Q2 2024 F&G Annuities & Life Inc Earnings Call

Speaker Change: Good morning and welcome to the F&G's second quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode.

Operator: Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions, with instructions to follow at that time. And, as a reminder, this conference call is being recorded.

Operator: During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. And as a reminder, this conference call is being recorded. I would now like to turn the call over to Lisa Foxworthy-Parker, SVP, Investor, and External Relations.

Speaker Change: Following the presentation, the conference will be open for questions with instructions to follow at that time. And as a reminder, this conference call is being recorded. I would now like to turn the call over to Lisa Foxworthy Parker, SVP, Investor in External Relations. Please go ahead.

Lisa Foxworthy Parker: I would now like to turn the call over to Lisa Foxworthy Parker, SVP, Investor, and External Relations. Please go ahead.

Lisa Foxworthy-Parker: Great. Thanks, Operator, and welcome, everyone. Joining me today are Chris Blunt, Chief Executive Officer, and Wendy Young, Chief Financial Officer. We look forward to addressing your questions following our prepared remarks. Today's earnings call may include forward-looking statements and projections under the Private Securities Litigation Reform Act, which do not guarantee future events or performance. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events, or changes in strategy.

Lisa Foxworthy Parker: Great, thanks operator, and welcome everyone. Joining me today are Chris Blunt, Chief Executive Officer, and Wendy Young, Chief Financial Officer. We look forward to addressing your questions following our prepared remarks.

Speaker Change: Great. Thanks, Operator, and welcome, everyone. Joining me today are Chris Blunt, Chief Executive Officer, and Wendy Young, Chief Financial Officer. We look forward to addressing your questions following our prepared remarks.

Lisa Foxworthy Parker: Today's earnings call may include forward-looking statements and projections under the Private Securities Litigation Reform Act, which do not guarantee future events or performance. We do not undertake any duties to revise or update such statements to reflect new information, subsequent events, or changes in strategy. Please refer to our most recent SEC filings for a discussion of factors that could cause actual results to differ materially from those expressed or implied.

Speaker Change: Today's earnings call may include forward-looking statements and projections under the Private Securities Litigation Reform Act, which do not guarantee future events or performance.

Speaker Change: We do not undertake any duty to revise or update such statements to reflect new information, subsequent events, or changes in strategy. Please refer to our most recent SEC filings for a discussion of the factors that could cause actual results to differ materially from those expressed or implied.

Lisa Foxworthy-Parker: Please refer to our most recent SEC filings for a discussion of the factors that could cause actual results to differ materially from those expressed or implied. This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. Non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules within our earnings release, financial supplement, and investor presentation, all of which are available on the company's website.

Lisa Foxworthy Parker: This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. Non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules within our earnings release, financial supplement, and investor presentation, all of which are available on the company's website.

Speaker Change: This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors.

Speaker Change: non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules within our earnings release, financial supplement, and investor presentation, all of which are available on the company's website.

Lisa Foxworthy Parker: Today's call is being recorded and will be available for webcast replay at fglife.com. It will also be available through telephone replay beginning today at 1 p.m. Eastern Time through August 13th, 2024.

Lisa Foxworthy-Parker: Today's call is being recorded and will be available for webcast replay at FGLife.com. It will also be available through telephone replay beginning today at 1 p.m. Eastern Time through August 13th, 2024. Now, I'll turn the call over to our CEO, Chris Blunt.

Speaker Change: Today's call is being recorded and will be available for webcast replay at FGLife.com. It will also be available through telephone replay beginning today at 1 p.m. Eastern Time through August 13, 2024.

Christopher Blunt: And now I'll turn the call over to our CEO, Chris Blunt. Good morning, everyone. Thanks for joining us to discuss our second quarter results. We've delivered another terrific quarter and continued to build on our performance of the last three months. I'd like to highlight the strong progress we've made over the last year in delivering toward our Investor Day value creation levers. During our Investor Day held in October 2023, we outlined the potential for upside from asset growth, margin expansion, and multiple uplift. We used performance in the second quarter of 2023 as our baseline and looked out over a five-year medium-term horizon to illustrate key financial targets.

Speaker Change: And now, I'll turn the call over to our CEO , Chris Blunt.

Chris Blunt: Good morning, everyone. Thanks for joining us to discuss our second quarter results. We've delivered another terrific quarter and continue to build on our proven track record. Before reviewing our performance over the last three months, I'd like to highlight the strong progress we've made over the last year in delivering on our Investor Day value creation levers. During our Investor Day held in October 2023, we outlined the potential for upside from asset growth, margin expansion, and multiple uplift. We used performance in the second quarter of 2023 as our baseline and looked out over a five-year medium-term horizon to illustrate key financial targets.

Chris Blunt: Good morning, everyone. Thanks for joining us to discuss our second quarter results. We've delivered another terrific quarter and continue to build on our proven track record.

Chris Blunt: Before reviewing our performance over the last three months, I'd like to highlight the strong progress we've made over the last year in delivering toward our Investor Day value creation levers.

Speaker Change: During our Investor Day held in October 2023, we outlined the potential for upside from asset growth, margin expansion, and multiple uplift.

Speaker Change: We used performance in the second quarter of 2023 as our baseline and looked out over a five-year medium-term horizon to illustrate key financial targets. Over the last 12 months, our business has been hitting on all cylinders, and we are currently on pace to achieve our targets.

Chris Blunt: Over the last 12 months, our business has been hitting on all cylinders, and we are currently on pace to achieve our targets. Starting with asset growth, second quarter AUM before flow reinsurance of $61.4 billion increased 21% over the last year, driven by retail and PRT sales. We are well on our way toward our targeted 50% growth in AUM before flow reinsurance by 2028. We now expect to achieve this target on a net basis as well, as we deploy proceeds from the $250 million preferred stock investment that F&F made earlier this year to accelerate the growth of our retained AUM above the level considered at the time of our investor day. Next, margin expansion.

Christopher Blunt: Over the last 12 months, our business has been hitting on all cylinders, and we are currently on pace to achieve our targets. Starting with asset growth, second quarter AUM before flow reinsurance of 61.4 billion increased 21 percent over the last year driven by retail and PRT sales. We are well on our way toward our targeted 50 percent growth in AUM before flow reinsurance by 2028. We now expect to achieve this target on a net basis, as well as we deploy proceeds from the $250 million preferred stock investment that F&F made earlier this year to accelerate the growth of our retained AUM above the level considered at the time of our Investor Day.

Chris Blunt: Starting with asset growth, second quarter AUM before flow re-insurance of $61.4 billion increased 21% over the last year, driven by retail and PRT sales.

Chris Blunt: We are well on our way toward our targeted 50% growth in AUM before flow re-insurance by 2028.

Chris Blunt: We now expect to achieve this target on a net basis as well as we deploy proceeds from the 250 million dollar preferred stock investment that F&F made earlier this year to accelerate the growth of our retained AUM above the level considered at the time of our investor day.

Christopher Blunt: Next, margin expansion. Adjusted return on assets excluding significant items expanded to 130 basis points in the second quarter, primarily driven by investment margin, disciplined expense management, and a creative flow reinsurance, as well as enhanced earnings power from own distribution. This is above our 110 basis point ROA baseline from our Investor Day, and we are closing in on our targeted range of 133 to 155 basis points. This strong performance has generated both ROE and multiple expansion. We've expanded adjusted return on equity, excluding significant items, over the last year, from 10% to 12% as we advance toward our targeted range of 13 to 14%.

Chris Blunt: Adjusted return on assets excluding significant items expanded to 130 basis points in the second quarter, primarily driven by investment margin, disciplined expense management, and accretive flow reinsurance, as well as enhanced earnings power from owned distribution. This is above our 110 basis point ROA baseline from our investor day, and we are closing in on our targeted range of 133 to 155 basis points. This strong performance has generated both ROE and multiple expansion. We've expanded adjusted return on equity, excluding significant items, over the last year from 10 percent to 12 percent as we advance toward our targeted range of 13 to 14 percent. Lastly, multiple uplift.

Chris Blunt: Next, Margin Expansion.

Chris Blunt: Adjusted return on assets, excluding significant items, expanded to 130 basis points in the second quarter.

Chris Blunt: primarily driven by investment margin.

Chris Blunt: Disciplined Expense Management and Accretive Flow Reinsurance, as well as Enhanced Earnings Power from Owned Distribution.

Chris Blunt: This is above our 110 basis point ROA baseline from our investor day, and we are closing in on our targeted range of 133 to 155 basis points.

Chris Blunt: This strong performance has generated both ROE and multiple expansion. We've expanded adjusted return on equity, excluding significant items over the last year from 10% to 12% as we advance toward our targeted range of 13 to 14%.

Christopher Blunt: Lastly, multiple uplift. We are pleased to see increasing recognition of the intrinsic value of FG's new business platform and growing enforced book in its stock price, which was trading at approximately seven times PE multiple on consensus 2025 earnings at June 30. This is up from the five to six time multiple a year ago and is now more in line with peers, although not fully yet reflecting our margin expansion and growth rate of earnings. We see further potential for improvement to the market multiple on our core business, as well as a multiple re-rating from our own distribution strategy.

Chris Blunt: We are pleased to see increasing recognition of the intrinsic value of F&G's new business platform and growing in-force book in its stock price, which was trading at approximately seven times the P.E. multiple on consensus 2025 earnings at June 30. This is up from the five to six times multiple a year ago and is now more in line with peers, although not fully yet reflecting our margin expansion and growth rate of earnings. We see further potential for improvement to the market multiple on our core business, as well as a multiple re-rating from our own distribution strategy.

Chris Blunt: Lastly, multiple uplift. We are pleased to see increasing recognition of the intrinsic value of F&G's new business platform and growing in-force book in its stock price, which was trading at approximately seven times P.E. multiple on consensus 2025 earnings at June 30.

Chris Blunt: This is up from the 5 to 6 time multiple a year ago, and is now more in line with peers, although not fully yet reflecting our margin expansion and growth rate of earnings.

Chris Blunt: We see further potential for improvement to the market multiple on our core business as well as a multiple re-rating from our own distribution strategy.

Chris Blunt: Overall, we continue to have great momentum in executing our strategy, and we're on pace to achieve our financial targets. Now, turning to results for the quarter, starting with sales. We delivered record gross sales of $4.4 billion in the second quarter, up 47% over the prior year quarter, driven by record retail sales and robust institutional sales. Record retail sales from our agency bank and broker-dealer channels were $3.2 billion, up 39% over the prior year quarter and topping the $3 billion quarterly level for the first time.

Christopher Blunt: Overall, we continue to have great momentum in executing our strategy, and we're on pace to achieve our financial targets.

Chris Blunt: Overall, we continue to have great momentum in executing our strategy, and we're on pace to achieve our financial targets.

Christopher Blunt: Now turning to results for the quarter, starting with sales, we delivered record gross sales of 4.4 billion in the second quarter, a 47% increase over the prior year quarter, driven by record retail sales and robust institutional sales. Record retail sales from our agency bank at broker-dealer channels were 3.2 billion, up 39% over the prior year quarter and topping the 3 billion quarterly level for the first time. This is in line with industry annuity sales that continue to surge due to favorable economic conditions. Robust institutional market sales of 1.2 billion increased from 700 million in the prior year quarter and can fluctuate quarter to quarter.

Chris Blunt: This is in line with industry annuity sales that continue to surge due to favorable economic conditions. Robust institutional market sales of $1.2 billion increased from $700 million in the prior year quarter and can fluctuate quarter to quarter. This included $300 million of pension risk transfer sales, which contributed to a new record of $900 million in PRT sales for the first half of the year, and $900 million of funding agreements as we returned to the FABN market for the first time in two years, given more favorable market conditions. F&G's retained sales were $3.4 billion in the second quarter, up 55% over the prior year quarter.

Speaker Change: Now, turning to results for the quarter, starting with sales. We delivered record gross sales of $4.4 billion in the second quarter, up 47% over the prior year quarter, driven by record retail sales and robust institutional sales.

Chris Blunt: Record retail sales from our agency, bank, and broker-dealer channels were $3.2 billion, up 39% over the prior year quarter, and topping the $3 billion quarterly level for the first time.

Chris Blunt: This is in line with industry annuity sales that continue to surge due to favorable economic conditions.

Chris Blunt: Robust institutional market sales of $1.2 billion increased from $700 million in the prior year quarter and can fluctuate quarter to quarter.

Christopher Blunt: This included 300 million of pension risk transfer sales, which contributed to a new record of 900 million in PRT sales the first half of the year and 900 million of funding agreements as we returned to the FABN market for the first time in two years, given more favorable market conditions. F&G's retained sales were 3.4 billion in the second quarter, up 55% over the prior year quarter. As a reminder, we manage the level of flow reinsurance in line with our capital targets and are able to adjust up or down over time as market economics change. We have profitably grown retained assets under management to a record 52.2 billion at June 30.

Chris Blunt: This included $300 million of pension risk transfer sales, which contributed to a new record of $900 million in PRT sales for the first half of the year.

Chris Blunt: and $900 million of funding agreements as we return to the FABN market for the first time in two years, given more favorable market conditions.

Speaker Change: F&G's retained sales were $3.4 billion in the second quarter, up 55% over the prior year quarter. As a reminder, we manage the level of flow reinsurance in line with our capital targets, and are able to adjust up or down over time as market economics change.

Chris Blunt: As a reminder, we manage the level of flow reinsurance in line with our capital targets and are able to adjust up or down over time as market conditions change. We have profitably grown retained assets under management to a record $52.2 billion at June 30. This is an increase of $6 billion, or 13% over the second quarter of 2023, and driven by net new business flows, stable enforced retention, and net debt and equity proceeds over the last 12 months. AUM before Flow Reinsurance was $61.4 billion, adjusting for approximately $9.2 billion of cumulative new business seeded.

Speaker Change: We have profitably grown retained assets under management to a record $52.2 billion at June 30.

Christopher Blunt: This is an increase of 6 billion or 13% over the second quarter at 2023 and driven by net new business flows, stable enforced retention, and net debt and equity proceeds over the last 12 months. AUM before flow reinsurance was 61.4 billion, adjusting for approximately 9.2 billion of cumulative new business seeded. We continue to see sustainable long-term momentum for growth across our multi-channel new business platform and strong demand for our products, given very attractive demographic tailwinds as well as large and growing markets. We serve a market where very attractive demographic tailwinds as 10,000 baby boomers are retiring every day.

Speaker Change: This is an increase of $6 billion, or 13%, over the second quarter of 2023, and driven by net new business flows, stable in-force retention, and net debt and equity proceeds over the last 12 months.

Speaker Change: AUM before Flow Reinsurance was $61.4 billion, adjusting for approximately $9.2 billion of cumulative new business seeded.

Chris Blunt: We continue to see sustainable long-term momentum for growth across our multi-channel new business platform and strong demand for our products, given very attractive demographic tailwinds, as well as large and growing markets. We serve a market with very attractive demographic tailwinds, as 10,000 baby boomers are retiring every day. Demand for our fixed annuity products continues to grow as people plan for a retirement that could last 30 or more years and are seeking solutions that can withstand market volatility.

Speaker Change: We continue to see sustainable long-term momentum for growth across our multi-channel new business platform and strong demand for our products given very attractive demographic tailwinds as well as large and growing markets.

Speaker Change: We serve a market with very attractive demographic tailwinds as 10,000 baby boomers are retiring every day. Demand for our fixed annuity products continues to grow as people plan for a retirement that could last 30 plus years and are seeking solutions that can withstand market volatility.

Christopher Blunt: Demand for our fixed annuity products continues to grow as people plan for retirement. They could last 30 plus years and are seeking solutions that can withstand market volatility. Both retirees and advisors are turning to fixed annuities for simplicity, relatively higher interest rates, guaranteed tax-deferred growth, and principal protection as an alternative to the traditional 60/40 investment portfolio. We are strategically positioned for long-term growth by targeting large and growing markets where our products have reached beyond the traditional retail life and annuity sector, and a lot of cash currently remains on the sidelines, with more than six trillion of cash parked in money market funds, and investors are expected to start putting their money to work as money market rates come down.

Chris Blunt: Both retirees and advisors are turning to fixed annuities for simplicity, relatively higher interest rates, guaranteed tax-deferred growth, and principal protection as an alternative to the traditional 60-40 investment portfolio. We are strategically positioned for long-term growth by targeting large and growing markets where our products have reach beyond the traditional retail life and annuity sector. A lot of cash currently remains on the sidelines, with more than $6 trillion of cash parked in money market funds, and investors are expected to start putting their money to work as money market rates come down.

Speaker Change: Both retirees and advisors are turning to fixed annuities for simplicity, relatively higher interest rates, guaranteed tax-deferred growth, and principal protection as an alternative to the traditional 60-40 investment portfolio.

Speaker Change: We are strategically positioned for long-term growth by targeting large and growing markets where our products have reached beyond the traditional retail life and annuity sector.

Speaker Change: and a lot of cash currently remains on the sidelines.

Speaker Change: with more than six trillion of cash parked in money market funds and investors are expected to start putting their money to work as money market rates come down.

Chris Blunt: We expect our industry will continue to see a strong surge in sales in the near term as consumers look to lock in higher rates through products like fixed annuities. Earlier this year, we entered the fast growing registered indexed linked annuities market, or RILA, which generated $45 billion in industry sales in 2023. Our product offering is differentiated in the market, uniquely meeting the needs of a relatively younger demographic. We are focused on onboarding key partners in the broker-dealer channel in 2024 and expect steady growth toward meaningful sales in 2025. We expect Ryla to be a significant contributor to sales over the next few years, with the potential to grow as big as our FIA sales are today.

Christopher Blunt: We expect our industry will continue to see a strong surge in sales in the near term, as consumers look to lock in higher rates through products like fixed annuities.

Speaker Change: We expect our industry will continue to see a strong surge in sales in the near term.

Speaker Change: as consumers look to lock in higher rates through products like fixed annuities.

Christopher Blunt: Earlier this year, we entered the fast growing registered indexed linked annuities market, or RILA, which generated 45 billion of industry sales in 2023. Our product offering is differentiated in the market, uniquely meeting the needs of a relatively younger demographic. We are focused on onboarding key partners in the broker-dealer channel in 2024, and expect steady growth toward meaningful sales in 2025. We expect RILA will be a significant contributor to sales over the next few years, with the potential to grow as big as our FIA sales are today. Additionally, we continue to see a healthy pipeline in the pension-risk transfer industry with 3.8 trillion of corporate pension plans at or near full funding.

Speaker Change: Earlier this year, we entered the fast-growing Registered Indexed Linked Annuities Market, or RILA, which generated $45 billion of industry sales in 2023.

Speaker Change: Our product offering is differentiated in the market, uniquely meeting the needs of a relatively younger demographic. We are focused on onboarding key partners in the broker-dealer channel in 2024, and expect steady growth toward meaningful sales in 2025.

Speaker Change: We expect RYLA will be a significant contributor to sales over the next few years, with the potential to grow as big as our FIA sales are today.

Chris Blunt: Additionally, we continue to see a healthy pipeline in the pension risk transfer industry with 3.8 trillion of corporate pension plans at or near full funding. We are positioned to compete in our targeted $100 million to $1 billion deal size with the potential to strategically move more up market or down market as opportunities arise. Overall, F&G is well positioned for growth and has terrific momentum as we leverage our strong relationships with our distribution partners, our comprehensive and competitive product portfolio designed to meet consumer needs, our multi-channel new business platform across both retail and institutional markets, and our investments for growth, including our superior and scalable ecosystem.

Speaker Change: Additionally, we continue to see a healthy pipeline in the pension risk transfer industry with $3.8 trillion of corporate pension plans at or near full funding.

Christopher Blunt: We are positioned to compete in our targeted 100 million to $1 billion deal size, with potential to strategically move more upmarket or downmarket as opportunities arise.

Speaker Change: We are positioned to compete in our targeted $100 million to $1 billion deal size with potential to strategically move more upmarket or downmarket as opportunities arise.

Christopher Blunt: Overall, F&G is well positioned for growth and has terrific momentum. We leverage our strong relationships with our distribution partners, our comprehensive and competitive product portfolio designed to be consumer needs, our multi-channel new business platform across both retail and institutional markets, and our investments for growth, including our superior and scalable ecosystem. Most importantly, we have a consistent track record of success managing through market cycles. In 2020, we grew sales and generated stable return on assets when interest rates were nearly zero. In 2023, we grew sales and generated stable and expanding return on assets when interest rates were at multi-decade highs.

Speaker Change: Overall, F&G is well positioned for growth and has terrific momentum as we leverage our strong relationships with our distribution partners, our comprehensive and competitive product portfolio designed to meet consumer needs.

Speaker Change: our multi-channel new business platform across both retail and institutional markets, and our investments for growth, including our superior and scalable ecosystem.

Chris Blunt: Most importantly, we have a consistent track record of success managing through market cycles. In 2020, we grew sales and generated stable and expanding return on assets when interest rates were nearly zero. In 2023, we grew sales and generated stable and expanding return on assets when interest rates were at multi-decade highs. That is the resilience of our business model.

Speaker Change: Most importantly, we have a consistent track record of success managing through market cycles. In 2020, we grew sales and generated stable return on assets when interest rates were nearly zero.

Speaker Change: In 2023, we grew sales and generated stable and expanding return on assets when interest rates were at multi-decade highs. That is the resiliency of our business model. F&G performs well in a low-rate environment and even better in a higher-rate environment.

Christopher Blunt: That is the resiliency of our business model. F&G performs well in a low rate environment and even better at a higher rate environment. Turning to our investment portfolio, our fixed income yield, excluding alternative investment volatility and variable investment income, was 4.6% in the second quarter, 26 basis points higher than the second quarter of 2023. This reflects upside from higher yields on new investments. Going forward, we have now had two-thirds of our floating rate asset exposure, which would make our investment income less susceptible to lower rates over time. Wendy will speak more to this in a moment.

Chris Blunt: F&G performs well in a low rate environment and even better in a higher rate environment. Turning to our investment portfolio, our fixed income yield, excluding alternative investment volatility and variable investment income, was 4.6% in the second quarter, 26 basis points higher than the second quarter of 2023. This reflects the upside from higher yields on new investments. Going forward, we have now hedged two-thirds of our floating rate asset exposure, which should make our investment income less susceptible to lower rates over time. Wendy will speak more about this in a moment.

Speaker Change: Turning to our investment portfolio, our fixed income yield, excluding alternative investment volatility and variable investment income, was 4.6% in the second quarter, 26 basis points higher than the second quarter of 2023.

Speaker Change: This reflects upside from higher yields on new investments.

Speaker Change: Going forward, we have now hedged two-thirds of our floating rate asset exposure, which should make our investment income less susceptible to lower rates over time. Wendy will speak more to this in a moment.

Christopher Blunt: The portfolio remains high quality, with 96% of fixed maturities being investment grade. Credit related impairments averaged five basis points over the last three years, which was exceptionally low given the market disruption during 2020 to 2023, from the pandemic, regional bank crisis, and sharp uptick in interest rates. Through the first half of the year, credit-related impairments remained below our pricing. Regarding our commercial real estate debt portfolio, it is high quality, diversified with the vast majority invested in defensive sectors. Regarding the office sector, we have a below average concentration; CMBF, CMLs, and limited partnerships comprise 18% of the total portfolio, with only 1.8% in office.

Chris Blunt: The portfolio remains high quality, with 96% of fixed maturities being investment grade. Credit-related impairments averaged five basis points over the last three years, which is exceptionally low given the market disruption during 2020 to 2023 from the pandemic, the regional bank crisis, and the sharp uptick in interest rates. Through the first half of the year, credit-related impairments remained below our estimates.

Wendy Young: The portfolio remains high-quality, with 96% of fixed maturities being investment-grade.

Wendy Young: Credit-related impairments averaged five basis points over the last three years, which was exceptionally low given the market disruption during 2020 to 2023 from the pandemic, regional bank crisis, and sharp uptick in interest rates.

Wendy Young: Through the first half of the year, credit-related impairments remained below our pricing.

Chris Blunt: Regarding our commercial real estate debt portfolio, it is high quality, diversified, with the vast majority invested in defensive sectors. Our commercial mortgage loan portfolio is entirely first mortgages with an average load-to-value of 60%, healthy debt service coverage ratios above one times for nearly 99% of the book, and only 8% of loans maturing in the next 24 months. Regarding the office sector, we have a below average concentration; CMBS, CMLs, and Limited Partnerships comprise 18% of the total portfolio, with only 1.8% in office.

Speaker Change: Regarding our commercial real estate debt portfolio, it is high quality, diversified, with a vast majority invested in defensive sectors.

Speaker Change: Our commercial mortgage loan portfolio is entirely first mortgages with an average loan to value of 60%, healthy debt service coverage ratios above one time for nearly 99% of the book and only 8% of loans maturing in the next 24 months.

Speaker Change: Regarding the office sector, we have a below-average concentration. CMBS, CMLs, and Limited Partnerships comprise 18% of the total portfolio, with only 1.8% in office.

Chris Blunt: Overall, our total portfolio is diversified, well-positioned, and actively managed through our selective de-risking programs to perform in varying market conditions. Our asset allocation strategy remains stable, and our invested assets are well-matched to our clean and stable liability profile.

Christopher Blunt: Overall, our total portfolio is diversified, well-positioned, and actively managed through our selective de-risking programs to perform in varying market conditions. Our asset allocation strategy remains stable, and our invested assets are well-matched to our clean and stable liability profile.

Speaker Change: Overall, our total portfolio is diversified, well-positioned, and actively managed through our selective de-risking programs to perform in varying market conditions. Our asset allocation strategy remains stable, and our invested assets are well-matched to our clean and stable liability profile.

Christopher Blunt: Next, turning to our own distribution strategy. During July of 2024, F&G increased its ownership stake in Freedom Equity Group, or FEG, a top-life IMO, and longtime F&G partner, to approximately 30% to 100%. FEG was our first investment in own distribution, having taken a minority ownership stake in late 2021, and our successful partnership has exceeded expectations. FEG is strategically positioned in the rapidly expanding multi-cultural markets, and our joint efforts position us to accelerate IUL sales growth to meet the risk and retirement needs of those underserved market segments. FEG is a great example of our own distribution strategy, which generates a meaningfully higher risk-adjusted return on capital than retain business and provides a diversifying source of earnings.

Chris Blunt: Next, turning to our own distribution strategy. During July of 2024, F&G increased its ownership stake in Freedom Equity Group, or FEG, a top life insurance company and long-time F&G partner, from approximately 30% to 100%. FEG was our first investment in owned distribution, having taken a minority ownership stake in late 2021, and our successful partnership has exceeded expectations. FEG is strategically positioned in the rapidly expanding multicultural markets, and our joint efforts position us to accelerate IUL sales growth to meet the risk and retirement needs of those underserved market segments.

Speaker Change: Next, turning to our own distribution strategy.

Speaker Change: During July of 2024, F&G increased its ownership stake in Freedom Equity Group, or FEG, a top LIFE IMO and longtime F&G partner.

Speaker Change: from approximately 30% to 100%.

Speaker Change: F&G was our first investment in owned distribution, having taken a minority ownership stake in late 2021, and our successful partnership has exceeded expectations.

Speaker Change: FEG is strategically positioned in the rapidly expanding multicultural markets, and our joint efforts position us to accelerate IUL sales growth to meet the risk and retirement needs of those underserved market segments.

Chris Blunt: F&G is a great example of our own distribution strategy, which generates a meaningfully higher risk-adjusted return on capital, then retains business, and provides a diversifying source of earnings. Owned distribution further strengthens our relationships with key partners, and with industry consolidation underway, we believe we are uniquely positioned to partner as a distribution consolidator. Our strategy is already proving to be a meaningful contributor to overall margin. To date, we have invested $680 million, and we expect EBITDA from the portfolio to be $60 to $65 million in 2024, with double-digit annual growth over the medium term.

Speaker Change: F&G is a great example of our own distribution strategy, which generates a meaningfully higher risk-adjusted return on capital than retained business and provides a diversifying source of earnings.

Christopher Blunt: Own distribution further strengthens our relationships with key partners, and with industry consolidation underway, we believe we are uniquely positioned to partner as a distribution consolidator. Our strategy is already proving to be a meaningful contributor to overall margin. To date, we have invested $680 million, and we expect EBITDA from the portfolio to be 60 to 65 million in 2024 with double-digit annual growth over the median term.

Speaker Change: Owned Distribution further strengthens our relationships with key partners, and with industry consolidation underway, we believe we are uniquely positioned to partner as a distribution consolidator. Our strategy is already proving to be a meaningful contributor to overall margin.

Speaker Change: To date we have invested $680 million and we expect EBITDA from the portfolio to be $60-65 million in 2024 with double digit annual growth over the medium term.

Christopher Blunt: In summary, the first half is positioned as well for another strong year of performance in 2024. We have plenty of momentum to continue to deliver sustainable asset growth from our retail and pension risk transfer growth strategies, as well as ongoing margin expansion from enhanced investment margin opportunities, operational scale benefits, and fee-based earnings from accretive flow re-insurance. We are poised to further diversifier earnings, given the strong growth of our middle market life insurance business, and own distribution strategies.

Chris Blunt: In summary, the first half has positioned us well for another strong year of performance in 2024. We have plenty of momentum to continue to deliver sustainable asset growth from our retail and pension risk transfer growth strategies, as well as ongoing margin expansion from enhanced investment margin opportunities, operational scale benefits, and fee-based earnings from accretive flow reinsurance. We are poised to further diversify our earnings given the strong growth of our middle market life insurance business and own distribution strategies. I will now turn the call over to Wendy to provide further details on F&G's second quarter financial highlights.

Speaker Change: In summary, the first half has positioned us well for another strong year of performance in 2024.

Speaker Change: We have plenty of momentum to continue to deliver sustainable asset growth from our retail and pension risk transfer growth strategies, as well as ongoing margin expansion from enhanced investment margin opportunities, operational scale benefits, and fee-based earnings from accretive flow reinsurance.

Speaker Change: We are poised to further diversify our earnings given the strong growth of our middle market life insurance business and own distribution strategies. Let me now turn the call over to Wendy to provide further details on F&G's second quarter financial highlights.

Wendy Young: Let me now turn the call over to Wendy to provide further details on F&G's second quarter financial highlights. Thanks, Chris. This morning, I'll focus my comments on the following: adjusted net earnings, details on our surrender experience and strong positive cash flow position, and update on our floating rate asset hedging program, as well as our strong capital and liquidity position. Starting with earnings, adjusted net earnings attributable to common shareholders for the second quarter was $139 million or $1.10 per share, and included $145 million or $1.00 per share of investment income from alternative investment, and $4 million or $3.00 per share of CLO redemption gains and bottom-prepayment income.

Wendy Young: Chris, this morning, I'll focus my comments on the following adjusted net earnings, details on our surrender experience and strong positive cash flow position, and an update on our floating rate asset hedging program, as well as our strong capital and liquidity position. Starting with earnings.

Wendy Young: Thanks, Chris. This morning, I'll focus my comments on the following. Adjusted net earnings, details on our surrender experience and strong positive cash flow position, and update on our floating rate asset hedging program, as well as our strong capital and liquidity position.

Wendy Young: Adjusted net earnings attributable to common shareholders for the second quarter was $139 million or $1.10 per share and included $145 million or $1.11 per share of investment income from alternative investments and $4 million or $0.03 per share of CLO redemption gains and bond prepayment income. The quarter also included $16 million, or $0.12 per share, of net expense from actuarial model updates and refinements, which are separate from our annual actuarial assumption review that will be performed in the third quarter.

Wendy Young: Starting with earnings, adjusted net earnings attributable to common shareholders for the second quarter was $139,000,000 or $1.10 per share and included $145,000,000 or $1.11 per share of investment income from alternative investments and $4,000,000 or $0.03 per share of CLO redemption gains and bond prepayment income.

Wendy Young: The quarter also included $16 million, or 12 cents per share, of net expense from actuarial model updates and refinements, which are separate from our annual actuarial assumption review that will be performed in the third quarter. Investment income from alternative investments based on management's long-term expected return of approximately 10% was $165 million, or $1.26 per share. Excluding significant items, adjusted net earnings were 171 million in the second quarter, up 33% over 129 million in the second quarter of 2023. This increased reflex at growth margin diversification from a pretty slow re-insurance and own distribution, disciplined expense management, and higher interest expense as a result of planned capital market activity.

Wendy Young: Investment income from alternative investments based on management's long-term expected return of approximately 10% was $165 million, or $1.26 per share. Excluding significant items, adjusted net earnings were $171 million in the second quarter, up 33% over $129 million in the second quarter of 2023.

Speaker Change: The quarter also included $16 million, or $0.12 per share, of net expense from actuarial model updates and refinements.

Wendy Young: which are separate from our annual actuarial assumption review that will be performed in the third quarter. Investment income from alternative investments based on management's long-term expected return of approximately 10% was $165 million or $1.26 per share.

Speaker Change: Excluding significant items, adjusted net earnings were $171 million in the second quarter, up 33% over $129 million in the second quarter of 2023.

Wendy Young: This increase reflects asset growth, margin diversification from accretive flow reinsurance and owned distribution, disciplined expense management, and higher interest expense as a result of planned capital market activity. Adjusted return on assets excluding significant items was 130 basis points in the second quarter, comprised of 107 basis points of core margin, 14 basis points of flow reinsurance fee income, and nine basis points of owned distribution margin. This was up 14 basis points over the second quarter of 2023 and brings our adjusted ROA over the last 12 months to 124 basis points.

Wendy Young: This increase reflects asset growth, margin diversification from accretive flow reinsurance and owned distribution, disciplined expense management, and higher interest expense as a result of planned capital market activity.

Wendy Young: Adjusted return on assets excluding significant items was 130 basis points in the second quarter, comprised of 107 basis points of core margin, 14 basis points of flow re-insurance fee income, and 9 basis points of own distribution margin. This was up 14 basis points over the second quarter 2023 and brings our adjusted ROA over the last 12 months to 124 basis points. With regard to surrenders, we continue to see steady growth in our FIA account value as net deposits from new business continue to well outpace terminations. FIA positive net inflows were over 575 million in the second quarter, consistent with the first quarter, as shown on page 12 of our summer 2024 investor presentation.

Wendy Young: Adjusted return on assets excluding significant items was 130 basis points in the second quarter comprised of 107 basis points of core margin, 14 basis points of flow reinsurance fee income, and 9 basis points of owned distribution margin.

Wendy Young: This was up 14 basis points over the second quarter 2023 and brings our adjusted ROA over the last 12 months to 124 basis points.

Wendy Young: With regard to surrenders, we continue to see steady growth in our FIA account value as net deposits from new business continue to well outpace terminations. FIA positive net inflows were over $575 million in the second quarter, consistent with the first quarter as shown on page 12 of our summer 2024 investor presentation. As a reminder, for insurance companies like F&G, terminations typically provide a boost to earnings from the surrender charge fees and release capital that, in turn, can be deployed to new business volumes having higher surrender charges and longer surrender periods than the older contracts, further improving the liability profile. F&G benefits from a diversified and predictable in-force book. Our funding agreements, pension risk transfer, and immediate annuities are non-surrenderable.

Wendy Young: With regard to surrenders, we continue to see steady growth in our FIA account value as net deposits from new business continue to well outpace terminations.

Wendy Young: FIA-positive net inflows were over $575 million in the second quarter, consistent with the first quarter as shown on page 12 of our Summer 2024 Investor Presentation.

Wendy Young: As a reminder, for insurance companies like F&G, terminations typically provide a boost to earnings from the surrender charge fees and release capital that in turn can be deployed to new business volumes having higher surrender charges and longer surrender periods than the older contracts, further improving the liability profile. F&G benefits from a diversified and predictable enforced book are funding agreements, pensioners, transfer, and immediate annuities are non-surrenderable. Fixed rate, multi-year guaranteed annuities typically have a 3, 5, or 7-year contractual maturity that are lumpy. Further details on net flows for both index and fixed rate annuities are disclosed on page 13 in our quarterly financial supplement.

Wendy Young: As a reminder, for insurance companies like F&G, terminations typically provide a boost to earnings from the surrender charge fees and release capital that in turn can be deployed to your account.

Wendy Young: to new business volumes having higher surrender charges and longer surrender periods than the older contracts, further improving the liability profile.

Speaker Change: F&G benefits from a diversified and predictable in-force book. Our funding agreements, pension risk transfer, and immediate annuities are non-surrenderable. Fixed rate multi-year guaranteed annuities typically have a 3, 5, or 7 year contractual maturity that are lumpy.

Wendy Young: Fixed-rate multi-year guaranteed annuities typically have a three, five, or seven-year contractual maturity that is lumpy. Further details on net flows for both index and fixed-rate annuities are disclosed on page 13 in our quarterly financial supplement. Turning to our floating rate asset portfolio, we have now hedged $6.7 billion, or approximately two-thirds of our floating rate assets, to preserve the investment margin on existing assets. Our floating rate exposure has been very beneficial over the last couple of years as interest rates increased.

Speaker Change: Further details on net flows for both indexed and fixed rate annuities are disclosed on page 13 in our quarterly financial supplement.

Wendy Young: Turning to our floating rate asset portfolio, we have now had 6.7 billion, or approximately two-thirds of our floating rate assets, to preserve the investment margin on existing assets. Our floating rate exposure was very beneficial over the last couple of years as interest rates increased. Through hedging, we have increased our earnings stability and predictability going forward by locking in about 188 basis points of incremental yield above original pricing. This translates into approximately 15 to 20 basis points of annual incremental investment margin, abrupt pricing over the next three to five years. For now, we expect the remaining net floating rate asset exposure to remain around the current level of 3.4 billion to help support our asset liability management objectives, as most are short term and will mature within three years.

Speaker Change: Turning to our floating rate asset portfolio, we have now hedged $6.7 billion or approximately two-thirds of our floating rate assets to preserve the investment margin on existing assets.

Speaker Change: Our floating rate exposure was very beneficial over the last couple of years as interest rates increased.

Wendy Young: Through hedging, we have increased our earnings stability and predictability going forward by locking in about 188 basis points of incremental yield above original pricing. This translates into approximately 15 to 20 basis points of annual incremental investment margin above pricing over the next three to five years.

Speaker Change: Through hedging, we have increased our earnings stability and predictability going forward by locking in about 188 basis points of incremental yield above original pricing.

Speaker Change: This translates into approximately 15 to 20 basis points of annual incremental investment margin abrupt pricing over the next three to five years.

Wendy Young: For now, we expect the remaining net floating rate asset exposure to remain around the current level of $3.4 billion to help support our asset liability management objectives as most are short-term and will mature within three years. Finally, turning to our balance sheet, we ended the quarter with F&G equity attributable to common shareholders, excluding AOCI, of $5.4 billion, or $42.52 per share, with 126 million common shares outstanding as of June 30. There are a couple of pages in our investor presentation providing an analysis of book value per share.

Speaker Change: For now, we expect the remaining net floating rate asset exposure to remain around the current level of $3.4 billion to help support our asset liability management objectives as most are short-term and will mature within three years.

Wendy Young: Finally, turning to our balance sheet, we ended the quarter with F&G equity attributable to common shareholders excluding AOCI of 5.4 billion, or $42.52 for share, with 126 million common shares outstanding as of June 30th. There are a couple of pages in our investor presentation providing an analysis of book value for share. Our consolidated debt outstanding increased to 2.1 billion at June 30th, reflecting a 300 million net increase for the successful refinance and partial tender offer of our upcoming 2025 senior note maturity. Our debt to capitalization ratio excluding AOCI was 26.4% as of June 30th. We expect this ratio to revert to a long-term target of 25% once during many 300 million of senior notes mature in 2025.

Speaker Change: Finally, turning to our balance sheet, we ended the quarter with F&G equity attributable to common shareholders excluding AOCI of $5.4 billion for $42.52 per share with 126 million common shares outstanding as of June 30th.

Speaker Change: There are a couple of pages in our investor presentation providing an analysis of book value per share.

Wendy Young: Our consolidated debt outstanding increased to $2.1 billion at June 30th, reflecting a $300 million net increase for the successful refinance and partial tender offer of our upcoming 2025 senior note maturity. Our debt-to-capitalization ratio, excluding AOCI, was 26.4% as of June 30th. We expect this ratio to revert to our long-term target of 25% once the remaining $300 million of senior notes mature in 2025. Our annual interest expense is approximately $130 million, or roughly a 7% blended yield on the $2.1 billion of total debt outstanding.

Speaker Change: Our consolidated debt outstanding increased to $2.1 billion at June 30th, reflecting a $300 million net increase for the successful refinance and partial tender offer of our upcoming 2025 senior note maturity.

Speaker Change: Our debt-to-capitalization ratio, excluding AOCI, was 26.4% as of June 30. We expect this ratio to revert to our long-term target of 25% once the remaining $300 million of senior notes mature in 2025.

Wendy Young: Our annual interest expense is approximately 130 million, or roughly a 7 percent blended yield on the 2.1 billion of total debt outstanding. We continue to target holding company cash and invested assets at two times interest coverage. Our capital allocation priorities focus on deploying our capital to maximize shareholder value through continued investment in our business, as well as returning cash to shareholders. F&G is well positioned to generate growth at attractive returns, and our scale allows us to self-fund our growth with enforced capital generation, three insurance and capital market issuances. For 2024, our stable and profitable enforced book is expected to generate more than 1 billion in capital, and we have a strong capital generation from existing reinsurance arrangements in the range of 500 million.

Speaker Change: Our annual interest expense is approximately $130 million or roughly a 7% blended yield on the $2.1 billion of total debt outstanding.

Wendy Young: We continue to target holding company cash and invested assets at two times interest coverage. Our capital allocation priorities focus on deploying our capital to maximize shareholder value through continued investment in our business, as well as returning cash to shareholders. F&G is well positioned to generate growth at attractive returns, and our scale allows us to self-fund our growth with enforced capital generation, reinsurance, and capital market issuances. For 2024, our stable and profitable enforced book is expected to generate more than $1 billion in capital, and we have strong capital generation from existing reinsurance arrangements in the range of $500 million.

Speaker Change: We continue to target holding company cash and invested assets at two times interest coverage.

Wendy Young: Our capital allocation priorities also support our approximately 105 million annual dividend to common shareholders, as well as 16 million annual dividend on the preferred stock held by F&F. We feel the common dividend is sustainable and expected to increase over time. F&G continues to maintain strong capitalization and financial flexibility with all of our statutory balance sheets, including our offshore entities, which are considerably managed to the most stringent of capital requirements of our regulators and our for rating agencies.

Wendy Young: Our capital allocation priorities also support our approximately $105 million annual dividend to common shareholders, as well as $16 million annual dividend on the preferred stock held by F&F. We feel the common dividend is sustainable and expected to increase over time. F&G continues to maintain strong capitalization and financial flexibility with all of our statutory balance sheets, including our offshore entities, which are conservatively managed to the most stringent of capital requirements of our regulators and our four rating agencies.

Speaker Change: Our capital allocation priorities also support our approximately $105 million annual dividend to common shareholders, as well as $16 million annual dividend on the preferred stock

Speaker Change: F&G continues to maintain strong capitalization and financial flexibility with all of our statutory balance sheets, including our offshore entities, which are conservatively managed to the most stringent of capital requirements of our regulators and our four rating agencies.

Wendy Young: In summary, we continue to build on our proven track record. We have good momentum in executing our strategy and delivered another solid quarter. We remain focused on achieving our investor day objectives, and we are seeing good momentum in driving both retained asset growth and margin expansion. Importantly, this quarter once again demonstrates that we are positioned to perform across market cycles and that we can consistently deliver strong results with attractive and expanding margins over time.

Wendy Young: In summary, we continue to build on our proven track record. We have good momentum in executing our strategy and delivered another solid quarter. We remain focused on achieving our Investor Day objectives, and we are seeing good momentum in driving both retained asset growth and margin expansion. Importantly, this quarter once again demonstrates that we are positioned to perform across market cycles and that we can consistently deliver strong results with attractive and expanding margins over time. This concludes our prepared remarks. Let me now turn it back to our operator for questions. Thank you.

Speaker Change: Importantly, this quarter once again demonstrates that we are positioned to perform across market cycles and that we can consistently deliver strong results with attractive and expanding margins over time.

Unknown Executive: This concludes our prepared remarks.

Operator: Let me now turn it back to our operator for questions. Thank you. And we will now begin the question-and-answer session. If you would like to ask a question, please press star, then one on your touch-tone phone. You may need to pick up your handset before pressing the keys. To answer all your questions, please press star, then two. And at this time, we will pause momentarily for the first question.

Speaker Change: This concludes our prepared remarks. Let me now turn it back to our operator for questions.

Operator: Thank you, and we will now begin the question and answer session. If you would like to ask a question, please press star then 1 on your touchtone phone. You may need to pick up your handset before pressing the keys.

Operator: To withdraw your question, please press star then 2. At this time, we will pause momentarily for the first question. And our first question today will come from John Barnidge with Piper Sandler. Please go ahead.

Speaker Change: To withdraw your question, please press star then 2. At this time, we will pause momentarily for the first question.

John Barnidge: And our first question today will come from John Barnage with Piper Sammler.

Unknown Executive: Please go ahead.

Christopher Blunt: Good morning. Thanks for the opportunity. Can you maybe talk about the decision to increase the ownership stake and Freedom Equity Group to a hundred from thirty percent pipeline for additional employment? You clearly chopped a lot of wood here in a short amount of time on the own capital and deploying that one billion target into targets. So, yeah, curious about Freedom Equity Group and the pipeline for additional. Thank you. Sure, great. Thanks, John. Yeah, it's a couple things. One, we just love the business. It's been a long-standing partnership for us. They represent a huge chunk of our IUL sales, which is one of our more profitable products, but we just really like the business.

John Barnidge: Good morning. Thanks for the opportunity. Can you maybe talk about the decision to increase the ownership stake and Freedom Equity Group to 100 from 30% of the pipeline for additional deployment? You clearly chopped a lot of wood here in a short amount of time on the owned capital in deploying that $1 billion target into targets. So yeah, curious about Freedom Equity Group and the pipeline for additional. Thank you.

Chris Blunt: Sure, great. Thanks, John. Yeah, I'd say a couple things.

Chris Blunt: One, we just love the business. It's been a long-standing partnership for us. They represent a huge chunk of our IUL sales, which is one of our more profitable products, but we just really like the business, we like the growth of the business, the earnings growth, how they're positioned. They have a dominant position in the middle market, specifically in the cultural markets in the U.S., which are growing very, very rapidly. So we're really excited about it.

Christopher Blunt: We like the growth of the business, the earnings growth, how they're positioned. They have a dominant position in the middle markets, specifically in the cultural markets in the US, which are growing very, very rapidly. So really excited about it. I think when we took the minority stake, the hope that wasn't this would play out the way that it's played out. And you're right, we've now deployed almost 700 million into own distribution. I think you heard from Wendy. It's already making a meaningful contribution to spread and giving us a diversified source of earnings. In terms of pipeline, it's very deal-specific.

Chris Blunt: I think when we took the minority stake, the hope was that this would play out the way that it's played out, and you're right. We've now deployed almost $700 million into owned distribution. I think you heard from Wendy, it's already making a meaningful contribution to spread and giving us a diversified source of earnings. In terms of pipeline, it's very deal-specific, so again, the billion dollars was more a question around the opportunity as opposed to a near-term target for deployment, but yeah, we do think there are probably other interesting opportunities for us, but thanks for the question.

Speaker Change: You know, now deployed almost $700 million into owned distribution.

Speaker Change: I think you heard from Wendy, it's all ready.

Wendy Young: and giving us a diversified source of earnings.

Unknown Executive: So again, the billion dollars was more a question around the opportunity as opposed to a near-term target for deployment. But yeah, we do think there's probably other interesting opportunities for us. But thanks for the question.

Unknown Executive: Thanks for that answer, Chris.

Chris Blunt: Thanks for that answer, Chris. My follow-up question is on the floating rate portfolio. You've clearly reduced your exposure by about two-thirds. Can you maybe talk about the earning sensitivity of the remaining portion of the floating portfolio to movements and rates? And then maybe how is your new money rate printed as well? Thank you.

Jonathan Bass: My follow-up question is on the floating report fall. You clearly reduce your exposure by about two thirds. Can you maybe talk about the earning sensitivity of the remaining portion of the floating portfolio to movements and rates? And then maybe how is your new money rate trended as well. Thank you. Yeah, great. So I'd say, with respect to the hedging, yeah, we're really pleased. I mean, we again, the key here is not to be greedy. So we've not only done a number of portfolio de-riskings over the last four or five years. From a credit perspective, you just continue to tighten up the portfolio in anticipation of eventually a turn in the credit cycle.

Speaker Change: Thanks for that answer, Chris. My follow-up question is on the floating rate portfolio. You've clearly reduced your exposure by about two-thirds. Can you maybe talk about the earning sensitivity of the remaining portion of the floating portfolio to movements and rates?

Speaker Change: And then maybe how is your new money rate trended as well? Thank you.

Chris Blunt: Yeah, great. So, with respect to the hedging, yeah, we're really pleased. I mean, us again, the key here is not to be greedy.

Speaker Change: The key here is not to be greedy. So we've not only done a number of portfolio de-riskings over the last four or five years. From a credit perspective, you just continue to tighten up the portfolio in anticipation of eventually a turn in the credit cycle. But we've tried to do the same thing with respect to rates.

Chris Blunt: So we've not only done a number of portfolio de-riskings over the last four or five years, from a credit perspective, just continuing to tighten up the portfolio in anticipation of eventually a turn in the credit cycle, but we've tried to do the same thing with respect to rates. You know, we were getting pretty close to 20% of our portfolio in floating rate securities. Now, a lot of that was put on years ago when short-term rates were pretty close to zero. So that seemed like a smart call at the time.

Christopher Blunt: But we've tried to do the same thing with respect to rates. You know, we were getting pretty close to 20% of our portfolio in floaters. Now, a lot of that was put on years ago when short-term rates were pretty close to zero. So that that seemed like a smart call at the time, but as rates popped up, we had an opportunity to take that risk off the table. So we've hedged that down now to where it believes about 6.6% of the portfolio. So we've dramatically reduced our exposure to a drop here in short-term interest rates.

Speaker Change: We were getting pretty close to 20% of our portfolio in floaters. Now, a lot of that was put on years ago when short-term rates were pretty close to zero, so that seemed like a smart call at the time. But as rates popped up...

Chris Blunt: But as rates popped up, we had an opportunity to take that risk off the table. So we've hedged that down now to where I believe it's about 6.6 percent of the portfolio, so we've dramatically reduced our exposure to a drop in short-term interest rates. So if you think about that, 6.6 percent of the portfolio in floaters, you know, theoretically, a 100 basis point drop in short-term rates would be only a 6.6 basis point impact on our overall yield.

Speaker Change: We had an opportunity to take that risk off the table. So we've hedged that down now to where I believe it's about 6.6.

Speaker Change: So we've dramatically reduced our exposure to a drop here in short-term interest rates. So if you think about that, 6.6% of the portfolio in floaters, theoretically a 100 basis point drop in short-term rates would be only a 6.6%.

Christopher Blunt: So if you think about that, 6.6% of the portfolio in floaters, you know, theoretically, a hotter basis point drop in short term rates would be only a 6.6 basis point impact to our overall yield.

Chris Blunt: And then with respect to new money rates, yeah, they continue to be strong. Obviously, in the last couple of weeks, we've seen some volatility, we've seen treasury rates drop probably 40 to 50 basis points, but you've seen corporate spreads widen, I don't know, 12 to 15 basis points. But again, we're running a really dynamic business. So we re-price our products quite frequently. And so for us, it's really as they're spread in the market, and there is an opportunity to deploy those premiums pretty quickly. So, you know, we feel really good about the environment still.

Christopher Blunt: And then, with respect to new money rates, yeah, continue to be strong. Obviously, in the last couple of weeks, we've seen some volatility. We've seen treasury rates drop probably 40 to 50 basis points, but you've seen corporate spreads widen, I don't know, 12 to 15 basis points. But again, we're running a really dynamic business. So we reprise our products quite frequently. And so for us, it's really as they're spread in the market and as an opportunity to deploy those premiums pretty quickly. So, you know, we feel really good about the environment still.

Speaker Change: basis point impact to our overall yield.

Speaker Change: And then with respect to new money rates, yeah, continue to be strong. Obviously in the last couple of weeks, we've seen some volatility, we've seen treasury rates drop.

Speaker Change: Probably 40 to 50 basis points, but you've seen corporate spreads widen. I don't know, 12 to 15 basis points. But again, we're running a really dynamic business, so we reprice.

Speaker Change: our products quite frequently. And so for us, it's really as they're spread in the market, and as an opportunity to deploy those premiums pretty quickly. So, you know, we feel really good about the environment still.

Unknown Executive: Thanks for the answers.

John Barnidge: Thanks for the answers; I appreciate it.

Unknown Executive: Appreciate it.

John Campbell: And our next question will come from John Campbell with Stevens. Please go ahead. Hey, guys, this is Jonathan on for John. Thanks for taking my questions. So you guys hit a few different records this quarter. So congrats there.

Speaker Change: Thanks for the answers, appreciate it.

Operator: And our next question will come from John Campbell with Stevens. Please go ahead.

Speaker Change: And our next question will come from John Campbell with Stevens. Please go ahead.

Jonathan Bass: Hey guys, this is Jonathan on for Jon. Thanks for taking my questions. So you guys hit a few different records this quarter, so congrats there. I want to touch on one of those records, annuity sales in particular. You already touched on the trends that are driving the strength there. And it seems like that's going to continue, obviously. But, you know, maybe wondering how we should think about the growth trajectory in the back half of this year? And I know 25 is still a ways out, but any kind of direction you could provide there would be appreciated.

Speaker Change: Hey guys, this is Jonathan on for Jon. Thanks for taking my questions.

Christopher Blunt: I want to touch on one of those records, annuity sales in particular. You touched on the trends that are driving the strength there, and it seems like that's going to continue. Obviously, but, you know, maybe thinking, how should we think about the growth trajectory in the back half of this year. And I know 25 is still ways out, but any kind of direction you could provide there will be appreciated.

Jonathan: You know, maybe thinking, how should we think about the growth trajectory in the back half of this year? And I know 25 is still a ways out, but any kind of direction you could provide there would be appreciated.

Chris Blunt: Sure, this is Chris. I'll start. Wendy might want to jump in here too.

Christopher Blunt: Sure, this crystal start when you might want to jump in here, too. But, you know, I think the momentum continues to be incredibly positive. So probably one of the big misnomers out there as well, you know, rates are now going to start moving down and demand is going to dry up for fixed news. I think we're going to see the exact opposite I mentioned in my talking points. Money market fund assets post-COVID have doubled from three trillion with a T to six trillion. So there's a massive amount sitting in cash. And I think when people start seeing those money market yields go from five to four and a half to potentially four, they're going to look to lock in some rate.

Chris Blunt: But, you know, I think the momentum continues to be incredibly positive. So probably one of the big misnomers out there is, well, you know, rates are now going to start moving down, and demand is going to dry up for fixed annuities. I think we're going to see the exact opposite. As I mentioned in my talking points, money market fund assets post-COVID have doubled from 3 trillion with a T to 6 trillion. So there's a massive amount sitting in cash.

Speaker Change: Money market fund assets post-COVID have doubled from $3 trillion, with a T, to $6 trillion.

Chris Blunt: And I think when people start seeing those money market yields go from five to four and a half to potentially four, they're going to look to lock in some rate. And we think that's going to bode extremely well for our core products. Plus, if you see the short end fall and the longer end of the curve stay a bit stable, a more traditional steep yield curve is positive for demand as well.

Speaker Change: So there's a massive amount sitting in cash, and I think when people start seeing those money market yields go from five to four and a half to potentially four, they're going to look to lock in some rate, and we think that's going to bode extremely well.

Christopher Blunt: And we think that's going to bode extremely well for our core products. Plus, if you see the short end fall in the longer end of the curve, stay a bit stable. Well, in a more traditional, steep yield curve is positive for demand as well.

Speaker Change: Plus, if you see the short end fall and the longer end of the curve stay a bit stable, a more traditional steep yield curve is positive for demand as well.

Chris Blunt: So, you know, and then on top of that is the demographics, right? You got 10,000 boomers retiring every single day in the U.S. So, yeah, I think the demand outlook for the second half of the year, the demand outlook for 2025, I don't see anything slowing down top line growth right now.

Unknown Executive: So, you know, and then just on top of that is the demographics, right? You got 10,000 boomers retiring every single day in the US. So, yeah, I think the demand outlook for the second half of the year, the demand outlook for 2025, I don't see anything slowing down top line growth right now. Okay. Thank you.

Jonathan Bass: Okay, thank you. And then, you know, as a follow up. At your last Analyst Day, you guys talked about the upward pressure you expect to see in the normalized ROA. You've clearly seen that, but it seems like you're running ahead, a bit ahead of schedule. Last quarter, you posted a record, but you talked down sustainability. This quarter, you posted another record. So maybe that was just conservative conservatism, or maybe there were some favorable things in play. So I'm hoping you can talk a bit more about the strength this quarter and moving forward.

Unknown Executive: And then, you know, as a follow-up. At your last analyst day, you guys talked to the upwards pressure you expect to see in the normalized R way. You've clearly seen that, but it seems like you're running ahead a bit ahead of schedule. Last quarter, you posted a record, but talked down the sustainability. This quarter, you posted another record. So maybe that was just conservative conservatism, or maybe there were some favorable things in play. So I'm hoping you can talk a bit more to the strength of this quarter and moving forward. How are you thinking about the important metric and whether that outlook changes a lot depending on the rate environment.

Speaker Change: Okay, thank you. And then, you know, as a follow-up...

Speaker Change: At your last Analyst Day, you guys talked to the upwards pressure you expect to see in the normalized ROA. You've clearly seen that, but it seems like you're running ahead, a bit ahead of schedule. Last quarter you posted a record.

Speaker Change: But talk down the sustainability.

Speaker Change: conservatism or maybe there were some favorable things in play so I'm hoping you can talk a bit more to the strength this quarter and moving forward how are you thinking about the important metric and whether that outlook changes a lot depending on the rate environment

Chris Blunt: Yeah, I'll just give you a couple of high-level things, and then Wendy can talk to the specifics of how you should think about the quarter itself. But again, I take everybody back to our Investor Day presentation from October of last year, when we tried to be really specific about where the uplift was going to come from. We saw an uplift on the investment portfolio by just continually optimizing the portfolio, and we've seen good progress there.

Christopher Blunt: Yeah, I just frame a couple high-level things, and then when you can talk to the specifics of how you should think about the quarter itself. But again, I take everybody back to our Investor Day presentation of October of last year, and we were trying to be really specific about where the uplift was going to come from. We saw uplift on the investment portfolio of just continually optimizing the portfolio, and we've seen good progress there. We've seen some uplift, obviously from the rise in short-term rates, and we had a significant portion of the portfolio in floaters.

Speaker Change: Yeah, I'll just frame a couple high-level things and then Wendy can talk to the specifics of how you should think about the quarter itself.

Speaker Change: But again, I take everybody back to our Investor Day presentation of October .

Wendy Young: of last year, and we tried to be really specific about where the uplift was going to come from. We saw uplift on the investment portfolio of just continually optimizing the portfolio, and we've seen good progress there.

Chris Blunt: We've seen some uplift, obviously, from the rise in short-term rates, and we had a significant portion of the portfolio in floaters. We're getting operating expense scale, as we've been growing our assets at a pretty healthy clip, and yet we've committed to hold our fixed expenses to a single-digit rate, and we've been doing that. So that's a source of uplift. And then, as you're starting to see, we're getting tremendous leverage from flow reinsurance.

Speaker Change: We've seen some uplift, obviously, from the rise in short-term rates when we had...

Christopher Blunt: We're getting operating expense scale as we've been growing our assets at a pretty healthy clip, and yet we've committed to hold our fixed expenses to a single-digit rate, and we've been doing that. So that's a source of uplift. And then, as you're starting to see, we're getting tremendous leverage from flow re-insurance. When we take a sale and put it on a re-insurance balance sheet, we're generally capturing a disproportionate amount of the spread, relative to the amount of required capital. So that's obviously a creed of it, and then lastly has been owned distribution. So, yeah, I would say overall those things are progressing at a faster clip than we probably anticipated.

Speaker Change: a significant portion of the portfolio in floaters. We're getting operating expense scale as we've been growing our assets at a pretty healthy clip, and yet we've committed to hold our fixed expenses to a single-digit rate, and we've been doing that. So that's a source.

Speaker Change: And then as you're starting to see, we're getting tremendous leverage from flow reinsurance.

Chris Blunt: When we take a sale and put it on a reinsurance balance sheet, we're generally capturing a disproportionate amount of the spread relative to the amount of required capital, so that's obviously accretive. And then lastly, there has been owned distribution.

Speaker Change: Take a sale and put it on a reinsurance balance sheet. We're generally capturing a disproportionate amount of the spread relative to the amount of required capital. So that's obviously accretive. And then lastly has been owned distribution. So yeah, I would say overall, those things are progressing.

Wendy Young: So yeah, I would say overall, those things are progressing at a faster clip than we probably anticipated. So you don't want to get too excited, right? The game's not over in the third inning, but you'd rather be up by a few runs in the third than down. And then, Wayne, did you want to talk about the 1.30 and maybe some of the one-timers that might be in there?

Christopher Blunt: So you don't like it too excited, right? You know, games not over in the third inning, but you'd rather be up by a few runs in the third than down.

Wayne: You know, at a faster clip than we probably anticipated. So you don't want to get too excited, right? You know, the game's not over in the third inning, but you'd rather be up by a few runs in the third than down. And then, Wayne, did you want to talk about the 1.30 and maybe some of the one-timers that might be in there?

Wendy Young: And then when did you want to talk about the 130, and maybe some of the one-timers that might be in there? Sure, thanks, Chris. So I'll point you to page 22 of the investor presentation. We've added column, last quarter, the last 12 months, and that will kind of normalize out even any noise that we get quarter to quarter. There will be some positive negatives in there this quarter. We had some additional CLO prepayments, and then we had a model conversion that we put into place due to materiality in the quarter. So a bit of noise in there.

Wendy Young: Sure, thanks, Chris. So, I'll point you to page 22 of the investor presentation. We added a column last quarter, the last 12 months, and that will kind of normalize out even any noise that we get quarter to quarter as, you know, there'll be some positives and negatives in there. This quarter, we had some additional CLO prepayments, and then we had a model conversion that we put into place due to materiality in the quarter. So, a bit of noise in there, but the last 12 months are now at 124, and we view that as very sustainable.

Wayne: Sure, thanks Chris. So I'll point you to page 22 of the investor presentation. We've added a column last quarter, the last 12 months.

Wayne: And that will kind of normalize out even any noise that we get quarter to quarter as, you know, there'll be some positive and negatives in there this quarter. We had some additional

Wayne: CLO prepayment, and then we had a model conversion that we put into place due to materiality in the quarter. So a bit of noise in there, but the last 12 months is now at 124, and we view that as very sustainable.

Unknown Executive: But the last 12 months is now at 124, and we view that as very sustainable. Perfect. Thank you, guys.

Jonathan Bass: Perfect. Thank you, guys.

Wesley Carmichael: And our next question will come from West Carmichael with Autonomous Research. Please go ahead. Hey, good morning. First questions on funding agreement issuance in the quarter. Can you talk about what made that market a little bit more attractive, and how should we think about your outlook for issuance for the remainder of the year in FABS? Yeah, I would say West is the market that obviously was. was pretty dormant for us for the last couple of years. But, as you saw, our rates start to stabilize and come down. You know, there's a bit of a lag effect in terms of the statutory rate that affects your cost of capital, and at the same time, new money yields were coming up.

Operator: And our next question will come from Wes Carmichael with Autonomous Research. Please go ahead.

Speaker Change: Perfect. Thank you, guys.

Speaker Change: And our next question will come from Wes Carmichael with Autonomous Research. Please go ahead.

Wesley Carmichael: Hey, good morning. First question on funding agreement issuance in the quarter. Can you talk about what made that market a little bit more attractive? And what should we think about your outlook for issuance for the remainder of the year in FABS?

Wes Carmichael: Hey, good morning. First question is on funding agreement issuance in the quarter. Can you talk about what made that market a little bit more attractive, and how should we think about your outlook for issuance for the remainder of the year in FABF?

Chris Blunt: Yeah, I would say, Wes, this is a market that obviously was pretty dormant for us for the last couple of years. But, as you saw, rates have started to stabilize and come down. You know, there's a bit of a lag effect in terms of the statutory rate that affects your cost of capital. And at the same time, new money yields were coming in, and we had some attractive investment opportunities where we could earn a good spread. So it's something that we look at pretty much constantly, and when it makes sense, particularly when it makes sense relative to other uses of that capital, we tend to participate.

Speaker Change: Yeah, I would say, Wes, this is a market that obviously was...

Speaker Change: pretty dormant for us for the last couple of years, but as you saw, rates start to stabilize and come down. You know, there's a bit of a lag effect in terms of the statutory rate that affects.

Wayne: your cost of capital, and at the same time, new money yields were coming up, and we had some attractive investment opportunities where we could earn a good spread. So it's something that we look at pretty much constantly, and when it makes sense, particularly when it makes sense relative to other uses.

Christopher Blunt: And we had some attractive investment opportunities where we could earn a good spread. So it's something that we look at pretty much constantly. And when it makes sense, particularly when it makes sense relative to other uses of that capital, you know, we tend to participate.

Speaker Change: of that capital, you know, we tend to participate. I don't know, Wendy, if you want to add anything to that.

Wendy Young: I don't know, Wendy, if you want to add anything to that. But now you are...

Wendy Young: I don't know when; if you want to add anything to that. Now you at the nail in the head there, as far as going forward, those factors, it'll depend on the valuation rate and the spread that we can earn off of that. So if it looks positive, then we potentially, you know, could see additional activity. But it's kind of a week-to-week view of the markets. And we just monitor it very closely. Got it.

Chris Blunt: No, you hit the nail on the head there. As far as going forward, those factors will depend on the valuation rate and the spread that we can earn off of that. So if it looks positive, then we potentially, you know, could see additional activity, but it's kind of a week-to-week view of the markets, and we just monitor it very closely.

Wendy Young: Now you hit the nail on the head there. As far as going forward, those factors, it'll depend on the valuation rate and the spread that we can earn off of that.

Wendy Young: So if it looks positive, then we potentially could see additional activity. But it's kind of a week-to-week view of the markets, and we just monitor it very closely.

Wesley Carmichael: And just on surrenders and FIA, I know you've talked about a little bit in your prepared remarks, but can you talk about the experience just in the quarter? Realize you're still in a net flow position, but it's a pretty big sequential pickup. And I think there's about a couple billion of FIA account values that are sitting outside of the surrender charge right now. So just wondering if you kind of expect a little bit of elevated surrenders in the near future.

Wesley Carmichael: And just some surrenders in FIA. I know you've talked about a little bit in your prepared remarks. But can you talk about the experience just in the quarter? Realize you're still in a net flow position, but it's a pretty big sequential pickup. And I think there's about a couple billion of FIA account values that are sitting outside of the surrender charge right now. So just wondering if you kind of expect a little bit of elevated surrenders in the near chance. Yeah, two things I would say: if they're out of surrender charge, we would expect that and priced for that already.

Speaker Change: You got it.

Speaker Change: And just on surrenders and FIA, I know you've talked about it a little bit in your prepared remarks, but can you talk about the experience just in the quarter? I realize you're still in a net flow position, but it's a pretty big sequential tick-up, and I think there's about a couple billion of FIA account values that are sitting outside of the surrender charge right now, so I'm just wondering if you kind of expect...

Chris Blunt: Yeah, two things I would say: if they're out of surrender charge, we would expect that and have priced for that already. So that's not necessarily, wouldn't be an outlier in terms of how we plan, going forward. And I just want to reiterate what Wendy said.

Speaker Change: A little bit of elevated surrenders in the near term.

Speaker Change: Yeah, two things I would say, if they're out of surrender charge, we would expect that and priced for that already. So that's not necessarily, wouldn't be an outlier in terms of how we plan.

Christopher Blunt: So that's not necessarily wouldn't be an outlier in terms of how we plan going forward. And I just want to reiterate what Wendy said.

Christopher Blunt: You know, someone, this is more analogous probably to refinancing your mortgage. So that's what is happening. You're having this huge refinancing where the moving rates was so strong that, yeah, you had blocks of business and policies where it's actually smart for the customer to move into a new policy, you know, get better terms. Agents are obviously incentive to do that as well. So they're doing well. And actually for us, it's not a bad thing at all. I mean, we're capturing surrender charge income. So we're covered from that perspective. And now we're writing a new policy, and I think people underestimate the impact of that.

Chris Blunt: You know, someone This is probably more analogous to refinancing your mortgage. So that's what's happening. You're having this huge refinancing where the movement rates are so strong that yeah, you had blocks of business and policies where it's actually smart for the customer to move into a new policy, you know, get better terms. Agents are obviously incented to do that as well, so they're doing well, and actually, for us, it's not a bad thing at all.

Speaker Change: Going forward, and I just want to reiterate what Wendy said, you know, someone...

Speaker Change: This is...

Wendy Young: More analogous probably to refinancing your mortgage. So that's what's happening. You're having this huge refinancing where the movement rates were so strong that yeah, you had blocks of business and policies.

Speaker Change: where it's actually smart for the customer to move into a new policy, get better terms. Agents are obviously incented to do that as well, so they are doing well. And actually for us it's not a bad thing at all. I mean we are capturing surrender charge income.

Chris Blunt: I mean, we're capturing surrender charge income, so we're covered from that perspective. And now we're writing a new policy, and I think people underestimate the impact of that, meaning the stuff we're writing right now might prove to be some of the stickiest assets we've ever written, because if rates do in fact move down from here, it's going to be very hard to move those contracts prematurely. So, yeah, I don't think there was anything in the activity that either surprised us or was troubling, and I think, you know, we're going to see it probably continue for another couple of quarters and would expect that it will probably stabilize. But Wendy, anything you want to call out specifically?

Speaker Change: So we're covered from that perspective. And now we're writing a new policy, and I think people underestimate the impact of that.

Wendy Young: Meaning what the stuff we're writing right now might prove to be some of the stickiest assets we've ever written because if rates do in fact move down from here, it's going to be very hard to move those contracts prematurely. So, yeah, I don't think there was anything in the activity that either surprised us or was troubling. And I think, you know, we're going to see it probably continue for another couple of quarters and would expect that it would probably stabilize, stabilize next year.

Speaker Change: What the stuff we're writing right now might prove to be some of the stickiest assets we've ever written, because if rates do in fact move down from here, it's going to be very hard to move those contracts.

Speaker Change: prematurely. So, yeah, I don't think there was anything in the activity that

Speaker Change: either surprised us or was troubling. And I think, you know, we're going to see it probably continue for another couple of quarters and would expect that it'll probably stabilize next year. But Wendy, anything you want to call out specifically?

Wendy Young: But when do you think you want to call out specifically? No, I mean, if we're looking just at the FIA, yes, there was an uptick, but there's a lot of activity going on in that refinancing, as Chris indicated. And there's also lags to that. So, as Chris said, we do expect access to the renders to continue until rates drop significantly. And the only thing I'd add west to that is then obviously it benefits a lot of our own distribution to some of the investments we've made have been in a new idiot-oriented IMOs, and they're just crushing it in this environment.

Wendy Young: No, I mean, if we're looking just at the FIA, yes, there was an uptick, but there's, you know, There's a lot of activity going on in that refinancing, as Chris indicated. And there are also lags to that. So, as Chris said, we do expect excess lending to continue until rates drop significantly.

Wendy Young: No, I mean, if we're looking just at the FIA, yes, there was an uptick, but there's, you know,

Wendy Young: There's a lot of activity going on in that refinancing, as Chris indicated, and there's also lags to that. So as Chris said, we do expect excess renders to continue until rates drop significantly.

Chris Blunt: And the only thing I'd add, Wes, to that is that, obviously, it benefits a lot of our own distribution because some of the investments we've made have been in annuity-oriented IMOs, and they're just crushing it in this environment, not only in terms of new sales but, obviously, in terms of smart, you know, replacement sales.

Speaker Change: And the only thing I'd add, Wes, to that is then obviously it benefits a lot of our own distribution because some of the Investments we've made have been in annuity oriented IMOs and they're they're just crushing it in this environment Not only in terms of new sales, but obviously in terms of smart

Wesley Carmichael: Not only in terms of new sales but obviously in terms of smart and smart and smart and smart and smart and smart and smart and smart and smart and smart and smart Mark, you know, replacement sales. That's helpful.

Speaker Change: you know, replacement sales.

Wesley Carmichael: That's helpful. And maybe just one more, but on base spreads, if we kind of exclude alts, I think that did kind of contract a little bit quarter over quarter. And I'm just kind of wondering how you're thinking about that going forward, especially in the macro backdrop. There are, you know, a few of your peers are pointing to where investment spreads have probably peaked and could kind of potentially compress a little bit going forward. So I'm just curious how you guys are thinking about that, too.

Wesley Carmichael: And maybe just one more. But on, on base spread, if we kind of exclude all, I think that did kind of quarter of a quarter contract a little bit. And I was kind of wondering how you're thinking about that going forward, especially in the macro backdrop. There's, you know, a few of your peers are pointing to, or investments, bread that's probably peaked and could kind of potentially compress a little bit going forward. So just curious how you guys are thinking about that too.

Speaker Change: That's helpful. And maybe just one more, but on base spreads, if we kind of exclude alts, I think that did kind of quarter over quarter contract a little bit.

Speaker Change: I'm just kind of wondering how you're thinking about that going forward, especially in the macro backdrop. There's, you know, a few of your peers are pointing to where investments perhaps have probably peaked and could kind of potentially compress a little bit going forward. So just curious how you guys are thinking about that too.

Christopher Blunt: I would just say, well, it's really hard to generalize, right? Because everybody's got access to different investment opportunities. And so, yeah, we wouldn't consider that material, you know, like a few basis points. You're going to see no noise quarter to quarter. But we're not right now. I wouldn't characterize that we're experiencing spread compression. You know, you'll see volatility. But it's not like, oh, we had this hugely profitable blocks runoff to be replaced by less profitable. I mean, we're, you know, pretty comfortable with the returns of regenerating on our, on our new business right now. So, and then, you know, some of that quote-unquote core margin could also be a function of how much we choose to flow out versus retain.

Chris Blunt: I would just say it's really hard to generalize, right? Because everybody's got access to different investment opportunities. And so, yeah, we wouldn't consider that material, you know, like a few basis points. You're going to see noise quarter to quarter. But we're not right now; I wouldn't characterize that we're experiencing spread compression, you know, you'll see volatility. But it's not like, oh, we had hugely profitable blocks run off to be replaced by less profitable ones.

Speaker Change: I would just say, Wes, it's really hard to generalize, right? Because everybody's got access to different...

Wes: investment opportunities. And so, yeah, we wouldn't consider that material, you know, like a few basis points, you're going to see noise quarter to quarter. But we're not right now, I wouldn't characterize that we're

Speaker Change: Experiencing Spread.

Speaker Change: compression, you know, you'll see volatility.

Speaker Change: But it's not like, oh, we had this hugely profitable block's runoff to be replaced by less profitable. I mean, we're pretty comfortable with the returns we're generating on our...

Chris Blunt: I mean, we're pretty comfortable with the returns we're generating on our new business right now. So, and then, you know, some of that, quote, unquote, core margin could also be a function of how much we choose to flow out versus retain. I don't know, Wendy, you want to comment on that? And that's where I was going to go, Wes, if you...

Speaker Change: on our new business right now. And then, you know, some of that quote-unquote core margin could also be a function of how much we choose to flow out versus retain.

Wendy Young: I know, Wendy, you want to comment on that? Yeah, that's where I was going to go. Wes, if you look at our R-O-A-X-S-I-E, the core margin actually did increase sequentially. But then there's additional from the flow and distribution. And we've tried to highlight that in the QFS, you know, what's coming from those two items. So, you can kind of go back into the what we consider core by taking the product margin and the expenses and get to that core.

Wendy Young: And that's where I was going to go, Wes. If you look at our ROA, XSIE, the core margin actually did increase sequentially. But then there's additional from the flow and own distribution. And we've tried to highlight that in the QFS, what's coming from those two items, so you can kind of go back into what we consider core by taking the product margin and the expenses and the, and getting to that core. And that has increased.

Speaker Change: I don't know, Wendy, you want to comment on that?

Wendy Young: Yeah, that's where I was going to go, Wes, if you look at our ROA-X SIE, the core margin actually did increase sequentially.

Wendy Young: But then there's additional from the flow and own distribution. And we've tried to highlight that in the QFS, you know, what's

Speaker Change: What's coming from those two items. So you can kind of go back into the what we consider core by taking the product margin and the expenses and the

Wendy Young: And that has increased.

Speaker Change: and get to that core, and that has increased.

Operator: And once again, if you would like to ask a question, please press stars and want.

Operator: And once again, if you would like to ask a question, please press star then 1. Our next question will come from Mark Hughes with Truist. Please go ahead.

Speaker Change: Thank you.

Speaker Change: And once again, if you would like to ask a question, please press star then one. Our next question will come from Mark Hughes with Truist. Please go ahead.

Mark Hughes: Our next question will come from Mark Hughes with Truest. Please go ahead. Yeah, thank you. Good morning. Good morning, Mark. Good morning.

Mark Hughes: Chris, morning. Chris, morning, Wendy. Chris, the PRT business, if we see a declining interest rate, what is that going to do for the pipeline, new opportunities?

Mark Hughes: Yeah, thank you. Good morning.

Christopher Blunt: Chris Morning, Linda. Chris, the BRT business, if we see a declining interest rate, what is that going to do for the pipeline new opportunities? Yes, next one question. I don't think you're going to see a material change in the pipeline. You know, there's a long lead time for people to run a process and for our consultants, in particular, to do RFP. So, I don't think you're just any near-term impact on that. Most of the plans are pretty comfortably above that 100 funding level, or there are certainly a lot of them. So, the pipeline right now looks really, really strong.

Mark Hughes: Morning, Mark. Morning, Chris. Morning, Chris. Morning, Wendy. Chris, the PRT business, if we see a declining interest rate, what is that going to do for the pipeline, new opportunities?

Chris Blunt: Yeah, it's an excellent question. I don't think you're going to see a material change in the pipeline. You know, there's a long lead time for people to run a process and for consultants, in particular, to do RFPs, so I don't think you're going to see any near-term impact on that. Most of the plans are pretty comfortably above that 100 funding level, where there's certainly a lot of them. So the pipeline right now looks really, really strong.

Chris Blunt: Yeah, it's an excellent question. I don't think you're going to see a material change in the pipeline. You know, there's a long lead time for people to run a process and for

Speaker Change: consultants in particular to do RFPs. I don't think I can see any near-term.

Speaker Change: impact on that. Most of the plans are pretty comfortably above

Speaker Change: that 100 funding level, where there's certainly a lot of them. So the pipeline right now looks really, really strong. You know, if you saw some dramatic

Christopher Blunt: You know, if you saw some dramatic rates plummeted 200 basis points, I don't think we're going to see that. Maybe you could see a slowing in that market. But I don't think we're going to see any material change to the pipeline anytime soon.

Chris Blunt: You know, if you saw some dramatic, rates plummeted 200 basis points, I don't want to think we're going to see that. Maybe you could see a slowing in that market, but I don't think we're going to see any material change to the pipeline anytime soon.

Speaker Change: You know, rates plummeted 200 basis points. I don't think we're going to see that. Maybe you could see a slowing in that market, but I don't think we're going to see any material change to the pipeline any time soon.

Christopher Blunt: Yeah. Then on the RILA, as you talked about targeting kind of a younger demographic, could you talk about that? And then also... I think you mentioned you're pursuing some strategic relationships to the extent that you can. Give us some sort of sense of magnitude, timing, what it all means; that would be great. Sure, happy to.

Mark Hughes: Yeah. Then on the RILAs, you talked about targeting kind of a younger demographic. Could you talk about that? And then also... I think you mentioned you're pursuing some strategic relationships, you know, to the extent that you can. Give us some sort of sense of magnitude, timing, you know, what it all means.

Speaker Change: Yeah, then on the RILAs you talked about targeting kind of a younger demographic. Could you talk about that? And then also I think you mentioned you're pursuing some strategic relationships, you know, to the extent that you can.

Speaker Change: Give us some sort of sense of magnitude, timing, what it all means, that would be great.

Chris Blunt: Sure, happy to. Yeah, I'm smiling because, you know, the Younger Demographic. I just bought one. I don't know if I fall in that category. But, you know, younger meaning, you know, as a general rule for folks who, you know, have an elevated timeline relative to when they're actually looking to turn a profit. But they're great products for that purpose. So, one, an extremely large market, as we've talked about before, allows us to tap into folks with, one, a bit younger, but two, also with a different risk tolerance. Every product we have sold to date has a complete floor of zero for people.

Chris Blunt: That'd be great. Sure. Happy to. Yeah, I'm smiling because, you know,

Christopher Blunt: I'm smiling because younger demographic; I just bought one. I don't know if I fall in that category, but younger meaning is a general role for folks who have an elevated timeline relative to when they're actually looking to turn on income. But they're great products for that purpose. So one extremely large market, as we've talked about before, allows us to tap into folks with one a bit younger, but two also with a different risk tolerance. Every product we have sold today has a complete floor of zero for people. Here's an opportunity for folks to say, I'll take some limited downside risk.

Speaker Change: Sure, happy to. Yeah, I'm smiling because, you know, Younger Demographic, I just bought one. I don't know if I fall in that category, but, you know, but Younger meaning, you know, as a general rule for folks who, you know, have an elevated timeline relative to when they're actually looking to turn on income.

Speaker Change: But they're great products for that purpose. So one, extremely large market, as we've talked about before.

Speaker Change: allows us to tap into folks with, one, a bit younger, but two, also with a different risk tolerance. Every product we have sold to date...

Chris Blunt: You know, here's an opportunity for folks to say, hey, I'll take some limited downside risk. I'll get a buffer or a cushion on the downside, and therefore, I can have more upside. So we're super excited about that. You know, it'll be a slow ramp-up simply because, you know, you have to add distributors, and that's a process. We've added a couple of big ones recently, so I think that's going to help accelerate some of our growth.

Christopher Blunt: I'll get a buffer or a cushion on the downside, and therefore I can have more upside. So we're super excited about that. It'll be a slow ramp up simply because you have to add distributors, and that's a process. Now we've added a couple of big ones recently, so I think that's going to help accelerate some of our growth. So, as we said, I think that probably not much of a contributor this year will be pretty modest, but I would also say that we have plenty of other sales opportunities. But when we get into 25 and beyond, I think this will start becoming significant.

Chris Blunt: So, as we've said, I think it probably won't be much of a contributor this year, and it will be pretty modest. But I would also say that we have plenty of other sales opportunities. But when we get into 25 and beyond, I think this will start becoming significant. And if you said, gee, over the medium term, call it the next five years, could it start to rival the volumes that we see in our FIA business, I think we actually think that it can.

Speaker Change: recently, so I think that's going to help accelerate some of our growth. So as we said, I think it'll be that probably not much of a contributor this year, be pretty modest.

Mark Hughes: But I would also say that we have

Speaker Change: Plenty of other sales opportunities, but when we get into 25 and beyond I think this will start

Christopher Blunt: And if you said, gee, over the medium term, call it the next five years, could it start to rival the volumes that we see in our FIA business? I think we actually think that it can. It's also a great diversifier in terms of we now meet a ton of consumer need off of really one core platform, which is this whole indexed platform. And I think that's another piece that people miss. Initially, it was kind of a niche product. It's no longer a product that's a platform. So you can have income now, guaranteed income in the future.

Mark Hughes: becoming significant, and if you said, gee, over the medium term, call it the next five years, could it start to rival the volumes that we see in our FIA business, I think we actually think that it can.

Chris Blunt: It's also a great diversifier in terms of, you know, we now meet a ton of consumer needs off of really one core platform, right, which is this whole indexed platform. So you can have income now, and guaranteed income in the future. You can have, you know, sort of a more of a buffer style.

Unknown Executive: You can have more of a buffer style of more upside, plain fixed annuity. So we're able to hit a ton of consumer need right now with one core chassis.

Unknown Executive: Well, when the buys one of these things, that's when I'll know it's for a younger demographic.

Wendy Young: When Wendy buys one of these things, that's when I'll know it's for a younger demographic. Perfect. There we go. There is one other question. One of the other major Ryla players is kind of participating in some of these targeted funds, getting some flows in that way. I know in times past, you talked in kind of an indifferent way, I'll say about that opportunity. What do you think about that? Yeah, I would say, you know, the idea of a new one.

Speaker Change: When Wendy buys one of these things, that's when I'll know it's for a younger demographic. Perfect. Thanks Mark. There we go.

Unknown Executive: Perfect.

Christopher Blunt: One other question. One of the other major rye of the players is participating in some of these targeted funds, getting some flows in that way. I know in times past you've talked in kind of a different way. I'll say about that opportunity. What do you, what do you think about that? Yeah, I would say, you know, the idea of annuities in 401k plans is a great; it's a great idea. I do think it's getting closer to getting some real adoption. You know, we research it constantly, and you know what it looks like. You know, the market is there, and we see a slot for us to play.

Mark Hughes: Yeah, I would say, you know, the idea of annuities and 401k plans is a great idea. I do think it's getting closer to getting some real adoption. You know, we research it constantly. And, you know, when it looks like the market is there and we see a slot for us to play, I suspect at some point, we will play. It just hasn't been our number one priority.

Speaker Change: It's a great idea. I do think it's getting closer to get getting some real adoption. You know, we research it constantly and you know what it looks like.

Christopher Blunt: I suspect at some point we will play. It just doesn't been our number one priority with so many opportunities right now and some of these other core channels. It's much more complex, as you know, to pull off. So, yeah, I don't think anything's changed from that perspective. I don't think we view this as something that we're a segment of the market that we're urgently expecting to jump. in two.

Mark Hughes: We have so many opportunities right now in some of these other core channels, but it's more, much more complex, as you know, to pull off. So, yeah, I don't think anything's changed from that perspective. I don't think we view this as something that we're, a segment of the market that we're urgently expecting to jump into.

Speaker Change: Priority, we have so many opportunities right now and some of these other...

Unknown Executive: Understood, thank you.

Unknown Executive: And this will conclude our question-and-answer session.

Operator: And that will conclude our question and answer session. I'd like to turn the conference back over to CEO Chris Blunt for any closing remarks.

Christopher Blunt: I'd like to turn the conference back over to CEO Chris Blunt for any closing remarks. Great thanks. Hey, we're very pleased with our performance through the first half of the year. F&G's business is well positioned for the current market and for the longer term growth. Our opportunities are compelling with many prospects ahead to drive asset growth, deliver margin expansion, and generate a creative returns. So thanks for joining us. We appreciate your interest in F&G and look forward to updating you on our third quarter earnings call.

Speaker Change: And this will conclude our question and answer session. I'd like to turn the conference back over to CEO Chris Blunt for any closing remarks.

Chris Blunt: Great, thanks. Hey, we're very pleased with our performance through the first half of the year. F&G's business is well positioned for the current market and for longer-term growth. Our opportunities are compelling with many prospects ahead to drive asset growth, deliver margin expansion, and generate accretive returns. So thanks for joining us. We appreciate your interest in F&G and look forward to updating you on our third-quarter earnings call.

Chris Blunt: Great, thanks. Hey, we're very pleased with our performance through the first half of the year. F&G's business is well positioned for the current market and for the longer term growth.

Speaker Change: Our opportunities are compelling with many prospects ahead to drive asset growth, deliver margin expansion, and generate accretive returns. So thanks for joining us. We appreciate your interest in F&G, and look forward to updating you on our third quarter earnings call.

Operator: Thank you for attending today's presentation, and the conference is now concluded. You may now disconnect your lines at this time.

Operator: Thank you for attending today's presentation, and the conference is now concluded. You may now disconnect your runs at this time.

Speaker Change: Thank you for attending today's presentation and the conference is now concluded. You may now disconnect your lines at this time.