F&G Annuities & Life, Inc. (FG) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong financial metrics, optimistic guidance, and strategic shifts towards high-margin products. Despite some concerns about valuation and reliance on alternative investments, management's emphasis on growth, partnerships, and disciplined capital deployment is reassuring. The Q&A indicates confidence in reinsurance partnerships and AUM growth. Given the company's market cap, the positive sentiment is likely to result in a moderate stock price increase over the next two weeks.
Key Financial Performance
Assets Under Management (AUM) before flow reinsurance $73.1 billion, up 12% over year-end 2024. This increase was driven by $14.6 billion of gross sales, reflecting disciplined growth and capital allocation to high-return opportunities.
Retained AUM $57.6 billion, up 7% over year-end 2024. Growth attributed to strong sales and investment performance.
Gross Sales $14.6 billion for the full year, including $3.4 billion in Q4. This was the second-highest year on record, driven by indexed annuities, indexed universal life, and pension risk transfer products.
Core Sales $9 billion for the full year, including indexed annuities, indexed universal life, and pension risk transfer. Indexed annuities were $6.7 billion, in line with 2024, and indexed universal life sales increased by 14% year-over-year.
Opportunistic Sales $5.6 billion for the full year, including funding agreements and MYGA. Funding agreements increased by nearly 80% year-over-year to $1.8 billion, while MYGA sales decreased to $3.8 billion from $5.1 billion in 2024 due to pricing discipline and market conditions.
Fixed Income Yield 4.65% in Q4, up 6 basis points over Q4 2024. This reflects improved credit quality and portfolio optimization.
Alternative Investment Portfolio Return Approximately 7% annualized return in Q4, compared to a 10% long-term expected return. The portfolio includes 40% equity interest and 60% investment-grade fixed income debt.
Fee Income from Flow Reinsurance $56 million for the full year 2025, up 37% from $41 million in 2024. Growth driven by accretive flow reinsurance strategies.
Fee Income from Owned Distribution Margin $47 million for the full year 2025, up 2% from $46 million in 2024. Growth attributed to strong performance in owned distribution investments.
Adjusted Net Earnings $482 million for the full year 2025, or $3.64 per share. This reflects asset growth, growing fees, and operating expense discipline.
Operating Expense to AUM Ratio 50 basis points at year-end 2025, down from 60 basis points in 2024. Improvement driven by AUM growth and expense management.
Book Value per Share (excluding AOCI) $44.43 at year-end 2025, up 62% since 2020. Growth reflects strong financial performance and capital management.
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Operating Highlights
Indexed Annuities: Generated $6.7 billion in sales for the full year, in line with 2024, with $1.9 billion in Q4, up 12% over Q4 2024.
Indexed Universal Life (IUL): Achieved $190 million in sales for the full year, including over $50 million in Q4, reflecting a 14% increase over 2024.
Pension Risk Transfer (PRT): Recorded $2.1 billion in sales for the full year, including over $800 million in Q4, marking the third consecutive year of $2 billion or more in PRT sales.
Public Float Expansion: Increased public float from 18% to 30%, enhancing market liquidity and broadening investor access to F&G shares.
MYGA Flow Reinsurance: Executed a $750 million FABN issuance in early January 2026, expanding the high-quality investor base.
Assets Under Management (AUM): Achieved record AUM before flow reinsurance of $73.1 billion, up 12% over year-end 2024, and retained AUM of $57.6 billion, up 7%.
Operating Expense Ratio: Improved operating expense ratio to 50 basis points at year-end 2025, down from 60 basis points in 2024, meeting the target.
Fee-Based Earnings: Fee-based strategies contributed approximately 15% of adjusted net earnings in 2025, expected to grow to 25% by 2028.
Reinsurance Strategy: Sold Bermuda-based F&G Life Re Limited, generating $300 million in net proceeds and diversifying MYGA flow reinsurance partnerships.
Capital Allocation: Returned $137 million to shareholders through dividends and increased quarterly common stock dividend by 14% in Q4.
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Risk or Challenges
Short-term interest rate exposure: The company has hedged the majority of its floating rate portfolio to lock in higher rates, reducing exposure to changes in short-term interest rates. However, variable investment income, such as prepayment fees, could present a headwind in 2026 if bond prepayments vary from 2025 levels depending on market conditions.
Private asset origination: While private asset origination provides diversification and credit risk mitigation, it involves complex underwriting and reliance on historical performance data, which may not fully account for unprecedented market conditions.
Alternative investment income: The annualized return on the alternative investment portfolio was below the long-term expected return, which could impact earnings if this trend continues.
Annuity terminations: Elevated terminations on annuities could lead to quarterly variability in earnings. While higher surrender charge fees provide a short-term boost, they may pressure near-term spreads.
Capital transaction with Ancient Financial Holdings LP: The sale of F&G Life Re Limited will result in a decrease in AUM by $1.9 billion and foregone annual adjusted net earnings of approximately $10 million per quarter before deployment of proceeds.
MYGA sales moderation: The company has intentionally moderated MYGA volumes due to market conditions and competitive dynamics, which could impact sales growth.
Fee-based earnings growth: The company aims to grow fee-based earnings to 25% of total earnings by 2028, but this transition may face challenges in execution and market acceptance.
Economic downturn stress test: While the portfolio stress test indicates resilience, it assumes no management action, which may not fully reflect real-world scenarios in a sharp economic downturn.
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Guidance & Outlook
Long-term expected return for alternative investments: Starting in Q1 2026, the company will update its long-term expected return for alternative investments to reflect only the 40% ($4 billion) of equity interest. The remaining 60% ($7 billion) will be reclassified into the fixed income yield.
Interest rate exposure: The company has hedged the majority of its floating rate portfolio to lock in higher rates, reducing floating rate exposure to $2.8 billion (5% of the total portfolio).
Fee-based earnings growth: The company expects fee-based earnings to grow to approximately 25% of total earnings by year-end 2028, up from 15% in 2025.
Operating expense ratio: The operating expense ratio is expected to improve to approximately 45 basis points by year-end 2027, down from 50 basis points in 2025.
Capital transaction with Ancient Financial Holdings LP: The company expects to close a transaction in Q1 2026, selling its Bermuda-based legal entity, F&G Life Re Limited, for net proceeds of approximately $300 million. This will result in a $1.9 billion decrease in AUM and a $10 million quarterly reduction in adjusted net earnings before redeployment of proceeds.
MYGA flow reinsurance strategy: The company plans to evolve towards a 50-50 retained versus flow reinsurance mix for FIA sales, while continuing to reinsure the majority of MYGA sales.
AUM growth and Investor Day targets: The company has grown AUM before flow reinsurance by 44% since 2023 and is on track to meet its 50% growth target by 2028. It also aims to expand ROA and ROE within targeted ranges.
Public float and market liquidity: The company increased its public float from 18% to 30% in 2025, enhancing market liquidity and broadening investor access.
Capital allocation and shareholder returns: The company increased its quarterly common stock dividend by 14% in Q4 2025 and returned $137 million to shareholders in 2025 through dividends.
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Shareholder Return Plan
Quarterly Common Stock Dividend Increase: In the fourth quarter of 2025, the company increased its quarterly common stock dividend by 14%, supported by strong cash generation.
Capital Returned to Shareholders: During 2025, the company returned $137 million of capital to shareholders through common and preferred dividends.
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Key Q&A
Q:Can you talk about software exposure in the investment portfolio? And if you're underexposed to that area, where is some overexposure where you believe there is a strength?
A:Software exposure is less than 5% of the total portfolio, with less than 1% having potential disruption risk. The company focuses on durable use cases, high switching costs, and structural moats. Commercial real estate exposure includes long-term leases with hyperscalers. There is upside in the private equity portfolio due to disruption opportunities.
Q:Can you maybe talk about your near-term outlook for variable investment income?
A:The blended return is approximately 10%, with 7% blended for the year. No significant change is expected, and the company remains optimistic but cautious. Encouraging signs include more IPOs and transaction activity, but the business plan is not built around these.
Q:Can you talk about your diversified panel, your outlook for continued participation by existing partners, and general demand in the market?
A:The company has a suite of partners, including Somerset Re and Acquarian, with no indication of changes in relationships. They have more partners than they can handle and feel confident about their reinsurance partnerships.
Q:Can you provide more details about the transaction you mentioned, including the $200 million already received and the $100 million expected?
A:The company recaptured 1/3 of the block, reinsured $600 million of $900 million, and moved $1.9 billion of AUM. Proceeds of $300 million include $200 million already received and $100 million pending. The funds will be used for general purposes, including growing AUM, while maintaining discipline in business opportunities.
Q:Can you explain the impact of surrender fees on the crediting rate and ROE, and your expectations for the future?
A:Surrender fees have contributed to ROA but are expected to decrease by about 20% in 2026 compared to 2025. The company prefers higher AUM even if it means muted ROA expansion. Surrender fee income is linked to interest rates and external factors, and the company expects a balanced impact on overall performance.
Q:Can you refresh us on the 15 basis points of improvement over 3 years and the specific big pieces contributing to it?
A:The improvement is primarily driven by expense management. The company aims to keep overall expenses flat year-over-year while growing AUM. Fixed costs will be reduced to fund variable costs, contributing to the 15 basis points improvement.
Q:What are your latest thoughts on the trajectory of RILA sales over the next couple of years?
A:RILA sales are expected to show steady improvement from a small base. The company is pleased with the progress and views RILA as a core product alongside FIA and IUL. Growth in RILA sales is anticipated as the company continues to expand in this space.
Q:Can you discuss the causes of the slowdown in FABs in 4Q and the bounce back in demand in 1Q '26?
A:The slowdown in 4Q was due to market conditions, while the bounce back in 1Q '26 was driven by favorable market opportunities. The company remains opportunistic in writing FABN, balancing volume and return, and expects to write more during the year based on market conditions.
Q:Can you provide insights into MYGA sales and the shift towards index products?
A:The company sees better relative returns in other products like FIA and RILA compared to MYGA. While still in the MYGA business, they are more selective and prioritize capital deployment in higher-return areas. The shift is driven by market opportunities and interest rate changes.
Q:What is your high-level view on valuation and the concerns about net investment income from alternative investments?
A:The company believes its valuation is extremely low, trading at $0.62 of book value. They have provided more disclosure on credit and private credit portfolios to address concerns. The fee-based business has grown significantly, and the company is focused on increasing transparency and educating investors about its diversified business model.
Q:Do private equity returns need to be 10%+ for the company to be self-funding?
A:No, the company is capital self-sufficient and does not rely on equity markets or external funding for growth. While private equity returns are expected to average 10%+ over the long term, the company can operate and grow even with returns in the 7% range.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing concerns about valuation and the perception of reliance on net investment income from alternative investments. While they provided additional disclosures and emphasized the strength of their portfolio, their responses lacked specific details on how they plan to address investor concerns about valuation and reliance on alternative investments.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Blackstone
Conor
FNF
Investor
ability
asset manager
asset origination
baseline end
basis point
class
combination
debt portfolio
detail
distribution
equity
exposure
fee
flow reinsurance
income portfolio
interest rate
investment grade
investment income
investment portfolio
prepayment
progress
quality
rating
record AUM
return
share
stress test
term interest
underwriting
value
yield
FG Transcript
F&G Annuities & Life, Inc. (FG) Q4 2025 Earnings Call Transcript
Positive2-20
The earnings call reveals strong financial metrics, optimistic guidance, and strategic shifts towards high-margin products. Despite some concerns about valuation and reliance on alternative investments, management's emphasis on growth, partnerships, and disciplined capital deployment is reassuring. The Q&A indicates confidence in reinsurance partnerships and AUM growth. Given the company's market cap, the positive sentiment is likely to result in a moderate stock price increase over the next two weeks.
F&G Annuities & Life, Inc. (FG) Q3 2025 Earnings Call Transcript
Positive11-7
The earnings call indicates a positive outlook with strong financial metrics, including a significant decrease in operating expense ratio and increased fee income. The strategic focus on capital-efficient growth and an increased dividend are positive indicators. Despite some unfavorable alternative asset performance, the overall sentiment remains positive, supported by optimistic guidance on RILA growth and operating leverage improvements. The company's market cap suggests a moderate but positive stock price reaction, likely in the 2% to 8% range.
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Frequently Asked Questions
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