Yesterday, F&G Annuities & Life (FG) dropped ~11.5% upon releasing Q1 results. I turned bullish on F&G when the stock fell in response to the secondary public offering on March 20, 2025, and purchased shares at ~$34.50. I explained my rationale in the post on March 21 and have published two updates since (on March 25 and April 30). On May 8, FG closed at $31.82, and a report to my readers is due. It will consist of two parts - comments on Q1 and an update on my bullish thesis.
Weak Q1
F&G is a life insurer that closely follows Apollo’s Athene’s recipe. It is the same business model focused on fixed annuities and similar products. Instead of internal asset manager Apollo, external Blackstone manages F&G’s investment portfolio.
Deviating from Athene, F&G offers one life product - the so-called Indexed Universal Life (IUL), which combines a death benefit with a cash value component that earns interest linked to the stock market performance. While IUL has mortality risk, its sales are relatively small (~5% of all reserves) and it is not related to what happened in Q1. Ignoring IUL, we can imagine F&G as a smaller and lower quality Athene. Further on, we will use this analogy.
Other F&G’s products are fixed deferred annuity (MYGA - multi-year guaranteed annuity), fixed-index annuity (FIA), pension risk transfer (PRT), funding agreements (FA), and a relatively new registered index-linked annuity (RILA). They vary in terms of customers (MYGA, FIA, and RILA are retail products for individuals, while PRT and FA - wholesale products for institutions), sales channels, surrender risks, capital requirements, and margins. The optimal combination fluctuates depending on the competitive situation, interest rates, demand, and the strength of respective sales channels.
Importantly, demand for institutional products is less predictable than for retail products. Hence, F&G and its peers remain focused on retail products, though wholesale product sales can spike in a given quarter when attractive opportunities arise.
Between retail products, RILA is promising but still small, and F&G sales are split between MYGA and FIA. FIA’s margins (i.e., spreads) are about two times higher, and capital requirements are typically lower. Consequently, F&G (as well as Athene) strives to sell and retain as many FIAs as possible. On the contrary, F&G cedes MYGA flow to reinsurers and is compensated via fees rather than spread.
Quarterly results are measured by adjusted net earnings (ANE), i.e, earnings excluding multiple mark-to-market (MTM) changes and certain one-off items. ANE is, roughly speaking, the product of assets under management (AUM) and net spread. For F&G and Athene, net spread and return on assets (ROA) are the same thing.
And now we are ready to check the Q1 results.