FG Q2 Deep Dive: Reinsurance Partnership and Fee-Based Growth Drive Momentum

Insurance solutions provider F&G Annuities & Life (NYSE:FG) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 12.6% year on year to $1.35 billion. Its non-GAAP profit of $0.77 per share was 34.9% above analysts’ consensus estimates.

Is now the time to buy FG? Find out in our full research report (it’s free).

StockStory’s Take

F&G Annuities & Life delivered a strong performance in Q2, which was met with a significant positive reaction from the market. Management attributed the quarter’s results to robust core product sales, especially in fixed index annuities and indexed universal life, as well as disciplined expense management. CEO Chris Blunt emphasized the importance of a surging retail channel, noting, “We delivered one of our best sales quarters in history,” and highlighted the company’s success in capturing demand driven by favorable demographics and macroeconomic trends.

Looking ahead, F&G’s strategy centers on transitioning to a more fee-based and capital-light business model, supported by the launch of a new reinsurance sidecar partnership with Blackstone. Management expects this vehicle to enable greater flexibility in product mix, particularly favoring indexed annuities, while maintaining capital discipline. President and CFO Conor Murphy stated, “The reinsurance sidecar will help expand our fee-based earnings power over time,” as the company seeks to optimize capital allocation and reinforce return on equity targets.

Key Insights from Management’s Remarks

Management pointed to several underlying business shifts and strategic actions—beyond headline sales growth—that shaped the company’s second quarter performance and set the foundation for future profitability.

• Core product momentum: F&G saw notable growth in fixed index annuities, indexed universal life, and pension risk transfer, with indexed annuities and IUL both achieving record sales, driven by consumer demand for guaranteed retirement income and protection.
• Retail channel strength: The retail distribution channel delivered over $3.6 billion in sales, reflecting strong relationships with financial advisors and growing traction in the multicultural middle market segment for life insurance solutions.
• Expense efficiency gains: Operating expense ratio improved to 56 basis points from 61 basis points a year earlier, reflecting scale benefits and disciplined cost management. One-time expense actions in the quarter are expected to further lower the operating expense ratio to approximately 50 basis points by year-end 2025.
• Reinsurance sidecar launch: The introduction of a new reinsurance vehicle in partnership with Blackstone provides on-demand capital, supporting a shift to more fee-based and capital-light earnings. Management expects this to be highly accretive to return on equity over time.
• Portfolio and credit quality: Investment portfolio quality remained high, with 97% of fixed maturities rated investment grade and credit-related impairments staying below long-term pricing assumptions, supporting stable spread-based earnings.

Drivers of Future Performance

Management’s outlook for the remainder of the year is guided by strategic capital allocation, product mix optimization, and a continued push toward fee-based earnings through reinsurance partnerships.

• Product mix shift to indexed annuities: With the new reinsurance sidecar in place, management expects an increasing focus on fixed index annuity sales relative to multi-year guaranteed annuities (MYGA), aiming for higher returns and more consistent spreads.
• Dynamic reinsurance and capital allocation: The company plans to optimize flow reinsurance levels and dynamically adjust product volumes based on market economics, allowing for responsive capital deployment while managing regulatory capital requirements.
• Expense discipline and margin improvement: Further reduction in the operating expense ratio is targeted, with anticipated benefits from recent cost actions and continued scale, supporting margin expansion and improved profitability amid potential volatility in alternative investment returns.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will closely watch (1) the pace and impact of the Blackstone reinsurance sidecar on shifting sales toward indexed annuities, (2) management’s ability to maintain and improve operating expense ratios as scale increases, and (3) the continued success of the retail channel in driving growth across core products. Shifts in product mix and capital allocation flexibility will be key indicators of sustainable fee-based earnings growth.

F&G Annuities & Life currently trades at $34.50, up from $33.15 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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