F&G Annuities & Life, Inc. (FG) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Ryan Krueger, life insurance analyst at KBW. Final fireside of the conference. Save the best for the last. We got with F&G is up with me, Chris Blunt, to my -- in the middle, CEO; and Conor Murphy, President and CFO. To start, certainly been a busy year for F&G between capital raising, a new reinsurance partnership. You've taken some expense actions. Conor joined as CFO and now President as well. So hoping to just start by providing an update on F&G and how the company is positioned moving forward from here.

Yes. Great. So obviously, yes, there's been a lot going on. Family members are like, wow, you have a press release every 2 days. I'll start with Conor. Obviously, a great addition to the team. We had an opportunity. We had met previously at various industry functions, but we knew we would likely have some senior retirements coming up and had an opportunity to grab an athlete, and I think it's been fantastic. It feels like you've been on board for a very long period of time, even though it's been pretty short and pretty eventful. So yes, very excited to have him, not only a great toolkit, but I think more importantly for us, we're very protective of our culture, and I think it's been just a fantastic cultural fit for us. Yes, I'll touch on the sidecar. Obviously, that's a big deal. I think it's a bigger deal than investors actually realize. So it's $1 billion of committed capital. It for us is really a launching point to pursue a more capital-light strategy. I've alluded to this for years of F&G being more and more of a distributor as opposed to a big balance sheet company. And while we'll continue to retain assets on our balance sheet, highly accretive for us to be a distributor for other people's balance sheet. So sidecar fits in. We've got a number of other really attractive flow reinsurance partners. And then the last is our own distribution business continues to perform extremely well. So between flow reinsurance and the work that we're doing around own distribution, yes, I think you'll see over time more and more of our earnings coming in with much less of a capital component. Lastly, in terms of expense actions, like everybody feeling a little bit of spread pressure in the current environment, we came to a conclusion that while it's temporary, temporary could last for some period of time. And as we assessed our expense base, we had realized we've grown incredibly quickly in a short period of time. We were probably tackling too many projects simultaneously. So we did pair that back a bit, but that's probably will contribute about 10 basis points from an expense ratio. So yes, the team has been pretty busy, but outlook right now continues to be real positive.

Maybe we'll dig into -- I'll start with the retail annuity sales. The industry was $250 billion of annual annuity sales for 15 years. And now I think we maybe get up to $450 billion this year. So we've seen a huge increase for the industry and for F&G. What would you attribute this to? And I think the big question is, can this be sustained and keep growing from here? Or do you see risk of some pullback at some point?

Yes. Look, I think the rate piece is overdone. So is it easier to sell annuities with a 5 handle than a 2 handle? Of course, it is. But I think the bigger drivers are demographics. I say it's all time. I'm baby boomer, most of my friends are baby boomers. The penetration rate of fixed annuities, in particular, is still really low relative to the opportunity. If you tackled 20 people on the streets in New York, my age and ask them how a fixed annuity works, could you turn a lump of cash into a lifetime income stream? What kind of rate could you get? They'd fail pretty miserably. So I think there's still a huge opportunity there. I think the other watershed event is you're seeing financial advisers who've never used annuities ever really start to embrace them. Some of that is rates went up for the first time in our lifetimes. And so advisers saw clients lose money in fixed income mutual funds and realize, wow, I can have principal protection, get fixed income exposure, frankly, get paid better than selling a mutual fund by utilizing indexed annuities as one example. So I think that's a big trend that we're seeing. And then you get into products like RILA now you're in the realm of mutual funds, right, where you have some defined outcome on returns. So yes, could you see a little bit of a drop off as rates come down? You could, but I think it's going to be short, and I don't think it's going to be very steep.

Shifting to competition. So I guess, the -- I'd say that the market has -- more and more competitors have decided that they like the market. So we've definitely seen an increase in the number of competitors within the annuity market over the last several years. How would you describe the competitive environment today? And maybe if you could distinguish a bit between MYGAs and fixed indexed annuities.

Yes. Let me take that one, Ryan. A healthy level of competition. I think if I could maybe frame it for us in the context of on the annuity side, we have a significant business in the fixed indexed annuities that's fairly constant. We're always looking to maintain and grow that. And then in the MYGA space, which for us is a little more opportunistic, lots of competition there. The sales lines, if I get this right, I think we were up almost 10% in the second quarter, down almost 10% in the first quarter. So it was a little bit. But we also have a number of reinsurance partners there. And they too have -- they have their own range of outcomes that they want to receive. Sometimes they're a little more ambitious than others, they're a little more reticent. So I think within that, we've seen -- I mean we did a very -- we did, I think, a reasonably modest number in the first quarter and a very large number in the second. So it's a little bit opportunistic for us of where are the economics and how do they compare across the board. As compared with FIA, which is just much more stable and probably much more fundamental foundational core for us. There, though, while we had a whole suite of reinsurance partners on the MYGA side, we didn't have a full suite on the FIA side until now with the -- that was a big significant part to be clear, the sidecar we just did with Blackstone is for the FIA business. So we will not have -- we will likely evolve to where maybe 50% roughly of the FIA business will be retained and 50% reinsured. MYGA, we're probably closer to 80%, 90%, most often being reinsured. We did retain some more in the early part of the year because we saw some real investment opportunities. But as a general expectation, that's what I would see.

And only thing I'd add to what Conor because I think you nailed it is that, MYGA, there's only 2 moving parts. What's the rate that you're guaranteeing and what you're rating? And so if you're a financial adviser, it's, boy, are these guys going to become insolvent in the next 5 years? If I think the answer is no, then I might as well grab the highest rate if I can simplify it. FIA is a completely different category, right? Clients are locked in for an extended period of time. The terms can be changed. So your reputation matters, your reputation for your reset rates, how do you treat your policyholders, your level of service, how do you treat advisers? And that's just a lot harder to replicate. So I don't think most advisers, particularly in the independent channels, are desperately looking for more carriers. As long as folks are doing a good job, they're pretty content there. So very different competitive dynamics.

And maybe to take that even a step further, the pricing framework is different. Within MYGA, you've got to get it right at the start. And you do, obviously, with your FIA as well. But as the market dynamics change with your FIA, you're getting to reprice that every year. Now you've got to do that within modest bonds in terms of your reputation and your view in the marketplace. But that's helpful as well because if you're writing a spread business that you have the ability to maintain that spread through the life of the product.

On MYGA out of curiosity, just like how much flexibility do you have on how much you reinsure versus retain? Can you move that up and down a lot? Or is it -- or contractually, how much of it is kind of -- is not in your control?

You can -- you have a lot of flexibility. I mean, at any point in time, if you will, you could write business that -- arguably, you could write business at lower returns that you know at the outset, your reinsurance partners don't want and decide to take all of it. Now that's probably not the most attractive opportunity in the marketplace. And having said that, we -- there are -- back to Chris' point, there are a lot of entrants. It's very much a space where if you have a new reinsurer backed by private equity, the first place they're probably going to go is into market. They're going to do that before they get into sidecar. They're certainly going to do that before they get into a block deal and all the regulatory oversight that comes with that. So no shortage of partners. And you want a blend of partners from just, call it, from a risk management diversification perspective as well. So plenty of partners, plenty of opportunities. We have a number of good ones that are all household names. But if we wanted others that were perhaps less well known, there would be plenty knocking on the door to do so.

The one more, I guess, retail annuity product you sell is RILA product category. Can you talk about how the rollout has gone? How long do you think it could take for RILA to become a more meaningful contributor to you? And maybe also just some of the challenges of breaking into the distribution in RILA compared to the other products?

Well, let me start, if I may, on that. A product that was really dominated by 3 carriers a handful of years ago, I think, right, between MetLife, Lincoln and -- sorry, MetLife Equitable and Allianz and some of the bigger providers that came in. We are -- we weren't one of the first 20, I think, to market. We were just outside maybe 20, 21, 22, something like that. So for us, it's grown well. We're on -- I think we have 7 partnerships. We're seeing significant growth, but from a small base compared with the rest. All of the other core products for us actually and MYGA. So our IUL, our PRT, our FIA and our MYGA are all top 10, probably all sort of 5, 6, 7-ish in terms of the U.S. marketplace. It's going to take a while for RILA to be that significant. Having said that, personally, and I think from a corporate point of view, a great believer in the product, the value of the product, the attractiveness to a younger dynamic as well. So we will persevere and grow this, and it will be very important to us, but it's going to take a while to be as significant as the other 3 or 4.

Yes. I mean the good news and the bad news is we never wrote variable annuities. So the good news is obvious, right? We don't have a block of legacy VA. The downside is, yes, we're a new kid on the block in BD. And I think what we underestimated was just the long lead time to get on platforms, right? You got to have the right electronic connectivity. You need to get in the queue to get on the platform. The good news is when we're on a platform, we're getting traction. So the product is getting traction. But yes, I would say it's taken significantly longer to get. And it will probably be somewhat exponential, meaning you'll get a couple of the really big name players that can move a lot of product as opposed to a little drip for us.

Got it. Moving to pension risk transfer. Can you talk about where in the PRT market, F&G focus is? How the pipeline looks at this point and the growth opportunity you see?

I'll do a little framework then too. So we play in the $100 million to the $1 billion range. So we're not competing with maybe the Mets, the [ Prus ], the Athenes. One of our very valuable competitors just left the stage, for example. So there's -- the marketplace is fairly active. And so we would be looking at 5 to 10 maybe deals a quarter and with an expectation of maybe winning kind of 1 in 4. So I think if I go over the last sort of 6 quarters, I think the low end might have been about $300 million, the higher, we did almost $1 billion in one of the quarters. There will be quarters where we may not do any, and that's okay. But overall, I think last year, we did about $2.2 billion, anywhere in that kind of $1.5 billion to $2.5 billion range, I think, is a reasonable expectation. It's hard to imagine we would do $4 billion anytime soon. But again, we're -- and I think we were maybe #6 last year. So very fun of the space. I'm not sure we want to go below the $100 million. It's operationally a little more challenging. And so I think we compete very well where we are, and we'll continue to do that and see where it goes from there.

A pretty consistent group of competitors, too. When we lose, we tend to -- it's sort of like a jump ball. Sometimes someone will pay up for a brand name because they're less familiar with an F&G. But to Conor's point, we're selective on what we bid on, but our hit rate has been about 1 and 4, and that's been pretty consistent.

Can you talk -- I guess you had an Investor Day in 2023, you had established a return on asset target of 133 to 155 basis points that you would get to within 5 years. So now I guess, I think we're a couple of years, I guess, probably not even a couple of years, I think it was at the end of 2023. But how have you progressed so far towards the target? And also, what are the -- I guess, if you could also touch on the key drivers of improvement, too.

100%. So just a quick recap of the goals that we set out, and it was designed to be a 5-year plan. So let's just call it roughly 2 years into it that we would grow AUM by 50%. I think we're well on track to do that, probably most likely to exceed that for sure. The drivers on spread, we started with a base of 110 and said we could get to 133 to 155. I'd say we're well on track there. last 12 months, 129, somewhere in that neighborhood. So obviously, some good progress there. And we talked about the levers being accretion from flow reinsurance. Obviously, the sidecar helps in a big way. So I think we will outperform on that metric. We had some portfolio uplift opportunities. I think we'll outperform on that one, own distribution because those are onetime investments that then kick in quite a bit of EBITDA and that portfolio continues to perform well. I think we're running ahead on that one. The one we're probably the most ahead on, frankly, is expense. scale. We've made a lot more progress there than we probably anticipated. So the risk of controlling expectations, I would say that's gone well. Core spread, there's been a little more spread compression. So that probably pulls it back a bit. But yes, right now, I say we're feeling really good about achieving those targets, particularly since we've got 3 years ahead of us.

Where are -- and I think this is on a more of a normalized metric adjusting for variable investment income, where are you at right now relative to that target?

Yes. So last 12 months would be 129 basis points. That is normalizing for alts at 10%. And lately, that's been more in the 6% category. So that would be -- that's been a headwind that hopefully, at some point, becomes a tailwind. But so far, it's been a bit of a headwind.

Maybe just going back -- you already talked about it some, but just on the expense actions again. Can you just cover again what you did, what the impact will be on the return on assets? And then anything else from here, do you see an opportunity for more operating leverage just as you grow the business? I think because these are more expense oriented, but I imagine from a growth standpoint, you could potentially generate operating leverage, too.

Yes, you want to start with the actions?

So in terms of the actions, so much of the action was from an employee perspective. I think -- and Chris can add some perspective as well, but significant growth from, I think, maybe about 250 employees 5 or 6 years ago to close to 1,300, I think, around the time, more than 1,300 at the time. So we've grown very fast, and I think we had an opportunity to step back a little bit and perhaps take some action that didn't -- that was significant, but still left us with the ability to maintain our momentum and manage accordingly. So while it was significant, it was also an attempt to do that on a single basis. So -- and outside of that, a lot of the rest of it, I think, would just be sort of normal corporate stewardship individually, but nothing very noteworthy. So in terms of -- so mathematically, so we talk about our expense scale basis points math of just the core expenses relative to the gross AUM. And this will bring us -- will bring us from 60 basis points at the end of 2024 with an expectation to be at 50 at the end of 2025. But I should be clear that what we've done already is what is required. We don't have to do anything else in the second half of 2025 to bring those numbers in. And then from there, obviously, we'll -- all other things being equal, that should improve all the time anyway. I mean to take a little bit of a step back, there are -- well, and you can help me here, too, Ryan. There aren't many growth stories in the life space where we have had positive flows quarter in, quarter out. The AUM, both on a gross and a net basis grows every quarter as well. So obviously, our expectation is that, that would continue to be an improving that, that scalability would continue to improve. We've made some other changes internally, too, that I would describe as sort of infrastructurally around ops and technology that will continue to yield some benefits as well.

Yes. And just to be really clear, look, it's the last lever you want to pull, right? It's not a good day for the CEO or anybody when you have to exit people from the organization. I think the learning for us is we've grown so quickly that your appetite to fix every technology that needs to be upgraded every -- so we were clearly fighting the war on too many fronts in terms of trying to get things done, probably a little too paternalistic on some folks that maybe were not performing at the level that we needed to. So yes, and then I would say going forward, obviously, we haven't talked about it, but AI will be a powerful tool, and we're moving down the path quickly there. It's something I personally am pretty passionate about, and I think it's going to be a big opportunity from a productivity standpoint. So yes, the hope is we're going to be able to grow revenue at a much higher rate than we would grow overhead, if at all, going forward. So...

I wanted to go into the reinsurance strategy a little bit more. We've already talked about it some, but maybe you could review -- well, first of all, maybe just what the reinsurance strategy is, why you're doing it? And I guess, how to think about the economics for F&G when you're using flow reinsurance on new business?

Maybe I'll start this one and then Conor can jump in. I would say, again, back to F&G as a distributor. So 6 years ago, we did $3 billion of sales. Last year, we did $15 billion. We're a meaningful player. We're top 10 in every market we compete in, top 5 in our most important market, which is in FIAs. And really, what we've discovered is through either Dumblock or Strategic Brilliance, we're one of the few players left that has the capacity to work with outside reinsurers. In other words, we're not captive to one asset management relationship. And again, having said that, Blackstone has been an unbelievable partner. They're doing a great job on the credit side. The sidecar is game changing. So we're going to continue to grow our relationship and our AUM with Blackstone, but we are also working with other parties. And that's significant because the economics are pretty straightforward. You sell business and keep it on your balance sheet, you put up about 15% capital in the first year. It drops down to 7.5% for the life of the contract. In a reinsured sale, we put up 7.5% in year 1, and it drops to 0. So think about an FIA that might be 7 or 10 years in duration. Your return on capital is literally unlimited years 2 through 10 or 2 through 7. So it is highly, highly accretive for us to do that. We also believe over time, it is a much higher multiple business to be a distributor than a heavy balance sheet company. So that's not to say that we'll necessarily shrink our balance sheet, but the bulk of our growth going forward is going to be us as a distributor. And then the other opportunity for us is own distribution. The scaling up and rolling up of distribution partners has just getting started in the life and annuity space. It's nowhere near where P&C is, but it's inevitable. And the only thing I've ever learned in financial services is that over time, as distribution scales up, it gets more and more of the margin and it takes more of the big out of the business. And so we want to not only have it for defensive reasons, but we want to be able to participate in that. And that's a business that at some point, we believe we could -- one way or another, we could monetize that. So those -- put those 2 together, yes, it's part of a very deliberate path of F&G as more of a distributor as opposed to a balance sheet player.

Yes, right. Let me just click through the framework for just a second, too, which I think will just maybe help pull it all together. From an IUL perspective, right, a significant core product for us where we would have kind of your standard reinsurance partners, if you will, for mortality on the life side. And then on the annuity side, FIA will now move to a very fairly significant, at least maybe kind of a 50-50 was probably a reasonable starting point from a reinsurance point of view. PRT, we don't reinsure at this point in time. We could, and there are certainly -- we've had some exploration from the outside, but we haven't. We've already -- RILA, I presume we might get to. It's interesting to see nobody in the industry has really cracked that. It's too small for us. MYGA, we've spoken of heavily reinsured on the opportunistic side. And then our last opportunistic product, I should mention is FABN because we were active in the market yesterday. We had a very positive reception yesterday, which was good. So that's sort of the -- when you weigh up the -- and I bring that in the sense of when you weigh up the MYGA opportunity or the FABN opportunity, very often, there's a trade-off between those 2 as well. So those are -- call those the 6 product views and then the own distribution as the seventh. That's the whole book.

Is there -- actually just on FABN, do you see -- I guess, do you see a lot of upside to how big that could be with F&G? Or is there more measured growth?

There's -- yes, I think it comes down to the relative economics. So I would say yesterday was particularly good. We did $800 million yesterday, $500 million fixed $300 million floating. We were several times oversubscribed. We ended up doing that with very noteworthy portfolio managers, and we managed to pull our spread in a little bit as well. And even in the secondary market today, it's considerably inside that again. So I think all of that speaks to perhaps an improving view of us in the marketplace, which, of course, by extension makes the economics better and better, but it will be opportunistic. We hadn't done any in a little while. I think Q1 might have been the last time. So we will -- we are in that market and we will remain in the market, but again, the volume will be a little bit opportunistic.

Can we talk a little bit more about the own distribution strategy? It's different than most others that you've done this. What types of distribution companies have you taken ownership stakes in? And how are they performing?

Sure. Yes. So the portfolio is doing really well. So I'll just frame it. We've invested about $700 million in owned distribution to date. It's throwing off this year probably $85 million of EBITDA. These are businesses in the private markets that have traded at 14x EBITDA. So you can do that math. We feel really good about what we own, where we bought them, the growth rates. They're in different flavors. So 2 of the acquisitions are middle market life insurance distributors, big distributors of F&G's product, in fact. So you could view that as a vertically integrated business, but they have dominant positions in the cultural markets in the middle market, which is sort of the holy grail that everyone wants to get to. It was interesting listening to our friend, Amy at Principal talk about, hey, and employee benefits were down to 4 in the channels where we sell life insurance, we're down to 0. Literally, they're either buying our product or they're saying no. But it's not -- they're not -- give me a spreadsheet of 6 other carriers that might be better. So it's one of our higher-margin products. They're growing like gangbusters. It's where all the young family formation is. So we love that. We will feed that as much as we can. They have an opportunity to do down line acquisitions at relatively low multiples. So there's a leverage of that. We do own a traditional annuity IMO that we think is really, really well positioned in the marketplace, uniquely positioned. We think they would actually do even better in a pure fiduciary world, which is unusual in that space. So we see a lot of upside there. And then we own an organization that is more of a B2B player. So they're the annuity wholesaling experts to other large financial services players, and they're continuing to do really well. So I think there's opportunities to probably acquire another platform or 2. And the real big opportunity, I think, is rolling up underneath the platforms that we own. But as you can tell, we're super excited about that.

I should also just say it's not to jam market share. That does not work. This is independent distribution. That model has tried and failed. So we're really clear when we're dealing with these businesses, we want them to be successful. And if that means they're selling a competitor's product that quarter because someone is offering really attractive comp to do that, have at it. We got plenty of spread earnings. We want these businesses to be as successful as possible.

Shifting gears a little bit. You've seen some volatility in annuity surrenders. Can you discuss kind of what have you seen? How has it affected profitability? And has there been anything that surprised you? Or is it just normal course of the business?

Let me start. There's been an elevated level, I would say, over -- certainly through most of 2024 and much of 2025. I would say that's largely expected. Where it gets interesting a little bit when you're talking, for example, through the earnings call lens, we had fewer surrenders in Q1 than the quarters around it. I would view that as a good thing. Now surrenders are obviously meant to make whole, if you will, but not one that you necessarily see. When it happens, fine, you can go replace the business, take your capital and end up where you were. But in the main, we would be quite happy to retain the business. So it was sort of an interesting phenomenon coming in for me. It was just on the job explaining, hey, your prepay income is down. I'm like, yes, it is. That's a good thing. Your surrender income is down. Yes, it is. That's a good thing. And this was in a quarter where, in addition, owned distribution had invested some more, so less of the EBITDA coming out of that. And we were flushed with cash because we had sold a bunch of stuff. So sort of an interesting dynamic of like a challenging quarter on the surface, but fundamentally, we felt very good. So from here, I think hard to predict. I would say, in the immediate near term, I would expect it to stay pretty consistent. It's hard to imagine it will stay this elevated 12, 24 months out, but remains to be seen. And whatever it is, it is, and it will be and we'll be fine.

I mean I think the challenge -- it just creates noise, right? So you're like, oh, you get all the surrender income in, but it dilutes AUM, right? That -- those are assets you would have had otherwise. You end up in the same place. So it's not that significant unless you're trying to model quarterly earnings, then it's hard and it creates noise that we have to explain and the Street has to understand. But yes, it's not some existential shock to the system or anything of that nature. I would say a lot of the security prepays are probably mostly. There was a glory days where we're all able to buy these giant spread structured products. And yes, a lot of that got called away early. I think that noise will probably abate. But yes, with surrenders as long as rates stay where they are, there's still for all carriers, a fair amount of business on the books that was written when rates were much lower. So you just want to make sure you're getting your fair share of the churn, if you will.

Yes, you mentioned credit spreads. They're very narrow these days. How are you dealing with that? How is it affecting investment allocation decisions and your ability to earn the returns you target?

Yes. I mean I would say the returns we target went from fantastic to really good to like good. So it's -- yes, it's not as lucrative as it was maybe 2 years ago, but it's not bad. And what I think we just have to guard against is you don't want to stretch on the credit side. This is the absolute wrong time to do that. So yes, if we have to park some money in AAA CLOs for some period of time, we're going to do that. So we're not going to put money where we're not getting paid from a spread perspective. But history tells us this doesn't last very long, like something will happen at some point. We're not going to have no spread for a long period of time. I would also say the advantage of the Blackstone relationship and some of the other relationships is we now have like 14, 15 different asset classes that we can source. So we're not completely dependent on public bonds or asset-backed finance deals. Things come and go. And we've been pretty good at finding opportunities where we don't have to stretch from a credit perspective. But yes, that's how we think about it. If we can't get to a minimum return target, we're just not going to write the business. And you saw some of that with MYGA in the first quarter. The reinsurance quotes weren't great because they didn't love the returns. We didn't love the returns. And so we took a quarter off. That's okay.

Could you just provide a quick update on where your net floating rate asset position is and the sensitivity from here on -- if there are more short-term rate cuts?

Yes. We're not market timers, but that we got really right. So we had a big floating rate position, and that was because when rates were near 0, it's pretty disproportionate upside to downside. It's hard to go below 0, right? We came close. So I think we peaked at 18% in floaters. Starting a little over a year ago, we started hedging that out, and we're now down to 5%. So I think we got it right on both sides. And again, we're not market timers. We're not aiming to be a hedge fund or replace any of you in the audience, but we feel pretty good about that. So the quick math, SOFR comes down 100 basis points, yes, it could cost us 5 basis points. You always want some floaters in your portfolio because that's the stuff that you can move when spreads widen out, right, because it tends to be pretty stable, particularly if you're at the high end of like AAA CLOs or something of that nature. So yes, it's not significant. It shouldn't be significant to us.

A little bit of a different question. So the NAIC has adopted a new rule, kind of a rule, I guess, disclosure of asset adequacy testing for reinsurance. I guess what's your view of this? Do you see any potential impacts at least for now?

I don't think it's going to be very significant for us, Ryan. I mean I think if I start with -- we're a U.S. company, U.S. taxpayer writing U.S. business, regulated by Iowa across everything. So yes, we have a Cayman entity for the PRT business, but it does stand-alone cash flow testing. And absolutely everything, the sidecar, for example, I think Iowa would hold that out as a really good example of how to create a sidecar with full -- sort of a full comprehensive review step-by-step with your regulator. So not -- I don't think it will be noteworthy for us.

Yes. We've jumped ahead to where we think the rules are going to go. And I think it's smart where the rules are going. The regulators see stuff. They clearly see things that are making them uncomfortable. That's obvious when you talk to them. I don't know exactly what that is. I don't know who would be worried about, but they're seeing stuff they're not happy. And the answer is transparency. It's independent cash flow testing. It's all the things that they're talking about. So I personally think it's healthy. And yes, we're ahead of it. We're voluntarily complying with where we think the puck is headed.

On the alternative investment portfolio, everyone's had some headwinds for the last year or 2. I guess any thoughts on kind of the outlook from here? Also if you're willing any preliminary views on the third quarter?

Yes. The only thing I'd say, yes, I don't think we have any preliminary views on the third quarter other than what you see. When John Gray gets excited and says the pipeline looks better than ever, and we're going to have a lot of realizations, your lips to god's ears. I hope that's true. And that would be really good because again, it's been a bit of a headwind if it became a tailwind or even neutral. That's a really significant positive for us. I would say we feel really good about what's in our portfolio, meaning we don't have a vintage problem. We put most of this on in the last 5 or 6 years. It's pretty balanced. Most of it is with Blackstone, the vast majority of it is with Blackstone. So if you think about thematically where Blackstone has been, they've been in the right places, right? So whether it's in private equity or in real estate, we feel really good about how it's positioned. So yes, I think that the only thing that hurts is just there's been a real lack of realization. So a little bit of lower interest rates, even just stability in interest rates, something that opens up M&A activity, opens up IPOs, I think, are going to be a real positive. And then I think you can talk more broadly about the bigger alts portfolio because it's not just LP interest.

Yes. So I mean that's we took -- we're up, I think, almost $10 billion in terms of the portfolio, but about $4-ish million of that is LPs and call it residual equity, about $6 billion of it is maybe fixed income-like return. And that's going to have a more -- a little bit more of a stable profile.

Just about out of time. One last question. We don't talk about your life insurance business very much, but just curious, how is it performing? What's your view of it? And how has the profitability and growth been?

Yes, I alluded to this earlier, like this is that like star athlete that never gets any attention, like it is a great business. So again, one, over half of our sales come through channels that we control. So it's -- think of it as almost like a career agency system, where we're getting a massive market share. It's middle market, it's cultural market. It's where all the family -- young family formation is, their accumulation policies. It is at the product level, the highest margin product that we have, and yet it's a good product for the consumer as well. So the products have performed well. So we just love that business. I just wish it was bigger. It's just our annuity business has grown exponentially. So as rapidly as our life business has grown, I think we're up to $180 million of recurring premium. We're #6 in IUL sales. We're #3 in policies because, again, middle market, these are accumulation-oriented policies. It's a great business. And I really mean this, we literally have no competition. If you think about who has successfully penetrated the cultural markets, the middle market in the U.S., it's very hard to get to. It's New York Life, it's State Farm. Boy, it drops off pretty quickly after that. You talk about maybe a world financial group that's able to access that market. But we we're one of those players. And I think we own now over -- distribution networks that are probably over 9,000 agents. So it's a little sleeper business inside of F&G that's really not being valued in the stock. But yes, we love it.

There's probably not much to add to that...

It's good to know.

All right. Well, great. Thank you guys very much, and thanks for your attendance at the conference.

Awesome. Thank you.