Good morning, ladies and gentlemen, and welcome to the F&G's third quarter earnings call. During the presentation, all parties will be in listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Lisa Foxworthy-Parker, Senior Vice President, Investor and External Relations. Please go ahead.

Great. Thanks, operator, and welcome, everyone. Joining me today are Chris Blunt, Chief Executive Officer; and Wendy Young, Chief Financial Officer. We look forward to addressing your questions following our prepared remarks. 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 SEC filings for a discussion of the factors that could cause actual results to differ materially from those expressed or implied. This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. Non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules within our earnings release, financial supplement and investor presentation, all of which are available on the company's website. Today's call is being recorded and will be available for webcast replay on our website following the call. And now I'll turn the call over to our CEO, Chris Blunt.

Good morning, everyone. Thanks for joining us to discuss our third quarter results. I want to begin by thanking our employees for their hard work and dedication that has fueled the incredible growth of our business. We have reported another terrific quarter and continue to build on our proven track record. Starting with sales. We delivered strong gross sales of $3.9 billion in the third quarter, up 39% over the prior year quarter, and $11.8 billion year-to-date, up 30% over the first 9 months of 2023. Retail sales from our agency bank and broker-dealer channels were a record $3.5 billion in the third quarter, nearly double the prior year quarter, bringing year-to-date retail sales to $9.5 billion. F&G's retail sales continue to surge, driven by favorable market conditions and strong demand for retirement savings products. We are benefiting from a significant demographic trend with a long tail, as consumers want to secure the relatively higher rates, guaranteed tax deferred growth and principal protection that our products offer. We expect this strong demand to continue in the near term across the industry. As a quick update on RILA, as of the end of October, we have successfully launched with four broker-dealer distribution partners and expect a modest level of sales in 2024. However, we see the potential for RILA sales to be in the billions over the medium term as we continue to ramp up sales and add additional distribution partners. Pension risk transfer sales were over $300 million in the third quarter. With strong sales in October, we have now generated $2.1 billion of PRT sales for the first 10 months of 2024, exceeding our full year 2023 sales and with an average deal size of $187 million. Looking ahead to 2025, we continue to see a healthy PRT pipeline…

Thanks, Chris. This morning, I'll focus my comments on the following: Adjusted net earnings; highlights for the quarter including updates on flow reinsurance; surrenders; and our floating rate asset hedging program as well as our strong capital and liquidity position. Starting with earnings, adjusted net earnings attributable to common shareholders for the third quarter was $156 million or $1.22 per share, and included $131 million of investment income from alternative investments, $21 million of CLO redemption gains and bond prepayment income and $14 million tax valuation allowance benefit. This was partially offset by $17 million of net expense from the actuarial assumption review, reflecting experience updates to surrender assumptions for recent and expected near-term policyholder behavior, as well as GMWB rider assumptions for emergent utilization rates. Investment income from alternative investments based on management's long-term expected return of approximately 10% was $172 million. Excluding significant items, adjusted net earnings were $179 million in the third quarter, up 21% over $148 million in the third quarter of '23. This increase reflects asset growth, margin diversification from accretive flow reinsurance and owned distribution, disciplined expense management and higher interest expense as a result of planned capital market activities. Adjusted ROA, excluding significant items, was 132 basis points in the third quarter. This was comprised of 107 basis points of retained ROA, 16 basis points of flow reinsurance fee income and 9 basis points of owned distribution margin. Adjusted ROA, excluding significant items, was up 12 basis points as compared to 120 basis points in the third quarter of 2023 and brings our adjusted ROA over the last 12 months to 126 basis points. Looking ahead, I'm confident in our ability to deliver on our Investor Day promises to grow assets, expand ROA and ROE and increase our multiples as we grow our…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of John Barnidge of Piper Sandler. Your line is open.

Good morning. Thanks for the opportunity. My first question is on the flow reinsurance. Given your comments about the optimistic view of the positioning of the product to participate in the silver tsunami that's coming, especially with RILA being added. How do you view the opportunity to grow that flow reinsurance with the existing partners into those new products? And where do you view settling in from a flow reinsurance percent rate of like net to gross?

Yeah. Good morning, John. It's Chris. I know Wendy is going to want to weigh in as well. I don't think that we set a target of what we want to reinsure. It's more what's the capacity that's out there. How does it fit a particular product category. How accretive is it. And then we make those individual decisions. I would say right now, I don't see a lot of constraints to the availability of flow reinsurance. Obviously, we're selective about who we would partner with when it comes to flow reinsurance. But yeah, I think we continue to be quite optimistic about the impact that it can have on margins for us and sort of the availability of quality partners.

Thank you. And then my follow-up question is, given the opportunity in owned distribution to grow in a more capital-light manner, given financial sponsors' interest in getting more into the wealth solutions business, given that owned distribution and where kind of the stock price has gone, does that give you an opportunity to maybe use that as a currency to go larger in owned distribution than maybe you had thought before?

Yeah. I think like everything else, as you know, we're quite bullish on the opportunity. It started bottom up of some partners we've worked with for a long time, engaging us in their strategic thought process. So we continue to be optimistic. But having said that, we want to be thoughtful and careful. The goal here isn't to scale for scale's sake, right? We're not trying to be the largest rollup provider there. We want to make sure that these are strategic partnerships, and we're picking them well. We feel great about the portfolio. It's nice to hear. I do think it's starting to get recognized in our stock price. So yes, I think it's like everything else, we look at it as what's the best use of the next dollar of capital from a strategic perspective or return perspective. But yes, we think this is a great asset that at some point could even be its own entity. So we're quite optimistic about it.

Thanks for the answers.

Your next question comes from the line of Alex Scott of Barclays. Your line is open.

Good morning, everyone. This is Jack on for Alex. So my question has to do with these higher surrender charges. What exactly was the impact? And how did it compare to last quarter? And how would you view a more normal level over time? Thanks.

Thanks, Jack. So as long as interest rates are going to stay up, we're going to see elevated surrenders in the industry as we talk about that industry refinancing. If you look at our results, we point everybody to the last 12 months' ROA, which is about 126 basis points. Just to try to smooth out any of the lumpiness that have occurred in the surrenders over the last year. Some quarters were higher than other quarters. We've had back-to-back quarters of a little bit higher surrenders. But all in all, we're -- even without that, that last 12 months gives you an indication of kind of the underlying ROA improvement that we've had without the significant surrenders. Does that help?

And the only thing I'd add is I think when you -- quarter-to-quarter, it wasn't a gigantic differential. It's fairly consistent.

Great. And then I guess 1 quick follow-up. Do you mind discussing the outlook for flows, in particular, funding agreements and PRTs heading into the new year?

Sure. This is Chris. I'll start. And maybe I'll start with retail. Again, we remain incredibly bullish on the opportunity, not just the fact that actually I think industry sales are going to continue to expand. But even if they didn't, we're still -- we've come nowhere close to penetrating our distribution footprint. So honestly, we can grow regardless of what's happening to the total pie. So that would be outlook for retail. I think with respect to PRT, yes, we had a terrific October. So we're already over $2 billion. So we've surpassed last year's PRT sales pipelines continue to be strong. So that's a category where we would expect to grow, I'll call it, $2 billion to $4 billion in any given year. And the reason for the broader range is simply it's an availability of what's in our target pipeline, where are we with capital and what types of returns are we generating in PRT relative to retail, relative to owned distribution. So it's a little bit more complicated answer but there will be plenty of PRT opportunities. I'm confident of that. Funding agreements are just more opportunistic. We constantly look at the market, where could we issue, where could we invest, how does that spread stack up relative to our other opportunities. So that's one where we want to be an issuer of funding agreement-backed notes. But again, it's going to continue to be pretty opportunistic.

Your next question comes from the line of Wesley Carmichael of Autonomous. [Operator Instructions] Wesley Carmichael, your line is open.

Hey, good morning. The first question, Wendy, I think you had talked about the assumption review and that being driven by elevated surrender activity. Can you just talk about like what's happening near term? And just maybe unpack that a little bit for us?

Sure. So the surrenders are elevated, as you've seen, right? So as we're looking at our assumptions, we're just making a decision. How long do we think it's going to continue to last. And as I said earlier to the other question, as rates stay up, there's still going to be elevated surrenders. So we just changed the assumption going into -- over the shorter term, not necessarily a larger longer-term assumption. And that was a very small part of the overall $17 million. So call it about $5 million unlocking on the DAC from that we'll see that as just a minor impact on the go-forward returns from that surrender assumption. Now on the GMWB utilization unlocking this new product that we've been selling a lot of the product features there, the policyholders are electing right away. And what that's going to do is with this product is make the MRB changes less volatile because you're locking in the actual benefit right away, and so there's no fluctuation going forward for those policies. So it's a onetime kind of hit for the increase in reserve for that assumption change but there's no volatility to it going forward.

Got it. And a follow-up, I guess, 1 of your big competitors this quarter had some maybe less than positive comments around Cayman as a jurisdiction for flow reinsurance, saying you can kind of haircut capital there by 50%. So Wendy, I know you talked about in your comments that you manage offshore reinsurance conservatively. But can you maybe just talk about Cayman in particular and how that business is capitalized and managed?

Sure. So we run our Cayman on a statutory basis and also calculate RBC. So it's very similar. I think you've heard us talk about the difference is basically around the mortality assumption that's being utilized in the reserves onshore versus offshore. You can use a more best estimate for blue collar and white collar instead of the blended table. So it's not around required capital. It's purely around the redundancy in the reserves.

And Wes, it's Chris. As a reminder, all of this gets approved by Iowa, all of it gets reported up to Iowa. When we do stress testing around capital, it's done in an aggregated basis, and that is shared. So yes, the short answer is none of those comments apply to us in any way, shape or form.

Next question comes from the line of Maxwell Fritscher from Truist. your line is open.

Hi, good morning. I'm on for Mark Hughes. Last quarter, you had mentioned targeting the younger demographic for RILA products. Have you seen any progress there in 3Q and maybe early 4Q? I know you had mentioned -- or I think you had mentioned you probably have a de minimis effect in 2024 but any color there would be appreciated.

Yeah. The honest answer is I think that the volumes are still too small to draw any really meaningful conclusions there. But there's a pretty good body of data for the entire industry that you are reaching a younger demographic with that product. So yes, I would say too soon to tell but I'd be really surprised if for some reason, we are an outlier to the broader trend there.

And we have a follow-up question coming from the line of Wes Carmichael. Your line is open.

Hey, thanks for the follow up. A couple on the investment portfolio. But -- can you maybe just give us a little bit of detail on what your new money allocation looks like today, where you're putting most of that new money to work, especially if you have some attractive opportunities where you can get more spread and some privately originated stuff from Blackstone?

Yeah. Wes, I probably don't want to share too much, right? It's not necessarily a secret sauce but I was saying as a general matter, we'll tend to rotate between private and public, depending on where the opportunity is and what's being originated. Blackstone has done a really good job of keeping up with origination and continuing to find new diversifying asset classes. I think you've heard Leena say this before, we've gone from 6 asset classes pre-Blackstone to now 14. So the private opportunities have been quite robust for us this year, whereas last year, when rates spiked up pretty quickly, there was a lot of opportunity in corporate. So yes, I would say probably a slight tilt toward privates year-to-date, but that -- those are decisions that are getting made literally real time depending on where the opportunities are.

I got it. And I guess my follow-up on the investment portfolio would be regarding the altas allocation. I think, I mean, if I just looked at you across the industry versus peers, like it seems like your alts allocation is a little bit higher. And I know your definition includes some things that aren't private equity and private real estate and private credit. But just curious on -- just -- I do the calculation, and it's 13% or 14% of AUM. Like is that where you kind of want to trend longer term? Or is that higher or lower than you'd expect to be?

Yeah. So I guess the way we think about true alts, right, meaning LP commitments, it's 6. And -- but even that's a little bit higher than long term, we said around 5. It's hard to be super precise because you're making commitments with some assumptions about how that capital gets called and utilized. Some of it is the proportion is really good in our alts portfolio. I mean, it's obviously underperformed the long-term assumption recently but we had some blockbuster years early when we were deploying capital. So yeah, I would say for us, when you say pure alts, we're thinking of that allocation right now, it's about 6. And it's probably in the 5 to 6 range, longer term. There are equity residual tranches that sometimes get scooped up in that bucket. But yes, true like LP commitments. It tends to skew private equity. So almost half of the portfolio is private equity. The next big chunk would be real estate. And that tends to be classic Blackstone plays of everything from solar infrastructure, data centers, things of that nature, so not commercial per se, and then a small amount in credit funds. So hopefully, that helps.

There are no further questions at this time. Turning the call over back to Chris Blunt for concluding remarks.

Great. Look, we're very pleased with our overall performance. F&G's business is well positioned for the current market, and we're excited about the opportunities ahead to continue to drive asset growth, deliver margin expansion and generate accretive returns. Thank you for joining us. We appreciate your interest in F&G and look forward to updating you on our fourth quarter earnings call.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Thank you.