F&G Annuities & Life: A High-Conviction Play in a Rising-Rate Insurance Sector

The insurance sector has long been a barometer for macroeconomic shifts, and 2025 is no exception. As interest rates climb and market volatility persists, investors are increasingly seeking firms that can navigate these headwinds with operational discipline and strategic foresight. F&G Annuities & Life (F&G) has emerged as a standout performer, delivering robust non-GAAP earnings per share (EPS) and revenue growth in Q2 2025, even as broader market uncertainties persist. For investors seeking high-conviction plays in the insurance sector, F&G's financial and strategic resilience offers a compelling case for immediate consideration.

Navigating the Rising-Rate Environment: A Tale of Resilience

F&G's Q2 2025 results underscore its ability to thrive in a challenging macroeconomic landscape. Despite a 23% year-over-year decline in adjusted net earnings attributable to common shareholders ($103 million vs. $139 million), the company's non-GAAP EPS of $0.77 per share (excluding mark-to-market effects and alternative investment volatility) highlights its core operational strength. This performance is particularly impressive given the headwinds:
- Unfavorable mark-to-market movements reduced earnings by $49 million.
- Alternative investment returns fell $83 million below long-term expectations, a drag of $0.62 per share.

Yet, F&G's total revenue surged to $1.364 billion in Q2 2025, up 16% year-over-year, driven by strong life insurance premiums ($608 million, +25% YoY), interest and investment income ($682 million), and record retail sales. The company's assets under management (AUM) before flow reinsurance hit $69.2 billion, a 13% increase from Q2 2024, reflecting its ability to attract capital in a rising-rate environment.

Strategic Positioning: Diversification and Discipline

F&G's competitive advantages lie in its diversified earnings model and capital-efficient strategies. The company has systematically transitioned toward a fee-based, higher-margin business model, leveraging three pillars:
1. Flow Reinsurance: By ceding portions of its risk to third parties, F&G optimizes capital allocation while maintaining underwriting discipline. This strategy contributed to $4.1 billion in gross sales in Q2 2025, including $3.6 billion in retail channel sales.
2. Middle Market Life Insurance: F&G's focus on indexed annuities and indexed universal life products has resonated in a rising-rate environment, where these products offer policyholders flexibility and competitive returns.
3. Owned Distribution: The company's direct distribution channels have driven 13% growth in retail sales, outpacing many peers.

F&G's high-quality investment portfolio further bolsters its resilience. At quarter-end, 97% of fixed maturities were investment grade, with credit-related impairments averaging just 6 basis points over five years. This conservative approach ensures liquidity and stability, critical in a sector where long-term obligations must be met regardless of market cycles.

Capital Efficiency and Shareholder Returns

F&G's commitment to capital efficiency is evident in its 8.8% adjusted ROE (up 40 basis points YoY) and disciplined expense management. The company returned $35 million to shareholders via dividends in Q2 2025, maintaining a balance between reinvestment and capital returns. This aligns with its medium-term investor targets, including a shift toward fee-based earnings and enhanced ROE.

Investment Thesis: Why F&G Stands Out

In a rising-rate environment, insurers with spread-based earnings (dependent on interest margins) often face pressure. F&G, however, has diversified its earnings streams to reduce reliance on volatile investment returns. Its fee-based model, driven by flow reinsurance and owned distribution, provides more predictable cash flows. Additionally, its strong AUM growth and disciplined underwriting position it to capitalize on market share gains in both retail and institutional markets.

For investors, F&G's Q2 results signal resilience amid volatility. While the company's non-GAAP EPS dipped slightly, the underlying drivers—robust revenue growth, asset accumulation, and strategic diversification—point to a durable business model. The insurance sector is inherently cyclical, but F&G's proactive approach to capital management and product innovation makes it a rare combination of defensive strength and offensive growth potential.

Conclusion: A High-Conviction Buy

F&G Annuities & Life's Q2 2025 performance reaffirms its status as a leader in the insurance sector. With a high-quality portfolio, diversified earnings model, and disciplined capital strategy, the company is well-positioned to outperform in a rising-rate environment. For investors seeking a high-conviction play that balances resilience with growth, F&G offers a compelling opportunity. As the market continues to grapple with macroeconomic uncertainties, F&G's strategic agility and operational discipline make it a standout candidate for immediate investment consideration.