Fitch Ratings has assigned Insurer Financial Strength (IFS) ratings of 'A+' to Athene Holding Ltd.'s recently formed captives Athene Co-Invest Reinsurance Affiliate 2A Ltd. and Athene Co-Invest Reinsurance Affiliate 2B Ltd. (collectively ACRA 2).

The Rating Outlook is Stable.

Key Rating Drivers

The 'A+' IFS rating reflects application of the Captive Insurance Companies rating methodology contained within Fitch's Insurance Rating Criteria and Fitch's assessment that ACRA 2 meets the standards to be considered a Core Captive. As a result, Fitch has assigned the IFS rating of Athene's insurance operating subsidiaries to ACRA 2. The ratings assigned to ACRA 2 are consistent with those assigned to Athene's previously established ACRA entities.

Fitch's treatment of ACRA 2 as a core captive is driven by Athene's strong willingness and ability to support the entities. In addition, ACRA 2's mission and strategic goals are intricately tied to Athene's while also serving a clear economic purpose. ACRA 2 will derive 100% of its business from Athene through reinsurance from Athene's existing operating subsidiaries.

ACRA 2 is a Bermuda-domiciled reinsurer. 100% of its voting shares and 50% of its economic interest is owned by Athene Life Re Ltd. (ALRe), and the remaining 50% of the economic interest is owned by third-party investors through non-voting shares held by the Apollo/Athene Dedicated Investment Program II (ADIP II). Fitch expects that Athene will eventually sell additional economic interest to ADIP II such that its ownership is approximately 33%-37%.

Similar to Athene's existing ACRA entities, ACRA 2 will reinsure qualifying transactions from Athene to support growth in Athene's core business, although Athene will retain the ultimate liability for the policies. Qualifying transactions include substantially all new inorganic transactions, pension group annuity transactions, funding agreement transactions and certain flow reinsurance transactions and retain annuity business. In connection with each qualifying transaction that ACRA 2 elects to participate, ACRA 2 will draw the required capital from ALRe and ADIP II equal to their proportionate economic interest in ACRA 2.

Future capital needs to support the business may be drawn from both Athene and ADIP II. Currently, ACRA 2 has capital commitments of approximately $2 billion, with the expectation that total commitments will exceed the roughly $4 billion committed under the first ADIP program. Athene will manage ACRA 2 to the same standards as its other operating subsidiaries from a capital and underwriting perspective while also having full control over ACRA 2's day-to-day operations. Additionally, qualifying transactions will be fully priced and underwritten by Athene prior to being ceded into ACRA 2.

Fitch views Athene's ability to voluntarily recapture business ceded to ACRA 2, should ACRA 2's capital fall below certain defined thresholds, as critical to its ability to provide support. Athene's ability to execute this support mechanism does not require approval of ADIP II as long as the defined capital conditions are met. Under Fitch's criteria, the ability to provide support decreases if it is contingent on approvals of minority capital contributors.

Underperformance of the business ceded to ACRA could lead to capital strain at Athene. Such risks are reflected in Athene's ratings and may become more pronounced as the amount of business ceded to Athene's ACRA entities grows.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

An upgrade of Athene's IFS ratings may result in an upgrade if Fitch's view of the parent's willingness and ability to support ACRA 2 has not changed.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A downgrade of Athene's IFS rating;

A reported RBC of below 280% at ACRA 2 that is not cured, or any failure of either ALRe or ADIP II to support the business in line with their commitments may lead to a negative rating action.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

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