Q2 2025 F&G Annuities & Life Inc Earnings Call
Speaker #4: Good morning and welcome to Fmg's Second Quarter 2020 Earnings Call . During today's presentations , all callers will be placed in listen only mode .
Speaker #4: Following management's prepared remarks , the conference will be open for questions with instructions to follow at that time . I would now like to turn the call over to Lisa Foxworthy Parker , SVP , Investor and External Relations .
Speaker #4: Please go ahead .
Speaker #5: Thanks . Operator and welcome , everyone . I'm joined today by Chris Blount , Chief Executive Officer and Conor Murphy President and Chief Financial Officer .
Speaker #5: 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 #5: 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 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 .
And more than 400 million of pension risk, transfer sales compared with approximately 300 million in the second quarter of 2024.
This brings PRT cells to 700 million for the first half of the year.
Miga. Sales were a record 1.9 billion in the second quarter and we had no funding agreements.
2 products we view as opportunistic.
This was a 73% increase over the sequential quarter due to higher Miga sales of down 21%. From the second quarter of 2024 due to no funding agreements in the current quarter.
The economics for flow, reinsurance were favorable early in the quarter and almost half of the second quarter Miga. Sales were generated in the month of April.
Miga, sales, increased 27% over the second quarter of 2024.
As a reminder, opportunistic sales volumes will fluctuate quarter to quarter depending on economics and Market opportunity.
Notably retail channels sales were a record with more than 3.6 billion in the second quarter, reflecting 1 of our best quarters for index annuities and a record quarter for both iul and Miga.
For the first half of the year, we have generated 7 billion of gross sales, comprised of 4 billion of chorus sales. And 3 billion of opportunistic market sales, net sales retained were 4.9 billion in the first half of the year.
looking ahead to the remainder of 2025, we will continue to prioritize pricing discipline
and allocating capital to the highest return opportunities.
With the launch of our reinsurance sidecar. During the third quarter, the economics for FIA sales are becoming relatively more attractive and we expect our mix of sales to shift more to FIA in the back half of the year.
We also have the flexibility to optimize our level of flow reinsurance in line with our Capital targets by dynamically, adjusting Mya volumes up and down as market. Economics change as demonstrated in the first half of the year,
FNG reported record a before flow reinsurance of 69.2 billion. The end of the second quarter including retained assets under management of 55.6 billion.
Compared to the second quarter of 2024 AUM, increased 13 and 7%. Respectively, driven by net, new business flows.
Next, turning to the Investment Portfolio.
The retained portfolio is high quality with 97% of fixed maturities. Being investment grade.
Credit, related impairments, have remained low, and stable averaging 6 basis points over the last 5 years.
Through the first half of the Year, credit related impairments remain below our pricing.
During the second quarter, we made significant progress on deploying our excess cash.
As a result, our fixed income yield increased 5 basis points from the first quarter and we believe there is still more opportunity for uplift with the spread environment becomes more attractive.
in summary FG is uniquely positioned in the industry with a profitable and growing 54 billion enforced block
We generate spread-based earnings from fixed annuities and pension risk transfer, and we have multiple sources of fee-based earnings with the sidecar in place. Alongside our flow, reinsurance, Middle Market, life insurance, and a well-performing owned distribution portfolio.
As our business grows, we're becoming a more fee-based. Higher margin, and capital light business.
Before turning the call to Connor, I'd like to highlight the executive management transition that we announced last evening.
First. John Courier has decided to retire next year, and will be transitioning from his role, as fng's president, into a senior advisory role.
John has been an invaluable partner and has deep industry, expertise and Leadership has been instrumental to our transformation and expansion over the last 10 years.
Under John's leadership, we have focused our efforts in the retail space on our mission, helping more and more people achieve their aspirations, by expanding our retail footprint. In breadth and depth driving exceptional, sales growth, and we've more than doubled our assets under management over the last 5 years.
We are now a market leader in several segments, and I am appreciative to John for all of his efforts and on a personal level, his friendship.
I look forward to continuing to work with John and his new capacity as a senior adviser until his retirement next year
We also announced that Connor will be taking on the role of President of FNG. In addition to his current role as CFO. Connor has made a big impact since joining FNG and I'm looking forward to working with him in this new capacity.
Connor brings a wealth of experience developed through a variety of executive roles at leading insurance companies in both the US and abroad.
This experience will be invaluable as we continue to grow the company as well as expand our Capital light degenerating businesses which I firmly believe will grow the value of f and g.
Let me now turn the call over to Connor to provide further details on fng's second quarter financial highlights.
Thank you Chris and thank you for your support.
I'm excited to take on this new role, and share your optimism. For the many opportunities that lie ahead as we work to transform SMG into more of a fee, based higher returns and capital like business,
I believe that we are well on our way. I'm looking forward to partnering with you in this new capacity.
This morning, I'll Focus my comments on adjusted net, earnings and returns.
The new reinsurance sidecar transaction and our balance sheet and capital position.
Starting with earnings.
On a reported basis adjusted. Net earnings were 103 million or 77 cents per share in the second quarter.
For the quarter investment income from alternative Investments was 83 million or 62 cents per share below Management's long-term expected return.
Second quarter adjusted, net earnings reflect asset growth.
Higher fee income from a creative flow, reinsurance.
Growing owned distribution margin and disciplined expense management.
Notably we are benefiting from increased scale as our ratio of operating expenses to AUM before flow, reinsurance has decreased to 56 basis, points in the quarter from 61 basis points, in the second quarter of 2024.
We had a 7 million dollar impact from 1 time, expense actions taken. During the second quarter, this was recognized below the line and did not impact our second quarter adjusted net earnings
Going forward, we expect improvement in our operating expense ratios. As a result of the second quarter expense actions, we are moving from 60 basis points at year-end 2024 to approximately 50 basis points by year-end 2025.
It was a strong quarter.
On many of the near-term, headwinds that drove margin compression in the first quarter are clearing as expected.
Cllo. Prepayments normalized.
Surrenders are more in line with our expectations in a higher rate environment.
And we have made significant progress in putting access cash, balances to work.
Our results through the first half of the year have generated sustainable returns.
As reported adjusted Roa on a last 12-month basis was 92 basis points.
Including short-term fluctuations from investment income. On alternative Investments.
This compares to 91 basis points in the second quarter, 2024 last 12 months period.
Our adjusted Roa reflects meaningful contributions from our fee-based flow, reinsurance and owned distribution strategies.
And as reported adjusted return on Equity, excluding aoci was 8.8% up, 40 basis points over the second quarter of 2024.
To our reinsurance sidecar transaction, and our strong, and growing balance sheet.
I share Chris's enthusiasm for the reinsurance vehicle announcement.
We fund our business from multiple sources of capital, including enforced Capital generation, reinsurance and Capital Market issuances.
The sidecar is another source of capital and integral to our long-term success.
Enabling us to scale in an accretive and capital efficient manner.
To provide some further details on the transaction. The scope of the reinsurance sidecar is new business only
and the large for up to 75% of newly originated accumulation focused FIA products
Blackstone has established a new payment based reinsurer Fort Greene, reinsurance STC limited. That will be managed on a US, risc-based capital and Nic statutory basis.
Importantly, SMG does not hold any ownership stake in Fort Greene, which is unaffiliated and a black stone owned entity.
The new reinsurance vehicle backed by Blackstone-managed funds has approximately $1 billion in anticipated capital commitments.
This reinsurance vehicle is a strategic Capital solution that complements smg's Dynamic Capital, allocation framework and supports our strong Capital position.
We will continue to utilize our existing flow, reinsurance Partnerships for migas sales.
We will continue to manage capitals to the most robust of our Regulatory and rating agency requirements, including maintaining RBC at or above 400%.
There is no change to our holding company cash and invested assets targets of 2 times interest coverage.
And we remain committed to our long-term Target of approximately 25% debt to capitalization excluding aoci.
The reinsurance sidecar will help expand our fee-based earnings power over time, alongside our flow, reinsurance Middle Market, life, insurance and owned distribution strategies.
Our own distribution portfolio is performing well and creating value.
We have invested nearly 700 million dollars in own distribution companies.
Our Holdings are Diversified by product and market and reflect growing businesses with strong leadership.
Reflecting on my first few months. In this role, I've had the opportunity to see firsthand the strength of our business model and dedication of our team.
We are well positioned to further. Expand our return on equity and deliver long-term shareholder value.
As we navigate, the shifting industry, Dynamics and macroeconomic environment. We remain disciplined, and focused on managing the profitability of our sales and enforced book, and optimizing our return on Capital,
Generating retained asset growth and incremental investment margin.
Continuing to drive an efficient cost structure to capture benefits of scale.
And further diversifying our spread-based and fee-based earnings, which differentiate FNG
We remain confident that we will deliver on our 2023 investor day targets.
As we move further toward a more fee-based higher margins and less Capital intensive business models leveraging our positions as 1 of the industry's largest Distributors of annuities and life insurance.
This concludes our prepared remarks and let me now turn the call back to our operator for questions.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad,
A confirmation tone. Will indicate your line is in the question queue?
You may press star 2 if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Again, that is star 1. If you would like to ask a question,
And our first question comes from John Barnett with Piper Sandler.
Good morning, thank you for the opportunity. Um, my question is on the sidecar with 1 billion. Commitments raised. How much capacity, do you think that will have and how quickly do you think you'll be able to fill that?
Yeah, hey John, it's Chris. Um this is a great question. I I think
Ity in terms of incremental AUM that we can bring on board. More importantly, I think it's part of a broader strategy of moving down a more Capital, light path, and it's going to be highly accretive to our earnings as a, as opposed to Simply retaining that AUM.
Thank you, and my follow-up. Maybe sticking with that Capital like, path. You're trying to go down. You deployed. A lot of capital known distribution. You now have a sidecar. Looks like you got that. That dividend was resumed in the second quarter, uh, after being paused for the Investments that were made in the first. Um, what is this mean? For the potential for additional consolidation on that side. Thank you.
Yeah, I think that, you know, like everything we believe 1 of our most sacred jobs here is, you know, making smart, Capital allocation decisions. And so, as we look at the various opportunities, you write own distribution, is something that we want to continue to grow. That's, um, generating terrific returns for us. So, we're excited about that. Continuing down the path of selling fia's, uh, but utilizing the sidecar utilizing other, uh, reinsurance opportunities, um, you know, similar return pattern, but something that we're super excited about, uh, and yes by going down to more Capital like path, we will have more, uh, free cash flow. So, but I would say right now what we hear from investors is that are not necessarily looking for
You know, substantial increases in, dividends given the returns that were able to generate in both own distribution and and flow reinsurance. Um, so yeah, I think that's how we think about Capital allocation, I don't know. Connor if you want to add to that. Yeah, I I think I'll try me. I think this is a great additional tool for us. In terms of, we have a number of Miga reinsurance Partners. We had an existing uh have an existing partner on the FIA side, having another opportunity there as well. I think, you know from
All of the, the conversations we've had that. That's a, a very significant core product for us. Um, so I think you'll see a little more emphasis, perhaps there on a comparative basis. And, um, but yeah, the own distribution opportunity. We can we continue to, um, believe in. And, and another and increasingly convinced of the value of that opportunity as well.
Thanks for the answers.
Again, that is star 1. If you would like to ask a question,
And our next question comes from Mark Hughes with Truist Securities.
Yeah, thank you. Good morning.
Morning, Mark.
Our uh Miga sales shaping up. Now you talked about in Q2 a lot of that was concentrated in April. How do you see the environment so far for Q3
Yeah, I would say, um, probably somewhere in between meaning, you know, maybe a more normalized rate. Uh, we had a lot of volatility in the first quarter of, uh, of this year. You saw the huge Rebound in the second quarter. I do think we'll see a little more volatility in Miga sales. Uh, keep in mind, we flow out the vast majority of our Miga business, and so it's just a process of every single month. We look at the market, we look at the spread opportunity, we look at the quotes from our reinsurers, and then we compare that to the other opportunities. But I would say, particularly now, with the Sidecar,
Fee becomes even more attractive, uh, use of capital. So you could see, uh, probably a little bit lower level of Miga sales, but we would expect a higher level of of, uh, indexed, annuity sales,
Yeah, and market value allowed to that as well. Um, we didn't have um, funding agreement type sales in the quarter. Um, that's another element that we compare, um, from an opportunistic perspective and so we would put that maybe in that same opportunistic, bucket with the Miga sales. So the, the relative composition and mix of those 2 can can add and flow as well.
And, and I know it's an obvious point but, you know, index, annuities longer duration, uh, higher return, uh, a product that every year, we have some ability within reason to, uh, uh, reset the rates and maintain a consistent spread. So, um, you know, I think it's always going to be at the top of our list of preferred places to deploy Capital along with own distribution.
Yeah, thank you then. Same question on funding agreements. Uh
Those were, uh, negligible in the quarter. Um, how do you see that shaping up?
Early in the quarter. If you would looked at the composition of the quarter, we did more in April. We had talked about that last quarter's call. Um, I I the the funding agreement Market is, is, is, um, is looking reasonably attractive? Or I, I would say more than reasonably attractive at the moment. So I think there's a an what we will certainly look closely at it in the third quarter. And I said compare it with the other opportunities and uh and weigh them up accordingly.
And then, uh, when we think about rya's, I think you mentioned, they were gaining traction. A lot of talk about fia's with the new sidecar. How how do you feel like the, uh,
Balance of the opportunity across the fia's versus rya's. Um, as we sit here today,
Um we very much like the Riya space as well. It's a great um partner with the fia's, many of our um FIA producers and sellers um our licensed to sell Reyers as well. Um so we saw significant growth in our Ria relative to the size of our book, but it's still quite a modest book, so yes. Um, still very much like it still, um, a a key element of of our expansion plans but just smaller in scale at this stage.
So less less material for.
Now, if I might ask just 1 more when we think about,
uh, your return on assets, this quarter kind of, uh,
what's the walk from the Q2 return on assets to, uh,
Your investor day targets. I wonder if you could just refresh us on that.
Yeah, um, I'll start on that 1, so keep in mind. So, investor day was not quite 2 years ago, which is kind of some ways. It seems a lot longer but it was October of 23. So, think of us as not quite 2 years into a 5 year goal, the goal at the time was to have a 50% increase in our assets under management. Uh, we are well ahead of that Target at only 2 years into it. Um, so we feel really good about achieving that, uh, from an RA perspective. We said, we would go from a baseline spread of 110 to a range of 133 to 155. We tend to look at the last 12 months, uh, because you know that
Smooths out some of the, some of the wrinkles there. And I think that's been in the high 120s, mid 120s. So, I said, we feel good about how we're tracking their. Um, and then obviously, you know, as we took some efforts to bring down expense ratio, I would say that was uh probably will kick in about 10 basis points on top of what we've already seen. So we're feeling really good at this juncture.
The other part of the goal is to drive up Roe and we're making progress there and I think things like sidecar own distribution. Those are going to be uh, quite accretive to Roe.
In the mid 120s. How many basis points of that is the, uh, just normalizing. All all, I'll ask that question and then the
is we think about Q3, um, any body language on, uh, how the alts are, uh, set up for uh, you know, performing this quarter.
Yeah, I think, I think in the alts, front, you know our long term. Assumption again, is is 10 percent. We think that's reasonable. We look at it regularly. If should we be revisiting? That should we be bringing that down? Um, obviously we've gone quite a while now without meaningful realizations and so we don't run the business trying to predict what's going to happen. I know there's been a couple of the prominent folks and particularly at Blackstone enthusiastic that we may now see a better deal environment. And if that's the case that would be a big
Tailwind for us, not just in terms of returns because people tend to normalize for that, but, uh, that'd be a positive from a capital perspective, because keep in mind that alts book does get marked to Market, uh, every quarter and then, in terms of the lock,
I think, uh, I think alts on this quarter.
Connor last 12 months, probably 37 basis points. Yeah.
So think of the bases, I don't know 92.
And then 37 for alts would get you to a last 12 months 1 29.
Very good. Thank you.
Our next question comes from Alex Scott with Barkley's.
Hi, good morning. This is Annie on for Alex. Um, I'm wondering if you're currently taking any cap rate action. And
how do you see that impacting your cost of crediting looking forward?
On a regular basis, right? So, every single month, at a minimum, we're, we're looking at, uh, enforced crediting actions as it comes. Uh, as these things come due. And what I would say there is, we have pretty good track record over time of maintaining consistent spread. So where we have had deviations from pricing? Uh, we do take enforced, crediting rate actions. Now, you don't want to overdo that, you want to make sure that you're within a reasonable band and you want to look at the competitive environment, you're being fair from a policy holder perspective. But yeah, that is, um, a lever that we would expect uh, to help particularly when you get into these periods of a fair amount of volatility.
And this will conclude our question and answer session. I will now turn the conference back over to CEO, Chris blunt for closing remarks.
Great. Thanks again to everyone for joining the call this morning, we had a strong second quarter and we've got good momentum heading into the second half of the year. I'm excited about the future and our ability to deliver strong results for the shareholders, of f and g. In the years ahead, appreciate your interest in f and g and we look forward to updating you on our third quarter. Earnings call
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference, you may disconnect disconnect your lines and have a wonderful day.