F&G Annuities & Life, Inc.

Good morning and welcome to FNG's fourth quarter and full year 2023 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference is being recorded. 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. 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 at fglife.com. It will also be available through telephone replay beginning today at 1 p.m. Eastern Time through February 29, 2024. And now I'll turn the call over to our CEO, Chris Blunt.

Good morning, everyone. Thanks for joining us to discuss our fourth quarter and full year results. Before reviewing the quarter, I'd like to share with you the progress we've made over the last year. On December 1st, 2022, FNF completed its partial spinoff of F&G, retaining 85% majority interest, and F&G was listed on the New York Stock Exchange. Since then, our first year as a public company has been a very successful one. I'd like to start by recognizing our employees for their hard work and achievements over the last year. Thank you as well to our many partners and to our customers whose feedback resulted in F&G being ranked number one for highest customer satisfaction among annuity providers in the US by J.D. Power. And lastly, I'd like to express my appreciation to our parent company, F&F, for all of their support throughout the year. In short, 2023 was one of our best years with numerous accomplishments worth highlighting. First, our retail and pension risk transfer businesses continue to generate sustainable asset growth. We reported record gross sales of $13.2 billion in 2023, which exceeded the top end of the $12 to $13 billion range we provided at our investor day in October, and we're up 17% over the prior year, well in line with our goal of growing annual gross sales at a double-digit clip. This demonstrates the strength of our multi-channel distribution platform that is hitting on all cylinders and generated 10 billion of retail gross sales through our agent, bank, and broker-dealer channels, 2 billion of pension risk transfer sales, and 1 billion of FHLB funding agreements. We also had record net sales of 9.2 billion in 2023, well above the threshold of 6 to 7 billion of annual net sales needed to grow our retained AUM, and managed in line with our capital targets. Net sales reflect third-party flow reinsurance, which has increased from 50% to 90% of MIGA sales during 2023, as expected. F&G has successfully expanded from one to three high-quality and established flow reinsurance partners, which provides counterparty diversification and additional capacity. The higher percentage of flow reinsurance provides a lower capital requirement on the seeded new business while allocating capital to the highest returning retained business enhances cash flow and generates fee-based earnings, resulting in accretive returns to F&G. We have profitably grown retained assets under management to a record $49.5 billion at December 31. This is an increase of 14% over the prior year and was driven by net new business flows stable in-force retention and net debt proceeds over the last 12 months. AUM before flow reinsurance was 56.3 billion, adjusting for the approximately 7 billion of cumulative new business seeded. A second area to highlight has been the steady and predictable performance of our profitable in-force book. While markets were volatile through 2023, we benefited from the superior foundation that our in-force book provides. Importantly, our book has no legacy liability issues. Our funding agreements, pension risk transfer, and immediate annuities are non-surrenderable. And our retail fixed annuities are 92% surrender charge protected, with 75% also subject to market value adjustments. We generated very positive and strong net inflows in 2023. And Wendy will provide further insights to our surrender trends in the current market environment in a few minutes. A third area of achievement over the last 12 months has been the outstanding performance of our investment portfolio that is well matched to our clean and stable liability profile. We continually evaluate opportunities for upside, risk-adjusted returns, and downside protection in our investment portfolio. In 2023, we enhanced the return while improving the credit quality of our portfolio by executing on our dynamic portfolio allocation and continuing to de-risk in light of market dislocations and ongoing macro environment uncertainty. We also successfully negotiated a new fee agreement with our partner, Blackstone. During 2023, our fixed income yield, excluding alternative investment volatility and variable investment income, has expanded to 4.45% in the fourth quarter as compared to 4.37% in the fourth quarter of 2022. This reflects upside from higher yields on new investments and floating rate assets. At year end 2023, the portfolio is high quality, 95% of fixed maturities being investment grade. We hold significantly lower exposure to the commercial real estate and office sectors in our CML portfolio. Credit-related impairments remain low, averaging five basis points over the past three years, well below our pricing assumptions. Given the potential for an economic slowdown and lower interest rates in the years ahead, we took some downside risk off the table by hedging approximately $5 billion of our $10 billion floating rate asset portfolio, locking in about 190 basis points of incremental yield beyond 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. Also, we've refreshed our annual portfolio stress test, which is conservative and assumes no management action, and has once again confirmed that our portfolio is well positioned to withstand a sharp downturn in the economy. A fourth area to highlight in 2023 centers on our balance sheet strength and capital allocation, given we were well prepared to drive growth and capture the market opportunity. In our first year as a public company, F&G has self-funded its growth through our enforced capital generation, reinsurance programs, and the planned issuance of senior debt. And we have increased our annual common dividend to $105 million, a 5% increase to 21 cents from 20 cents per share, and allocated capital to launch our new share repurchase program to take advantage of locations. Our commitment to strong ratings and achieving ratings upgrades over time was recognized through two rating upgrades to A or Excellent by AMBEST last month and to A3 by Moody's in July. These upgrades provide third party recognition of our progress, support further organic growth and give us greater strategic flexibility. Another vote of confidence came from FNF's $250 million mandatory convertible preferred stock investment in F&G last month to further grow retained assets under management, given the compelling market opportunity that exists. A final area that I'd like to highlight is our own distribution strategy. As we said at our investor day, F&G is uniquely positioned to be a capital provider to key distribution partners. In January of 2024, F&G acquired a 70% majority ownership stake in a wholesaler of life and annuity products to financial institutions and the broker-dealer community for approximately $270 million. This is our fifth and largest transaction to date and brings our cumulative deployed capital of about $500 million. Owned distribution further strengthens our relationships with key partners, as well as providing us with an earning stream from our ownership stakes. providing for higher margins and a lower marginal cost of capital, which is expected to be accretive to ROE. Overall, 2023 was a big year for us in terms of execution and our first year as a public company. For the full year and excluding significant items, we delivered A&E of $539 million, which generated an adjusted ROA of 117 basis points, and we reported an adjusted ROE in excess of 10%. We continue to execute on the plans we outlined during our investor day and are pleased to see investors recognize F&G's success. Globalization has more than doubled from $2.4 billion at the time of the partial spinoff in December 2022 to approximately $5.8 billion at the end of 2023. Looking ahead to 2024, we have plenty of momentum to continue to deliver sustainable asset growth from our retail, and pension risk transfer growth strategies and ongoing margin expansion from enhanced investment margin opportunities, operational scale benefits, and fee-based earnings from accretive flow reinsurance. We are also well positioned to diversify our earnings given the strong growth of our middle market life insurance business and owned distribution strategies. I'm very proud of our accomplishments and confident that F&G will continue to generate shareholder value through continued execution of our strategic priorities, and because of the strong culture that we've created, which has allowed us to recruit and develop exceptional talent. Let me now turn the call over to Wendy to provide further details on F&G's full year and fourth quarter financial highlights.