F&G Annuities & Life, Inc. Q1 FY2025 earnings call

• Near-term headwinds are seen as temporary; in-force book of business and investment portfolio performing well. Young fixed annuity block with surrender charge protection and ability to reprice liabilities annually. Investment portfolio well-matched to liability profile, diversified across asset types, with 96% of fixed maturities investment-grade. CLO portfolio is $3.7 billion (7% of retained portfolio), 89% investment-grade, with many prepaids. Alternative limited partnerships hold 6% of portfolio, diversified by sector and fund. Growth strategies include diversifying earnings between spread-based and fee-based sources, with $680 million invested in own distribution companies showing double-digit EBITDA growth expected.
• Recast financial results during the quarter, removing CLO redemption and bond prepay income from significant items and updating cost of funds and flow reinsurance fee income definitions. Presenting financial results on an as-reported basis going forward.

F&G reported record AUM before flow reinsurance of $67.4 billion as of March 31, with retained assets under management of $54.5 billion. Gross sales were $2.9 billion, down 17% from Q1 2024 mainly due to lower MYGA sales. Excluding MYGA, gross sales increased 5%. Indexed annuity sales were $1.5 billion, indexed universal life sales $43 million, pension risk transfer sales $311 million, funding agreements $525 million, and MYGA sales $562 million. Net sales retained were $2.2 billion compared to $2.3 billion in Q1 2024.

• Expect drivers of recent performance to improve throughout 2025 and remain committed to 2023 Investor Day targets. Balance sheet remains strong with RBC at or above 400%, target 25% debt to capitalization excluding AOCI, and GAAP book value attributable to common shareholders at $5.8 billion. Annualized interest expense approximately $165 million, and completed common stock offering with net proceeds for general corporate purposes.

• Near-term macro uncertainty and volatility. Impact of surrender activity on cost of funds, as surrender activity was lower in Q1 but could be variable. Potential impact of slower realizations in private equity funds on alternative investments.

Q: How to think about growth opportunity for RILA product in sales and distribution?

A: RILA is a product expected to be in the billions medium term, adding broker-dealers consistently.

Q: Impact of lower industry volume vs owned distribution partner investment?

A: Fairly balanced, with some being an investment by a partner with quick payback and rest from industry slowdown in 1035 activity which rebounded.

Q: Thoughts on raising common equity, deployment and timing?

A: Deploying thoughtfully into new business, MYGA activity rebounded, business model sound.

Q: Cost of funds increase and competition?

A: Disciplined on new business pricing, some lag effect in repricing in-force book.

Q: MYGA bouncing back in April, market phenomenon?

A: Disciplined approach, clarity on rates and spreads led to rebound, MYGA can be lumpier.

Q: Nature of investment in owned distribution company?

A: Opportunity for an IMO to acquire a stake with quick payback, expected to pay dividends again.

Q: RBC sensitivity to equity market volatility?

A: No significant change, RBC expected to remain above 400%.

Q: Performance of alts portfolio and go-forward?

A: Blended return, direct lending book outperformer, LP portfolio has lower realizations in PE funds.

Q: Surrender activity outlook?

A: Surrender activity lower in Q1 but similar to Q1 in April, hard to predict but near-term noise exists.