F&G Annuities & Life (FG) Q2 FY26 earnings call: guidance and Q&A

Can you provide color on spread stabilization, cost of crediting, surrender charges, and acquisition costs, and how they performed this quarter?

Core fixed income was in line with expectations and higher than Q1. Cost of crediting was consistent QoQ but higher YoY due to higher rates on PRT/funding agreements. Surrender charges remained elevated industry-wide but consistent QoQ. Noted increased DAC amortization from a Q3 assumption review and slight softness in mortality on the PRT book.

“If I start with the core fixed income that was very much in line with our expectations. It was higher than Q1. In Q1, we had a few things that we mentioned that we believe were temporary and would resolve themselves in Q2. And indeed, that is the fact.”

asked by Wilma Jackson Burdis · answered by Conor Murphy

Given the strong buybacks this quarter, what is the appetite for future buybacks, considering the limited float?

Q2 buybacks were opportunistic due to the stock being undervalued and should not be assumed to continue at that pace. It is a balancing act against other capital deployment opportunities, not a primary tool for future capital expenditure.

“For us, big capital return or reputed buybacks in Q2 as an opportunity to deploy capital in the optimum way. So I would start carefully by saying that you should not assume that we'll necessarily continue to do that. But as we took advantage of the stock being taped at on.”

asked by Wilma Jackson Burdis · answered by Conor Murphy

What are the key strategic areas of focus for the business from a longer-term perspective under your new leadership?

The focus will be on continuing momentum in core retail sales (FIA, IUL, RILA), expanding fee-based and less capital-intensive business models (optimizing Peak, life business, reinsurance opportunities), and unlocking value not yet ascribed to F&G, which is often viewed primarily as a spread business.

“I would also -- we've been focused on expanding fee compared with spread. We've made a lot of progress in that over the last couple of years, you should expect it. a continuation of that. That's a combination of optimizing peak, the life business, which is also performing very well and the reinsurance opportunities.”

asked by Anling Chen · answered by Conor Murphy

Can you provide an update on Peak Altitude and the factors being weighed as you evaluate strategic alternatives for the business?

The primary intention is to bring in a strategic partner to acquire slightly over half of Peak (e.g., 51-49), allowing F&G to retain growth opportunities in its half. This would provide cleaner accounting and unlock value, as Peak currently has no debt and could fund future growth. There has been interest, but it's early days.

“But the primary intention would be to bring in a strategic partner that would acquire slightly over half of peak. So call it a 51-49 or something along those lines, where we would retain our ability to grow our half as well because we believe there's great growth opportunities within Peak in the 4 entities that are already there.”

asked by Anling Chen · answered by Conor Murphy

What sort of returns are you expecting for the alt portfolio for the full year or in the back half?

Management maintains a 12% long-term expected return, but near-term Q3 returns might be comparable to H1 (7-8%) due to a difficult quarter across the industry. A new disclosure on Page 38 of the investor presentation details vintages and expected returns based on life cycle, showing a blended 10% for 84% of the portfolio within 10 years.

“So to get to the answer to your question, near term, I'm not even going to go to the second half of the year. If you said near-term Q3, I would say I don't see a compelling argument for being very different from that sort of 7% or 8% that we've seen in the first half of the year.”

asked by Maxwell Fritscher · answered by Conor Murphy

If you strip out the Bermuda cession and funding agreement maturity, what would the underlying organic growth rate in retained AUM look like?

On an apples-to-apples net basis, after accounting for reinsurance (90% of MYGAs, half of FIAs), the underlying organic growth rate in retained AUM is probably closer to 3%. Reinsurance is used to drive ROE up faster, even if it doesn't drive net AUM as quickly.

“So I would say you should have an expectation that, that growth number would continue to grow in that high single digits. It will go up meaningfully. I think you might have an expectation of it going up, I don't know, something in the region of billion per year. But then you would be taking that percentage and cutting it in half. or even slightly more depending on where the volume falls. So we don't reinsure the life business or the PRT business. But I think you would have an expectation that's probably closer to maybe 3% on an apples-to-apples basis on the net basis.”

asked by Oscar Netis · answered by Conor Murphy

How is the Pension Risk Transfer (PRT) business pipeline shaping up for the second half of the year?

PRT business typically sees more activity in the second half. H1 was muted with 4 modest deals. F&G is targeting $1.5 billion to $2 billion for the full year, aiming to maintain similar volume to prior years rather than growing it. The market might see less volume due to underlying pension plans being well-funded.

“We're targeting -- this is a budget that for us. We're targeting something in the kind of $1.5 billion to $2 billion range. We're not necessarily -- actually, we're not trying to grow it each year bigger than the year before.”

asked by Mark Hughes · answered by Conor Murphy