Athene Holding: Growth in Annuities

08/30/2017 2:50 am EST


James Pearce

Director of Research, Investing Daily

Athene Holding Ltd. (ATH), a retirement services company, issues, reinsures, and acquires retirement savings products designed for individuals and institutions seeking to fund retirement needs in the United States, the District of Columbia, and Germany, notes Jim Pearce, editor of Investing Daily's Systematic Wealth.

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It offers fixed deferred, immediate, and payout annuities; funding agreements to institutional investors; and life insurance and unit-linked products. The company was incorporated in 2008 and is based in Pembroke, Bermuda.

Peter Lynch is rightfully remembered for being one of the all-time great growth fund managers. However, what is less known is that many of the stocks that brought him that fame were in fairly mundane industries such as insurance and annuities, which is where our "Rapid Profits Matrix" found Athene Holding after it recently released a better than expected earnings report.

The fixed annuity business is essentially an interest rate arbitrage where scale is paramount since profit margins are narrow and being able to buy bonds in large (and therefore more highly discounted) quantities is the biggest driver of profit margins.

According to the company, Athene has been able to increase the “net investment earned rate” on its bond portfolio to 4.85% while its “cost of crediting” has been reduced to 1.89% for a gross investment margin of 2.96%, one of the highest spreads in the industry.

ATH is close to breaking out above the $54 level, first achieved four months ago after the company’s IPO last December. The market is still trying to figure out a fair valuation for ATH and with a PEG ratio of only 0.20, it appears the stock has a lot more room to the upside.

Financial stocks are coming back into vogue now that it appears the Fed may not be raising interest rates as fast as first believed, and ATH is a relatively new name that should start getting a lot of attention. 

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