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

Explicit Guidance:

• Operating Expense Ratio: Targeting a cumulative 25% improvement (15 basis points) over a three-year period, from 60 basis points at year-end 2024 to 45 basis points by year-end 2027. Current ratio (Q3 2026) is 46 basis points.
• Amortization Expense: Expecting elevated amortization of approximately $6 million (after-tax) to persist throughout 2027, diminishing to neutral levels by 2028 due to actuarial assumption updates.
• Dividends: Target to maintain holding company cash and invested assets at two times interest coverage, covering more than one year of Holdco liquidity requirements.
• Capital Targets: Long-term target debt-to-capitalization of approximately 25% (excluding AOCI); company action level RBC ratio target of approximately 400%.
• Share Repurchases: Board approved an additional $100 million buyback capacity in addition to ongoing opportunistic repurchases; $120 million in repurchases executed in the first nine months of 2026.
• Reinsurance Sidecar: $1 billion total capacity with approximately $800 million remaining at September 30, 2026; capacity available on demand without shareholder dilution.

Business-Segment Outlook:

• Full-Year Sales (PRT): Expects to generate between $1 billion to $1.5 billion in Pension Risk Transfer (PRT) sales for the full year 2026 (having sold >$700 million in the first nine months).
• Full-Year Sales (MIGAs): De-emphasized Multi-Year Guaranteed Annuity (MIGA) sales in 2026 due to returns below internal thresholds; no specific full-year target given, indicating a strategic shift away from this product line.
• Own Distribution (Peak Altitude): Launched an active process to explore strategic alternatives (including potential sale) to unlock intrinsic value; estimated to contribute $80 million in annual EBITDA in 2025, with significant runway for future growth.
• In-Force Book: The $54 billion retained in-force book is expected to continue generating $900 million to $1 billion in capital annually, funding new business growth and dividend/servicing needs.
• Alternative Investments: Expecting a better return in Q4 2026 than Q3 2026; however, does not expect the full 12% long-term return target to be achieved in 2027, noting that limited partnerships (LPs) are in early-to-mid-stage cycles.
• Net Flows: Expect positive net flows to continue, driven by the "pristine" in-force book generating inverse flows that complement new business inflows.

Market and Competitive Outlook:

• FIA Market Share: Anticipates continued market share gains in Fixed Indexed Annuities (FIA), contrasting industry-wide contraction with F&G's growth trajectory; currently ranked roughly 5th or 6th in the industry.
• RILA Growth: On track to write as much Real Indexed Life Annuity (RILA) volume in 2026 by August as was written in all of 2025; positioning as a top-20 player in the category.
• Competitive Dynamics: No expectation of material shifts in independent distribution channels due to regulatory pressures on competitors; notes increased competition in bank and broker-dealer channels.
• Pricing Discipline: Will maintain strict pricing discipline and return targets, prioritizing profitability over volume, specifically avoiding business that does not clear return thresholds.
• Customer Behavior: Expects elevated surrender rates in the current rate environment (10-year Treasury rise from 4.46% to 5.29%), though timing of policyholder responses may lag behind rate changes.

Macro / Industry Outlook:

• Regulatory (VM22): Expects early adoption of VM22 (Life Insurance Regulation) for certain businesses; anticipates the new framework will allow for more efficient reinsurance structuring for PRT mortality and may trigger recapture of business from Cayman entities.
• Regulatory (NAIC Non-Reciprocal): Does not expect material capital impact from potential NAIC risk charges on reinsurance to non-reciprocal jurisdictions (e.g., Caymans) due to asset backing, over-collateralization (3-4%), and reciprocal status of primary Bermuda partners.
• Interest Rates: Acknowledges a higher interest rate environment but notes investment yields (4.98% fixed income yield in Q3) remain strong; expects returns to normalize as business projects forward.
• Mortality: Expects mortality costs in IUL and PRT blocks to level off to a stable run rate following the reversal of timing-related volatility in Q2; projects a ~$20 million period-over-period improvement in cost of funds driven by favorable mortality trends.
• AI/Real Estate Exposure: Exposure to AI infrastructure and data centers remains below 3% of the retained portfolio; views these as investment-grade, short-maturity deals with strong protections, likely to be more resilient amidst potential market volatility.

Strategic Initiatives:

• Strategic Alternatives (Peak Altitude): Active process underway to explore strategic options for the $700 million capitalized distribution franchise; potential transaction aims to capture growth opportunities and unlock value.
• Reinsurance Partnerships: Added a new flow reinsurance partner in July 2026; expects continued use of third-party capacity to manage retention levels and support cash from operations.
• Asset Management: Continued reliance on Blackstone for the majority of the $56 billion retained book, but maintaining flexibility to add new asset managers; governance remains strictly internal (CIO/CRO) with Blackstone serving as idea generator only.
• Capital Allocation: Balancing capital deployment between growth funding, dividends, and share repurchases; prioritizing the "highest return opportunities" and willing to pivot based on return thresholds.

Risks and Headwinds to Outlook:

• Variable Annuity Reserves: No variable annuity or universal life with secondary guarantee liabilities in the book; this structural simplicity is a key defense against regulatory uncertainty but requires continued monitoring of reserve adequacy.
• Actuarial Assumptions: Elevated DAC amortization in 2027 is a near-term headwind; future results remain sensitive to actual vs. assumed surrender and mortality rates.
• Regulatory Changes: Potential changes to capital structures (NAIC) and tax/regulatory frameworks (VM22) could impact capital efficiency and require model recalibration.
• Investment Performance: Alternative investments (specifically equity residuals) may face mark-to-market volatility due to market sentiment, potentially delaying the achievement of the 12% long-term return target.
• Consumer Affordability: Middle American demographics may face reduced premium payment capacity due to economic conditions, potentially limiting premium growth despite strong policy counts.

Management Tone on the Future:

• Confidence Level: High confidence in the business model, citing "strong momentum" heading into year-end, record core retail sales, and a "pristine" balance sheet.
• Strategic Clarity: Management expresses a clear preference for a "fee-based, higher margin, and less capital-intensive" business model, explicitly stating they are not chasing volume at the expense of profitability.
• Valuation Perspective: Strong belief that the market is under-appreciating the "sum-of-the-parts" value of F&G, particularly the standalone value of the in-force block and the fee-based platforms.
• Caveats: Avoids specific near-term earnings guidance for 2027/2028 beyond expense ratio targets; exercises caution regarding alternative investment return timing, noting a "one-quarter lag" in realization.