F&G Annuities & Life, Inc. (FG) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates a positive outlook with strong financial metrics, including a significant decrease in operating expense ratio and increased fee income. The strategic focus on capital-efficient growth and an increased dividend are positive indicators. Despite some unfavorable alternative asset performance, the overall sentiment remains positive, supported by optimistic guidance on RILA growth and operating leverage improvements. The company's market cap suggests a moderate but positive stock price reaction, likely in the 2% to 8% range.
Key Financial Performance
Assets Under Management (AUM) 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 the third quarter of 2024, AUM increased 14% and 8%, respectively, driven by net new business flows.
Gross Sales For the first 9 months of the year, gross sales were $11 billion, including $6 billion of core sales (index annuities, index life, and pension risk transfer) and $5 billion of opportunistic sales (MYGA and funding agreements). In the third quarter alone, gross sales were $4.2 billion, with core sales at $2.2 billion, modestly above both the second quarter of 2025 and the third quarter of 2024.
Indexed Annuities Indexed annuities contributed $1.7 billion in the third quarter and $4.8 billion year-to-date. FIA (Fixed Indexed Annuities) is the largest contributor to index annuity sales, and the launch of the reinsurance sidecar in August allowed a portion of accumulation-focused FIA sales to flow during the quarter.
Indexed Universal Life (IUL) Sales IUL sales were over $40 million in the third quarter and $137 million year-to-date, up 10% over the prior year-to-date period. Growth is attributed to meeting the needs of the underserved multicultural middle market.
Pension Risk Transfer (PRT) Sales PRT sales were more than $500 million in the third quarter and $1.3 billion year-to-date, in line with the prior year-to-date period. The PRT market continues to see a robust pipeline for midsized deals between $100 million to $500 million.
Opportunistic Sales Opportunistic sales were $2 billion in the third quarter, including over $1 billion of funding agreements and nearly $1 billion of MYGA sales. MYGA sales were nearly $1 billion in the third quarter and $3.4 billion year-to-date, reflecting dynamic adjustments based on market economics.
Fixed Income Yield The fixed income yield was 4.68%, increasing 10 basis points over the sequential quarter, primarily driven by a prospective floating rate asset model refinement.
Alternative Investment Portfolio The annualized return on the alternative investment portfolio was 7% in the third quarter, up from 6% in the sequential quarter, but below the 10% long-term expected return.
Variable Investment Income Variable investment income was $24 million pretax in the third quarter, compared to $26 million in the prior year quarter and $6 million in the sequential quarter.
Adjusted Net Earnings Adjusted net earnings were $165 million or $1.22 per share in the third quarter. This included a $10 million or $0.07 per share benefit from a tax valuation allowance release and $4 million or $0.03 per share from an actuarial reserve release. Additionally, $25 million of the earnings were due to strong prepayment fees and a lower effective tax rate.
Fee Income from Flow Reinsurance Fee income from accretive flow reinsurance grew to $41 million in the first 9 months, up 46% from $28 million in the first 9 months of 2024. This growth is attributed to the launch of the flow reinsurance strategy in 2020 and the new reinsurance sidecar effective August 1.
Operating Expense Ratio The operating expense ratio to AUM before flow reinsurance decreased to 52 basis points in the third quarter, down from 62 basis points in the third quarter of 2024. This improvement is due to expense actions taken earlier in the year.
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Operating Highlights
New Reinsurance Sidecar: Launched in August, it supports accumulation-focused FIA sales and enhances fee-based earnings.
Indexed Universal Life (IUL) Sales: Sales reached $40 million in Q3 and $137 million year-to-date, up 10% year-over-year, targeting underserved multicultural middle markets.
Pension Risk Transfer (PRT) Sales: Achieved $500 million in Q3 and $1.3 billion year-to-date, with a robust pipeline for midsized deals.
Market Expansion via Reinsurance Sidecar: The reinsurance sidecar launched in August facilitates third-party capital for FIA and MYGA sales, enhancing market reach.
Increased Public Float: FNF plans to distribute 12% of F&G's shares to its shareholders, increasing public float from 18% to 30%, improving institutional ownership.
Record Assets Under Management (AUM): AUM before flow reinsurance reached $71.4 billion, a 14% increase year-over-year.
Operating Expense Efficiency: Operating expense to AUM ratio decreased to 52 basis points in Q3, down from 62 basis points in Q3 2024, with further improvements expected.
Shift to Fee-Based Model: Transitioning to a fee-based, higher-margin, and capital-light business model, leveraging flow reinsurance and own distribution strategies.
Focus on Core Competencies: Expanding own distribution portfolio and selectively adding strategic partners to enhance value and scale.
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Risk or Challenges
Interest Rate Sensitivity: The company has hedged the majority of its floating rate portfolio to lock in higher rates, but changes in the shape of the yield curve could still impact the business.
Credit Exposure: Exposure to subprime auto and regional bank sectors is modest but still present, with $20 million and $13 million, respectively, as of September 30.
Alternative Investment Income: The alternative investment income was below management's long-term expected return, which could impact financial performance.
Amortization Expense: Higher amortization expenses are expected over the next year, which could affect profitability.
Operating Expense Ratio: While the operating expense ratio has decreased, further reductions are needed to meet long-term targets, posing a challenge.
Market Volatility: Macroeconomic volatility could impact the attractiveness of fixed annuity products and overall demand.
Regulatory and Ownership Changes: The planned distribution of F&G's common stock by FNF could impact market perception and institutional ownership.
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Guidance & Outlook
Gross and Net AUM Growth: The company expects both gross and net assets under management (AUM) to continue growing as they execute their strategy.
PRT Sales Target: The company is on track to achieve its targeted $1.5 billion to $2.5 billion of pension risk transfer (PRT) sales for the full year.
Retirement Savings Product Demand: Strong demand for retirement savings products, including annuities, is expected to continue, driven by demographic trends and macroeconomic volatility.
Operating Expense Ratio: The operating expense ratio is expected to decrease to approximately 50 basis points by year-end 2025, with potential further reductions averaging 1 basis point per quarter in 2026.
Flow Reinsurance Strategy: The company plans to reinsure the vast majority of MYGA sales and evolve toward a 50-50 retained versus flow reinsurance model for FIA sales.
Own Distribution Portfolio EBITDA: The company expects its own distribution investments to generate over $80 million of EBITDA for the full year 2025.
Medium-Term Financial Targets: The company aims to grow AUM by 50%, expand adjusted ROA to 133-155 basis points, increase adjusted ROE to 13-14%, and transition to a more fee-based, higher-margin, and less capital-intensive business model.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:How is the company prioritizing capital deployment and share buybacks?
A:The company is focusing on growing its fixed index annuity business, expanding its own distribution, and increasing its Index Universal Life (IUL) offerings. Share buybacks are a low priority as the company aims to increase its float rather than reduce it. The company also increased its dividend by 13.6% to share the benefits of its capital-light model with shareholders.
Q:What is the expected run rate level of non-alternative variable investment income?
A:The company expects non-alternative variable investment income to be in the high single digits, around $10 million pretax, though it may fluctuate quarter-to-quarter.
Q:What is the company's exposure to private letter-rated assets and private credit?
A:The company has a very small exposure to securities rated by Egan Jones and is increasingly using two rating agencies, including one of the 'big three,' for every deal. The company feels comfortable with its private credit portfolio despite concerns in the broader market.
Q:What are the moving pieces of the $67 million unfavorable alternatives performance in the quarter?
A:The $67 million unfavorable performance was primarily due to LPs (Limited Partnerships), which make up about $3 billion of the $10 billion alternative assets portfolio. While whole loans and direct lending performed as expected, LPs, particularly private equity funds, fell short of long-term expectations.
Q:What is the targeted return on LPs within the alternative assets portfolio?
A:The targeted return on LPs is modestly higher than 10%, contributing to an average portfolio return of around 10%.
Q:What caused the 10 basis point jump in base yield?
A:The increase was due to a refinement in the methodology for floating rate assets, which now uses a decision tree approach to better align asset purpose with interest rate assumptions. The core fixed income yield was flat quarter-over-quarter.
Q:What is the adjusted run rate ROA for the business?
A:The adjusted run rate ROA is around 129-130 basis points, at the lower end of the company's target range of 130-150 basis points.
Q:What is driving the growth in RILA (Registered Index-Linked Annuities) compared to FIAs (Fixed Index Annuities)?
A:RILA growth is driven by lower cap rates on fixed products and strong equity market performance. The company is seeing good adoption of RILA products on platforms, though growth is from a small base.
Q:How does the $80 million EBITDA in own distribution compare to the prior year?
A:The $80 million EBITDA is slightly down from the previously projected $85 million but is performing ahead of expectations overall.
Q:What is the competitive landscape on the liability and asset sides?
A:The liability side is competitive but reasonable, with strong activity in the PRT (Pension Risk Transfer) space. On the asset side, competition for credit origination is tighter, but the market remains large with ample opportunities.
Q:How does hedging and short-term interest rates impact earnings?
A:The company uses floating rate components as placeholders or for short-term liabilities. There were no significant timing lags or outsized impacts on earnings this quarter due to hedging.
Q:What is the outlook for operating leverage and expense management?
A:The company aims to reduce operating expenses as a percentage of AUM from 50 basis points to 46 basis points over the next year, with further modest improvements expected thereafter.
Q:What is the significance of FNF spinning some F&G stock to FNF shareholders?
A:The spin increases F&G's free float to over $1 billion, making it more attractive to long-only investors. FNF retained a large percentage of F&G, signaling confidence in its long-term strategy.
Q:Review of Unclear Management Responses
A:Management avoided providing a complete breakdown of the $67 million unfavorable alternatives performance, particularly the specific contributions of LPs versus direct lending. Additionally, they did not provide detailed insights into the competitive landscape for loan origination or the exact impact of hedging on earnings.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AUM flow
Blunt
Conor
IMOs FG
Investor
MYGA sale
ROA
annuity
asset manager
basis point
change term
core
date period
distribution
economics
expense
exposure
fee margin
flow reinsurance
holding
index
industry
investment income
item
life insurance
margin capital
portfolio
product
reinsurance sidecar
retirement
return
share
target
tax
term interest
FG Transcript
F&G Annuities & Life, Inc. (FG) Q3 2025 Earnings Call Transcript
Positive11-7
The earnings call indicates a positive outlook with strong financial metrics, including a significant decrease in operating expense ratio and increased fee income. The strategic focus on capital-efficient growth and an increased dividend are positive indicators. Despite some unfavorable alternative asset performance, the overall sentiment remains positive, supported by optimistic guidance on RILA growth and operating leverage improvements. The company's market cap suggests a moderate but positive stock price reaction, likely in the 2% to 8% range.
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F&G Annuities & Life, Inc. (FG) Q2 2025 Earnings Call Transcript
Positive8-7
The earnings call highlights strong financial performance with record sales in key segments, increased assets under management, and improved operating metrics. Despite some uncertainties in alternative investments and vague responses in the Q&A, the overall sentiment is positive due to robust growth, strategic moves towards a capital-light model, and stable margins. The market cap suggests a moderate reaction, leading to a predicted stock price movement in the positive range (2% to 8%) over the next two weeks.
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Frequently Asked Questions
Where does this earnings call transcript come from?
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
