F&G Annuities & Life, Inc.

Greetings, and welcome to the F&G Annuities in Life third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lisa Foxworthy-Parker. Senior Vice President, Investor, and External Relations. Thank you. You may begin.

Great. Thanks, Operator. And welcome, everyone, to F&G's third quarter 2023 earnings call. 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 four 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 at fglife.com. It will also be available through telephone replay beginning today at 1 p.m. Eastern Time through November 22, 2023. And now I'll turn the call over to our CEO, Chris Blunt.

Good morning. Thanks for joining us today. I'm pleased to announce another set of strong results for the third quarter as we continue to execute on our diversified growth strategy while maintaining a disciplined and balanced capital management process. I'd like to recognize and thank our team for all that they have done to deliver record growth sales in the first nine months of this year. which have in turn generated record assets under management and an adjusted return on assets excluding significant items that is well above our expectations. All of this while pursuing opportunities to further grow assets, expand our future profitability, and deliver long-term value for our shareholders. Starting with year-to-date results, we have generated record gross sales while maintaining pricing discipline and executing on our flow reinsurance strategy. Gross sales were $9.1 billion for the nine months ended September 30, up 7% over $8.5 billion in the prior year. Year-to-date retail gross sales were $7 billion, up 17% over the prior year period. Institutional sales were $2.1 billion, comprised of $1.2 billion of pension risk transfer and $900 million of funding agreements. We are on track to deliver 2023 annual gross sales of between $12 and $13 billion in line with our stated goal of growing at a double-digit clip. Our net sales were $6.7 billion in the first nine months of the year. On an annualized basis, this places us well above our stated goal of managing net sales retained above the $6 to $7 billion annual level that continues to grow our retained AUM. Next, looking at third quarter results more closely. Coming off record sales in the first half of the year, retail sales were intentionally lower in the quarter as we finalized our reinsurance agreements and enhanced product features to position us to finish strong in 2023 and create momentum for 2024. Within this market environment, we've seen a sharp uptick in submitted annuity premium in September and October, which positions us for a strong growth in annuity sales in the fourth quarter. Growth sales were 2.8 billion in the third quarter, a decrease of 3% from the prior year quarter, and down 7% from the sequential second quarter. Retail channel sales were 1.9 billion in the third quarter, a decrease of 17% from 2.3 billion in both the third quarter 22 and sequential quarter. Institutional market sales were $900 million in the third quarter, comprised of $500 million of pension risk transfers and $400 million of funding agreements. F&G's net sales retained were over $2 billion in the third quarter, in line with the prior year and sequential quarters. In addition, and as expected, we have increased flow reinsurance to 90% of MIGA sales in September. Stepping back, we feel confident about finishing 2023 strong and being well-positioned as we move into 2024. The industry continues to report record annuity sales as consumers find annuities to be attractive solutions given their relatively higher rates, guaranteed growth, principal protection, and tax-advantaged accumulation and annuitization options. And we were very proud to be ranked number one in customer satisfaction in this year's J.D. Power individual annuity study. We attribute this recognition to our deep distribution relationships and commitment to operational excellence in prioritizing improvements that matter most to customers and have the biggest impact on their experience. Also, we're excited to launch our new registered index-linked annuity, or RILA product, through key broker-dealer partners in the first quarter of 2024. Ryle is one of the fastest-growing markets in recent years, and we believe this further enhances our retail product suite, offering customers another way to gain access to market returns with downside protection. These factors, together with the fourth quarter typically providing a healthy pipeline for pension risk transfer sales, sets us up well for another record year of gross sales in 2023, and to continue growing gross sales at a double-digit pace in 2024. F&G has profitably grown its retained assets under management to a record $47 billion at September 30. Assets under management before flow reinsurance were $53 billion, adjusting for the approximately $6 billion of cumulative new business seeded. Our investment portfolio continues to perform well and is well-matched to our clean and stable liability profile. The portfolio is high quality with 95% of fixed maturities being investment grade. Credit-related impairments have averaged five basis points over the past three years, well below our pricing assumption, and remain below that level in the third quarter. We continually evaluate opportunities for upside risk-adjusted returns and downside protection in our investment portfolio through our portfolio asset allocation, yield enhancement opportunities to maintain competitive positioning, and floating rate portfolio interest rate hedge. About 9.5 billion or 20% of the portfolio is investing in floating rate assets, of which 8 billion are linked to the secured overnight financing rate or SOFR and are easily hedgeable. Notably, we have now hedged approximately 2.7 billion of floating rate assets locking in about 213 basis points of incremental yield versus what was originally priced in. This translates to approximately 12 basis points of annual incremental investment margin above our pricing over the next three to five years. We expect to continue to evaluate hedging additional floating rate assets where beneficial and possible. Next, turning to F&G's recent investor day, which was held on October 3rd, and included a deep dive into our proven track record of profitable and diversified growth. We are pleased to see investor recognition of F&G's success as our market capitalization has increased from 2.4 billion at the time of the partial spinoff last December to approximately $4 billion today, and we feel our prospects are bright. During our investor day, we highlighted the strategic levers that the team is employing to create value for our stakeholders and which will benefit F&F as our majority shareholder. To recap, F&G sees future potential upside from the following areas. First, sustainable asset growth from our retail and pension risk transfer growth strategies. Next, margin expansion from three sources, enhanced investment margin opportunities, effectively managing operating expenses for operational scale benefit over time, and incremental fee-based earnings from accretive flow reinsurance and enhanced earnings power from owned distribution. And finally, we believe there is potential for F&G share price to more fully reflect its core business performance and the accretive nature of its flow reinsurance and owned distribution strategies as they scale over time. Wendy and I look forward to providing updates and progress on these strategic initiatives and priorities in future quarterly earnings calls. Let me now turn the call over to Wendy Young to provide further details on F&G's third quarter financial highlights.