Earnings call transcript: F&G beats Q3 2025 earnings forecasts

F&G Annuities & Life Inc. reported robust financial performance for the third quarter of 2025, surpassing earnings expectations with an EPS of $1.22 against a forecast of $0.97, a 25.77% surprise. Revenue also exceeded projections, reaching 1.69 billion dollars compared to the anticipated 1.45 billion dollars. Following the announcement, F&G's stock rose by 1.51%, closing at $29.87.

Key Takeaways

• F&G's Q3 EPS exceeded forecasts by 25.77%.
• Revenue outperformed expectations by 16.55%.
• Stock price increased by 1.51% post-announcement.
• Record assets under management at $71.4 billion.
• Operating expense ratio improved to 52 basis points.

Company Performance

F&G demonstrated strong financial health in Q3 2025, driven by robust sales in indexed annuities and life insurance products. The company's assets under management reached a record $71.4 billion, reflecting effective execution of its growth strategy. F&G's operating expense ratio decreased significantly, contributing to improved profitability.

Financial Highlights

• Revenue: 1.69 billion dollars, up from the forecasted 1.45 billion dollars.
• Earnings per share: $1.22, surpassing the expected $0.97.
• Adjusted net earnings: $165 million.
• Alternative investment income: $67 million.
• Adjusted return on equity: 8.8%.

Earnings vs. Forecast

F&G's Q3 earnings per share of $1.22 significantly beat the forecast of $0.97, marking a 25.77% surprise. This performance indicates the company's effective management and strategic initiatives, contributing to its strong market position.

Market Reaction

Following the earnings release, F&G's stock price increased by 1.51%, closing at $29.87. The stock is trading near its 52-week low of $28.70, indicating potential investor confidence in the company's growth prospects.

Outlook & Guidance

F&G aims to expand its adjusted return on assets to between 133 and 155 basis points and increase its adjusted return on equity to 13-14%. The company is transitioning towards a more fee-based, higher-margin business model, targeting a 50% growth in assets under management.

Executive Commentary

"We are executing on our strategy, leveraging the strength of our distribution partners," said Chris Blunt, CEO. He emphasized the company's shift towards a fee-based model, aiming for higher margins and capital efficiency. Conor Murphy, CFO, added, "We feel great about the portfolio... performing really well, ahead of our expectations."

Risks and Challenges

• Macroeconomic volatility could impact demand for fixed annuity products.
• Competitive pressures in the annuities and life insurance markets.
• Potential regulatory changes affecting the insurance industry.
• Interest rate fluctuations may affect investment income.
• Operational risks related to the transition to a fee-based model.

Q&A

During the earnings call, analysts inquired about F&G's capital allocation priorities and the performance of its alternative investment portfolio. The company addressed concerns about the competitive landscape in liability and asset markets and clarified its interest rate hedging strategy.

Full transcript - F&G Annuities & Life Inc (FG) Q3 2025:

Operator: Good morning. Welcome to F&G's third quarter 2025 earnings call. During today's presentation, all callers will be placed in a listen-only mode. Following management's prepared remarks, the conference will be open for questions with instructions to follow at that time. I would now like to turn the call over to Lisa Foxworthy-Parker, Senior Vice President, Investor Relations and External Relations. Please go ahead.

Lisa Foxworthy-Parker, Senior Vice President, Investor Relations and External Relations, F&G: Thanks, Operator, and welcome, everyone. I'm joined today by Chris Blunt, Chief Executive Officer, and Conor 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&G: Good morning, everyone, and thanks for joining our call. We delivered strong third-quarter results with record AUM before Flow Reinsurance, fueled by one of our best sales quarters in history, the launch of our new reinsurance sidecar, and strong performance across the business as we execute on our strategy and make continued progress toward our 2023 Investor Day targets. F&G is uniquely positioned in the industry with a profitable and growing $56 billion 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 owned 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 sellers of annuities and life insurance.

We are balancing this with continuing to grow our spread-based business, prioritizing pricing discipline and allocating capital to the highest return opportunities. As we execute on our strategy, we expect both gross and net AUM to continue to grow. F&G reported a record $71.4 billion of AUM before Flow Reinsurance at the end of the third quarter, including retained Assets Under Management of $56.6 billion. Compared to the third quarter of 2023, AUM increased 14% and 8% respectively, driven by net new business flows. For the first nine months of the year, we generated $11 billion of gross sales. This reflects $6 billion of core sales, which include index annuities, index life, and Pension Risk Transfer, and $5 billion of opportunistic sales, including MIGA and funding agreements.

Looking at the third quarter, we delivered one of our best sales quarters with $4.2 billion of gross sales and strength across all products and distribution channels. Core sales were half of the total at $2.2 billion, modestly above both the second quarter of 2025 and the third quarter of 2024. Highlights for our core sales include indexed annuities of $1.7 billion in the quarter and $4.8 billion year-to-date. FIA is our largest contributor to index annuity sales, and with the launch of the reinsurance sidecar in August, we have started flowing a portion of our accumulation-focused FIA sales during the quarter. Ryla continues to be a modest but growing contributor to our sales as we are gaining momentum.

IUL sales were over $40 million in the quarter and $137 million year-to-date, up 10% over the prior year-to-date period, as our life insurance solutions are meeting the needs of the underserved multicultural middle market. And PRT sales were more than $500 million in the quarter, including a multiple repeat client, and $1.3 billion year-to-date in line with the prior year-to-date period. The PRT market continues to see a robust pipeline for mid-sized deals between $100 million to $500 million, where F&G competes well, and we're on track to achieve our targeted $1.5 to $2.5 billion of PRT sales for the full year. Opportunistic sales were $2 billion in the third quarter, with over $1 billion of funding agreements and nearly $1 billion of MIGA sales. Opportunistic sales volumes will fluctuate quarter to quarter, depending on economics and market opportunity. Here's a few details.

We took advantage of an attractive market window and executed a record $800 million FABN issuance in the third quarter and expanded our high-quality investor base, bringing our third quarter and year-to-date funding agreement placements to $1 billion and $1.6 billion, respectively. Coming off a record second quarter, MIGA sales were nearly $1 billion in the third quarter and $3.4 billion year-to-date. We optimized our level of Flow Reinsurance in line with our capital targets by dynamically adjusting MIGA volumes up and down as market economics change. While short-term interest rates declined following the recent Fed cuts, the shape of the yield curve has a bigger impact on our business. We do not have significant exposure to changes in short-term interest rates, as we have hedged a majority of our floating rate portfolio to lock in higher rates over the past couple of years.

Our floating rate assets are now only $2.4 billion, or 5% of our total portfolio, net of hedging. We expect continued strong demand for retirement savings products, including a growing demand for annuities by consumers and financial advisors for retirement security. Demographic trends remain a powerful secular driver, as the growing retirement 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. Next, turning to the investment portfolio. Our portfolio is diversified, well-positioned, and high quality, with 96% of fixed maturities being investment grade. Credit-related impairments have remained low and stable, averaging six basis points over the past five years. Through the first nine months of the year, credit-related impairments remained below our pricing.

Given broader market concerns around credit exposure to bank loans, we don't have any direct holdings in First Brands, Tricolor, or Primalend, and our exposure to the subprime auto and regional bank sectors was a modest $20 million and $13 million, respectively, as of September 30th. Our fixed income yield of 4.68% increased 10 basis points over the sequential quarter, primarily driven by a prospective floating rate asset model refinement. As a reminder, our fixed income yield excludes alternative investment income as well as variable investment income. Looking at our alternative investment portfolio, we saw improvement in our annualized return at 7% in the quarter, up from 6% in the sequential quarter and as compared to our 10% long-term expected return. Our alternative investment portfolios comprised 30% of alt LPs, with the remainder more debt-like in nature.

Next, turning to variable investment income, we reported $24 million of pre-tax, prepay income in the quarter, which was above our run rate expectation as compared to $26 million in the prior year quarter and $6 million in the sequential quarter. As far as asset managers go, we really think we have the best of both worlds in terms of our competitive positioning and flexibility. This month marks that we are eight years into our strong and seasoned relationship with a world-class manager in Blackstone. We have the flexibility to work with other asset managers, whether for Flow Reinsurance or specialty asset classes that complement Blackstone's capabilities. In summary, F&G's results through the first nine months of the year positioned us well for a strong finish for the remainder of 2024.

We are executing on our strategy, leveraging the strength of our distribution partners to continue to grow our spread-based business alongside our growing sources of fee-based, higher margin, and capital-light earnings through our Flow Reinsurance, Middle Market Life Insurance, and owned distribution strategies. I'm excited about the future and our ability to continue to further expand our return on equity to deliver long-term shareholder value. Let me now turn the call over to Conor to provide further details on F&G's third quarter highlights.

Conor Murphy, President and Chief Financial Officer, F&G: Thank you, Chris. I'd like to start by thanking our employees for their efforts in delivering an all-around strong quarter. Our solid foundation and focused execution continue to drive results across the business. Looking at our third quarter results more closely, on a reported basis, adjusted net earnings were $165 million, or $1.22 per share in the third quarter. Alternative investment income was $67 million, or $0.48 per share, below management's long-term expected return for the quarter. Adjusted net earnings included two significant items: a $10 million, or $0.07 per share, benefit from a tax valuation allowance release, as well as $4 million, or $0.03 per share, from an actuarial reserve release. Additionally, our third quarter adjusted net earnings benefited by approximately $25 million as a result of two other items in the quarter: strong prepayment fees, as well as a lower effective tax rate.

We completed our annual actuarial assumption review in the third quarter. As a result, amortization expense was approximately $6 million after tax higher in the third quarter, and we expect higher amortization over the next year, with approximately $5 million after tax in the fourth quarter, incrementally diminishing through the first half of 2026. Overall, as compared to the prior year quarter, third quarter adjusted net earnings reflect asset growth, growing fees from accretive flow reinsurance, steady owned distribution margin, and operating expense discipline driving scale benefit. Our results have generated sustainable returns. As reported, adjusted ROA on a last 12-month basis was 92 basis points, including short-term fluctuations from alternative investment income. This is stable and in line with the last 12-month periods for the prior year and sequential quarters of 95 and 92 basis points, respectively.

All else equal, we expect this is indicative of our current run rate for adjusted ROA on a reported basis. Our adjusted ROA reflects meaningful contributions from our fee-based flow reinsurance and owned distribution strategies. As reported, our adjusted return on equity, excluding AOCI, was 8.8%, in line with the sequential quarter. Our fee income from accretive flow reinsurance has grown to $41 million in the first nine months, up 46% over $28 million in the first nine months of 2024. F&G launched its flow reinsurance strategy in 2020, which builds on our core competencies, enables us to scale in an accretive and capital-efficient manner, and produces diversifying fee income, which generates strong cash flows. Our flow reinsurance strategy, augmented by the new reinsurance sidecar effective August 1st, provides third-party capital for a portion of F&G's FIA and MIGA sales.

Today, we expect to reinsure the vast majority of MIGA sales, depending on economics. As discussed on last quarter's call, the economics for FIA sales are relatively more attractive with the sidecar, and we expect we will evolve toward 50/50 retained versus flow for FIA sales. Importantly, we will continue to grow retained AUM as we balance retaining business versus optimizing flow reinsurance and preserving capital flexibility. Our own distribution portfolio is performing well and creating value. We have invested nearly $700 million in our four owned distribution investments and expect to generate over $80 million of EBITDA for the full year 2025. Our holdings are diversified by product and market and reflect growing businesses with strong leadership. Two of our holdings are life IMOs that produce about 50% of F&G's IUL sales as the majority of their sales mix.

The other two holdings are annuity IMOs that produce approximately 15% of F&G's annuity sales as the minority of their sales mix. In the future, we have plenty of opportunity to expand the value of owned distribution through our existing holdings. And as independent agent distribution continues to consolidate in the industry, we expect to be selective in expanding to additional strategic partners, being thoughtful about where it makes sense and where it's the right fit with our long-standing relationships. We are benefiting from increased scale as our ratio of operating expense to AUM before flow reinsurance has decreased to 52 basis points in the quarter, down from 62 basis points in the third quarter of 2024.

We expect continued improvement in our operating expense ratio as a result of the expense actions we took earlier this year, moving from 60 basis points at year-end 2024 to approximately 50 basis points by year-end 2025. Further, we see the potential to decrease by an additional one basis point per quarter on average in 2026. Two years in, and we have made significant progress towards the medium-term financial targets we laid out at our October 23 Investor Day to grow AUM by 50%, expand adjusted ROA excluding significant items to 133 to 155 basis points, increase adjusted ROE excluding AOCI and significant items to 13 to 14%, and expand our multiple. We are well-positioned to deliver on our 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.

Operator: Thank you. Before opening for questions, I'd like to turn it back over to Chris Blount for some additional remarks.

Chris Blunt, Chief Executive Officer, F&G: Thanks, Operator. Early this morning, we issued a press release with F&F, our majority owner, announcing the F&F Board of Directors has approved a change in F&F's equity ownership stake in F&G. F&F plans to distribute approximately 12% of the outstanding shares of F&G's common stock to F&F shareholders. Following the distribution, F&F will retain control and majority ownership of approximately 70% of the outstanding shares of F&G. This will increase F&G's public float from approximately 18% today to approximately 30% after the distribution, strengthening our positioning within the equity markets and facilitating greater institutional ownership. Operator, please open the call now for questions.

Operator: Ladies and gentlemen, if you would like to ask a question, please press Star 1 on your telephone keypad, and the confirmation tunnel will indicate your line is in the question queue. You may press Star 2 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 the line of Wes Carmichael with Autonomous Research. Please proceed.

Hey, good morning, and thank you. First question I had, maybe it's a bit broader of a question on capital allocation, but as I think about the stock, it's been under a little bit of pressure this year, year to date, and I know you raised some growth equity earlier in the year. Now you have the sidecar. So I'm just wondering how you're thinking about prioritizing capital deployment and how you're thinking about share buybacks relative to things like allocation to owned distribution or even just pastoral organic growth.

Chris Blunt, Chief Executive Officer, F&G: Sure. Thanks, Wes. It's Chris. I'll start. I know Conor will have some views here as well. I would say right now, obviously, we want to continue to grow our fixed index annuity business. That's core for us, and so that's always going to be fairly high on the list. Owned distribution is attractive and where we've got opportunities to either potentially add a platform, although we want to be selective there, or add some capital to help some of our existing ownership stake scale. That's very high on the list. Index Universal Life is a high priority for us and continuing to grow that, although it's not a large consumer of capital right now. You probably also noticed we increased the dividend by 13.6%, so we're trying to share some of the new capital-light model with our shareholders right away.

I would say right now, buybacks would probably be a pretty low priority for us just because, obviously, the distribution of shares by F&F is to try to help us increase our float, not take float out of the market. But I don't know, Conor.

Conor Murphy, President and Chief Financial Officer, F&G: It's a little bit of a reiteration. Thanks, Wes. We're seeing very attractive opportunities for our core products, again, the IUL, the FIA, the RILA, and the PRT. We've continued to be active in the PRT market as well and expect that momentum across all of that to continue in the near term. So we're very comfortable. We have plenty of capacity from a capital perspective to continue to focus on those. The opportunistic will be just that. It was a pretty active quarter this quarter, but we're watching where MIGA returns are in the near term, and we will write as much or as little there depending on the economic opportunity. And yeah, we continue to really, really like the owned distribution expansion opportunity as well.

No, thanks. And it makes sense on the float comments, Chris. Second question I had, I guess, on variable investment income outside of the alternatives portfolio. I think that was pretty strong in the quarter, but I imagine that'll bounce around a little bit quarter to quarter. But just maybe if you could think about a run rate level of non-alt VII going forward, is there any help you can give us on that?

Yeah, I'll give you a sense. So you're right. We were higher this quarter. I think we were in the 24 million pre-tax range. And I think our expectation near term, you're always going to have an element of this. Our expectation is probably at the high single digits, 10-ish roughly, maybe a little less, but it'll move around a little bit, and that's fine. But they were certainly a little bit higher, which is why we called them out in the quarter.

Yeah, thanks, Conor. That's helpful from a modeling perspective. And just maybe one final one, just on the investment portfolio, I guess in recent weeks, there's been more focus on, I guess, private letter-rated assets and these private structures, particularly those that are rated by Eagan Jones. I'm just wondering if there's any color you can provide on that exposure for F&G, maybe as a percentage of the portfolio, and maybe if you would disagree with the spirit of these recent articles in the media on private credit.

Chris Blunt, Chief Executive Officer, F&G: Yeah, maybe do it in reverse order. I think, look, everyone's concerned about the same things in the private credit space, so there's been some kind of big, I would say, bold statements made on both sides of the argument here. I think the only thing we can speak to specifically is our own portfolio, which we're feeling quite comfortable with. With respect to Eagan Jones, yeah, I think like a lot of firms, we're increasingly utilizing two different agencies. The number of securities or loans that we have that are rated by Eagan Jones is quite small, quite small. And we're trying, as a general rule, to get two agencies and, wherever possible, one of what you would call the big three to rate every single deal, not just because of the backdrop or concerns about is anyone rating reliable, so to speak. But also, you have turnover.

We have an analyst leave, and so it's always better to have two where you can have that. So I think we've made a ton of progress, a ton of progress there.

Thank you.

Operator: The next question comes from the line of Joel Hurwitz with Dowling & Partners. Please proceed.

Hey, good morning. A couple of questions on the alternatives performance. First, can you provide some color on the moving pieces of the 67 million of unfavorable alts in the quarter? And I guess how much of that was just the LPs versus that direct lending? And what are the targeted returns on the different pieces that fall in that 10 and a half billion dollar bucket of alternative assets?

Conor Murphy, President and Chief Financial Officer, F&G: Yeah, I'll give you a sense. I'm not sure we give a complete and full breakdown, but I kind of know what you're going after. And I would say this from an expectation of where we came out. We were pretty close on the whole loan and direct lending parts. And I think we talk about a 10 billion dollar portfolio in total, of which about three of it is the LPs. So the LPs had a stronger performance. And I would, yeah, I would say that the increased performance was broadly there as well, but they are also in the main area that are still falling short of the long-term expectation. We were pretty much there, thereabouts on the whole loans and on the direct lending side.

Chris Blunt, Chief Executive Officer, F&G: And Joel, as you know, on some of the LPs, particularly on the PE funds, you get a lot of that information comes with a lag. So that's part of the issue too. So obviously, the sense is that activity is picking up. Hopefully, that's true and that persists.

Okay. I guess any color on what the targeted return is on the LPs? I'm guessing it's higher than the 10%, but can you give me that?

Conor Murphy, President and Chief Financial Officer, F&G: Yeah. I mean, look, to get to an average of 10, yeah, I would say that's the case modestly, but there isn't a wide range when you consider all of the components. But on the margin, that is a true statement, correct.

Okay. And then, Conor, just on the base yield jump of 10 basis points, you guys mentioned a floating rate refinement. Just what exactly was that and how much of the 10 basis point quarter-over-quarter increase was that?

Yeah, I'm not sure if it was 10 basis points. I thought it was probably closer to 10 million dollars and maybe three or four basis points in terms of what I would call the core fixed income impact. But yeah, we did have a little bit of a change. We had a change. We were solely using the forward curve, and now we have sort of a decision tree methodology where anything that's like a placeholder, or if it's not hedged, or if it's an FPN, an FABN, etc., it's spot right. Anything that's longer term is forward. So we were really calling out the fact that it was suggesting that the fixed income yield had ticked up a few points. Honestly, I think the fixed income yield in the quarter—oh, actually, no, I apologize. I think it was 10 basis points.

I think the fixed income yield in the quarter was pretty flat quarter over quarter if you really drilled into the core components.

Gotcha. Thank you.

Operator: As a reminder, if you would like to ask a question, please press Star 1 on your telephone keypad. And the next question comes from the line of Mark Hughes with True Securities. Please proceed.

Yeah, thank you. Good morning. Conor, I think you had talked about kind of an all else equal, a good run rate ROA for the business. On an adjusted basis, what would that number look like?

Conor Murphy, President and Chief Financial Officer, F&G: I think we've been—on an adjusted basis, we've been in the kind of high 120s, right around that lower end. Remember, we had the target that we put out a couple of years ago at the Investor Day to get into the 130s to 150 range. And we're right around that bottom end of that range currently. So over the last 12 months, adjusted basis, yeah, I think we're probably around that 129, 130 mark.

Okay. And then maybe a two-part question on RILAs. Just looking at the Q3 stats out of Limra, they've got RILAs up 20%, FIAs down a little bit. Just sort of curious, any observations on that dynamic? What's causing it? Is that likely to persist? And then just any update on your progress in the RILA product?

Chris Blunt, Chief Executive Officer, F&G: Yeah, Mark, this is Chris. I'd say a couple of things. I think what's driving it, probably a little bit as rates have come down a bit and cap rates lower on fixed product markets have obviously been performing quite well, equity markets. And so, yeah, you're always going to see every once in a while some sentiment shift between RILAs and FIAs, which is why we like the product, want to have it in our portfolio. I would say, as we've acknowledged before, it's taken longer to get on platforms. But once we're on platforms, we're getting good flows and good adoption from advisors. So yeah, it's continuing to grow. It's continuing to grow at a healthy clip just off of a small base.

And again, given the number of opportunities that we have in FIAs, particularly FIAs that we can utilize the sidecar for, that's been pretty high in our list. So we haven't felt particularly constrained by the growth of it, but it's a strategic product for us, and we want to continue to grow it over time.

Very good. Maybe another two-part are the 80 million in EBITDA and owned distribution. How did that compare to the prior year? And then you're seeing much private equity activity there. Is that competition for other deals? How does that stand now?

Yeah. So the EBITDA number, I think a couple of quarters ago, we were maybe projecting about 85 million. I'd say it's down a little bit, but honestly, every single month, it's going to bounce around by a little bit. I would just say the portfolio is performing really well, ahead of our expectations. So we feel great about that in terms of the growth rate going forward. So that's been, I would say, pretty terrific. In terms of activity, I would say it's the same as it has been. Every platform that we purchased, there was private equity competition. Either they had turned down one of the roll-up players or had offers from the roll-up players. So I don't think our competitive positioning and how we position ourselves relative to them has changed. So yeah, we're still quite optimistic about it.

Appreciate it. Thank you.

Operator: The next question comes from the line of Alex Scott with Barclays. Please proceed.

Hey, good morning. First one for you is just more of a broad question around the competitive landscape. And maybe if you could comment both on the liability side, but also even on the asset side and just how you're viewing competition for loan origination and so forth.

Conor Murphy, President and Chief Financial Officer, F&G: Let me start on the liability side. Again, back to the core versus the opportunistic. I think we're feeling comfortable near term. And by near term, I'm kind of giving you the few months out as we kind of look into momentum heading into Q4 and where the markets are currently. I'd say it's okay in the FIA space. It's definitely competitive, but I think it's also reasoned, reasonable. That's true of RILA and IUL as well. From a PRT perspective, I would say that's still fairly active. There generally is a fair amount of activity in the fourth quarter of every year, and I think the environment is still conducive to that. A little hard to predict that too far out.

But I think in terms of the volume and the pricing in the PRT space currently in that space that we play in, the sort of 100 million to 600 million upwards to a billion space is pretty good as well. I think near term from a micro point of view, and I alluded to this on an earlier answer as well, that's tighter. I would think that this is, again, back to the opportunistic element of it. I would say near term, the appetite for that probably wanes a little bit compared with the other opportunities that we're seeing out there.

Chris Blunt, Chief Executive Officer, F&G: Yeah. And on the sort of credit origination side, which is an important engine, right, from a competitiveness standpoint, obviously, that is tighter. There's more competition for deals for sure, but the market is just huge and continues to expand in terms of opportunity. So we've been able to find our spots. Probably takes a little bit longer to get some premiums invested, particularly in the private credit area. But yeah, I would agree with Conor's assessment. Tighter in spots, but overall still pretty attractive.

Got it. All helpful. Second one I had for you is just on the hedging of short-term interest rates. Could you help us think through how that actually flows through earnings? Is there a lag? Is it amortized? I mean, was there an outsized impact maybe this quarter from rates coming down at the short end of the curve? I'm not as familiar with how that would flow into adjusted earnings.

Conor Murphy, President and Chief Financial Officer, F&G: Yeah. I don't know that there's anything really significant. I mean, I think you know the overarching perspective. Really, for us, it's just we have a floating rate component to the portfolio that's not on to, and I think it's on to less than 2 and a half billion dollars or 5% of the portfolio. But yeah, and you always want some floaters in there, right? Because when great opportunities come up, this is stuff that's often easiest to move and reposition into something better. And yeah, I'm not we'll follow up with you on that one, but I don't think there's any meaningful timing lags due to the hedging.

Okay. And nothing notable in this quarter in terms of, like, having a derivative gain flow through or something like that?

Chris Blunt, Chief Executive Officer, F&G: No. And again, the methodology change was really just trying to be more precise, right? Because we use floaters in different ways, right? There's some that are defeasing a longer term, maybe you're calling it a five-year liability. There are some that are really placeholder assets as a cash surrogate. And so it was just really trying to make sure that when people looked at movements and interest rates, are it tied to the portfolio results? And we're seeing a little bit better.

Conor Murphy, President and Chief Financial Officer, F&G: That's exactly right. I mean, yeah, just to underscore that, it's really just it's tied to the purpose of the use of the asset. So it really was modest. The reason we highlighted it at all is we were really looking to illustrate that from a core fixed income perspective, because there's so much focus on the ROA that it was a—I mean, it's in a positive way, but it was a flat quarter. It remained the same. We weren't trying to suggest that it had gone higher because of anything we had done in the portfolio. That's why we called it out.

Understood. Okay. All right. Thank you.

Operator: The next question will come again from the line of Wes Carmichael with Autonomous Research. Please proceed.

Hey, thanks for taking my follow-ups. I just had a couple more for you, but one on operating leverage. If I look at the operating expense line, that's declined over the past couple of quarters, and I think that's a good development. I imagine part of that's related to the actions you took earlier in the year, but how are you thinking about that going forward? Is there more opportunity for reducing costs, or should we just think about the spend's going to increase less than the pace of AUM going forward?

Conor Murphy, President and Chief Financial Officer, F&G: Yeah, I think it's a lot of—thank you. And I made some of these comments earlier as well. From our perspective, bringing the cost basis as a percentage of AUM down from 60 to 50 basis points, that is essentially—I mean, we got to that track with the efforts in the second quarter. My expectation is that it'll tick down from 50 to 46 roughly over the course of next year, but I would say that's by maintaining, broadly speaking, sort of inflation aside, maintaining where we are now and continuing to grow. I think after that, it will continue to come down, but I think the pace will be more modest. I'm guessing maybe like half a basis point a quarter. So 2027, maybe another two basis points after four this year.

So you could view it as a continuously improving expense ratio rather than a declining level of core expenses.

Got it. That's helpful. Thanks, Conor. And just last one, I guess, on the press release with F&F spinning some of the F&G stock to F&F shareholders, I guess my reaction and maybe some of investors was it's a pretty modest number relative to maybe actions they could have taken, but just wondered if you had any comments on that from your perspective.

Chris Blunt, Chief Executive Officer, F&G: Yeah. I mean, I guess it is and it isn't in the sense that if you looked at the amount of free float, it's a very meaningful increase in free float. And I think from a dollar perspective, don't quote me, but I think this gets us over a billion now of free float. And so we'd heard from a number of particularly long-only investors who said, "Boy, if you had a bit more float, we'd really like to take a position." So I think over time, it's going to prove to be quite meaningful for us from that perspective. And as to the amount, it was as simple as F&F really likes F&G, sees a lot of promise in our long-term future. And so there was a lot of speculation of, "Oh, it's been five years.

They're going to spin the whole thing out." And they clearly didn't want to do that. And so it was really how much can we spin out to help with the FG float while retaining a large percentage. So we took it as a great vote of confidence in where we are, our capital-light strategy, and the earnings we can drive going forward. So I think it's a really positive development, I think, for both shareholder bases, frankly.

Gotcha. Thanks, Chris.

Operator: Thank you. This will conclude our question and answer session, and I'd like to turn the call back to Chris Blunt for closing remarks.

Chris Blunt, Chief Executive Officer, F&G: Thanks again to everyone for joining our call this morning. We had a really strong third quarter and have good momentum heading into the end of the year. I'm excited about the future and our ability to deliver strong returns for the shareholders of F&G in the years ahead. We appreciate your interest in F&G and look forward to updating you on our fourth quarter earnings call.

Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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