Greetings, and welcome to the F&G Annuities & Life's Third quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lisa Foxworthy Parker, Senior Vice President Investor and External Relations. Thank you, you may begin.

Great, thanks operator, and welcome everyone to F&G's third quarter 2023 earnings call. Joining me today are Chris Blunt, Chief Executive Officer, and Wendy Young, Chief Financial Officer. We look forward to addressing your questions following our prepared remarks. Today's earnings call may include forward-looking statements and projections under the Private Security Litigation Reform Act, which do not guarantee future events or performance. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events, or changes in strategy. Please refer to our most recent SEC filings for a discussion of the factors that could cause actual results to differ materially from those expressed or implied. This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. Non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules within our earnings release, financial supplement, and investor presentation, all of which are available on the company's website. Today's call is being recorded and will be available for webcast replay at fglife.com. It will also be available through telephone replay beginning today at 1:00 PM Eastern Time through November 22, 2023. And now, I'll turn the call over to our CEO, Chris Blunt.

Good morning, and thanks for joining us today. I'm pleased to announce another set of strong results for the third quarter as we continue to execute on our diversified growth strategy while maintaining a disciplined and balanced capital management process. I'd like to recognize and thank our team for all that they have done to deliver record growth sales in the first nine months of this year, which have in turn generated record assets under management and an adjusted return on assets excluding significant items that is well above our expectations. All of this while pursuing opportunities to further grow assets, expand our future profitability, and deliver long-term value for our shareholders. Starting with year-to-date results, we have generated record growth sales while maintaining pricing discipline and executing on our flow reinsurance strategy. Growth sales were $9.1 billion for the nine months ended September 30, up 7% over $8.5 billion in the prior year. Year-to-date retail growth sales were $7 billion, up 17% over the prior year period. Institutional sales were $2.1 billion, comprised of $1.2 billion of pension risk transfer, and $900 million of funding agreements. We are on track to deliver 2023 annual growth sales of between $12 and $13 billion in line with our stated goal of throwing at a double-digit clip. Our net sales were $6.7 billion in the first nine months of the year. On an annualized basis this places us well above our stated goal of managing net sales retained above the $6 billion to $7 billion annual level that continues to grow our retained AUM. Next, looking at third quarter results more closely. Coming off record sales in the first half of the year, retail sales were intentionally lower in the quarter as we finalized our reinsurance agreements and enhanced product features to…

Thanks, Chris. We are very pleased with F&G's financial performance in the third quarter and we continue to maintain strong capitalization and financial flexibility to successfully execute our growth strategy. Starting with our year-over-year increase. Adjusted net earnings were $120 million or $0.96 per share for the third quarter of 2023 and included $114 million or $0.91 per share of investment income from alternative investments. Alternative investments investment income based on management's long-term expected return of approximately 10% was $142 million or $1.13 per share. Last year, we reported an adjusted net loss of $12 million or $0.10 per share for the third quarter of 2022. That included $11 million or $0.09 per share of investment loss from alternative investments and $11 million or $0.09 per share of other net expense items. Alternative investment income based on management's long-term expected return of approximately 10% was $106 million or $85 per share. For comparison, adjusting for these significant items in both periods, adjusted net earnings were $148 million, up 28% from $116 million in the third quarter of 2022, and adjusted return on assets was 119 basis points as compared to 111 basis points in the prior year quarter. This $32 million increase in adjusted net earnings and eight basis points increase in ROA was generated by $56 million or $24 basis points from higher product margin over the prior year driven by asset growth, floating rate asset uplifts, and disciplined pricing, and $14 million or seven basis points increase from a credit flow reinsurance, which includes expense allowance reimbursement partially offset by $34 million or $21 basis points decrease from higher expenses related to higher interest expense in line with our capital markets activity and higher operating costs in line with our growth in sales and assets and continued investments…

Thank you. We will now be conducting a question and answer session. [Operator Instructions] Thank you. Our first question comes from the line of John Campbell with Stephens. Please proceed with your question.

Hey guys, good morning and nice work on the continuation of really great results.

Thanks John.

Sure. On the normalized ROAs, if we factor in the long-term alternative investment yield, we'd normalize that. I mean that's been creeping higher, I think 120 bits or so this quarter. At your Investor Day, Chris, I think you talked to expected degree of upwards pressure over time. Nothing meaningful, but maybe just some kind of upwards momentum. Are you still feeling confident about that and then maybe moving forward call it near to medium term, do you think you can hold near this mark or possibly keep moving it modestly higher?

Yes, I think it was a particularly good quarter, but it's the same drivers, right? So we've seen an uptick in short-term interest rates that's helped the floaters in the portfolio. We're getting a little bit of expense scale we would expect to get over time. And then as we've said before, we think it's quite a creative of some of the flow reinsurance deals that we've put in place. And then the last thing is, you know, Wendy mentioned some of the hedging we've done on the floaters trying to lock in some outperformance there. So yes, we still feel good about upside in terms of margin from here.

Okay, very helpful. And then, Chris, just maybe two more here. On the annual growth sales, you mentioned $12 billion to $13 billion. As we start doing the modeling for 4Q, I'm thinking PRT is probably the answer here. But what else should we consider for kind of the key swing factors from the low to high end of that range?

Yes, I think it's across the board. We're having a good fourth quarter in retail. Pipeline and PRT is usually quite strong in the fourth quarter, and that's the case here. So, I would quite frankly say we're probably going to be at the higher end of the range that we gave for annual sales.

Okay, that's great to hear. And then on the dividend, it was nice to see the 5% raise. You guys announced yesterday. It looks like you've got a lot of wiggle room. I mean, if I go up the last 12 months of the kind of normalized earnings I was talking to earlier, that $0.21 dividend is implying like a 19% payout ratio. I could probably get this later, but I'm hoping you guys might be able to shortcut it. What are your peers paying out typically from a payout ratio standpoint? And then thinking about it longer term, what do you guys feel comfortable as far as payout ratio might be concerned?

Yes, it's interesting. I don't know that we necessarily think about it that way, because one thing that's just different from us from our peers is, one, we don't really have a legacy block that's running off. It's frankly all new business, and we're earning terrific returns right now in that new business. So, primary source of capital return for us is going to be the dividend. We've said we believe it's sustainable. We believe it's something we can grow at a healthy clip going forward. So, I don't think anything changes with respect to that. We did also up the share buyback authorization, but that's more just because some of the limited flow, we've seen some volatility in our stock, and we wanted to make sure we had that lever available. I don't know, Wendy, if there's anything you want to add to that.

You hit all the key factors. A lot of the competitors' payout ratios often include larger repurchase programs. So, ours won't be as high.

Yes, I think part of that, again, to be clear, we hear this directly from investors is - hey, if you're generating the types of return, you're generating for effectively taking investment grade fixed income risk, which is how we think about the business, then we want you to continue to invest in the business. I think the point on the dividend is just, you know, it opens up a set of investors that obviously like a steady and growing dividend stream.

Yes, I agree with that. Makes a lot of sense. Thanks, guys.

Awesome, thank you.

Thank you. We have reached the end of the question-and-answer session. Mr. Blunt, I would like to turn the floor back over to you for closing comments.

Thank you. So, we're pleased, obviously, with our overall results, despite the uncertainty and volatility in the current macro environment. F&G remains poised to benefit from this higher rate environment and is well-positioned as we enter the fourth quarter and move into 2024. As we outlined in our recent Investor Day, we have clear levers to deliver enhanced results with a focus on asset growth and margin expansion, which we believe will drive multiple expansion and deliver value to shareholders. Thanks for your time this morning. We appreciate your interest in F&G, and we look forward to updating you on our fourth quarter earnings call.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.