Filing Overview
F&G Annuities & Life, Inc. filed an unaudited Form 10-Q for the three months ended March 31, 2024. F&G, a majority-owned subsidiary of Fidelity National Financial, provides annuity and life insurance products through retail and institutional channels, including indexed and fixed-rate annuities, indexed universal life, pension risk transfer, and funding agreements.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenues | $1,569 million | $869 million |
| Pre-tax earnings (loss) | $142 million | $(203) million |
| Net earnings (loss) | $116 million | $(195) million |
| Net earnings attributable to common shareholders | $111 million | $(195) million |
| Diluted EPS | $0.88 | $(1.56) |
| Operating cash flow | $1,534 million | $1,437 million |
| Total assets, period-end | $74,434 million | $70,202 million at Dec. 31, 2023 |
| Total investments, period-end | $53,878 million | $52,289 million at Dec. 31, 2023 |
| Cash and cash equivalents, period-end | $2,372 million | $1,563 million at Dec. 31, 2023 |
| Notes payable, period-end | $1,748 million | $1,754 million at Dec. 31, 2023 |
| Total equity, period-end | $3,683 million | $3,103 million at Dec. 31, 2023 |
Approximate reported margins were 9.0% for pre-tax earnings, 7.4% for net earnings, and 7.1% for earnings attributable to common shareholders. The filing does not present a GAAP operating margin.
Material Changes Versus the Prior Comparable Period
- Revenue increased $700 million, or approximately 81%, driven by higher life insurance premiums and fees, investment income, owned distribution revenue, and recognized investment and derivative gains.
- Life insurance premiums and other fees rose to $718 million from $365 million, primarily because life-contingent pension risk transfer premiums increased to $584 million from $263 million.
- Interest and investment income increased to $616 million from $519 million, supported by asset growth and higher rates. Average assets under management increased to $49.4 billion from $44.3 billion, while yield on average assets under management increased to 4.99% from 4.69%.
- Recognized gains and losses improved to a $212 million gain from a $15 million loss. The improvement primarily reflected derivative gains, including a $250 million gain on call options, partly offset by an $80 million loss on interest rate swaps.
- Benefits and other changes in policy reserves increased to $1,161 million from $812 million, reflecting higher pension risk transfer obligations, index credits, and interest credited to policyholders. Certain indexed annuity assumption updates increased policy reserves by approximately $57 million.
- Adjusted net earnings attributable to common shareholders increased to $108 million from $61 million. Management’s adjusted measure excludes, among other items, investment and derivative gains and losses, market-related liability adjustments, purchase price amortization, and related taxes.
- Gross sales increased to $3.495 billion from $3.281 billion, and net sales after flow reinsurance increased to $2.302 billion from $2.209 billion. Pension risk transfer sales increased to $584 million from $264 million, while funding agreement sales declined to $105 million from $256 million.
- Operating cash flow increased $97 million. Investing cash outflow declined to $1.384 billion from $2.408 billion, while financing cash flow declined to $659 million from $1.595 billion.
Business Developments, Liquidity and Capital
- On January 2, 2024, F&G acquired a 70% interest in Roar Joint Venture, LLC for approximately $269 million of cash and $48 million of initial contingent consideration. Roar contributed $23 million of revenue and $3 million of net earnings attributable to F&G in the quarter. Additional payments of up to approximately $90 million may be required over three years based on EBITDA milestones.
- On January 12, 2024, FNF invested $250 million for 5 million shares of 6.875% Series A Mandatory Convertible Preferred Stock. The preferred stock is scheduled to convert into common stock on or before January 15, 2027, subject to its terms. Preferred dividends generally must be paid before common dividends or repurchases.
- The revolving credit facility was amended in February 2024. Maturity was extended to November 22, 2027, total availability increased to $750 million, and remaining availability at March 31, 2024 was $385 million. An additional $200 million FNF facility was undrawn.
- Cash and short-term investments totaled $2.635 billion at March 31, 2024. Debt carrying value was $1.748 billion, with estimated fair value of $1.783 billion. The company was in compliance with its debt covenants.
- F&G paid $26 million of common dividends during the quarter. The board subsequently declared a $0.21 quarterly common dividend and a $0.8594 quarterly preferred dividend. Approximately $32 million remained available under the common stock repurchase authorization, although no program repurchases occurred during the quarter.
Outlook, Risks and Unusual Items
- The filing does not provide formal quantitative earnings or sales guidance. Management expects results to remain sensitive to interest rates, equity markets, credit conditions, policyholder behavior, sales volumes, reinsurance activity, and investment performance.
- Interest-rate risk is significant. A 100-basis-point increase in rates would reduce the fair value of fixed maturity securities by approximately $2.5 billion and reduce the combined fair value of embedded derivatives and market risk benefits by approximately $0.5 billion. A 100-basis-point change would affect annual floating-rate interest expense by approximately $17 million, before related investment-income offsets.
- The fixed maturity portfolio had $3.620 billion of gross unrealized losses and $33 million of expected credit loss allowance at March 31, 2024. Management attributed most unrealized losses to higher Treasury rates, illiquidity, and macroeconomic conditions rather than issuer-specific credit concerns.
- Reinsurance recoverables totaled $10.112 billion, with significant concentrations involving Aspida Re, Somerset Re, Wilton Re, and Everlake. Management believes recoverables are collectible, but reinsurer nonperformance remains a material exposure.
- Unfunded investment commitments totaled $4.225 billion, including commitments to limited partnerships, whole loans, asset-backed securities, direct lending, and other investments.
- F&G had $25.358 billion of unconsolidated variable-interest-entity investments with maximum loss exposure of $29.175 billion, including required unfunded commitments.
- The company is defending two putative class actions related to the MOVEit data-security incident. Management does not currently expect a material impact, and accrued legal and regulatory liabilities were insignificant.
- On April 23, 2024, the Department of Labor issued a broader fiduciary rule. Management expects the rule and related exemptions could affect agent supervision, IRA and rollover sales, compensation practices, compliance costs, and liability exposure.
- The company’s disclosure controls were deemed effective; however, controls over the recently acquired Roar business were excluded from management’s assessment under applicable SEC guidance.
Investor Verification Priorities
- Reconcile GAAP net earnings of $116 million and common-shareholder earnings of $111 million with adjusted net earnings of $108 million, focusing on derivative and market-related adjustments.
- Assess the sustainability of earnings given the $212 million recognized gain, including the $179 million net gain from certain derivatives and the volatility of hedging results.
- Review the growth, pricing, and capital requirements associated with the $584 million of pension risk transfer sales and the related $4.655 billion PRT future-policy-benefit liability.
- Evaluate credit quality, duration, unrealized losses, and concentrations in the $42.631 billion fixed maturity AFS portfolio, including ABS, CLOs, and commercial mortgage-backed securities.
- Monitor reinsurance concentration, collateral arrangements, and the collectability of the $10.112 billion reinsurance recoverable balance.
- Assess Roar’s integration, earnings performance, goodwill and intangible assets, and potential contingent consideration of up to approximately $90 million.
- Confirm liquidity after the Roar acquisition, preferred dividend obligations, debt service, unfunded commitments, policyholder withdrawals, and regulatory restrictions on subsidiary dividends.
- Track the impact of the DOL fiduciary rule and other insurance-market conduct requirements on distribution channels and annuity sales.