F&G Annuities & Life, Inc. Q3 FY2024 earnings call

• Sales: Strong gross sales, retail sales surge driven by favorable market conditions and demand for retirement savings products. RILA launched with 4 broker-dealer partners, potential for billions in medium term. PRT sales strong, with $2.1 billion YTD in 2024, exceeding 2023 full year. • Investment portfolio: Diversified, fixed income yield up, commercial real estate debt portfolio high quality and low office exposure. • Owned distribution: $680 million invested, EBITDA estimate for 2024, double-digit growth medium term. • Financial targets: On track to grow AUM by 50%, adjust ROA to 133-155 basis points, adjust ROE to 13-14%, and expand multiple.

Sales: Gross sales were $3.9 billion in the third quarter, up 39% year-over-year, with $11.8 billion year-to-date, up 30% over the first 9 months of 2023. Retail sales from agency bank and broker-dealer channels were a record $3.5 billion in Q3, nearly double the prior year quarter, with YTD retail sales at $9.5 billion. Pension risk transfer sales were over $300 million in Q3, with $2.1 billion generated in the first 10 months of 2024, exceeding full year 2023 sales. Net sales were $2.4 billion, up 4% year-over-year. AUM: Record $62.9 billion at quarter end, an increase of 20% over Q3 2023, with retained AUM at $52.5 billion, up 11% year-over-year. Investment portfolio: Diversified, fixed income yield was 4.66% in Q3, 15 basis points higher than Q3 2023. Commercial real estate debt portfolio is high quality, low office exposure at less than 2% of total portfolio. Owned distribution: Invested $680 million in owned distribution, estimated EBITDA of $65 million to $70 million in 2024, with expected double-digit annual growth over medium term.

• Aim to grow AUM by 50%. • Target adjusted ROA to be 133 to 155 basis points. • Target adjusted ROE to be 13% to 14%. • Expect PRT sales to be in the range of $2 billion to $4 billion annually. • Retail sales expected to continue growing regardless of market conditions. • Funding agreements remain opportunistic.

• Elevated surrenders impacting earnings assumptions. • Offshore reinsurance management and regulatory approval considerations. • Market conditions affecting flow reinsurance availability and terms. • Interest rate changes influencing surrender activity and investment yields.

Q: Good morning. Thanks for the opportunity. My first question is on the flow reinsurance. Given your comments about the optimistic view of the positioning of the product to participate in the silver tsunami that's coming, especially with RILA being added. How do you view the opportunity to grow that flow reinsurance with the existing partners into those new products? And where do you view settling in from a flow reinsurance percent rate of like net to gross?

A: Yeah. Good morning, John. It's Chris. I know Wendy is going to want to weigh in as well. I don't think that we set a target of what we want to reinsure. It's more what's the capacity that's out there. How does it fit a particular product category. How accretive is it. And then we make those individual decisions. I would say right now, I don't see a lot of constraints to the availability of flow reinsurance. Obviously, we're selective about who we would partner with when it comes to flow reinsurance. But yeah, I think we continue to be quite optimistic about the impact that it can have on margins for us and sort of the availability of quality partners.

Q: Good morning. The first question, Wendy, I think you had talked about the assumption review and that being driven by elevated surrender activity. Can you just talk about like what's happening near term? And just maybe unpack that a little bit for us?

A: Sure. So the surrenders are elevated, as you've seen, right? So as we're looking at our assumptions, we're just making a decision. How long do we think it's going to continue to last. And as I said earlier to the other question, as rates stay up, there's still going to be elevated surrenders. So we just changed the assumption going into -- over the shorter term, not necessarily a larger longer-term assumption. And that was a very small part of the overall $17 million. So call it about $5 million unlocking on the DAC from that we'll see that as just a minor impact on the go-forward returns from that surrender assumption. Now on the GMWB utilization unlocking this new product that we've been selling a lot of the product features there, the policyholders are electing right away. And what that's going to do is with this product is make the MRB changes less volatile because you're locking in the actual benefit right away, and so there's no fluctuation going forward for those policies. So it's a onetime kind of hit for the increase in reserve for that assumption change but there's no volatility to it going forward.

Q: Hey, good morning. The first question, Wendy, I think you had talked about the assumption review and that being driven by elevated surrender activity. Can you just talk about like what's happening near term? And just maybe unpack that a little bit for us?

A: Sure. So the surrenders are elevated, as you've seen, right? So as we're looking at our assumptions, we're just making a decision. How long do we think it's going to continue to last. And as I said earlier to the other question, as rates stay up, there's still going to be elevated surrenders. So we just changed the assumption going into -- over the shorter term, not necessarily a larger longer-term assumption. And that was a very small part of the overall $17 million. So call it about $5 million unlocking on the DAC from that we'll see that as just a minor impact on the go-forward returns from that surrender assumption. Now on the GMWB utilization unlocking this new product that we've been selling a lot of the product features there, the policyholders are electing right away. And what that's going to do is with this product is make the MRB changes less volatile because you're locking in the actual benefit right away, and so there's no fluctuation going forward for those policies. So it's a onetime kind of hit for the increase in reserve for that assumption change but there's no volatility to it going forward.

Q: Hi, good morning. I'm on for Mark Hughes. Last quarter, you had mentioned targeting the younger demographic for RILA products. Have you seen any progress there in 3Q and maybe early 4Q? I know you had mentioned -- or I think you had mentioned you probably have a de minimis effect in 2024 but any color there would be appreciated.

A: Yeah. The honest answer is I think that the volumes are still too small to draw any really meaningful conclusions there. But there's a pretty good body of data for the entire industry that you are reaching a younger demographic with that product. So yes, I would say too soon to tell but I'd be really surprised if for some reason, we are an outlier to the broader trend there.