F&G Annuities & Life, Inc. (FG): Delivering Consistent Outperformance Amid Market Volatility

Published on September 24, 2024 | Ticker: FG

F&G Annuities & Life, Inc. (NYSE: FG) has once again demonstrated its ability to deliver strong financial results and execute on its strategic initiatives, reporting impressive first quarter 2024 earnings. The company's diversified business model, disciplined capital management, and focus on growth opportunities have positioned it well to navigate the current market environment.

Financials

For the first quarter of 2024, F&G reported adjusted net earnings of $108 million, or $0.86 per share. This performance included $100 million, or $0.77 per share, of investment income from alternative investments and $6 million, or $0.05 per share, of CLO redemption gains and bond prepayment income. Adjusting for these significant items, the company's adjusted net earnings were $154 million, up 18% from $131 million in the first quarter of 2023.

The company's adjusted return on assets, excluding significant items, was 125 basis points in the quarter, comfortably above the 110-basis-point baseline shared at its Investor Day in October 2023. This performance reflects the company's ability to generate consistent and expanding margins through its diversified business mix, enhanced investment portfolio management, and operational scale benefits.

F&G ended the first quarter with $5.2 billion in equity attributable to common shareholders, excluding accumulated other comprehensive income (AOCI), or $41.10 per share, with 126 million common shares outstanding. The company's debt-to-capitalization ratio, excluding AOCI, was 24% as of March 31, 2024, in line with its long-term target of 25%.

Robust Sales Momentum

F&G reported gross sales of $3.5 billion in the first quarter, its second-highest on record, up 6% from the first quarter of 2023, which was the third-highest on record. Retail channel sales through the company's agent, bank, and broker-dealer channels were $2.8 billion, reflecting continued strong demand for its products in the volatile and higher-rate environment.

The company's fixed indexed annuity (FIA) sales set a new record, while multi-year guaranteed annuity (MYGA) sales were lower. This shift in product mix resulted in a higher percentage of net sales retained, as the company ceded approximately 90% of MYGA sales to third-party reinsurers.

F&G also began the rollout of its new registered index-linked annuity (RILA) product in the quarter, which the company expects to become a significant contributor to sales over the next few years. Industry RILA sales reached a record $44 billion in 2023, and F&G believes its differentiated product offering will uniquely meet the needs of a relatively younger demographic.

Pension risk transfer (PRT) sales set a new first-quarter record at $584 million, reflecting a healthy pipeline of opportunities. The company has now surpassed $5 billion in cumulative PRT sales, with over 100,000 plan participants, an impressive milestone given its market entry in mid-2021.

Diversified and Resilient Investment Portfolio

F&G's investment portfolio remains well-diversified and actively managed, positioning the company to perform in varying market conditions. The fixed income yield, excluding alternative investment volatility and variable investment income, expanded to 4.56% in the first quarter, up from 4.33% in the first quarter of 2023, reflecting higher yields on new investments and floating-rate assets.

The portfolio maintains a high-quality profile, with 95% of fixed maturities being investment grade, and credit-related impairments were a modest 2 basis points in the first quarter. The company has also hedged nearly 60% of its $10 billion floating-rate asset portfolio, locking in approximately 185 basis points of incremental yield beyond the original pricing, translating to 15-20 basis points of annual incremental investment margin over the next 3-5 years.

F&G's $2.6 billion alternatives portfolio has been a standout performer, generating an average historical return of 13%, with less volatility than the S&P 500 Index. Since inception, the company has received back nearly $1.3 billion, or almost half the capital invested since 2017, providing an approximate 7% yield on distributions alone, in addition to the 30% appreciation in the value of the remaining capital.

Diversifying Earnings through Owned Distribution

F&G's strategic investments in owned distribution stakes, such as the recent acquisition of a 70% majority ownership in Roar Joint Venture, LLC, are expected to generate a meaningfully higher risk-adjusted return on capital than the company's retained business. These investments also provide a diversifying source of earnings and further strengthen relationships with key partners.

The company has invested $530 million in owned distribution to date and expects the portfolio to generate EBITDA of $45 million to $50 million in 2024, with double-digit growth expected over the medium term. As industry consolidation continues, F&G believes it is uniquely positioned to partner as a distribution consolidator.

Outlook

Looking ahead, F&G remains focused on executing its strategic priorities, including sustainable asset growth from its retail and PRT strategies, ongoing margin expansion, and the diversification of its earnings through its middle-market life insurance business and owned distribution initiatives.

The company is well-positioned to navigate the evolving regulatory landscape, including the new Department of Labor fiduciary rules, which it views as manageable. F&G's sophisticated distribution partners and diversified business model are expected to mitigate any potential impact on the momentum of its business.

With a strong capital position, ample liquidity, and a stable, profitable in-force book, F&G is well-equipped to self-fund its continued growth. The company expects its in-force to generate more than $1 billion in capital in 2024, in addition to $500 million from existing reinsurance arrangements, providing significant financial flexibility to execute on its strategic initiatives.

Conclusion

F&G's first-quarter performance demonstrates the company's ability to deliver consistent outperformance and execute on its strategic priorities, even in a volatile market environment. The company's diversified business model, disciplined capital management, and focus on growth opportunities position it well to continue generating strong results and creating long-term value for its stakeholders.

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