F&G Annuities & Life(FG) - 2025 Q1 - Quarterly Results

F&G Investor Update Spring 2025 Disclaimer & Forward-Looking Statements This section outlines forward-looking statements, their inherent risks, and the use of non-GAAP financial measures with provided reconciliations - The presentation contains forward-looking statements based on management's beliefs and assumptions, and actual results may differ materially. Key risks include economic conditions, interest rate fluctuations, and regulatory changes[4] - The document includes non-GAAP financial measures to help investors understand financial performance. These measures are not a substitute for GAAP and reconciliations to the most comparable GAAP measures are provided[5] Q1 2025 Performance Highlights F&G achieved record AUM of $54.5 billion in Q1 2025, demonstrating resilience despite margin compression and a strategic reduction in MYGA sales Q1 2025 Key Metrics | Metric | Value | Change (YoY) | | :--- | :--- | :--- | | Gross Sales | $2.9B | ↓ 17% | | Net Sales | $2.2B | ↓ 4% | | AUM before flow reinsurance | $67.4B | ↑ 16% | | Assets Under Management (AUM) | $54.5B | ↑ 9% | | LTM Adjusted ROA | 1.00% | - | | Adjusted ROE | 9.7% | ↑ 2.3% | | Capital Return to Shareholders | $30M | - | - The company strategically managed sales and inforce profitability to optimize capital returns, which resulted in lower Multi-Year Guaranteed Annuity (MYGA) sales[7] - Margin compression in Q1 was driven by near-term headwinds, including excess cash from CLO prepayments, lower surrender fee income due to slowed terminations, and the timing of inforce pricing actions[10] - Operating performance remains strong with stable underlying businesses. Key positive drivers include asset growth supporting product margins, growing fee income from flow reinsurance, and improved operating expenses[8][9] Financials and Business Overview First Quarter Financial Trends Q1 2025 financial trends show decreased gross sales and net earnings year-over-year, offset by increased AUM and Adjusted ROE Financial Trends - As Reported ($M, except per share data) | Metric | 2023 | 2024 | 1Q24 | 1Q25 | | :--- | :--- | :--- | :--- | :--- | | Gross sales | $13,153 | $15,262 | $3,495 | $2,902 | | Net sales | $9,238 | $10,571 | $2,302 | $2,181 | | AUM | $49,103 | $53,817 | $49,787 | $54,546 | | Adjusted ROA | 0.73% | 1.06% | 0.87% | 0.68% | | Adjusted ROE | 6.5% | 10.3% | 7.4% | 9.7% | | Net earnings (loss) | ($58) | $622 | $111 | ($25) | | Adjusted net earnings (ANE) | $335 | $546 | $108 | $91 | - In Q1 2025, investment income from alternative investments was $63 million below long-term return expectations, a larger gap than the $52 million shortfall in Q1 2024[12] F&G Snapshot and Investment Case F&G presents a compelling investment case, leveraging diverse distribution and investment expertise to drive margin expansion and ROE growth in retirement markets - F&G operates through five distinct distribution channels (Independent Agents, Broker Dealers, Banks, Pension Risk Transfer, Funding Agreements) and offers Retail Annuities, Life Insurance, and Institutional Products[15][17] - The investment case is built on: targeting large, growing markets; a superior ecosystem with strong distribution and investment capabilities; a proven track record of growth; and strategies to drive margin expansion and higher ROE[18][19] - Since its 2020 acquisition by FNF, F&G has expanded its Adjusted ROE by 2 percentage points and grown its Book Value Per Share (BVPS) by 58% (from YE 2020 to Q1 2025)[20][22][24] Progress Toward Medium-Term Investor Day Targets | Target | Goal | | :--- | :--- | | AUM Growth | Grow by 50% | | Adjusted ROA Expansion | 1.33% to 1.55% | | Adjusted ROE Increase | 13% to 14% | | P/E Multiple Expansion | 7-8x | Inforce Business and Market Opportunity F&G's profitable $53 billion inforce book benefits from secular tailwinds in high-growth retirement markets, driving significant sales diversification Retail Fixed Annuity Metrics (Q1 2025) | Metric | Value | | :--- | :--- | | Weighted average time in surrender period | 5.5 Years | | % Surrender protected | 92% | | Average remaining surrender charge | 7% | | % Subject to market value adjustment (MVA) | 78% | | Distance to guaranteed minimum crediting rates | 218 bps | - The company's $53 billion GAAP Net Reserves are primarily composed of Indexed Annuities (58%), with no problematic legacy business[29][30][32] - F&G is positioned to benefit from secular tailwinds, including a projected 30% increase in the 65+ population over the next 25 years and nearly $3 trillion in retail money market funds expected to seek higher-rate solutions like fixed annuities[38][41] - Annual gross sales grew from $3.9 billion in 2019 to $15.3 billion in 2024, representing a 31% CAGR. The business has diversified significantly, with institutional markets (Funding Agreements & PRT) growing from 0% of sales in FY2020 to 46% in FY2024[43][44][46] Strategic Initiatives and Investment Portfolio F&G's owned distribution strategy drives margin expansion, supported by a high-quality, diversified $51 billion investment portfolio with minimal real estate exposure - The owned distribution strategy is a capital-light source of fee-based earnings, contributing 5 bps to Adjusted ROA in Q1 2025[47][50] - The investment portfolio is 96% investment grade, with modest credit-related impairments of 6 bps over the last 5 years. Office exposure is low at 1.6% of the total portfolio[57] Investment Portfolio by Asset Class ($51B Total) | Asset Class | Percentage | | :--- | :--- | | Corporates | 31% | | Structured Securities | 22% | | Private Origination | 16% | | Mortgage Loans | 11% | | Alternatives (LP) | 6% | | Other | 14% | - The investment strategy focuses on high-grade public and private securities, well-diversified structured credit (CLOs, CMBS, ABS), and superior loss-adjusted mortgage loans and private credit[62] Detailed Financial Performance and Capital Management 1Q25 Detailed Performance Review Q1 2025 saw a strategic sales pivot, record AUM growth, and improved Adjusted ROE, despite margin compression impacting Adjusted Net Earnings - Gross sales of $2.9 billion were down 17% from Q1 2024, driven by lower MYGA sales. Excluding MYGA, gross sales were $2.3 billion, an increase of 5% over Q1 2024[72] - Ending AUM before flow reinsurance reached a record $67.4 billion, with retained AUM at $54.5 billion[72] Q1 2025 vs Q1 2024 Earnings Metrics | Metric | 1Q24 | 1Q25 | | :--- | :--- | :--- | | Common ANE | $108M | $91M | | ANE per share | $0.86 | $0.72 | | Adj. ROA | 0.87% | 0.68% | | Adj. ROE | 7.4% | 9.7% | - The decrease in ANE from Q1 2024 reflects margin compression, lower owned distribution margin, and higher interest expense, which were partially offset by asset growth, higher fees from flow reinsurance, and disciplined expense management[76] Capital Profile, Ratings, and Allocation F&G maintains a strong capital profile with a 26.7% debt-to-capital ratio, achieving ratings upgrades and actively managing capital for growth and shareholder returns - The adjusted debt-to-capital ratio was 26.7% at the end of Q1 2025, managed towards a long-term target of approximately 25%[78][79] - In Q1 2025, F&G issued $375 million in junior subordinated notes, redeemed $300 million in senior notes, and completed a public offering of 8 million common shares for net proceeds of ~$269 million to support growth[79] - F&G has received multiple ratings upgrades over time, including to 'A-' from S&P Global and Fitch, reflecting its scaling business, diversifying earnings, and strong capitalization[81][82] - Capital allocation priorities are reinvesting in the business for growth and returning capital to shareholders via dividends and opportunistic share repurchases. The company returned $30 million to shareholders in Q1 2025[83][84][85] Appendix Appendix — Investments This appendix details F&G's high-quality, diversified investment portfolio, focusing on structured credit and real estate debt with prudent risk management Structured Credit Details The structured credit strategy provides access to well-diversified, high-quality assets across CLOs, CMBS, and ABS - The structured credit strategy provides access to well-diversified, high-quality assets across CLOs, CMBS, and ABS[88][95] CLO Portfolio Snapshot ($3.7B Market Value) | Metric | Value | | :--- | :--- | | Credit Quality | 89% Investment Grade | | Structural Protection (Par Subordination) | 25% | | Capital Efficiency (Average NAIC rating) | 1.27 | - The CLO portfolio is highly diversified by manager, issuer, and industry, with the top 10 issuers comprising only 7.1% of the portfolio[103][105][107] Real Estate Debt Details The real estate debt portfolio is high-quality and defensively positioned, with a focus on multifamily properties and low-leverage commercial mortgage loans Real Estate Debt Portfolio Snapshot ($11.4B Market Value) | Metric | Value | | :--- | :--- | | Duration | 3.8 years | | Weighted Average Life | 5.7 years | | Quality (Average NAIC rating) | 1.3 | - The CMBS portfolio has a higher concentration in multifamily (39%) and lower in retail (14%) compared to market averages, reflecting a defensive posture[121][122] - The Commercial Mortgage Loan (CML) portfolio is low risk, with an average loan-to-value of ~60%, and is well-diversified by property type and geography. 88% of loans have an LTV below 60%[126][131] Appendix – Finance This appendix provides detailed financial reconciliations, including BVPS analysis and a full reconciliation of GAAP Net Earnings to Adjusted Net Earnings - BVPS ex AOCI decreased from $44.28 at YE 2024 to $43.31 at Q1 2025. The decrease was primarily driven by the dilutive effect of the common stock offering (-$0.63/share) and mark-to-market movements (-$0.78/share), partially offset by underlying business performance (+$0.59/share)[140][141][143] - On a year-over-year basis, BVPS ex AOCI increased 5% from $41.10 in Q1 2024 to $43.31 in Q1 2025, driven by a $3.41 per share increase from underlying business performance[144][146][147] Reconciliation of Net Earnings (Loss) to Adjusted Net Earnings (ANE) ($M) | | 1Q24 | 1Q25 | | :--- | :--- | :--- | | Net earnings (loss) attributable to common shareholders | $111 | ($25) | | Recognized (gains) and losses, net | 32 | 29 | | Market related liability adjustments | (55) | 103 | | Purchase price amortization | 22 | 15 | | Transaction costs, other and non-recurring items | - | 1 | | Non-controlling interest | (3) | (2) | | Income taxes adjustment | 1 | (30) | | ANE attributable to common shareholders | $108 | $91 | - The appendix provides detailed definitions for non-GAAP measures including Adjusted Net Earnings (ANE), Adjusted Return on Assets (ROA), Adjusted Return on Equity (ROE), Assets Under Management (AUM), and Book Value per Common Share, excluding AOCI[156][159][161][164]