Well, good morning, and welcome to F&G's 2023 Investor Day. I'm Lisa Foxworthy-Parker, head of Investor and External Relations, and on behalf of our management team, we'd like to extend our sincere thanks and appreciation for everyone here in person and on the webcast for your time and interest today. Before we begin, I'd like to highlight today's presentation may include forward-looking statements and projections, and we ask that you review the commentary on slide two of the presentation, which can be found on the F&G Investor website for those participating via webcast. Likewise, on page three, we'll be discussing certain non-GAAP measures that we feel are relevant in discussing the performance of the business. You'll find those non-GAAP measures throughout the presentation, and there's additional information in the appendix.
To start, we're excited to be here today, and we would like to spend the morning focusing on not only a deep dive of our business, but also insights to deliver our insights on our strategy to deliver sustainable growth, enhanced margins, and margin expansion and enhanced returns. Taken together, we believe we'll deliver significant value for our stakeholders. Taking a step back, our business has experienced a significant transformation over the last three years. We have diversified our products and distribution channels, and we have now doubled our assets under management before flow reinsurance, nearly two years ahead of the expected original target. And we have a proven track record of performance, which culminated in our New York Stock Exchange listing last December. That said, we're really just getting started and excited to talk about our strategy to further transform the business here today.
For today's agenda, we'll start with our CEO, Chris Blunt, who will provide a strategic review of our business and the strategic levers that we're employing to create value. Then John Currier, our President of Retail Markets, and Matt Christensen, our Head of Pension Risk Transfer, will discuss our diversified growth strategy designed to drive sustainable asset growth. Next, Wendy Young, our CFO, and Leena Punjabi, our CIO, will review the multiple levers that we're deploying to drive margin expansion over time. Chris will then come back to provide a deep dive of our own distribution strategy, which we believe will provide a steady stream of fee-based earnings, to which the market has tended to attribute a higher multiple as you look to peer companies.
After the initial Q&A session and break, Leena will provide a deep dive on our investment portfolio and the competitive advantage that Blackstone continues to provide F&G in the market. We'll wrap up with a brief review of our financials by Wendy and closing remarks by Chris before our final Q&A session, thereafter, adjourning for lunch. We hope to leave you today with a clear view as to what differentiates F&G and why our competitive advantages support profitable growth and margin expansion, which makes F&G an attractive investment opportunity. And now with that, please join me in welcoming F&G's CEO, Chris Blunt.
Awesome. Thanks, Lisa. Good morning, everybody. Appreciate you investing the time with us. As you can tell, we're pretty excited to tell our story, to go deep, and give you some insights into what we think the future looks like for F&G. I'm gonna start effectively with our thesis, and obviously invite you to challenge us when we get to the Q&A portion on this. But we, as Lisa said, think this is a really compelling investment opportunity for a variety of reasons. But most importantly, we think we do have some sustainable competitive advantages that are gonna allow us to continue to grow and win and take share in very large and growing markets that we play in. Quick snapshot of F&G.
I see a lot of familiar faces in the room here, but for those of you that are relatively new to our story, our company was started actually in 1959. If you're my age, you might remember the old U.S. F&G. That was the heritage of the original P&C company. We're headquartered in Des Moines, Iowa. We've got about 1,000 employees now, and our business model is one of spread lending. We are playing in the fixed annuity space, so think MYGAs, Fixed Indexed Annuities, and we've now expanded into five different distribution channels. Independent agents, that was always our core.
We then expanded into banks and broker-dealers, giving us three retail channels of distribution, and then we launched our institutional effort with funding agreement-backed notes and the pension risk transfer business, which you'll hear more about from both John Currier and from Matt Christensen in a moment. And then you see on the bottom right there, our financial strength. Our ratings, effectively, A- across the board, A3 with Moody's. Quick comment on our mission and our vision. We consider ourselves a very mission-driven organization. We're incredibly proud of our culture. We've won awards for our culture. Employees tell us that they come to F&G because of the culture that's been created, and I think typically public companies don't talk about that enough. So I would add that to my list of competitive advantages.
Our mission, we chose very carefully, which is we help people turn their aspirations into reality, and we define that mission very broadly. The obvious implication of that would be policyholders, shareholders, but we would include in that creditors, rating agencies, regulators with which we interact, as well as our own employees and the communities in which we work and live. Walk you through some recent history, and we're gonna start in November of 2017, when CF Corp acquired the company and also when the investment management relationship with Blackstone was formed. So some of you may know the company. Many of you actually followed us in that first iteration. That is actually when I joined F&G.
Well, actually, I joined Blackstone in 2018, and spent most of that year that I was there setting up the insurance solutions business, but also focusing on the portfolio transformation of F&G, and then joined F&G as our CEO in 2019. We were upgraded by AM Best to A-minus. That was a critical milestone for us because that really opened up the bank and broker-dealer channel, where having an A-minus rating was really table stakes to be there. We then were acquired by FNF June 1, 2020, and immediately upgraded by S&P and Fitch to A-minus, and to Baa1 by Moody's. That was significant because that set the stage for entering the institutional markets. We launched PRT about two years ago now.
It's kind of hard to believe that, that that business is as mature as it's become. We've gotten off to a real flying start, and you'll hear more about that from Matt in a moment. The next big milestone for us was obviously the partial spin back out, so that was December 1. That was a pretty cool day for a bunch of us. You know, first opportunity for me to go ring the bell on the stock exchange. It's one of those career moments you'll remember for, for quite a while. And then we were put on positive outlook by AM Best, and then most recently upgraded to A3 by Moody's. Down on the bottom are some of the statistics that I'll share with you.
I'd say, as a management team, we're incredibly proud of what's been accomplished, going back to 2018, but we've effectively tripled sales. So sales have gone from $3.4 billion to about $12 billion in the last 12 months, with very positive momentum. As Lisa mentioned in the beginning, we've doubled our assets under management to a little over $51 billion now. When we were acquired by FNF, we set what we thought was a really ambitious goal, that we would double assets and double earnings in five years, and we've effectively done it in three. And that was partially the impetus for the partial spin back out, was to try to unlock some of that value, in particular for FNF shareholders.
And then also, you'll see the expansion of our Return on Assets, or ROA, target, where we've added about 30 basis points of ROA, sitting right now at about 116 basis points. First point I want to make here is, you know, attractive entry valuation, I think, is a fancy way of saying cheap. So the stock has had a decent run lately, but having said that, we still believe it, it is an incredible value right now. So a little timeline and history, CF Corp acquired the company for $1.8 billion. FNF then acquired the company for $2.7 billion. It was partially spun out at a discount to that, at about $2.4 billion was the market cap on December 1, 2022.
Today, it's in and around $3.5 billion, but as a reminder, our GAAP equity Ex-AOCI sits at over $5 billion, so effectively trading at about 0.7 times book value. I'm preaching to the choir here, but I think you know that historically, when you can buy a life and annuity company at a pretty good discount to book value, unless you're picking up a lot of toxic liabilities, which is not our case, you've done quite well as an investor. On a P/E basis, we're trading at about five or six times earnings, which is also a pretty big discount to our peer group. This is perhaps the most important slide that I have, and this is our best attempt, and this is in response to a number of you saying: "Hey, you know, we really like the story.
We like the momentum. You've talked about some of the levers. Can you do your best to articulate? What would that mean to us as investors? What's the art of the possible and the potential upside here?" That's what we've tried to capture. We started with a closing price on, you know, the day we were putting the presentation together, about $28. I think as of yesterday, it's $27 and change, so it's entry valuation's gotten even more compelling. And we factored in asset growth. So first value lever is simply running our playbook, doing what we do today, continuing to put sales on the books, retain assets. It equates to, if you're wondering what's underlying that, about a 50% increase in assets over the next five years. So asset growth alone, we would argue, is worth $12 per share.
No margin improvement, no increase in the P/E ratio, just simply growing assets. Core margin expansion. So obviously, on asset growth, you're gonna hear from John Currier about the opportunities in retail, why we're confident we can grow assets at that rate. You're gonna hear from Matt Christensen talk about the incredible opportunity in the PRT business. Next up, we're gonna have a session and talk about core margin expansion. That, we've pegged at about $10 a share. Think of that as 30 basis points of ROA improvement, and it breaks down roughly 10, 10, 10. And I'll tell you what the tens are. So the first 10 is just operating scale. You know, we've got a little over $200 million of fixed expenses.
We've said publicly we're committed to grow that at a single-digit rate, but we believe we can grow revenues at a comfortable double-digit rate, and so that's where that margin expansion comes from in terms of pure scale. 10 basis points of that is accretive flow reinsurance. You've heard me talk about this before. Right now, in particular, it's highly accretive for us to be taking a portion of our sales and putting them on the balance sheet of a reinsurance partner. And then the remaining 10 basis points is just optimization of the investment portfolio, and you're gonna hear about that in detail from Leena Punjabi, our CIO. I think when you go through that, you will hopefully conclude that that's a, that's a conservative estimate on our part.
So think of those first two columns, if you were to draw a vertical dotted line between the $10 and the $6. Everything to the left is, again, just doing what we're doing, and I would like to think that over the last five years, we've demonstrated pretty good track record of committing, you know, executing on what those commitments are. So that's running the current playbook. Everything to the right, I'd argue, is new information. This is sort of what we see as additional levers and additional upside in terms of the stock. Own distribution, you're gonna hear me talk about that in detail. This is something we're incredibly excited about. We believe it's core to our strategy. It leverages our core strengths. It's leveraging relationships that, in many cases, are decades old at F&G.
But just taking the earnings that we think will come off of these investments, also increases margin because these are capital-light investments, right? This is not ongoing capital commitments. These are basically fees and commissions, coming in. So the earnings impact of that, we peg at about $6 per share. And then the next two are core multiple expansion. This, I believe we're being quite conservative, particularly given where the multiple is today. But the first is just the market multiple impact that we think should come from expanding our margins and expanding both ROA and ROE. We conservatively threw that at 1x. That would be about $8 per share. And then the other, I'm gonna make a case that we believe we can have a meaningful share of earnings coming from own distribution.
That typically warrants a much higher multiple, dramatically higher multiple than spread earnings, and we've pegged that at one-time uplift in the P/E, and that would be worth about $8 a share as well. So I'm told I can't add those up for you, so you'll have to do the math yourself, but we think it's pretty compelling. And the reality is, honestly, if we hit on a handful of these, it's a pretty compelling upside opportunity for investors. And oh, by the way - sorry, go back a slide, this would also have us doubling earnings over the next five years. So call it roughly $500 million of ANE to over $1 billion of ANE. So we think that's a pretty good aspirational goal as well, and something that we are confident we can execute on.
I want to spend a minute on the competitive landscape because we get this question a lot of, "Oh, there's so many players in the market, and, you know, is competition rational? And, you know, are you starting to see margin pressure?" I think John Currier would tell you that, you know, return targets for the industry hasn't really changed much in 20 years. So it's been pretty consistent. There's always new players coming into the market, but I simplistically size it up into there's three buckets of competitors, and I'll start on the left. There's the mutuals, you know, think New York Life, think MassMutual, for example. And they have some clear advantages, high ratings, you know, typically double A, and higher-lower cost of capital, a little less near-term earnings pressure.
And they're, you know, really good competitors in the space, and so you've seen them gain market share, and I think they will, for a period of time, continue to gain market share in the fixed annuity space. There are a handful of carriers that are on the far right, which is the category we put ourselves in, partnered with what I refer to as asset originators. This is probably one of the least understood parts of our industry right now, and it's frustrating to me, but it's been persisting for a while, and that is the significant importance of someone being an originator, not just a manager of assets. And what I mean by that is, you've now seen the private credit players effectively disintermediate the investment banks, right?
So in the old days, any deal that got done had to go through one of the investment banks. They clipped off a point of yield, you know, and they syndicated it out to the clients that were important to them. What's happened now is they've basically been bypassed. More and more of these deals are being structured by the Blackstones and the Apollos of the world, and that origination premium is being captured by them. It's incredibly significant. You'll hear from Leena. We're gonna go really, really deep on the investment portfolio. You've heard me say this before, it's the most important thing to underwrite about us, right? You obviously want the management team to be credible and think that we're still gonna continue to be able to gather premiums, but this is really understanding what we're doing on the investment side.
What you're gonna hear is we've been able to add significant yield into the portfolio while actually reducing credit risk. I get most of us went to business school, and we were taught that is impossible. You can't get higher return without higher risk, but the risk that we're taking is liquidity risk. It's complexity risk. It's scarcity risk. We're picking up origination premium. So it does require large armies of very smart people, which is what we're leveraging in our partnership with Blackstone. So obviously, those players are all gaining market share pretty significantly. I don't see anything in the near term that's gonna disrupt that, and no one player buying a carrier doesn't change that dynamic, largely because there's an enormous number of competitors that are in that middle box.
You know, I won't say stuck in the middle, but, you know, the old Michael Porter, I would say they're neither. They don't have a cost of capital advantage or rating advantage of the mutuals. Many cases, they have a lot of legacy liabilities, which competes for capital and competes for management attention. So great companies, good competitors as well, but I think don't have some of the structural advantages of the other two. And by the way, when you go do the market share work, which we've done, to validate, this is exactly what you find. The group that's on the left, the group on the far right, gaining market share pretty consistently, the folks in the middle have been losing share. Now, let's talk specifically about what our competitive advantages are, and we think there are several.
The first is we just play in a large and growing market. I grew up in Detroit, Michigan, and like everybody else, I started in the automotive industry, and not too many days when I don't get up and, you know, thank the powers that be for convincing me to go into financial services versus the automotive industry, right? Great companies, nothing against that, but, you know, very challenging competition, challenging markets. You're gonna hear in a moment, we play in markets that are absolutely massive, and we don't define it as the annuity market. We define them in numbers that start with a T, right? In the trillions. I don't see anything that's gonna change that either. So it's always helpful when you're playing in a, in a rising tide, and that is certainly the case for us. We believe we have a superior ecosystem.
You could argue this whole day is about that. It's for you to test us, for you to press us. Do we have sustainable competitive advantages or not? We adamantly believe that we do. It starts with our relationship with distribution. Every CEO is gonna stand up in front of you and say, "We've got better distribution relationships than anybody else." I actually think we do. I really do think we do. We know that. We have some of our distribution partners, we literally lent the capital 20 years ago to start their firm. It is beyond we have good products, and, you know, they like our golf balls versus the other company's golf balls. It's these relationships are just deep, they're strategic. Part of our own distribution strategy is we're now taking it to a whole new level, and you'll hear me talk about that.
The second is our investment approach, which I will hit on in a minute, but it... Part of that is the partnership with Blackstone, but it goes beyond that. We just think we've got a model, that is superior, and it's been proving itself out. I would add a couple of other things to the mix. I think our ability to attract and recruit talent. I mentioned this before, it's underestimated at a lot of companies, but I think culture's that magic intangible. It's where one plus one can equal five or six. People just love being at F&G. We've worked people really hard in the last five years, but every year, our engagement scores go up. They started at a high level. We win awards for our culture.
Generally, when we go to post a position, we've already got a bench of folks from other organizations who, through a friends and family network or whatever, expressed interest in coming to F&G. And then lastly, I would add service. I would not have said this three years ago. Our infrastructure was a little shaky. We've had to make some significant investments in technology. We had to bring in some leaders with a really great customer orientation mindset, but, you know, we were number two in the J.D. Power survey. We get rave reviews from our distribution partners on service, and you'll hear from John Currier in a minute. If you don't think that matters, it matters, right? You're an advisor, and you're trying to decide between us and a competitor.
Not having issues when policies are getting processed, getting paid on time, if there are problems, which there always are for any carrier, getting them resolved quickly. We pride ourselves on small company feel. All of our top distribution partners have my mobile phone. They're not shy about calling it. They have John's. That's something that we pride ourselves on, and I think is becoming a core advantage of ours as well. That's led to, in the bottom left, a track record we're pretty proud of. We're not a new management team, you know, I won't age my colleagues, but, you know, a few gray hairs, not our first rodeo.
We've managed businesses like this through a variety of different environments over the last three years, and we hope we've earned a little bit of credibility with all of you on what we've been able to accomplish so far. Then, lastly, we're gonna hit on this quite a bit. Our growth to date has admittedly been we've just grown assets at an exponential clip. Going forward, asset growth will be a little more modest, right? We're not anticipating doubling assets, but as I just said, but we still believe we can double earnings, and that's actually a really good outcome, right? If we can continue to grow earnings at a terrific pace and do it with fewer assets, that actually means that we're more capital efficient, and we're also creating more free cash flow.
So you'll hear more about that over the next few minutes. I talked a bit about this origination premium and what's happening in the investment management space as being perhaps the most underappreciated. I think my one A would be this slide. We do not have legacy assets. So I have moments where I wake up, and the fact that we traded a discount to our sector, I want to scream out loud, and, you know, then I take a deep breath or go to the gym and come back and try to move on from that. But, it's a big deal. Like, very few carriers can say that. We are a large, clean, profitable book of fixed annuities. That's what we are.
So if you simply looked at the value of our block, if you said, "I'm unimpressed by the management team, I'm unimpressed, impressed by the new business platform, I just got a big run-off block of annuities," it's worth substantially more than what the share price is trading at today. Part of the reason for the value of the block is it's relatively new. So you'll see here, 91% of our book is surrender charge protected, which is part of the reason why we didn't get a giant run on the bank, right? When we had the whole Silicon Valley Bank debacle that took place. In addition, 73% of our book has an MVA, Market Value Adjustment.
I think most people don't even know what this is, but it basically takes interest rate risk and puts it on the policy holder as opposed to the company itself. So you bought a policy when the treasury rate was 1%, it's now 4.5, and you want out, formulaically, we can top up your surrender charge. Despite the fact that we've never had to sell an asset in the history of this company to meet a redemption. So typically, you know, we wouldn't have to sell an asset, but we are protected in the scenario that that actually had to happen. So completely different than a bank. So let's say someone was irrational, and they cashed out, they paid a 5% surrender charge. Typically, we book a profit on that sale, and we release capital.
If you'd had either of these features at Silicon Valley Bank, they'd still be around, and we would still have Silicon Valley Bank, right? So very, very different scenario for us versus a bank. And then the other thing I would point out is on a lot of distance to minimum crediting rates. So one of the things you're gonna hear from Wendy, we were all taught this, that, you know, it's great to own life and annuity stocks when rates are high. You don't wanna own them when rates are low. Actually, it doesn't apply to us, and that's because we're not a life insurer. We do sell life insurance, we sell IUL, but the reality is we're a spread lender. So we get the premiums in, we turn around, we get them invested quickly, we invest at the same duration.
I've said this forever, we're a better form of a bank because we borrow and lend at the same duration, so we lock in spread. The only big variable is credit, which is why I go back to the reason we're gonna spend a deep dive on the investment portfolio. This was the point about playing in high growth markets. I'll just make a couple comments. I referenced the annuity market. That's in the middle of the $326 billion. It's a pretty big market, but again, that's not how we define where we compete. We would argue we play in consumer savings, which is much larger, and now that we're soon to launch our RILA product, our Registered Index-Linked Annuity product, I can look you in the eye and tell you that we now compete with mutual funds, right? Think about it.
If we can give you some downside buffer and more upside, we are now squarely competing in the world of mutual funds. Ironically, it's the industry I grew up in, so I know it pretty well, but I now think the burden of proof is in the other direction, right? Why would someone buy into a historical track record when they really don't know, going forward, are they gonna get 15% or -40%? When we can give them more of a defined outcome. You know, I jokingly say it's the holy grail of retail investors, but I think it's what retail investors really want. I'm willing to give up some upside for a little bit of downside protection. So this is opening up a market that I think swamps all the markets that we play in today, and you're gonna hear more about that from John Currier.
This is probably my favorite slide in the deck. You can understand why. You know, we should probably print it out and tape it on our fridges, you know, back home or, you know, consider it our report card. But we're really proud of this, right? We've been able to grow sales pretty dramatically, and there's a couple things I wanna point out here. The purple section on the bottom, that's our core agent channel, and what I want you to notice there is we've grown that. So this hasn't been diversify away from a channel. These are some of our strongest relationships. It is our most profitable channel of distribution. It's actually a hard channel to crack in a meaningful way. And so that continues to just cook along.
So proud of the team, proud of what we've been able to accomplish there. The next slice, the blue slice, is broker-dealer. That's been more modest, largely because of the popularity of RILA. So that's why we're pretty excited about the RILA product. It'll play in other channels, but in particular, we think this is gonna jumpstart our broker-dealer effort. Huge success in banks. And I mentioned this before, that dynamic isn't changing anytime soon. Banks are drowning in deposits. They don't have enough loan demand to do anything with those deposits. Most banks now get quite a bit of revenue from selling products like ours, and it's also capital light for a bank.
So that dynamic in the last 10 years, I remember at a prior firm, you sort of had to sneak into the bank branch, you know, because they wanted people in CDs, and they didn't want the assets out the door. Now they partner with you. They tell you where the assets are. You know, we link arms, and they're, they're cheering for our success. So I think that's gonna continue to be a very robust channel for us. You see Funding Agreement-Backed Notes, that's the yellow. Big spike in 2021. It was just a great environment to issue Funding Agreement-Backed Notes. It was a really low cost of capital. We were earning terrific spreads, less so now in this environment, but that, you know, that'll change. You know, environments change. There'll be opportunities to issue funding agreements, again soon.
Then you're gonna hear from Matt about the PRT success story. This is pretty awesome. You know, we spent a couple of years researching the market before jumping in. We did over $1 billion in our very first year. We're, I think, eight or nine in market share, despite being the newest player in the market, and frankly, the lowest-rated player in the market. So I think the key message here, opportunity in every single channel. Probably more importantly than opportunity, I would say, is optionality. The beauty of doing $12 billion of sales versus $3 billion, and doing it through five channels versus 1, is we can dial up or down both gross sales and retained sales without impairing any channel in particular.
Again, I wanna say this over and over again: we're not, despite the success you see here, we're not a sales-driven organization, right? We wanna bring premiums in if it's a attractive cost of funding, where we can earn a really good spread. And the important point now is, we basically can fish in five pretty big ponds, which means if for some reason we don't like the competitive dynamic in a particular, particular channel of distribution, we can de-emphasize it for another channel. One of the other things we're proud of as a team is we've diversified the business along the way. You see here, if you go back to 2020, about 84% of our sales were coming through the agent channel.
Now, to the far right, much more balanced, and that was my point about where we source premiums, but also, diversification by product type. You'll hear from John Currier, on the retail side, we think Indexed Annuities are just a great chassis. It's no longer a product. You know, when it started, it was a low-rate alternative. People didn't wanna lock in 1% on a fixed annuity, sorta like, "What else you got?" "Well, how about if we gave you a floor of zero and a little more upside?" It's now become a chassis, meaning you can iterate all sorts of different products. You can meet all sorts of different solutions for clients, particularly again, as we now get into the RILA market, where the floor can now be a negative number.
We can give people a little bit of a cushion, but they're taking a bit more risk in exchange for more upside. We think there's very few consumer needs out there that we can't meet as a carrier. We're gonna go deep on this later, but I just wanted to give you my take and frame the investment edge. It's so much more than just, "Hey, we have a partnership with Blackstone." That's a big part of it. We're six years strong now in our relationship with Blackstone. I would say it's just cooking. I mean, it's daily interaction. They have made huge investments in us. We've made investments in them and how we interact with them, and the partnership's just working.
It's one of those if, you know, if you had the luxury of spending a day in our halls, I think you'd be pretty blown away of how productive this relationship has been. It starts with really clear metes and bounds on who does what. So I'll say this over and over again: they're not an owner. They don't dictate how we run the insurance company. They don't have any influence over what risks we take or don't take. But what we are, in fact, outsourcing to them is the individual security selection. So Leena is our CIO. She and her team set the overall asset allocation. They set the detailed risk parameters within every separate account. They do all the monitoring of every investment manager that we have, including Blackstone.
But what we're leveraging is in that bottom left, we're tapping into 2,000 investment professionals at Blackstone. This is just a better model. It's a better model. I say this all the time. We could not afford to hire the 2,000 investment professionals that work at Blackstone, and honestly, they couldn't afford to hire them just to manage separate accounts for F&G at a blended fee of, you know, 25 basis points. But they're tapping into teams that also manage high-margin funds that frankly have a ton of expertise across pretty much every industry that you could imagine, structuring experts. It's, it's vast, what we're, we're tapping into. So we think it's just a great model. You know, we're, we're, we're paying reasonable fees. We're getting one of the largest, if not the largest, asset originators on the planet, and again, the relationship is, is super deep.
The other thing I wanna touch on, and I know Leena's gonna hit this as well, we've gotten the question of: "Well, they have more partners now. Are you still special?" The reality is, there's no one that Blackstone's partnered with that we sit there and look at as a competitive threat. The only carrier that is, is a competitor is Corebridge. We run into them most often in one channel. Many of our channels, we don't run into them as competition. So we would argue our relationship's a little bit different, a little more holistic, but even if it's not, we're talking about one carrier. It is a massive, massive universe, lot of good competitors, a lot of room for success for other players.
With respect to their other big partners of Everlake and Resolution, we view them as more potential partners down the line than competitors. So, to that question, we would argue, "No, nothing's changed." We are still one of Blackstone's top clients, and I'd say the relationship is as strong as it's ever been. But again, you'll hear more about that from Leena in a moment. My last slide is I just wanna spend a moment on the team. I don't get to do this often publicly, but this is a great team, right? It's everybody is incredibly strong at their individual position. More importantly to me is everybody likes team sports. We've all worked in organizations, wickedly smart, talented people that were all individualists, didn't particularly care for team sports, and the reality is, insurance industry is a team sport.
Everybody's gotta be on the same page. Everybody's gotta row in the boat in the same direction. I talked about our culture. It's something that we're super, super proud of. It's also a nice mix of we've got a couple players, Wendy, you're gonna hear from, been with this organization for decades. There's huge value to that knowledge, to the history of just about everything. But then we've also got newer players who've come and brought perspective from other organizations, right? So many of our competitors are represented by several of us who've worked at a variety of different firms. So you're gonna get a chance to hear from a subset of this group today. Obviously, during lunch and Q&A, we've got the whole team here in the audience. We're happy to drill into any of this in more detail.
So before I hand over the podium, I just wanna wrap, go back to the original side. Compelling investment opportunity, not just 'cause the stock is cheap, but we believe there's multiple layers of upside here. There's asset growth, there's three or four different sources of margin improvement as we go forward, and I believe there is some potential leverage in terms of multiple upside here as well. So with that frenetic opening, I'm gonna turn it over to John Currier to talk about growth opportunities in the retail space.
Well, thank you, and good morning. It's my pleasure to be here to give you a little bit more of an insight and a detail into how the retail strategy has been contributing to the growth story that you've already seen and will continue to contribute to the asset growth story and value creation that Chris laid out. So Chris highlighted that we have grown and diversified in a real thoughtful way in this organization, that we've been building on our core strengths, and we have product expertise, distribution, relationships, and pricing discipline. And it all comes down to, do you have a product that meets consumer needs? Chris talked about the size of the markets and the different risk tolerances that we appeal to, and that has been real core to us.
We also highlight that, according to J.D. Power, we're doing a pretty good job of meeting the needs of customers out there, and that includes our distribution partners. By continuing to meet their needs, we're continuing to build those trusted distribution relationships time, over time, over time again, and that's really something people can't replicate. They cannot replicate the decades of distribution relationships, the strength of those relationships, and the consistency with which we've been able to execute on those relationships. We continue to win in high growth markets by maintaining our discipline. You know, we mentioned it earlier, and we'll continue to mention it: we are not looking for tonnage for tonnage sake. We're looking for tonnage and profitable business in a way to actually help be very mission and driven focused for our customers and our agents and all of our stakeholders out there as an organization.
So at the risk of being boring, we're gonna keep doing what we've been doing in the retail markets. We have a focus on market needs, on our distribution partners, and on our actual growth of those markets in meeting customer needs, all with this underlying discipline of targeting our profitability, and we believe that sticking to our knitting is going to be something that's got a ton of runway left for us as an organization.
So again, we don't play to the league tables, but the progress here shows that we are relevant, that we are relevant where we choose to compete, and that our partners, our distribution partners and customers believe that we are, that we've been able to use our competitive advantages, our relationship with Blackstone, our investment management, the relationships with our distribution, to continue to grow and increase relevance. We moved from number 10 to number 5 in the overall Indexed Annuity space. We moved from number 12 to number 8 in the MYGA space. We moved from number 20 to number 8 in the Indexed Universal Life space. And, perhaps more importantly there, we moved to number three in the number of Indexed Universal Life policies that we are able to write on an annual basis.
What's really significant about that for us is that that actually means that we aren't hunting bear, that we aren't out there actually just trying to get large cases or competing for whether or not you made a mistake on an underwriting situation. We're actually sitting and talking and meeting middle, middle-market customers and multi-market customer or multicultural market customers where they are and providing value for them and their families. So we're very excited about that. For those of you who don't know us well, our current retail products are three, and there are only three in terms of chassis. We only offer products that meet customer needs, that we actually know how to manage, that they leverage our core competencies, and they provide predictable and stable liabilities for us as an organization. So we don't play where we don't have expertise.
We don't write long-term care business. We don't write heavily assumption-laden business that actually exposes us to a tremendous amount of volatility, or a ton of business that does not allow us to deploy the management levers over time that allow us to continue to create shareholder value regardless of market conditions. So, you know, fixed index annuities, kind of the risk tolerance where most people are. You give us an initial premium of $100,000, we offer to you the opportunity to have an indexed credit or an interest credit, excuse me, that's indexed to what happens in the equity markets. Equity markets go down, no credit that year, but your principal is protected. Equity markets go up, you get to share in that. So they go up, you know, 0%-10%, you get whatever that is. They go up 15%, you get 10%. Simple story.
It's a basic classic principal protection investment strategy, but we offer it to, to the average customer, to the customer out there who doesn't want to be a sophisticated money manager for themselves and who has the strength of an insured product, where we, we make a promise to them that we are committed to keep, and that all of you and all our regulators and everyone else are gonna make sure that we keep that promise to that customer. The multi-year guarantee annuity, the simplest form, a CD alternative with an insured wrapper, tax advantages, all the advantages of the potential annuitization, if that's something that matters for you as a customer. Give us $100,000 is alternative to the CD for five years. We'll guarantee you 5.25% a year.
At the end of that period of time, we can take a look at that and decide if that's something you want to continue. Perhaps you're more interested in a different risk tolerance in an annuity product, or you can, roll that into whatever the current market conditions are. Each of these appeal to various distributions primarily, but they all appeal to all distributions in a certain extent. And then our Indexed Universal Life is a combination of a death benefit protection with a little bit of that savings element that's indexed to what happens in the equity markets. Allows families to protect themselves, people to take care of the legacy in case they don't get a chance to complete their financial plan, and it also is something then that leverages also the savings component of that as well for folks.
We are an organization that has deep expertise in these three areas, and that is why these are the products that we choose to offer. They have strong margins for us, and they all provide the ability for us to maintain the pricing discipline of those over the life cycle of the product. That's where we focus as an organization. A little bit deeper into each of these products, we'll start here with the FIA and really about how the market actually has matured here in the FIA space. Chris mentioned that the FIA is really a chassis.
The Fixed Indexed Annuity provides the opportunity to tailor and customize that product in a way that is either very focused on the accumulation during the surrender charge period of time, and/or it's focused on what will happen in the withdrawal phase of that if someone's trying to do income planning for their, for their future. Several of our products are even focused on the guaranteed income portion of that, and others are focused on the accumulation portion of that. This market has been growing at about 4% a year. We've been able to achieve about a 19% CAGR over the recent years, and that's largely because of, one, we have enough of a competitive advantage with our investment portfolio that we can remain a steady competitor in the marketplace. We don't have to give up our profitability for that.
We can be consistently competitive for our distribution partners, and they know that they can rely on us, so we can focus on growing our distribution relationships and helping share the value of an uncertain and the risk tolerance that actually meets a lot of customers' needs with more and more people. So we have traditional agents who have a certain client, and they are able to talk to those clients. We have other clients who are only gonna hear about our product if they're working through a bank or a broker-dealer. So we're able to expand the number of clients that we're actually offering this valuable product to in their own retirement planning. On the MYGA side, you know, the MYGA market, and this is obviously well publicized, it's been an amazing market.
We've seen over the last couple of years, massive new flows, new money flows into the insurance space, so you actually see the insurance space, the life and annuity space growing now, partly as a result of folks being a little unsure about where should you keep your deposits? Where should you keep your safe money? As Chris mentioned, if I've got deposits and I don't have a lot of loan demand out there, the banks are actually interested in putting the money here, but the customers are actually benefiting, too, from getting the insured protection in that. You know, it was really interesting. A lot of our peers and competitors out there, we all benefited from what happened over the last year or two in terms of the growth of the MYGA market.
It stands out, $50 billion- $104 billion. But we have found that talk about the value of service, there were so many people so inundated here that people weren't even able to place the most simple contract. And we'd hear time and time again from some of our bank partners out there and some of our even independent agent partners, that it doesn't matter what someone else's rate is, if they can't place the contract, this is not a good thing for the customer and not a good thing for the distribution partner's relationship. So our stability and service has been really instrumental here, and where we don't have to go chase rate constantly to see this kind of growth.
Admittedly, the growth's a little bit flattered by the fact that we just started our entry in the bank channel, you know, in 2020. But, I'd point out that we've just started in the bank, in the broker-dealer channel. We still only have a relative tiny percentage of distribution relationships in this channel, so every day we have the opportunity to go add more distribution partners. We're talking to new people every single day about what F&G can do for them. So we see a lot of runway in this space, and it's also helped us to establish a little bit of a beachhead in the broker-dealer channel for our upcoming RILA launch. So the RILA market has been one of the fastest-growing overall markets in recent years.
Chris highlighted, it just is exactly the same thing that we've been doing, put it on a registered chassis and expand the risk tolerance a little bit. Before, we'd really talk about insured products is a great place for you and part of your own personal retirement planning for your safe money. It's where you want to put your safe money. Well, now we can say: "Hey, you want to extend that into a little bit more of your money that you're willing to expose to risk in exchange for a little bit more upside?
Now we have that product available for you as well." So we're able to just reach a little bit more into that customer's range of risk tolerance, so maybe a little more share of wallet for individual customers, or maybe customers who didn't yet have a safe money need as part of their own planning, now they're able to be a part of the F&G story with, with the RILA offering. We have an approved prospectus. The product's out there. We're in the process right now of talking to several of our key broker-dealer distribution partners and looking forward to beginning-of-the-year kickoff launch of our RILA product. So we see a lot of room for growth for us as an organization. You saw the little blue bar on our, our favorite slide, the broker-dealers, just a nice, steady movement.
We think you're gonna see a lot of change in that in the coming years. Now, this probably won't be like our Raymond James launch in the MYGA space, where we went from zero to $1 billion in virtually a blink of an eye. We think it'll take a little more time to build up in that instance, but we really see a lot of runway, and there's no reason to think about us not taking our fair share of a $40 billion market, just like we have in the other areas that we play in the annuity space.
And then our IUL story, it's obviously one of the things that we are super excited about, and I don't want to steal too much of what Chris will talk about in our own distribution model, but, this has been key to the growth of what we're seeing in some of our own distribution. It's a key for us in terms of reaching the middle, middle market and reaching a multicultural market. This is one product that we have right now where it's a periodic pay, where it doesn't require you to take accumulated assets and then talk to us about what you're going to do with them. It's periodic pay. You have a couple thousand dollars a year of annual premiums, and you get to protect your family and build a nest egg in there with some other benefits, which are really exciting for folks.
We've seen this is another industry growing at about 5% or in market segment, excuse me, and we've been able to grow at about 46%. Again, a little bit flattered by the fact that we've seen some significant rating improvements over that period of time. But more importantly, it's been flattered by the fact that we had long-standing distribution relationships who put up with us as an organization during some very hard years, times when we were ratings challenged, times when we were able to leverage that long, trusting relationship in a way where we can help them achieve the same kind of growth that they've desired. So I've touched on this in almost every slide. I hope that was a theme for you all.
Our distribution relationships are unique and are proven, and they cannot be easily replicated by anyone else, right? To have the kinds of long-standing, trusting relationships built over decades is not something that you can just do upon entry in this business. And even in our new channels, we are leveraging relationships we have had over 20 years, either because the principals of the organizations are familiar with us, we helped them start their business 20 years ago, whatever it may be, we're leveraging those relationships, even in new channels. We've been able to be consistent with them over the last several years, and we've been able to be consistent in delivering on the promise of serving their business. A couple statistics to highlight, right? And again, I've mentioned the 20-year relationships.
Five out of ten of our top annuity partners, we've actually developed a product relationship with, as one of the ways that we've strengthened that tie and that bond between us. We're willing to sit down with a distribution partner who says, "Hey, I see a little bit of a hole in the market. If we can make a tweak to this product, or we could roll out something that was slightly different, I think we could really leverage that going forward and create an amazing growth opportunity for us." We've done that. We've been doing that for decades, long before it was in vogue, with a lot of other folks. We have been continuing to do that.
So 5 of our 10 significant partners have relationships with us, so that makes them very sticky and makes us a carrier of choice for them. We've been growing together, and we have a top 5 rank in almost all of our distribution firms. We have five partners that are doing over $600 million a year each with us. We've always touted that we have strength of relationships and core producers, but $600 million is kind of a new number for us as we grow. I imagine we're gonna be able to reset that by the time we talk next time. Five consecutive years of growing in the individual relationships within our distribution partners. So the individual advisor is actually creating a relationship with F&G, and that gets to how we create individual relationships with these distribution partners.
We actually work with each of them and their increasingly sophisticated business models to figure out how to build in their business, how to support their personal growth aspirations by helping their distribution, advisors grow their own businesses. What used to be a conventional, brokerage, heavily insured products, independent marketing organization now may have an RIA arm. They may also have an affiliation or, and/or their own broker-dealer. These are sophisticated organizations, and we are willing to adapt our model to what they are, not how they were classified in an industry publication in terms of grouping sales together by distribution channel. And that's been really significant for us, and we believe that that's a playbook that will help us continue to grow and develop over time.
This is kind of our brag sheet, so I won't spend a lot of time on here, but it is important to note that there's a lot of subset of the distribution. The independent marketing organizations who primarily focused on annuities tended to be where we'd played in the past. Interesting to note, several of those who primarily used to play in annuities only are also now some of our most significant partners on the brokerage side of life as well. They are growing their life businesses, so we're further solidifying our relationships by offering multiple product lines. We mentioned our explosive growth on the bank side, and truly, it's just an opportunity for us that's largely just getting started.
We see that continuing to grow as we grow our footprints, and we've been able to get great scorecards from our partners here, and we think that means that we're doing it right. We don't have to go throw mud against the wall all at once. We can build partner after partner after partner, so we have a very long runway. Again, the broker-dealer space, we're creating great relationships, have a beachhead, and we're looking forward to growing that with our RILA offering. And then on the life side, the brokerage life, we're seeing a lot of growth, as I mentioned, with our annuity partners also wanting to participate in the life space, and then our life network marketing stuff, another foreshadowing for what you're going to hear about next.... So, I'm not gonna apologize for being boring.
We are positioned to win in the retail markets. We have been winning in the retail markets. It wasn't that long ago that I talked to you about one core distribution channel, independent agents, whether it was the annuity products, which was primarily what we were doing, or our life products. You know, fast-forward here just a few years from when I would've been able to tell you I was a steady competitor, and we're doing $3 billion-$4 billion a year, and believe me, we're proud of that. We're really proud of that because we continue to deliver on our profit targets, and we deliver for our stakeholders. And then fast-forward today, now I can tell you we're doing that in three core distribution channel or three core products here.
3-5, depending on how you wanna split it, different distribution channels out there, and yeah, we're a real steady competitor, except, you know, the numbers look more like about $10 billion. Oh, by the way, we're continuing to achieve our new business profitability targets and delivering for our stakeholders. Fast-forward, I think we're gonna be able to tell you that doing the same things that we have been doing, targeting those same large and growing markets, targeting good products that have value for customers, and working with the distribution relationships that we've already established and those that we're continuing to build, we think we'll be able to continue the same kind of story going forward, as we now will have four core product lines. Perhaps another, if we can find something that we're really comfortable doing.
But four core product lines, multiple distribution outlets, and we'll continue to do that and write profitable business that delivers for our stakeholders. So with that, we got more stakeholders to talk about. I'm going to introduce my colleague, Matt Christensen, to talk about our PRT space.
Thanks, John. Good morning, everyone. I'm gonna talk about our pension risk transfer business in more detail and elaborate on how our PRT business contributes to our core business asset growth, which Chris talked a little bit about earlier. I'm gonna drill into three specific topics this morning. The overall landscape for PRT, the growth in the PRT market, and how we play and win in the PRT market. Starting here on slide 34, you heard Chris earlier say that we play and win in large markets, and this PRT market is definitely one of them. There are over $2.3 trillion of corporate pension plan assets, and 70% of these plan assets are frozen. What that means is that no new participants can enter the plan.
60% of these, frozen pension plans, have de-risked assets, and we look at those de-risking actions as protection of those liabilities and the ability for them to be offloaded via a pension risk transfer transaction. On average, these plans are fully funded, and previously, when plans were underfunded, it put plan sponsors in the position of writing a check larger than the liability to transfer that risk. That is much less so the case today. Turning to slide 35, all of those characteristics create momentum for continued growth in the PRT market, and you can see that on the graph on the left-hand side. The evolution of these market dynamics on the right-hand side of the page highlight in key ways how the market has grown through various cycles. Two types of transactions have emerged as predominant for plan sponsors.
A plan termination transaction transfers the pension liability for all plan participants and eliminates plan sponsor financial risk. These transactions include retirees and non-retirees. Retiree buyouts or lift-out transfers pension liability for a segment of retirees only and plan sponsor financial risk for that retiree segment. On slide 36, you can see our history in the PRT market. Prior to our launch, as Chris alluded to earlier, we spent two years researching this market. We evaluated our internal capabilities, our competitive advantages, and determined that PRT transactions are adjacent to our core competencies. You heard John describe some of these earlier, deeply understanding liability profiles and matching them to appropriate assets. After launching in the middle of 2021, we focused on retiree buyout transactions and closed our first year, half year, really, with $1.1 billion in sales.
Our first full year in 2022 ended with $1.4 billion in sales and our first repeat client. Halfway through 2023, we have $0.8 billion in sales and have successfully entered the plan termination market. Inception to date, we've won over $3 billion in PRT transactions of various sizes and transaction types, covering over 60,000 lives. I'd like to highlight on this slide an intentional expansion of our strategy. As I mentioned earlier, retiree buyouts or lift-outs and plan terminations are the primary PRT transactions. We entered the PRT market, we focused heavily on lift-out transactions. Near the end of 2022, we built our plan termination capability and prepared to enter that market in 2023.
Turning to the chart on the left-hand side of 37, you'll notice 2/3 of our transactions in the first half of 2023 have been plan terminations. We're seeing the number of these plan termination transactions increase in the market, and our proactive entry into this space has proved well for us. We intentionally started with lift-out transactions for their simpler liability profiles, and we are well-positioned now to participate in both transaction types. We underwrite each of these transactions in detail, and these longer-tail PRT liabilities are a complement to our overall balance sheet. On slide 38, I'm gonna talk a little bit about how we manage this opportunity. Like I mentioned before, and you heard from Chris, this is a $2.3 trillion market. On an annual basis, we expect somewhere between $30 billion and $40 billion to come to the market.
And of that $30 billion or $40 billion, we tend to address $10 billion-$15 billion of it. Our seasoned business development team assesses each transaction individually, and our teams review each deal's attributes and liability profile in great detail. We partner closely with Leena and Wendy's team to manage our assets and available capital, and when we win a deal, our operation team seamlessly integrates these into our back office. I view this team as a mini M&A team. We go through a preliminary bid process, each transaction we deeply understand its profile and our ability to match that profile with underlying assets. We view our annual run rate for this business to be somewhere between $2 billion-$4 billion, depending on our appetite and our other market conditions. On slide 39, I'll offer a few closing thoughts. This PRT market is large and growing.
In summary, it's a $2.3 trillion market. It's well-funded and risk transfer ready, and we are positioned to continue to win in this market. We target transactions that represent the most attractive risk and reward for F&G, presenting our potential clients with a competitive bid and attractive returns for F&G. We meet our potential clients where they are, and we differentiate with our investment expertise. We have an expert team, and this is probably what I'm most proud of. Our small but mighty team of about 20 people has a collective experience of over 200 years. We are selective about where we participate, and we typically target transactions between $100 million and $1 billion.
In conclusion, and you heard from John and myself, we're both well-positioned to have compelling market opportunities to create sustainable asset growth for F&G. I'm gonna turn it now to Wendy Young to talk a little bit about margin expansion.
Good morning. Thank you for coming, and thanks, Matt. So as we build on our sales and AUM growth success, you will continue to see us meeting our profitability targets, and basically, we do that through a disciplined margin management. And today, we'll go into our opportunities to expand that margin, which we then will expect to increase our ROA and our share price multiples. The sources of the margin expansion will come from investment and expense management, as well as something that I've talked about on the earnings calls in the past: accretive flow reinsurance. But first, I want to tie back to something that Chris talked about, that $12 share uplift that he showed from our asset growth.
So building upon what Matt and JC talked about, our value to shareholders will continue to increase based on our ability to sell stable liabilities that generate our target profitability and being able to maintain that spread-based margin in a lot of different market conditions. And we've been able to consistently and successfully do that and expand on our earnings growth because we have multiple channels where we can move around our capital allocation, depending on the market conditions. We prioritize profit over volume, and we make those management actions to maintain our targets. Specifically, we can reprice a large majority of our liabilities on an annual basis. We also have conservative actuarial assumptions, which is very helpful because we don't have a lot of legacy liabilities. And we do rigorous stress testing to inform our risk profile.
And finally, we continually evaluate opportunities to enhance our risk-adjusted returns and increase the downside protection of our investment portfolio. I will turn it over to Leena Punjabi to go over Asset Allocation strategy, how that will help improve our investment margin, and also protect our investment portfolio.
Thanks, Wendy. Good morning, all. This slide shows our asset allocation and how it has changed over time. Since our partnership with Blackstone began, we have added at east 10 asset classes to the portfolio. We now have a proven track record of adding high-quality investments that earn an additional spread to corporates. This additional spread has not come by going down in credit quality. In fact, the table here shows during this period, the portfolio's credit quality has gone from NAIC 1.6 to 1.4. And just as a reminder, the lower the number, the higher the quality. This slide just quantifies the spread we've added over corporates over the last five years by adding all of those new asset classes. Before our partnership with Blackstone, we were very reliant on corporates for spread.
Since then, the asset classes we've added to the portfolio have added, on average, 100 basis points of annual spread over corporates. At the time, at the same time, the portfolio's credit quality has gone up, which shows the additional spread has not come by going down in credit quality. We expect to continue adding new asset classes to the portfolio that provide diversification and high-quality spread.... Going forward, based on what we already have in the pipeline, we believe we can add up to 30 basis points of additional spread to the portfolio in the coming years. By the way, these four opportunities is what we know of today, and we expect this pipeline will likely grow from here. We do not expect that the portfolio's credit quality will go down meaningfully from here.
Separately, the new Blackstone fee arrangement, which I assume you are all aware of, will also enhance portfolio yield. The new fee has resulted in about 30%-35% fee reduction for our new business allocations this year, which will reduce the overall portfolio fee as old assets run off and new assets are added. Hopefully, this gives you a flavor of what to expect in terms of additional investment margin from new assets. We just spoke about the additional spread from new opportunities. Now let's talk about the actions we've taken to preserve investment margin on existing assets. Our floating rate exposure has been very beneficial over the last year and a half as rates have gone up. However, given where rates are now, we wanted to lock in some of this increase.
While we might have given up some upside in the near term, we are okay to trade that for increased earnings stability and predictability going forward. We hedged about $2.6 billion of floating rate assets, locking in about 208 basis points of incremental yield versus what was originally priced in. This translates to 12 basis points of annual incremental investment margin above our pricing over the next three to five years. We expect to continue hedging additional assets where beneficial and possible. We are very aware that as we add additional investment margin on the front end, we should not lose it on the back end, and we have been successful. The portfolio has experienced minimal credit-related impairments over the last three financial years, and this is well below our pricing assumptions.
As you will see on the slide, the industry average over the same period has been 14 basis points. So to recap, we expect to continue adding investment spread with new high-quality assets, preserve spread on existing assets, and expect impairments to continue to be in line or below our pricing assumptions. With that, I will pass it back to Wendy.
Thanks, Leena. Before moving on to accretive flow reinsurance, I want to take the opportunity to briefly discuss operational scale benefit. About 1/3 of our expenses are variable expenses and will continue to increase with our sales level. That leaves 2/3 as being fixed expense and show the greatest opportunity for scale. We will do that by making sure that our fixed expenses are increasing at single digits. I believe I quoted 8% on the earnings call the last time, and while the revenues will continue to increase at a double digit. In a couple of pages, we'll go over the details of all of our margin opportunity, but I wanted to point that out on the operational expense side.
From a flow reinsurance perspective, it's accretive for a couple reasons, but it's based on the fact that we can increase our sales faster because it's a lower capital requirement. We can grow faster because the reinsurers are wanting to accumulate assets, and they're paying us a fee, call it a ceding commission, to do that for them. In addition, the reinsurance allows us to scale faster as the expense component they provide to us is more than the marginal expenses of us putting the business on our books. The end result is a capital-light way to diversify our earnings into fee income, and then over the life of the product, we will get about 1/3 of the ROA with 1/5 of the capital that we have to provide, and that basically increases our ROE.
On slide 50, we're pulling it all together to show the complete picture of margin expansion from investment, expense, and accretive flow reinsurance. But I also want to start that that is on top of what we talked about before, where we have expansion on, ROE, ROA, and the share price from the asset accumulation over the time, same time period. The expansion opportunity covers near and medium-term impacts, and we believe we're conservative in the assumptions behind the results shown on the page. Leena just spoke about the investment margin, being able to increase that up to 30 basis points. We're only including up to 10 basis points here, and that's because in the past, a lot of that investment margin that we have, we pass on to the policyholders.
But in the future, depending on the market conditions, we may or may not. From the scale benefit perspective, it's another ten basis points over the medium term, and that's basically what I was just talking about with aiming to do better than the 8%, but making sure that we're limiting that fixed expense growth. And then, as we discussed with flow reinsurance. We are able to dial that up and down depending on what capital sources we need, but that provides that additional ten basis points as well. So if you look at the chart that Chris showed before with the $10 per share uplift from margin expansion, that's coming basically ten, ten, ten basis points using the existing multiple. And that's about a 35% increase over the current share price. The significance here is important.
That share price accretion from asset growth and margin expansion should take our price-to-earnings multiple up to be more consistent with our peers. However, in the previous slide, we showed 1x. We're currently at 6x, we're taking it up to 7x, but our peers are higher than that, and we believe, based on these conservative assumptions, we could see a bigger benefit than what we're showing here. So the key takeaways is that we will be very focused on investment, expense, and accretive flow reinsurance to improve upon the ROE and the multiples. I will now turn it over to Chris to discuss own distribution strategy, which is another source of margin expansion and multiple uplift.
Awesome. Thanks, Wendy. Excited to talk to you about own distribution. You've heard me allude to some of this in the past, some of the investments we've made, but we want to go a lot deeper here today. A few key themes: one, this consolidation's already underway. It has admittedly lagged the P&C industry, where you've got some gigantic distribution conglomerates in P&C, but life and annuity is catching up pretty quickly. We believe we're uniquely positioned to be a core partner there. In fact, a lot of this initiative started in the other direction, with long-term distribution partners engaging with us in strategic discussions about how they were gonna grow, the fact that they did not want to go down a private equity roll-up path.
This has an ability to now generate a capital-light, diversifying source of fee-based earnings for us, and as I mentioned before, we pretty strongly believe that we will get some higher multiple recognition for F&G as well. So let's turn to the market for a second. This is. And keep in mind, on the far left, this simply shows channel commission revenue, but it's about $10 billion and growing. We think that's gonna continue to grow, probably at an even faster clip, going forward, particularly given the attractiveness of the environment and fixed product sales in particular. John Currier mentioned this, but these are really sophisticated players. You know, 10, 15 years ago, if I said, "Independent marketing organization," you pictured someone faxing annuity rates to, to agents and simply conglomerating for commissions. These are really sophisticated organizations now.
As John said, many of them have launched RIAs, many of them have product development companies where they're participating in manufacturing products, manufacturing margin with the carriers that they're partnered with. So large market, growing very quickly. Over on the right, you see change of ownership, and this is the consolidation that I mentioned before.Ameri Life would be a player, Simplicity, another example. Integrity is probably the biggest player who's been out aggressively gobbling up firms. So growing market, consolidation's already underway. You could view this in one of two ways. You could say this is an opportunity or it's a threat. We have clearly chosen to turn it into an opportunity, meaning we think we can take some of our very deep relationships in our most profitable channel and make them even more strategic to us going forward, and vice versa.
Talk a little bit about what we've done to date. We've deployed $250 million of capital into deals that we have done thus far. I'll give you some flavorings of those in a moment and what they look like. We have an immediate very clear pipeline of about $250 million of additional investments that we could make, and then over the next few years, we think we have the opportunity to deploy as much as another $500 million, which would bring the total to about $1 billion. We have penciled these out, the deals that we've done, at 20%+ Return on Investment. So we think this is an extremely attractive use of our capital, and again, something that diversifies us as well.
The other point here is, we've got a lot of expertise on the team. So this is not sort of a whole new business that we're unfamiliar with. You know, core part of the history of F&G has been into independent distribution. These are organizations we've known for a very long time. We know what their policy persistency is. We know how they approach compliance. We know who the management teams are. We know the depth behind the management teams and what the succession plans are. So again, deep, deep expertise. In fact, we've actually been approached by private equity firms wanting to partner with us because they see the advantages we have as a carrier and the levers for value creation that a pure financial investor does not have.
I want to talk a little bit more about breaking down this market and also why we think we're in a position to win. Relationships are part of that. I mentioned the fact that we just know these organizations better, and that goes in both directions. There are organizations that we see either approached by or acquired by private equity that we probably wouldn't want to partner with. Not they're bad firms, but again, knowledge here is incredibly important beyond just looking at the financials. We've got an ability as a manufacturer that other folks don't. To be really clear, the interest here is not, "Boy, if we have an ownership stake, we can force product sales." That does not work in our world. You've got to earn product sales every single day. You've got to have competitive product.
If you don't, you won't succeed over time. But as you can imagine, when you're an owner, perhaps you're sitting on the board, your relationships just get deeper. And if that distribution partner's trying to decide, "Do we gonna do a product partnership with F&G or carrier XYZ?" At the margin, they are probably more inclined to want to work with us, but it's for the right reason. It's because of the relationships, it's because of the value add that we're giving them. We think there's great operating synergies, whether we can be an advisor and a helpful partner around technology. We think there's opportunities to leverage capabilities of FNF, and in a couple of cases, we've been able to do that as well to leverage some of the operating capabilities of FNF. Data, really important here, right?
When you've got client-level data, when you talk about partnering on products, that can take it to a whole new level. We think there's fintech opportunities for us as well. You know, some of these organizations, pretty small, pretty nimble, doing some really innovative things around end-to-end owning of the customer and integrating it with policy issuance. Clearly, they need capital to grow. So again, a number of these firms have rejected... Almost every firm we've partnered with had an opportunity to be purchased by private equity, but for a variety of reasons, typically timeframe, they didn't want to sell out today.
They didn't like the idea of perhaps being in a fund and having to be flipped every five years or have the only exit be an IPO, looking for more of a long-term partner and to partner with people that they know and they trust. That's allowed us, in most cases, to take what might look like a market multiple and make it a really attractive multiple for us because of so many of these other levers that we can pull in terms of adding value. I want to break the buckets down a little bit. We talked about life network marketing. This is classic middle-market sales. Overwhelmingly in the U.S. now, these are the cultural markets. These organizations are recruiting machines. They've centralized compliance. They've, in many cases, applied some pretty innovative technology around these organizations, growing like gangbusters. We love, love this business.
I wish there were 30 other firms here, but a number of our initial acquisitions, two of which we've announced, Freedom Equity Group and Syncis growing at really, really great clips, and great partnership opportunities for us. They're good existing partners today. Little bit of capital can help them accelerate their growth in a market that, you know, literally is like 1950s life insurance in the United States. Young family formation, huge demand for life insurance, but as John Currier alluded, they're also now starting to sell annuities as well. Traditional life brokerage, we've got some partnerships there. These are organizations that typically, again, are investing pretty heavily in technology, and that was the reason that they were looking for partners.
So traditional brokerage firms selling life insurance, profitably selling life insurance, but also now trying to take it to the next level with some pretty significant technology investments. We have done some deals in the traditional annuity IMO space. Again, long-term partners looking for capital, seeing opportunities themselves to grow, where they may be able to gobble up smaller firms at very attractive multiples and aggregate them up into their organization. We've made investments where we've got high confidence in the management teams, we think they're scalable, and we think they've solved that next generation issue. The last piece is B2B or business to business. Think of these as firms who they are IMOs, but they are largely selling to other institutions. So they will go into a broad-based financial services firm and say, "Let us be your annuity experts. We will do the wholesaling.
We will help you sift out the best products. We will do the point-of-sale support of your intermediaries." So, those are sort of the categories that are there. And then lastly, what I would say is, we think there's some really interesting opportunities here, to actually have some of these organizations work together. So we've already uncovered some opportunities where one of our partners might have annuity expertise that could be useful to a more life-oriented partner and vice versa. We have put all of these investments, and we intend to put all these investments into a separate legal entity because one of the concerns that was raised is, what if you don't get the multiple recognition that you want?
We want to have these in an entity so that if it were acquired down the road, we could itself spin out some of this organization that we're building. So what's the financial benefit of all of this? The obvious one is dividend stream from our ownership stakes. We're gonna do a better job going forward of being able to break that out for you. Today, it sort of gets lost in net investment income. It hasn't been significant enough to really matter, but in short order, we think it will be significant, and we will break this out as a separate segment for you. This is an ability, again, to grow earnings without requiring a lot of capital. These are generally not capital-intensive organizations.
There may be times where we're gonna do follow-on investments 'cause we see huge opportunity to continue scaling these organizations. We think there's margin improvement from two different angles. One is just the own distribution margin expansion. So again, not having to put up capital, generating dividend income, and you see some of the benefit that we've listed there, as well as the impact on the core. Just meaning, again, as we strengthen some of these relationships, we don't do deals assuming that we're gonna get more market share, but if we do get some market share, it's quite expansive in terms of what our actual net multiple paid is. So we think this is gonna be quite significant, and again, we're gonna share more information with you over time so you can look at it as a broken-out segment.
I'm not gonna spend a lot of time on this, but I just do wanna say there's a long precedent here for some multiple re-rating. I could have thrown a number of carriers on there. I just picked two that are probably more aggressive examples of a move toward capital-light. Many of you know these firms. Several of you probably were investors in a few of these. One example I'd give here: so you look at F&G, trading at, you know, five to six times earnings. That is admittedly better than our annuity peers, but that's a category that includes a lot of VA players and players with other legacy assets, but it's below the diversified peers.
But you look at, this case, in Ameriprise or, Primerica, trading at significantly higher multiples, it's even more, extreme when you look at it on a price, to book basis. Drill into a couple more in detail. Many of you know this story well, but Primerica, spun out from Citi, good portion of the book stayed, with Citi, and they'd made a very successful transition into being a really a distribution-oriented, company, re-insuring out a good portion of the sales that they bring in, getting paid, again, as a distributor, and in particular, a distributor in the middle market, which is why it is traded at quite a premium to other peers in the market. One that I've always been quite impressed by is Voya.
I remember meeting with their CEO probably 15 years ago, and he laid out the vision of how they're gonna get from where they were to where they were headed, and and I think he and the team really did a fantastic job of executing upon that. I think it's been a great success story of how to transition from primarily capital-intensive type of a business to a more capital-light business, and I think folks would agree that has rewarded shareholders for doing that. So we can obviously get into a lot more of this when we get into the Q&A, but I would just wrap up by saying consolidation's underway. We think we're uniquely positioned to partner as a consolidator and have some really good skills to pull that off.
If we're able to do that, it's not only a source of capital-light earnings, but we believe a reason for some multiple expansion for us at F&G. So with that, I think, Lisa, we're ready for some Q&A? So I'm gonna invite the team to come up on the stage and join me.
Change spots. Yes, sir.
Oh, dear. There you go.
Yeah, thank you. It's Mark Hughes with Truist. Chris, on your last point about the own distribution strategy, you lay out in your potential value creation a $6 per share number. You've talked about the... at some point, you're gonna break out some more details, the distribution or the dividend income. Can you give us just kind of some sense of what is in that $6, what kind of numbers we're talking about, at what point, what kind of multiples, what kind of margins were you thinking about when you put the $6? Just a little more detail.
Yep, happy to do that. So, yeah, that assumes that we get about $1 billion deployed over the next couple of years into own distribution. Should have it be about 20% of our combined earnings, and assuming a market multiple that's more in the 12-15 range versus the five or six we're trading at now. So that's where the multiple uplift component of that comes.
Appreciate that. And then, Leena, you talked about, I think 30 basis points over some time period. Could you, maybe give us some sense of what that period is, a little more specifics?
Yeah. So the opportunities that were already on the slide, the four opportunities I spoke about, they're already in the pipeline, so we will start seeing benefit this year and into next year and going forward. But that's just what we have in the pipeline today, and we expect that the opportunities will grow from here. I mean, some of these opportunities that we have today may not pan out, but given that they're already in the pipeline, there is a high probability that they will. But we expect that they will continue to grow.
Is that two to three years?
The opportunities that are currently there, the benefit will start this year and will continue for the next three, five, 10, 15 years till we keep adding these asset classes to the portfolio.
Okay.
It's hard to sort of say it's only for the next three years or only for the next five years.
I guess, when do you get to the 30 basis point run rate? Is that two years?
I would say by the end of next year.
Okay. All right. Thank you. Yep.
Good morning. This is Jonathan Bass for John Campbell with Stephens. So my question is, is there a timeline or update you can give for the planned RILA product launch, and if it's still expected to launch this year? Could you talk to the potential sales impact this year, and what that ramp could look like next year?
Yeah. Excuse me. No, we'll be launching at the very beginning of 2024, so the January kind of rollout season right now. The prospectus has recently been approved, and we're in the due diligence process with about four partners right off the bat, so they'll be our initial launch partners. You know, hard, hard to gauge exactly, but I assume a few hundred million dollars, maybe significantly more in 2024, as we start to launch partners. And there'll be a consistent launching, as we go throughout the year. Again, we see great opportunity in that market space to get to kind of the kinds of market shares that we're seeing in the other areas that we operate in over time. A couple of years, probably.
Thank you. As a follow-up, do you feel F&G is adequately invested and connected to the right distribution partners, particularly in that broker-dealer channel? Can you talk to your expansion strategy there?
Yeah. Yeah, you know, it really is piggybacking. I think Chris even mentioned, you know, we kind of established we've used our MYGA launch and the couple of years of sort of building out all the plumbing that you need to plug into banks and broker-dealers. We've done a lot of that as we entered into the bank and broker-dealer space with the initial MYGA products. So several of the partners that we're actually rolling out with, we already are having relationships with. We're just only operating in their MYGA space. They aren't necessarily the biggest... They're waiting kind of on the RILA before they actually dig into the FIA space. Having said that, it's not just the bank and a broker-dealer product.
A lot of our IMOs are already selling RILA products in parts of their business, and so we have a lot of those relationships that are gonna probably be early adopters of the RILA as well. We have a head of our financial institutions distribution who's kind of lived this life before, and he's actually laying out a complete roadmap of how to go into each new firm. So we feel really confident that we'll be able to penetrate well.
I'll just expand a little bit on what John said, too. Well, it's one of the great advantages of MYGA. Like, we write MYGA 'cause it's profitable to write it. We, we wouldn't do it otherwise. But one of the benefits is, it's an easy product for someone to get to know your story. They learn how to tell the F&G story, they learn who we are, they get to interact with our service organization, as you heard from John, have a great experience there. So it really does help prime the pump when you then want to go into the RILA space.
Perfect. Thank you.
Yep. John?
Are you gonna ask?
John Barnidge, Piper Sandler. You had that report card you talked about putting on the fridge with sales and how it's diversified over time. How large of an opportunity is further expansion in broker-dealers?
Wow! You can go first. I'll let you go first.
There's no reason that blue isn't as big as a lot of the other colors, next to, you know, a couple of years down the road. Blue being what we should- the broker-dealer in on that chart. It really is just kind of a getting started place for us. If you think about where banks were a few years ago, it'll be a little slower ramp, I think, in the broker-dealer space, but it's a huge opportunity.
Part of that, too, is we've done some research. Our existing producers, again, we're only selling fixed product. I think we found, like, 50% or 60% of them are also registered.
Yeah.
So we're just not getting that business. But these are people who love F&G, sell our products today. In many cases, they're asking us: "Can you get in the RILA, get in the RILA space?" So yeah, I'm with, I'm with John. It should be multiple billions. I mean, it's just massive. It's just an enormous, enormous market. And I think RILA, as a product category, is still relatively new, is just, is just gonna continue to grow.
I'd add to that. It's not insignificant what they're doing in the FIA space as well.
Yeah.
Right? So, and that will continue to grow, and we think the more we can offer a range of product choices from, we'll see them finding ways to deploy the, those choices for clients with varying risk tolerances, so.
I've said this publicly, I mean, I see us getting to $20 billion of gross sales.
Maybe my follow-up, to go back to the Blackstone Investment Management Agreement, you talked about Everlake and Resolution as potential partners. Not today necessarily, but can you maybe expound on what that could possibly look like? Thank you.
Yeah, no, I mean, so there's two ways that I would say they're already partners, and Leena alluded to this, of Blackstone having a little bit bigger network of insurance companies is really a positive, right? So they go out to do a deal. You know, there's a limit to what we can put on our balance sheet. It'd be pretty rare for us to put more than $100 million of any single name on our balance sheet. But now with, you know, call it three or four strategic partners at Blackstone, you know, there's potentially appetite for $500 million-$600 million of senior financing. And this is one of the just core advantages, you know.
I mean, I think it was, Jamie Dimon was quoted of, you know, "With all the new regulations hitting the banks, you know, Blackstone and Apollo must be licking their chops." Well, I think they are, right? Because, yeah, there's gonna be whole portfolios that are gonna free up out of that. And so in that way, we're sort of informal partners today. But all I meant is they're very credible reinsurers that now have a partnership with Blackstone.
So, you know, quite frankly, if we ever wanted to do a block deal, they would be natural parties for us to work with because they certainly understand the assets deeply already. You know, we're staying with the same investment partner, we're just putting it on a different balance sheet. So that's what I meant by potential partners. So, I viewed that as unquestioned positive, not a negative.... Yep, Wes.
Wes Carmichael, Wells Fargo Securities. I just had a question on PRT and the shift maybe towards plan terminations. Can you just talk about that strategy? It seems like these deals might come with a little bit more liability risk in terms of policyholder behavior. What kind of ROE are you pricing that to, and where's the market going? Is it shifting toward plan terminations overall, and who are the competitors you see there?
Yeah, so maybe addressing those in, I think, the reverse order. As far as where the market's going, it sort of depends, right? It really, it really comes down to what do the plan sponsors and the corporations want to get off their balance sheet, right? So it's hard to predict if the flip we saw from sort of lift-out heavy last year or termination heavy this year, if that will sustain or not. As far as we approach those deals, we approach them the same way.
You're right, the liabilities are more complex. There are active lives. There are options they could elect at the time that they retire that make that liability profile more complex. It's why we've got a really strong pricing team who has, you know, decades of experience evaluating those liability profiles. There was a third part of your question. Which part did I miss?
ROEs. I guess, are you pricing the deals to earn a higher return?
Yeah, the one-
Yeah, the risk-
The one thing I would say, though, just want to be really clear, it's not like going from one extreme to the other-
Right
O f all retirees to all 39-year-olds, right? I mean, these, these are... All we've said is, we will take some of that if it's part of a larger transaction, and we absolutely price it to a higher return expectation because we are taking on more risk. But in terms of, active lives, it's.
Yeah, we.
It's a really small percentage of the books.
Yes. In total of the book, 5 or 6%, and at the deal level, 30% active lives, and at the book level, we constrain ourselves to 10 in the aggregate. And that's right, we do expect a higher return on the, on the deferred on the active life deals.
And I think the reason Matt threw it up there on the slide was to say, to limit yourself to say we only want to do retiree-only deals. We won't take any of that. Really, that would've constrained us quite a bit this year, 'cause you will see these go through cycles. But yeah, it's not a dramatic... That this isn't anything that's gonna meaningfully impact our liability profile anytime soon.
Thanks. Leena, on the hedging program, you talked about, you know, locking in floating rate yields. Can you talk about maybe the duration of those hedges and how large you could grow that, the size of the program, too?
Yeah. So the vast majority of the hedges are five years. There is a small chunk that is three years. So in terms of what we have line of sight to, we expect to do about $500 million more through the first quarter of next year, and after that, it will depend on how we change things a little bit operationally to make it easier to hedge the additional assets, the amount of floating rate assets that we add to the books going forward. So it's sort of depending. I cannot give you an exact number, but that is what we have line of sight to.
But again, I just want to highlight, 'cause I don't know everybody got how significant that was, right? Like, when we put a lot of this floating rate exposure on, it was mostly in the form of CLOs. You know, rates were just so much lower, and so, you know, we priced... You know, the return expectation on CLOs when we priced that block, and we think that block is pretty damn profitable already, is now an ability to go in and lock in excess profitability. Yeah, so as Leena said, you know, if rates march higher a bit from here, are we gonna leave a little money on the table? We are. But what we think we're gonna do is, when rates eventually start moving back down, we're gonna lock in. And again, it's a pretty luxurious place to be able to lock in excess profitability.
So it felt like a no-brainer from our perspective. Yep. You there first? Yep.
Hi, this is Wilma Burdis with Raymond James. Following up on John's question, you mentioned a path to $20 billion of gross sales. Could you talk about the product categories that you think would make up the biggest pieces of those sales?
Sure. So I mean, I'll, I'll take them, not necessarily in order, but, you know, Matt talked about PRT. You know, we're doing- we've been doing about $1.5 billion of PRT. We think that has $2 billion-$4 billion of potential, so there's some incremental growth there. John mentioned MYGA. I mean, I think we're just scratching the surface still on MYGA. So keep in mind, there's growth opportunity of what I'll call same-store sales, so just getting producers that already know us and love us to sell more. You know, you sell our FIA, why don't you sell our RILA? You sell, you know, our MYGA product, why don't you sell our, our FIA? But there's also new stores, so it's not like we're 30 years into this, and we have every single possible distribution partner.
And where I get really excited is, I think we've now got five or six distribution partners where we're number one in market share. So we're not just winning, we're winning big in some of these places, and so as we add partners, as we go deeper with existing partners, that has a lot of potential on, on retail. So RILA is greenfield. So to John's point, if that gets up to be in the billions of dollars, that's all incrementally on top of what we're doing today.
So I would say it's primarily, I would say, RILA, MYGA, and PRT. You can pretty easily get from where we are over the next few years to $20 billion. Now, having said that, it's not a goal, meaning if the margins aren't there, if it's not an attractive source of capital, we're gonna sell what we're gonna sell. But I don't think growth sales opportunity is gonna be our limiter. Hopefully, you guys agree with that.
Total- totally.
Yeah.
Yeah.
Following up on Wes's question earlier on PRTs, it appears that F&G is focused on the smaller and mid-sized PRT market. So could you talk about if the competition there is rational and any potential to move upmarket or, or if that's something that F&G would look to do?
Yeah, in the upmarket concept or the jumbo market, it's really a function of the size of our balance sheet and our credit profile, right? So, we do evaluate those transactions when they come in, and we do, I think over time, aspire to move upmarket. But, you know, we're winning where we desire to win now. So we look at that as a future opportunity, but not a prerequisite for our targets and growth. On the rational competition question, generally, yes, you know, the fundedness of these plans and the competitive bidding process does create somewhat predictable and expected behavior.
Every once in a while, you'll find a scenario where somebody, for whatever reason, really wants to win, and you find yourself, you know, notably outbid on a given transaction, but I wouldn't describe that as irrational. So yeah, the behavior in our competitors are generally rational, and you know, we win where we wanna win.
I would just one thing I'd add to that is, one potential path to go a bit upmarket would be to partner with another larger balance sheet carrier. We haven't done that yet, and we haven't felt the need to do that because we're kinda we're growing pretty quickly as it is, but that's potentially another path.
Okay. Thank you.
Hi, Pablo Singzon from JP Morgan. So first on the flow reinsurance opportunity, I was wondering if you could talk about the counterparties you're seeing there. Are these, like, your traditional balance sheet reinsurers? Are they offshore third-party capital? This is sort of the first part of the question. And then secondly, do you think the appetite for your kind of business now, is it, you know, a secular trend, or are we just in an environment now where these counterparties wanna reinsure what you have?
I'll start, and then I'll let Wendy jump in. I can't help myself. Yeah, so, you know, it's not an unlimited number of counterparties 'cause you wanna be really careful. You know, we're not gonna partner with the garage band, you know, one strategy credit player. But there's a number of credible players, and I would say until the demand for premiums to earn asset management fees in the world of private credit goes away, I don't see that slowing down anytime soon. I think... And frankly, you've heard me say this before, but with AEL being one of the last players sort of taken out, in terms of partnering now with being owned by an asset manager, there aren't a lot of platforms left that are doing the types of volumes that we're doing.
And so as we go out into the Flow Reinsurance market, and you're a private credit manager that has been a bit behind, but you want insurance assets to manage, well, your choices are start an insurer de novo. That is painful. That takes a long time to get to any critical mass. Buy a platform, who's left that's doing any meaningful amount of business, right? There's a couple smaller players that may transact, or you're gonna rent. So my analogy was homeownership.
There's no homes for sale, and you got a large family. What are you gonna do? You're gonna rent. Well, if there's no homes for sale, you're gonna pay above-market rent. So yeah, right now, it's particularly attractive, but I think there's always been a market for flow reinsurance. But yeah, I don't... I see that continuing. Now, we don't build plans assuming that it's always there. That's not prudent for us to do, but I don't see anything in the near term that shows demand for profitable premiums drying up.
And then the second question on the own distribution strategy, to the extent that you can disclose it, was wondering what kind of multiples you're paying up front for, you know, minority stakes or acquisitions of these IMOs?
Yeah, it's really tricky, but I would say the effective multiples have been high single-digit to low double-digit. Effective, meaning, you know, we look at gross multiple on their EBITDA levers that we have high confidence that we can pull, so they're pretty attractive multiples.
Thank you.
I guess. Good morning.
Yeah.
Soham Bhonsle at BTIG. Chris, you've clearly laid out a, an intriguing investment case here for F&G, but just wondering: How much of the unlock on the multiple side is predicated on sort of being a separate company from F&G and FNF, right? Clearly, there's an overhang with the float and things like that, so just wondering how you're thinking about that longer term.
Yeah, it's a great question. Frankly, we haven't factored any of that in, to be really honest, right? 'Cause, like, when I look at the multiple expansion, you know, there's part of me that grimaces, right? Of, "Oh, we're gonna go from six to seven or five to six." I mean... So I don't think any of that assumes there's a solve to float over time, so I actually would view that as that would be on top of some of what we've seen here. And I know everybody's question is, you know, "What's FNF's intent, and, you know, what are they gonna do?" And I, you know, I've just learned that, you know, I should not be speaking for Bill Foley and the board.
All I can say is they just love the business and feel like we made a good investment, we made it at the right time. It's providing meaningful diversification to FNF. You could argue the value opportunity is maybe even more severe inside of FNF, so I don't wanna talk against my own stock. I mean, I think owning F&G has a lot of upside. I think owning F&G through FNF has a lot of upside, given the just how the title insurer is being valued.
So yeah, I think the float piece, which, you know, over time, is probably easier for FNF to solve as we continue to get bigger, is probably just on top of what we've talked about. But we don't, we don't assume, you know, any multiple, you know, impact from increased float.
Okay, and then I guess the second one, I think historically you've talked about 100 basis points-110 basis points of ROA, with the 30 basis points uplift. I mean, should we be thinking about that range in the 120-ish range now going forward? How are you thinking about that?
Yeah, I think we used 110 as a baseline.
We did.
Just, and that's just sort of like averaging out the last X quarters, 'cause it can get a little lumpy up and down. So we, we sort of said, "Hey, if 110 is your baseline, 30 for core, 15 for own distribution," you know, you can do that math. It's, it's a pretty meaningful, you know, uplift from there.
Thanks.
And again, if I go back to left page, right page, the core business of just growing assets, some of the margin improvement that Leena talked about, spreading our fixed costs off, I mean, that alone's a compelling investment, right? Or compelling investment opportunity. Then you look at the stuff on the right, earnings impact from own distribution, multiple impact, it's... It, you know, it gets kind of goofy in terms of what we think the, the upside could be.
But we'll share all that, and also if folks have follow-up questions and you want us to detail more behind it, I've tried to give you the rough idea of what's there. But I think when you look at it, it's not, these are not crazy aspirational things. We don't need to land them all, that's the other. You know, there's enough levers here that, you know, if we land two-thirds of them, it's pretty attractive. Yep, John?
John Barnidge, Piper Sandler, with a follow-up. On own distribution, if you look at the retail channel, today, how much of your sales goes through own distribution? And then once fully deployed, that $1 billion in capital you want to put in, when it's 20% of earnings, of that retail product that could be sold through that distribution, how much of it do you think is captured through the own distribution?
Ooh, that's a good question. I mean, I would say today, you know, the deals that we've already done, it's relatively small in terms of the amount of the total that's going. On life, it would be pretty significant, 'cause, you know, we've now got stakes in our two largest network marketing distributors. So that might even be half of our life sales. I'm looking at John Phelps in the back there. So I'd say on the life side, it's pretty meaningful. On the annuity side, still relatively small. If I had to guess, 10% maybe of our sales. Once we've deployed the $1 billion, it's probably only 25%. So again, the strategy's not sales driven.
I know that sounds odd, but, you know, in the past, people have bought distribution with this, I think, misguided view of, you know, "Well, now they'll have to sell our product." Well, the world doesn't work that way. You don't have competitive product, you're not gonna win. They're just gonna go somewhere else, particularly in the IMO space, right? So I think for us, it's more, we know these businesses, we see the growth rate, we see levers that a financial investor doesn't have to add more value to what they're doing, and we just want to play in that. Now, the reality is, you'll probably get some more market share just because your relationship's that much, that much tighter.
Thanks for the answers.
Yep. Got one. Oh.
Thanks. Hey, Bose George, KBW. Actually, one more on the spread. If rates remain stable and those swaps roll off, is there some sort of impact? Is there, you know, some offset to the spread if that happens or as that happens?
Leena, did you follow that?
So you're saying that as rates drop or go up.
No, or if rates remain stable.
Okay
And the swaps that you put in place now, as those roll off, say, they're five-year swaps. D oes that, you know, is that an offset? Does that reduce the spread a little bit, or is that, is it... How does that impact the spread?
No. I mean, if rates follow the forward curve exactly the way it is today, this has no impact on income and earnings. The impact is only felt if rates go up from here, the forward curve, based on the forward curve.
Right.
It would be a negative. But if rates go down versus what's priced in to the forward curve, then it would be a positive.
It, and it's not a perfect science, but obviously the thought on the tenure of the swaps relates to the maturity of the securities that we own in the portfolio, too. So, you know, CLOs in particular tend to be shorter duration. You know, they're not usually 15-year instruments. So it was less about making a bet on the ability to roll it, as it was trying to line it up with the duration of the securities, if that makes sense.
Okay.
Which lines up with the duration of the assets, so it's all sort of linked.
Yeah. Great, thank you.
Just a quick question. Again, Mark Hughes with Truist. How much are you assuming is gonna go to Flow Reinsurance? I think you've said your own assets should be up 50% over the five-year horizon here. How much do you anticipate, kind of dollar volume roughly, would go into Flow Reinsurance?
You know, it's a hard one to answer in terms of what we'll actually do, 'cause it's such a function of, like, how accretive is it? But in terms of what went into the model, Wendy?
Sure. So I think we've talked about our MYGA, moving that up to 90%, in the short term. And then going into the future, we've talked about the opportunity to look at FIA as a potential Flow Reinsurance source for us as well. So that's where we would look as a next step.
Yeah. Is there a dollar amount that you.
Like Chris said, it depends on, you know, the bids that we get and what we can sell and what capital generation we need, and it'll all kind of come together when, when that occurs.
Okay, thank you.
The only other in terms of metes and bounds, Mark, we've said that to grow the block, we probably need to retain $6 billion-$7 billion in sales. At least at this point, we do want to grow the block. We haven't concluded that, you know, we want to run it off or anything of that nature. That would probably be one extreme, which would then say, theoretically, anything above, call it $7 billion, we could flow out if it was attractive to do that.
Thank you.
Wes Carmichael, Wells Fargo Securities again. Just a question maybe on the RILA product, and maybe it's a little bit of a finance question, but can you talk about maybe the relative capital intensity of the RILA product that you plan to launch versus a MYGA or an FIA?
I don't believe that it's going to be any different than our existing FIA, with the initial rollout that we have. We're not putting a whole lot of bells and whistles that are a lot different. You know, it's just the range of the downside and the upside that we can, you know, get a hedge over the counter that matches that. But as far as required capital, I don't think we're adding anything that would indicate that it's higher than our existing FIA.
Not materially different to slightly lower.
Oh, thanks. And so if the annuity business is all similar, right?
Yep.
Is the PRT business higher in terms of strain or capital requirement?
You know.
Yeah, yeah, another loaded question.
That's another depends.
Sort of depends.
It depends. Yeah, a lot more variability there by deal, and I think that's... Sorry to interrupt, Matt, but I think, I think as he was getting at before, sort of picking your spot, it's deal by deal. I mean, the sophistication, the spreadsheets, probably like 30 variables that they're scoring every deal just to decide: Do we want to bid, right? 'Cause, you know, you said small but mighty team. It's not a team of 100, you know, it's a team of 20, and the people pricing deals are even smaller than that.
So just the decision of, do we want to crank up the engine and bid, is a pretty important one, and that's where that dialogue is constant of, is, what's the return relative to the strain, and is it worth it? Is also a function of, how's his business doing? What else is happening in the investment portfolio? So yeah, it's a great question, but I don't have a simple answer.
I mean, the answer is, we, the four of us are in constant dialogue, you know, on a kind of PRT deal-to-deal basis. And then, you know, monthly, we're looking at, you know, the next month's sales and what we need to do to make sure that that capital at the end of the year is in excess of our target.
It helps for the retained versus flow versus the PRT versus the retail. So hopefully, what you take away is that there's a lot of dynamic planning that goes into it, and that, I think, Chris, you said it very well at the beginning of this, that it's one of our strongest duties, is to be good stewards of the allocation of our capital. And, we're in a really good position right now to be able to have a lot of places to deploy capital that we believe are profitable and accretive ultimately to the shareholders.
Yeah, one other, you know, we're making it look very formal of, you know, these different business units. We have one scorecard, right? And the driver's earnings. So sales is a driver, but the biggest driver is earnings, and that's what the board holds us accountable for, and that's what we hold each other accountable for, right? And so there's no... You know, we want to grow retail at the expense of institutional or vice versa. They're just, they're pots of... They're, they're sources of funding. That's really how we think about it. Other questions? All right, I'm getting the hook that it might be time for everybody to have a little break. And then obviously, we'll come back, and we'll go deep on investments. Thank you.
All right.
Thanks, Wes.
It's working. Taking this off? No. Pass. So when you... Yeah.
Other questions? All right, I'm getting the hook that it might be time for everybody to have a little break. And then obviously, we'll come back, and we'll go deep on investments. Thank you.
Too many. That's why, that's why I need to, oh, I have to. Oh, it's not terrible. It's good. There's also... I know you do not like to drive. That's terrible. Would you really? Would you like- Yeah. Yeah.
Hey, really quick, I took this off just-
Oh, good by accident. Where do you want it?
You're fine. Not on accident. I was reluctant to bring it into the bathroom.
That's actually totally fair.
You know? He's projecting through the speakers right now.
I am?
Yes. No, you are actually. Oh, my gosh, that's confusing. One second. Can I see your receiver actually, real quick? Give me a couple taps. Good.
All right. Well, welcome back, and thanks to the management team for the great walkthrough this morning, and hopefully, everybody had a chance to grab a cup of coffee during the break. We're gonna pick back up here with Leena, taking us through an investment portfolio deep dive, and speaking as well to Blackstone and the competitive advantage that it brings to F&G. We'll then segue to Wendy, who will provide a brief financial update, and then Chris will provide some wrap-up comments. We'll have additional time for continued Q&A, thereafter adjourning for lunch. So with that, please join me in welcoming Leena Punjabi back to the stage.
Thanks, Lisa, and good morning again. So just a heads-up, I'm gonna be sharing a lot of information, so keep those pens handy. Just starting out, the key messages I'd like you to take away from the investment section are: we have a differentiated asset management model, which we believe is better than many of our peers. Our investment strategy is driven by our liability profile and risk appetite, and not AUM and fee growth for any asset manager. Our strategic partnership with Blackstone is a competitive advantage, and it is solely a partnership. Blackstone has no ownership. Our portfolio is well-positioned to withstand potential macroeconomic headwinds, and our stress test results will bear that out. So why do we believe we have a differentiated asset management model?
It is because we are not owned by an asset manager, and we do not own any asset management businesses. I'll say this again, Chris has said it as well, Blackstone does not have an ownership stake in F&G. Why is this important? It is because there is no real or perceived conflict of interest. We have a very robust and holistic governance framework. The investment team and risk team together set the investment strategy and risk limits, and Blackstone picks the securities that align with that strategy and are within the risk limits that we provide to them. A simple analogy I will use is, we pick the neighborhoods, and they pick the houses. All major investment decisions are reviewed and approved by the F&G Investment Committee. Every new idea proposed by Blackstone goes through a rigorous internal due diligence process.
We have a working group that comprises of investments, risk, and other cross-functional teams within F&G, like accounting, capital, tax, legal, to ensure that investments are suitable for an insurance balance sheet and that there are no negative surprises. Every single investment we own in the portfolio is held because we want to own it, not because our asset manager needs the capital to fund it. Our asset, our asset allocation is driven by our liability profile and risk appetite, and not for AUM growth or fee growth for our asset manager. An example of our liability-driven investment is that assets that back our PRT liabilities look very different from the portfolio that backs our Index Annuity products. So the liabilities for PRT are longer, and so are the assets. The liabilities are more sticky and predictable, and the tolerance for illiquidity is higher.
Because there is no flexibility to adjust the benefits, like an annual crediting rate, for PRT, there is very little in floating rate assets. This gives you a flavor of how we let our liabilities drive our asset allocation, which is really important because, as we've seen what happened in March with banks, if you don't do that, then you can get into trouble. One of the reasons we are able to maintain our competitiveness is because we have a fully developed public and private asset toolkit. This enables us to be competitive and maintain consistent pricing in any rate and spread environment without taking on additional credit risk, because if spreads in one asset classes are shrinking, we have 10 others to choose from.
On the other hand, some of our peers that are relying heavily on CMLs and private placements, given the very low spreads offered by these asset classes, are having to take on more credit risk to be competitive. I often get asked: "Is our partnership with Blackstone still a competitive advantage?" My answer is yes, and this is why. First and foremost, Everlake and Resolution Life are not our competitors. Like Chris was saying, they, in fact, could be our potential partners. Only Corebridge is a competitor. However, just because we have access to the same opportunities, it does not mean our pricing will be the same. I'll give you a food analogy to explain what I mean. Two chefs could have the same ingredients, and one will make a pizza and the other a pasta. Two very different outcomes.
Having access to some of the same assets is just the beginning. What you do with them is dependent on what you have in your existing portfolio, your risk appetite, and your familiarity and comfort level with the assets, among other things. Just saying, we are the OG insurance client of Blackstone. We have the first-mover advantage. There is great connectivity across both organizations, and our infrastructure is set up to reduce the time it takes to implement new ideas, which is very important to maintain your competitiveness.... We have a fully outsourced model. That is, we don't manage any assets internally, so there is no friction in our asset allocation decisions. Whereas if you have internal asset management, there could be a strong bias to keep assets in-house for reasons that I won't get into here, but they're not related to the economics of the investment.
I can say this because I have experienced it firsthand as an investment consultant working with insurance companies. Overall, Blackstone having more insurance clients has led to higher deal flow, as Chris was mentioning, in one of his responses to the question. In the past, you know, we'd get asked by Blackstone, "We have a really attractive deal, but we need to take down at least $500 million. You know, how much could you take?" And we'd be like, "$25 million." And so clearly, without other substantial insurance capital, they would have to let those deals go, but now they don't have to, and so we have seen additional deal flow as a result of their, you know, new insurance clients, which is a net benefit for us.
And lastly, the new fee structure that we have with Blackstone demonstrates their commitment to F&G as a long-term partner. They very much think of this as an investment in our growth. We benefit significantly from Blackstone's trillion-dollar ecosystem. One way is deal flow, but the other is market intelligence. Blackstone is present in pretty much every segment of the market. They also are one of the largest, if not the largest, in most of those segments, which means that the intelligence they gather from across all of those businesses and the over 2,000 investment professionals they have on their payroll is unmatched. And this helps them make better investment decisions for our portfolio, which obviously helps our performance. This slide demonstrates how their origination capabilities have benefited us. It's a really busy slide, so bear with me.
They have been able to originate private assets that provide higher spreads compared to same-quality corporate paper. The lines on the exhibit are the spreads for public corporates, and the dots are spreads on the private deals that Blackstone has originated for us. The different colors represent the same quality, and you can see the dots on average have spreads more than 200 basis points higher than the same color line. And, you know, we don't have to add a lot of these private assets to our portfolio to be competitive. You know, as an example, just 20% will increase our yield by 40 basis points, which is very competitive. The reason Blackstone can get this additional spread without going down in quality is the borrowers and originators of this debt value certainty of execution and the ability to customize.
You know, traditionally, banks are the ones that have lent to these borrowers, and if, you know, banks don't have the ability to provide either certainty of execution or ability to customize, and if anything, their ability to provide this will diminish even further because of potential regulation. We will be the direct beneficiaries of this and have already started seeing more opportunities and even adding some to the portfolio. And this ties back to, you know, the up to 30 basis points of additional investment margin that I spoke about in the earlier section. This is a snapshot of the aggregate portfolio, and just a reminder, this is net of funds withheld reinsurance, where we don't manage the assets or own the risk. It is a very well-diversified portfolio with about 39% in core fixed income, which we define as corporates, government, and municipal debt.
96% of the fixed income portfolio is in investment-grade debt. 64% is in NAIC 1 rated debt. I know office is an area of concern, and we have very little exposure to office in our portfolio. Across our CMBS commercial mortgage loan, as well as our alternatives portfolio, it's only 2.5%, which is about a third less than our average peer, you know, who's at 3.5%. And please note, the peer number does not include their CMBS and alternatives office exposure, so the exposure is slightly even higher than the 3.5%. This slide provides some more detail on the four main asset categories. Each of the four categories are really well diversified. The core fixed income bucket is largely dominated by corporates, munis, and treasuries.
We will spend more time on each of the other three buckets, so I won't talk about them here. You know, I often get asked why our allocation to CLOs is so much higher than our peers. So we took a step back and thought, "Okay, we own more CLOs, but what do our peers own more of that we don't own?" And CMLs was the clear outlier. As you can see from the green box, on the exhibit, we have a large underweight to CMLs versus our peers. Similarly, we have a higher allocation to NAIC 2 and below CLOs, and our peers have a much higher allocation to CM 2 and below commercial mortgage loans, commercial mortgage loans. The bottom exhibit shows, in addition to having low office exposure, the office exposure we do have is much higher quality.
Only 3% of our office properties have LTVs higher than 70%, whereas for our peers, it is more than double that at 7%. Overall, we very strongly believe CLOs is a much better investment versus CMLs. And why is that? CLOs are very diversified with no particular sector under stress, whereas CMLs have two big sectors under stress, office and retail, which together comprise almost half of the commercial real estate market. CLOs are liquid, and commercial mortgage loans are not. So you do not have the ability to sell them for any reason. And with commercial mortgage loans, you're not even getting paid for the credit risk and the illiquidity.
So 10 years back, when I was a consultant working with insurance companies, I couldn't understand why they wanted to invest in CMLs and private placements over CLOs, and I still don't get it. I know the reason, but it still doesn't make sense. Speaking of getting paid, we have been a very opportunistic buyer of CLOs, only adding when the spreads are high enough to compensate for the risk. The first row of arrows shows that, whereas our peers have added CLOs regardless of the spread environment, and the second and third row of arrows show that where it's consistently going up. The lines on the top demonstrate what the spreads have been for CLOs historically. This exhibit demonstrates why we are not concerned about our BB B CLO exposure.
It shows for a typical CLO structure, at what points along the default and recovery curve certain tranches will be impacted. The green square indicates what historical, broadly syndicated loan default and recovery rates have been on average. The dashed line shows at historical recovery rates, defaults would have to be more than triple the historical average and stay there for the life of the CLO, which on average is 10 years, for BB B tranches to be impaired. Now, I know recovery rates have trended meaningfully lower versus history, and they are currently around 50%-55%. However, even if you lower recovery rates all the way down to 45%, the default rate would need to be 6% or higher every year for the life of the CLO for the BB B tranche to be impaired.
This has never happened, going all the way back to inception. The longest consecutive period where defaults were higher than 6% was two years and eight months, and the average default rate for that period was 7%. So this clearly lays out that the scenario in which our BB B tranches are vastly impaired has never happened historically, and the history goes back a very long time. This slide has further evidence that demonstrates CLOs have had superior performance compared to corporates. The top exhibit shows default rates for corporates versus CLO tranches of the same rating. The purple bar, which is corporates, has had meaningfully higher defaults across the quality spectrum, going all the way down to single- B. The bottom exhibit shows loss rates for the broadly syndicated market versus CLOs.
As you can see with the purple line, CLOs have had close to no losses, even when losses for the broadly syndicated market have significantly spiked. This is because of the structural benefits that come with CLOs, as well as the active management. One argument I have heard is CLOs have not been through a higher rate environment, but that is not true. This period that we are showing on this exhibit includes the 2004-2007 period, where the Fed hiked rates all the way from July 2004, when the rate was at 1.4%, and ended it in July 2007, where rates were at 5.3%.
So a significant increase over an extended period of time, which is similar to our current environment, and CLOs did just fine during that period, as well as the GFC, which was the most extreme economic downturn in recent history. So I'm not quite sure what else we need to see to conclude that CLOs are a solid asset class. Now, I'm not saying that there is no risk in investing in CLOs. CLOs have high dispersion in performance, especially if you go down in quality. So it is very important that you have the ability to due diligence the underlying collateral at the loan level, as well as due diligence the CLO manager that you're investing with, and there are hundreds of CLO managers. We have about 97 in our portfolio.
In addition, you also need to have legal resources to do due diligence, the hundreds of pages of legal documentation that come with CLOs that have all of the structural nuances. We have all of these capabilities and more with Blackstone, whereas most of our peers don't. Maybe that's why they're not investing heavily in CLOs? I don't know... CLOs also tend to be very volatile. However, we hold our CLOs to maturity and at amortized cost. We do not rely on the CLO portfolio for liquidity. Even in the most extreme scenario, we have sufficient corporate and municipal assets to meet our cash flow needs. Although I will say, last year, CLOs would have been a better asset class to sell for liquidity versus corporates. Because of their floating rate nature, they experience much lower drawdowns than corporates. Lastly, CLOs also experience higher downgrades.
We pay particular attention to downgrade risk, and while we certainly don't like to experience downgrades, in a downturn, the higher C1 requirement from these downgrades has a natural offset with our alternatives portfolio, whose market value goes down, and so the C1 for that portfolio goes down as well. The next few slides, I will focus on our Private Credit Investments. I'll start out by saying we are lending to segments that have existed for decades and historically been served by banks, so they have a long history and observable track record. We are not investing in sectors that are new and have limited history. So what is specialty finance? It is secured lending against physical and financial assets. Some examples of these loans are lending against cell towers or providing NAV lending facilities to draw down funds.
So, the latter is really providing a line of credit to alternative asset managers. Some of you may know that they don't like to go to their LP investors every month for capital calls. Operationally, it's very cumbersome for them. It's also cumbersome for the client. So, so they try to make it easy and draw on a line of credit, and once they have sufficient capital to call, they will pay back the line of credit by drawing, by calling the capital on the LPs. So the underlying credit risk is very diversified, and you're really exposed to the LPs. It's very, very unlikely that they don't honor their capital calls, so this is a very low-risk investment, and this is a similar theme that plays out across the very diversified opportunity set that this asset class presents.
We pick and choose, you know, the asset classes that have a demonstrated long history, that have lower risk, and are, you know, we are getting paid for that risk. So why we like this asset class is really because they are secured and backed by a highly diversified pool of collateral versus corporate debt, which is unsecured and has concentrated issuer exposure. It provides diversification away from corporate credit, and we'd much rather buy this than buy CMLs, which also provide diversification away from corporate credit, but we don't like them for all the reasons I outlined before. There is a large range of sectors, so you can pick sectors that you have high conviction in and customize the terms to provide superior credit protection. Asset-backed and consumer loans are very similar to specialty finance.
Some of the primary differences here are, we are focused on fewer sectors, and we are buying pools of whole loans from originators, and we often have contracts to get forward flow from these originators over a certain period of time. We have meaningful exposure to consumer debt in this portfolio. That's because we really think that the consumer balance sheet is in really good shape, and although it is deteriorating over time, we prefer and have lent to high-quality consumer profiles, consumers that are homeowners, that have high FICOs and have six-figure incomes. We are lending, you know, for things that add real value to the consumer, for example, for solar panels, for HVAC systems, for energy-efficient windows that help them save on their electricity bills, so the loan kind of pays for itself.
On the other hand, just to give you a flavor of what we are not investing in, it is things like buy now, pay later loans, where the borrower is likely over-levered and is buying stuff they probably don't need and can't afford. So in short, we like these investments, for all the same reasons we like specialty finance, but also this is an uncrowded space with limited institutional competition relative to other private strategies, so this helps us earn that incremental spread that we may not get with other private assets. The last type of private asset we invest in, is corporate lending. These are private loans to large middle-market companies. They are typically floating rate. This type of lending is Blackstone Credit's bread and butter. They have been doing this since 1998.
They have an excellent track record, and their loss rate at 20 basis points is well below the market. They are targeting companies that are number one or two in their markets and in defensive sectors with high barriers to entry. Companies that are growing rapidly, those with relatively inelastic demand and/or providing essential services that have been resilient in a rising cost environment. These loans will typically have LIBOR floors, limiting the downside.... Now let's talk about Blackstone's underwriting of these private assets. Firstly, I'll start by saying the private deals that we've done to date have performed better than our underwriting assumptions, as well as comparable market benchmarks. Upgrade to downgrade ratios have been very favorable. They are 1.7 times for corporate lending and 4.6 times for our asset-backed finance portfolio, comprising specialty finance and asset and consumer-backed loans.
The reason for these very favorable outcomes is their very conservative underwriting, Blackstone's very conservative underwriting. They come up with their own forecasts and assumptions based on the macro view of the economy, market intelligence from across the businesses, and how the sector has performed historically during economic downturns. Their base case is more conservative than history, so you already start out with a buffer, and then the bear case replicates GFC-like conditions, so you're adding an additional buffer to that. They price the investment such that even in the bear case, we will recover our principal with some modest give-up in spread, and the table on this slide demonstrates that.
This, this table is for a deal that was done by the asset-backed finance team, and you can see in the bear scenario, our yield goes from 4.6%- 4.2%, which is a very modest give-up. Now, let's switch gears to our alternatives portfolio. The most common questions we get here are, "Is your long-term return assumption reasonable?" My answer is yes, it is reasonable to conservative. Why do we think so? Our historical average return has been 14%, and given most of our funds are in the early to mid-stage, meaningful appreciation is yet to come. Inception to date, realized IRRs on funds we have invested in that also have prior vintages, have averaged 20%.
Since inception, the portfolio has returned nearly half of the capital called, with the outstanding NAV having a total value to paid-in ratio of 1.3 times. Another question we get asked is: "Are the fund valuations overblown?" The answer is we don't believe so. Why is that? Blackstone tracks exit prices for portfolio companies versus the most recent valuations for both their private equity and real estate flagship funds, and the exit premium has been 33% and 5% respectively, versus the valuation in the most recent quarter. This shows that they have conservative valuations, which leads us to believe that the valuations for our funds that we hold are not overblown. This is a snapshot of our alternatives portfolio. It is very well-diversified from a sector, vintage, and funds perspective with 45 funds. Our commitments have come down meaningfully since last year.
A lot of this is because we are at our target, but also equity valuations are currently high, and we want to create capacity to invest when markets have turned and valuations are more attractive. Just as a reminder, our allocation target is 5%. However, we expect that our allocation will move between a range of 5%-7%, given it is impossible to manage the allocation to a specific number. As you probably know, the pace of capital calls, the distributions, and market appreciation can vary. Now, let's talk about our commercial real estate portfolio. It is, again, very well-diversified, with meaningful underweights to office and retail versus the market and our peers. Our commercial mortgage loan portfolio is low risk and well-diversified. They are all first mortgages with average LTVs of approximately 60%.
We have 77 loans in the portfolio, with an average size of $27 million. Only 1.3% of loans have a DSCR of less than 1x . The office loans have high DSCRs at 2.5x , high occupancy at 89%, and low LTVs at 55%. There are no loan maturities in the next 12 months, and only $38 million if you extend that to the next two years. And if you extend it further to next three years, you add another $13 million to that. So again, we are not facing a maturity wall that would make us, you know, make us concerned about what the performance of the portfolio will be. In terms of the CMBS portfolio, our office exposure is granular, with more than 200 properties, with an average position size of $7 million.
We have done a thorough bottoms-up due diligence exercise that at the underlying lease level, loan level, property location, tenant composition, and have sold positions that are most exposed to office. This has cut off the negative tail of the portfolio, such that in a bear case, assuming every office property goes down by 40%, which is a very extreme scenario, the CMBS portfolio would lose only 5%. As such, we believe the remaining portfolio is well-positioned to withstand potential stress in the office sector... We have been preparing for a credit downturn since 2019. You know, all the way back then, we thought the credit cycle was extended. So we took several, several actions to de-risk the program over the years.
And since 2020, we've sold about $1.6 billion with the specific purpose of reducing risk in the portfolio. In addition, we have been investing our new business premiums up in quality, all of which has led to the portfolio quality to trend up from NAIC 1.6 to 1.4. Now, let's talk about the stress test analysis. We tested three scenarios: a moderate recession modeled after the dot-com bubble and COVID-19, a severe recession based on characteristics of the global financial crisis that we experienced in 2008, and stagflation to demonstrate risks potentially emerging from current macroeconomic trends. For corporates, munis, and alternatives, we used historical losses and ratings migration published by rating agencies. For CLOs, CMBS, and MBS, we also did the same thing, but we adjusted for the improvement in securitization structures that have taken place post the GFC.
We assumed instantaneous shock with no management actions, which is pretty severe because that's not what happens in reality. Losses usually bleed in over multiple years, and you don't experience it all at once. This slide shows the results. To begin with, our starting position for excess capital at 350% RBC is over $500 million. To be clear, our RBC target is more than 400%, but in a stress scenario, we target 350%. If you look at the middle gray row, we experience very low fixed income impairments, which makes sense because 96% of the portfolio is investment grade. Now, let's do a quick math exercise.
If you take the 60 basis points of impairments in a severe recession and then drop the impairments down to 5 basis points, which is what we've experienced on average over the last trailing three years, we will be right around the level of impairments in our pricing assumptions. So this ties back to my comment as to why we believe going forward, we expect our impairments to be either in line or below our pricing assumptions. Most of the negative impact over here is from mark-to-market on our alternatives and preferred stock portfolio. However, these are unrealized and temporary in nature. We would expect them to recover over time, consistent with historical and recent experience. Lastly, the impact from ratings migration is minor to slightly positive in a severe recession.
This is because the higher C1 from downgrades in the credit portfolio is offset by the lower C1 from the lower mark-to-market value of our alternatives. And this is the phenomenon that I was talking about earlier when I was talking about CLOs. This slide shows our excess capital position at 350% RBC after the stress. It's only in the severe stress scenario where we would need approximately $374 million of additional capital. However, we have several management levers to pull to make that happen. Between our revolver capacity, ability to do additional reinsurance, and reduce new business sales, we can increase the excess capital by approximately $700 million, which is more than sufficient to bridge the gap in the most extreme scenario that we have modeled.
I'll end where I started and recap the key takeaways for you. We have a differentiated asset management model, which we believe is better than many of our peers, which continues to give us competitive advantages. Our investment strategy is driven by our liability profile and risk appetite, not driven by AUM and fee growth for any asset manager, so there is no real or perceived conflict of interest. Our strategic partnership with Blackstone is a competitive advantage, and it is solely a partnership. There is no ownership stake. Our portfolio is well-positioned to withstand potential macroeconomic headwinds, as our stress test results have borne that out. With that, I will pass it back to Wendy to go over our financials.
Okay, the financial update. So the key messages here are that we have a strong capitalization, which supports our organic growth, and we can distribute cash as well. We generate those consistent returns regardless of the macroeconomic environment, and we do have a track record of profitable growth and clear levers to enhance that ROE and share price. So our our capital allocation priorities focus on deploying our capital to maximize shareholder value through continued investment in our business and generating cash to the shareholders.... I continue to use that three-legged stool analogy that I use for capital sources. First, the in-force capital generation, reinsurance, and debt capacity. We view your investment in us as an investment-grade fixed income security, generating double-digit returns by us reinvesting in our sales, using that $800 million of capital that is generated by the in-force.
Reinsurance then can be used as a lever to dial up or down our retained sales, depending on the level of capital that we need to support the growth across our channels, our products, including own distribution. So using that three-legged stool, we believe that we are creating value and are able to return cash through a sustainable dividend that will increase over time. This slide, we're depicting what our ROA has been compared to the 10-year treasury that has gone down, back up, and you can see that even in the low-rate environments, we've been able to increase our margins. And because our margins are based on the fact that we're generating AUM, it's we have that growth, and then we're expanding margins. And that's in a variety of interest rate environments.
So we do have that track record of, of profitable growth, which starts with tripling our sales and doubling our assets under management. We measure the success of our business based on the purple bars in the upper right, graph, right? We take out that market fluctuation, that we have across the liabilities and the assets, and we take out the impacts of non-recurring items to get to a normalized, Adjusted Net Earnings. Using this measure, the Adjusted ROA has increased 32 basis points over the time period, GAAP equity ex-AOCI increased 39%, and book value per share ex-AOCI, 59%.
Now, there is some noise in this history because of accounting changes, because of PGAAP, but what you need to take away from this is that our core business growth delivers an increase to our book value and should be reflected in our multiples, all of which are before margin expansion. And that margin expansion takes our ROE up to 300-400 basis points, some from margin expansion and the rest from own distribution. With that, I would like to turn it back to Chris for closing comments.
Great. Thanks, Wendy. I'm gonna sort of repeat where we started. You know, we think we've got a really compelling investment opportunity here for a variety of reasons, and I wanna focus on the value creation slide that I started with earlier in my presentation. Hopefully, now you've had an opportunity to hear the details behind that and come to the conclusion that these are reasonable assumptions behind it. Again, the first bar is simply asset growth. Growing our AUM by 50% over the next five years, we believe adds about $12 to the share price. Core margin expansion, you heard the details from Leena about some of the steps that we've already taken and have the capacity to take to increase our margin on the investment side.
Wendy talked to you about operational scale, how we can take those fixed expenses, grow them at a single-digit clip, and start to get some of that benefit of growth and expense scale. You heard about the benefits of accretive flow reinsurance, so that addresses margin expansion, which we think could be worth $10 per share. I walked you through own distribution, and again, the two components here are simply the margin improvement. What do we think the cash dividends coming out of those investments will be and the impact?
We peg that at about $6 per share, and then you see the impact of multiple expansion, which one point of multiple is about $8, whether that's coming from perceived benefit of, the sum of the parts around own distribution or simply, an increase in the multiple because of the core, margin expansion for F&G as a company. So with that, we're gonna throw it open to another Q&A session. I'll invite my colleagues to come back up and join me on the stage. This is where we'll test your capacity for questions relative to your desire to eat. Yep, Mark?
What if you could talk about the sort of capital return in outyears, what's assumed in your model? You talked about a sustainable and growing dividend. Is that gonna be kind of the governor here on the business, that you're gonna grow the book, grow your own assets consistent with that dividend? How should we think about the potential for more capital return as time goes by?
Yeah, I mean, I'll start. Couple, couple levers that we've already talked about. For every $1 billion of sales we reinsure, frees up about $75 million of capital. A $1 billion of gross sales reduction would be double that, so about $150 million of capital. Again, with the meets and bounds being $6 billion-$7 billion retained to grow the block. You can see that over and above that, you know, starts to create some more cash relative to what we've been retaining. We've been retaining $9 billion or $10 billion lately, so that'll give you some idea around the cash flow impact. What I would say is, we think we've got enough reinsurance capacity to continue to grow the dividend, fund the own distribution, you know, opportunities that we have in front of us.
And again, if there was a need for more, because we saw really attractive opportunities, another lever would be to go in and do probably a small block deal, where we're just reallocating capital from spread to own distribution. And then ultimately, you know, you could contemplate some form of an equity raise. But I think it would need to be. It'd need to be a pretty attractive opportunity to do that. I don't know if there, Wendy, is there anything you want to add or that I missed?
No, just a reminder that the dividend is currently about $100 million right now.
In thinking about Voya, for instance, talks about a payout ratio of the dollar in earnings, you know, $0.90 is available to be paid out. Is there a comparable, you know, once you get to steady state or kind of steady growth, is there a payout ratio that's appropriate for this business?
Yeah, we've really struggled with that, and again, I think because there's not a legacy component or a runoff component to what we do, which I think is a good thing. I just don't know that it's as applicable. So as Wendy said, you know, we think we're getting double-digit to mid-double-digit ROEs for effectively taking investment-grade risk. So that's where it gets a little tricky. You know, we put a small buyback in place, but that was just 'cause the stock at one point was trading at a just stupid level, and we felt we needed a mechanism in place to take advantage of that. So we don't necessarily walk around thinking about a cash distribution rate.
Having said that, if for some reasons, the returns we're getting on deploying new business aren't there, then yeah, we would either reinsure more or frankly, just pull back on sales, and in which case, you would see more cash. But I think right now, the feedback we get from our board and we get from the majority of our shareholders is, if you can get those types of recurrence, we can't get that on our own, so don't, don't send us cash back. Maybe said another way, there's the capacity to send a lot of cash back. We could stop writing new business and probably send $800 million back, but you, you would need a more attractive place to put it than what we think we're able to generate right now.
I'll throw this out. You mentioned the existing book is more valuable than the current stock price. What kind of runoff value would you throw at it if you had to?
Yeah. You know, it's tough. We haven't tried to disclose what we think the actuarial value of our block is, but you can go look in the market and see where fixed annuity blocks have traded. So I think those are gonna be pretty consistent. I don't know, Wendy, if you have a.
Well, you'd have to adjust for the fact that we have a clean block of business. Some of the blocks that are out there are not as clean as ours, so you'd have to make that adjustment. But we've, we've quoted the $800 million of runoff value from the in-force that's, that's generating, right? So if you take that out of over duration, you could come up with a discounted value of what you think the block is worth.
Are there multiples for those who don't have it top of mind? Are there multiples that you've got in mind for those blocks?
I mean, you know, you've seen blocks trade at 9x earnings, 10x earnings.
Yeah.
I don't know if there's a, you know, in terms of capital or percentage of the block itself.
Yeah
But, you know, you're gonna come up with a number that's in the billions.
The relevant base would be the $800 million to that you would apply that multiple to?
That it returns in 2023. Will return in 2023.
That's why one way to think about this is it's a giant structured note or mortgage security. I think that's the piece that at times just becomes utterly maddening. You know, again, forget new business capability, forget what the new business engine is worth and our capacity to bring in future premiums. Just the runoff value, it's not hard to model the cash that's coming off. And so again, if we got to an environment we thought we can't get attractive spreads, then yeah, we would effectively shrink the book.
I'll throw one more. Just when you think about book value, you've got a lot of goodwill and tangibles on the balance sheet. How should, how should investors think about that? Is it real book value, or throw that out and think about hard book?
Well, obviously, there's, I would say, good investment there. You know, I go back to what FNF paid, which I think was about $2.7 billion. They've put an incremental $400 million of cash into the business, so they've got about $3.1 billion invested. As discounted as the market cap is today, it's still $3.5 billion. So, you know, like, to me, goodwill's an accounting measure that I really, really struggle with. You know, it's the same thing with ROE. You know, we talk about it's 10%, you know, potentially growing to 13%, but if you're buying our stock at 70% of book value, if you're an investor today, your ROE is not 10, because you're not paying book value to buy the company. So that, that's... I'm the wrong guy to probably answer that question.
I should let Wendy answer it, because my frustration with insurance accounting will show through. But yeah, I think in terms of the tangible value of the business, I do think book value is a pretty good measure and foothold relative to what the business is worth.
Yeah. I, I think you can look at it, Mark. That chart that we had at the beginning that showed the progression of book value.
Right now, that book value is increasing because of the growth of our business, right? Forget about the goodwill that's in the accounting. That book value is growing because of the way we're growing the business.
Yep, John?
Thank you. John Barnidge, Piper Sandler. One question on your slide on alternatives. I think you said a 14% return for 2019- 2021, it might have been. Do you have a long-term assumption? And if so, what is it?
Yeah. Our long-term return assumption on alternatives is,
We don't break it out between the LPs and the equity components of the direct lending that Leena just went through, right? So if you think about what we disclose every quarter, we have a long-term assumption of 10% for the LPs, the direct lending, and-
The whole loans.
and the whole loans.
Yeah.
Great, thank you.
Wilma Burdis at Raymond James. The NAIC has been debating whether it should increase CLO capital charges potentially by 50%, although we don't think this will be resolved until at least 2025. Where does F&G stand on this issue, and what level of capital impact could we expect if this were to go through?
Thank you for that question. So you're right. The NAIC, you know, is looking at increasing capital charges for CLO equity, but has a lot of regulation, regulatory changes in play, and we are following all of them. In terms of the impact, I would say the impact is minimal. We have about $50 million of CLO equity on our balance sheet.
15, not 50. 15, right?
Okay, 15. Thanks, Wendy. And so, you know, it has a very minimal impact from a capital standpoint.
Then, sorry, the only thing I'd add, Wilma, is I think, I think there's been a lot of progress from an industry perspective of some important principles, you know, that this should be based in data and research and models. I think there was a zeal to get something in place, and I think probably legitimate concern about, is there some regulatory arbitrage taking place? Are there, you know, cuspy players doing overly aggressive things, in terms of how they're trying to structure things?
So I understand where it comes from, and I think initially there was a zeal to, "We got to do something really, really quickly," and I think cooler heads prevailed, and people have stepped back and said, "You know, if there's a problem, let's fix it, but let's make sure it's grounded in real data." So yeah, I would say the CLO one, I don't think the industry owns much CLO equity, so I don't think that is going to have much impact. The question is, if you extend that too far and it's not based in data and science, that wouldn't be good, but I'm feeling more confident that's not going to happen.
Could you talk about if 350% RBC target is a good level for F&G, given its liability profile, and why?
So-
Yeah, go ahead.
The 350 basis points is in a... or 350% is in a stressed environment. So when we're doing the stress testing-
Okay
W e don't expect that we're going to hold 400% RBC. Everybody in the industry will lower that target, but our business as usual, ongoing management level is 400% or above, and we're pretty consistent in delivering that result.
Thank you.
Another thing I'd add to the capital piece is, you know, we're A-m inus. We'd like to be A. We're trying to run the business in anticipation of the rating you'd like to be at, and so that's kind of the other factor. I think we could probably make an argument that our RBC target could be lower than 400, but we've actually been running it pretty comfortably north of 400, 'cause you want to run it at the level you want to be perceived at. So upgrades are important to us.
I want to ask, John, kind of the most recent state of play in terms of demand for MYGA and FIA. You talked about kind of the banks have had their issues capital swings. Where are we right now in this kind of back and forth in terms of momentum?
We really haven't seen it slow down a whole lot. I mean, the market is continuing to grow. I think really what has happened more than anything is people's eyes have been opened to the fact that there's insured products alternatives for a lot of folks. The distribution base who hadn't necessarily sold annuity products as a part of their practice, which has now kind of also had their eyes opened. You know, I think the relative level of net new flows, that will ebb and flow at various points in time, but we're a pretty stable industry, and once you kind of reset the bar in terms of what's moving around in that pipe, it doesn't seem to move down very much.
So I think what we really have is a whole lot of net new insured products customers out of the last couple of years, and I think that's going to portend very well going forward. I think the more and more the stories out there as people plan for their retirements, I mean, we're entering into a huge wealth transfer period of time, and people are going to need to deploy some of that money and safe money or safer money. I think there's still a lot of tailwinds.
Volatility helps, right? We say this all the time. Like, the bigger risk to us is not interest rate moving around, it's probably complacency, right? If everybody was getting 12-15 in their Mutual Fund account every single year, it's kind of like, what do I need guarantees for? So, you know, having rates up, seeing a lot of volatility in the markets actually helps. Any other questions? I'm going to assume everybody's hungry. So I, I'm just going to close by saying thank you. I know it's a huge investment for you to spend this much time from us. I'm glad you got a chance to, to get to know the team, and obviously, we're all going to be here for lunch and milling about, and happy to answer any other questions that come up. So thank you, and for everyone tuning in, thank you.