Business Overview and History: F&G Annuities & Life, Inc. (FG) is a leading provider of insurance solutions serving retail annuity and life customers as well as institutional clients. The company's diverse product offerings, robust distribution network, and prudent risk management have positioned it as a key player in the insurance industry.
F&G Annuities & Life, Inc. was founded in 1960 as a life insurance provider, initially focusing on traditional life insurance products. Over the decades, the company expanded its product offerings to include annuities, indexed universal life insurance, and other retirement-focused solutions. This expansion allowed F&G to establish a strong presence in the annuity and life insurance markets throughout the United States.
In 2020, F&G underwent a significant transition when it was acquired by Fidelity National Financial, Inc. (FNF). This acquisition allowed F&G to leverage FNF's expertise and distribution channels to further grow its business. Following the acquisition, F&G rapidly expanded its retail annuity and life insurance distribution through independent marketing organizations, banks, and broker-dealers.
Throughout its history, F&G has faced various challenges, including navigating changes in the regulatory environment and adapting to shifting market conditions. In the early 2000s, the company had to make adjustments to its product lineup and pricing in response to the low interest rate environment at the time. Additionally, F&G had to ensure its operations and technology infrastructure could support its rapid growth following the FNF acquisition.
Despite these challenges, F&G has established itself as a leading provider of insurance solutions, with a diverse product portfolio and a strong distribution network. The company's focus on delivering retirement and protection products to middle-income Americans has been a key driver of its success. F&G has also made strategic investments in owned distribution channels, further strengthening its position in the market.
Under the leadership of its experienced management team, F&G has significantly diversified its product portfolio, offering a wide range of annuity and life insurance solutions to meet the evolving needs of its customers. The company's flagship products include fixed indexed annuities (FIA), registered index-linked annuities (RILA), fixed rate annuities, and indexed universal life (IUL) insurance, among others.
Financial Performance and Ratios: F&G's financial performance has been impressive, with the company consistently delivering strong results. For the fiscal year 2023, the company reported annual revenue of $4.27 billion and net income of -$58 million. The company's annualized return on assets (ROA) stood at 0.02%, while its return on equity (ROE) was 0.03%.
In the most recent quarter (Q3 2024), F&G reported revenue of $1.44 billion, representing a year-over-year growth of 22.79%. However, the company's net income for the quarter was -$10 million, compared to $306 million in Q3 2023. This decrease in net income was primarily due to higher unfavorable mark-to-market adjustments and other items compared to the prior year quarter.
Operating cash flow (OCF) for Q3 2024 was $2.31 billion, while free cash flow (FCF) stood at $2.27 billion. Both OCF and FCF showed significant increases compared to the same quarter in the previous year, driven by higher premiums collected and investment income.
Liquidity: As of June 30, 2024, F&G maintained a strong liquidity position with $3.53 billion in cash and an available credit line of $385 million under its $750 million revolving credit facility. The company's debt-to-equity ratio was 0.4690, reflecting a prudent capital structure.
Operational Highlights and Growth Strategies: F&G operates in three distinct retail channels and two institutional markets. The retail channels include agent-based Independent Marketing Organizations (IMOs), banks, and broker-dealers. The company has deep, long-tenured relationships with its network of leading IMOs and their agents to serve the needs of the middle-income market and develop competitive annuity and life products to align with their evolving needs.
In 2020, following FNF's acquisition, F&G expanded into banks and broker-dealers. In 2021, the company further diversified by launching into two institutional markets: Funding Agreement Backed Notes (FABN) and Pension Risk Transfer (PRT) transactions.
F&G's retail channels primarily offer deferred annuities, including fixed indexed annuities (FIAs) and registered index-linked annuities (RILAs), collectively referred to as indexed annuities, as well as fixed rate annuities including multi-year guarantee annuities (MYGAs), immediate annuities, and indexed universal life (IUL) insurance. The FABN program offers funding agreements to institutional clients through capital markets transactions, while the PRT solutions business originates pension risk transfer transactions.
The company's growth strategies have been multifaceted, focusing on both organic and inorganic initiatives. F&G has expanded its distribution reach by partnering with leading IMOs, banks, and broker-dealers, providing a diverse array of sales channels to reach its target market.
Additionally, F&G has made strategic investments in owned distribution, acquiring majority stakes in several distribution partners. This move has allowed the company to capture a larger share of the value chain and diversify its earnings sources.
In the institutional market, F&G has established a strong presence in the PRT and FABN segments, providing customized solutions to meet the needs of its institutional clients.
Recent Performance and Future Outlook: F&G's retail channels generated $3.44 billion in net sales for the six months ended June 30, 2024, an increase from $2.21 billion in the same period in 2023. This growth was driven by higher sales of indexed annuities, which increased from $2.44 billion to $3.08 billion, as well as higher sales of fixed rate annuities, which increased from $2.58 billion to $2.80 billion. IUL sales also increased from $79 million to $86 million over this period.
The company's institutional markets, including the FABN program and PRT solutions, generated $1.94 billion in gross sales for the six months ended June 30, 2024, up from $1.20 billion in the prior year period. FABN and FHLB funding agreement sales increased from $456 million to $1.02 billion, while PRT sales increased from $742 million to $922 million.
Looking ahead, F&G expects the strong demand for their retirement savings products to continue in the near term across the industry, driven by favorable market conditions and demographic trends. The company sees potential for their RILA product sales to reach billions over the medium term as they continue to ramp up sales and add distribution partners.
F&G continues to see a healthy PRT pipeline with $3.8 trillion of corporate pension plans at or near full funding, and they are positioned to compete in their targeted $100 million to $1 billion deal size. The company's Investor Day targets include growing AUM by 50%, expanding adjusted ROA (excluding significant items) to 133-155 basis points, and increasing adjusted ROE (excluding AOCI and significant items) to 13-14%.
Risks and Challenges: As with any insurance provider, F&G faces a range of risks, including interest rate fluctuations, market volatility, and regulatory changes. The company's exposure to credit and counterparty risks through its investment portfolio and reinsurance arrangements also requires close monitoring.
To manage the market risks associated with its indexed annuity and IUL products, F&G utilizes a hedging strategy that involves purchasing a combination of equity options and futures contracts. The company attempts to manage the cost of these purchases through the terms of its indexed annuity and IUL contracts, which permit it to change caps, spreads, or participation rates on each policy's annual anniversary, subject to certain guaranteed minimums.
Furthermore, the ongoing pandemic has introduced additional challenges, as the company navigates the evolving economic landscape and its impact on customer behavior and claims patterns.
Competitive Landscape and Industry Outlook: The insurance industry is highly competitive, with F&G competing against established players such as Prudential Financial, MetLife, and Athene Holding. The company's ability to differentiate its product offerings, enhance customer experiences, and maintain a strong distribution network will be crucial in securing its competitive position.
The long-term outlook for the insurance industry remains positive, driven by the aging population, growing demand for retirement solutions, and the increasing need for financial protection. The annuity and life insurance industry has seen steady growth, with a CAGR of 7-8% over the past 5 years, driven by favorable demographic trends and increased demand for retirement and protection products.
F&G's diversified product portfolio, innovative approach, and focus on customer-centricity position the company well to capitalize on these industry dynamics. The company's expansion into new markets, such as banks and broker-dealers, as well as its entry into institutional markets like PRT and FABN, provide additional avenues for growth and diversification.
Conclusion: F&G Annuities & Life, Inc. is a well-established and diversified insurance provider with a strong track record of innovation and growth. The company's focus on expanding its distribution channels, developing tailored insurance solutions, and prudent risk management has positioned it as a key player in the insurance industry.
While the company faces various risks and challenges, its financial strength, operational excellence, and strategic vision provide a solid foundation for continued success. F&G's diverse product portfolio, which spans retail annuity and life insurance products as well as institutional market solutions, has allowed the company to capitalize on industry trends, such as the aging of the U.S. population and growing demand for retirement savings and income products.
As the insurance industry evolves, F&G's ability to adapt and capitalize on emerging trends will be crucial in driving long-term shareholder value. With its focus on the underserved middle-income market, strong distribution relationships, and disciplined risk management approach, F&G is well-positioned to continue its growth trajectory and maintain its competitive edge in the dynamic insurance landscape.