Q1 2025 F&G Annuities & Life Inc Earnings Call
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Lisa Foxworthy www.LisaFoxworthy.com
Speaker Change: Good morning and welcome to F&G's first quarter 2025 earnings call. During today's presentation all callers we placed in a listen on the mode, solemn management's prepared remarks, the conference will be open for questions with instructions to file at that time. I'd like to turn the call over to Lisa Foxworthy Parker, Senior Vice President of Investor and External Relations. Thank you. You may begin.
Lisa Foxworthy www.LisaFoxworthy.com
Speaker Change: Thanks operator and welcome everyone. I'm joined today by Chris Blunt, Chief Executive Officer, and Connor Murphy, Chief Financial Officer. Also, Wendy Young, Chief Liability Officer, will be available for Q&A.
Speaker Change: Before we get started, I wanted to note that we have recast prior period financial results during the quarter.
Speaker Change: We have removed COLO redemption and bond prepay income from our significant items and have updated definitions for the cost of funds and flow-range insurance fee income within our A&E management view income statement. Importantly, historical reported net earnings and adjusted net earnings or A&E have not changed.
Speaker Change: The recast financial results are available in our quarterly financial supplement and earnings release as well as our spring 2025 investor presentation.
Speaker Change: Also, starting this quarter, we are presenting our financial results on an as-recorded basis throughout our earnings materials.
Speaker Change: Therefore, these results, including A&E, ROA and ROE, are no longer presented on an excluding significant item spaces. On page six of our quarterly financial supplement, you can find a summary of the impacts to A&E from significant items and investment income from alternative investments.
Speaker Change: Today's earnings call include forward-looking statements and projections under the Private Security's 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.
Speaker Change: Please refer to our most recent quarterly and annual reports and other SEC filings for details on important factors that could cause actual results to differ materially from those expressed or implied.
Speaker Change: This morning's discussion also includes non-GAAP measures which management believes are relevant in assessing the financial performance of the business.
Speaker Change: non-GAAP measures have been reconciled to GAP, they're required and in accordance with SEC rules within our earnings materials available on the company's investor website.
Speaker Change: Please note that today's call is being recorded and will be available for webcast replay. And with that, I'll hand the call over to Chris Blunt.
Chris Blunt: Good morning everyone, and thanks for joining our call. Our first quarter results reflect near-term headwinds from the volatility of the overall environment, the majority of we believe to be temporary in nature.
Chris Blunt: From a top line perspective, we continue to manage sales and enforced profitability to optimize our return on capital.
Chris Blunt: This resulted in a reduction in mygasales in the first quarter with continued strong fixed indexed denuity and pension risk transfer sales, which are our highest returning businesses.
Chris Blunt: From bottom line perspective, while we gave up some spread during the first quarter, we believe much of that was short-term in nature and not indicative of any longer-term challenge to our business model. The four main drivers were excess cash due to sale of prepayments coupled with a drop in cash rates.
Chris Blunt: Lower surrender income is there was a noticeable pause in refinancing of old policies by agents, a relatively weaker quarter for our own distribution business largely driven by the same slowdown as well as some one-time growth investments by one of our distribution companies.
Chris Blunt: and simply the timing effect of enforced pricing changes which can occur in periods where there are precipitous increases or decreases in interest rates.
Chris Blunt: As things stand today, we would expect each of these drivers to improve throughout 2025 and we remain committed to achieving our 2023 investor-day targets.
Chris Blunt: Carter will provide more details on our sales and financial results later in the call.
Chris Blunt: Overall, our enforced book of business and the investment portfolio are performing well and as expected in the current environment.
Chris Blunt: For the enforced book, we have a young, fixed annuity block that is surrender charge protected. We lock in, spread at the time of sale, and also have the flexibility to reprice the large majority of our liabilities to economics on an annual basis.
Chris Blunt: We maintain pricing discipline over the lifecycle of the product and during periods of market volatility like we're seeing now, we take a measured approach to renewal rates, balancing pricing consistency with distribution. Thank you.
Chris Blunt: Next, turning to the investment portfolio in more detail. The portfolio is well matched to our liability profile and diversified across asset types. We are now in the seventh year of our season partnership with Blackstone and have a fully developed public and private asset tool care.
Chris Blunt: This enables us to be competitive without taking on additional credit risk. If spreads in one asset class are shrinking, we have many others to choose from.
Chris Blunt: The retained portfolio is high quality with 96% of fixed maturities being investment grade. We continue to invest in defensive sectors having it up in quality bias.
Chris Blunt: A real estate exposure is high quality and moderate leverage, with diversified exposure across property types.
Chris Blunt: Notably, we hold very little office exposure at 1.6% of our total portfolio.
Chris Blunt: Our portfolio credit quality has improved since 2020 through implementation of various portfolio re-positioning programs.
Chris Blunt: The portfolio is conservatively positioned to outperform under various economic scenarios while maintaining the ability to withstand a downturn.
Chris Blunt: During the force quarter, we have modestly increased our hedge ratio to 75% of our floating rate assets, which are now only 5% of our total portfolio net of hedging.
Chris Blunt: Our fixed income yield was 4.53 percent in the first quarter, a decrease of three basis points from the first quarter of 2024. This reflects the benefit of higher yields on new investments offset by the runoff of higher yielding enforce assets.
Chris Blunt: On a sequential basis, our fixed income yield decreased six basis points in the fourth order, primarily due to the runoff of higher yielding shorter duration enforced assets that generated excess cash.
Chris Blunt: We continually look for opportunities to add yield over time by taking advantage of the market dislocations and continuing to work with Blackstone to source new asset categories.
Chris Blunt: Next, I'd like to provide a few brief, topical updates on tariff exposure, field lows and alternative limited partnerships.
Chris Blunt: During the first quarter, we conducted a comprehensive analysis across the portfolio to assess direct tariff exposure and broader economic implications.
Chris Blunt: Our analysis confirmed that the portfolio was resilient and largely insulated from tear-related impacts due to our focus on credit and the robust structural protections that we have in place.
Chris Blunt: Turning to our COL portfolio, we have a diversified portfolio that represents 3.7 billion or 7% of the total retained portfolio.
Chris Blunt: It's a well-season portfolio that is approximately 89% investment grade and is outperformed, most purchases dating prior to 2021 and many have already prepaid since spreads have narrowed which is reflected in our net investment income as prepaid income.
Chris Blunt: Our CLOs are backed by a highly diversified pool of loans with ample power subordination. Our portfolio uses 85 COLO managers and invest in close to 2,000 companies operating within 30 plus industries.
Chris Blunt: By industries, CLO's skewed toward high-tech, healthcare and pharma, and financial industries with low exposure to energy and retail.
Chris Blunt: The historic studies have shown that CLOs have had superior performance compared to corporates and we benefit from Blackstone's capabilities and expertise which allows our CLO portfolio to be underwritten at the underlying loan level.
Chris Blunt: Within our overall alternative investments, I wanted to spend a few minutes on limited partnerships. We held 6% of the portfolio and LPs as of March 31st.
Chris Blunt: As a reminder, our target allocation is 5% and we expect that our allocation will move between a range of 5 to 7% given that the pace of capital calls and distributions can vary.
Chris Blunt: The LP portfolio is very well diversified from a sector of vintage and funds constructed with 37 different funds.
Chris Blunt: By ASDA class, our LP portfolio was 67% in private equity, 27% in real estate and 16% in credit for the first quarter.
Chris Blunt: And by sector, the real estate funds skew towards industrial, residential and REITs, while the private equity funds are weighted toward financials, information technology, and industrials. The bottom line is that we do not have a lot of direct, terrific exposure.
Chris Blunt: And for our private equity holdings, we remain confident that there's real value in these underlying companies despite a delay in realizations.
Chris Blunt: Our LP portfolios are relatively young book. Since the inception of our LP portfolio build out with Blackstone in 2018, we have seen a return of over half of the capital invested.
Chris Blunt: As an asset class, we like LPs because they provide our portfolio with a long duration asset at a very attractive return on capital.
Chris Blunt: Turning to our growth strategies beyond AUM growth, we continue to diversify our earnings between spread-based and fee-based sources, including our own distribution stakes.
Chris Blunt: In aggregate, we have invested 680 million in our distribution companies through two majority stakes taken in 2024 and two minority stakes purchased in 2023.
Chris Blunt: These stakes are held at the holding company level under our peak altitude entity and our strategic long-standing relationships.
Chris Blunt: Our holdings are diversified by product and market and reflect growing businesses with strong leadership. Overall, the own distribution portfolio is performing well in creating value with double-digit annual growth of EBITDA expected over the median term.
Chris Blunt: Looking ahead to the remainder of 2025, we will continue to execute on our strategy while prioritizing pricing discipline and allocating capital to the highest return opportunities.
Speaker Change: Thank you, Chris. This morning, I'll focus my comments on assets on their management and sales, updates to our financial reporting, adjusted net earnings and returns, and our balance sheet and capital position.
Speaker Change: Starting with AUM and sales, F&G reported record AUM before flow re-insurance of 67.4 billion as of March 31, despite the near-term pressures, including retained assets under management of 54.5 billion.
Speaker Change: Compared to the first quarter of 2024, this reflects 16 and 9% increases respectively driven by net new business blows.
Speaker Change: F&G's gross sales were 2.9 billion, 17% lower than the first quarter of 2024, primarily due to lower
Speaker Change: As we continue to prioritize allocating capital to the highest returning business, specifically indexed annuity sales and pension risk transfer sales, we intentionally scaled back MAGA.
Speaker Change: Excluding MAGA, gross sales increased 5% over the first quarter of 2024.
Speaker Change: Indexed annuity sales were strong at 1.5 billion in the first quarter in line with the first quarter of 2024.
Speaker Change: FIA continues to be our largest contributor to indexed annuity sales, although our RILA product is gaining traction and building momentum.
Speaker Change: We took a measured approach in reflecting rate volatility in our pricing during the early part of 2025, but have subsequently seen increasing levels of submitted annuity business in March
Speaker Change: Indexed Universal Life Sales were strong at 43 million in the first quarter in line with the first quarter of 2024.
Speaker Change: Pension Risk Transfer, our PRT sales, are off to a solid start with 311 million in the first quarter.
Speaker Change: While Don from 584 million in the first quarter of 2024, which was a record first quarter, our full year PRT sales are typically more weighted to the back half of the year.
Speaker Change: Funding agreements for 525 million in the first quarter as compared to 105 million in the first quarter of 2024.
Speaker Change: We view funding agreement sales as opportunistic and volumes vary quarter to quarter depending on market conditions.
Speaker Change: My guess sales were 562 million in the first quarter as compared to 1.3 billion in the first quarter of 2024.
Speaker Change: F&G has the flexibility to optimize its level of flow re-insurance in line with capital targets by dynamically adjusting micro-volumes up and down as market economics change.
Speaker Change: Matt sales retained were 2.2 billion compared to 2.3 billion in the first quarter of 2024.
Next, turning to our financial reporting updates.
Speaker Change: Lisa mentioned at the top of the call there were two retrospective management reporting changes in the court.
Speaker Change: First, we have refined the classification of acquisition costs between the low re-insurance fee income and cost of fund line items in our adjusted net earnings management view income statement to better align amortization and expenses.
Speaker Change: Second significant income and expense items, not exclude CLO redemption and bond prepay income as we consider these indicative of the economic performance of our business.
Speaker Change: Applicable periods have been recast to conform to these changes importantly, there was no impact to GAAP earnings are reported A&D.
Speaker Change: Please refer to our quarterly financial supplement for further detail.
Speaker Change: Also beginning this quarter, we are presenting our financial results on an as reported basis through either earnings materials.
Speaker Change: Therefore, these results, including any ROA and ROE.
Speaker Change: No longer presented on an excluding significant items basis.
Speaker Change: Turning to earnings.
Speaker Change: First quarter reported adjusted net earnings were 91 million or <unk> 72 per share.
Speaker Change: As compared to 108 million or <unk> 86 per share in the first quarter of 2024.
Speaker Change: First quarter of 2025 and reflects a $16 million benefit from a reinsurance true up.
Speaker Change: For the quarter investment income from alternative investments was $63 million below management's long term expected return.
Speaker Change: First quarter of 2020 for A&D included a $2 million benefit from other income items for.
Speaker Change: For the prior year quarter investment income from alternative investments was $52 million below management's long term expected return.
Speaker Change: Compared to the first quarter of 2024, adjusted net earnings decreased by $17 million.
Chris Blunt: This was primarily driven by margin compression due to near term headwinds as Chris outlined.
Chris Blunt: Lower owned distribution margin and higher interest expense in line with our capital market activity.
Chris Blunt: These were partially offset by asset growth.
Chris Blunt: Higher flow reinsurance fee income and disciplined expense management.
Chris Blunt: Notably we are benefiting from increased scale as our ratio of operating expenses to a U M before flow reinsurance decreased 58 basis points in the quarter from 63 basis points a year ago.
Chris Blunt: As Chris mentioned, while we gave up some spreads during the first quarter. We believe much of that with short term in nature and not indicative of any longer term challenge to our business model.
Chris Blunt: First quarter reported adjusted return on assets was 68 basis points.
Chris Blunt: ROA was pressured from near term headwinds as well as the short term fluctuations in investment income from alternative investments.
Chris Blunt: On a last 12 month basis, adjusted ROA of 100 basis points decreased six basis points from 106 basis points in the fourth quarter of 2024.
Chris Blunt: <unk> reported adjusted return on equity, excluding OCI was nine 7% up two 3% over the first quarter of 2024.
Chris Blunt: Turning to our strong and growing balance sheet, we continue to maintain RBC at or above 400%.
Chris Blunt: Remain committed to our long term target of approximately 25% debt to capitalization, excluding Aoc I would expect that our balance sheet will naturally delever as shareholders' equity excluding OCI grows.
Chris Blunt: F N G has successfully completed the following recent capital markets activity as expected.
Chris Blunt: In January <unk> issued 375 million of junior subordinated notes with the net proceeds to be used for general corporate purposes, including the repayment of debt.
Chris Blunt: In February <unk> fully redeemed its $300 million of outstanding senior notes due in May of 2025.
Chris Blunt: On a pro forma basis, our annualized interest expense is approximately $165 million, a roughly a 7% blended yield on $2 3 billion of total debt outstanding.
Chris Blunt: We target holding company cash and invested assets of two times interest coverage.
Chris Blunt: In March <unk> completed the public offering of 8 million shares of common stock with net proceeds of approximately $269 million to be used for general corporate purposes.
Chris Blunt: Creating the support of organic growth opportunities.
Chris Blunt: Fidelity National Financial Inc. F&B is a major stockholder purchased four 5 million shares.
Chris Blunt: And ownership stake in F and G of approximately 82% as of March 31.
Chris Blunt: We ended the quarter with a GAAP book value attributable to common shareholders, excluding OCI of $5 8 billion or $43 31 per share at March 31.
Speaker Change: I share chris's enthusiasm for <unk> future opportunities to deliver long term shareholder value.
Chris Blunt: As we navigate the near term headwinds and macro uncertainty.
Speaker Change: We are focused on managing sales and enforced profitability to optimize our return on capital.
Speaker Change: Diversifying our spread based and fee based earnings through middle market life insurance.
Speaker Change: Hello, reinsurance and own distribution.
Speaker Change: Continuing our progress towards the targets set out at our 2023 Investor day.
Speaker Change: We'll continue to drive expansion of our return on equity.
Speaker Change: This concludes our prepared remarks, and let me now turn the call back to our operator for questions.
Speaker Change: Great. Thank you.
Speaker Change: At this time, we will be conducting a question and answer session.
Speaker Change: You'd 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.
Speaker Change: First start to move yourself into the queue.
Speaker Change: It's been using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please pull for questions.
Speaker Change: First question areas from John Barnidge from Piper Sandler. Please go ahead.
John Barnidge: Good morning, Thank you for the opportunity.
John Barnidge: My first question is around sales and distribution with the right product now entering the second year can you maybe talk about how you think about the growth opportunity there both from a sales perspective, but also from a distribution went into thank you.
John Barnidge: Yeah happy to good morning, John So a couple of things one just to comment on sales during the quarter. As I think you saw we had a decline in my gut and that was just simply a function of the volatility that was going on in the markets, which caused challenges not just for us but for some of our reinsurance partners.
John Barnidge: But that has rebounded nicely and in fact, we've done more maiga business in the month of April than we did the entire first quarter. So I think the sales engine is in great shape, specifically to write a lot yeah. We're still super excited about that given that we were not.
John Barnidge: Player and registered products before it has admittedly taken longer to get onto platforms, but that is happening. So we're adding [noise] bra.
John Barnidge: Dealers pretty consistently now so yes, as we've said before that's a product that in the medium term, we think can actually being in the billions for us. So we're pretty we're pretty excited about right.
John Barnidge: Okay.
Speaker Change: Thank you very much and then maybe my follow up question.
Speaker Change: Are you able to parse out the impact on own distribution from lower industry volume versus the owned distribution partner that may be invested in the platform.
Speaker Change: Yeah Boy that's a good question I don't know that I have that at my fingertips, but I think they were fairly balanced and when it comes to owned disc.
Speaker Change: Distribution I will say, we've similarly, we've seen a really nice rebound there.
Speaker Change: April so I don't know if it's exactly half we could get back to you, but I would guess, it's probably about half of it was.
Speaker Change: An investment that we supported.
Speaker Change: That had a pretty quick payback by one of our partners and the rest was just stay which I think the entire industry saw a slowdown in 10 35 activity, but again that has rebounded.
Speaker Change: In May which is why when we characterize some of this is temporary headwinds we truly think they're temporary.
Speaker Change: Thanks for the answers.
Speaker Change: Next question here is from West Carmichael from Autonomous Research. Please go ahead.
West Carmichael: Hey, Good morning first question just on the decision to raise common equity in the quarter. We received a lot of questions from investors at the time and I think it can it's maybe a bit of a surprise and weighed on the stock but can you can you maybe just help us with your thoughts on deployment and timing and are you may be wanting to hold any of that capital back given some of the recent volatility that we've seen.
West Carmichael: Yes, it's a great question I think in terms of deployment as I gave you that my stats and so I don't think our plans have changed I think it is to deploy it.
West Carmichael: Fully into new business.
West Carmichael: As you know our business model is pretty sound you know, we like it we're pretty disciplined about how we price new business, 57% of our reserves are in FIA. So we go through a similar annual process when policies come up for renewal. So I think the most important thing as you know the business model.
West Carmichael: Is still intact and we see lots of opportunities. There. So yeah I don't I don't think from an environment perspective, we were cautious when it came to market in the first quarter of wanting to make sure. We understood. The lay of the land with rates and with spreads. So we did have some cash build up.
West Carmichael: But we are now deploying that and I think our patients has been rewarded and they were deploying it now it spreads frankly better than what we what we priced for so again, we're not market timers, but and that's probably the only area where some caution came in to just try to get the lay of the land there.
West Carmichael: It's kind of I know you know this but just a reminder that the timing of the capital raise it was right at the end of the first quarter. So there wasn't time to do anything noteworthy with it until Q2.
Speaker Change: Yeah understood. Thank you I.
Speaker Change: I guess just second one just looking at the cost of funds at 318 basis points that was up I think sequentially 22 basis points and I guess more of a significant jump that we've seen in prior quarters, but Chris how much of that do you think is a function of competition in the market was there something going on in the first quarter and would you expect that to get back.
Speaker Change: Or was some of the in force pricing actions you're contemplating.
Speaker Change: Yeah, and again I'll, let conor.
Speaker Change: Disaggregate for us because it's a it's a good question, but I would just keep in mind that again.
Speaker Change: <unk> model, we nothing has really changed in terms of our new business pricing targets. So we are quite disciplined on that and we're quite disciplined debt maintaining.
Speaker Change: Our spreads on our in force balancing that obviously is.
Speaker Change: Excuse me wanting to do the right thing for policyholders and it would be fair to our distribution partners. So none of that has changed I think some of what happened is you had a little bit less surrender income.
Speaker Change: But again that has picked up again. So some of this is just there is a lag effect you know as you're repricing. Your your in force book relative to some of those changes I don't know if you want to add well yeah maybe.
Speaker Change: To underscore some of it if you breakdown, maybe I'll talk a little more broadly I'll talk sequentially from a product margin point of view. So both from an income and the cost of funds perspective, but the drivers maybe in terms of.
Speaker Change: Proportional size order.
Speaker Change: The.
Chris Blunt: Returns would be the first let me see if you're if you're normalizing for that then the next most impactful was the lower surrenders, which is coming through that cost of crediting line and then the third element, which Chris outlined in his opening remarks is just the lower cash yield.
Speaker Change: Impact.
Speaker Change: The sequential quarter as well so hopefully that helps you.
Speaker Change: If I could just squeeze in one more comment here in terms of progress toward Investor day, we still feel really good right about that for a couple of reasons. One the expense piece, we control and you heard from Connor, we're driving that operating expense ratio down and we will continue to do so that's 100% and are in our control flow reinsurance <unk>.
Speaker Change: <unk> was down a bit in the quarter, but that's because the reinsurers are struggling with the same thing we were how do you price in an environment where rates are bouncing all around and you're not sure what the spread outlook is that is already normalized so that's a positive we covered own distribution. So those are three big drivers for US right in terms of our Investor day.
Speaker Change: <unk> targets and then we talked about the base spread model again that hasn't changed we don't see anything right now that says Oh.
Speaker Change: We're seeing outsized moves that we can accommodate within our normal normal mechanisms. So.
Speaker Change: Since the comment of still feeling like we're on track.
Bill: Got it thank you bill.
Bill: As a reminder, if you'd like to ask a question that is star one.
Speaker Change: Next question is from Mark Hughes from <unk> Securities. Please go ahead.
Mark Hughes: Yes. Thank you I think you've touched on this Chris.
Speaker Change: For the my gut is bouncing back in April is that a market phenomenon or is that.
Mark Hughes: You got comfortable with the <unk>.
Speaker Change: Environment and kind of leaned into that market.
Speaker Change: Yes, it's hard to tell you know, we don't really get a sense of how other folks are doing in pretty unusual for us to give him a monthly number but it really it was just to punctuate. The point out there were some unusual things happening I was trying to price Mike business, we pride ourselves on being disciplined so yeah I would say it was very much in.
Speaker Change: Our camp and once we again had clarity on a little bit of rates coming down a bit spreads widening a bit reinsurers getting comfortable that they could earn a good return it's sort of all came together. So you know in this type of an environment, Mike is going to be a bit lumpier you know, we like the business it's quite profitable.
Speaker Change: For us, but again you know fixed.
Speaker Change: Fixed index annuities right in a perfect World, we would grow that every single quarter PRT, we want to continue to grow that business, Mike is going to be a bit more volatile because you know as you can imagine we want to be good allocators of you and your clients capital and so we're going to see a little more micro volatility and then.
Speaker Change: Last but not least <unk> are just purely opportunistic if the spreads makes sense, we've got capital in it.
Speaker Change: The list of good capital return will write it and if not we won't so hopefully that helps.
Speaker Change: Let me add just one thing too because I think this is important.
Speaker Change: Mike activity was not to the detriment of other retail opportunities that we enjoy two around either indexed universal life or the fixed indexed annuity businesses that they had a good April was as well. So it's not like we did my gut it didn't do the others yeah, great point.
Christine: Understood and then Christine you experienced any does this.
Speaker Change: Is this reminiscent of other times in.
Speaker Change: In the past, where you saw that sort of similar volatility any kind of takeaways I know every time is different.
Speaker Change: But.
Speaker Change: Based on your experience any conclusions you draw about this.
Speaker Change: Yes, it's a good it's a really great question and I would point folks back to Covid.
Speaker Change: Covid hit I don't know if folks remember, but LIBOR just collapsed it was almost overnight.
Speaker Change: In my mind, I remember like a 140 basis points and we had a fair amount in floaters you know we've since hedged a lot of that out. So I think our net floating rate exposure is only 5%, but back then it was you know.
Speaker Change: I want to say, it's like 15% so that was significant.
Speaker Change: But again, we began the repricing exercise within our in force and as I recall, even with a really extreme move like that within a year, we had sort of recaptured.
Speaker Change: And regained our original spread target so again that that proves the business model works. This isn't our first rodeo we've been doing this a long time now and I think the business model has proven to be quite resilient and I don't see anything that's changed that despite the volatility we have now.
Speaker Change: Investments that you called out for one of our own distribution companies what was the nature of that investment and is that just kind of one quarter and done or is that that have some carryover.
Speaker Change: Yeah. It was really quite simple it was an opportunity for one of our <unk> to acquire a stake in a smaller <unk> that they had a relationship with them.
Speaker Change: It had a very quick very attractive payback.
Speaker Change: So as board members, we looked at it and said frankly, we'd rather.
Speaker Change: Rather have you do that then then get a dividend in the quarter. So it was really that.
Speaker Change: That simple I don't I don't think that's a normal something that we're going to see.
Speaker Change: Every single quarter, it was a bit more opportunistic, but again without being able to go into specific details. It felt like a good a good use of capital.
Speaker Change: Yeah are there going to be in position to start paying dividends again or.
Speaker Change: Yes, that's our expectation.
Speaker Change: Yeah, Okay. Thank you very much.
Speaker Change: Next question is from John Barnidge from Piper Sandler. Please go ahead.
John Barnidge: Thanks for the opportunity to do a follow up.
John Barnidge: With market volatility is there anything to think about as far as RBC sensitivity to equity market volatility.
John Barnidge: Okay.
Speaker Change: Hi, Jonathan.
Speaker Change: This is actually where we're still 90, obviously, we do this we talk about it publicly on a on an annual basis, but.
Speaker Change: I think.
Speaker Change: The simplest answer to your question is nothing's changing in terms of our RBC expectations targets being about 400 at the end of the year et cetera.
Speaker Change: Okay. Thanks, a lot appreciate it.
Speaker Change: Uh huh.
Speaker Change: Next question is from Wes Carmichael from Autonomous Research. Please go ahead.
Wes Carmichael: Hey, Thanks for taking the follow up I, just wanted to touch on the alts portfolio.
Wes Carmichael: This includes the direct lending and non direct lending securitization, but would you be able to just break out the performance of that bucket a little bit in the quarter. I know you called out Connie to $63 million below expectations, but any way to think about how the return came in with traditional alts versus securitizations and maybe how you're thinking about that on a go forward basis.
Wes Carmichael: I'll do a little and and others.
Wes Carmichael: Maybe not as well, but yeah, I mean, you've kind of got a blended return, which I think you have.
Wes Carmichael: The waste within not you're right. There are a few categories. So the what I would describe as maybe the direct lending portfolio. The more imagine is more debt like securities were at the higher end of that.
Wes Carmichael: You know that to be closer to the expectation and it was really the LP portfolio.
Wes Carmichael: Lee came in.
Wes Carmichael: Lower.
Wes Carmichael: Kind of think like mid single digits, which is impactful in terms of the overall yield I think that's what you're getting at I would put a whole loans kind of in the middle maybe a little.
Wes Carmichael: On the lower end as well, if you're trying to get sort of the relative comparison performance of the three the direct lending book would it be at the heart of the higher would've been the outperformer of the three of them.
Wes Carmichael: Yeah, unless it's an obvious point, but it's kind of a one thing we can't control is the pace of realizations in private equity funds.
Wes Carmichael: People have a tendency sometimes to say all in it's too broad of definition. So I appreciate your.
Wes Carmichael: Refining it and going a bit deeper because people, sometimes think that our entire alts portfolio sitting in in PE funds, which is which is not so.
Wes Carmichael: Thanks, that's helpful and then I guess just going back to.
Wes Carmichael: To the surrenders, if we kind of remain in this environment are you expecting surrender activity to pick back up relative to the first quarter or should we.
Wes Carmichael: Kind of maybe you expect that to be a little bit more of a drag on cost of funds going forward.
Wes Carmichael: And that's it's an interesting question so.
Wes Carmichael: What I would I would say it this way that the surrender activity.
Wes Carmichael: Would have peaked.
Wes Carmichael: Third quarter of last year, but it was pretty elevated second quarter third quarter fourth quarter. So what we saw in Q1.
Wes Carmichael: Lower than those three quarters what.
Wes Carmichael: What we saw in April was almost the same as Q1, so the mathematical answer your questions at this stages.
Wes Carmichael: We're projecting something pretty similar Q2 to Q1 basis, just based on April results.
Wes Carmichael: That's probably pretty close to where we were a year ago as well.
Wes Carmichael: And I don't know if this is helpful. At all at all was but.
Wes Carmichael: When we look at our book and the policies that we wrote back when rates were really low you know sort of Red Orange Green you know what are the ones that are perhaps the most vulnerable to being replaced.
Wes Carmichael: There's still a fair amount of that that hasn't been worked through so I think surrenders.
Wes Carmichael: They are going to be just hard to predict but it's not like Oh. That's over you know I think if rates stay where they are there's still quite a few.
Wes Carmichael: Policies for us and other companies that could replace that we've talked about this before.
Wes Carmichael: Ironically, you end up in a better place because you have even stickier liabilities that are more or less likely to get.
Wes Carmichael: Pulled out or surrendered early on you going forward, but it does create some of this near term near term noise.
Chris Blunt: Thanks, Chris.
Chris Blunt: This concludes the question and answer session I would like to turn the floor back to Chris <unk> for any closing comments.
Chris Blunt: Great. Thank you just want to conclude by saying I'm confident in our underlying operating performance and the long term stability of our business. Despite the near term headwinds.
Chris Blunt: <unk> business is resilient and well positioned for the many opportunities ahead through the strength and flexibility that's provided by our multichannel distribution model, our disciplined pricing and underwriting of our spread based products and our ability to generate fee based earnings. Thank you for joining US. We appreciate your interest in <unk> and look forward to updating you on our second quarter, earning.
Chris Blunt: Call.
Chris Blunt: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
Chris Blunt: Goodbye.
Chris Blunt: [music].
Chris Blunt: Mhm.
Chris Blunt: [music].
Chris Blunt: Hum.
Chris Blunt: [music].
Chris Blunt: Okay.
Chris Blunt: [music].