KEY RATING DRIVERS
Fitch's rationale for the ratings reflects the company's strong earnings, solid risk-adjusted capitalization, minimal financial leverage, and market leadership position in the fixed-index annuity market. Offsetting these positives are the company's very rapid growth, relatively short operating history and somewhat aggressive investment portfolio.
Athene's operating earnings have been strong since inception. Fitch believes the favorable economics of recent acquisitions have allowed the company to earn returns in excess of traditional life insurance companies. Over the long term Athene expects to lock in a long-term interest spread of approximately 250 basis points on the difference between an expected investment return on assets of 6%?7% and the cost of funds on its annuity liabilities of 3%?4%. This translates into a long-term GAAP return on equity target of 15%?20%. In aggregate, Athene has thus far met these expectations.
Fitch views Athene's risk-based capitalization (RBC) as solid for the rating category. Athene targets an RBC ratio of 400% or greater across its U.S. insurance operations. Favorably, the company has very modest financial leverage and currently has no plans to introduce additional financial leverage in the near- to intermediate-term.
As a result of the
Fitch views Athene's investment portfolio as somewhat aggressive relative to traditional life insurance companies. Athene has an above-average exposure to structured securities, in particular non-agency RMBS that the company acquired beginning in 2011 at a steep discount.
In 2012 and 2013,
The key rating triggers that could result in a rating upgrade include:
--Continued successful execution of
--Additional seasoning of the company's acquired in-force book of business over the next 6-12 months and demonstrated profitability of new sales;
--Strong, consistent operating performance as measured by an operating ROE of 15% or higher;
--Maintenance of operating leverage on a consolidated GAAP basis of 17x or less and financial leverage under 10%.
The key rating triggers that could result in a ratings downgrade include:
--Any unexpected issues arising from the integration of
--The announcement of any other sizable acquisitions in the near term that reduce management focus on the
--Deterioration in operating performance, resulting in run-rate operating losses for four consecutive quarters;
--An increase in operating leverage on a consolidated GAAP basis to over 25x;
--Significant changes in asset allocation, which may include an increase in limited partnership exposure to over 15% or a large increase in below-investment grade exposure.
Additional information is available at 'www.fitchratings.com'.
--'Insurance Rating Methodology' (
Insurance Rating Methodology
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Source: Fitch Ratings
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