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F&G Annuities & Life Reports First Quarter 2023 Results

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PR Newswire

DES MOINES, Iowa, May 3, 2023

DES MOINES, Iowa, May 3, 2023 /PRNewswire/ -- F&G Annuities & Life, Inc. (NYSE: FG) ("F&G" or the "Company") a leading provider of insurance solutions serving retail annuity and life customers and institutional clients, today reported financial results for the first quarter ended March 31, 2023.

As of January 1, 2023, F&G has adopted Accounting Standard Update 2018-12, "Targeted Improvements to the Accounting for Long-Duration Contracts" (LDTI), as issued by the Financial Accounting Standards Board. This update significantly amends the accounting and disclosure requirements for long-duration insurance contracts. Adoption of this guidance is reflected in F&G's consolidated financial statements using the full retrospective transition method effective January 1, 2023 with changes applied as of January 1, 2021, also referred to as the transition date. Prior periods are presented on a comparable basis to reflect impacts under the LDTI accounting standard.

Net loss for the first quarter of $195 million, or $1.56 per diluted share (per share) primarily due to unfavorable mark-to-market, compared to net earnings of $239 million, or $2.28 per share, for the first quarter 2022. Net earnings (loss) include mark-to-market and other items which are not included in adjusted net earnings.

Adjusted net earnings for the first quarter of $49 million, or $0.39 per share, compared to adjusted net earnings for the first quarter 2022 of $80 million, or $0.76 per share. Adjusted net earnings include significant income and expense items, alternative investment portfolio returns from short-term mark-to-market movement that differ from long-term return expectations, and quarterly fluctuations in market risk benefit actual experience that differs from expectations. Please see "Non-GAAP Measures and Other Information" for further explanation.

First Quarter Highlights

Record gross sales: Total gross sales of $3.3 billion for the first quarter, an increase of 27% over the first quarter 2022, driven by record Retail sales partially offset by lower Institutional sales, which we expect to be lumpier and more opportunistic than our retail channels
Net sales reflect third party flow reinsurance: Net sales of $2.2 billion for the first quarter, a decrease of 8% from $2.4 billion in the first quarter 2022, reflecting third party flow reinsurance which increased from 50% to 75% of multiyear guaranteed annuity (MYGA) sales effective in September 2022
Record assets under management: Ending assets under management (AUM) were $45.4 billion as of March 31, 2023, an increase of 18% from $38.6 billion in the prior year, driven by new business net of flow reinsurance, stable inforce retention, and debt issuance net proceeds
Return of capital to shareholders: As announced today, the Board of Directors has declared a quarterly dividend of $0.20 per common share, payable on June 30, 2023, to shareholders of record as of the close of business on June 16, 2023. Also, the Board of Directors has authorized a three-year share repurchase program, effective March 21, 2023, under which F&G may repurchase up to $25 million of FG common stock

Chris Blunt, President and Chief Executive Officer of F&G, commented, "Despite a turbulent market backdrop, we reported record gross sales of $3.3 billion driven by record sales in our Retail channel. Net sales were $2.2 billion as we continue to reinsure more of our sales, given the significant accretion that we experience to our returns, combined with the cash generation and fee-based earnings that flow reinsurance delivers. We continue to expect our gross sales to grow at a double-digit pace while managing net sales retained to a level that continues to grow our assets under management. Ultimately, this strategy frees up incremental capital to be redeployed to the highest returning retained business as we work to maximize the economics of our business which we believe will, ultimately, be reflected in our equity valuation."

Mr. Blunt continued, "The recent market volatility has also spurred concerns across the financial ecosystem focused on the credit worthiness of insurers' investment portfolios, combined with the risk of policyholders surrendering their policies. It is macro environments like this that highlight our business model and superior ecosystem which positions F&G to not only weather the storm but thrive. Our relationship with Blackstone provides access to both public and private markets as well as their superior risk management capabilities and exceptional credit underwriting, which has resulted in a durable portfolio that is well positioned to withstand an economic downturn. Additionally, our liabilities are relatively young with 88% either surrender protected or nonsurrenderable, providing a disincentive for policyholders to surrender early. Through the first quarter and into April, policy surrenders are slightly elevated, although within our long term pricing expectations, and we experienced strong positive net inflows during the month."

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"To conclude, we have started the year with strong momentum and have many opportunities ahead to further expand our business which will, ultimately, drive margin expansion and improve returns. Additionally, we believe the recent market volatility will continue to spur an acceleration to industry sales, as advisors and consumers seek guaranteed growth combined with principal protection, which will provide a tailwind to F&G. Lastly, we continue to focus on capital allocation to drive value for our shareholders centered on returning a steady flow of capital through our $100 million annual dividend and recently authorized $25 million share repurchase program. Taken together, we are very excited with what the future holds for F&G."

Summary Financial Results
(In millions, except per share data)	Three Months Ended		Full Year
	March 31, 2023	March 31, 2022	2022	2021
Total gross sales¹	$ 3,281	$ 2,589	$ 11,254	$ 9,592
Net sales	$ 2,209	$ 2,353	$ 9,006	$ 8,723
Assets under management (AUM)	$ 45,422	$ 38,601	$ 43,568	$ 36,494
Average assets under management (AAUM)	$ 44,393	$ 37,459	$ 40,069	$ 31,938
Adjusted return on assets	0.44 %	0.85 %	0.82 %	2.05 %
Net earnings (loss)	$ (195)	$ 239	$ 635	$ 1,240
Net earnings (loss) per diluted share	$ (1.56)	$ 2.28	$ 5.52	$ 11.81
Adjusted net earnings	$ 49	$ 80	$ 328	$ 656
Adjusted net earnings per diluted share	$ 0.39	$ 0.76	$ 2.85	$ 6.25
Weighted average diluted shares	125	105	115	105
Common shares outstanding	126	105	126	105
Book value per share	$ 19.72	$ 35.93	$ 19.09	$ 47.94
Book value excluding AOCI per share	$ 39.94	$ 42.31	$ 41.45	$ 40.01


¹ See definition of non-GAAP measures below

Sales Results
Record gross sales were $3.3 billion in the first quarter, an increase of 27% over the first quarter 2022 and 22% over the fourth quarter 2022, reflecting execution of the Company's diversified growth strategy with a disciplined approach to pricing.

Record Retail sales were $2.8 billion in the first quarter, an increase of 87% over first quarter 2022 and 12% over the fourth quarter 2022. This reflects increased demand for our products in the first quarter, given higher interest rates and market volatility which often spur fixed annuity sales as financial advisors and consumers seek resilience for investment portfolios and retirement savings. Fixed annuities are increasingly viewed as an attractive solution offering relatively higher rates, guaranteed growth and principal protection, and tax advantaged accumulation and annuitization options. We saw growth across all three Retail channels, including agent, bank and broker dealer, in the first quarter, as compared to the prior year.

Institutional sales were $0.5 billion in the first quarter, split almost evenly between pension risk transfer transactions and funding agreement issuances, compared to $1.1 billion in the first quarter 2022 and $0.2 billion in the fourth quarter of 2022. We have also closed an additional pension risk transfer transaction of approximately $200 million in April, which was not reflected in first quarter sales.

Net sales retained were $2.2 billion in the first quarter, which reflects 67% of gross sales, as compared to 70% in the fourth quarter of 2022 and 92% in the first quarter of 2022. This trend reflects an increase in third party flow reinsurance from 50% to 75% of MYGA sales, effective in September of 2022. As a reminder, we utilize flow reinsurance which provides a lower capital requirement on ceded new business, while allocating capital to the highest returning retained business.

On January 31, 2023, F&G acquired a 49% equity ownership stake in SYNCIS, a leading independent agent life distribution partner. This aligns to our strategy to expand our investment in capital light and accretive owned distribution, while boosting our presence in underserved multi-cultural and middle-market segments.

Average assets under management was $44.4 billion for the first quarter, an increase of 18% from $37.5 billion in the first quarter 2022, driven by net new business flows and net debt proceeds. Record assets under management were $45.4 billion as of March 31, 2023. A rollforward of AUM can be found in the non-GAAP measurements section of this release.

Earnings Results and LDTI Adoption
The company reported a GAAP net loss for the first quarter of $195 million, or $1.56 per share, compared to net earnings of $239 million, or $2.28 per share, for the first quarter 2022. Results for the first quarter 2023 reflect $244 million of unfavorable mark-to-market and other items, including the following; all of which are not included in adjusted net earnings.

$74 million unfavorable net recognized gains and losses, including the impact of investment gains and losses recognized in operations and the effect of changes in fair value of the reinsurance related embedded derivative,
$229 million unfavorable market related liability adjustments, including liability mark-to-market impacts and related economic assumption review updates due to fixed indexed annuity related and embedded derivative market movements,
$7 million unfavorable from purchase price amortization, transaction costs and other non-recurring items, and
($66) million taxes on the above items.

With the adoption of LDTI, the most significant effects of the new accounting standard on F&G's adjusted net earnings are:

adoption of constant actuarial intangibles amortization, which will now show a more predictable trend and grow with the inforce book over time, and
the new market risk benefit (MRB) reserve change which replaces the prior SOP 03-1 reserve change for the guaranteed minimum withdrawal or death benefits. We expect future quarterly fluctuations in market risk benefit actual experience that differs from expectations, and with less amortization offset.

These effects reflect timing differences when sources of actual earnings emerge, although from an economic perspective, the underlying product profitability is unchanged. Also, since LDTI is a U.S. GAAP accounting standard, there is no impact to statutory results, insurance company cash flows, or regulatory capital.

Adjusted net earnings for the first quarter were $49 million, or $0.39 per share, compared to adjusted net earnings for the first quarter of 2022 of $80 million, or $0.76 per share. Adjusted net earnings include significant income and expense items, alternative investment portfolio returns from short-term mark-to-market movement that differ from long-term return expectations, and quarterly fluctuations in market risk benefit actual experience that differences from expectations.

The first quarter of 2023 included $99 million of investment income from alternative investments, partially offset by $37 million tax valuation allowance expense. Alternative investments investment income based on management's long-term expected return of approximately 10% was $132 million.
The first quarter of 2022 included $102 million of investment income from alternative investments, $18 million income of CLO redemption gains and other investment income, partially offset by $38 million tax valuation allowance expense. Alternative investments investment income based on management's long-term expected return of approximately 10% was $100 million.

Capital and Liquidity Highlights
GAAP book value excluding AOCI was $5.0 billion or $39.94 per share, based on 126 million common shares outstanding as of March 31, 2023. This reflects an increase of $3.28 or 9% from year-end as previously reported, including $4.79 net increase from LDTI adoption, $0.39 increase from adjusted net earnings and ($1.90) per share net decrease for mark-to-market movements during the quarter.

Book value per share excluding AOCI as of December 31, 2022 - previously reported

36.66

LDTI adoption change in retained earnings

4.79

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