F&G Annuities & Life, Inc. — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual Form 10-K rather than a standalone fourth-quarter filing; quarterly information is discussed only where specifically disclosed.
Business context
F&G provides fixed indexed annuities, fixed-rate and multi-year guarantee annuities, indexed universal life insurance, pension risk transfer solutions and institutional funding agreements. Registered index-linked annuities were launched in early 2024. FNF retained approximately 85% of F&G following the December 2022 distribution.
- Approximately 677,000 policyholders and 1,165 full-time equivalent employees at year-end.
- Assets under management increased 14% year over year to $49.5 billion; the investment portfolio was approximately $52.3 billion.
- Gross sales increased 17% to $13.2 billion; net sales after flow reinsurance were $9.2 billion.
- FGL Insurance’s estimated U.S. RBC ratio was approximately 451%, above the company’s 400% target.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenues | $4.500 billion | $2.349 billion | Increased $2.151 billion |
| Interest and investment income | $2.211 billion | $1.655 billion | Increased $556 million |
| Recognized gains/(losses), net | $(124) million | $(1.010) billion | Improved $886 million |
| Total benefits and expenses | $4.535 billion | $1.556 billion | Increased $2.979 billion |
| Net earnings/(loss) | $(58) million | $635 million | Declined $693 million |
| Adjusted net earnings | $335 million | $353 million | Declined $18 million |
| Adjusted return on assets | 72 basis points | Not clearly provided in the filing text | Not clearly provided |
| Operating cash flow | $5.834 billion | $3.171 billion | Increased $2.663 billion |
Reported GAAP results were adversely affected by market-related liability movements, fair-value changes and higher policy reserves. Adjusted net earnings included $405 million of investment income from alternative investments and $51 million of significant expense items. Based on management’s approximately 10% long-term expected return, alternative-investment income was $558 million.
Sales, balance sheet and liquidity
- Sales consisted primarily of fixed-rate annuities/MYGAs of $5.066 billion, FIAs of $4.699 billion, PRT of $1.976 billion, funding agreements of $1.256 billion and IUL of $156 million.
- Contractholder funds increased to $48.8 billion from $40.8 billion. Net in-force liabilities increased to $47.3 billion from $40.7 billion.
- Total assets increased to $70.2 billion from $54.6 billion; total equity increased to $3.1 billion from $2.4 billion.
- Cash and cash equivalents were $1.563 billion and short-term investments were $1.452 billion at year-end.
- The company generated $5.834 billion of operating cash flow, used $8.918 billion in investing activities and generated $3.687 billion in financing activities.
- Approximately $4.2 billion of net assets were restricted from dividend payments without prior regulatory approval. FGL Insurance’s ordinary dividend capacity for 2024 was stated as $0.
Debt and capital structure
| Debt at December 31, 2023 | Principal | Key terms |
|---|---|---|
| Revolving credit facility | $365 million | Variable rate; $300 million remaining availability at year-end |
| 5.50% senior notes | $550 million | Due 2025 |
| 7.40% senior notes | $500 million | Issued January 2023; due 2028 |
| 7.95% senior notes | $345 million | Issued December 2023; due 2053 |
| Total gross principal | $1.760 billion | Carrying value of notes payable was $1.754 billion |
F&G was in compliance with its debt covenants at year-end. On February 16, 2024, the revolving facility was amended and extended to November 2027, with total commitments increased from $665 million to $750 million. On January 12, 2024, FNF invested $250 million in 6.875% Series A Mandatory Convertible Preferred Stock, generally convertible into common stock in January 2027.
Material changes versus the prior comparable period
- Gross sales increased 17%, driven particularly by fixed-rate annuities and PRT; PRT sales increased to $2.0 billion from $1.4 billion.
- Investment income increased due to asset growth, higher yields and improved alternative-investment results.
- GAAP net income changed to a $58 million loss from $635 million of income. Adjusted net earnings decreased modestly to $335 million from $353 million, indicating that reported volatility was driven substantially by market-related and accounting items.
- Benefits and other policy-reserve changes increased to $3.553 billion from $1.126 billion, including a $588 million FIA/IUL market-related liability charge versus a $1.010 billion benefit in 2022.
- Interest expense increased to $97 million from $29 million following the new senior notes and a full year of revolver borrowings.
- Accumulated other comprehensive loss improved to $1.990 billion from $2.818 billion, primarily reflecting higher fixed-income security values as market conditions improved, although the portfolio continued to carry significant unrealized losses.
- F&G repurchased approximately 869,000 shares for $18 million; approximately $32 million remained under the repurchase authorization at year-end.
- The company adopted ASU 2018-12 retrospectively, increasing opening 2021 retained earnings by $75 million net of tax and recasting prior-period financial information.
Management outlook, unusual items and risks
Management expects continued growth in AUM and in-force liabilities, margin expansion from investment spreads and operating scale, increased fee-based earnings from flow reinsurance, and diversification through owned distribution. Management also expects RILA products and the middle-market life business to support future growth. No formal quantitative earnings guidance is provided in the filing text.
- 2023 results included a $73 million increase in benefits and policy reserves from FIA assumption and policyholder-behavior updates. Fourth-quarter 2023 mortality-improvement changes adversely affected market risk benefits.
- A $10 million one-time fixed-asset impairment, a $37 million tax valuation allowance, and $9 million of actuarial industry-assumption updates affected 2023 adjusted earnings.
- Interest-rate risk is significant. A hypothetical 100-basis-point increase would have reduced the fair value of fixed-maturity and certain preferred securities by approximately $2.4 billion and reduced combined embedded-derivative and MRB fair value by approximately $0.5 billion.
- The investment portfolio had $3.7 billion of gross unrealized losses at year-end, while 95% of fixed-maturity securities were rated NAIC 1 or NAIC 2.
- Reinsurance recoverables totaled $9.0 billion net, including $6.1 billion from Aspida, $1.1 billion from Wilton Re, $716 million from Somerset and $509 million from Everlake. Reinsurer non-performance remains a material counterparty risk.
- Unfunded investment commitments totaled $3.8 billion. The Kubera note purchase agreement permits potential funding of up to $300 million, although management did not expect significant funding and the amount funded was insignificant at year-end.
- Two putative class actions relate to the 2023 MOVEit incident involving third-party vendor PBI. The company stated that it did not believe the incident or lawsuits would materially affect its business or financial results; the matters were transferred to a multidistrict litigation proceeding.
- Other principal risks include ratings downgrades, liquidity and disintermediation risk, credit losses, reserve-estimation uncertainty, regulatory and fiduciary-rule changes, dependence on FNF and Blackstone, cybersecurity, outsourcing, litigation, competition and reliance on subsidiary dividends.
Important facts for investors to verify
- Reconcile adjusted net earnings of $335 million to the $58 million GAAP net loss and assess the sustainability of alternative-investment income.
- Review FIA embedded-derivative and MRB valuations, including surrender, mortality, GMWB utilization, option-cost and non-performance-spread assumptions.
- Assess liquidity after considering debt maturities, policyholder withdrawals, derivative collateral, FHLB collateral requirements and restricted subsidiary assets.
- Evaluate concentration and credit quality of the $52.3 billion investment portfolio, including ABS, CLOs, mortgage-backed securities and private investments.
- Monitor reinsurance recoverable concentrations and collateral supporting Aspida, Wilton Re, Somerset and Everlake exposures.
- Confirm the effect of the February 2024 revolver amendment and the $250 million FNF preferred-stock investment on leverage, liquidity and potential common-share dilution.
- Track regulatory examinations, market-conduct matters, DOL fiduciary-rule developments, NAIC capital and reserve reforms, and the MOVEit-related litigation.
- Consider FNF’s approximately 85% ownership, related-party arrangements and the company’s dependence on regulated subsidiary distributions.