F&G Annuities & Life (FG) Q1 2026 earnings review
Scale Accelerates, But Alternative Investments Continue to Anchor Bottom Line
F&G delivered a quarter of operational milestones masked by persistent investment drags. Assets Under Management (AUM) before reinsurance accelerated to a record $74.5 billion (+11% YoY), fueled by $3.2 billion in gross sales. GAAP Net Income reversed a prior-year loss, printing $244 million on favorable mark-to-market effects. However, the true operational story lies in Adjusted Net Earnings (ANE): while up 21% YoY to $110 million, ANE is decelerating sequentially from late 2025. The culprit is a chronic underperformance in the alternative investment portfolio, which missed management's 12-14% return target by $44 million this quarter. Management is aggressively pivoting to a capital-light, fee-based model to insulate earnings, but until the LP portfolio recovers, top-line scale will struggle to fully reach the bottom line.
🐂 Bull Case
The pivot from a spread-based to a fee-based model is executing well. With the Ancient Re partnership and Blackstone sidecar, F&G is successfully offloading capital-intensive liabilities while generating fee income, tracking toward a goal of 25% fee-based earnings by 2028.
Despite market fears regarding private credit and commercial real estate, F&G's portfolio is rock solid. 97% of fixed maturities are investment grade, and credit-related impairments are running at a negligible 3 basis points.
🐻 Bear Case
The LP and equity portfolio remains a chronic drag. Missing internal return targets by $44 million to $67 million per quarter over the last year is severely depressing Adjusted ROA and masking the operational leverage of the core business.
Elevated policy terminations previously boosted earnings via surrender fees. As interest rates stabilize and surrender activity normalizes, this will create a near-term headwind on ROA expansion.
⚖️ Verdict: ⚪
Neutral. The operational engine—gathering assets and transitioning to a fee-based model—is executing beautifully. But investors will likely remain sidelined until the alternative investment portfolio stops destroying $40M+ of adjusted earnings every quarter.
Key Themes
Chronic Alternative Investment Underperformance
F&G redefined its alternative assets bucket in 2026, reclassifying $6B of debt-like assets to fixed income and leaving ~$4B in LP and equity interests. Even with a revised long-term return target of 12-14% on the remaining bucket, the portfolio missed expectations by $44 million in 26Q1 (a $0.32 per share hit). This is a stable, negative trend: the portfolio missed by $51M in 25Q4, $53M in 25Q3, and $67M in 25Q2. Until realizations in the private equity space accelerate, this will cap F&G's ROE potential.
Transitioning to a Fee-Based Machine
F&G is actively shrinking its reliance on spread-based income. The company is leaning heavily into flow reinsurance (e.g., the Fort Green Re sidecar and Ancient Re partnership) and owned distribution margins. This is accelerating. Flow reinsurance fee income and owned distribution margins contributed a combined $25 million in 26Q1. Management is targeting fee-based earnings to constitute ~25% of total earnings by year-end 2028 (up from ~15% in 2025), which commands a higher valuation multiple.
Private Origination Defying Skeptics
A common bear thesis against life insurers is the opacity of private credit. F&G dedicated significant time to defending its $11B private origination portfolio (sourced largely via Blackstone). The data is compelling: 89% of the middle-market lending book is investment grade, and total credit-related impairments for the entire fixed maturity portfolio averaged just 6 basis points over five years (and a mere 3 bps in 26Q1). Software exposure is under 5%, and office real estate is just 1.7%.
Unlocking Value via Public Float & Buybacks
Majority owner FNF distributed ~12% of F&G stock in late 2025, increasing the public float from 18% to 30%. With the stock still trading at a massive discount to book value (price ~$25 vs ex-AOCI book value of $46.51), management is taking advantage. They launched a new $100M buyback program and repurchased 1.2 million shares for $29M in 26Q1 at an average price of $24.14. This is a highly accretive use of capital given the depressed valuation.
Other KPIs
Accelerating. Up from $44.43 at the end of 25Q4. This growth was driven by $0.72 of underlying business performance, a $0.10 one-time gain from the sale of the F&G Life Re entity, and favorable mark-to-market movements. The wide gap between the current share price and this metric highlights management's frustration with the public market valuation.
Accelerating efficiency. This ratio dropped from 58 bps a year ago to 48 bps in 26Q1. By holding fixed costs relatively flat while scaling AUM past $74B, the company is generating significant operational leverage. Management's long-term target is to push this down toward 45 bps by 2027.
Guidance
Stable. Management reiterated their medium-term target range, though current performance (0.76% for 26Q1) is severely lagging. Achieving this acceleration requires the alternative investment portfolio to hit its 12-14% return target and the stabilization of surrender fee headwinds.
Stable. Currently printing at 8.4%. Similar to the ROA target, reaching this double-digit territory requires the drag from the LP portfolio to reverse.
Accelerating. Up from ~15% in 2025. This is driven by aggressive deployment of the Blackstone sidecar and flow reinsurance partnerships to offload capital intensity while retaining fee streams.
Key Questions
Alternative Investment Realizations
You missed your alt investment target by another $44 million this quarter. What specific macro or M&A triggers are you waiting for to see realizations in the LP portfolio normalize to your 12-14% expectation?
Surrender Fee Trajectory
You noted that normalizing surrender fees will be a headwind to ROA. Can you quantify the expected basis point drag on ROA for the remainder of 2026 as these fees step down?
Pacing of Share Repurchases
With the stock trading at barely half of your ex-AOCI book value, you bought back $29M in Q1 under the old authorization and launched a new $100M program. Should we expect aggressive execution of this new authorization, or will you balance it strictly against organic growth capital needs?
Sidecar Economics
As the sales mix shifts more heavily toward FIAs funded by the sidecar, what is the expected steady-state gross margin profile on the fee income generated compared to your traditional spread-based retained business?