Good morning, and welcome to F&G Annuities & Life, Inc.'s Fourth Quarter and Full Year 2024 Earnings Call. During today's presentation, all callers will be placed in a listen-only mode. Following management's prepared remarks, the conference will be open for questions with instructions to follow at that time. I would now like to turn the call over to Lisa Foxworthy-Parker, Senior Vice President, Investors and External Relations. Please go ahead.

Thanks, operator, and welcome again, everyone, to our call. I'm joined today by 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 should 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 Chris Blunt.

Good morning, everyone. Thanks for joining us to discuss our fourth quarter and full year results. Our fourth quarter results rounded out an exceptionally strong year, both in terms of results and execution. I'd like to start by recognizing our employees for their hard work and achievements over the last year. It is through their efforts that we have achieved record sales growth, record AUM, and record adjusted net earnings while also continuing to diversify our earnings and expand our margin beyond spread-based sources. All the while maintaining a strong balance sheet and returning capital to shareholders through our common and preferred dividends. In short, 2024's outperformance had many accomplishments worth highlighting. Starting with sales, F&G Annuities & Life, Inc. reported record gross sales of $15.3 billion for the full year 2024, a 16% increase over the full year 2023. This included $3.5 billion of gross sales in the fourth quarter. Record retail channel sales were $12 billion for the full year, a 20% increase over the full year of 2023, driven by continued strong demand for individual annuity and life solutions. This included $2.5 billion of retail gross sales in the fourth quarter. From a retail channel perspective, we achieved record FIA, record MYGA, and record IUL gross sales for the year while maintaining targeted service levels despite higher volumes. Our distribution relationships are strong, and we saw annual growth across all three retail channels, including agent, bank, and broker-dealer as we continue to add and deepen. Notably, we've gained entry into a new market with our RILA product launch in 2024. We have onboarded seven partners, and our product is being well received. Although, admittedly, it's taken longer to get onto platforms as this is our first registered product. RILA is a fast-growing market in the industry, and…

Thank you, Chris. As Chris highlighted, I will be assuming the newly created role of Chief Liability Officer on April 1st, and I am thrilled to take on this new opportunity. This role will allow me to focus on leading management of our liabilities as well as our reinsurance strategy and our offshore entities, which are becoming increasingly integral to our growth strategy and long-term success. I would like to personally thank Chris for this new opportunity given that it is a terrific match with much of the work and experience that I have had over the past twenty-five years here at F&G Annuities & Life, Inc. I look forward to continuing to support F&G Annuities & Life, Inc.'s growth and success and getting started in my new role this spring. I'm also looking forward to working closely with Connor and helping him to successfully transition into F&G Annuities & Life, Inc. Turning to our results, our operating performance continues to be strong. This morning, I'll focus my comments on adjusted net earnings and ROA, as well as our strong capital and liquidity position. Starting with earnings, for the fourth quarter, excluding significant items, adjusted net earnings were $153 million, up 17% over $131 million in the fourth quarter of 2023. This excludes alternative investment returns below our long-term expectations by $32 million and significant income items of $22 million. For the full year 2024, excluding significant items, adjusted net earnings were $657 million, up 22% over $539 million in the full year 2023. This excludes alternative investment returns below our long-term expectation by $145 million and significant income items of $34 million. This strong performance reflects asset growth, margin diversification from accretive flow reinsurance and owned distribution, disciplined expense management, and higher interest expense as a result of planned…

Thanks, Wendy. Over the last eighteen months, our business has benefited from favorable market conditions and secular demand for our products that is poised to continue. We have made strong progress toward the medium-term financial targets that we laid out at our 2023 Investor Day. Growing AUM by 50%, expanding adjusted ROA excluding significant items, to 133 to 155 basis points, increasing adjusted ROE excluding AOCI and significant items to 13% to 14%, and expanding our PE multiple. We have executed well over the past twelve months and in the case of adjusted ROA, are already closing in on the lower end of the range. Of course, we're excited to continue to progress toward our Investor Day targets. And from here, we expect that our pace will be a little more moderate given the strong success that we have achieved so quickly. We remain focused on continuing to deliver long-term shareholder value by driving sustainable asset growth from our retail and pension risk transfer growth strategies, generating ROA expansion from enhanced investment margin, scale benefits, and fee-based earnings from accretive flow reinsurance, and diversifying earnings through strong growth in our middle-market life insurance business and owned distribution strategies. As you can tell, I could not be more excited with the opportunities that we have in front of us as we enter 2025. This concludes our prepared remarks. Let me now turn the call back to our operator for questions.

Thank you. If you would like to ask a question, you may press star two if you would like to remove your question from the queue. And for a participant using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from John Barnidge with Piper Sandler. Please proceed.

Good morning. Thank you for the opportunity. Can you talk about the evolving organizational structure at the company and what that growth opportunity means? And I know Bermuda could be an opportunity. So I'd love to hear more about the changing organizational structure. Thank you.

Yeah. Happy to. Morning, John. So this is Chris. I think it's pretty simple just as our business has continued to grow, you know, you've seen the stats. We've, you know, quintupled sales. We've gone into multiple new distribution channels, but we're also driving real value and real accretion through some of the flow reinsurance arrangements and other arrangements that we have. So we just sort of determined that the opportunities were big enough and the levers to drive margin and value big enough that it was time to do a little divide and conquer. And some of it is frankly, we saw an opportunity to add a very talented, versatile athlete to the team. So you know, as we've continued to expand, when we look at the opportunities in front of us in terms of potential new business opportunities, expanding our channels of distribution, etcetera. Yeah. We get pretty excited about it. And then the last piece I would say is, you know, the offshore environment, there's just a lot going on. Right? In terms of both changes in the regulatory world, different partnerships, etcetera. So it just felt like it was a great opportunity to make that change.

Thanks for that, Chris. And then in your prepared remarks, you mentioned you're not seeing meaningful impact from industry lawsuits related to pension risk transfer, and you had a great volume in the quarter there. Can you maybe talk about where you're competing in the market and your outlook amid those industry litigations that other people have called out? Thank you.

Sure. Yeah. I think there's probably a couple of things at play. One, we've been pretty consistently playing in, I would say, the $100 million to $1 billion space. And, you know, that's just a good place for us to play. You know, it fits in terms of the size of our balance sheet. So we still see a lot of opportunities. We haven't felt an impact yet. You know, I think some of that is our structure is pretty straightforward. You know, we're a 100% US company regulated by the state of Iowa. Our majority shareholder is a large public US company regulated by the state of Florida. And so I think that combined with, you know, some of the capabilities that we have partnering with Blackstone on the investment side, it's just it's been a good fit. So we continue to be optimistic. On the institutional side, as you probably noticed, we reentered the FABN market. So I think that's another attractive opportunity for us. So I guess if we did see a slowdown or there was something overall impacting the space, we've got a lot of places to source premium. But right now, we're not seeing that. It still looks like there's a lot of opportunity for us to bid on deals.

Thank you for that. Appreciate the comments.

Our next question is from Wes Carmichael with Autonomous Research. Please proceed.

Hey. Thanks. Good morning. Chris, I just want to get your updated perspective on growth from here and maybe that we've seen the capital management a little bit too. But how are you thinking about the growth rate over the next few years in terms of net sales or retained AUM?

Yeah. Thanks, Wes. And I know, Wendy, you want to jump in here too. But I think strong. I mean, we're still quite excited about the overall backdrop, you know, the places that we play. We still see a lot of secular demand, and people are tired of hearing it, but it's true and it's a huge driver. It's, you know, baby boomers getting older. It's people embracing fixed annuities as a fixed income surrogate in portfolios. I think evolutions products like RILA now start competing with other asset-based types of investment opportunities for folks. So none of that changes in our view. Even if you see rates tick down a little bit. So we think the secular demand is really strong. And then unique to us, we're still adding distribution partners. You know, it's not like we've been doing this for twenty years. We're, you know, adding banks. We're adding broker-dealers. We're penetrating within the channels that we're in already. So, you know, yeah, we've seen a ton of growth. We're really proud of going from, you know, $3 billion to $15 billion in gross sales. But I don't think the demand side of this has peaked at all. To the capital question and Wendy, you can touch base on this as well. But, yeah, we continue to form flow reinsurance partners. We look at all sorts of different ways to continue to fund the growth. So we're pretty excited. You know, we just came off our board meeting. The board's pretty fired up, and I think that's a reflection of the opportunity in front of us. I don't know, Wendy, if there's anything you want to add to the capital question.

Yeah. You know, we had a tremendous sales year and just really proud of the fact that we're able to come up with solutions to support that growth, and I don't see that changing. Again, Chris has indicated we continue to have partners that approach us and have great discussions and look forward to continuing with that effort.

Got it. Thanks. And then a follow-up just on the core ROA. If I adjust for alts and prepays and the actuarial adjustment, I mean, it was a little bit of a sequential compression. I think it's eighteen basis points or so or now you're kind of running in the neighborhood of 115 basis points in the quarter. I think when you talked about surrenders normalizing, so that's a little bit of the driver. But there's also a little bit of compression from the fixed portfolio and still a pretty competitive environment. So any update on how you expect the ROA to trend from here?

Yeah. So you're exactly right. The prepays were a big driver of that decrease quarter over quarter. And, you know, as we indicated in our prepared remarks, you know, we're looking to invest some of that cash that was generated because of prepays, get that done as soon as we can to get that back. Look at the asset runoff, any repositioning we can do there. And then, of course, we always have our renewal rate setting process that we can adjust to make sure that that does not continue. We expect it to rebound in 2025.

The only other thing I'd add is, you know, we did a billion dollars of PRT during the quarter, and you know, you just don't want to rush that allocation in terms of deploying assets. And so when you've got privates in the grid, you know, you can see a lag as well. So, yeah, I think Wendy sized it up nicely. It's not anticipating to be as nearly as dramatic as it might look when you look at the particular quarter.

Yep. Very helpful. Thank you.

Our next question is from Alex Scott with Barclays. Please proceed.

Hi. Good morning. I just wanted to see if you could give us a sense of how much impact or so is in the crediting rate for surrenders being a bit elevated in that. It just externally, it makes it a little difficult for us to understand the direction of spreads.

Yeah. So just based on where the interest rate environment continues to hang out, we, you know, we're still thinking that surrenders will continue until something dramatically happens in the rate environment. They were a little bit lighter in the quarter. I think in, like, the QFS, there's a trend of the actual surrenders. They were down a bit. So I, you know, we don't disclose the surrender charge amount in detail, but our outlook is that it's going to continue for a while.

Yeah. And we'll think about, Alex, if there's anything we can do to help you because I get the challenge. It is tricky. The other thing that's maybe not as apparent, but we're a big beneficiary of some of this in our own distribution business as well. So, you know, that business continues to hum along nicely. We're really excited about that. So yeah, I get the challenge. And as you know, in the long run, actually, this is going to be value accretive because you're going to just have a newer book. And as rates tick down, I think the duration of that spread is going to be longer. But it does create a little bit of noise in the interim. So I don't have an easy answer for you on that one, but we'll think about if there's a way we can help with that.

Cool. Sounds good. And then as a follow-up, I wanted to ask about the funding agreement-backed note market. And we've seen a lot of issuance, I guess, in the whole industry recently. Is that, you know, maybe help us understand, like, what's the dynamic there that makes it particularly attractive right now for the industry and, you know, as a company that's sort of, you know, beginning to grow into that, what kind of opportunities is there for you?

Yeah. Appreciate that question. A lot of the issuers right now, I think we've talked about this before, they're higher rated than we are, which impacts the cost of funds. So, you know, we balance capital allocation pretty tightly. So we will allocate capital just based on where we think we'll get the highest returns on that capital. So we look at FABN, and we'll issue one when we believe that's the right way to go in a particular order.

Yeah. And I'd say I know you know this, but, you know, order priority, you know, fixed index annuities, RILA, very strategic, high returning, particularly on a risk-adjusted basis. So, you know, we want to make sure that we always have ample capital to drive that. Every single year, PRT, we, you know, love that business, love the duration of the spread. So those would be the most highest. FABN probably the most opportunistic. You know, if we've got excess capital and the spreads make sense, we'll issue it. If we don't, you know, we won't. So and then I put MYGAs somewhere in between. It's important to our clients. We want to continue to be in the MYGA market. It's profitable, particularly since we flow out 90% of our MYGA. But that's sort of the pecking order of how we think about deploying capital to new product sales.

Got it. Thank you.

As a reminder, press star one on your telephone. Our next question is from Mark Hughes with Truist Securities. Please proceed.

Yeah. Thanks. Good morning, Chris. Good morning, Wendy.

Good morning.

On the MYGAs, what has to happen in the market to kind of get those back into position where you'd be more active? Is this kind of a good level for the foreseeable future?

Yeah. Look, I think the demand is always going to be there. And again, it's tricky to answer because I don't think the demand for MYGA is explosive. Right now. Obviously, the rate market is volatile. So, you know, we always want to be a little cautious and careful that you're not chasing the rates up or chasing them down, you know, too quickly just to see you want that to stabilize a little bit. But I would say the fall-off in MYGA in this quarter was 100% driven by a good thing, which was just incredible demand. I mean, our FIA sales were up big time for the year. We had another really strong quarter for FIA. So again, that's always going to be the priority for a capital allocation standpoint. But I would say, you know, demand for, you know, getting a rate of, you know, north of 5% guaranteed tax deferred, that's not going away. That's going to be there for quite some time.

Okay. When I think about the ROA, you gave good detail. I think you talked about the expected ROE expansion to be a little more moderate from here. What is the base? Is the base the 127 or should we think about the sequential progress of the 115 from the quarter?

Yeah. No. I think the base is 127. Again, we're always going to have some noise quarter to quarter, but we don't give a lot of guidance. But I think, you know, Wendy would have gotten guidance of the year award last year because I think she said, or last quarter, you know, think about the last twelve months, which was, like, 126, 127. So, yeah, we're not saying we can't grow it from here. We can. We're just saying, we're not going to be able to add ten basis points to ROA every year. I wish we could. And I go back to our investor day presentation where we said, hey, we're going to grow AUM by 50%, we're going to increase our ROA from, I think the base was 110 to 133 to 155. And obviously, we're at 127 already. So we've had a nice sort of step function jump up. So, yeah, all we're trying to say is we can still grow it from there. We feel good about getting to our investor day target. And keep in mind, we're only a little over a year into that process. So we're feeling really good about all the measures just to finish it out. You know, we said we'd take ROE up to 13% to 14%. I think we were, you know, 12.4% this quarter. So we're making great progress there. And obviously, the multiple has gone up as well since investor day. So I'd just keep going back to that. You know, that is our public plan that we're shooting for. And I would say, a little over a year into it, we're feeling really good.

On the owned distribution, I think you said the outlook for $90 million in EBITDA in 2025 up from $65 million. How much of that growth is internal, organic? To recall whether there's any interim M&A in 2024 that would influence that progression from the $65 million to the $90 million.

Yeah. There was some of the full-year effect of FEG going, I think, from whatever initial stake was to 100% ownership there. But the bulk of it is just these businesses are tuned really well. I mean, we know, we partnered with good people, you know, and this is the advantage of, you know, we're not just a financial investor. We've known a lot of these folks personally for twenty years in some cases. So, you know, what you're really trying to underwrite is, you know, quality of management teams, their strategy. Are they going to be a winner in this overall consolidation? And right now, we just feel awesome about who we've partnered with. The backdrop helps. Obviously, their focus is, you know, either primarily IUL, and that business is just humming for us right now. Or, you know, they're selling FIAs and fixed annuities. And as you know, that business is doing great. So for us, we just couldn't feel any better about the progress there, and we see that continuing. I don't see anything that's going to derail that in the near term.

If I could squeeze in one more on the FIA market up 57%. Is that pretty strong taking a lot of share there? How would you characterize competition in that market, new players, and if you had to break down, you know, how much of that sales growth came from, I don't know, expanded distribution, new partnerships, I think market growth is pretty strong. How would we or how should we think about that magnitude of growth?

Yeah. I think there's two things happening here. One is the product category is just coming into its own. So I think the industry last year was up 31%. We were up, you know, comfortably north of that. So it's nice to have a rising tide and people embracing the product. But again, every time you see volatility in the market, aging of baby boomers, all the trends that we keep talking about, I think people are just figuring out it's a great chassis that can meet a lot of different needs. One version of the product that's sort of flying off shelves right now for everybody is, you know, the more income-oriented version of an FIA, and that's just obvious. You got a lot of boomers with assets looking to lock in guaranteed lifetime income. So the macro trends are really good. And then, yes, you hit it on top of that. We're getting growth in all of our channels. Our core agent channel continues to grow. Our bank channel continues to do really well. And now, you know, the big focus lately is we've been, you know, inching our way into the broker-dealer market. So, you know, if I had to guess, I would say the bulk of the growth is less about adding distribution partners. It's that natural lag of you add a partner, you sell MYGA, and then you cross-sell FIA. And so I think we're just seeing the continuation of that wave, if you will.

Thank you.

Our next question is a follow-up from Wes Carmichael with Autonomous Research. Please proceed.

Thanks. Thanks for taking the follow-up. I just want to come back to MYGA sales for a second. But, you know, it's a pretty significant decline at least year over year. And I think it was a little bit of an industry-wide phenomenon in the quarter, but, Chris, I think in the past, you've talked about industry sales for annuities being pretty resilient even if interest rates move lower. So just wondering if there's any change in your thinking there. And I know you flow most of the MYGA, but obviously some economics attached to that.

Yeah. Again, I chalk it up to quarter over quarter volatility. So I again, I really don't think, you know, we're seeing, like, a great slowdown in MYGA. And there's just so many factors that go into this, including, you know, we're no different. We aren't the only ones that would sit here and go, boy, we'd rather sell an FIA, you know, than a MYGA. I think everybody feels that way. So I'm sure that's a bit of a factor. Rate volatility is always a factor. And then, yeah, I think when you get into the fourth quarter, you know, when you're tunneling it on lots of different fronts, people are always trying to just be, you know, cautious on capital levels as well and get the label in there. So I don't again, I still don't, you know, if I look at industry sales, if you back up and look at it for the year, yeah, MYGA sales were down 7%. And we were, I think, flat. So but, yeah, I don't I'm not still I'm still not of the camp that we're going to see some big giant secular decline in demand for MYGA.

Gotcha. And then I think it's part of Wendy's transition. I think you mentioned to do with some of the changes in the regulatory world, and it seems like there's a lot going on with you in the NAIC in terms of maybe asset adequacy testing for reinsurance, capital charges for structured securities, bond project, and then probably changes at the BMA too. So maybe can you just touch on from a broad horizon and regulatory front?

Yeah. I think, you know, as you said, there's a lot of activity in it. And I feel for regulators because it's, you know, the market's complex. I think everyone's worried about the same thing, which is, is there sufficient transparency in terms of what people are doing? We report everything up to Iowa in terms of how we use our own offshore entities. And so, you know, we again, we can only attest to what we're doing. We can't attest to what other players are doing. So, yeah, I think there's activity in Bermuda, there's activity in Cayman. Domestic regulators are very involved. So I wouldn't say it was a big driver, but it's just back to, you know, the business is bigger, the business is more complex, there's big opportunity, but that comes with big responsibility that you are being transparent with what you're doing. You're communicating regularly with all of the regulators, most importantly, your domestic home regulators. So again, to me, it just begged for focus.

Thank you.

This will conclude our question and answer session. The call has been concluded. You may now disconnect.