10-Q: F&G Annuities & Life Reports Steep Earnings Decline

F&G Annuities & Life, Inc. reported a significant drop in net earnings and EPS for the first half of 2025, despite growth in assets under management.

Summary

• Net earnings attributable to F&G common shareholders plummeted to $10 million for the six months ended June 30, 2025, a sharp decrease from $309 million in the same period of 2024.
• Basic earnings per share (EPS) fell to $0.08 for the six months ended June 30, 2025, down from $2.49 in the prior year period.
• Total revenues decreased to $2,272 million for the six months ended June 30, 2025, compared to $2,741 million in the first half of 2024.
• The company's total assets increased to $91,816 million as of June 30, 2025, up from $84,931 million at December 31, 2024.
• Assets Under Management (AUM) grew to approximately $64 billion as of June 30, 2025, from $60 billion at December 31, 2024.
• Gross sales for the six months ended June 30, 2025, were $7,008 million, a decrease from $7,915 million in the comparable 2024 period.
• A public offering of 8,000,000 shares of common stock on March 24, 2025, generated net proceeds of $269 million, used for general corporate purposes and organic growth.
• F&G redeemed $300 million of its 5.50% Senior Notes on February 1, 2025, and completed a public offering of $375 million in 7.300% Junior Subordinated Notes on January 13, 2025.
• A new strategic partnership with a Blackstone-backed reinsurance vehicle was announced on August 6, 2025, anticipating $1 billion in capital commitments for forward flow reinsurance of fixed indexed annuity products.

Sentiment

Score: 2

Explanation: The significant decline in net earnings, EPS, and adjusted net earnings, coupled with a swing to net recognized losses, indicates a very poor financial performance. While AUM increased and strategic partnerships were formed, the core profitability metrics are severely impacted, and ongoing regulatory risks add uncertainty.

Positives

• Total assets increased to $91,816 million as of June 30, 2025, from $84,931 million at December 31, 2024, indicating balance sheet growth.
• Assets Under Management (AUM) and Average Assets Under Management (AAUM) both increased, reflecting net new business asset flows and stable inforce retention.
• Successfully completed a public offering of 8,000,000 common shares, raising $269 million in net proceeds for general corporate purposes and organic growth.
• Established a new strategic partnership with a Blackstone-backed reinsurance vehicle, anticipating $1 billion in capital commitments to provide long-term, on-demand growth capital.
• Increased policyholder fees and other income, driven by growth in business and higher guaranteed minimum withdrawal benefit (GMWB) rider fees.
• Interest and investment income increased for the six months ended June 30, 2025, compared to the prior year period.
• Successfully redeemed $300 million of 5.50% Senior Notes, demonstrating effective debt management.
• The stockholder derivative lawsuit related to the preferred stock investment and corporate governance measures was dismissed with prejudice, resolving a legal overhang.
• Management believes the IDC lawsuit will not have a material impact on its business, operations, or financial results.

Negatives

• Net earnings attributable to F&G common shareholders decreased significantly to $10 million for the six months ended June 30, 2025, from $309 million in the prior year period.
• Basic and diluted EPS saw a substantial decline, reaching $0.08 for the six months ended June 30, 2025, compared to $2.49 and $2.45, respectively, in the same period of 2024.
• Total revenues decreased to $2,272 million for the six months ended June 30, 2025, down from $2,741 million in the first half of 2024.
• Recognized gains and (losses), net swung from a $195 million gain in the first half of 2024 to a $(212) million loss in the first half of 2025, primarily due to mark-to-market losses on equity securities and derivative instruments.
• Adjusted net earnings decreased to $194 million for the six months ended June 30, 2025, from $247 million in the prior year period.
• Investment income from alternative investments was $146 million below management's long-term expected return for the six months ended June 30, 2025.
• Yield on AAUM decreased to 4.94% for the six months ended June 30, 2025, from 5.18% in the prior year period.
• Gross sales decreased for the six months ended June 30, 2025, compared to the same period in 2024.
• Market risk benefit (gains) losses reflected unfavorable market-related movements and actual policyholder behavior compared to expectations for the six months ended June 30, 2025.
• A $3 million increase in the valuation allowance for deferred tax assets was recorded for the six months ended June 30, 2025.
• Corbeau Re's statutory capital would be negative and its risk-based capital would fall below minimum regulatory requirements without certain permitted statutory accounting practices.

Risks

• The U.S. Department of Labor's (DOL) New Fiduciary Rule, if it becomes effective, could significantly broaden the definition of a fiduciary, increasing regulatory risk, compliance burden, and potentially affecting agent business models, IRA product sales, distribution supervision, compensation practices, and liability exposure.
• Ongoing litigation, including the IDC v. FGL Insurance lawsuit alleging breach of contract and discrimination with damages claims exceeding $173 million, and class action lawsuits related to the MOVEit data breach, pose potential financial and reputational risks.
• Exposure to market conditions, including volatility in capital markets, consumer and investor confidence, foreign currency exchange rates, commodity prices, inflation, and trade policy, could significantly impact financial results.
• Rising interest rates could lead policyholders to surrender policies with existing lower guaranteed rates, negatively impacting earnings and cash flows.
• The company holds $3,465 million in gross unrealized losses on fixed maturity available-for-sale securities and equity securities as of June 30, 2025, primarily due to higher treasury rates.
• Significant concentration of reinsurance risk with third-party reinsurers (Aspida Re, Somerset, Everlake, Wilton Re) could materially impact financial position if any fail to perform their obligations.

Future Outlook

The company anticipates that various macroeconomic factors will continue to drive uncertainty and instability in fiscal year 2025. The aging U.S. population is expected to increase demand for indexed annuity and indexed universal life (IUL) products. The outcome of the litigation regarding the DOL's New Fiduciary Rule remains uncertain but could materially affect business operations. The company's life subsidiaries are expected to join the Fidelity National Financial, Inc. (FNF) consolidated tax return group in 2026, which should strengthen their corporate alternative minimum tax (CAMT) position. The One Big Beautiful Bill Act (OBBBA) tax reform provisions, effective from 2025 through 2027, are not expected to have a material impact on the unaudited Condensed Consolidated Financial Statements.

Management Comments

• We continue to prioritize pricing discipline and capital allocation to the highest return opportunities.
• Management believes these current and emerging developments relating to market conduct standards for the financial services industry may, over time, materially affect the way in which our agents do business, the role of IMOs, sale of IRA products including IRA-to-IRA and employer plan rollovers, how we supervise our distribution force, compensation practices and liability exposure and costs, all of which could adversely impact our business, results of operations and/or financial condition.
• Management is monitoring further developments closely and will be working with IMOs and distributors to adapt to these evolving regulatory requirements and risks.
• The company believes the share repurchase program is an efficient means of returning cash to shareholders when we consider the shares to be undervalued.

Industry Context

The company operates in the underserved middle-income American insurance market, which is identified as a major growth opportunity. The aging U.S. population, with over 10,000 Americans turning 65 daily and a projected 30% increase in people aged 65 and older over the next 25 years, is expected to significantly increase demand for retirement savings, growth, and income products like indexed annuities and IUL. The fixed index annuity market has grown substantially from $12 billion in 2002 to $130 billion in 2024, and the registered index-linked annuities (RILA) market from $17 billion in 2019 to $62 billion in 2024. The IUL market has also expanded from $100 million in 2002 to $2 billion in 2024. The company is positioned to benefit from industry consolidation as a potential distribution consolidator.

Management Changes

Corporate Governance

Legal Proceedings

• Fidelity & Guaranty Life Insurance Company (FGL Insurance) is a defendant in 'Insurance Distribution Consulting, LLC (IDC) v. Fidelity & Guaranty Life Insurance Company', alleging breach of contract and discrimination, with claims exceeding $173 million. Trial is expected in Fall 2025.
• Peak Altitude Equity, LLC, a subsidiary, was served with a new lawsuit by IDC as a counterclaim in 'Syncis Insurance Solutions, LLC v. Insurance Distribution Consulting, LLC', with overlapping allegations.
• F&G is a defendant in two putative class action lawsuits ('Miller v. F&G' and 'Cooper v. Progress Software Corp.') consolidated under a multidistrict litigation (MDL), related to an alleged vulnerability in the MOVEit file transfer software used by a vendor, potentially compromising customer personal information.

Related Party Transactions

• F&G is a majority-owned subsidiary of Fidelity National Financial, Inc. (FNF), which owns approximately 82% of F&G common stock as of June 30, 2025.
• FNF purchased 4,500,000 shares of F&G common stock at $33.60 per share in the March 24, 2025 public offering.
• Quarterly cash dividends were declared for FNF preferred stock.
• F&G has a senior unsecured revolving credit facility with FNF with $200 million capacity.
• A stockholder derivative lawsuit was filed against FNF and William P. Foley (Executive Chairman of F&G and Chairman of FNF) alleging breach of fiduciary duty related to F&G's sale of preferred stock to FNF, which was subsequently dismissed.

Stakeholder Impact

• **Shareholders**: Experienced a significant decline in net earnings and EPS, potentially impacting shareholder returns, although common stock dividends were declared and a stock repurchase program is authorized.
• **Customers**: Increased demand for annuity and IUL products is noted due to demographic trends, but potential impact from the MOVEit data breach could affect customer trust.
• **Employees**: Executive management changes occurred, with John Currier transitioning and Conor Murphy assuming a dual role.
• **Reinsurers**: A new strategic partnership with a Blackstone-backed reinsurance vehicle is expected to provide significant capital, while existing concentrations of reinsurance risk with other third-party reinsurers remain a factor.
• **Regulators**: The company faces ongoing regulatory scrutiny and adaptation requirements related to the DOL's New Fiduciary Rule, which could impact business practices and compliance costs.

Next Steps

• Trial for the IDC v. FGL Insurance lawsuit is expected in the fall of 2025.
• The company's life subsidiaries are scheduled to join the consolidated tax return group with Fidelity National Financial, Inc. in 2026.
• The company will continue to monitor and adapt to evolving regulatory requirements and risks related to the DOL's New Fiduciary Rule.
• Annual review of cash flow assumptions for various liabilities and intangible assets (VOBA, DAC, DSI, FPB, MRBs, URL) is typically conducted in the third quarter.

Key Dates

Recommendation

The company reported a drastic decline in net earnings and EPS for the first half of 2025, indicating a significant deterioration in core profitability. While assets under management have grown and strategic capital raises/partnerships are in place, these have not translated into improved bottom-line performance. The substantial swing to net recognized losses and lower returns on alternative investments are concerning. Coupled with ongoing legal proceedings and regulatory uncertainties surrounding the DOL Fiduciary Rule, the immediate outlook for profitability is weak, suggesting a 'sell' recommendation for a seasoned investor prioritizing current financial performance and risk mitigation.

Keywords

Annuities, Life Insurance, SEC Filing, Financial Results, Earnings, EPS, Assets Under Management, Reinsurance, Debt, Capital Raise, Fiduciary Rule, Market Risk, Investment Income, Insurance Industry