F&G Annuities & Life, Inc.

Good morning and welcome to the F&G's first quarter earnings call. During today's presentation, all callers will be placed in 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, SVP, Investor and External Relations. Please go ahead.

Thanks, Operator, and welcome, everyone. I'm joined today by Chris Blunt, Chief Executive Officer, and Connor Murphy, President and Chief Financial Officer. 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 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 Lunt.

Good morning, and thanks for joining today's call. The first quarter was a solid start to the year and in line with our expectations. Today, I'll share some highlights of the business as well as details of our investment portfolio and capital allocation. Then I'll turn it over to Connor to cover results in more detail. Starting with business highlights. From a top-line perspective, F&G has consistently grown AUM in recent years. We have generated strong free cash flow and reinvested it back into the business, driving our diversification and accelerating our growth that has brought AUM before reinsurance to nearly $75 billion at the end of the first quarter, an 18% compound annual growth rate since 2019. Today, F&G is a recognized market leader across multiple products and distribution channels with a strong strategic foothold in large and growing markets. The retirement landscape is creating a powerful and lasting demand for our business. The peak 65 retirement wave is driving unprecedented demand for guaranteed income and growth solutions. With more than 4 million Americans turning age 65 every year through 2027, At a rate of 11,000 people per day, this structural tailwind is fueling industry sales in the U.S. across retailed indexed annuities, indexed universal life, and pension risk transfer, which are our core product lines. Industry results are more mixed for our opportunistic products. Funding agreement-backed notes reached record industry issuance last year, while the multi-year guaranteed annuity market began to normalize in the fourth quarter, as consumers felt less urgency to lock in rates following the interest rate movements earlier last year. As F&G navigates the competitive landscape, we are focused on disciplined sales growth and capital allocation priorities between core and opportunistic sales to power our AUM growth. We view AUM as our primary metric to track the top-line growth of our business and as sales volumes may fluctuate year to year depending on opportunities and returns. Having reached a meaningful level of scale, our focus has shifted to continuing to improve margins and expand ROE. We are intentionally shaping our product mix, managing our sales volumes, and utilizing flow reinsurance to capture the highest return opportunities and deliver sustainable long-term value while growing AUM. From a bottom line perspective, we have intentionally diversified our business over the last five years across our spread and fee-based strategies. This diversification further reinforces the durability of our business model, and it supports a more predictable and higher quality earnings as well as expanded returns over time. For a spread-based business, we have a long and proven track record across varying interest rate environments, including the current landscape where credit spreads remain near historical lows despite recent volatility. Our approach is straightforward and disciplined. We source attractive, stable, and surrender charge-protected liabilities. We source high-quality assets with a deep understanding of our liabilities to achieve well-matched asset and liability cash flows. and we have a clear line of sight to investment returns, actively managing our new business pricing and in-force renewals to maintain spreads. The result is a stable cost of crediting aligned to our expanding in-force book that generates steady, long-term growth in spread-based earnings over time. This is complemented by the increased earnings contribution from our fee-based strategies, including flow reinsurance, own distribution, and middle market life insurance. These strategies are higher margin, less capital intensive, and positioned to generate higher returns and valuation over time. In 2025, fee-based strategies represented approximately 15% of our adjusted net earnings, excluding significant items, and we expect that mix to grow to approximately 25% by year-end 2028. As the mix shifts, we believe ROE will become the most important return measure for our business, reflecting the higher quality and capital efficiency of our growing earnings base. Next, shifting to our investment portfolio. Our $53 billion retained investment portfolio is well diversified and performing very well. The retained portfolio is high quality, with 97% of fixed maturities being investment grade. I'll walk through some highlights of our five primary asset classes, as shown on slide 26 in our spring investor presentation. including fixed income, public structured, private origination, mortgage loans, and alternative investments. First, our traditional liquid fixed income portfolio is $18 billion, or 34% of the total retained portfolio. This portfolio is anchored in high-grade public bonds and traditional 144A private placement securities. Next, our public structured portfolio is is $11 billion, or 21% of the total retained portfolio, and provides access to well-diversified and high-quality assets across three categories, including $5 billion in CMBS and non-agency RMBS focused on stable property types with built-in structural protections, $5 billion in CLOs that are well-diversified across industries, issuers, and managers, with a focus on investment-grade tranches and ample PAR subordination, and $1 billion in high-quality ABS that is well diversified by collateral type. As an aside, we view the NAIC's proposal for higher capital charges on CLOs invested in broadly syndicated loans as very manageable. After properly adjusting for funds withheld reinsurance assets, the effect of the proposal for our CLO portfolio is would translate to a decrease in RBC of five points or less as a conservative estimate. Next, our private origination portfolio is 11 billion or 21% of the total retained portfolio. Private origination is a key component of our investment strategy. It provides enhanced yield while limiting additional credit risk, as well as diversification and strong covenant protection. Our private origination portfolio is well diversified and includes corporate and commercial lending, consumer loans, real estate, and other real asset exposures. From a ratings perspective, approximately 90% of the private origination debt portfolio is investment grade and included within the 97% investment grade for our total fixed income portfolio. We primarily use the top five nationally recognized statistical rating organizations. Nearly 90% of the private origination debt portfolio and 94% of the rated assets in our total fixed income portfolio are rated by at least one of the top five rating agencies. Further, 64% of our total fixed income portfolio is dual rated by two rating agencies, with at least one being one of the big three. Egan Jones ratings are de minimis at less than 1% of our total retained portfolio. And private letter ratings account for approximately 18% of our total retained portfolio and undergo the same analytical rigor as public ratings. When it comes to private asset origination, most of these are directly originated asset classes that have historically been underwritten by commercial banks and have a long performance history over multiple market cycles, providing observable data for thorough underwriting. Here, we utilize Blackstone's best-in-class origination, underwriting, and structuring teams to source high-quality pools of physical and financial assets. The combination of Blackstone's structuring talent, our ability to complement Blackstone's ability with other asset managers, the track record of these assets, and our thorough due diligence has helped generate attractive, risk-adjusted returns for F&G, that have performed very well to date and through stress environments like the COVID pandemic. Recent headlines have been focused on middle market lending to midsize corporations. I'd like to provide further details on this subset of our private origination portfolio. Middle market corporate lending is nearly 5 billion or 9% of the total retained portfolio. 89% of our middle market lending positions are investment grade. We have low loan-to-value ratios and strong structural subordination. We are lending to sizable, high-quality companies with average annual EBITDA over $200 million. We have a track record of near zero credit losses, and the upgrade-to-downgrade ratio is positive for our private origination corporate exposure. Next, our mortgage loan portfolio is $7 billion, or 13% of the total retained portfolio. It is weighted toward defensive sectors, with two-thirds in residential loans and the remainder in commercial loans concentrated in multifamily and industrial properties, two segments that have demonstrated resilience across varying economic conditions. Finally, our alternatives portfolio is $4 billion, or approximately 7% of the total retained portfolio. This includes approximately $3 billion of limited partnerships, and $1 billion of other equity interests. Under our updated definition of alternative assets discussed last quarter, we have reclassified approximately $6 billion of lower-yielding debt-like assets into our fixed income portfolio. As a result of this updated definition, we have revised our long-term expected return assumption from 10% to a range of 12% to 14% for the remaining LP and equities portfolio. Many of these alternative investments are still in the earlier phases of their value creation cycle, so we are not yet fully realizing the long-term expected returns. During the first quarter, we saw improvement in our annualized return at 8.3%, up from 7.8% in the sequential quarter. Next, with regard to our overall portfolio, our fixed income yield was 4.77% in the first quarter, in line with the first quarter of 2025. Relative to the fourth quarter of 2025, our yield decreased 16 basis points as a result of four items in the first quarter. The removal of the assets associated with our sale of FG Life Re, lower yields on floating rate assets, lower preferred stock dividends due to seasonality, and an investment expense true-up adjustment. These were largely one-time items or due to timing. Excluding these items, we maintained our core spread in line with the fourth quarter. As a reminder, our fixed income yield excludes alternative investment income as well as variable investment income, which we define as prepayment fees. Software exposure across the total retained portfolio is below 5% and relatively short duration. The vast majority of our software positions are protected by high switching costs, large competitive moats, regulatory barriers, and or embedded in workflows that are difficult to disrupt. We believe this exposure is very manageable. Credit-related impairments have remained low and stable, averaging six basis points over the past five years. Through the first quarter, credit-related impairments were a modest three basis points. Portfolio credit quality has improved over time through implementation of de-risking programs. Since 2020, we have selectively repositioned over 2 billion of assets to optimize, de-risk, and position the portfolio to perform in varying market conditions while also improving credit quality. We believe our portfolio is performing exceptionally well, as expected, and conservatively positioned to withstand economic downturns. Now, turning to the liability side of our balance sheet and how we think about the intrinsic value of our business. F&G reported gap equity excluding AOCI of $6.2 billion at quarter end and has grown its book value per share excluding AOCI to $46.51, up 70% since the 2020 F&F acquisition. We think about our business as three distinct and complementary value-creating components. Our new business platform, our profitable-enforced block, and our capital light fee-based strategies. Each contributes meaningfully to earnings, and together they support a compelling sum-of-the-parts valuation. At the core of our business is a high-quality and profitable enforced book that delivers steady spread income on a growing AUM base. We do not have any problematic legacy blocks of business. Our gap net reserves of $55 billion are diversified across $37 billion of retail fixed annuities, $8 billion of pension risk transfer liabilities, and $7 billion of funding agreements. In addition, our $3 billion index universal life in-force book is less capital intensive than our annuity business and generates significant recurring product fee income annually. This is a top 10 IUL franchise with strong positioning in the cultural middle market that has demonstrated above average growth rates. F&G is also uniquely positioned to provide flow reinsurance to third parties and through our sidecar, a capital-efficient strategy that generates fee-based returns. Demand for reinsurance capacity has greatly increased in recent years, and we have reinsured over $15 billion of cumulative annuity new business. Our own distribution franchise, Peak Altitude, rounds out the picture. With approximately $700 million deployed into this business... and approximately $80 million in annual EBITDA, we believe the value of Peak is not fully appreciated by the market or reflected in our current share price. As a result, we have initiated a formal process to explore strategic alternatives for Peak to capture its significant growth opportunities and unlock that value for our shareholders. Importantly, each of these components, our new business platform, our profitable enforced block, and our capital life fee-based strategies, represent a distinct and measurable source of value. Taken together, we believe the sum of the parts framework reveals meaningful value that is not yet fully reflected in F&G's current market valuation, and we remain focused on closing that gap. Next, turning to capital allocation. During the first quarter, F&G returned $67 million of capital to shareholders through $38 million of common and preferred dividends and $29 million to repurchase approximately 1.2 million shares of common stock at an average price of $24.14. The company's existing stock repurchase authorization permits aggregate repurchases of up to $50 million, of which approximately $3 million remained available as of March 31, 2026. Effective March 13, 2026, our Board of Directors authorized an additional new three-year share repurchase program under which F&G may repurchase up to 100 million of common stock. Our Board views repurchasing shares at current levels as a compelling use of capital. Despite the progress we have made to increase our outstanding float through the stock distribution at year-end, buying back shares at current prices reflects our confidence in the results we have delivered and and our conviction in the significant long-term opportunities ahead. Let me now turn the call over to Connor to provide further details on F&G's first quarter highlights.