8-K: F&G Annuities & Life Reports Q2 2025 Results

F&G Annuities & Life reports a significant drop in GAAP and adjusted net earnings for Q2 2025, despite achieving record assets under management and strong retail sales.

Summary

• Net earnings attributable to common shareholders for Q2 2025 were $35 million ($0.26 per diluted share), a decrease from $198 million ($1.55 per diluted share) in Q2 2024.
• Adjusted net earnings attributable to common shareholders for Q2 2025 were $103 million ($0.77 per share), down from $139 million ($1.10 per share) in Q2 2024.
• The decline in net earnings was primarily due to $49 million of net unfavorable mark-to-market effects and $19 million of other unfavorable items in Q2 2025, compared to $70 million of net favorable mark-to-market effects in Q2 2024.
• Assets under management (AUM) before flow reinsurance reached a record $69.2 billion at the end of Q2 2025, a 13% increase year-over-year.
• Retained AUM grew 7% year-over-year to $55.6 billion.
• Gross sales for Q2 2025 were $4.1 billion, one of the strongest sales quarters in history, driven by record retail channel sales.
• Retail channel sales exceeded $3.6 billion, up 13% from Q2 2024, with record sales in indexed annuities, indexed universal life, and multiyear guaranteed annuities.
• Institutional market sales were $0.5 billion in Q2 2025, primarily pension risk transfer sales, compared to $1.2 billion in Q2 2024.
• Net sales were $2.7 billion in Q2 2025, down from $3.4 billion in Q2 2024, reflecting third-party flow reinsurance at varying ceded amounts.
• Adjusted return on assets (ROA) was 0.71% in Q2 2025, compared to 0.98% in Q2 2024.
• Adjusted return on equity (ROE) excluding AOCI increased to 8.8% for Q2 2025, up 40 basis points from 8.4% in Q2 2024.
• Book value per common share, excluding AOCI, was $43.39 as of June 30, 2025, representing a cumulative 58% increase since year-end 2020.
• The company returned $35 million of capital to shareholders through common and preferred dividends in Q2 2025, compared to $32 million in Q2 2024.

Sentiment

Score: 6

Explanation: While GAAP and adjusted net earnings declined significantly year-over-year, attributed largely to mark-to-market fluctuations and alternative investment performance below expectations, the company demonstrated strong operational growth with record AUM and retail sales. Improved ROE ex AOCI and disciplined expense management indicate underlying business strength and strategic progress towards long-term targets, suggesting a cautiously optimistic outlook despite the earnings dip.

Positives

• Achieved record assets under management (AUM) before flow reinsurance of $69.2 billion, a 13% increase year-over-year.
• Delivered $4.1 billion in gross sales, one of the strongest sales quarters in company history, driven by record retail channel sales.
• Record retail channel sales exceeded $3.6 billion, up 13% year-over-year, including record indexed annuities, indexed universal life, and multiyear guaranteed annuity sales.
• Adjusted return on equity (ROE) excluding AOCI increased to 8.8% for Q2 2025, up 40 basis points from 8.4% in Q2 2024.
• Book value per common share, excluding AOCI, grew to $43.39, marking a cumulative 58% increase since year-end 2020.
• The investment portfolio demonstrates excellent credit performance, with 97% of fixed maturities being investment grade and credit-related impairments remaining low and stable (averaging 6 basis points over the past five years and below pricing assumptions through 1H 2025).
• The ratio of operating expense to AUM before flow reinsurance decreased by 5 basis points from Q2 2024, indicating improved scale and disciplined expense management.
• The company returned $35 million in capital to shareholders through common and preferred dividends in Q2 2025, an increase from $32 million in Q2 2024.

Negatives

• Net earnings attributable to common shareholders significantly decreased to $35 million in Q2 2025 from $198 million in Q2 2024.
• Adjusted net earnings attributable to common shareholders decreased to $103 million in Q2 2025 from $139 million in Q2 2024.
• Investment income from alternative investments was $83 million ($0.62 per share) below management's long-term expected return of approximately 10% in Q2 2025.
• Gross sales of $4.1 billion in Q2 2025 were below the all-time record of $4.4 billion achieved in Q2 2024.
• Net sales decreased to $2.7 billion in Q2 2025 from $3.4 billion in Q2 2024.
• Institutional market sales were lower at $0.5 billion in Q2 2025 compared to $1.2 billion in Q2 2024.
• Adjusted return on assets (ROA) declined to 0.71% in Q2 2025 from 0.98% in Q2 2024.

Risks

• General economic conditions, including prevailing interest and unemployment rate levels, and stock and credit market performance.
• Volatility and strength of the capital markets, investor and consumer confidence.
• Foreign currency exchange rates, commodity prices, inflation levels, changes in trade policy, tariffs, trade sanctions, trade wars, and supply chain disruptions.
• Natural disasters, public health crises, international tensions and conflicts, geopolitical events, terrorist acts, labor strikes, political crisis, accidents, and other events.
• Concentration in certain states for distribution of products.
• Impact of interest rate fluctuations and equity market volatility or disruption.
• Impact of credit risk of counterparties.
• Changes in assumptions and estimates regarding amortization of deferred acquisition costs, deferred sales inducements, and value of business acquired balances.
• Regulatory changes or actions, including those relating to regulation of financial services affecting underwriting of insurance products, sale, underwriting and pricing of products, and minimum capitalization and statutory reserve requirements for insurance companies, or the ability of insurance subsidiaries to make cash distributions.

Future Outlook

The company expects further improvement in its operating expense to AUM before flow reinsurance ratio in the second half of the year. Management remains confident in delivering on its medium-term Investor Day targets, aiming for margin expansion through retained business and diversifying earnings through accretive flow reinsurance and owned distribution, moving towards a more fee-based, higher margin, and less capital-intensive business model.

Management Comments

• "We grew AUM before flow reinsurance to $69.2 billion at the end of the second quarter, an increase of 13% from second quarter 2024, driven by strong sales."
• "Our business is benefiting from increased scale, as our ratio of operating expense to AUM before flow reinsurance has decreased by 5 basis points from the second quarter of 2024, and we expect further improvement in the second half of the year."
• "Our high quality investment portfolio is performing well and credit related impairments remain below our pricing assumption."
• "Overall, we have had tremendous growth since FNF acquired F&G in June 2020, with a cumulative 58% increase in book value per share excluding AOCI since year-end 2020, to $43.39 at the end of the second quarter."
• "F&G benefits from both spread-based and fee-based earnings, including our flow reinsurance, middle market life insurance and owned distribution strategies which leverage our position as one of the industry's largest distributors of annuities and life insurance."
• "We remain confident that we will deliver on our medium-term Investor Day targets as we move further toward a more fee-based, higher margin and less capital intensive business model."

Industry Context

The company operates in the large and growing U.S. retirement and middle markets, benefiting from secular tailwinds. There is sustainable demand for retail fixed annuity products, especially as money market rates are expected to decline, prompting consumers to seek higher interest rates. The growing retirement population, with over 11,000 Americans turning 65 daily and a projected 30% increase in the 65-100 age group over the next 25 years, supports demand for F&G's products as retirees and advisors increasingly turn to fixed annuities as an alternative to traditional investment portfolios. There is also untapped demand for permanent life insurance, particularly in the Middle Market.

Comparison to Industry Standards

• The company positions itself as one of the industry's largest distributors of annuities and life insurance, indicating a strong market presence.
• F&G's CLO portfolio is distinguished by Blackstone's broad and deep understanding of the asset class and ability to perform loan-level underwriting, setting it apart from peers.
• The company's BBB CLOs are estimated to withstand an annualized default rate of 9.1% (occurring every year), assuming a 62.3% average long-term loan recovery rate, based on Blackstone's views and J.P. Morgan data, suggesting robust structural protection against defaults.
• The CMBS portfolio's prudent asset selection has resulted in more multifamily exposure and less retail exposure compared to BAML Conduit CMBS market averages, indicating a more defensive and potentially higher-quality portfolio construction.

Stakeholder Impact

• Shareholders: Experienced a decrease in GAAP and adjusted net earnings per share, but saw an increase in book value per common share excluding AOCI and received $35 million in dividends. The company's strategic focus on growth and capital return aims to maximize shareholder value.
• Customers: Continue to be served by a leading provider of insurance solutions, with strong sales in annuities and life insurance products.
• Employees: The company maintains approximately 1,200 employees and has been recognized as a 'Top Workplaces company' for seven consecutive years, suggesting a positive work environment.
• Creditors: The company maintains a strong capital profile with 97% investment-grade fixed maturities and a debt-to-capitalization ratio managed to its long-term target, indicating financial stability and ability to meet obligations.

Next Steps

• Expect further improvement in the operating expense to AUM before flow reinsurance ratio in the second half of the year.
• Continue progress towards medium-term Investor Day targets, including growing AUM by 50%, expanding adjusted ROA ex significant items to 1.33%-1.55%, and increasing adjusted ROE ex AOCI and significant items to 13%-14%.
• Host a conference call with the investment community on August 7, 2025, to discuss Q2 2025 results.

Key Dates

Recommendation

While the significant year-over-year decline in GAAP and adjusted net earnings is a concern, it is largely attributed to volatile mark-to-market effects and alternative investment performance below management's long-term expectations, rather than a fundamental deterioration of the core business. The company demonstrated strong operational positives, including record AUM, robust retail sales growth, improved adjusted ROE ex AOCI, and enhanced expense efficiency. Management's confidence in achieving Investor Day targets and the strategic shift towards a more fee-based, less capital-intensive model are positive long-term indicators. Given the mixed results with strong operational performance offsetting the earnings dip, a 'hold' recommendation is appropriate for investors to monitor the execution of strategic initiatives and the stabilization of alternative investment income.

Keywords

Annuities, Life Insurance, Financial Services, SEC Filing, Earnings Report, AUM, ROE, Insurance Solutions, Retirement Planning, Investment Portfolio, Fixed Annuities, Indexed Annuities, Pension Risk Transfer, IUL, MYGA