管理層發言
Good morning, and welcome to F&G's Second Quarter Earnings Call. I would now like to turn the call over to Lisa Foxworthy-Parker, Senior Vice President, Investor and External Relations. Please go ahead.
Thanks, operator, and welcome, everyone. I'm joined today by our new CEO and President, Conor Murphy; and Interim CFO, Mark Wiltse. We're also glad to welcome F&G's incoming CFO, Mike Bailey, who joined the company earlier this week and will listen in on today's call. 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 Conor Murphy.
Good morning, and thanks for joining today's call. I'm very honored to speak with you today on my first earnings call as Chief Executive Officer and President. Since joining the company in April of last year, I have served as CFO, ingraining myself in the financial elements of F&G and President, running the day-to-day insurance company and building relationships with our teams and distribution partners. What drew me to F&G was an appreciation for the business, both in terms of what has been written and the opportunity to expand our services to an increasingly larger customer base as well as the exceptional culture of the team. I would also like to thank Chris Blunt for bringing me to the company and his partnership over the last year. I have a huge amount of respect for Chris and what he and the team have built here at F&G. I'm very excited to continue the momentum as we expand our retail and institutional franchises and accelerate our move toward a more fee-based, higher-margin and less capital-intensive business, a natural advantage of our position as one of the largest sellers of annuities and life insurance in the industry.
Now I would like to share some highlights of our second quarter results, which were largely in line with our expectations as well as details of our investment portfolio and provide an owned distribution update. Then I'll turn it over to Mark to cover our results in more detail. From a top line perspective, AUM before reinsurance increased to $74.7 billion at June 30, up 8% over the prior year. This includes retained assets under management of $55.9 billion. Retained AUM reflects positive asset flows, offset by the $1.8 billion in-force block ceded with the F&G Life Re sale in the first quarter and a $750 million funding agreement-backed note maturity in the second quarter. Gross sales were $2.7 billion for the second quarter, comprised of $2 billion of core sales and $700 million of opportunistic sales. As F&G navigates the competitive landscape, we are focused on disciplined sales growth and capital allocation priorities between core and opportunistic sales to power our AUM growth.
Core retail sales of indexed annuities and indexed life reflect strong momentum at $1.8 billion for the second quarter. This is one of our strongest quarters on record for core retail sales and reflects continued momentum for F&G despite another quarter of contraction in industry FIA sales as compared to the prior year quarter. Core institutional sales of pension risk transfer were $200 million for the second quarter, as expected, ahead of the seasonal increase in PRT sales typically seen in the second half of the year. Opportunistic sales were primarily comprised of $600 million of funding agreements as well as $100 million of multiyear guaranteed annuities, which we have deemphasized due to returns currently below our threshold. F&G's net sales were $1.5 billion in the second quarter. This reflects flow reinsurance in line with capital targets for fixed indexed annuities and multiyear guaranteed annuities.
F&G's retained investment portfolio performed very well once again this quarter. Our portfolio is high quality, with 97% of fixed maturities being investment grade. It is well matched to the liability profile and diversified across asset types. Our fixed income yield was 4.91% in the second quarter, an increase of 14 basis points over the first quarter of 2026 and 8 basis points over the second quarter of 2025. Credit-related impairments have remained low and stable, averaging 6 basis points over the past five years and a modest 2 basis points in the first half of the year. Our alternative investments portfolio was $4 billion or approximately 8% of the total retained portfolio. This includes approximately $3 billion of limited partnerships and $1 billion of other equity interests. Many of these alternative investments are still in the earlier phases of their value creation cycle, so we are not yet fully realizing the long-term expected returns.
During the second quarter, we saw our annualized return at approximately 5.9%, down from 8.3% in the first quarter of 2026. Turning to our own distribution portfolio. As previously announced, Chris Blunt is continuing as a Director of F&G and CEO of Peak Altitude, a business that Chris has been building over time. With approximately $700 million deployed into this business and approximately $80 million in annual EBITDA in 2025, we believe the market is ascribing little to no value in our share price today for the value of Peak. As a result, Chris has launched a formal process to explore strategic alternatives for Peak Altitude to capture its significant growth opportunities and unlock that intrinsic value for F&G shareholders. We believe that both F&G and subsidiary Peak Altitude have plenty of runway ahead to continue growing AUM, growing earnings and growing shareholder value. F&G reported GAAP equity, excluding AOCI, of $6 billion at quarter end and has grown its book value per share, excluding AOCI, to $45.93, up 68% since the 2020 FNF acquisition.
We believe that the components of our business, our new business platform, our profitable in-force block and our capital-light fee-based strategies represent a distinct and measurable source of value. Taken together, we believe a sum-of-the-parts framework reveals meaningful value that is not yet fully reflected in F&G's current market valuation, and we remain focused on closing that gap with strategic alternatives for Peak being an important part of this process. Let me now turn the call over to Mark to provide further details on F&G's second quarter highlights.
Thank you, Conor. Starting with earnings. Overall, second quarter results were largely in line with our expectations and core spread remained consistent as the business maintained disciplined pricing. On a reported basis, adjusted net earnings were $85 million or $0.65 per share in the second quarter. Alternative investment income was $49 million or $0.38 per share, below management's current long-term expected return of 12%, but in line with our post-tax estimate of $51 million preannounced in early July. Compared to the first quarter of 2026, adjusted net earnings decreased by $25 million. The after-tax impact of lower returns on alternative investments was $21 million. And the after-tax effect of the F&G Life Re sale on March 1, 2026, reduced incremental earnings by $8 million in the second quarter as compared to the first quarter. These items were partially offset by consistent core spread, growing fees from accretive flow reinsurance and owned distribution margin and operating expense discipline.
Compared to the second quarter of 2025, adjusted net earnings decreased by $18 million. The after-tax effect of the F&G Life Re sale reduced earnings by $12 million in the second quarter as compared to the prior year quarter. Product margin also reflects lower surrender charge fee income and higher other liability costs that include increased amortization expense as expected. These items were partially offset by higher returns on alternative investments, consistent core spread, steady fees from flow reinsurance and owned distribution margin and disciplined expense management. Next, turning to our scale benefit. As AUM grows and we continue to manage expenses, we are benefiting from increased scale. Our ratio of operating expense to AUM for reinsurance decreased to 47 basis points at the end of the second quarter as compared to 48 basis points in the first quarter of 2026. We have reduced the operating expense ratio from 60 basis points at the end of 2024 to 50 basis points at year-end 2025 and expect further improvement to approximately 45 basis points by year-end 2027, or a cumulative 15 basis point or 25% improvement over the three-year period.
Now regarding our returns. As reported, adjusted ROE, excluding AOCI, was 8% for the second quarter. And also as reported, adjusted ROA was 68 basis points for the second quarter. Taking into consideration management's long-term expected return for alternative investments would have resulted in 3.1 percentage points of additional ROE and 35 basis points of additional ROA for the quarter. Turning to our strong capital position. We remain committed to our long-term target of approximately 25% debt to capitalization, excluding AOCI, and expect that our balance sheet will naturally delever over time. We continue to target holding company cash and invested assets at two times interest coverage. Our annualized interest expense is approximately $165 million or roughly a 7% blended yield on the $2.3 billion of debt outstanding. We expect to maintain our estimated company action level risk-based capital, or RBC, ratio above our 400% target.
We view the NAIC's adoption of higher capital charges on CLOs invested in both broadly syndicated loans and middle market loans as very manageable. After properly adjusting for funds withheld reinsurance assets, the estimated effect of the new capital charges for our CLO portfolio at June 30 would translate to a decrease in RBC of approximately 10 points. Note, this is before any management action to minimize the capital impact ahead of year-end. Importantly, F&G maintains strong capitalization and financial flexibility. We conservatively manage to the most stringent capital requirements of our regulators and four rating agencies. We also have multiple reliable sources of capital supporting our business. Our in-force generates approximately $1 billion from the existing book of business. We expect even stronger capital generation in the future as we rapidly move toward a more fee-based, higher-margin and less capital-intensive business model.
Our reinsurance sidecar provides on-demand third-party capital that we can access without diluting shareholders. Our strategic flow reinsurance partnerships add another layer of flexibility, allowing us to adjust retained sales levels and support cash from operations as we grow. We have added yet another noteworthy flow reinsurance partner in July as we continue to be a partner of choice for the industry. Our statutory excess capital provides additional capital strength in line with our ratings. And as the balance sheet continues to delever, our available debt capacity will only grow over time. For the first six months, our capital self-funded the following: $75 million of common and preferred dividends paid, $80 million of holding company interest expense and $120 million in opportunistic share repurchases as we have bought back 4.5 million shares at an average price of $26.44. We view repurchases as a tool at our disposal that we weigh up against other opportunities.
We did all of this while maintaining momentum in our core retail and core institutional businesses and opportunistically taking advantage of attractive market windows for funding agreements, including a FABN issuance earlier this year. As Conor mentioned, we remain disciplined in allocating capital to our highest return opportunities and have deemphasized MYGA sales at this time due to returns currently below our threshold. Taken together, our capital allocation reflects the financial strength and flexibility we have built and our confidence in the future. Let me now turn the call over to Conor to wrap up.
Thank you, Mark. I would personally like to thank Mark for stepping in as interim CFO. As expected, he has brought deep financial management and operational expertise to guide our strong finance organization during the leadership transition period. I'm also very excited to officially welcome Mike Bailey to F&G as our next CFO. Mike is an actuary with deep knowledge and extensive experience in the life and annuity sector, having held a variety of executive roles at industry-leading insurance companies. Most recently, Mike was the retail Chief Financial Officer at Corebridge Financial. Mike joined F&G just a couple of days ago. And while he is in the room with me, we can expect him to formally join the call in Q3. I look forward to partnering with Mike to continue to build an industry-leading business. We believe F&G is well positioned to grow assets under management aligned with disciplined sales and capital allocation to the highest return opportunities, expand return on equity through strong high-quality earnings generation and create long-term shareholder value. This concludes our prepared remarks. Let me now turn the call back to our operator for questions. Operator?
分析師問答
Our first question will be from Wilma Burdis with Raymond James.
Some of the spread-based competitors have seen spreads stabilize a little bit this quarter. Maybe you can give us a little bit of color on what you're seeing based on F&G's book and the prevailing interest rate environment. And along those lines, maybe just talk a little bit about what you saw with the spread in this Q2.
Wilma, thank you very much. There's quite a lot to that, so let me break it down into a few different components. If I start with the core fixed income, that was very much in line with our expectations. It was higher than Q1. In Q1, we had a few things that we mentioned that we believe were temporary and would resolve themselves in Q2, and indeed, that is the case. If we separate cost of crediting from surrender charges and the acquisition costs: on the cost of crediting, that is also almost exactly where we expected it to be, very consistent with both Q1 and Q4 of last year. It's a little higher than a year ago, and I want to be careful to explain why. With FIA and IUL, those are annual reset products, and we price them and then focus on maintaining the spread and the corridor. We do that very well and successfully, so those are exactly where we thought they would be and very consistent.
Also remember, with PRT or funding agreements, we were putting them on this year at a rate higher than, for example, 12 months ago, so those will tick up, but again, very much exactly where we thought they would be. Surrender charges remain, I would say, reasonably elevated in the industry, but that was very consistent quarter to quarter. We saw 58% compared with 56% last quarter and 57% the quarter before, lower than a year ago when I think we had around 70%. Within acquisition costs, there are probably two things that are on the margin and may be throwing some analyst models off a little bit. One is we do a third-quarter assumption review every year. Last year's third-quarter assumption review saw an increase in DAC amortization because of the increase in surrenders in the industry; it ticked up about $10 million in each of the subsequent quarters. The other is mortality, which is pretty consistent for us but can move a little bit; in this quarter, we did have a little softness in mortality on the PRT book that I would refer to as timing. I expect that will resolve itself in the second half of the year. Hopefully that helps tie it all together for you.
Yes. You had pretty strong buybacks this quarter. Could you just talk about the appetite going forward given the limited float? Just give us a little bit of color on where you stand with that.
Yes. It's a good question and an important one. For us, it was a big capital return quarter; we reviewed buybacks in Q2 as an opportunity to deploy capital in the optimum way. I would start carefully by saying you should not assume that we'll necessarily continue to do that. We took advantage of the stock being down, and I think that has worked out well for us. But it's not a primary expenditure of capital going forward. It's a balancing act because it was a lower amount of opportunistic sales in the quarter between MYGAs and FABNs. MYGAs we've deemphasized, as we've talked about, and FABNs we saw a gap in credit pricing which created an opportunity in Q2. Again, repurchases are a tool to retain for when it makes sense, but not one that would be a primary source of deploying capital necessarily going forward.
And next, we'll hear from Alex Scott with Barclays.
This is Anling on for Alex. Conor, congratulations first on the new role. As you think about the business from a longer-term perspective, are there any strategic areas that you're particularly focused on today?
Thank you. As I alluded to in the opening remarks, there's a lot of consistency with what we've been doing. We'll focus on some key things. Momentum: we're very pleased with the business we've put on the books in the core business, particularly core retail. As I mentioned, it was one of our best core retail quarters despite a challenging FIA industry; the industry was down about 5% in the first half of the year and we were up 4%. That momentum is carrying into the third quarter as well. You should expect continued focus on the core retail side. We've also focused on expanding fee income relative to spread; we've made a lot of progress over the last couple of years and you should expect a continuation of that. That's a combination of optimizing Peak, the life business, which is performing well, and the reinsurance opportunities. We disclosed our top reinsurers in the QFS, and we've added another noteworthy reinsurance partner on July 1, so that's another tool in the toolbox. Continued momentum on those areas of focus should help unlock value that hasn't been fully ascribed to us. Historically we've been viewed largely as a spread business; I would argue there's more value not fully appreciated — not just in Peak, but in the life business, the PRT business, and so on. We'll work on unlocking that by delivering consistent, growing core earnings in the coming quarters.
Got it. That's helpful. Second, maybe an update on Peak. Can you help us understand how it fits within your broader capital deployment framework and the factors that you're weighing as you evaluate those strategic alternatives for the business?
Yes. We're just getting started on that process; I have nothing declarative to say yet, but I can frame what we'd optimally like to achieve. The primary intention would be to bring in a strategic partner that would acquire slightly over half of Peak — call it a 51%–49% split — where we would retain our ability to grow our share as well because we believe strong growth opportunities exist across the four entities within Peak. Even retaining 49% of that business could be very meaningful for us. Peak itself has no debt today, and in the future it could likely take on debt and fund much of its growth that way. We can also continue to reinvest dividends. From an accounting perspective, it's a bit challenging today to fully reflect the value of the Peak business on our balance sheet; we write about 30% of our life business and at least 10% of our annuity business in Peak and end up consolidating some of that away. From my perspective, a cleaner accounting outcome, such as retaining a 49% shareholding, would be preferable. There has been a lot of interest but it's early days; we will update the market as soon as we have something meaningful or tangible with respect to a resolution there.
We are experiencing technical difficulties.
I'm sorry—perfect. I couldn't hear the operator; I was worried for a second.
No, I couldn't either. Yes, this is Max on for Mark Hughes from Truist. Are you seeing any incremental competition in the RILA market? Or what are your general observations around competition there?
For us, within our core retail, our three key areas are RILA and FIA on the annuity side and IUL on the life side. We're a comparatively smaller competitor overall — probably a top 20 broadly but closer to a top five or six in the FIA space — so there is increased competition. I would argue we're one of the competitors doing well in the space. We continue to gain positive traction and aren't feeling significant competitive pressure in RILA because that segment has performed well and has been one of the better performing subsets in the market. We're doing well in the areas we compete in and expect to continue to expand there.
And then moving to MYGAs, can you give us an update on what you're seeing in that market? I assume with the volume in the quarter, returns may be more attractive elsewhere, but an update on the MYGAs would be great.
Yes, that's correct. We turn the MYGA faucet up or down periodically. A year ago we saw a lot of opportunity and wrote a lot of MYGA; in the first couple of quarters of 2026 we've been modest in our MYGA writing. It's a relative-return decision. We are still writing MYGA business and have reinsurance partners, so to some extent it depends on their appetite as well because we reinsure about 90% of MYGA business. Near-term in Q3, we will be in the MYGA space, but I would expect that we'll probably stay reasonably consistent in our focus on core retail over MYGA in the near term. As the economics change, we're comfortable pivoting when it makes sense.
And then last one for me on the alternatives portfolio: what sort of returns are you expecting for the full year? Or said differently, how do you see returns shaping up in the back half?
I'll be careful here. We added a new disclosure in the summer investor presentation on Page 38 that I think people will find useful: we've disclosed our $4 billion alternatives portfolio made up of $3 billion of limited partnerships and $1 billion of equity residuals and for the $3 billion of limited partnerships we've broken out vintages by life cycle — early stage (less than five years), mid-stage (six to ten years), and late stage (11 to 15 years) — and included a third-party industry view of expected returns by vintage. You can see we're about 84% within the first ten years, which suggests a blended return around 10%, roughly where we've been historically. Our long-term expected return is 12%. We had returns in the 8% range in Q1 and the 6% range in Q2, so we feel there's a one-quarter lag. It was a bit of a difficult quarter across the industry; I think we actually had one of the better alternatives returns across the peer group. Near term — thinking about Q3 — I don't see a compelling argument for being very different from the roughly 7% to 8% we've seen in the first half of the year. So that's our near-term view.
The next question is coming from the line of Oscar Nieves with Stephens.
I would like to double-click on that last part on the alternatives investment shortfall. If I look at it, narrow both in dollar terms and per share this quarter versus last year, is that an early sign that the realization environment is turning? Or is it too soon to call that a trend? And practically speaking, what would need to happen for you to revisit that 12% long-term return assumption?
On the first part, it's important to clarify the direction you mean. If you're asking whether it's turning positive, I would say the second-quarter results are consistent with a one-quarter lag and the near-term challenges across the industry. We continue to monitor broader market conditions. Regarding what would lead us to revisit the 12% long-term assumption: we do a detailed investment-by-investment, security-by-security review as part of our annual planning process and revisit assumptions frequently, at least semiannually, in close collaboration with our partners at Blackstone. I would expect we would keep the 12% assumption through the remainder of this year unless broader market developments over the next six months provide compelling reasons to change it. Another point to note is that over 60% of our capital in these investments has already been paid back to us, and many of these investments tend to deliver higher returns later in their life cycle. Given the composition of our portfolio and how it's performing, we feel the 12% long-term expectation remains reasonable at this stage, although we do consistently review it.
That's super helpful. Second, if I strip out the Bermuda cession and the funding agreement maturity, what would you say the underlying organic growth rate in retained AUM looks like right now?
That's a good question. It can move quarter to quarter because of the items you mentioned. On a normal basis, our gross AUM growth has been about 8%, and we reinsure 90% of our MYGAs and about half of our FIAs. On a net basis, you should expect growth in the high single digits gross, but the retained number will be lower due to flow reinsurance. A reasonable expectation might be something in the order of $5 billion to $6 billion of gross growth per year, which then translates to a lower net rate depending on reinsurance. On a net, apples-to-apples basis, you might expect closer to 3% retained growth. Items like FABNs and funding agreement maturities can cause quarter-to-quarter movement. Importantly, we intentionally use reinsurance and our sidecar as levers to improve ROE and manage capital — that may limit net AUM growth but improves returns and capital efficiency.
Super helpful. Just a quick one: you mentioned the current thinking around buybacks, but can you remind us how much capacity is left under the current authorization?
I think there's not a ton of capacity at the moment. I believe it's about $12 million to $15 million under the current authorization. I'm just double-checking that, but that's the approximate remaining amount.
Our next question is coming from the line of Mark Hughes with Truist Securities.
I jumped on late. I just had one quick one. The PRT business — I think you emphasized that's kind of a second-half business. How is that pipeline shaping up?
Mark, thank you. Yes, historically we tend to see more pension risk transfer business in the second half of the year. So far this year it's been a little muted in the first half; we've written maybe four deals of modest size, and we've been pleased with those transactions, many of which were with repeat clients. I would expect the second half to be higher — Q3 typically higher than the first half and Q4 higher again. We're targeting a bucket in the range of $1.5 billion to $2 billion for the year; we're not necessarily trying to grow it each year beyond that range but rather to write a consistent, disciplined amount that fits our balance sheet profile. Underlying plan funding levels are reasonably strong right now, which could reduce immediate pressure for some plans to transact, so market volume could be a bit lower than in years with more funding pressure. We'll continue to pursue attractive opportunities within that target range.
Our next question is coming from the line of Wilma Burdis with Raymond James.
This is Videep. Quick follow-up for Wilma. You talked about $12 million to $15 million remaining on the current buyback authorization. Is there any chance F&G will increase that authorization given a lot of it was used up this quarter?
That's a fair question, but it's up to the Board, and I won't comment on whether they might increase the authorization.
We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Conor Murphy for concluding remarks.
Okay. Thank you. And thanks again to everyone for joining us this morning. We've delivered a solid first half of 2026 with record gross AUM, disciplined capital allocation and an increased capital return to shareholders. Our high-quality investment portfolio continues to perform very well, and we expect continued momentum heading into the second half of the year. We really appreciate your continued interest in F&G. We're going to remain focused on delivering long-term shareholder value for you. We look forward to updating you on our progress on the third quarter earnings call. Thank you.
Thank you. Ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation, and you may disconnect your lines at this time.