short-term interest rates resulting in higher floating rate investment income and higher cash balances during the three months ended September 30, 2016. The alternative investments net investments earned rate decreased to 9.79% in the three months ended September 30, 2017, from 14.26% in the prior period primarily attributed to the prior year benefiting from higher credit fund income due to more favorable credit spread tightening. The net investment earned rates continue to reflect impacts of holding approximately 28% of total invested assets in floating rate investments and 2% of invested assets in cash holdings to opportunistically capitalize on market dislocations.

Costcost of crediting on deferred annuities decreased by 8 basis points to 1.88% in the three months ended September 30, 2017, from 1.96% in the prior period. The decrease in cost of crediting was driven by recent rate actions and lower option costs. Weyear 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.


Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016

Operating Income, Net of Tax

Operating income, net of tax increased by $251 million, or 47%, to $786 million in the nine months ended September 30, 2017, from $535 million in the prior period. Operating ROE excluding AOCI was 21.3%, up from 16.8% in the prior period. The increase in operating income, net of tax, was primarily driven by an increase in net investment income and lower other liability costs, partially offset by higher cost of crediting.

Net investment income increased $257 million driven primarily by earnings from growth in invested assets of $6.4 billion attributed to a strong increase in deposits over the prior twelve months, higher short-term interest rates resulting in higher floating rate investment income and proceeds on the recovery of a bond previously written down, partially offset by lower bond call income.

Other liability costs decreased $139 million driven by unlocking and favorable impacts related to improved equity market performance, partially offset by growth in the block of business and higher gross profits. Our annual unlocking of assumptions resulted in an increase to other liability costs of $20 million compared to an increase of $158 million in prior year. Unlocking in 2017 related to impacts of the net investment earned rate and mortality assumptions, while 2016 related to a decrease in the projected net investment earned rates and lower projected lapse rate assumptions. Additionally, in 2016 we recognized a $102 million deferred tax valuation allowance release.

Cost of crediting increased $40 million driven by growth in our deferred annuity block of business which was partially offset by recent rate actions and lower option costs.


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


Investment Margin on Deferred Annuities
 Nine months ended September 30,
 2017 2016
Net investment earned rate4.75% 4.64%
Cost of crediting1.89% 1.97%
Investment margin on deferred annuities2.86% 2.67%

Investment margin on deferred annuities increased by 19 basis points to 2.86% in nine months ended September 30, 2017, from 2.67% in the prior period. The increase in the investment margin on deferred annuities was driven by the increase in net investment earned rate of 11 basis points, showing strength in our investment portfolio, and a favorable decrease in cost of crediting of 8 basis points.

Net investment earned rate increased due to the increase in fixed income and other investment income earned rate. The fixed income and other net investment earned rate increased in the nine months ended September 30, 2017, to 4.50% from 4.38% in the prior period primarily attributed to higher short-term interest rates resulting in higher floating rate investment income, higher cash balances during the prior year and the proceeds from a bond previously written down, partially offset by lower bond call income. The alternative investments net investments earned rate remained consistent with prior year, 10.86% compared to 10.85% in the prior period, as higher income from our investment in AmeriHome was offset by lower credit fund income. The net investment earned rates continue to reflect impacts of holding approximately 28% of total invested assets in floating rate investments and 2% of invested assets in cash holdings to opportunistically capitalize on market dislocations.

Cost of crediting on deferred annuities decreased by 8 basis points to 1.89% in nine months ended September 30, 2017, from 1.97% in the prior period. The decrease in cost of crediting was driven by recent rate actions and lower option costs. 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.


Corporate and Other


Corporate and Other includes certain other operations related to our corporate activities and our German operations, which is primarily comprised of participating long-duration savings products. In addition to our German operations, included in Corporate and Other aresuch 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 Corporate and Other,addition, we also hold capital in excess of the level of capital we hold in Retirement Services to support our operating strategy.


Adjusted Operating Income (Loss), Net of Tax Available to Common Shareholders


OperatingAdjusted operating income (loss) available to common shareholders decreased by $313 million to $(312) million in 2020, from $1 million in 2019. The decrease in adjusted operating income (loss) available to common shareholders was primarily driven by a $239 million loss on the strategic investment in Apollo, net of tax, decreased by $12 million to $13 million in the three months ended September 30, 2017, from $25 million in the prior period. In the third quarter 2017, our German operation had an operating loss of $17 million, primarily driven by policyholder dividends related to a timing difference in recognition of participating income under U.S. GAAP compared to German GAAP. Operating income, net of tax excluding this notable item was $4 million, compared to a loss of $18 million in the prior year, excluding $7 million operating loss from our German operation. The increase in operating income, net of tax excluding this item was driven by alternative investment losses in the prior year resulting from attributed to a declinedecrease in the market value of publicthe equity positionsposition in one of our funds, partially offset by the prior year benefiting from higherOneMain and lower credit fund income duerelated to more favorable credit spread tightening.CLO equity declines, as well as preferred stock dividends.


Operating loss, net of tax decreased by $78 million to $9 million in the nine months ended September 30, 2017, from $87 million in the prior period. The decrease in operating loss, net of tax, was mainly driven by alternative investment losses in the prior year resulting from a decline in the market value of public equity positions in one of our funds, a decline in energy markets in the prior year, and higher CMBS fund income in the prior year. The higher alternative investment income was partially offset by a $28 million operating loss from our German operations, a decline of $27 million from the prior year, primarily driven by unfavorable policyholder dividends due to timing difference in the recognition of participating income under US GAAP compared to German GAAP.




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


Consolidated Investment Portfolio
 
We had consolidated investments, including related parties, of $81.2$122.0 billion and $72.4$130.6 billion as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. Our investment strategy seeks to achieve sustainable risk-adjusted returns through the disciplined managingmanagement of our investment characteristics withportfolio against our long-duration liabilities, andcoupled 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. The majoritySubstantially all of our investment portfolio excluding investments of our German subsidiary, areis managed by AAM, an indirect subsidiary of Apollo, founded for the express purpose of managing Athene’s portfolio. AAMwhich 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 utilize 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%5–10% of our portfolio to alternative investments where we primarily focus on fixed income-like, cash flow-based investments.



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


Our net invested assets, which are those whichthat directly back our policyholdernet reserve liabilities as well as surplus assets, (as previously discussed in Key Operating and Non-GAAP Measures), were $78.8$121.2 billion and $71.8$117.5 billion as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. AAM manages, directly and indirectly, approximately $73.1 billion and AAME and affiliates sub-advises approximately $5.4 billion, which in the aggregate constitute the vast majority of our investment portfolio as of September 30, 2017, comprising a diversified portfolio of fixed maturity and other securities. Through our relationship with Apollo, AAM has identified unique investment opportunities for us. 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'sissuer’s ratings. In addition, our investment portfolio is constrained by its scenario-based capital ratio limit and its stressed liquidity limit.


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



The following table presents the carrying values of our total investments and investments in related parties:
September 30, 2017 December 31, 2016March 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       $65,671
 53.9% $71,374
 54.7%
Fixed maturity securities$58,516
 72.2% $52,033
 71.8%
Equity securities318
 0.4% 353
 0.5%
Trading securities, at fair value2,709
 3.3% 2,581
 3.6%1,979
 1.6% 2,070
 1.6%
Equity securities, at fair value206
 0.2% 247
 0.2%
Mortgage loans, net of allowances6,445
 7.9% 5,470
 7.5%14,395
 11.8% 14,306
 11.0%
Investment funds747
 0.9% 689
 1.0%740
 0.6% 750
 0.6%
Policy loans571
 0.7% 602
 0.8%403
 0.3% 417
 0.3%
Funds withheld at interest6,964
 8.6% 6,538
 9.0%13,716
 11.3% 15,181
 11.6%
Derivative assets1,982
 2.4% 1,370
 1.9%1,610
 1.3% 2,888
 2.2%
Real estate621
 0.8% 542
 0.7%
Short-term investments108
 0.1% 189
 0.3%583
 0.5% 596
 0.5%
Other investments77
 0.1% 81
 0.1%172
 0.1% 158
 0.1%
Total investments79,058
 97.4% 70,448
 97.2%99,475
 81.6% 107,987
 82.8%
Investment in related parties       
AFS securities at fair value       
Fixed maturity securities409
 0.5% 335
 0.5%
Equity securities—
 —% 20
 —%
Investments in related parties       
AFS securities, at fair value3,546
 2.9% 3,804
 2.9%
Trading securities, at fair value140
 0.2% 195
 0.3%718
 0.6% 785
 0.6%
Equity securities, at fair value49
 —% 64
 0.0%
Mortgage loans, net of allowances623
 0.5% 653
 0.5%
Investment funds1,330
 1.6% 1,198
 1.7%4,631
 3.8% 3,550
 2.7%
Short-term investments8
 —% —
 —%
Other investments238
 0.3% 237
 0.3%
Funds withheld at interest12,452
 10.2% 13,220
 10.1%
Other investments, net of allowances475
 0.4% 487
 0.4%
Total related party investments2,125
 2.6% 1,985
 2.8%22,494
 18.4% 22,563
 17.2%
Total investments, including related party$81,183
 100.0% $72,433
 100.0%
Total investments including related party$121,969
 100.0% $130,550
 100.0%


The increasedecrease in our total investments, including related parties,party, as of September 30, 2017March 31, 2020 of $8.8$8.6 billion compared to December 31, 20162019 was mainly driven by strong growth in deposits, unrealized gainslosses on AFS securities including related parties,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 $3.9 billion in excess of liability outflows of $2.7 billion as well as an increase in derivative assets and reinvestmentinvestment funds driven by our investment in Apollo of earnings. The strong growth in deposits was attributed to $8.0 billion of organic growth for the nine months ended September 30, 2017, partially offset by liability outflows. Unrealized gains on AFS securities including related parties were $1.5 billion attributed to credit spreads tightening and U.S. treasury rates declining in the nine months ended September 30, 2017. Derivative assets increased by $612 million primarily attributed to an increase in equity markets during 2017 as the S&P 500 index increased by 12.5%.$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 other asset-backed securities (ABS).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 assetsasset funds, credit funds and private equity funds and hedge funds. We currently targethave a strong preference for assets that have some or all of the following characteristics, among others: (1) investments that are fixed-income-likeconstitute a direct investment or income producing and that have embedded downside protection. We also preferan investment funds that havein a fund with a high degree of co-investment, haveco-investment; (2) investments with credit- or debt-like characteristics (for example, a statedstipulated maturity valueand par value), or havealternatively, investments with reduced volatility versuswhen compared to pure equity. A majority of ourequity; or (3) investments in traditional private equity investments and hedge funds are a result of the acquisition of Aviva USA, which had existing private equity and hedge fund investment portfolios at the time of acquisition. We also acquired certain investment funds from AAA Investor (which are classified as private equity investments and consolidated VIEs) as a one-time capital contribution by our largest shareholder in advance of the Aviva USA acquisition. With respect to investment fund portfolios that we receive in these transactions, we actively reinvest these investments in our preferred credit-oriented strategies over time as we liquidate these holdings.believe have less downside risk.



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Item 2. Management’s Discussion and Analysis of 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.


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



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 fixed maturity securities are carried at fair value on our condensed consolidated balance sheets. Changes in fair value forof our AFS portfolio,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).


The distribution of our AFS securities, including related parties, by type is as follows:
September 30, 2017March 31, 2020
(In millions, except percentages)Cost or Amortized Cost Unrealized Gain Unrealized Loss Fair Value Percent of TotalAmortized Cost Allowance for Credit Losses Unrealized Gains Unrealized Losses Fair Value Percent of Total
Fixed maturity securities         
AFS securities           
U.S. government and agencies$59
 $1
 $(2) $58
 0.1%$37
 $—
 $3
 $—
 $40
 0.1%
U.S. state, municipal and political subdivisions993
 153
 (1) 1,145
 1.9%815
 —
 102
 (8) 909
 1.3%
Foreign governments2,515
 90
 (16) 2,589
 4.4%278
 —
 14
 (1) 291
 0.4%
Corporate33,115
 1,520
 (177) 34,458
 58.2%44,315
 (15) 2,138
 (1,970) 44,468
 64.3%
CLO4,963
 47
 (14) 4,996
 8.4%8,057
 —
 4
 (1,420) 6,641
 9.6%
ABS3,885
 57
 (42) 3,900
 6.6%4,970
 (5) 32
 (434) 4,563
 6.6%
CMBS1,849
 54
 (13) 1,890
 3.2%2,431
 (4) 65
 (201) 2,291
 3.3%
RMBS8,838
 650
 (8) 9,480
 16.0%6,673
 (54) 116
 (267) 6,468
 9.3%
Total fixed maturity securities56,217
 2,572
 (273) 58,516
 98.8%
Equity securities262
 57
 (1)
 318
 0.5%
Total AFS securities56,479
 2,629
 (274) 58,834
 99.3%67,576
 (78) 2,474
 (4,301) 65,671
 94.9%
Fixed maturity securities – related parties         
AFS securities – related party           
Corporate18
 —
 1
 —
 19
 —%
CLO352
 4
 —
 356
 0.6%1,226
 —
 —
 (186) 1,040
 1.5%
ABS52
 1
 —
 53
 0.1%2,760
 —
 1
 (274) 2,487
 3.6%
Total fixed maturity securities – related party404
 5
 —
 409
 0.7%
Equity securities – related party—
 —
 —
 —
 —%
Total AFS securities – related parties404
 5
 —
 409
 0.7%
Total AFS securities, including related parties$56,883
 $2,634
 $(274) $59,243
 100.0%
Total AFS securities – related party4,004
 —
 2
 (460) 3,546
 5.1%
Total AFS securities including related party$71,580
 $(78) $2,476
 $(4,761) $69,217
 100.0%




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




December 31, 2016December 31, 2019
(In millions, except percentages)Cost or Amortized Cost Unrealized Gain Unrealized Loss Fair Value Percent of TotalAmortized Cost Unrealized Gains Unrealized Losses Fair Value Percent of Total
Fixed maturity securities         
AFS securities         
U.S. government and agencies$59
 $1
 $—
 $60
 0.1%$35
 $1
 $—
 $36
 0.0%
U.S. state, municipal and political subdivisions1,024
 117
 (1) 1,140
 2.2%1,322
 220
 (1) 1,541
 2.1%
Foreign governments2,098
 143
 (6) 2,235
 4.2%298
 29
 —
 327
 0.4%
Corporate29,433
 901
 (314) 30,020
 57.0%44,106
 3,332
 (210) 47,228
 62.8%
CLO4,950
 14
 (142) 4,822
 9.1%7,524
 21
 (196) 7,349
 9.8%
ABS2,980
 25
 (69) 2,936
 5.6%5,018
 124
 (24) 5,118
 6.8%
CMBS1,835
 38
 (26) 1,847
 3.5%2,304
 104
 (8) 2,400
 3.2%
RMBS8,731
 313
 (71) 8,973
 17.0%6,872
 513
 (10) 7,375
 9.8%
Total fixed maturity securities51,110
 1,552
 (629) 52,033
 98.7%
Equity securities319
 35
 (1) 353
 0.7%
Total AFS securities51,429
 1,587
 (630) 52,386
 99.4%67,479
 4,344
 (449) 71,374
 94.9%
Fixed maturity securities – related parties         
AFS securities – related party         
Corporate18
 1
 —
 19
 0.0%
CLO284
 1
 (6) 279
 0.5%951
 3
 (18) 936
 1.3%
ABS57
 —
 (1) 56
 0.1%2,814
 37
 (2) 2,849
 3.8%
Total fixed maturity securities – related party341
 1
 (7) 335
 0.6%
Equity securities – related party20
 —
 —
 20
 —%
Total AFS securities - related parties361
 1
 (7) 355
 0.6%
Total AFS securities, including related parties$51,790
 $1,588
 $(637) $52,741
 100.0%
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%


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


Fixed Maturity Securities


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 fixed maturity securities, including related parties, is as follows:
September 30, 2017 December 31, 2016March 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
$11,469
 19.5% $10,645
 20.3%$14,483
 20.9% $14,956
 19.9%
Financial10,955
 18.6% 9,156
 17.5%14,243
 20.6% 15,286
 20.3%
Utilities7,705
 13.1% 6,588
 12.6%10,255
 14.8% 11,217
 14.9%
Communication2,556
 4.3% 2,235
 4.3%2,592
 3.8% 2,739
 3.7%
Transportation1,773
 3.0% 1,396
 2.7%2,914
 4.2% 3,049
 4.1%
Total corporate34,458
 58.5% 30,020
 57.4%44,487
 64.3% 47,247
 62.9%
Other government-related securities              
U.S. state, municipal and political subdivisions1,145
 1.9% 1,140
 2.2%909
 1.3% 1,541
 2.1%
Foreign governments2,589
 4.4% 2,235
 4.3%291
 0.4% 327
 0.4%
U.S. government and agencies58
 0.1% 60
 0.1%40
 0.1% 36
 —%
Total non-structured securities38,250
 64.9% 33,455
 64.0%45,727
 66.1% 49,151
 65.4%
Structured securities              
CLO5,352
 9.1% 5,101
 9.7%7,681
 11.1% 8,285
 11.0%
ABS3,953
 6.7% 2,992
 5.7%7,050
 10.2% 7,967
 10.6%
CMBS1,890
 3.2% 1,847
 3.5%2,291
 3.3% 2,400
 3.2%
RMBS              
Agency93
 0.2% 112
 0.2%10
 —% 3
 —%
Non-agency9,387
 15.9% 8,861
 16.9%6,458
 9.3% 7,372
 9.8%
Total structured securities20,675
 35.1% 18,913
 36.0%23,490
 33.9% 26,027
 34.6%
Total fixed maturity securities, including related parties$58,925
 100.0% $52,368
 100.0%
Total AFS securities including related party$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 total fixed maturityAFS securities, including related parties, was $58.9$69.2 billion and $52.4$75.2 billion as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. The increasedecrease was mainly driven by strongthe change in unrealized losses on AFS securities. The decrease in unrealized losses on AFS securities was 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 on AFS securities including related parties due to credit spreads tightening and U.S. treasury rates declining in the nine months ended September 30, 2017 and reinvestment of earnings.outflows.

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. With importantGenerally, the process for assigning an NAIC designation varies based upon whether a security is considered “filing exempt” (General Designation Process). Subject to certain 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 NRSRO,NAIC designation. For securities considered “filing exempt,” the SVO utilizes thatthe NRSRO rating and assigns an NAIC designation based upon the following system:
NAIC designation NRSRO equivalent rating
1 AAA/AA/A
2 BBB
3 BB
4 B
5 CCC
6 CC and lower



Item 2.    Management's DiscussionAn important exception to the General Designation Process occurs in the case of certain 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'sNAIC’s methodology explicitly considers amortized cost and the likelihood of recovery of our investment,such amount, we view the NAIC'sNAIC’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.


Specific to LBaSS, theThe SVO has developed a ratingsdesignation process and provides instruction on both modeled and non-modeled LBaSS. TheFor 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'sinsurer’s statutory book value price, to utilize in determining the NAIC designation for each modeled LBaSS. For

Prior to January 1, 2019, certain non-modeled LBaSS (including CLOs and ABS, other than RMBS and CLOs) withCMBS) underwent ratings evaluation by an NAIC credit rating provider (CRP). Such securities were subject to an exemption from the initialGeneral Designation 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 remains the same through the life of the security. For non-modeled LBaSS with the initial designationequivalent of NAIC 2 through NAIC 5, the selected vendors are not utilized andthen the NAIC designations are set usingdesignation equivalent was used to select the appropriate breakpoint from a standardized table of breakpoints provided by the SVO for applicationpricing matrix and such breakpoint was applied to the insurer’s statutory bookamortized cost or fair value price. (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 Designation Process.

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


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A summary of our AFS fixed maturity securities, including related parties, by NAIC designation (with our German operations applying NRSRO ratings to map to NAIC designations as noted above) is as follows:
September 30, 2017 December 31, 2016March 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$30,520
 $31,930
 54.2% $29,477
 $30,211
 57.7%$36,068
 $35,844
 51.8% $36,392
 $38,667
 51.4%
222,212
 23,063
 39.1% 18,348
 18,617
 35.5%30,894
 29,432
 42.5% 30,752
 32,336
 43.0%
Total investment grade52,732
 54,993
 93.3% 47,825
 48,828
 93.2%66,962
 65,276
 94.3% 67,144
 71,003
 94.4%
33,014
 3,077
 5.2% 2,871
 2,812
 5.4%3,677
 3,117
 4.5% 3,237
 3,300
 4.4%
4750
 731
 1.3% 647
 622
 1.2%805
 710
 1.0% 740
 740
 1.0%
578
 75
 0.1% 87
 82
 0.2%93
 72
 0.1% 102
 94
 0.1%
647
 49
 0.1% 21
 24
 —%43
 42
 0.1% 39
 41
 0.1%
Total below investment grade3,889
 3,932
 6.7% 3,626
 3,540
 6.8%4,618
 3,941
 5.7% 4,118
 4,175
 5.6%
Total fixed maturity securities, including related parties$56,621
 $58,925
 100.0% $51,451
 $52,368
 100.0%
Total AFS securities including related party$71,580
 $69,217
 100.0% $71,262
 $75,178
 100.0%


Substantially allA significant majority of our AFS fixed maturity portfolio, 93.3%94.3% and 93.2%94.4% as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively, was invested in assets considered investment grade with a NAIC designation of 1 or 2.


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



A summary of our AFS fixed maturity securities, including related parties, by NRSRO ratings is set forth below:
September 30, 2017 December 31, 2016March 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$20,451
 34.7% $18,791
 35.9%$26,515
 38.3% $28,299
 37.7%
BBB21,897
 37.2% 18,002
 34.4%25,198
 36.4% 29,032
 38.6%
Non-rated1
6,671
 11.3% 5,650
 10.8%10,268
 14.8% 10,014
 13.3%
Total investment grade49,019
 83.2% 42,443
 81.1%61,981
 89.5% 67,345
 89.6%
BB3,094
 5.2% 3,286
 6.3%3,193
 4.6% 3,403
 4.5%
B1,278
 2.2% 1,372
 2.6%810
 1.2% 813
 1.1%
CCC2,624
 4.4% 2,374
 4.5%1,722
 2.5% 1,981
 2.6%
CC and lower2,274
 3.9% 2,404
 4.6%918
 1.3% 1,076
 1.4%
Non-rated1
636
 1.1% 489
 0.9%593
 0.9% 560
 0.8%
Total below investment grade9,906
 16.8% 9,925
 18.9%7,236
 10.5% 7,833
 10.4%
Total fixed maturity securities, including related parties$58,925
 100.0% $52,368
 100.0%
Total AFS securities including related party$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 wherewhen 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 ifwhen 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'sMoody’s Investor Service, (Moody's), DBRS, and Kroll Bond Rating Agency, Inc. (KBRA).


The portion of our AFS fixed maturity portfolio that was considered below investment grade based on NRSRO ratings was 16.8%10.5% and 18.9%10.4% as of September 30, 2017March 31, 2020 and December 31, 2016,2019, 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 relates tois 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 September 30, 2017March 31, 2020 and December 31, 2016, the2019, non-rated securities shown above were comprised of 41%64% and 43%61%, respectively, of corporate private placement securities for which we have not sought individual ratings from the NRSROsNRSRO, and 43%21% and 44%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 September 30, 2017March 31, 2020 and December 31, 2016, 91%2019, 95% and 92%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 corporate debt. Thesecash flows from various types of business equipment. Our ABS holdings were $4.0$7.1 billion and $3.0$8.0 billion as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. The decrease in our 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 credit spreads widening, partially offset by the lower interest rate environment. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, our ABS portfolio included approximately $3.6$6.6 billion (92%(94% of the total) and $2.7$7.4 billion (91%(92% of the total), respectively, of securities that are considered investment grade based on NAIC designations, while approximately $3.5$6.6 billion (87%(93% of the total) and $2.5$7.4 billion (85%(92% of the total), respectively, of securities were considered investment grade based on NRSRO ratings.


Collateralized Loan Obligations– We also invest in CLOs which pay principal and interest from cash flows received from underlying corporate loans. These holdings were $5.4$7.7 billion and $5.1$8.3 billion as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively.

A summary of our AFS CLO portfolio, including related parties, by NAIC designations and NRSRO quality ratings is as follows:
 March 31, 2020 December 31, 2019
(In millions, except percentages)Fair Value Percent of Total Fair Value Percent of Total
NAIC designation       
1$4,888
 63.6% $4,626
 55.9%
22,738
 35.7% 3,499
 42.2%
Total investment grade7,626
 99.3% 8,125
 98.1%
348
 0.6% 133
 1.6%
47
 0.1% 20
 0.2%
5—
 —% 7
 0.1%
6—
 —% —
 —%
Total below investment grade55
 0.7% 160
 1.9%
Total AFS CLO including related party$7,681
 100.0% $8,285
 100.0%
        
NRSRO rating agency designation       
AAA/AA/A$4,888
 63.6% $4,626
 55.9%
BBB2,738
 35.7% 3,499
 42.2%
Non-rated—
 —% —
 —%
Total investment grade7,626
 99.3% 8,125
 98.1%
BB48
 0.6% 133
 1.6%
B7
 0.1% 20
 0.2%
CCC—
 —% 7
 0.1%
CC and lower—
 —% —
 —%
Non-rated—
 —% —
 —%
Total below investment grade55
 0.7% 160
 1.9%
Total AFS CLO including related party$7,681
 100.0% $8,285
 100.0%

As of September 30, 2017March 31, 2020 and December 31, 2016,2019, a substantial majority of our AFS CLO portfolio, 99.3% and 98.1%, respectively, was invested in assets considered to be investment grade based upon application of the NAIC’s methodology and 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 March 31, 2020 and December 31, 2019. As of March 31, 2020 and December 31, 2019, our CMBS portfolio included approximately $4.5$2.1 billion (84%(90% of the total) and $4.2$2.1 billion (83%(89% of the total), respectively, of securities that are considered investment grade based on NAIC designations, while approximately $4.6$1.7 billion (86%(74% of the total) and $4.2$1.7 billion (82%(72% of the total), respectively, of securities were considered investment grade based on NRSRO ratings.



Residential Mortgage-backed Securities– A portion of our AFS portfolio is invested in RMBS, which are securities constructed from pools of residential mortgages. These holdings were $6.5 billion and $7.4 billion as of March 31, 2020 and December 31, 2019, respectively.


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




Commercial Mortgage-backed Securities– A portion of our fixed maturity AFS portfolio is invested in CMBS. CMBS are constructed from pools of commercial mortgages. These holdings were $1.9 billion and $1.8 billion as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017 and December 31, 2016, our CMBS portfolio included approximately $1.8 billion (97% of the total) and $1.8 billion (97% of the total), respectively, of securities that are considered investment grade based on NAIC designations while approximately $1.3 billion (68% of the total) and $1.1 billion (60% 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, a portion of our fixed maturity AFS portfolio is invested in RMBS. RMBS are securities constructed from pools of residential mortgages and backed by payments from those pools. Excluding limitations on access to lending and other extraordinary economic conditions, prepayments of principal on the underlying loans can be expected to accelerate with decreases in market interest rates and diminish with increases in interest rates. Our investments in RMBS are primarily non-agency RMBS having a significant focus on assets with attractive entry prices, which in general results in investment grade ratings by the NAIC given the likelihood that we ultimately receive principal and interest distributions in an amount at least equal to our cost. These holdings were $9.5 billion and $9.0 billion as of September 30, 2017 and December 31, 2016, respectively.

A summary of our AFS RMBS portfolio by NAIC designations and NRSRO quality ratings is as follows:
September 30, 2017 December 31, 2016March 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$8,928
 94.2% $8,652
 96.4%$5,915
 91.4% $6,701
 90.9%
2238
 2.5% 140
 1.6%239
 3.7% 330
 4.5%
Total investment grade9,166
 96.7% 8,792
 98.0%6,154
 95.1% 7,031
 95.4%
3187
 2.0% 96
 1.1%258
 4.0% 289
 3.9%
476
 0.8% 29
 0.3%49
 0.8% 52
 0.7%
540
 0.4% 54
 0.6%5
 0.1% 3
 —%
611
 0.1% 2
 —%2
 —% —
 —%
Total below investment grade314
 3.3% 181
 2.0%314
 4.9% 344
 4.6%
Total RMBS$9,480
 100.0% $8,973
 100.0%
Total AFS RMBS$6,468
 100.0% $7,375
 100.0%
              
NRSRO rating agency designation              
AAA/AA/A$273
 2.9% $345
 3.8%$668
 10.3% $715
 9.7%
BBB347
 3.7% 245
 2.7%507
 7.8% 606
 8.2%
Non-rated1
2,974
 31.3% 2,638
 29.5%2,116
 32.7% 2,428
 32.9%
Total investment grade3,594
 37.9% 3,228
 36.0%3,291
 50.8% 3,749
 50.8%
BB450
 4.7% 419
 4.7%266
 4.1% 281
 3.8%
B500
 5.3% 567
 6.3%217
 3.4% 232
 3.2%
CCC2,520
 26.6% 2,280
 25.4%1,643
 25.4% 1,890
 25.6%
CC and lower2,268
 23.9% 2,395
 26.7%918
 14.2% 1,074
 14.6%
Non-rated1
148
 1.6% 84
 0.9%133
 2.1% 149
 2.0%
Total below investment grade5,886
 62.1% 5,745
 64.0%3,177
 49.2% 3,626
 49.2%
Total RMBS$9,480
 100.0% $8,973
 100.0%
Total AFS RMBS$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 RMBS portfolio, 96.7%95.1% and 98.0%95.4% as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively, was invested in assets considered to be investment grade bybased upon an application of the NAIC designations. The NAIC’s methodology with arespect 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 of 1 or 2. As NRSROdesignation. In contrast, our understanding is that in setting ratings, are focusedNRSROs focus on the likelihood of recovery ofrecovering all contractual payments including principal at par instead of the recovery of the amortized cost, the portion considered investment grade by NRSRO rating agencies of 37.9% and 36.0% as of September 30, 2017 and December 31, 2016, respectively, were lower than the NAIC designations. As we focus on acquiring RMBS assets with attractive entry prices, some of these assets have experienced deterioration in credit quality since their issuance and the vast majority of our purchases of such assets occurred after such deterioration at a discount to par value resulting in a statutory book price that yields an investment grade NAIC designation.value. As a result of deterioration in credit quality since issuance, these securities are generally considered below investment grade based on NRSRO methodologies. As a result, we have a significantfundamental difference in approach, as of March 31, 2020 and December 31, 2019, NRSRO characterized 50.8% and 50.8%, respectively, of our 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 number of securities considered below investment grade when evaluated under the NRSRO methodologies when compared with the designations evaluated under the NAIC methodology.lower interest rate environment.


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



Unrealized Losses


Our investments in fixed maturityAFS securities, including related parties, are reported at fair value with changes in fair value recorded in other comprehensive income. Certain of our fixed maturityAFS securities, including related parties, have experienced declines in fair value that we consider temporary in nature. As of September 30, 2017,March 31, 2020, our fixed maturityAFS securities, including related parties,party, had a fair value of $58.9$69.2 billion, which was approximately 4.1% above3.3% below amortized cost of $56.6$71.6 billion. As of December 31, 2016,2019, our fixed maturityAFS securities, including related parties,party, had a fair value of $52.4$75.2 billion, which was approximately 1.8%5.5% above amortized cost of $51.5$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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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations



The following tables reflect the unrealized losses on the AFS fixed maturityportfolio, 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:
September 30, 2017December 31, 2019
(In millions, except percentages)Amortized Cost of Securities with Unrealized Loss Gross Unrealized Loss Fair Value of Securities with Unrealized Loss Fair Value to Amortized Cost Ratio Fair Value of Total AFS Fixed Maturity Securities Percent of Loss to Total AFS Fair Value NAIC DesignationAmortized 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$5,026
 $(127) $4,899
 97.5% $31,930
 (0.4)%$5,672
 $(160) $5,512
 97.2% $38,667
 (0.4)%
23,660
 (85) 3,575
 97.7% 23,063
 (0.4)%5,252
 (223) 5,029
 95.8% 32,336
 (0.7)%
Total investment grade8,686
 (212) 8,474
 97.6% 54,993
 (0.4)%10,924
 (383) 10,541
 96.5% 71,003
 (0.5)%
3921
 (21) 900
 97.7% 3,077
 (0.7)%945
 (41) 904
 95.7% 3,300
 (1.2)%
4389
 (35) 354
 91.0% 731
 (4.8)%338
 (34) 304
 89.9% 740
 (4.6)%
533
 (4) 29
 87.9% 75
 (5.3)%79
 (11) 68
 86.1% 94
 (11.7)%
612
 (1) 11
 91.7% 49
 (2.0)%1
 —
 1
 100.0% 41
 — %
Total below investment grade1,355
 (61) 1,294
 95.5% 3,932
 (1.6)%1,363
 (86) 1,277
 93.7% 4,175
 (2.1)%
Total$10,041
 $(273) $9,768
 97.3% $58,925
 (0.5)%$12,287
 $(469) $11,818
 96.2% $75,178
 (0.6)%

 December 31, 2016
(In millions, except percentages)Amortized Cost of Securities with Unrealized Loss Gross Unrealized Loss Fair Value of Securities with Unrealized Loss Fair Value to Amortized Cost Ratio Fair Value of Total AFS Fixed Maturity Securities Percent of Loss to Total AFS Fair Value NAIC Designation
NAIC designation           
1$8,805
 $(272) $8,533
 96.9% $30,211
 (0.9)%
26,156
 (220) 5,936
 96.4% 18,617
 (1.2)%
Total investment grade14,961
 (492) 14,469
 96.7% 48,828
 (1.0)%
31,769
 (103) 1,666
 94.2% 2,812
 (3.7)%
4329
 (35) 294
 89.4% 622
 (5.6)%
534
 (6) 28
 82.4% 82
 (7.3)%
61
 —
 1
 100.0% 24
 — %
Total below investment grade2,133
 (144) 1,989
 93.2% 3,540
 (4.1)%
Total$17,094
 $(636) $16,458
 96.3% $52,368
 (1.2)%


The gross unrealized losses on AFS fixed maturity securities, including related parties, were $273 million$4.6 billion and $636$469 million as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. The decreaseincrease in unrealized losses was driven by credit spreads tightening andwidening, partially offset by the decrease in U.S. treasuryTreasury rates declining during ninethe three months ended September 30, 2017, resulting in an increase in unrealized gains.March 31, 2020.


As of September 30, 2017March 31, 2020 and December 31, 2016,2019, we held $4.1$4.4 billion and $3.6$5.6 billion, respectively in energy sector fixed maturity securities, or 6% and 7% of the total fixed maturity securities, in both periods,respectively, including related parties for each period. The gross unrealized capital losses on these securities were $35$839 million and $73$65 million, or 13%18% and 11%14% of the total unrealized losses, respectively.



Provision for Credit Losses

For our credit loss accounting policies and the 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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Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations




Other-Than-Temporary Impairments

For our OTTI policy and the identification of securities that could potentially have impairments, 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.

During the ninethree months ended September 30, 2017,March 31, 2020, we recorded $25a 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, we recorded $1 million of OTTI losses comprised of $13 million related to corporate fixed maturities, $5 million related to mortgage loans, $3 million related to real estate, $1 million related to ABS, $1 million related to CMBS, $1 million related to equity securities and $1 million related to RMBS. Ofimpairments. The annualized intent-to-sell impairments we experienced for the OTTI losses recognized during ninethree months ended September 30, 2017, $1 million related toMarch 31, 2020 translate into 4 basis points of average net invested assets, which exclude the energy sector. During the nine months ended September 30, 2016, we recorded $27 million of OTTI losses comprised of $13 million related to state, municipal and political subdivisions, $6 million related to corporate fixed maturities, $5 million related to ABS, $2 million related to RMBS and $1 million related to other assets. Of the OTTI losses recognized during 2016, $4 million related to the energy sector.ACRA noncontrolling interest. The annualized OTTI losses we have experienced for the ninethree months ended September 30, 2017 and 2016,March 31, 2019 translate into 4less than 1 basis points and 5 basis points, respectively,point of average net invested assets.


International Exposure


A portion of our fixed maturityAFS securities are invested in securities with international exposure. As of each of September 30, 2017March 31, 2020 and December 31, 2016,2019, 32% of the carrying value of our fixed maturityAFS 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.


The following table presents our international exposure in our fixed maturity securitiesAFS portfolio, including related parties, by country or region:
September 30, 2017 December 31, 2016March 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$534
 $546
 2.9% $510
 $516
 3.1%$1,242
 $1,076
 4.8% $1,109
 $1,137
 4.7%
Italy49
 53
 0.3% 90
 92
 0.6%6
 7
 —% 6
 7
 —%
Spain224
 237
 1.2% 175
 190
 1.1%66
 67
 0.3% 66
 71
 0.2%
Total Portugal, Ireland, Italy, Greece and Spain1
807
 836
 4.4% 775
 798
 4.8%
Total Ireland, Italy, Greece, Spain and Portugal1
1,314
 1,150
 5.1% 1,181
 1,215
 4.9%
Other Europe7,597
 7,847
 41.8% 6,336
 6,512
 39.2%7,245
 7,044
 31.7% 7,333
 7,711
 32.1%
Total Europe8,404
 8,683
 46.2% 7,111
 7,310
 44.0%8,559
 8,194
 36.8% 8,514
 8,926
 37.0%
Non-U.S. North America7,582
 7,726
 41.1% 7,185
 7,105
 42.8%12,326
 10,736
 48.3% 11,650
 11,670
 48.5%
Australia & New Zealand1,300
 1,342
 7.1% 1,283
 1,304
 7.9%1,821
 1,842
 8.3% 1,853
 1,966
 8.2%
Central & South America491
 521
 2.8% 456
 467
 2.8%487
 460
 2.1% 473
 501
 2.1%
Africa & Middle East157
 163
 0.9% 164
 167
 1.0%411
 402
 1.8% 350
 379
 1.6%
Asia/Pacific292
 300
 1.6% 216
 218
 1.3%610
 598
 2.7% 580
 616
 2.6%
Supranational53
 53
 0.3% 26
 27
 0.2%
Total$18,279
 $18,788
 100.0% $16,441
 $16,598
 100.0%$24,214
 $22,232
 100.0% $23,420
 $24,058
 100.0%
                      
1 As of each of March 31, 2017 and December 31, 2016, we had no holdings in Portugal or Greece.
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 90.4%96.2% and 89.7%95.8% of these securities are investment grade by NAIC designation as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. As of September 30, 2017, 8%March 31, 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), 6% and 22% were invested in securities of non-U.S. issuers by our German Group Companies and 18% were invested in 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 $836 million and $798 million as of September 30, 2017 and December 31, 2016, respectively,$1.2 billion of exposure in these countries as of which $185 millionMarch 31, 2020 and $237 million, respectively, were a result of investments acquired from the DLD acquisition in 2015.December 31, 2019.


The effects on our investments in non-U.S. securities as a result of Brexit is unknown at this time, but the effects of Brexit are likely to lead to greater volatility in global financial markets in the near term. As of September 30, 2017,March 31, 2020, we held United Kingdom and Channel Islands fixed maturityAFS securities of $1.6$2.9 billion, or 2.8%4.2% of the total fixed maturitiesour AFS securities, including related parties. As of September 30, 2017,March 31, 2020, these securities were in ana net unrealized gainloss position of $47$141 million. Our investment managers analyze each holding for credit risk by economic and other factors of each country and industry.



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


Trading Securities


Trading securities, including related parties, were $2.8$2.7 billion and $2.9 billion as of each of September 30, 2017March 31, 2020 and December 31, 2016.2019, 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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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Mortgage Loans


The following is a summary of our mortgage loan portfolio by collateral type:
September 30, 2017 December 31, 2016March 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$1,340
 20.8% $1,217
 22.2%$3,465
 23.1% $2,899
 19.3%
Retail1,130
 17.5% 1,135
 20.7%2,117
 14.1% 2,182
 14.6%
Apartment2,333
 15.5% 2,142
 14.3%
Hotels1,108
 17.2% 1,025
 18.7%1,062
 7.1% 1,104
 7.4%
Industrial940
 14.6% 742
 13.6%1,402
 9.3% 1,448
 9.7%
Apartment580
 9.0% 616
 11.3%
Other commercial 1
405
 6.3% 397
 7.3%699
 4.7% 730
 4.9%
Total net mortgage loans5,503
 85.4% 5,132
 93.8%
Total net commercial mortgage loans11,078
 73.8% 10,505
 70.2%
Residential loans942
 14.6% 338
 6.2%3,940
 26.2% 4,454
 29.8%
Total mortgage loans, net of allowances$6,445
 100.0% $5,470
 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.


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 $6.4 billion and $5.5$15.0 billion as of September 30, 2017both March 31, 2020 and December 31, 2016, respectively.2019. This included $1.8$2.0 billion and $1.5$1.9 billion of mezzanine mortgage loans for the respective periods.as of March 31, 2020 and December 31, 2019, respectively. 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 mortgage loansCMLs 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'sloan’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 September 30, 2017,March 31, 2020 and December 31, 2019, we had $6$75 million and $67 million, respectively, of mortgage loans that were 90 days past due, of which $36 million and $1$33 million, respectively, were in the process of foreclosure. AsWe will continue to evaluate these policies with regard to the economic downturn brought about by the spread of December 31, 2016, we had $21 million of mortgage loans that were 90 days past due and $20 million in the process of foreclosure.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 September 30, 2017March 31, 2020, we had valuation allowances of $424 million comprising of $343 million of CML and $81 million of RML allowances. During the three months ended March 31, 2020, we recorded a change in provision for credit losses on CMLs of $166 million and RMLs of $37 million. The increase in provision for credit losses was primarily a result of the economic downturn experienced from the spread of COVID-19. As of December 31, 2016,2019, we had not recorded any new specific loan valuation allowances and we recorded $5 million and $0 million, respectively, of OTTI through net income. We have established a general and specific loan valuation allowance in the aggregate amount of $2 million as of September 30, 2017 and December 31, 2016, attributable to loans acquired in connection with the acquisition of Aviva USA.$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 the following characteristics: (1) investments that constitute a direct investment or an investment in a fund with a high degree of co-investment; (2) investments with debt-like characteristics, or alternatively, investments with reduced volatility when compared to pure equity; and (3) investments including some element of downside protection as compared to a pure directional investment. A significant amount of our current investment funds and VIE holdings are comprised of certain investment funds contributed by the AAA Investor (AAA Contribution) as further described in Note 4 – Variable Interest Entities to the condensed consolidated financial statements, and investment funds we acquired in the Aviva USA acquisition.

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



At the time of the AAA Contribution, the contributed assets largely consisted of co-investments with Apollo private equity funds. However, the attributes of the contributed assets have changed significantly since the initial transaction primarily due to the initial public offering of two underlying fund investment holdings. As of September 30, 2017, the assets consisted of $288 million of publicly-traded equity securities, a substantial portion of which is in the process of being liquidated. These public equity securities have resulted in volatility in our statement of income in recent periods. At the end of the third quarter of 2016, Norwegian Cruise Line Holdings Ltd. (NCLH) was distributed from CoInvest VI to NCL Athene, LLC (NCL LLC), resulting in the investment being classified as an AFS security with any unrealized gains and losses recognized in AOCI, thereby reducing further volatility in our statement of income from this fund. See Note 4 – Variable Interest Entities to the condensed consolidated financial statements for further discussion of NCL LLC.

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. See Note 4 – Variable Interest Entities to the condensed consolidated financial statements for further discussion on our investment funds that meet the criteria for consolidation and the accounting treatment for them.


The following table illustrates our consolidated VIE positions:

80
 September 30, 2017 December 31, 2016
(In millions, except percentages)Carrying Value Percent of Total Carrying Value Percent of Total
Assets of consolidated VIEs       
Investments       
Available-for-sale securities       
Equity securities$173
 17.9% $161
 17.5%
Trading securities195
 20.2% 167
 18.1%
Investment funds593
 61.5% 573
 62.2%
Cash and cash equivalents1
 0.1% 14
 1.5%
Other assets3
 0.3% 6
 0.7%
Total assets of consolidated VIEs$965
 100.0% $921
 100.0%
        
Liabilities of consolidated VIEs       
Other liabilities$47
 100.0% $34
 100.0%
Total liabilities of consolidated VIEs$47
 100.0% $34
 100.0%
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The assets of consolidated VIEs were $965 million and $921 million as of September 30, 2017 and December 31, 2016, respectively. The liabilities of consolidated VIEs were $47 million and $34 million as of September 30, 2017 and December 31, 2016, respectively.



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




The following table illustrates our investment funds, including related party positions of our non-consolidated VIEs and investment funds owned by consolidated VIEs:party:
September 30, 2017 December 31, 2016March 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$284
 5.3% $277
 6.4%
Credit funds122
 2.3% 153
 3.6%
Private equity$279
 10.5% $268
 10.9%244
 4.5% 236
 5.5%
Real estate and other real assets166
 6.2% 118
 4.8%
Real assets89
 1.7% 83
 2.0%
Natural resources5
 0.2% 5
 0.2%1
 —% 1
 —%
Hedge funds62
 2.3% 72
 2.9%
Credit funds235
 8.8% 226
 9.2%
Total investment funds747
 28.0% 689
 28.0%740
 13.8% 750
 17.5%
Investment funds – related parties              
Private equity – A-A Mortgage396
 14.8% 343
 13.9%
Differentiated investments       
MidCap508
 9.5% 547
 12.7%
AmeriHome508
 9.5% 487
 11.3%
Catalina296
 5.5% 271
 6.3%
Athora130
 2.4% 132
 3.1%
Venerable110
 2.1% 99
 2.3%
Other281
 5.2% 222
 5.2%
Total differentiated investments1,833
 34.2% 1,758
 40.9%
Real estate775
 14.4% 853
 19.8%
Credit funds446
 8.3% 370
 8.6%
Private equity176
 6.6% 131
 5.3%227
 4.2% 105
 2.4%
Real estate and other real assets245
 9.2% 247
 10.1%
Real assets256
 4.8% 182
 4.2%
Natural resources78
 2.9% 49
 2.0%200
 3.7% 163
 3.8%
Hedge funds163
 6.1% 192
 7.8%
Credit funds272
 10.2% 236
 9.6%
Public equities44
 0.8% 119
 2.8%
Investment in Apollo850
 15.8% —
 —%
Total investment funds – related parties1,330
 49.8% 1,198
 48.7%4,631
 86.2% 3,550
 82.5%
Investment funds owned by consolidated VIEs       
Private equity – MidCap1
529
 19.8% 524
 21.3%
Credit funds32
 1.2% 38
 1.6%
Real estate and other real assets32
 1.2% 11
 0.4%
Total investment funds owned by consolidated VIEs593
 22.2% 573
 23.3%
Total investment funds, including related parties and VIEs$2,670
 100.0% $2,460
 100.0%
       
1 MidCap is an underlying investment of one of our consolidated VIE investment funds.
Total investment funds including related parties$5,371
 100.0% $4,300
 100.0%


Overall, the total investment funds, including related parties and consolidated VIEs,party, were $2.7$5.4 billion and $2.5$4.3 billion, respectively, as of September 30, 2017March 31, 2020 and December 31, 2016, respectively.2019. See Note 42 – Variable Interest EntitiesInvestments 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 ratesrate risk and equity market risk. Interest rate risk represents the potential for changes in the investment fund'sfund’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'sfund’s net asset values resulting from changes in equity markets or from other external factors which influence equity markets. We actively monitor our exposure to the risks inherent in these investments which could materially and adversely affect our results of operations and financial condition. The interest and equity marketThese risks expose us to potential volatility in our earnings year-over-year relatedperiod-over-period. We actively monitor our exposure to these risks. The increase in investment funds.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, including those held with VIAC and Lincoln. As of September 30, 2017,March 31, 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).


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 freerisk-free rate on the host receivable and is recorded as net investment income in the condensed consolidated statements of income.income (loss). The change in the embedded derivative in our reinsurance agreements areis similar to a total return swap on the income generated by the underlying assets held by the ceding companies andcompanies. 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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Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations




The following summarizes the underlying investment composition of the funds withheld at interest:interest, including related parties:
September 30, 2017 December 31, 2016March 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$15
 0.1 % $15
 0.1 %
U.S. state, municipal and political subdivisions$118
 1.7% $118
 1.8%324
 1.2 % 482
 1.7 %
Foreign governments134
 0.5 % 143
 0.5 %
Corporate2,100
 30.2% 1,800
 27.6%13,156
 50.3 % 14,590
 51.4 %
CLO665
 9.6% 591
 9.0%2,283
 8.7 % 2,586
 9.1 %
ABS797
 11.4% 736
 11.3%2,149
 8.2 % 2,510
 8.8 %
CMBS286
 4.1% 292
 4.5%475
 1.8 % 756
 2.7 %
RMBS1,590
 22.8% 1,551
 23.7%1,302
 5.0 % 1,482
 5.2 %
Equity securities28
 0.4% 29
 0.4%61
 0.2 % 74
 0.3 %
Mortgage loans818
 11.8% 773
 11.8%4,411
 16.9 % 4,357
 15.3 %
Investment funds372
 5.3% 329
 5.0%927
 3.6 % 807
 2.8 %
Derivative assets63
 0.9% 53
 0.8%65
 0.2 % 224
 0.8 %
Short-term investments7
 0.1% 80
 1.2%127
 0.5 % 157
 0.6 %
Cash and cash equivalents100
 1.4% 105
 1.6%807
 3.1 % 239
 0.8 %
Other assets and liabilities20
 0.3% 81
 1.3%(68) (0.3)% (21) (0.1)%
Total funds withheld at interest$6,964
 100.0% $6,538
 100.0%
Total funds withheld at interest including related party$26,168
 100.0 % $28,401
 100.0 %


As of September 30, 2017March 31, 2020 and December 31, 2016,2019, we held $7.0$26.2 billion and $6.5$28.4 billion, respectively, of funds withheld at interest receivables, respectively.including related party. Approximately 94.1% and 93.6%94.4% of the fixed maturity securities within the funds withheld at interest are investment grade by NAIC designation as of September 30, 2017March 31, 2020 and December 31, 2016,2019, 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 presentation ofdiscussion regarding our derivative instruments along with a discussion of the business strategy involved with our derivativesand how such instruments are used to manage risk is included in Note 3 – Derivative Instruments to the condensed consolidated financial statements. This includes:

▪a comprehensive description of the derivatives instruments as well as the strategies to manage risk;
▪the notional amounts and estimated fair value by derivative instruments; and
▪impacts on the condensed consolidated statement of net income.


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




Net Invested Assets


The following summarizes our net invested assets:
September 30, 2017 December 31, 2016March 31, 2020 December 31, 2019
(In millions, except percentages)U.S. and Bermuda Invested Asset Value Germany Invested Asset Value 
Total Invested Asset Value1
 Percent of Total U.S. and Bermuda Invested Asset Value Germany Invested Asset Value 
Total Invested Asset Value1
 Percent of Total
Net Invested Asset Value1
 Percent of Total 
Net Invested Asset Value1
 Percent of Total
Corporate$34,759
 $1,713
 $36,472
 46.3% $31,000
 $1,682
 $32,682
 45.4%$54,666
 45.1% $55,077
 46.9%
CLO5,774
 —
 5,774
 7.3% 5,798
 —
 5,798
 8.1%11,118
 9.2% 10,223
 8.7%
Credit40,533
 1,713
 42,246
 53.6% 36,798
 1,682
 38,480
 53.5%65,784
 54.3% 65,300
 55.6%
RMBS10,696
 —
 10,696
 13.6% 10,619
 —
 10,619
 14.8%8,123
 6.7% 8,394
 7.1%
Mortgage loans7,150
 108
 7,258
 9.2% 6,145
 95
 6,240
 8.7%
CML14,954
 12.3% 14,038
 12.0%
RML4,112
 3.4% 4,490
 3.8%
CMBS2,181
 —
 2,181
 2.8% 2,202
 —
 2,202
 3.1%2,846
 2.3% 2,930
 2.5%
Real estate held for investment—
 622
 622
 0.8% —
 542
 542
 0.8%
Real estate20,027
 730
 20,757
 26.4% 18,966
 637
 19,603
 27.4%30,035
 24.7% 29,852
 25.4%
ABS4,782
 —
 4,782
 6.1% 3,873
 —
 3,873
 5.4%10,292
 8.5% 10,317
 8.8%
Alternative investments3,441
 146
 3,587
 4.5% 3,297
 128
 3,425
 4.8%5,787
 4.8% 5,586
 4.8%
State, municipal, political subdivisions and foreign government1,335
 2,357
 3,692
 4.7% 1,387
 1,936
 3,323
 4.6%1,557
 1.3% 2,260
 1.9%
Equity securities241
 70
 311
 0.4% 199
 185
 384
 0.5%369
 0.3% 365
 0.3%
Unit linked assets—
 405
 405
 0.5% —
 363
 363
 0.5%
Short-term investments85
 —
 85
 0.1% 250
 —
 250
 0.3%604
 0.5% 624
 0.5%
U.S. government and agencies29
 31
 60
 0.1% 32
 27
 59
 0.1%51
 —% 49
 —%
Other investments9,913
 3,009
 12,922
 16.4% 9,038
 2,639
 11,677
 16.2%18,660
 15.4% 19,201
 16.3%
Cash and equivalents1,680
 229
 1,909
 2.4% 1,111
 111
 1,222
 1.7%4,718
 3.9% 1,958
 1.7%
Policy loans and other738
 232
 970
 1.2% 631
 221
 852
 1.2%1,153
 1.0% 1,175
 1.0%
Total invested assets$72,891
 $5,913
 $78,804
 100.0% $66,544
 $5,290
 $71,834
 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 Refer to 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 $78.8$121.2 billion and $71.8$117.5 billion as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. As of September 30, 2017,March 31, 2020, our totalnet invested assets were mainly comprised of 46.3%45.1% of corporate securities, 29.8%26.7% of structured securities, 9.2%15.7% of mortgage loans and 4.5%4.8% of alternative investments. Corporate securities within our U.S. and Bermuda portfolio included $9.1$16.0 billion of private placements, which represented approximately 12%13.2% of our total U.S. and Bermudanet invested assets. The increase in totalnet invested assets as of September 30, 2017March 31, 2020 from December 31, 20162019 was primarily driven by strong growth in deposits over liability 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 policyholdernet 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 therefore are included in the alternative investments line above.

The Germany investment portfolio composition differs fromabove as well as adjust for the U.S. and Bermuda portfolio primarily due to the geographic location, regulatory environment and participating nature of the German products and therefore the portfolio is managed separately from our U.S. and Bermuda portfolios. The Germanallowance for credit losses. Net invested assets are predominantlyincludes our proportionate share of ACRA investments, based on our economic ownership, but excludes the proportionate share of investments associated with the noncontrolling interest.

Net invested in foreign government securities, corporate fixed income securities, real estate held for investment and assets backing our unit linked policies. The German invested assets are predominantly invested in Euro-denominated securities and investments.

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




Net Alternative Investments

The following summarizes our alternative investments:
 September 30, 2017 December 31, 2016
(In millions, except percentages)Invested Asset Value Percent of Total Invested Asset Value Percent of Total
Credit funds$797
 22.2% $834
 24.3%
Private equity – MidCap529
 14.7% 524
 15.3%
Private equity – A-A Mortgage486
 13.6% 417
 12.2%
Private equity – other530
 14.8% 519
 15.2%
Mortgage and real assets546
 15.2% 470
 13.7%
Hedge funds274
 7.6% 311
 9.1%
Public equities236
 6.6% 215
 6.3%
Natural resources and other real assets189
 5.3% 135
 3.9%
Total alternative investments$3,587
 100.0% $3,425
 100.0%
 March 31, 2020 December 31, 2019
(In millions, except percentages)Net Invested Asset Value Percent of Total Net Invested Asset Value Percent of Total
Retirement Services       
Differentiated investments       
AmeriHome$621
 10.7% $595
 10.7%
MidCap508
 8.8% 547
 9.8%
Catalina296
 5.1% 271
 4.9%
Venerable110
 1.9% 99
 1.8%
Other332
 5.7% 208
 3.7%
Total differentiated investments1,867
 32.2% 1,720
 30.9%
Real estate1,410
 24.4% 1,430
 25.6%
Credit950
 16.4% 968
 17.3%
Private equity495
 8.6% 378
 6.8%
Real assets385
 6.6% 349
 6.2%
Natural resources61
 1.1% 51
 0.9%
Other58
 1.0% 58
 1.0%
Total Retirement Services alternative investments5,226
 90.3% 4,954
 88.7%
Corporate and Other       
Athora140
 2.4% 140
 2.5%
Credit88
��1.5% 128
 2.3%
Natural resources289
 5.0% 245
 4.4%
Public equities1
44
 0.8% 119
 2.1%
Total Corporate and Other alternative investments561
 9.7% 632
 11.3%
Net alternative investments$5,787
 100.0% $5,586
 100.0%
        
1 As of March 31, 2020, public equities is exclusively comprised of an investment in OneMain Holdings, Inc. (ticker: OMF).


AlternativeNet alternative investments were $3.6$5.8 billion and $3.4$5.6 billion as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively, representing 4.5% and 4.8% of our totalnet invested assets portfolio as of September 30, 2017both March 31, 2020 and December 31, 2016,2019, 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, 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 A-A Mortgage,AmeriHome, both of which, from time to time, provide us with access to assets for our investment portfolio. As of September 30, 2017, we held

MidCap

Our equity positionsinvestment in MidCap is held indirectly through CoInvest VII, of $529 million.which MidCap constitutes substantially all of the fund’s investments. MidCap is a leading originator of senior debt capitalcommercial finance company that provides various financial products to middle-market businesses in multiple industries, primarily located in the middle-market with expertiseU.S. MidCap primarily originates and invests in asset-backedcommercial and industrial loans, leveragedincluding 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, discountincluding 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 venture loans.the interest accrued under its outstanding borrowings. As a result, MidCap represents a uniqueis 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 in an origination platform made available to us through our relationship with Apollo. Asand interest rates.

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Table of September 30, 2017, we held an equity position in A-A Mortgage of $486 million. A-A Mortgage has an indirect investment in AmeriHome, which originates RMLs and mortgage servicing rights.Contents




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





Our alternative investment in CoInvest VII is substantially comprised of its investment in MidCap, which had a carrying value of $508 million and $547 million as of March 31, 2020 and December 31, 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 (16.06)% and 9.50% for the three months ended March 31, 2020 and 2019, respectively. Alternative investment income (loss) from CoInvest VII was $(21) million and $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 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 $621 million and $595 million as of March 31, 2020 and December 31, 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 16.93% and 14.27% for the three months ended March 31, 2020 and 2019, respectively. Alternative investment income from A-A Mortgage was $26 million and $20 million for the three months ended March 31, 2020 and 2019, respectively.

Public Equities

We indirectly hold public equity positions through our equity investments in a few alternative investments. Although the net 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, 2020 and December 31, 2019, we indirectly held public equity positions of $44 million and $119 million, respectively. As of March 31, 2020 and December 31, 2019, we held approximately 2.8 million shares of OneMain with a market value of $44 million and $119 million, respectively. The decrease in market value is driven by the decline in share price, partially offset by dividend received in 2020.


Non-GAAP Measure Reconciliations


The reconciliations to the nearest GAAP measure for adjusted operating income net of tax(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 earnings, net of tax excluding notable items to net income available to AHL shareholdersROE, is as follows:
 Three months ended September 30,
(In millions)2017 2016
Operating income, net of tax excluding notable items by segment   
Retirement Services operating income, net of tax excluding notable items$250
 $187
Unlocking(20) (158)
Actuarial out of period adjustments13
 —
Deferred tax valuation allowance release—
 102
Tax effects of notable items1
 11
Retirement Services notable items(6) (45)
Retirement Services operating income, net of tax244
 142
    
Corporate and Other operating income, net of tax excluding notable items4
 (18)
Germany operating loss, net of tax(17) (7)
Corporate and Other operating income, net of tax(13) (25)
Operating income, net of tax231
 117
Total non-operating adjustments43
 9
Net income available to AHL shareholders$274
 $126
(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


The reconciliation of AHL shareholders’ equity to AHL shareholders’ equity excluding AOCI included in the ROE excluding AOCI and operating income ROE excluding AOCI is as follows:
85
(In millions)September 30, 2017 September 30, 2016
Total AHL shareholders' equity$8,669
 $7,031
Less: AOCI1,162
 920
Total AHL shareholders' equity excluding AOCI$7,507
 $6,111
    
Retirement Services$5,371
 $4,542
Corporate and Other2,136
 1,569
Total AHL shareholders' equity excluding AOCI$7,507
 $6,111
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Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations




The reconciliation of average AHL shareholders’ equity to average adjusted AHL common shareholders’ equity, which is included in adjusted operating ROE is as follows:
 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 net investment income to net investment earnings and earned rate is as follows:
Three months ended September 30, Nine months ended September 30,Three months ended March 31,
2017 2016 2017 20162020 2019
(In millions, except percentages)        Dollar Rate Dollar RateDollar Rate Dollar Rate
GAAP net investment income$820
 4.23 % $743
 4.20 % $2,427
 4.31 % $2,137
 4.12 %$745
 2.51 % $1,082
 3.85 %
Reinsurance embedded derivative impacts40
 0.20 % 55
 0.31 % 137
 0.25 % 144
 0.28 %
Net VIE earnings27
 0.14 % (13) (0.07)% 59
 0.10 % (43) (0.08)%
Change in fair value of reinsurance assets270
 0.90 % 132
 0.47 %
Alternative income gain (loss)(4) (0.02)% (2) (0.01)% (11) (0.02)% (34) (0.07)%(101) (0.34)% (5) (0.02)%
Held for trading amortization(20) (0.10)% (6) (0.03)% (50) (0.09)% (21) (0.04)%
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 rate43
 0.22 % 34
 0.20 % 135
 0.24 % 46
 0.09 %406
 1.36 % 121
 0.43 %
Total net investment earnings/earned rate$863
 4.45 % $777
 4.40 % $2,562
 4.55 % $2,183
 4.21 %$1,151
 3.87 % $1,203
 4.28 %
                      
Retirement Services$811
 4.64 % $754
 4.75 % $2,412
 4.75 % $2,155
 4.64 %$1,184
 4.04 % $1,171
 4.21 %
Corporate and Other52
 2.72 % 23
 1.26 % 150
 2.71 % 28
 0.53 %(33) (8.14)% 32
 13.19 %
Total net investment earnings/earned rate$863
 4.45 % $777
 4.40 % $2,562
 4.55 % $2,183
 4.21 %$1,151
 3.87 % $1,203
 4.28 %
                      
Retirement Services average invested assets$69,868
   $63,641
   $67,722
   $62,009
  
Corporate and Other average invested assets7,673
   7,089
   7,398
   7,120
  
Consolidated average invested assets$77,541
   $70,730
   $75,120
   $69,129
  
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 on deferred annuities, and the respective rates, is as follows:
86
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
(In millions, except percentages)Dollar Rate Dollar Rate Dollar Rate Dollar Rate
GAAP interest sensitive contract benefits$621
 4.35 % $491
 3.72 % $1,866
 4.43 % $1,081
 2.83 %
Interest credited other than deferred annuities(41) (0.29)% (34) (0.26)% (109) (0.26)% (91) (0.24)%
FIA option costs154
 1.08 % 141
 1.07 % 448
 1.08 % 416
 1.08 %
Product charges (strategy fees)(19) (0.13)% (14) (0.11)% (53) (0.13)% (38) (0.10)%
Reinsurance embedded derivative impacts9
 0.06 % 8
 0.06 % 27
 0.06 % 21
 0.05 %
Change in fair value of embedded derivatives – FIAs(464) (3.25)% (326) (2.47)% (1,397) (3.32)% (669) (1.74)%
Negative VOBA amortization8
 0.06 % 12
 0.09 % 30
 0.07 % 36
 0.09 %
Unit linked change in reserves—
 — % (20) (0.15)% (17) (0.04)% (1) — %
Other changes in interest sensitive contract liabilities—
 — % 1
 0.01 % —
 — % —
 — %
Total adjustments to arrive at cost of crediting on deferred annuities(353) (2.47)% (232) (1.76)% (1,071) (2.54)% (326) (0.86)%
Retirement Services cost of crediting on deferred annuities$268
 1.88 % $259
 1.96 % $795
 1.89 % $755
 1.97 %
                
Average account value$57,050
   $52,739
   $56,102
   $51,183
  
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Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations




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


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


The reconciliation of total investments, including related parties, to net invested assets is as follows:
(In millions)September 30, 2017 December 31, 2016March 31, 2020 December 31, 2019
Total investments, including related parties$81,183
 $72,433
$121,969
 $130,550
Derivative assets(1,982) (1,370)(1,610) (2,888)
Cash and cash equivalents (including restricted cash)3,707
 2,502
5,983
 4,639
Accrued investment income626
 554
802
 807
Payables for collateral on derivatives(1,896) (1,383)(1,589) (2,743)
Reinsurance funds withheld and modified coinsurance(537) (414)355
 (1,440)
VIE assets, liabilities and noncontrolling interest918
 886
AFS unrealized (gain) loss(2,594) (1,030)
VIE and VOE assets, liabilities and noncontrolling interest23
 25
Unrealized (gains) losses2,292
 (4,095)
Ceded policy loans(325) (344)(229) (235)
Net investment receivables (payables)(296) —
(238) (57)
Total adjustments to arrive at invested assets(2,379) (599)
Total invested assets$78,804
 $71,834
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)September 30, 2017 December 31, 2016
Investment funds, including related parties and VIEs$2,670
 $2,460
CLO equities included in trading securities194
 260
Investment funds within funds withheld at interest372
 329
Royalties, other assets included in other investments and other assets77
 81
Net assets of the VIE, excluding investment funds274
 295
Total adjustments to arrive at alternative investments917
 965
Alternative investments$3,587
 $3,425
(In millions)March 31, 2020 December 31, 2019
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 interest927
 807
Royalties and other assets included in other investments64
 67
Unrealized (gains) losses and other adjustments14
 8
ACRA noncontrolling interest(112) (79)
Total adjustments to arrive at alternative investments416

1,286
Net alternative investments$5,787
 $5,586


The reconciliation of total liabilities to net reserve liabilities is as follows:
(In millions)September 30, 2017 December 31, 2016March 31, 2020 December 31, 2019
Total liabilities$87,392
 $79,840
$131,649
 $132,734
Short-term debt(400) (475)
Long-term debt(986) (992)
Derivative liabilities(92) (40)(222) (97)
Payables for collateral on derivatives(1,896) (1,383)
Payables for collateral on derivatives and securities to repurchase(2,883) (3,255)
Funds withheld liability(394) (380)(396) (408)
Other liabilities(1,024) (688)(853) (1,181)
Liabilities of consolidated VIEs(47) (34)
Reinsurance ceded receivables(5,768) (6,001)(5,087) (4,863)
Policy loans ceded(325) (344)(229) (235)
ACRA noncontrolling interest(6,322) (6,574)
Other4
 4
2
 (2)
Total adjustments to arrive at reserve liabilities(9,542) (8,866)
Total reserve liabilities$77,850
 $70,974
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.


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



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 September 30, 2017March 31, 2020 was approximately $48.7$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 iswas undrawn as of the date hereofMarch 31, 2020 and hashad a remaining term of approximately three years.five years, subject to up to two 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, of Des Moines (FHLBDM) and Indianapolis (FHLBI), 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. By policy, we maintain sufficient liquidity not only to meet our cash-flow requirements over the succeeding 12-month period in a moderately severe scenario (for example, a recessionary environment), but also to have excess liquidity available to invest into potential investment opportunities created from market dislocations. We also monitor our liquidity profile under more severe scenarios.


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 at least $250 million inenough cash, and cash equivalents across the group; and at least $150 million in the aggregate in securities with the following characteristics:other discounted liquid limit assets to cover 12 months of AHL’s and Athene USA’s projected obligations, including debt servicing costs:
▪public corporate bonds rated A- or above;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) and; RMBS with weighted average lives less than three years rated A- or above; or
▪above and CMBS with weighted average lives less than three years rated AAA- or above;above
we maintain assets that can be liquidated in one quarter under normal market conditions equalseek to 25% of the policyholder obligations that are deemed to be most liquid, which is defined as policies with a cash surrender value, no income rider, no MVA, with lower than 5% surrender charge protection and lower than 3% minimum floor guarantee, if any; and
we maintain sufficient capital and surplus at ALRe to meet the following collateral calls from modco and third-party reinsurance contractscapital 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
▪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'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 of September 30, 2017both March 31, 2020 and December 31, 2016,2019, approximately 86%78% of our deferred annuity liabilities were subject to penalty upon surrender. In addition, as of September 30, 2017March 31, 2020 and December 31, 2016,2019, approximately 72%63% and 73%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. As of March 31, 2020 or December 31, 2019, we had $400 million and $475 million, respectively, of outstanding borrowings under these 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, 2020 and December 31, 2019, we had funding agreements outstanding with the FHLB in the aggregate principal amount of $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, 2020, the total maximum borrowings under the FHLB facility were limited to $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, 2020 we had the ability to draw up to a total of approximately $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:
Nine months ended September 30,Three months ended March 31,
(In millions)2017 20162020 2019
Net income$984
 $404
Net income (loss)$(1,216) $708
Non-cash revenues and expenses358
 560
1,987
 301
Net cash provided by operating activities1,342
 964
771
 1,009
   
Sales, maturities, and repayment of investments12,724
 9,595
Purchases and acquisitions of investments(17,518) (11,391)
Sales, maturities and repayments of investments6,214
 3,170
Purchases of investments(6,476) (6,547)
Other investing activities292
 114
(116) 601
Net cash used in investing activities(4,502) (1,682)(378) (2,776)
   
Capital contributions—
 1
Issuance of common stock350
 —
Net proceeds and repayments of debt(75) —
Deposits on investment-type policies and contracts7,521
 4,189
2,838
 2,793
Withdrawals on investment-type policies and contracts(3,701) (3,516)(1,633) (1,638)
Net changes of cash collateral posted for derivative transactions513
 254
Consolidated VIE repayment on borrowings—
 (500)
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(54) 139
14
 (34)
Net cash provided by financing activities4,279
 567
970
 1,882
Effect of exchange rate changes on cash and cash equivalents30
 (2)(22) —
Net increase (decrease) in cash and cash equivalents1
$1,149
 $(153)$1,341
 $115
      
1 Includes 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 interest credited to policyholders, and operating expenses. Our operating activities generated cash flows totaling $1.3$771 million and $1.0 billion and $964 million for the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. The increasedecrease in cash provided by operating activities for the nine months ended September 30, 2017 compared to 2016 was primarily driven by the increaselower cash received from PRT transactions as well as a decrease in net investment income reflecting an increase in our investment portfolio attributed to the strong growth in deposits over the prior twelve months.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 $4.5 billion$378 million and $1.7$2.8 billion for the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. The changedecrease in cash used in investing activities for the nine months ended September 30, 2017 compared to 2016 was primarily attributed to an increase in the purchasesales. maturities and repayments of investments relatedto increase liquidity in response to the increase in deposits over liability outflowscurrent economic environment and capitalize on growth opportunities as well as the reinvestment of earnings.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, repayments of outstanding borrowings, repurchases of common stock and repayments from borrowing activities.payment of preferred stock dividends. Our financing activities provided cash flows totaling $4.3$1.0 billion and $567 million$1.9 billion for the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. The changedecrease in cash provided fromby financing activities for the nine months ended September 30, 2017 was primarily attributed to the increase in deposits over liability outflows, the favorable change in cash collateral posted for derivative transactions driven by unfavorable equity market performance in 2020, an increase in repurchases of common stock, the repayment of $75 million of short-term debt and the settlingpayment of borrowingspreferred stock dividends, partially offset by higher investment-type deposits from retail, flow reinsurance and funding agreement deposits, the issuance of our CMBS VIE funds in$350 million of common stock as part of the prior year.strategic Apollo transaction and net capital contributions from noncontrolling interests.




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




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. As of September 30, 2017, AHL had no financial leverage.


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 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. In addition, dividends from U.S. insurance subsidiaries to AHL would result in a 30% withholding tax. AHL does not currently plan on having the U.S. subsidiaries pay any dividends to AHL. Athene Lebensversicherung AG (ALV) and Athene Pensionskasse AG (APK) (the life insurance entities of our German Group Companies) are regulated by BaFin. ALV and APK are restricted as to the payment of dividends pursuant to calculations, which are based upon the analysis of current euro swap rates against existing policyholder guarantees. As of September 30, 2017, ALV and APK did not exceed this threshold and, therefore, no amounts are available for distribution to AHL. As a result, dividendsALRe.

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 BMABermuda 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, suchCertain 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, preference 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 (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, 2020 and December 31, 2019, the revolving note payable had an outstanding balance of $553 million and $38 million, respectively.


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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, depending onall. As a result of the economic consequences of the spread of COVID-19, we have observed an increase in our financial condition or resultscost of operations or prevailing market conditions.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 facilityagreement prohibit us from incurring anymaintaining debt not expressly permitted thereby, which may limitin excess of specified thresholds. Specifically, our abilitycredit agreement prohibits us from permitting the Consolidated Debt to pursue future issuances of debt.

Membership in Federal Home Loan Bank

We are a member of the FHLBDM and the FHLBI. Membership in a FHLB requires the member to purchase FHLB common stock based on a percentage of the dollar amount of advances outstanding, subject to the investment being greater than or equal to a minimum level. We owned a total of $38 million and $40 million of FHLB common stock as of September 30, 2017 and December 31, 2016, respectively.

Through our membershipCapitalization Ratio (as such term is defined in the FHLBDM and FHLBI, we are eligiblecredit agreement) 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 no outstanding borrowings under these arrangements as of September 30, 2017 or December 31, 2016.

On August 11, 2016, we provided notice to the FHLBI that ALIC is withdrawing its membership thereto. The FHLBI confirmed receipt of our request on the following day. Pursuant to the FHLBI’s capital plan, ALIC’s membership will be withdrawnexceed 35% as of the fifth anniversaryend of the FHLBI's receipt of our notice. Until such time that ALIC’s membership is withdrawn, ALIC continues to have all of the rights and obligations of being a member of the FHLBI, except that with respect to some or all of the FHLBI stock that ALIC owns, we will be entitled to a lower dividend amount, to the extent that the FHLBI declares a dividend. ALIC may continue to borrow from the FHLBI, provided that without the consent of the FHLBI, the transaction must mature or otherwise terminate prior to ALIC’s withdrawal of membership.any quarter.


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


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 September 30, 2017 and December 31, 2016, we had an aggregate of $623 million and $691 million, respectively, of outstanding FHLB funding agreements. Refer to Note 13 – Commitments and Contingencies to the condensed consolidated financial statements for details of issued funding agreements and related collateral.

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 September 30, 2017, the total maximum borrowings under the FHLBDM facility was limited to $15.4 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 September 30, 2017 we had the ability to draw up to a total of approximately $2 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.


Capital Resources


As of December 31, 20162019 and 2015,2018, our U.S. insurance companies'companies’ TAC, as defined by the NAIC, was $1.8$2.4 billion and $1.7$2.2 billion, respectively, and our ALRe statutory capital as defined by the BMA, was $6.1 billion and $5.7 billion, respectively. As of December 31, 2016 and 2015, our U.S. RBC ratio was 478%429% and 552%421%, respectively, and our BSCR ratio was 228% and 323%, respectively, all above our internal targets. The change in our U.S. RBC as of December 31, 2016 compared to December 31, 2015 was primarily driven by our investment of capital to organically grow our retail channel, which increased significantly during 2016.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 ACL.its authorized control level RBC (ACL). Our TAC was significantly in excess of all regulatory standards and above our internal targets as of September 30, 2017, December 31, 20162019 and 2015,2018, respectively.

ALRe statutory capital was $11.0 billion and $9.7 billion as of December 31, 2019 and 2018, respectively. ALRe adheres to BMA regulatory capital requirements to maintain statutory capital and surplus to meet the MMSminimum margin of solvency and maintain minimum economic balance sheet (EBS) capital and surplus to meet the Enhanced Capital Requirement (ECR). Effective January 1, 2016, in connection with the implementation of its broader regulatory regime, the BMA integrated the EBS framework into the determination of BSCR. The European Commission has granted the BMA's regulatory regime for reinsurance, group solvency calculation and group supervision full equivalence to Solvency II.enhanced capital requirement. Under the EBS framework, ALRe'sALRe’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. The ALReALRe’s EBS capital and surplus was $4.4$14.1 billion and $12.0 billion, resulting in a BSCR ratio of 228%,310% and 340% as of December 31, 2016. Although the calculation2019 and 2018, respectively. An insurer must have a BSCR ratio of the ECR was unchanged from prior year, the BSCR ratios for December 31, 2016 and 2015 are not comparable as the 2015 calculation applied to ALRe's statutory capital and the 2016 calculation now applies to the EBS capital and surplus. Consistent with the previous regime the MRC ratio100% or greater to be considered solvent by the BMA is 100%.BMA. As of September 30, 2017, December 31, 20162019 and 2015,2018, 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, 20162019 and 2015,2018, our ALRe RBC ratio was 529%443% and 468%405%, respectively, both above our internal targets. Our German Group Companies adhere to the regulatory capital requirements set forth by BaFin. Our German Group Companies held the appropriate capital to adhere to these regulatory standards as of December 31, 2016.respectively. 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 established a share repurchase program with an initial authorization for the repurchase of up to $250 million of our Class A shares. In 2019, our board of directors approved four additional authorizations under our share repurchase program for the purchase of up to an additional $1.3 billion of our Class A common shares, in the aggregate, for a total authorization of $1.6 billion. Pursuant to our share repurchase program, we repurchased 10.4 million Class A common shares for $319 million during the three months ended March 31, 2020. As of May 8, 2020, we have repurchased, in the aggregate, 32.8 million Class A common shares for approximately $1.2 billion since inception of our share repurchase program and have $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 2019 Annual Report.

Off Balance Sheet Arrangements


Contractual ObligationsNone.


As
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Table of September 30, 2017, there have been no significant changes to contractual obligations since December 31, 2016. See Part II—Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2016 Annual Report.Contents

Other

In the normal course of business, we invest in various investment funds which are considered VIEs, and we consolidate a VIE when we are considered the primary beneficiary of the entity. For further discussion of our involvement with VIEs, see Note 4 – Variable Interest Entities to the condensed consolidated financial statements.




Item 2. Management'sManagement’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 20162019 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'sManagement’s Discussion and Analysis of Financial Condition and Results of OperationsOperations—Critical Accounting Estimates and Judgments of our 20162019 Annual Report.


See Note 1 – Business, Basis of Presentation and Significant Accounting Policies to the condensed consolidated financial statements included in Part I—Item 1. 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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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations




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.


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 20162019 Annual Report.

Assuming a 25 basis points increase in interest rates persists for a 12-month period, the estimated impact to operating income, net of tax, would be an increase of approximately $25 – $30 million. This is driven by an increase in investment income from floating rate assets, offset by DAC, DSI and VOBA amortization and rider reserve change, all calculated without regard to future changes to assumptions.

There have been no other material changes to our market risk exposures from the market risk exposuresthose previously disclosed in the 20162019 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

There were no changes to the Company’sour internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended September 30, 2017,March 31, 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. WeThe outcomes of legal proceedings and claims brought against us are not engagedsubject 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 proceeding that we believeor claim brought against us will benot have a material toeffect on our business, 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, refer to see Note 1310 – Commitments and Contingencies – Litigation, Claims and Assessments to the condensed consolidated financial statements.




Item 1A. Risk Factors


The following should be read in conjunction with, and supplementssupplement and amends,amend, the factors that may affect our business or operations described in Part I—I–Item 1A. Risk Factors of our 20162019 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 our 20162019 Annual Report.


Risks RelatingCertain metrics discussed in this section are based on management view and therefore may not correspond to Our Business

Certainamounts 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 investmentsrisk 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 RMBS securitiesour 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 experience a decline in value if trustees are permittedemerge concerning the severity of the COVID-19 pandemic and the actions taken to withhold fundscontain or address its impact, and may cause us to meet expenses and/revisit or claims incurredrevise 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 litigation againstour 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 trusteesmeasures 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 June 2017, Wells Fargo, National Association (Wells Fargo)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), as trustee of certain pre-crisis residentialretail, 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 (Legacy RMBS) transactions, notified certificateholders that it withheldcould 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 portionprudent 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 funds received during related clean-up callsspread of COVID-19, may restrict our access to meet litigation expenses (both incurredkey inputs used to derive certain estimates and anticipated) and/or claimsassumptions made in connection with Blackrock, et al. v. Wells Fargo (Blackrock Litigation). The Blackrock Litigation is onefinancial 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 a seriesthe 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 cases various parties have brought against trustees of Legacy RMBS transactions for the alleged failure of such trustees to perform their respective duties and obligations under the related transaction documents.

In July 2017, various funds managed by Pacific Investment Management Company, LLC (collectively, PIMCO) brought a declaratory judgment actionour business in the Supreme Courtfuture.
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 New York against Wells Fargo seekingevents 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 prevent Wells Fargo from paying any portionsatisfy 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 defense costsfinancial 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 Blackrock Litigation from the trusts at issuesimilarly named risk factor in the litigation, and claiming that Wells Fargo, as trustee, breached certain duties to investors. In September 2017, Wells Fargo filed a motion to dismiss the claims brought by PIMCO.our 2019 Annual Report:


It is not known at this time whether Wells Fargo will seek to withhold funds from other Legacy RMBS transactions or whether other RMBS trustees will attempt to take similar action. We hold a substantial Legacy RMBS portfolio, the ratings, yield and value
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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 may further affect our ability to issue funding agreements bearing a floating rate of interestinterest.
RegulatorsTo 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 law enforcement agencies in the UK and elsewhere are conducting civil and criminal investigations into whether the banks that contribute to the British Bankers’ Association (BBA) in connection with the calculation of daily LIBOR may have been under-reporting or otherwise manipulating or attempting to manipulate LIBOR. A number of BBA member banks have entered into settlements with their regulators and law enforcement agencies with respect to this alleged manipulation of LIBOR.

Actions by the BBA, regulators or law enforcement agencies may result in changes to the manner in which LIBOR is determined or the establishment of alternative reference rates. For example, on July 27, 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted in the UK or elsewhere. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the trading market for LIBOR-based securities, including those held in our investment portfolio and may further adversely affect our ability to issue funding agreements bearing a floating rate of interest. As of September 30, 2017, 28%oversee execution of our invested assets were floating rate investments, some of which were referenced to LIBOR.





The following updates and replaces the second, fourth and fifth paragraphs of the similarly named risk factor included in our 2016 Annual Report:

We rely significantly on third parties for investment services and certain other services related to our policies, and we may be held responsible for obligations that arise from the acts or omission of third parties under their respective agreements with us if they are deemed to have acted on our behalf.

Many of our subsidiaries’ products and services are sold through third-party intermediaries. In particular, our insurance businesses are reliant on such intermediaries to describe and explain these products and services to potential customers, and although we take precautions to avoid this result, such intermediaries may be deemed to have acted on our behalf. If that occurs, the intentional or unintentional misrepresentation of our subsidiaries’ products and services in advertising materials or other external communications, or inappropriate activities by our personnel or an intermediary could result in liability for us and have an adverse effect on our reputation and business prospects, as well as lead to potential regulatory actions or litigation involving or against us. In addition, as a result of our acquisitions, we rely on third-party administrators (TPAs) to administer a portion of our annuity contracts, as well as a small amount of legacy life insurance business. We currently rely on these TPAs to administer a number of our policies. Some of our reinsurers also use TPAs to administer business reinsured to them by us.plan. To the extent any of these TPAs do not administerthat management effort and attention is focused on other matters, such business appropriately, we may experience customer complaints, regulatory intervention and other adverse impacts, which could affect our future growth and profitability. If any of these TPAs or their employees are found to have made material misrepresentations to our policyholders, violated applicable insurance, privacy or other laws and regulations or otherwise engaged in misconduct, we could be held liable for their actions, which could adversely affect our reputation and business prospects, as well as lead to potential regulatory actions or litigation against us. Our U.S. insurance subsidiaries have experienced increased service and administration complaints relatedresponding to the conversion and administrationrisk posed by COVID-19, successfully completing all of the Aviva USA life insurance policies reinsured to affiliatesphases of Global Atlantic by the TPA retained by such Global Atlantic affiliates to provide services on such policies, as well as on certain annuity policies that were on Aviva USA’s life systems that were also converted to and are being administered by the same TPA. As a result of these increased complaints and service-related issues, our U.S. insurance subsidiaries may be subject to increased regulatory scrutiny, including fines and penalties, and policyholder litigation. To date, the New York State Department of Financial Services is in the process of conducting a market conduct examination and the Texas Department of Insurance has notified us that it intends to undertake an enforcement proceeding, in each case, relatingplan prior to the treatmentdiscontinuation of policyholders subject to our reinsurance agreements with affiliates of Global Atlantic andLIBOR could become more difficult. Although we expect that we will be successful at completing all the conversion of such annuity policies, including the administration of such blocks by such TPA. Additionally, if anyphases of our TPAs failsplan prior to perform in accordance with our standards,the discontinuation of LIBOR, we may incur additional costs in connection with finding and retaining new TPAs, which may divert the time and attentioncan provide no assurance at this time. Failure to complete all phases of our senior management from our business.

Further, on April 6, 2016, the DOL issued the fiduciary rule which imposes upon third parties who sell annuities within Employee Retirement Income Security Act of 1974 (as amended, ERISA) plans or to individual retirement account (IRA) holders a fiduciary duty to retirement investors. For the year ended December 31, 2016, of our total deposits of $8.8 billion from our organic channels, 42% was associated with sales of FIAs to employee benefit plans and IRAs and 14% was associated with traditional fixed annuities sold to employee benefit plans and IRAs. The requirements of the fiduciary rule were originally scheduled to begin to be implemented on April 10, 2017, with full implementation on January 1, 2018. The DOL delayed the applicability date of the fiduciary rule for 60-days to June 9, 2017 and, in addition to delaying the applicability date, the DOL adjusted the exemption requirements that apply to sales in the interim period starting June 9, 2017 until the full compliance date of January 1, 2018. On July 6, 2017, the DOL issued a request for information (RFI) regarding the fiduciary rule. The DOL indicated that the information gathered from the responsesplan prior to the RFI “could form the basisdiscontinuation of new exemptions or changes/revisions”. Along with the request for comments about the fiduciary rule and its impact, the DOL asked for commentary regarding the potential impact of extending the January 1, 2018 full compliance date. On August 9, 2017, the DOL submitted to the Office of Management and Budget a proposal to extend the January 1, 2018 full implementation date to July 1, 2019. In order for the extension to become effective, the proposal must be finalized and issued in the Federal Register before January 1, 2018. We are assisting our distribution partners with the interim requirements.

The fiduciary rule's obligations for distributors of products to retirement accounts may result in additional compliance costs to us, regulatory scrutiny and litigation, as well as reduced product sales. Since the fiduciary rule is in the process of being implemented, we are not able to assess the actual impact that such regulations may have on us and our associates. If the fiduciary rule is fully implemented in its current form, our results of operations and financial condition may be negatively impacted as we implement the fiduciary rule’s numerous requirements.




Risks Relating to Insurance and Other Regulatory Matters

The following updates and replaces the specified paragraphs of the similarly named sections of the risk factor entitled “Changes in the laws and regulations governing the insurance industry or otherwise applicable to our business, including the DOL fiduciary regulation,LIBOR may have a material adverse effect on our business, financial condition, liquidity,position, results of operations and prospects” included in our 2016 Annual Report. There have been no material changes to other sectionscash flows. See Item 2. Management’s Discussion and Analysis of such risk factor, which include: “Non-Bank SIFIs,” “FIAs,” “U.S. Consumer Protection LawsFinancial Condition and PrivacyResults of Operations–Industry Trends and Data Security Regulation,” and “NAIC.”

U.S. Federal Oversight

Competition-Discontinuation of LIBOR for further discussion.
The following updates and replaces, in their entirety, the third paragraphsimilarly 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 “U.S. Federal Oversight” subsection included withinCOVID-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 2016 Annual Report:

On April 6, 2016, the DOL issued a new regulation more broadly defining the circumstances under which a person is considered to be a fiduciary by reason of giving investment advice or recommendations to an employee benefit plan or a plan’s participants or to IRA holders.UK. In addition, Athora is subject to releasingmultiple legal and regulatory regimes that may hinder or prevent it from achieving its business objectives.

Our investment in the investment advice regulation,PK AirFinance securitization of loans is subject to risks to the DOL: (1) issued a new prohibited transaction class exemption, referred to as BICE, to be usedaircraft and airline industries generally, and specifically in connection with the saledecrease in air travel as a result of FIAs the spread of COVID-19, which has likely resulted in a reduction in aircraft valuations and/or variable annuities,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 (2) updatedre-market the previously prohibited transaction class exemption 84-24,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 used in connectionrecognized, beginning with the saleequity tranche of traditional fixed rate annuities. The April 10, 2017 applicability datethe 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 DOL regulation was delayed to June 9, 2017,loans originated by these entities, we may suffer significant losses on our investments in response to a memorandum issued to the DOL by President Trump.these entities and our financial condition, results of operations and cash flows could be adversely affected. In addition to delaying the applicability dateconcentration risk arising from our investments in single issuers within the nonbank lending sector of the DOL regulation,financial services industry, we have significant exposure to the DOL revised both exemptions, most notably allowing all annuity products, fixed, FIAs and variable annuities, to rely on an updated versionfinancial services industry more broadly as a result of the prohibited transaction class exemption 84-24 from June 9, 2017 through January 1, 2018, at which time full implementationcomposition of the DOL regulation is required. On August 9, 2017, the DOL submitted to the Officeinvestments in our investment portfolio. As of Management and Budget a proposal to extend the January 1, 2018 full implementation date to July 1, 2019. In order for the extension to become effective, the proposal must be finalized and issued in the Federal Register before January 1, 2018. For the year ended DecemberMarch 31, 2016,2020, 13% of our total deposits of approximately $8.8 billion from organic channels, 42% was associated with sales of FIAs to employee benefit plans and IRAs and 14% was associated with traditional fixed annuities sold to employee benefit plans and IRAs. We cannot predict with any certainty the impact of the new regulation and exemptions, but the regulation and exemptions could alter the way our products and services are marketed and sold, particularly to purchasers of IRAs and individual retirement annuities. If implementednet invested assets were invested in its current form, the DOL regulation could have an adverse effect on our ability to write new business. In addition, the NAIC has implemented a working group to update the current Suitability in Annuity Transactions Model Regulation to address the fiduciary standard and the SEC has indicated that it may propose rules creating a uniform standard of conduct applicable to broker-dealers and investment advisers. The NAIC or SEC rules, if adopted, may affect the distribution of our products. In addition, should the SEC and NAIC rules, if adopted, not align with each other or the finalized DOL regulations, the distribution of our products could be further complicated.

Regulation of Over-The-Counter (OTC) Derivatives

The following updates and replaces the third paragraph of the "Regulation of Over-The-Counter (OTC) Derivatives" subsection includedissuers within the 2016 Annual Report:

financial services industry, excluding CLOs. The Dodd-Frank Act and the CFTC rules thereunder require us, in connection with certain swap transactions, to comply with mandatory clearing and on-facility trade execution requirements, and it is anticipated that the types of swaps subject to these requirements will be expanded over time. In addition, new regulations require us to comply with mandatory minimum margin requirements for uncleared swaps and, in some instances, uncleared security-based swaps. Uncleared swap variation margin regulations issued by U.S. bank prudential regulators, the CFTC and regulators in certaincurrent economic downturn or any further macroeconomic, regulatory or other jurisdictions, such as the European Union and Canada, generally took effect on March 1, 2017. These regulations require market participants to enter into agreements consistent with the requirements thereunder and a failure to do so could result in trading disruptions. Derivative clearing requirements and mandatory margin requirements could increase the cost of our risk mitigation and could have other implications. For example, increased margin requirements, combined with netting restrictions and restrictions on securities that qualify as eligible collateral, could reduce our liquidity and require increased holdings of cash and highly liquid securities with lower yields causing a reduction in income. In addition, the requirement that certain trades be centrally cleared through clearinghouses subjects us to documentation that is significantly more counterparty-favorable and may entitle counterparties to unilaterally change such terms as trading limits and the amount of margin required. The ability of any such counterparty to take such actions could create trading disruptions and liquidity concerns. Finally, the requirement that certain trades be centrally cleared through clearinghouses concentrates counterparty risk in both clearinghouses and clearing members. The failure of a clearinghouse could have a significantchanges having an adverse impact on the financial system. Even if a clearinghouse does not fail, large losses could force significant capital calls on clearinghouse members during a financial crisis, which could lead clearinghouse members to default. Because clearinghouses are still developing and the related bankruptcy process is untested, it is difficult to anticipate or identify all actual risks related to the default of a clearinghouse.



Risks Relating to Taxation

The following updates and replaces the similarly named risk factor included in our 2016 Annual Report:

Changes in U.S. tax law might adversely affect us or our shareholders.

The tax treatment of non-U.S. companies and their U.S. and non-U.S. insurance subsidiaries has been the subject of Congressional discussion and legislative proposals. Legislative proposals relating to the tax treatment of non-U.S. companies have been introduced in the past that could, if enacted, materially affect us. Both the U.S. Congress and President Trump’s administration have indicated a desire to reform the U.S. Internal Revenue Code of 1986, as amended. In November, Chairman Brady (R-TX) of the House Committee on Ways and Means released proposed legislation entitled the Tax Cuts and Jobs Act of 2017 (the Proposed Bill). The Proposed Bill would, if enacted, reduce corporate tax rates to 20%, impose a 20% excise tax on payments made by domestic insurers to related foreign insurers under certain circumstances, and significantly accelerate taxable income and therefore cash tax expense by the imposition of other changes which would impact life insurance companies, among others. Although a reduction in the corporate tax rate would generally have a positive impact on the earnings and cash flow of our U.S. companies, the imposition of the proposed 20% excise tax and other components of the Proposed Bill could, if enacted, add significant expense and have a material adverse effect on our results of operations.  

The Proposed Bill also includes proposals that could, if enacted, affect whether AHL or any of its non-U.S. subsidiaries are treated as a “passive foreign investment company” (PFIC) or a “controlled foreign corporation” (CFC). Whether or not the Proposed Bill is enacted, interpretations of U.S. federal income tax law, including those regarding whether a company is engaged in a trade or business (or has a permanent establishment) within the United States or is a PFIC, or whether U.S. persons are required to include in their gross income “subpart F income” or related person insurance income (RPII) of a CFC, are subject to change, possibly on a retroactive basis. Regulations regarding the application of the PFIC rules to insurance companies and regarding RPII are only in proposed form. Whether or not the Proposed Bill is enacted, new regulations or pronouncements interpreting or clarifying the existing proposed regulations may be forthcoming.

It is possible that the Proposed Bill will be amended significantly before passage, that other legislative proposals could emerge in the future or that no tax legislation is enacted in the near future. Such amendments or future proposals could also have an adverse impact on us. No prediction can be made as to whether any particular proposed legislation will be enacted or, if enacted, what the specific provisions or the effective date of any such legislation would be, or whether it would have any effect on us. As such, we cannot assure you that future legislative, administrative or judicial developments will not result in an increase in the amount of U.S. tax payable by us or by an investor in our Class A common shares or reduce the attractiveness of our products. If any such developments occur, our business, financial condition and results of operation could be materially and adversely affected andservices industry more broadly, could have a material and adverse effect on yourour 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 September 30, 2017March 31, 2020 are set forth below:
Period
(a) Total number of shares purchased1
(b) Average price paid per share1
(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
July 1 – July 31, 2017232
$49.61
—
$—
August 1 – August 31, 2017—
$—
—
$—
September 1 – September 30, 2017290
$52.31
—
$—
     
1 Purchases relate to shares withheld (under the terms of employee stock compensation plans) to offset tax withholding obligations that occur upon the delivery of outstanding shares underlying restricted stock units or upon the exercise of stock options.
2 As of September 30, 2017, our Board of Directors had not authorized any purchases of common stock in connection with a publicly announced plan or program.
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:
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.


104
Item 3.    Defaults Upon Senior Securities
Table of Contents


None.


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 – 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)


105
Item 4.    Mine Safety Disclosures

Not applicable.

Table of Contents
Item 5.    Other Information

None.





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: November 7, 2017May 8, 2020/s/ Martin P. Klein
 Martin P. Klein
 Executive Vice President and Chief Financial Officer
 (principal financial officer and duly authorized signatory)






EXHIBIT INDEX


106
Exhibit No.Description
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.
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.