F&G Annuities & Life, Inc. Q3 FY2025 earnings call

• F&G delivered strong Q3 results with record AUM before flow reinsurance, driven by strong sales quarters, new reinsurance sidecar, and business performance.
• Core sales included indexed annuities, IUL, and PRT with specific dollar amounts and growth.
• Opportunistic sales had funding agreements and MYGA with details on volumes and market window utilization.
• Investment portfolio had diversified fixed income, improved alternative investment returns, and variable investment income.
• Financial results: adjusted net earnings $165 million, adjusted ROA 92 basis points, adjusted ROE 8.8%.
• Own distribution: $700 million invested, expected $80 million EBITDA in 2025, diversified holdings.
• Operating expense ratio improved to 52 basis points in Q3, aiming for 50 basis points by year-end 2025 and further improvement in 2026.

F&G reported a record $71.4 billion of AUM before flow reinsurance at the end of the third quarter, including retained assets under management of $56.6 billion. Compared to Q3 2024, AUM increased 14% and 8% respectively. For the first 9 months, gross sales were $11 billion, with $6 billion core sales (index annuities, index life, pension risk transfer) and $5 billion opportunistic sales (MYGA, funding agreements). Core sales in Q3 were $4.2 billion, with core sales at $2.2 billion. Indexed annuities were $1.7 billion in Q3 and $4.8 billion YTD. IUL sales were over $40 million in Q3 and $137 million YTD. PRT sales were over $500 million in Q3 and $1.3 billion YTD. Opportunistic sales in Q3 were $2 billion, with over $1 billion funding agreements and nearly $1 billion MYGA sales. Investment portfolio: fixed income yield 4.68%, 96% investment grade; alternative investments had 7% annualized return; variable investment income was $24 million pretax.

• Expect both gross and net AUM to continue growing.
• Targeted $1.5 billion to $2.5 billion of PRT sales for full year.
• Expect continued strong demand for retirement savings products, driven by demographic trends and macroeconomic volatility.
• Operating expense ratio expected to improve further in 2026 with potential 1 basis point quarterly decrease on average.

• Macro-economic volatility affecting attractiveness of fixed annuity products.
• Fluctuations in opportunistic sales volumes depending on economics and market opportunity.
• Credit exposure concerns, though limited direct holdings in First Brands, Tricolor, PrimaLend and modest exposure to subprime auto and regional bank sectors.
• Volatility in variable investment income.

Q: Broader question on capital allocation, share buybacks, and focus areas.

A: Prioritize core products like IUL, FIA, RILA, PRT; own distribution expansion; increased dividend; share buybacks low priority due to FNF's share distribution.

Q: On variable investment income outside alternatives portfolio.

A: Expect near term in high single digits, 10-ish roughly, will fluctuate.

Q: Color on alternatives performance, targeted returns.

A: LPs had stronger performance, targeted returns modestly above 10% but within components.

Q: Base yield jump explanation.

A: Change in methodology from forward curve to decision tree, core fixed income impact modest.

Q: RILA dynamics, progress.

A: Driven by market sentiment shift, continuing to grow off small base, strategic product for F&G.

Q: Own distribution EBITDA comparison, competition.

A: EBITDA down slightly but portfolio performing well; same competition as before, optimistic about growth.

Q: Competitive landscape, credit origination.

A: Tighter in spots but market still large; found spots, takes longer to invest premiums in private credit.

Q: Hedging and short-term interest rates impact on earnings.

A: Floating rate component small, no meaningful timing lags due to hedging, methodology change for precision.

Q: Operating leverage, cost reduction.

A: Operating expense ratio improving towards 50 basis points by year-end 2025, further modest improvement in 2026.

Q: FNF spinning F&G stock to shareholders.

A: Meaningful increase in free float, seen as positive for long-only investors, FNF's vote of confidence in F&G's future.