Earnings call transcript: F&G Annuities Q2 2025 sees mixed results

F&G Annuities & Life Inc. reported its second-quarter 2025 earnings, revealing a significant miss on earnings per share (EPS) expectations. The company reported an EPS of $0.77, falling short of the forecasted $1.37 by 43.8%. Despite this, the stock showed resilience, climbing 4.56% in recent trading to $33.15, suggesting investor optimism in response to strong sales and strategic initiatives.

Key Takeaways

• F&G Annuities reported a Q2 EPS of $0.77, missing forecasts by 43.8%.
• The company’s stock rose 4.56% post-earnings, reaching $33.15.
• Gross sales hit a record $4.1 billion, with strong performance in core products.
• Operating expenses decreased, indicating improved efficiency.
• New reinsurance initiatives with Blackstone were announced, reflecting strategic growth.

Company Performance

F&G Annuities demonstrated robust sales growth in the second quarter, with gross sales reaching $4.1 billion. This represents a substantial increase in core product areas such as fixed index annuities and pension risk transfers. Despite the earnings miss, the company’s operational improvements, including a reduction in operating expenses, point to enhanced efficiency and strategic expansions.

Financial Highlights

• Revenue: $2.74 billion, exceeding forecasts of $1.405 billion.
• Earnings per share: $0.77, compared to a forecast of $1.37.
• Operating expenses ratio decreased to 56 basis points from 61 basis points in 2024.

Earnings vs. Forecast

The company’s EPS of $0.77 fell short of the anticipated $1.37, marking a 43.8% negative surprise. This significant miss highlights challenges the company faces in meeting profitability expectations, contrasting with its strong sales performance.

Market Reaction

Despite the earnings miss, F&G Annuities’ stock increased by 4.56% to $33.15. This rise suggests investor confidence in the company’s strategic direction and operational improvements, even as the stock remains below its 52-week high of $50.75.

Outlook & Guidance

F&G Annuities remains optimistic about its future, expecting a shift towards Fixed Index Annuities in the latter half of 2025. The company is targeting a further reduction in operating expenses to 50 basis points by year-end and remains committed to achieving its 2023 Investor Day targets.

Executive Commentary

Connor Murphy, President and CFO, emphasized the company’s strategic positioning, stating, "We are well positioned to further expand our return on equity and deliver long-term shareholder value." CEO Chris Blunt highlighted the benefits of a capital-light approach, noting, "By going down a more capital light path, we will have more free cash flow."

Risks and Challenges

• The significant EPS miss raises concerns about future profitability.
• A potential shift in product sales mix could impact margins.
• Macroeconomic volatility may affect consumer demand for annuity products.
• The company must manage its strategic expansion effectively to ensure sustainable growth.

Q&A

During the earnings call, analysts inquired about the new reinsurance vehicle with Blackstone and its potential to increase assets under management. Executives also addressed the expected shift in sales towards Fixed Index Annuities and the company’s ongoing evaluation of funding agreement opportunities.

Full transcript - F&G Annuities & Life Inc (FG) Q2 2025:

Conference Operator: Good morning, and welcome to F and G’s Second Quarter twenty twenty five Earnings Call. During today’s presentation, all callers will be placed in listen only mode. Following management’s prepared remarks, the conference will be opened for questions with instructions to follow at that time. I would now like to turn the call over to Lisa Foxworthy Parker, SVP, Investor and External Relations. Please go ahead.

Lisa Foxworthy Parker, SVP, Investor and External Relations, F and G: Thanks, operator, and welcome, everyone. I’m joined today by Chris Blunt, Chief Executive Officer and Connor Murphy, President and Chief Financial Officer. Today’s earnings call may include forward looking statements and projections under the Private Securities Litigation Reform Act, which do not guarantee future events or performance. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events, or changes in strategy. Please refer to our most recent quarterly and annual reports and other SEC filings for details on important factors that could cause actual results to differ materially from those expressed or implied.

This morning’s discussion also includes non GAAP measures, which management believes are relevant in assessing the financial performance of the business. Non GAAP measures have been reconciled to GAAP where required and in accordance with SEC rules within our earnings materials available on the company’s investor website. Please note that today’s call is being recorded and will be available for webcast replay. And with that, I’ll hand the call over to Chris Blunt.

Chris Blunt, Chief Executive Officer, F and G: Good morning, everyone, and thanks for joining our call. We delivered strong second quarter results with record AUM before flow reinsurance and one of our best sales quarters in history. As we announced yesterday, I’m excited about the launch of our new reinsurance vehicle in partnership with Blackstone managed funds. This sidecar will provide long term on demand capital to support our growth and move F and G further toward a more fee based, higher margin and less capital intensive business model. The reinsurance sidecar went into effect last Friday, August 1, with approximately $1,000,000,000 in anticipated capital commitments.

This will augment our existing flow reinsurance agreements and is expected to contribute to higher ROE over time. Conor will provide more details of the transaction later on this call. Turning to our results for the quarter, the total annuity market has expanded in recent years as consumers and financial advisors recognize the value of annuities for retirement security. Through the 2025, the industry has benefited from continued strong consumer demand as well as favorable demographics and macro conditions for annuity sales. Demographic trends remain a strong secular driver as the aging population seeks guaranteed lifetime income streams.

And the continued macroeconomic volatility increases the relative attractiveness of fixed annuity products for consumers that want guaranteed tax deferred growth and principal protection. Against this backdrop, F and G sales engine regained momentum in the second quarter and we delivered one of our best sales quarters in history with 4,100,000,000.0 of gross sales. Our all time record of 4,400,000,000.0 was in the 2024, which included 900,000,000 of funding agreements relative to no funding agreements in the current quarter. We had significant growth in our core sales of fixed index annuities, index life and pension risk transfer. Together these core product sales were 2,200,000,000.0 up 22% over the sequential first quarter and up 10% over the 2024.

Highlights for our core sales included 1,600,000,000.0 of indexed annuity sales that were higher than the 2024. FI continues to be our largest contributor to indexed annuity sales while RILA continues to gain traction. A record 53,000,000 of IUL sales up 20% of the 2024 as our life insurance solutions are meeting the needs of the underserved multicultural middle market. And more than $400,000,000 of pension risk transfer sales compared with approximately $300,000,000 in the 2024. This brings PRT sales to $700,000,000 for the first half of the year.

MYGA sales were a record $1,900,000,000 in the second quarter and we had no funding agreements. Two products we view as opportunistic. This was a 73% increase over the sequential quarter due to higher MYGA sales, although down 21 from the 2024 due to no funding agreements in the current quarter. The economics for flow reinsurance were favorable early in the quarter and almost half of the second quarter MYGA sales were generated in the month of April. MYGA sales increased 27 over the 2024.

As a reminder, opportunistic sales volumes will fluctuate quarter to quarter depending on economics and market opportunity. Notably, retail channel sales were a record with more than $3,600,000,000 in the second quarter, reflecting one of our best quarters for indexed annuities and a record quarter for both IUL and MYGA. For the first half of the year, we have generated $7,000,000,000 of gross sales comprised of $4,000,000,000 of core sales and $3,000,000,000 of opportunistic market sales. Net sales retained were 4,900,000,000 in the first half of the year. Looking ahead to the remainder of 2025, we will continue to prioritize pricing discipline and allocating capital to the highest return opportunities.

With the launch of our reinsurance sidecar during the third quarter, the economics for FIA sales are becoming relatively more attractive and we expect our mix of sales to shift more to FIA in the back half of the year. We also have the flexibility to optimize our level of flow reinsurance in line with our capital targets by dynamically adjusting MYGA volumes up and down as market economics change, as demonstrated in the first half of the year. F and G reported record AUM before flow reinsurance of 69,200,000,000.0 the end of the second quarter, including retained assets under management of $55,600,000,000 Compared to the 2024, AUM increased 137% respectively, driven by net new business flows. Next turning to the investment portfolio. The retained portfolio is high quality with 97% of fixed maturities being investment grade.

Credit related impairments have remained low and stable averaging six basis points over the last five years. Through the first half of the year, credit related impairments remain below our pricing. During the second quarter, we made significant progress of deploying our excess cash. As a result, our fixed income yield increased five basis points from the first quarter, and we believe there is still more opportunity for uplift when the spread environment becomes more attractive. In summary, F and G is uniquely positioned in the industry with a profitable and growing $54,000,000,000 in force block.

We generate spread based earnings from fixed annuities and pension risk transfer, and we have multiple sources of fee based earnings with the sidecar in place alongside our flow reinsurance, middle market life insurance, and well performing own distribution portfolio. As our business grows, we’re becoming a more fee based higher margin and capital light business, leveraging our position as one of the industry’s largest distributors of annuities and life insurance. Before turning the call to Conor, I’d like to highlight the executive management transition that we announced last evening. First, John Courier has decided to retire next year and will be transitioning from his role as F and G’s President into a senior advisory role. John has been an invaluable partner and his deep industry expertise and leadership has been instrumental to our transformation and expansion over the last ten years.

Under John’s leadership, we have focused our efforts in the retail space on our mission, helping more and more people achieve their aspirations by expanding our retail footprint in breadth and depth, driving exceptional sales growth, and we’ve more than doubled our assets under management over the last five years. We are now a market leader in several segments, and I am appreciative to John for all of his efforts and on a personal level, his friendship. I look forward to continuing to work with John in his new capacity as a senior advisor until his retirement next year. We also announced that Connor will be taking on the role of President of F and G in addition to his current role as CFO. Connor has made a big impact since joining F and G and I’m looking forward to working with him in this new capacity.

Connor brings a wealth of experience developed through a variety of executive roles at leading insurance companies in both The US and abroad. This experience will be invaluable as we continue to grow the company as well as expand our capital light fee generating businesses, which I firmly believe will grow the value of F and G. Let me now turn the call over to Conor to provide further details on F and G’s second quarter financial highlights.

Connor Murphy, President and Chief Financial Officer, F and G: Thank you, Chris, and thank you for your support. I’m excited to take on this new role and share your optimism for the many opportunities that lie ahead as we work to transform F and G into more of a fee based, higher return, and capital light business. I believe that we are well on our way. I’m looking forward to partnering with you in this new capacity. This morning, I’ll focus my comments on adjusted net earnings and return, the new reinsurance sidecar transaction, and our balance sheet and capital position.

Starting with earnings, on a reported basis, adjusted net earnings were $103,000,000 or $0.77 per share in the second quarter. For the quarter, investment income from alternative investments was $83,000,000 or $0.62 per share below management’s long term expected return. Second quarter adjusted net earnings reflect asset growth, higher fee income from Accretive Flow Reinsurance, growing own distribution margin, and disciplined expense management. Notably, we are benefiting from increased scale as our ratio of operating expenses to AUM before flow reinsurance has decreased to 56 basis points in the quarter from 61 basis points in the 2024. We had a $7,000,000 impact from one time expense actions taken during the second quarter.

This was recognized below the line and did not impact our second quarter adjusted net earnings. Going forward, we expect improvement in our operating expense ratio as a result of the second quarter expense actions moving from 60 basis points at year end 2024 to approximately 50 basis points by year end 2025. It was a strong quarter and many of the near term headwinds that drove margin compression in the first quarter are clearing as expected. CLO prepayments normalized, surrenders are more in line with our expectations in a higher rate environment, and we have made significant progress in putting excess cash balances to work. Our results through the first half of the year have generated sustainable return.

As reported adjusted ROA on a last twelve month basis was 92 basis points, including short term fluctuations from investment income on alternative investments. This compares to 91 basis points in the second quarter twenty twenty four last twelve months period. Our adjusted ROA reflects meaningful contributions from our fee based flow reinsurance and owned distribution strategies. And as reported adjusted return on equity, excluding AOCI, was 8.8%, up 40 basis points over the 2024. Now turning to our reinsurance sidecar transaction and our strong and growing balance sheet.

I share Chris’ enthusiasm for the reinsurance vehicle announcement. We fund our business from multiple sources of capital, including in force capital generation, reinsurance, and capital market issuances. The sidecar is another source of capital and integral to our long term success, enabling us to scale in an accretive and capital efficient manner. To provide some further details on the transaction, the scope of the reinsurance sidecar is new business only and allows for up to 75% of newly originated accumulation focused FIA product. Blackstone has established a new payment based reinsurer, Fort Green Reinsurance STC Limited, that will be managed on a US risk based capital and NAIC statutory basis.

Importantly, F and G does not hold any ownership stake in Fort Green, which is unaffiliated and a Blackstone owned entity. The new reinsurance vehicle backed by Blackstone managed funds has approximately 1,000,000,000 of anticipated capital commitment. This reinsurance vehicle is a strategic capital solution that complements S and G’s dynamic capital allocation framework and supports our strong capital position. We will continue to utilize our existing flow reinsurance partnerships for MYGUS sales. We will continue to manage capital to the most robust of our regulatory and rating agency requirements, including maintaining RBC at or above 400%.

There is no change to our holding company cash and invested assets target of two times interest coverage, and we remain committed to our long term target of approximately 25 debt to capitalization, excluding AOCI. The reinsurance sidecar will help expand our fee based earnings power over time alongside our flow reinsurance, middle market life insurance, and owned distribution strategies. Our own distribution portfolio is performing well and creating value. We have invested nearly $700,000,000 in own distribution company. Our holdings are diversified by product and market and reflect growing businesses with strong leadership.

Reflecting on my first few months in this role, I’ve had the opportunity to see firsthand the strength of our business model and dedication of our team. We are well positioned to further expand our return on equity and deliver long term shareholder value. As we navigate the shifting industry dynamics and macroeconomic environment, we remain disciplined and focused on managing the profitability of our sales and in force book and optimizing our return on capital, generating retained asset growth and incremental investment margin, continuing to drive an efficient cost structure to capture benefits of scale, and further diversifying our spread based and fee based earnings, which differentiate F and G. We remain confident that we will deliver on our twenty twenty three Investor Day targets as we move further toward a more fee based, higher margin, and less capital intensive business model, leveraging our position as one of the industry’s largest distributors of annuities and life insurance. This concludes our prepared remarks.

And let me now turn the call back to our operator for questions.

Conference Operator: Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

And our first question comes from John Barnidge with Piper Sandler.

John Barnidge, Analyst, Piper Sandler: Good morning. Thank you for the opportunity. My question is on the sidecar with 1,000,000,000 in commitments raised. How much capacity do you think that will have and how quickly do you think you’ll be able to fill that?

Chris Blunt, Chief Executive Officer, F and G: Hey John, it’s Chris. It’s a great question. I think the answer to that really depends on product type because it’s obviously going to get different strain. But it’s going to give us quite a bit, would say multiple billions of capacity in terms of incremental AUM that we can bring on board. More importantly, I think it’s part of a broader strategy of moving down a more capital light path, and it’s gonna be highly accretive to our earnings as as opposed to simply retaining that AUM.

John Barnidge, Analyst, Piper Sandler: Thank you. And my follow-up, maybe sticking with that capital light path you’re trying to go down. You’ve deployed a lot of capital known distribution. You now have a sidecar. Looks like you got that that dividend was resumed in the second quarter after even paused for the investments that were made in the first.

What does this mean for the potential for additional consolidation on that side? Thank you.

Chris Blunt, Chief Executive Officer, F and G: Yeah. I think that, you know, like everything, we believe one of our most sacred jobs here is, you know, making smart capital allocation decisions. And so as we look at the various opportunities, you’re right, own distribution is something that we want to continue to grow that’s generating terrific returns for us. So we’re excited about that. Continuing down the path of selling FIAs, but utilizing the sidecar, utilizing other, reinsurance opportunities, similar return pattern, but something that we’re super excited about.

And yes, by going down a more capital light path, we will have more, free cash flow. But I would say right now what we hear from investors is that they’re not necessarily looking for substantial increases in dividends given the returns that we’re able to generate in both own distribution and flow reinsurance. I think that’s how we think about capital allocation. Don’t know, Conor, if you want to add to that.

Connor Murphy, President and Chief Financial Officer, F and G: Yes, I think what’s right, think this is a great additional tool for us in terms of we have a number of MYGA reinsurance partners. We had an existing have an existing partner on the FAA side, having another opportunity there as well. I think you know from all of the conversations we’ve had that that’s a very significant core product for us. So I think you’ll see a little more emphasis perhaps there on a comparative basis. But yeah, the own distribution opportunity we continue to believe in and increasingly convinced of the value of that opportunity as well.

Connor Murphy, President and Chief Financial Officer, F and G: Thanks for the answers.

Conference Operator: And our next question comes from Mark Hughes with Truist Securities.

Mark Hughes, Analyst, Truist Securities: Yes, thank you. Good morning.

Chris Blunt, Chief Executive Officer, F and G: Good morning, Mark.

Mark Hughes, Analyst, Truist Securities: How are MYGA sales shaping up now? You talked about in Q2, a lot of that was concentrated in April. How do you see the environment so far for Q3?

Chris Blunt, Chief Executive Officer, F and G: Yeah, I would say probably somewhere in between, meaning maybe a more normalized rate. We had a lot of volatility in the first quarter of this year. You saw the huge rebound in the second quarter. I do think we’ll see a little more volatility in MYGA sales. Keep in mind, we flow out the vast majority of our MYGA business.

And so it’s just a process of every single month. We look at the market. We look at the spread opportunity. We look at the quotes from our reinsurers and then we compare that to the other opportunities. But I would say particularly now with the sidecar, FIA becomes even more attractive use of capital.

You could see probably a little bit lower level of MYGA sales but we would expect a higher level of indexed annuity sales.

Connor Murphy, President and Chief Financial Officer, F and G: Yes, Mark, maybe I’ll add to that as well. We didn’t have funding agreement type sales in the quarter. That’s another element that we compare from an opportunistic perspective. And so we would put that maybe in that same opportunistic bucket with the MYGA sales. So the relative composition and mix of those two can ebb and flow as well.

Chris Blunt, Chief Executive Officer, F and G: And I know it’s an obvious point, but index annuities, longer duration, higher return, a product that every year we have some ability within reason to reset the rates and maintain a consistent spread. I think it’s always going to be at the top of our list of preferred places to deploy capital along with own distribution.

Mark Hughes, Analyst, Truist Securities: Yeah. Thank you. Then same question on funding agreements. Those were negligible in the quarter. How do you see that shaping up?

Connor Murphy, President and Chief Financial Officer, F and G: Yes, I think, and it’s again opportunistic. Would say part of what drove that was we saw significant MIEG opportunity certainly early in the quarter. If you had looked at the composition of the quarter, we did more in April. We had talked about that last quarter’s call. The funding agreement market is looking reasonably attractive, I would say more than reasonably attractive at the moment.

So I think there’s an what we will certainly look closely at it in the third quarter and compare it with the other opportunities and weigh them up accordingly.

Mark Hughes, Analyst, Truist Securities: And then when we think about Ryla’s, I think you mentioned they were gaining traction. A lot of talk about FIAs with the new sidecar. How do you feel like the balance of the opportunity across the FIAs versus RILAs as we sit here today?

Connor Murphy, President and Chief Financial Officer, F and G: We very much like the RILA space as well. It’s a great partner with the FIAs. Many of our FIA producers and sellers are licensed to sell RILAs as well. So we saw significant growth in our RILA relative to the size of our book, but it’s still quite a modest book. So yes, still very much like it, still a key element of our expansion plans, but just smaller in scale at this stage.

So less material for now.

Mark Hughes, Analyst, Truist Securities: If I might ask just one more, when we think about your return on assets this quarter, kind of what’s the walk from the Q2 return on assets to your Investor Day targets. I wonder if you could just refresh us on that.

Chris Blunt, Chief Executive Officer, F and G: Yeah, I’ll start on that one. So keep in mind, so Investor Day was not quite two years ago, is in some ways it seems a lot longer, it was October 2023. So think of us as not quite two years into a five year goal. The goal at the time was to have a 50% increase in our assets under management. We are well ahead of that target at only two years into it.

We feel really good about achieving that. From an RIA perspective, we said we would go from a baseline spread of 110 to a range of 133 to 155. We tend to look at the last twelve months because that smooths out some of the wrinkles there. I think that’s been in the high 120s, mid 120s. So I’d say we feel good about how we’re tracking there.

And then obviously as we took some efforts to bring down expense ratio, would say that probably will kick in about 10 basis points on top of what we’ve already seen. So We’re feeling really good at this juncture. The other part of the goal is to drive up ROE and we’re making progress there. I think things like sidecar owned distribution, those are going to be quite accretive to ROE.

Mark Hughes, Analyst, Truist Securities: In the mid-120s, how many basis points of that is just normalizing the all? I’ll ask that question. We think about Q3, any body language on how the alts are set up for performing this quarter?

Chris Blunt, Chief Executive Officer, F and G: Yes. I think in the alts front, our long term assumption, again, is 10%. We think that’s reasonable. We look at it regularly. Should we be revisiting that?

We be bringing that down? Obviously we’ve gone quite a while now without meaningful realizations and so we don’t run the business trying to predict what’s going to happen. I know there’s been a couple of the prominent folks, particularly Blackstone, enthusiastic that we may now see a better deal environment. And if that’s the case, that would be a big tailwind for us. Not just in terms of returns because people tend to normalize for that, but that’d be a positive from a capital perspective because combined that alts book does get mark to market every quarter.

And then in terms of the walk, I think alts on this quarter, Connor, last twelve months, probably 37 basis points. So think of the base as, I don’t know, 92 ish and then 37 for alts would get you to a last twelve months, 129.

Mark Hughes, Analyst, Truist Securities: Very good. Thank you.

Conference Operator: Our next question comes from Alex Scott with Barclays.

Anne, Analyst, Barclays: Hi. Good morning. This is Anne on for Alex. I’m wondering if you’re currently taking any cap rate action and how do you see that impacting your cost of crediting looking forward?

Chris Blunt, Chief Executive Officer, F and G: Yeah, I would say without maybe disclosing more than we should from a competitor perspective, but it is something that we look at on a regular basis. So every single month at a minimum, we’re looking at in force crediting actions as it comes as these things come due. And what I would say there is we have pretty good track record over time of maintaining consistent spread. Where we have had deviations from pricing, we do take in force crediting rate actions. Now you don’t want to overdo that.

You want to make sure that you’re within a reasonable band and you want to look at the competitive environment, you’re being fair from a policyholder perspective. Yeah, that is, a lever that we would expect, to help, particularly when you get into these periods of a fair amount of volatility.

Anne, Analyst, Barclays: Great, thank you.

Conference Operator: And this will conclude our question and answer session. I will now turn the conference back over to CEO Chris Blunt for closing remarks.

Chris Blunt, Chief Executive Officer, F and G: Great. Thanks again to everyone for joining the call this morning. We had a strong second quarter, and we’ve got good momentum heading into the second half of the year. I’m excited about the future and our ability to deliver strong results for the shareholders of F and G in the years ahead. Appreciate your interest in F and G, and we look forward to updating you on our third quarter earnings call.

Conference Operator: Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines, and have a wonderful day.

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