F&G Annuities & Life Third Quarter 2026 Earnings Call - F&G ANNUITIES & LIFE INC

Financial Performance:

• Adjusted net earnings were $96 million ($0.74/share) for Q3 2026, up $11 million sequentially but down $69 million year-over-year due to lower alternative investment returns, the one-time benefit of the F&G Life sale in the prior year, and reduced surrender charges.
• Adjusted ROE excluding AOCI was 6.7%; adjusting for the long-term expected return on alternatives (12% vs. actual 5% in Q3) would add 3.4 percentage points.
• Total common equity excluding AOCI was $6.7 billion ($51.37/share), up 87% since the 2020 FNF acquisition.
• Operating expense ratio (OpEx to AUM before reinsurance) decreased to 46 basis points in Q3, on track for the 2027 target of 45 basis points.
• Book value per share grew to $51.37, driven by $355 million in favorable market risk benefit liability adjustments and $297 million in actuarial reserve releases.
• Capital utilization: Capital self-funded $113 million in Holdco interest, $112 million in dividends, and $120 million in share repurchases in the first nine months.

Guidance and Future Outlook:

• AUM before reinsurance reached a record $76.2 billion at September 30, 2026, a 7% increase year-over-year; retained AUM is $56.2 billion.
• Management targets a 12% long-term expected return on alternative investments; Q3 realized return was 5% (LPs at 9%, other equities offset).
• Guidance on amortization: Elevated post-actuarial review amortization ($6 million after-tax impact) is expected to persist through 2027 and normalize by 2028.
• Full-year 2026 PRT sales guidance remains $1 billion to $1.5 billion; $700 million sold in the first nine months.
• Management reaffirms focus on fee-based growth, maintaining discipline on return targets, and potentially unlocking value through a strategic sale of the Peak Altitude distribution franchise.

Business Segments and Product Lines:

• Core Retail Sales: Record quarter with $2.1 billion in Fixed Indexed Annuity (FIA) and Life sales (up 24% YoY), outperforming the contracting industry FIA market.
• Core Institutional Sales: $200 million in Pension Risk Transfer (PRT) sales; de-emphasized Multi-Year Guaranteed Annuity (MYGA) sales due to sub-threshold returns.
• Opportunistic Sales: $700 million total ($600M funding agreements, $100M MYGA) for Q3; $8.5 billion growth sales in the first nine months excluding MYGAs (up 9% YoY).
• Peak Altitude: A small-cap distribution franchise generating ~$80 million in annual EBITDA; strategic alternatives process is active to unlock intrinsic value.
• Investment Portfolio: 97% investment-grade fixed maturities; yield increased to 4.98% in Q3; private credit portfolio performing well with <5% software exposure and <3% AI infrastructure.

Market and Competitive Landscape:

• F&G captured market share in FIA (up 12% vs. industry down 6% in first nine months), holding a top-5/6 position.
• Distribution strategy focuses on independent marketing organizations (IMOs) serving middle-market and multicultural consumers, providing a competitive moat.
• RILA (Retained Indexed Life Annuity) sales grew significantly, matching last year's total volume in August alone, though average premiums per policy decreased due to middle-market affordability pressures.
• Competitive dynamics in the banking/broker-dealer channel are intensifying, but F&G's reliance on independent distribution buffers against shifts caused by regulatory pressures on other carriers.

Risks and Challenges:

• Alternative Investments: Current returns (5%) lag the 12% long-term expectation, impacting quarterly earnings; early-stage LPs provide momentum but equity residuals face valuation headwinds.
• Interest Rate Volatility: Higher rates may lead to elevated surrender rates, though Q3 levels remained within expected ranges despite an 83 bps increase in the 10-year Treasury.
• Regulatory Changes: Potential NAIC risk charges on non-reciprocal jurisdictions (Cayman) and VM22 implementation; management expects manageable impacts due to Bermuda-based partners and over-collateralization.
• Surrender Risk: Surrenders are expected to remain elevated; actuarial assumptions were updated to reflect this, causing a temporary increase in DAC amortization.

Management Commentary and Tone:

• Tone was confident and proud, emphasizing "record AUM," "best core retail sales in history," and a "clean" balance sheet free of legacy liabilities.
• Management highlighted the successful integration following leadership transitions and the strength of the "pristine" in-force book as a growth engine.
• CEO Connor Murphy expressed belief that the market under-values the company's sum-of-parts value, citing the dividend yield (~5%) and growth potential of fee-based strategies.
• CFO Mike Bailey emphasized capital discipline, noting that buybacks were opportunistic and that the company remains capital self-sufficient while navigating regulatory changes.

Analyst Questions and Answers:

• Sales Growth: Confirmed strong FIA momentum without new product launches; attributed to sales team execution rather than market share shifts from competitors leaving the space.
• Alternative Returns: Expected Q4 to improve over Q3 but not reach the full 12% target immediately; LPs continue to perform well, offset by equity residuals.
• Flow Reinsurance: Retained portion dipped below 50% due to strong reinsurance partner appetite on the income product side; accumulation side utilizes the Blackstone sidecar.
• Regulatory Impact: Confident that NAIC proposals on offshore reinsurance and VM22 will not materially impact capital; over 80% of PRT is ceded to Bermuda partners.
• Capital Deployment: $100 million additional buyback capacity approved; capital is primarily used to fund new business growth ($300M to $1B annual capital generation from in-force).
• AI/Data Center Exposure: Confirmed investment-grade focus with <3% exposure to AI infrastructure; portfolio is secured by high switching costs and amortization within initial contracts.

Other Key Points:

• Blackstone Relationship: Clarified Blackstone is not an affiliate (0% equity ownership both ways); F&G retains full investment governance (CIO/CRO offices set strategy and approve all decisions).
• Reinsurance Sidecar: Utilized ~$800 million of $1 billion capacity; remaining capacity available for capital flexibility.
• Dividend Yield: Recent stock levels offer an attractive ~5% yield, above the sector average.
• Actuarial Review: Completed annual review; $300 million reserve reduction and updated surrender assumptions impacted current quarter results and future amortization runs.