F&G Annuities & Life, Inc.

Good morning and welcome to the FNG's second quarter 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. And as a reminder, this conference call is being recorded. I would now like to turn the call over to Lisa Foxworthy-Parker, SVP, Investor in 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 at fglife.com. It will also be available through telephone replay beginning today at 1 p.m. Eastern Time through August 13, 2024. And now I'll turn the call over to our CEO, Chris Blunt.

Good morning, everyone. Thanks for joining us to discuss our second quarter results. We've delivered another terrific quarter and continue to build on our proven track record. Before reviewing our performance over the last three months, I'd like to highlight the strong progress we've made over the last year in delivering toward our investor day value creation levers. During our investor day held in October 2023, we outlined the potential for upside from asset growth, margin expansion, and multiple uplift. We used performance in the second quarter of 2023 as our baseline and looked out over a five-year medium-term horizon to illustrate key financial targets. Over the last 12 months, our business has been hitting on all cylinders, and we are currently on pace to achieve our targets. Starting with asset growth, second quarter AUM before flow reinsurance of $61.4 billion increased 21% over the last year, driven by retail and PRT sales. We are well on our way toward our targeted 50% growth in AUM before flow reinsurance by 2028. We now expect to achieve this target on a net basis as well, as we deploy proceeds from the $250 million preferred stock investment that F&F made earlier this year to accelerate the growth of our retained AUM above the level considered at the time of our investor day. Next, margin expansion. Adjusted return on assets, excluding significant items, expanded to 130 basis points in the second quarter, primarily driven by investment margin, disciplined expense management, and accretive flow reinsurance, as well as enhanced earnings power from owned distribution. This is above our 110 basis point ROE baseline from our investor day, and we are closing in on our targeted range of 133 to 155 basis points. This strong performance has generated both ROE and multiple expansion. We've expanded adjusted return on equity, excluding significant items over the last year, from 10% to 12% as we advance toward our targeted range of 13 to 14%. Lastly, multiple uplift. We are pleased to see increasing recognition of the intrinsic value of Effigy's new business platform and growing in force book in its stock price, which was trading at approximately seven times P.E. multiple on consensus 2025 earnings at June 30. This is up from the five to six time multiple a year ago and is now more in line with peers, although not fully yet reflecting our margin expansion and growth rate of earnings. We see further potential for improvement to the market multiple on our core business, as well as a multiple re-rating from our own distribution strategy. Overall, we continue to have great momentum in executing our strategy, and we're on pace to achieve our financial targets. Now turning to results for the quarter, starting with sales. We delivered record gross sales of $4.4 billion in the second quarter, up 47% over the prior year quarter, driven by record retail sales and robust institutional sales. Record retail sales from our agency bank and broker-dealer channels were $3.2 billion, up 39% over the prior year quarter, and topping the $3 billion quarterly level for the first time. This is in line with industry annuity sales that continue to surge due to favorable economic conditions. Robust institutional market sales of $1.2 billion increased from $700 million in the prior year quarter and can fluctuate quarter to quarter. This included $300 million of pension risk transfer sales, which contributed to a new record of $900 million in PRT sales for the first half of the year, and $900 million of lending agreements as we returned to the FABN market for the first time in two years, given more favorable market conditions. F&G's retained sales were $3.4 billion in the second quarter, up 55% over the prior year quarter. As a reminder, we manage the level of flow reinsurance in line with our capital targets and are able to adjust up or down over time as market economics change. We have profitably grown retained assets under management to a record $52.2 billion at June 30. This is an increase of $6 billion, or 13%, over the second quarter of 2023 and driven by net new business flows, stable in-force retention, and net debt and equity proceeds over the last 12 months. AUM before flow reinsurance was $61.4 billion, adjusting for approximately $9.2 billion of new business seeded. We continue to see sustainable long-term momentum for growth across our multi-channel new business platform and strong demand for our products, given very attractive demographic tailwinds as well as large and growing markets. We serve a market with very attractive demographic tailwinds as 10,000 baby boomers are retiring every day. Demand for our fixed annuity products continues to grow as people plan for retirement. They could last 30 plus years and are seeking solutions that can withstand market volatility. Both retirees and advisors are turning to fixed annuities for simplicity, relatively higher interest rates, guaranteed tax deferred growth, and principal protection as an alternative to the traditional 60-40 investment portfolio. We are strategically positioned for long-term growth by targeting large and growing markets where our products have reached beyond the traditional retail life and annuity sector. And a lot of cash currently remains on the sidelines, with more than $6 trillion of cash parked in money market funds, and investors are expected to start putting their money to work as money market rates come down. We expect our industry will continue to see a strong surge in sales in the near term as consumers look to lock in higher rates through products like fixed annuities. Earlier this year, we entered the fast-growing Registered Indexed Linked Annuities Market, or RIHLA, which generated $45 billion of industry sales in 2023. Our product offering is differentiated in the market, uniquely meeting the needs of a relatively younger demographic. We are focused on onboarding key partners in the broker-dealer channel in 2024 and expect steady growth toward meaningful sales in 2025. We expect RIHLA will be a significant contributor to sales over the next few years, with the potential to grow as big as our FIA sales are today. Additionally, we continue to see a healthy pipeline in the pension risk transfer industry with $3.8 trillion of corporate pension plans at or near full funding. We are positioned to compete in our targeted $100 million to $1 billion deal size, with the potential to strategically move more upmarket or downmarket as opportunities arise. Overall, F&G is well positioned for growth and has terrific momentum as we leverage our strong relationships with our distribution partners, our comprehensive and competitive product portfolio designed to meet consumer needs, our multi-channel new business platform across both retail and institutional markets, and our investments for growth, including our superior and scalable ecosystem. Most importantly, we have a consistent track record of success managing through market cycles. In 2020, we grew sales and generated stable return on assets when interest rates were nearly zero. In 2023, we grew sales and generated stable and expanding return on assets when interest rates were at multi-decade highs. That is the resiliency of our business model. F&G performs well in a low-rate environment and even better in a higher-rate environment. Turning to our investment portfolio, our fixed income yield, excluding alternative investment volatility and variable investment income, was .6% in the second quarter, 26 basis points higher than the second quarter of 2023. This reflects upside from higher yields on new investments. Going forward, we have now hedged two-thirds of our floating rate asset exposure, which would make our investment income less susceptible to lower rates over time. Wendy will speak more to this in a moment. The portfolio remains high quality, with 96% of fixed maturities being investment grade. Credit-related impairments averaged five basis points over the last three years, which was exceptionally low given the market disruption during 2020 to 2023 from the pandemic, regional bank crisis, and sharp uptick in interest rates. Through the first half of the year, credit-related impairments remained below our pricing. Regarding our commercial real estate debt portfolio, it is high quality, diversified, with the vast majority invested in defensive sectors. Our commercial mortgage loan portfolio is entirely first mortgages, with an average loan to value of 60%, healthy debt service coverage ratios above one time for nearly Regarding the office sector, we have a below average concentration. CMBS, CMLs, and limited partnerships comprise 18% of the total portfolio, with only .8% in office. Overall, our total portfolio is diversified, well positioned, and actively managed through our selective de-risking programs to perform in varying market conditions. Our asset allocation strategy remains stable, and our invested assets are well matched to our clean and stable liability profile. Next, turning to our own distribution strategy. During July of 2024, FEG increased its ownership stake in Freedom Equity Group, or FEG, a top life IMO and longtime FEG partner, from approximately 30% to 100%. FEG was our first investment in owned distribution, having taken a minority ownership in late 2021, and our successful partnership has exceeded expectations. FEG is strategically positioned in the rapidly expanding multicultural markets, and our joint efforts position us to accelerate IUL sales growth, to meet the risk and retirement needs of those underserved market segments. FEG is a great example of our own distribution strategy, which generates a meaningfully higher risk-adjusted return on capital than retained business and provides a diversifying source of earnings. Owned distribution further strengthens our relationships with key partners, and with industry consolidation underway, we believe we are uniquely positioned to partner as a distribution consolidator. Our strategy is already proving to be a meaningful contributor to overall margin. To date, we have invested $680 million, and we expect EBITDA from the portfolio to be $60 million to $65 million in 2024, with double-digit annual growth over the medium term. In summary, the first half is positioned as well for another strong year of performance in 2024. We have plenty of momentum to continue to deliver sustainable asset growth from our retail and pension risk transfer growth strategies, as well as ongoing margin expansion from enhanced investment margin opportunities, operational scale benefits, and fee-based earnings from credit flow reinsurance. We are poised to further diversify our earnings given the strong growth of our middle-market life insurance business and owned distribution strategies. Let me now turn the call over to Wendy to provide further details on FEG's second-quarter financial highlights.

Thanks, Chris. This morning, I'll focus my comments on the following. Adjusted net earnings, details on our surrender experience and strong positive cash flow position, an update on 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 second quarter was $139 million or $1.10 per share and included $145 million or $1.11 per share of investment income from alternative investments and $4 million or $0.03 per share of CLO redemption gains and bond prepayment income. The quarter also included $16 million or $0.12 per share of net expense from actuarial model updates and refinements, which are separate from our annual actuarial assumption review that will be performed in the third quarter. Investment income from alternative investments based on management's long-term expected return of approximately 10% was $165 million or $1.26 per share. Excluding significant items, adjusted net earnings were $171 million in the second quarter, up 33% over $129 million in the second quarter of 2023. This increase reflects asset growth, margin diversification from a -to-flow reinsurance and owned distribution, disciplined expense management, and higher interest expense as a result of planned capital market activity. Adjusted return on assets excluding significant items was 130 basis points in the second quarter comprised of 107 basis points of core margin, 14 basis points of flow reinsurance fee income, and nine basis points of owned distribution margin. This was up 14 basis points over the second quarter 2023 and brings our adjusted ROA over the last 12 months to 124 basis points. With regard to surrenders, we continue to see steady growth in our FIA account value as net deposits from new business continue to well outpace terminations. FIA-positive net inflows were over $575 million in the second quarter, consistent with the first quarter as shown on page 12 of our Summer 2024 Investor presentation. As a reminder, for insurance companies like F&G, terminations typically provide a boost to earnings from the surrender charge fees and release capital that in turn can be deployed to new business volumes having higher surrender charges and longer surrender periods than the older contracts, further improving the liability profile. F&G benefits from a diversified and predictable enforced book are funding agreements, pension risk transfer, and immediate annuities are non-surrenderable. Fixed-rate multi-year guaranteed annuities typically have a three-, five-, or seven-year contractual maturity that are lumpy. Further details on net flows for both indexed and fixed-rate annuities are disclosed on page 13 in our quarterly financial supplement. Turning to our floating rate asset portfolio, we have now hedged $6.7 billion or approximately two-thirds of our floating rate assets to preserve the investment margin on existing assets. Our floating rate exposure was very beneficial over the last couple of years as interest rates increased. Through hedging, we have increased our earnings stability and predictability going forward by locking in about 188 basis points of incremental yield above our original pricing. This translates into approximately 15 to 20 basis points of annual incremental investment margin above pricing over the next three to five years. For now, we expect the remaining net floating rate asset exposure to remain around the current level of $3.4 billion to help support our asset liability management objectives as most are short-term and will mature within three years. Finally, turning to our balance sheet, we ended the quarter with F&G equity attributable to common shareholders excluding AOCI of $5.4 billion or $42.52 per share with $126 million for common shares outstanding as of June 30. There are a couple of pages in our investor presentation providing an analysis of book value per share. Our consolidated debt outstanding increased to $2.1 billion at June 30 reflecting a $300 million net increase for the successful refinance and partial tender offer of our upcoming 2025 senior note maturity. Our debt to capitalization ratio excluding AOCI was .4% as of June 30. We expect this ratio to revert to our long-term target of 25% once the remaining $300 million of senior notes mature in 2025. Our annual interest expense is approximately $130 million or roughly a 7% blended yield on the $2.1 billion of total debt outstanding. We continue to target holding company cash and invested assets at two times interest coverage. Our capital allocation priorities focus on deploying our capital to maximize shareholder value through continued investment in our business as well as returning cash to shareholders. F&G is well positioned to generate growth at attractive returns and our scale allows us to self-fund our growth with enforced capital generation, free insurance and capital market issuances. For 2024, our stable and profitable enforced book is expected to generate more than $1 billion in capital and we have a strong capital generation from existing reinsurance arrangements in the range of $500 million. Our capital allocation priorities also support our approximately $105 million annual dividend to common shareholders as well as $16 million annual dividend on the preferred stock held by F&F. We feel the common dividend is sustainable and expected to increase over time. F&G continues to maintain strong capitalization and financial flexibility with all of our statutory balance sheets, including our offshore entities, which are conceivably managed to the most stringent of capital requirements of our regulators and our four rating agencies. In summary, we continue to build on our proven track record. We have good momentum in executing our strategy and delivered another solid quarter. We remain focused on achieving our investor day objectives and we are seeing good momentum in driving both retained asset growth and margin expansion. Importantly, this quarter once again demonstrates that we are positioned to perform across market cycles and that we can consistently deliver strong results with attractive and expanding margins over time. This concludes our prepared remarks. Let me now turn it back to our operator for questions.

Thank you. And we will now begin the question and answer session. If you would like to ask a question, please press star then 1 on your touchtone phone. You may need to pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And at this time, we will pause momentarily

for the first question. And our first question today will come from John

Barnage with Piper Sandler. Please go ahead.

Good morning. Thanks for the opportunity. Can you maybe talk about the decision to increase the ownership stake and freedom equity group to 100 from 30% pipeline for additional employment? You clearly chopped a lot of wood here in a short amount of time on the owned capital in deploying that $1 billion target into the market. So, yeah, curious about freedom equity group and the pipeline for additional. Thank you.

Sure. Great. Thanks, John. Yeah, I'd say a couple things. One, we just love the business. It's been a longstanding partnership for us. They represent a huge chunk of our IUL sales, which is one of our more profitable products. But we just really like the business. We like the growth of the business, the earnings growth, how they're positioned. They have a dominant position in the middle market, specifically in the cultural markets in the U.S., which are growing very, very rapidly. So really excited about it. I think when we took the minority stake, the hope was that this would play out the way that it's played out. And you're right. We've now deployed almost $700 million into own distribution. I think you heard from Wendy. It's already making a meaningful contribution to spread and giving us a diversified source of earnings. In terms of pipeline, it's very deal-specific. So again, the billion dollars was more a question around the opportunity as opposed to a near-term target for deployment. But yeah, we do think there's probably other interesting opportunities for us. But thanks for the question.

Thanks for that answer, Chris. My follow-up question is on the floating rate portfolio. You clearly reduced your exposure by about two-thirds. Can you maybe talk about the earning sensitivity of the remaining portion of the floating portfolio to movements and rates? And then maybe how is your new money rate trended as well? Thank you.

Yeah, great. So I'd say with respect to the hedging, yeah, we're really pleased. I mean, we, again, the key here is not to be greedy. So we've not only done a number of portfolio de-riskings over the last four or five years. From a credit perspective, just continue to tighten up the portfolio in anticipation of eventually a turn in the credit cycle. But we've tried to do the same thing with respect to rates. You know, we were getting pretty close to 20 percent of our portfolio in floaters. Now, a lot of that was put on years ago when short-term rates were pretty close to zero. So that seemed like a smart call at the time. But as rates popped up, we had an opportunity to take that risk off the table. So we've hedged that down now to where I believe it's about 6.6 percent of the portfolio. So we've dramatically reduced our exposure to a drop here in short-term interest rates. So if you think about that, 6.6 percent of the portfolio in floaters, you know, theoretically 100 basis point drop in short-term rates would be only a 6.6 basis point impact to our overall yield. And then with respect to new money rates, yeah, continue to be strong. Obviously in the last couple of weeks, we've seen some volatility. We've seen treasury rates drop probably 40 to 50 basis points, but you've seen corporate spreads widen. I don't know, 12 to 15 basis points. But again, we're running a really dynamic business. So we reprice our products quite frequently. And so for us, it's really is there spread in the market and is there an opportunity to deploy those premiums pretty quickly. So, you know, we feel really good about the environment still.

Thanks for the answers. Appreciate it. And our next question will come from John Campbell with Stevens.

Please go ahead. Hey, guys, this is Jonathan. I'm for John. Thanks for taking my questions. So you guys hit a few different records this quarter. So congrats there. I want to touch on one of those records, annuity sales in particular. You touched on the trends that are driving the strength there, and it seems like that's going to continue, obviously. But, you know, maybe thinking how should we think about the growth trajectory in the back half of this year? And I know 25 is still ways out, but any kind of direction you could provide there would be appreciated.

Sure, this is Chris. I'll start when you might want to jump in here, too. But, you know, I think the momentum continues to be incredibly positive. So probably one of the big misnomers out there as well, you know, rates are now going to start moving down and demand is going to dry up for fixed annuities. I think we're going to see the exact opposite I mentioned in my talking points. Money market fund assets post-COVID have doubled from $3 trillion with a T to $6 trillion. So there's a massive amount sitting in cash. And I think when people start seeing those money market yields go from $5 to $4.5 to potentially $4, they're going to look to lock in some rate and we think that's going to bode extremely well for our core products. Plus, if you see the short end fall and the longer end of the curve stay a bit stable, well, a more traditional steep yield curve is positive for demand as well. So, you know, and then just on top of that is the demographics, right? You got 10,000 boomers retiring every single day in the US. So, yeah, I think the demand outlook for the second half of the year, the demand outlook for 2025, I don't see anything slowing down top line growth right now.

Okay, thank you. And then, you know, as a follow up, at your last analyst day, you guys talked to the upwards pressure you expect to see in the normalized ROA. You've clearly seen that, but it seems like you're running ahead, a bit ahead of schedule. Last quarter, you posted a record, but talked down the sustainability. This quarter, you posted another record. So, maybe that was just conservatives, conservatism, or maybe there were some favorable things in play. So, I'm hoping you can talk a bit more to the strength this quarter in moving forward. How are you thinking about the important metric and whether that outlook changes a lot, depending on the rate environment?

Yeah, I'll just frame a couple of high level things and then Wendy can talk to the specifics of how you should think about the quarter. But again, I take everybody back to our investor day presentation of October of last year. And we were trying to be really specific about where the uplift was going to come from. We saw uplift on the investment portfolio of just continually optimizing the portfolio. And we've seen good progress there. We've seen some uplift, obviously, from the rise in short term rates. We had a significant portion of the portfolio in floaters. We're getting operating expense scale as we've been growing our assets at a pretty healthy clip. And yet, we've committed to hold our fixed expenses to a single digit rate and we've been doing that. So, that's a source of uplift. And then as you're starting to see, we're getting tremendous leverage from flow reinsurance. When we take a sale and put it on a reinsurance balance sheet, we're generally capturing a disproportionate amount of the spread relative to the amount of required capital. So, that's obviously accretive. And then lastly, has been owned distribution. So, yeah, I would say overall those things are progressing at a faster clip than we probably anticipated. So, you don't want to get too excited, right? You know, the game's not over in the third inning, but you'd rather be up by a few runs in the third than down. And then, Wendy, do you want to talk about the 130 and maybe some of the one timers that might be in there?

Sure. Thanks, Chris. So, I'll point you to page 22 of the investor presentation. We've added a column last quarter, the last 12 months, and that will kind of normalize out even any noise that we get quarter to quarter. There'll be some positive and negatives in there this quarter. We had some additional CLO prepayments, and then we had a model conversion that we put into place due to materiality in the quarter. So, a bit of noise in there, but the last 12 months is now at 124, and we view that as very sustainable.

Perfect. Thank you, guys.

And our next question will come from Wes Carmichael with Autonomous Research. Please go ahead.

Hey, good morning. First question is on funding agreement issuance in the quarter. Can you talk about what made that market a little bit more attractive, and how should we think about your outlook for issuance for the remainder of the year in FABF?

Yeah, I would say, Wes, this is a market that obviously was pretty dormant for us for the last couple of years, but as you saw, rates start to stabilize and come down. You know, there's a bit of a lag effect in terms of the statutory rate that affects your cost of capital, and at the same time, new money yields were coming up, and we had some attractive investment opportunities where we could earn a good spread. So, it's something that we look at pretty much constantly, and when it makes sense, particularly when it makes sense relative to other uses of that capital, we tend to participate. I don't know, Wendy, if you want to add anything to that.

No, you hit the nail on the head there. As far as going forward, those factors, it'll depend on the valuation rate and the spread that we can earn off of that. So, if it looks positive, then we potentially could see additional activity, but it's kind of a -to-week view of the markets, and we just monitor it very closely.

Got it. And just on surrenders in FIA, I know you've talked about it a little bit in your prepared remarks, but can you talk about the experience just in the quarter? I realize you're still in a net flow position, but it's a pretty big sequential pick-up, and I think there's about a couple billion of FIA account values that are sitting outside of the surrender charge right now. So, just wondering if you kind of expect a little bit of elevated surrenders in the near term.

Yeah, two things I would say. If they're out of surrender charge, we would expect that and priced for that already. So, that's not necessarily, wouldn't be an outlier in terms of how we plan going forward. And I just want to reiterate what Wendy said. You know, someone, this is more analogous probably to refinancing your mortgage, so that's what's happening. You're having this huge refinancing where the moving rates were so strong that, yeah, you had blocks of business and policies where it's actually smart for the customer to move into a new policy, you know, get better terms. Agents are obviously incented to do that as well, so they're doing well. And actually, for us, it's not a bad thing at all. I mean, we're capturing surrender charge income, so we're covered from that perspective. And now we're writing a new policy, and I think people underestimate the impact of that, meaning what the stuff we're writing right now might prove to be some of the stickiest assets we've ever written. Because if rates do in fact move down from here, it's going to be very hard to move those contracts prematurely. So, yeah, I don't think there was anything in the activity that either surprised us or was troubling. And I think, you know, we're going to see it probably continue for another couple of quarters and would expect that it would probably stabilize next year. But Wendy, anything you want to call out specifically?

No. I mean, if we're looking just at the FIA, yes, there was an uptick, but there's, you know, there's a lot of activity going on in that refinancing, as Chris indicated. And there's also lags to that. So, as Chris said, we do expect excess renders to continue until rates drop significantly.

And the only thing I'd add, Wes, to that is, and obviously it benefits a lot of our own distribution because some of the investments we've made have been in annuity-oriented IMOs, and they're just crushing it in this environment, not only in terms of new sales, but obviously in terms of smart, you know, replacement sales.

That's helpful. And maybe just one more. I think that's a good question, but on base spreads, if we kind of exclude alts, I think that did kind of quarter over quarter contract a little bit. And I'm just kind of wondering how you're thinking about that going forward, especially in the macro backdrop. There's, you know, a few of your peers are pointing to where investment spreads have probably peaked and could kind of potentially compress a little bit going forward. So just curious how you guys are thinking about that too.

I would just say, Wes, it's really hard to generalize, right? Because everybody's got access to different investment opportunities. And so, yeah, we wouldn't consider that material, you know, like a few basis points. You're going to see noise quarter to quarter, but we're not right now. I wouldn't characterize that we're experiencing spread compression. You know, you'll see volatility, but it's not like, oh, we had this hugely profitable blocks run off to be replaced by less profitable. I mean, we're pretty comfortable with the returns we're generating on our new business right now. So and then, you know, some of that quote unquote core margin could also be a function of how much we choose to flow out versus retain. I know, Wendy, you want to comment on that?

Yeah, that's where I was going to go. Wes, if you look at our ROAXSIE, the core map margin actually did increase sequentially, but then there's additional from the flow and own distribution. And we've tried to highlight that in the QFS, you know, what's coming from those two items. So you can kind of go back into the what we consider core by taking the product margin and the expenses and the and get to that core. And that has increased.

And once again, if you would like to ask a question, please press star then one. Our next question will come from Mark Hughes with Truist.

Please

go

ahead. Yeah, thank you. Good morning. Good morning, Mark. Morning.

Chris, morning. Chris, morning, Wendy. Chris, the PRT business, if we see a declining interest rates, what is that going to do for the pipeline, new opportunities?

Yeah, it's an excellent question. I don't think you're going to see a material change in the pipeline. You know, there's a long lead time for people to run a process and for consultants in particular to do RFPs. I don't think you're going to see any near term impact on that. Most of the plans are pretty comfortably above that hundred funding level, or there's certainly a lot of them. So the pipeline right now looks really, really strong. If you saw some dramatic rates plummeted 200 basis points, I don't think we're going to see that. Maybe you could see a slowing in that market, but I don't think we're going to see any material change to the pipeline anytime soon.

Yeah. And then on the RILAs, you talked about targeting kind of the younger demographic. Could you talk about that? And then also, I think you mentioned you're pursuing some strategic relationships, you know, to the extent that you can give us some sort of sense of magnitude, timing, you know, what it all means. That would be great.

Sure. Happy to. Yeah, I'm smiling because, you know, younger demographic, I just bought one. I don't know if I fall in that category, but, you know, younger meaning, you know, as a general rule for folks who, you know, have an elevated timeline relative to when they're actually looking to turn on. But they're great products for that purpose. So one extremely large market, as we've talked about before, allows us to tap into folks with one a bit younger, but two also with a different risk tolerance. Every product we have sold to date has a complete floor of zero for people. You know, here's an opportunity for folks to say, hey, I'll take some limited downside risk. I'll get a buffer or a cushion on the downside and therefore I can have more upside. So we're super excited about that. You know, it'll be a slow ramp up simply because, you know, you have to add distributors and that's a process. Now we've added a couple of big ones recently, so I think that's going to help accelerate some of our growth. So as we said, I think it'll be that probably not much of a contributor this year, be pretty modest. But I would also say that we have plenty of other sales opportunities. But when we get into 25 and beyond, I think this will start becoming significant. And if you said, gee, over the medium term, call it the next five years, could it start to rival the volumes that we see in our FIA business? I think we actually think that it can. It's also a great diversifier in terms of, you know, these we now meet a ton of consumer need off of really one core platform, right? Which is this whole indexed platform. And I think that's another piece that people miss. Initially it was kind of a niche product. It's no longer a product, it's a platform. So you can have income now, guaranteed income in the future. You can have, you know, sort of more of a buffer style of more upside, plain fixed annuity. So, you know, we're able to hit a ton of consumer need right now with one core chassis.

Well, when Wendy buys one of these things, that's when I'll know it's for a younger demographic. Perfect. Thanks, Mark. There we go. One other question. One of the other major RILA players is kind of participating in some of these targeted funds, getting some flows in that way. I know in times past you've talked in kind of a different way, I'll say, about that opportunity. What do you think about that?

Yeah, I would say, you know, the idea of annuities in 401K plans is a great idea. I do think it's getting closer to getting some real adoption. You know, we research it constantly and, you know, when it looks like, you know, the market is there and we see a slot for us to play, I suspect at some point we will play. It just hasn't been our number one priority. We have so many opportunities right now in some of these other core channels. It's more, much more complex, as you know, to pull off. So, yeah, I don't think anything's changed from that perspective. I don't think we view this as something that we're, a segment of the market that we're urgently expecting to jump into.

Understood. Thank you.

And this will conclude our question and answer session. I'd like to turn the conference back over to CEO Chris Blund for any closing remarks.

Great, thanks. Hey, we're very pleased with our performance through the first half of the year. F&G's business is well positioned for the current market and for the longer-term growth. Our opportunities are compelling with many prospects ahead to drive asset growth, deliver margin expansion, and generate accretive returns. So thanks for joining us. We appreciate your interest in F&G and look forward to updating you on our third quarter earnings call.

Thank you for attending today's presentation. And the conference is now concluded. You may now disconnect your lines at this time.