Q4 2024 F&G Annuities & Life Inc Earnings Call
Good morning, and welcome to <unk>.
She is fourth quarter and full year 2024 earnings call. During today's presentation. All callers will be placed in a listen only mode and following management's prepared remarks. The conference will be opened for questions with instructions to follow at that time.
Alicia backwards: I would now like to turn the call over to Alicia backwards, the Parker Senior Vice President Investor and external relations. Please go ahead.
Speaker Change: Thanks, Operator, and welcome again, everyone to our call I'm joined today by Chris Blunt, Chief Executive Officer, and when do you <unk> 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 did not occur.
Alicia backwards: Guarantee future events or performance we.
Alicia backwards: We do not undertake any duty to revise or update such statements to reflect new information subsequent events or changes in strategy.
Alicia backwards: Please refer to our most recent quarterly and annual reports and other SEC filings for detailed unimportant factors that could cause actual results to differ materially from those expressed or implied.
Alicia backwards: This morning's discussion also includes non-GAAP measures, which management believes are relevant in assessing the financial performance of the business non-GAAP measures have been reconciled to GAAP, where required and in accordance with SEC rules within our earnings materials are available on the company's Investor website. Please note that today's call is being run.
Alicia backwards: Gordon and will be available for webcast replay.
Alicia backwards: And with that I'll hand, the call over to Chris Blunt.
Chris Blunt: Good morning, everyone. Thanks for joining us to discuss our fourth quarter and full year results, our fourth quarter results rounded out an exceptionally strong year, both in terms of results and execution.
Speaker Change: I'd like to start by recognizing our employees for their hard work and achievements over the last year.
Speaker Change: It is through their efforts that we have achieved record sales growth record earnings and record adjusted net earnings excluding significant items, while also continuing to diversify our earnings and expand our margin beyond spread based sources.
Speaker Change: All the while maintaining a strong balance sheet and returning capital to shareholders through our common and preferred dividends.
Speaker Change: In short 2020 fours outperformance had many accomplishments worth highlighting.
Speaker Change: With sales F N G reported record gross sales of $15 3 billion for the full year 2024.
Speaker Change: A 16% increase over the full year 2023. This included $3 5 billion of gross sales in the fourth quarter.
Speaker Change: Record retail channel sales were 12 billion for the full year, a 20% increase over the full year of 2023.
Speaker Change: Driven by continued strong demand for individual annuity and life solutions. This.
Speaker Change: This included $2 5 billion of retail gross sales in the fourth quarter.
Speaker Change: From a retail channel perspective, we achieved record FIA record Micah and brokered ius gross sales for the year, while maintaining targeted service levels despite higher volumes.
Speaker Change: Our distribution relationships are strong and we saw annual growth across all three retail channels, including agent bank and broker dealer as we continue to add and deepen distribution relationships.
Speaker Change: Notably we've gained entry into a new market with our while a registered product launch in 2024, we have on boarded seven partners and our product is being well received although admittedly, it's taking longer to get onto platforms. As this is our first registered product.
Speaker Change: Wireless a fast growing market in the industry and we're just getting started.
Speaker Change: Steadily expanded the broker dealer channel, we continue to see the potential for ROA annual sales to be in the billions over the medium term.
Speaker Change: Robust institutional market sales were $3 3 billion for the full year comprised of $2 3 billion of pension risk transfer and 1 billion in funding agreements.
Speaker Change: Record pension risk transfer sales of nearly $2 3 billion for the full year reflect a 15% increase over the full year 2023.
Speaker Change: This included a robust 1 billion or PRT sales in the fourth quarter.
Speaker Change: Our growing PRT enforced block has now crossed the six and a half billion dollar milestone.
Speaker Change: And we serve more than 100000 participants from a variety of planned types and industries.
Speaker Change: We continue to compete well in our targeted $100 million to $1 billion deal size.
Speaker Change: We have also added new market segments with our ability to strategically move more upmarket or downmarket as opportunities arise.
Speaker Change: And we have selectively broadened our opportunities through additional PRT consultants.
Speaker Change: To date, we've not seen any meaningful impact from industry lawsuits. Although it is something that we continue to monitor.
Speaker Change: We have a lot of places to deploy capital and at this time see continued strength of the PRT market with a healthy pipeline of three eight trillion dollars of U S corporate pension plans at or near full funded.
Speaker Change: Funding agreements with 1 billion for the full year as compared to $1 2 billion in the full year 2023, there were no funding agreements in the fourth quarter.
Speaker Change: We view these sales as opportunistic and volumes vary quarter to quarter, depending on market conditions.
Speaker Change: From a funding agreement perspective in the second quarter, we successfully returned to the F. N B end market for the first time in two years, given favorable market conditions with a $600 million issuance.
Speaker Change: At year end, we had approximately $2 5 billion of funding agreement back notes outstanding.
Speaker Change: In aggregate under our $5 billion shelf registration.
Speaker Change: In addition funding agreements include $400 million of FH L. B activity for the full year 2024.
Speaker Change: Overall this year demonstrates the strength of our multichannel distribution platform.
Speaker Change: This year has also been a good example of how we consistently manage sales to achieve targeted returns, which can result in quarterly fluctuations.
Speaker Change: In the fourth quarter, we made the decision to allocate capital to the highest returning business.
Speaker Change: Typically indexed annuity and pension risk transfer sales, which resulted in a reduction in micro cells and funding agreements.
Speaker Change: <unk> net sales retained were $10 6 billion for the full year 2020 for a fifth.
Speaker Change: 15% increase over the full year 2023.
Speaker Change: This included $2 5 billion of net sales in the fourth quarter.
Speaker Change: We are profitably grown assets under management before flow and reinsurance to a record $65 3 billion at the end of the quarter.
Speaker Change: An increase of 17% over the fourth quarter of 2023.
Speaker Change: This included record retained assets under management of $53 8 billion.
Speaker Change: 10% increase over the fourth quarter of 2023.
Speaker Change: AUM growth was driven by net new business flows and bad debt and equity proceeds over the last 12 months.
Speaker Change: As a quick update on our investment portfolio. Since 2020, we have selectively repositioned $2 7 billion of assets to optimize derisk and position the portfolio to perform in varying market conditions, while also improving its credit quality.
Speaker Change: At year end, the retained portfolio is high quality with 97% of fixed maturities being investment grade.
Speaker Change: We continue to hold very little office exposure at 1.7% of our total portfolio.
Speaker Change: Credit related impairments remain low and stable averaging seven basis points over the last three years and six basis points over the past five years.
Speaker Change: Well below our pricing assumptions.
Speaker Change: We have also hedged two thirds of our floating rate assets, which are down only 6% of our total portfolio net of hedges.
Speaker Change: Our fixed income yield was 4.59% in the fourth quarter 13 basis points higher than the fourth quarter of 2023 benefiting from higher yields on new investments.
Speaker Change: On a sequential basis, our fixed income yield decreased seven basis points from the third quarter, primarily due to higher cash balances and the run off of some higher yielding in force assets.
Speaker Change: We expect this to rebound in 2025, as we fully deploy cash refine our strategic asset allocation between public and private assets and align our pricing actions in response to the macro environment, helping to mitigate the impact of spread compression.
Speaker Change: Also we have refreshed our annual portfolio stress test, which is conservative and assumes no management action.
Speaker Change: Once again, the stress test confirmed that our portfolio is well positioned to withstand a sharp downturn in the economy.
Speaker Change: Please see <unk> winter 2024, investor presentation for further details.
Speaker Change: Beyond sales and AUM growth, we continue to diversify our earnings beyond spread based sources driving margin expansion adjusted.
Speaker Change: Adjusted ROA, excluding significant items was 127 basis points for the year up 10 basis points over the 117 basis points achieved in the full year 2023.
Speaker Change: Wendy will provide further details in a few minutes.
Speaker Change: In aggregate, we've invested $680 million in strategic owned distribution companies through two majority Stakes taken in 2024 and two minority Stakes purchased in 2023.
Speaker Change: Our strategic own distribution portfolio is performing well.
Speaker Change: We generated EBITDA of $65 million in 2024, and estimate annualized EBITDA of approximately $90 million in 2025 with double digit annual growth expected over the medium term.
Speaker Change: One final area to highlight centers on our balance sheet strength and capital allocation, we were well prepared to drive growth and capture the market opportunity in 2024, while returning $125 million of capital to shareholders through common and preferred dividends.
Speaker Change: Additionally, our commitment to strong ratings and achieving ratings upgrades over time was recognized through our a M best financial strength rating upgrade to a or excellent in early 2024, and our Moody's long term issuer rating upgrade in mid 2024.
Overall, our strong performance has generated significant ROE expansion, we've expanded adjusted return on equity, excluding <unk> and significant items over the last year from 10% to over 12% as we advance toward our targeted range of 13% to 14%.
Speaker Change: I'm very proud of our accomplishments I'm confident that F and G will continue to generate shareholder value through continued execution of our strategic priorities.
Speaker Change: Critical to our execution is ensuring that we have the people in place to effectively manage our rapid growth.
Speaker Change: As a result, we are evolving our organizational structure to ensure that we continue to maximize the many opportunities that I see ahead of us over both the medium and longer term.
Speaker Change: As we announced last evening, Wendy Young has been appointed Chief liability Officer effective April one.
Speaker Change: This is a new role at up and GE and reflects the importance of reinsurance to our go forward strategy and the increasing complexity of our business.
Speaker Change: In her new role, where he will lead all aspects of the company's liability management reinsurance activities in our offshore entities.
Speaker Change: I am grateful that Wendy has agreed to lead this effort given its importance to our long term success.
Speaker Change: Wendy's deep knowledge about the G as well as their prior work as CEO of our Bermuda business makes her the ideal executive to assume this role.
Speaker Change: I am also very grateful for her partnership and leadership as our CFO over the last three years. So she has been instrumental to our success.
Speaker Change: I am also very excited to welcome Conor Murphy to F and G. As our next CFO Conor brings extensive industry experience, having held a variety of executive roles at industry, leading insurance companies.
Speaker Change: Most recently, Qatar was the president and CEO of resolution life U S.
Speaker Change: Prior to that.
Speaker Change: He was the chief operating officer of Brighthouse financial when it was spun off by Metlife.
Speaker Change: <unk> also held CFO roles for Metlife European and Latin American businesses.
Speaker Change: His 17 year tenure at Matt.
Speaker Change: <unk> experience is a perfect match for our newly defined CFO role, which will oversee our financial management and helped to guide the optimization of our business and strategic capital allocation as we continue to scale.
Speaker Change: Carnival started on April 1st I'd like to officially welcome him to F N G.
Speaker Change: As you can see these are two very important roles that require to uniquely qualified executives I look forward to partnering with both Wendy in Qatar as they step into these positions and I'm thankful to have such an accomplished team as we continue to build an industry leading business.
Speaker Change: Let me now turn the call over to Wendy to provide further details on <unk> full year and fourth quarter financial highlights.
Wendy Young: Thank you Chris.
Speaker Change: Chris highlighted I will be assuming the newly created role of Chief viability officer on April 1st and I am thrilled to take on this new opportunity.
Speaker Change: This role will allow me to focus on leading management of our liabilities as well as our reinsurance strategy in our offshore entities, which are becoming increasingly integral to our growth strategy and long term success.
Speaker Change: I would like to personally thank Chris for this new opportunity given that it's a terrific match, but much of the work and experience I've had over the past 25 years here at F. N. G. I look forward to continuing to support <unk> growth and success and getting started in my new role this spring.
Speaker Change: So looking forward to working closely with Connor and helping him to successfully transition into F and G.
Speaker Change: Turning to our results our operating performance continues to be strong. This morning, I'll focus my comments on adjusted net earnings and our L. A as well as our strong capital and liquidity position.
Speaker Change: Starting with earnings for the fourth quarter, excluding significant items adjusted net earnings were 153 million up 17% over $131 million in fourth quarter of 2023.
Speaker Change: This excludes alternative investment returns below our long term expectations by $13 million and significant income items at $22 million.
Speaker Change: For the full year 2024, excluding significant items adjusted net earnings were 657 million up 22% over $539 million and the full year 2023. This excludes alternative investment returns below our long term expectations by $145 million and significant income items at 34.
Speaker Change: Yeah.
Speaker Change: This strong performance reflects asset growth margin diversification from a credit flow reinsurance and own distribution.
Speaker Change: Turning to expense management and higher interest expense as a result of planned capital markets activity.
Speaker Change: Notably we are benefiting from increased scale as our ratio of operating expense to a U M. Before reinsurance decreased to 60 basis points at year end 2024 from 63 basis points at year end 2023.
As expected our variable expenses grew in line with our enforced book and gross sales, while we held our fixed expense growth to a single digit rate.
Speaker Change: Adjusted Iowa, excluding significant items was 127 basis points in 2024.
Speaker Change: That's an increase of 10 basis points over 2023.
Speaker Change: Compared to prior year retained our L. A was stable at 102 basis points low reinsurance fee income increased from 13 to 16 basis points and distribution margin expanded from two to nine basis points.
From a sequential perspective, excluding significant items adjusted ROA of 127 basis points was right in line with the trailing 12 months trends that we highlighted in Q2 and Q3 to help smooth the lumpiness and surrender fee income that occurred in those time periods.
Speaker Change: I mentioned last quarter, our actuarial assumptions continue to reflect elevated surrenders of this short term overtime surrenders are expected to normalize as rates become less volatile.
Speaker Change: Elevated termination provide a boost to earnings from higher surrender charge fees when they occur beyond that initial benefit terminations can temporarily pressured near term spreads.
Speaker Change: Long term terminations provide benefits through freed up capital, which can be deployed to new business with renewed surrender charges and longer surrender periods. This should further appraise the liability profile, resulting and stickier enforced liabilities that generate significant margins over time.
Chris Blunt: As Chris mentioned adjusted return on equity, excluding ASC I and significant items was 12% in the fourth quarter as compared to approximately 10% in the fourth quarter of 2023.
Chris Blunt: Now turning to our balance sheet, we ended the year with a GAAP book value attributable to common shareholders, explaining a O C. I, a $5 6 billion or $44.28 per share at December 31, 2024, an increase of 10% as compared to $40.42 at December 31 2023.
Chris Blunt: Our consolidated debt outstanding was $2 2 billion at December 31st F&B has successfully completed the following recent capital markets activity as expected.
Chris Blunt: In October 2024, LNG issued 500 million of senior notes with net proceeds used to fully pay down its 365, knowing a rebel revolver balance and the remainder to be used for general corporate purposes.
Chris Blunt: In January of 2025, LNG issue $375 million of junior subordinated notes with net proceeds to be used for general corporate purposes, including the repayment of debt.
Chris Blunt: In early February of 2025 F. N G fully redeemed at 300 million of outstanding Senior notes due in May of 2025 at par on a pro forma basis, our annualized interest expense is approximately $165 million a roughly a 7% blended yield on the $2 3 billion of total.
Chris Blunt: Debt outstanding.
Chris Blunt: We continue to target holding company cash and invested assets at two times interest coverage. We also remain committed to our long term target of approximately 25% debt to capitalization, excluding a M C I and expect that our balance sheet, where badgley delever at shareholders' equity excluding AFC I growth.
Chris Blunt: Now moving onto our strong statutory capital position as expected. We ended the year with an estimated company action level risk based capital or RBC ratio of over 410% for our primary operating subsidiary, providing a buffer above our 400% target.
Importantly.
Chris Blunt: Benji maintain strong capitalization and financial flexibility across all of our statutory balance sheets, including our offshore entities, which are conservatively managed the most stringent capital requirements of our regulators and four rating agencies let.
Chris Blunt: Let me now turn the call over to Chris to wrap up.
Chris Blunt: Thanks, Wendy over the last 18 months, our business has benefited from favorable market conditions and secular demand for our products that is poised to continue.
Chris Blunt: We have made strong progress towards our medium term financial targets that we laid out at our 2023 Investor day.
Chris Blunt: Growing AUM by 50% expanding adjusted ROE, excluding significant items to 133 to 155 basis points.
Chris Blunt: Increasing adjusted ROE, excluding a OCI and significant items to 13% to 14%.
Chris Blunt: And expanding our p/e multiple.
We've executed well over the past 12 months and in the case of adjusted ROE are already closing in on the lower end of the range.
Chris Blunt: Of course, we're excited to continue to progress towards our Investor day targets and from here, we expect that our pace will be a little more moderate given the strong success that we've achieved so quickly.
Chris Blunt: We remain focused on continuing to deliver long term shareholder value by driving sustainable asset growth from our retail and pension risk transfer growth strategies Jenna.
Chris Blunt: Generating ROE expansion from enhanced investment margin scale benefits and fee based earnings from accretive flow reinsurance.
Chris Blunt: And diversifying earnings through strong growth in our middle market life insurance business and own distribution strategies.
Chris Blunt: As you can tell I could not be more excited with the opportunities that we have in front of us as we enter 2025.
Chris Blunt: This concludes our prepared remarks, let me now turn the call back to our operator for questions.
Speaker Change: Thank you if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Chris Blunt: <unk>.
Speaker Change: Our first question is from John Barnidge with Piper Sandler. Please proceed.
John Barnidge: Good morning, Thank you for the opportunity.
John Barnidge: Can you talk about the evolving organizational structure at the company and what that growth opportunity means.
John Barnidge: Bermuda.
John Barnidge: Could be an opportunity so love to hear more about the change in organizational structure. Thank you.
John Barnidge: Yeah happy to morning, John So this is Chris Yeah, I think it's pretty simple just as our business has continued to grow you know you've seen the stats. We've quintupled sales we've gone into multiple new distribution channels, but were also driving a real value and real accretion.
John Barnidge: Through some of the flow reinsurance arrangements and other arrangements that we have so yeah. We just sort of determined that the opportunities were big enough and the levers to drive margin and value big enough that it was time to do a little a divide and conquer and some of it is frankly, we saw an opportunity to add a.
Very talented versatile athlete to the team. So you know as we've continued to expand when we look at the opportunities in front of us in terms of potential.
John Barnidge: Potential new business opportunities expanding our channels of distribution et cetera.
John Barnidge: Yeah, we get pretty excited about it and then the last piece I would say as you know the offshore environment Theres, just a lot going on right in terms of.
John Barnidge: You know both changes in the regulatory world.
John Barnidge: Current partnerships et cetera. So it just felt like us it was a great opportunity to to make that change.
John Barnidge: Thanks for that Chris and then in your prepared remarks, you you mentioned, you're not seeing meaningful impact from industry lawsuits related to pension risk transfer and you had a great volume in the quarter. There can you maybe talk about where you are competing in the market and your outlook amid the that industry litigation that other.
John Barnidge: I've called out thank you.
John Barnidge: Sure Yeah, I think I think there's probably a couple of things at play one we've been pretty consistently playing in I would say the 100 million to $1 billion.
John Barnidge: Space and.
John Barnidge: That's been just a good place for us to play you know it fits in terms of the size of our our balance sheet. So we still see a lot of opportunities we haven't felt an impact yet.
John Barnidge: You know I think some of that is our our structure is pretty straightforward you know were a 100% U S company regulated by the state of Iowa, where our majority shareholders at large public U S company regulated by the state of Florida and so.
John Barnidge: I think that combined with some of the capabilities that we have a partnership with Blackstone on the investment side. It's just it's been a good fit so we continue to be.
John Barnidge: Optimistic and.
John Barnidge: In the institutional side as you probably noticed we re entered the F. A b end markets. So I think that's another attractive opportunity for us. So I guess, if we if we did see a slowdown or there was something overall impacting the.
John Barnidge: The space, we've got a lot of places to source premium, but right now where we're not seeing that it still looks like there's a lot of opportunity for us to to bid on deals.
John Barnidge: Thank you for that preceded the comments.
John Barnidge: Thank you.
Speaker Change: Our next question is from Wes Carmichael with Autonomous research. Please proceed.
Wes Carmichael: Hey, Thanks, Good morning, Chris I, just wanted to get your updated perspective on growth from here and maybe that leads into capital management, a little bit too, but how are you thinking about the growth rate over the next few years in terms of net sales or retained AUM.
Watson: Yeah. Thanks, Watson and then when do you want to jump in here too but.
Speaker Change: Strong I mean, we're still quite excited about the overall backdrop you know the places that we play we still see a lot of secular demand in people are tired of hearing it but it's true and it's a huge driver. Its you know baby boomers getting older. It's people embracing fixed annuities is a fixed income surrogate.
Speaker Change: But in portfolios I think evolutions products like <unk> now start competing with other asset based types of.
Speaker Change: Investment opportunities for folks so none of that changes in our view.
Speaker Change: Even if you see our rates ticked down a little bit. So we think the secular demand is really strong and then unique to us we're still adding distribution partners. You know it's not like we've been doing this for 20 years, where we're adding banks, we're adding broker dealers were penetrating within the channels that we're in already so you know yeah, we've seen a ton of grow.
Speaker Change: We're really proud of going from 3 billion to $15 billion in gross sales, but I don't think the the demand side of this is peaked at all to the capital question and when he can touch base on this as well, but yeah. We continue to form a flow reinsurance partners, we look at.
Speaker Change: All sorts of different ways to continue to fund the growth. So we're pretty excited we just came off our board meeting the board. The board is pretty fired up and I think that's a reflection of the opportunity in front of US I don't know Wendy if theres anything you want to add to the capital question Yeah.
Wendy Young: We had a tremendous sales year and just really proud of the fact that where we're able to come up with solutions to support that growth and I don't see that changing it again, Chris has indicated we continue to have.
Wendy Young: Have partners that are protests and have great discussions and.
Wendy Young: Look forward to continuing with that effort.
Speaker Change: Got it thanks, and then a follow up just on the core ROA.
Wendy Young: I had just for ops in Prepays in the actuarial adjustment.
Wendy Young: A little bit of a sequential compression I think it was 18 basis points or so or so now you're kind of running in the neighborhood of 115 basis points in the quarter and I think when you talked about surrenders normalizing. So that's a little bit of a driver, but there's also a little bit of compression from the fixed portfolio and it's still a pretty competitive environment. So any update on how you expect the doorway to trend from here.
Wendy Young: Yeah, So you're exactly right. We the Prepays are are at.
Wendy Young: Were a big driver of that decrease quarter over quarter.
Wendy Young: And as we indicated in our prepared remarks.
Wendy Young: You know what well be looking to invest some of that cash that was generated because of prepays.
Wendy Young: Get that done as soon as we can to get that back and look at the asset run off any repositioning we can do there and then of course, we always have a renewal rate setting.
Wendy Young: That we can adjust to make sure that that does not continue so we expect it to rebound.
Worse in 2025.
Speaker Change: Yeah. The only other thing I'd add is we did a $1 billion of PRT during the quarter and you just.
Speaker Change: You don't want to rush that allocation in terms of deploying assets and so when.
Speaker Change: When you've got privates in the grid.
Speaker Change: You can see a lag as well so yeah, I think I think Wendy size it up nicely. It's not we're not anticipate to be nearly as dramatic as it might look.
Speaker Change: When you look at the particular quarter.
Speaker Change: Very helpful. Thank you.
Speaker Change: Our next question is from Alex Scott with Barclays. Please proceed.
Speaker Change: Hi, good morning.
Alex Scott: Wanted to see if you could give us a sense of how how much impact there so as the crediting rate for surrenders being a bit elevated.
Speaker Change: I'm just.
Speaker Change: Externally.
Speaker Change: It makes it a little difficult for us to understand the direction of spreads just knowing that.
Speaker Change: Some of the heightened surrender fees maybe.
Speaker Change: Oh, Wow crediting the crediting rate to stay lower than it otherwise would have during this period, where there is.
Speaker Change: Some movement from from the book into new products and so forth.
Speaker Change: So I was just hoping you could help us think through like what.
Speaker Change: You know what that level was this quarter I think you guys did your given in the accusing case and where do you expect that to trend.
Speaker Change: Yeah. So just based on where the interest rate environment continues to hang out.
Speaker Change: We're still.
Speaker Change: Thinking that surrenders will continue.
Speaker Change: And until something dramatic what happens in the in the rate environment and they were a little bit later and in the quarter I think in the queue at that there's a trend of the actual surrenders them they were down down a bit so.
Speaker Change: Yeah, we don't disclose the surrender charge amount in detail, but our outlook is that it's going to continue for a while yes.
Chris Blunt: I'll think about Alex is Chris if there's anything we can do to help you because I get I get the challenge. It is it is tricky.
The other thing that's maybe not as apparent but we're a big beneficiary of some of this in our own distribution business as well so that business continues to to Hum along nicely we're really.
Chris Blunt: Excited about that so yeah, I I get the challenge and as you know in the long run actually I think this is going to be value.
Chris Blunt: Creatives, because youre going to just have a newer book and as rates ticked down I think the duration of that spread is going to be longer but we it does create a little bit of noise in the interim so I don't have an easy answer for you on that one but we will think about is there.
Chris Blunt: The way, we can help with that.
Speaker Change: Cool sounds good and then as a follow up I wanted to ask about the funding agreement backed note.
Chris Blunt: No market.
And we've seen a lot of issuance I guess in the whole industry.
Chris Blunt: Recently is that.
Chris Blunt: Maybe help us understand like what's the dynamic there that makes it particularly attractive right now or for the industry.
Chris Blunt:
Chris Blunt: As a company that's sort of getting.
Chris Blunt: And then to grow into that.
Chris Blunt: You know what kind of opportunities there for you.
Chris Blunt: Yeah I appreciate that question.
A lot of that issuers right now and I think we've talked about this before there are higher rated than we are which impacts the cost of funds. So it you know we balance capital allocation pretty tightly. So we will allocate capital just based on where we think we'll get the highest return on that.
Chris Blunt: Capital. So we look at the ABN Amro issue win win.
Chris Blunt: We believe that's the right.
Chris Blunt: Way to go in a particular quarter.
Speaker Change: Yeah, and I would say I know you know this but you know order of priority you know fixed index annuities right very strategic high returning particularly on a risk adjusted basis. So.
Speaker Change: We want to make sure that we always have ample capital to drive that every single year PRT, We love that business love the duration of the spread.
Speaker Change: So those would be the most highest F. A b and probably the most opportunistic if we've got excess capital and the spreads makes sense, we'll issue. It if we don't.
Speaker Change: You know we want so and then I put my go somewhere in between it's important to our clients we want to be continue to be in the mega market, it's profitable, particularly since we flow out 90% of our my God, but.
Speaker Change: That's that's sort of the pecking order of how we think about deploying capital to new product sales.
Speaker Change: Got it thank you.
Speaker Change: As a reminder, the star one on your telephone keypad, if he would like to ask a question. Our next question is from Mark Hughes with truly Securities. Please proceed.
Yeah. Thanks, Good morning, Chris Good morning, Wendy.
Speaker Change: Ananda.
Speaker Change: On the my goal.
Speaker Change: What has to happen in the market to kind of get those back into position where you'd be more active is that kind of a good level for the foreseeable future.
Speaker Change: Yeah, I think the demand is always going to be there and again, it's tricky to answer because I don't.
Speaker Change: I think the demand for Micah as explosive right now obviously the rate market is volatile. So you know, we we always want to be a little cautious and careful that you're not chasing the rates up or chasing them down too quickly to see you want that to stabilize a little bit, but I would say the falloff in.
Speaker Change: In this quarter was 100% driven by a.
Speaker Change: Good thing, which was just incredible demand I mean, our ARIA our FIA sales were up big time for.
Speaker Change: For the year, we had another really strong.
Speaker Change: Warner for F. I E. So again, that's that's always going to be the priority from a capital allocation standpoint, but I would I would say you know demand for it.
Speaker Change: Getting a rate of you know north of 5% guaranteed tax deferred that that's not going away that's going to be there for quite some time.
Speaker Change: Okay.
Speaker Change: You think about the ROE a you gave some good detail.
Speaker Change: You talked about the expect.
Speaker Change: Our ROE expansion to be a little more moderate from here.
Speaker Change: What is the base the base the 127 or should we think about the sequential progress off the $1 15 from the quarter.
Speaker Change: Yeah, No I think the base is 127 again, we're always going to have some noise quarter to quarter, but we don't give a lot of guidance, but I think you know Wendy would've gotten guidance of the year Award last year cause like she said or last quarter. You know think about the last 12 months, which was like 126 27. So yeah, we're not saying we can't grow.
Speaker Change: From here, we can we're just saying we're not gonna be able to add 10 basis points to our OE every year I wish I wish we could and I go back to our Investor Day presentation, where we said hey, we're gonna grow AUM by 50% were going to increase our away from I think the base was 110 to $1 33 to $1 55.
Speaker Change: And obviously, we're at 127 already so we've had a nice sort of step function jump up so.
Speaker Change: So you all were trying to say is we can still grow it from there we feel good about getting to our investor day target and keep in mind, we're only a little over a year into that <unk>.
Speaker Change: Process. So we're feeling really good about all the measures just to finish it out.
Speaker Change: We said, we'd take our ROE up to 13% to 14% and I think we were you know 12 for this quarter. So we're making great progress there and obviously the multiple.
Speaker Change: <unk> has gone up as well since Investor day, So I'll, just keep going back to that you know that is our public plan that we're shooting for and I would say a little over a year into it we're feeling really good.
Speaker Change: And then the one distribution I think you said the outlook for 90 million in EBITDA in 2025 up from $65 million.
Speaker Change: How much of that growth is internal organic I'm trying to recall, whether there was any.
Speaker Change: Interim M&A in 2024 that would influence that progression from the 65 to the 90.
Speaker Change: Yeah. There was some of the full year effect of F. E. G going I think from what our initial stake was two 100% ownership there.
Speaker Change: But the bulk of it is just these businesses are tuned really well I mean, we.
Speaker Change: You know we partnered with with good people you know and this is the advantage of you know we're not just a financial investor we've known a lot of these folks personally for 20 years in some cases. So you know when you're really trying to underwrite is quality of management teams their strategy or are they going to be a winner in this overall.
Speaker Change: All consolidation and right now we just feel awesome about who we've partnered with the backdrop helps obviously there.
Speaker Change: Focus is you know either I, primarily <unk> and that business is just humming for us right now or.
Speaker Change: They are selling F I as in fixed annuities and as you know that business is doing is doing great. So for US we just couldnt feel any better about about the progress there and we see that continuing I don't I don't see anything that's going to derail that in the near term.
Speaker Change: And if I could squeeze in one more on the FIA market the up 57% as the pretty strong taking a lot of share there.
Speaker Change: How would you characterize the competition in that market new players.
Speaker Change: And if you had to break down you know how much of that sales growth came from expanded distribution and new partnerships I think market growth was pretty strong.
Speaker Change: I would we are.
Speaker Change: How should we think about the magnitude of growth.
Speaker Change: Yeah, I think there's two things happening here one is the product categories, just coming into its own. So I think the industry last year was up 31%. We were up you know comfortably north of that so it's nice to have a rising tide and people embracing the product but.
Speaker Change: Again every time, you see volatility in the market.
Speaker Change: Aging of baby Boomers, all the trends that we keep talking about I think people are just figuring out it's a great chassis that can meet a lot of different.
Speaker Change: Needs one version of the process sort of flying off the shelves right now for everybody is you know the more income oriented version of N F. I E and that's just obvious you've got a lot of boomers with assets looking to lock in guaranteed lifetime income so.
Speaker Change: The macro trends are really good and then yes, you hit it on top of that we're getting growth in all of our channels. Our core agent channel continues to grow.
Speaker Change: Our bank channel continues to do a to do really well and now you know the big focus lately as we've been.
Speaker Change: Inching, our way into into the broker dealer market. So you know if I guess.
Speaker Change: I would say the bulk of the growth is is less about adding distribution partners. It's it's that natural lag of you add a partner you get your name out there you you sell my gut and the new cross sell FIA and so I think we're just seeing the continuation of that of that wave if you will.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question is a follow up from what I call micro economies.
Speaker Change: Economists research. Please proceed.
Speaker Change: Hey, Thanks, Thanks for taking the follow up I just wanted to come back to Mike as sales for a second but you know it was a pretty significant decline at least year over year and I think it was a little bit of an industry wide phenomenon in the quarter, but Chris I think in the past you've talked about industry sales for annuities being pretty resilient, even if interest rates moved lower so just wondering if there's any change in your thinking there and I know you.
Speaker Change: Hello, Mr. Mike out, but theres, obviously, some economics attached to that.
Speaker Change: Yeah, again, I I chalk it up to quarter over quarter volatility. So I again, I really don't think you know, we're seeing like a great <unk>.
Speaker Change: Slow down in my gut and Theres just so many factors that go into this including.
Speaker Change: No. We're no different we aren't the only ones that would sit here and go boy, we'd rather sell in F. I E. You know then a mic I think everybody feels that way. So I'm sure that's a bit of a factor a rate volatility is always a factor and then yeah. I think when you get into the fourth quarter, you know when you're when you're touching it on lots of different fronts people are always.
Speaker Change: Trying to just be cautious on capital levels, as well and get the label and there. So I don't again I still don't know if I look at industry sales, if you back up and look at it for the year, Yeah, Mike as sales were down seven.
Speaker Change: Percent.
Speaker Change: And we were I think flat.
Speaker Change: So, but yeah, I don't I'm not still I'm still out of the camp that we're going to see some big giant secular decline and demand for Micah.
Speaker Change: Got you.
Speaker Change: I think it's part of Wendy's transition I think you mentioned it had to do with some of the changes in the regulatory world and it seems like Theres a lot going on at beginning I see in terms of maybe asset adequacy testing for reinsurance capital charges constructed securities borrowing project and then probably changes at the BMA too. So maybe can you just touch on from a broad perspective on what's most important.
Speaker Change: On the horizon in the regulatory front.
Speaker Change: Yeah, I think you know as you said, there's a lot of activity in it and I feel for regulators because it's you know the mark the market's complex I think everyone's worried about the same thing which is is there sufficient transparency in terms of what people are doing.
Speaker Change: We report everything up to Iowa.
Speaker Change: In terms of how we use our own offshore.
Speaker Change: Entities and so.
Speaker Change: You know again, we can only attest to what we're doing.
Speaker Change: Can't attest to what other players are doing so yeah, I think theres activity in Bermuda theres activity in Cayman domestic regulators very involved so.
Speaker Change: Wouldn't say it was a big driver, but it's just back to you know the business is bigger of the businesses more complex.
Speaker Change: There's big opportunity, but that comes with big responsibility that you are.
Speaker Change: Being transparent with what you're doing you're communicating regularly with all of.
Speaker Change: The regulators most importantly, your domestic home regulator, so again to me it just it just begged for focus.
Speaker Change: Yeah.
Speaker Change: Thank you.
This will conclude our question and answer session. Thank you for attending today's presentation in the conference call has been concluded you may now disconnect.
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