Wall Street loves a good story, especially a turnaround story. But sometimes, the most compelling narratives are hidden in plain sight, buried within the dense jargon of earnings call transcripts. And that's precisely the case with F&G Annuities & Life's latest quarterly report. While analysts are busy dissecting the headline figures – the impressive sales growth, the robust demand for fixed indexed annuities (FIAs), and the launch of the new Registered Index-Linked Annuity (RILA) product – a subtle shift in the company's narrative reveals a deeper, more significant transformation.

This overlooked detail? **F&G is quietly becoming a powerhouse in the world of pension risk transfer (PRT).**

Now, you might be thinking, "Isn't F&G primarily known for its retail annuity business?" You're absolutely right. F&G has built a solid reputation in the retail space, particularly with FIAs. But the company's PRT segment, while relatively young, is rapidly gaining momentum. In Q1 2024 alone, F&G set a new first-quarter record for PRT sales, clocking in at a staggering $584 million. This brings their cumulative PRT sales to over $5 billion, covering over 100,000 plan participants.

What's even more remarkable is that F&G only entered the PRT market in mid-2021. In just under three years, they've managed to carve out a significant slice of this lucrative market, showcasing their ability to compete with established players.

But why is this such a big deal?

The PRT market is a gold mine for insurance companies. It allows them to acquire large blocks of pension liabilities from corporations seeking to offload their pension obligations. These liabilities are long-duration assets, providing a steady stream of premiums and investment income for insurers. Moreover, the aging U.S. population and the growing desire of corporations to shed pension risk mean the PRT market is expected to continue expanding rapidly in the coming years.

F&G, with its clean balance sheet, strong capital position, and growing expertise in managing long-duration liabilities, is perfectly positioned to capitalize on this trend. Their rapid rise in the PRT space, coupled with their dominant position in the FIA market, paints a picture of a company with diversified earnings streams and a robust growth trajectory.

So where's the evidence?

It's right there in Chris Blunt's, F&G's CEO, own words during the earnings call. While discussing the competitive dynamics in the PRT market, he stated, "I wouldn't say that we've seen a dramatic change...the team has executed really well...We tend to be super selective in terms of what we bid on...And then when we bid, we've had a decent hit rate there."

This subtle statement reveals a crucial aspect of F&G's strategy: they're not just chasing every PRT deal that comes their way. They're being deliberate and selective, focusing on deals where they have a competitive edge, particularly those where they can leverage their access to "unique longer-duration originated credit" – a key driver of profitability in the PRT space.

The Hypothesis:

Here's the hypothesis: Wall Street is overly focused on F&G's retail annuity business and hasn't fully grasped the significance of their rapid PRT growth. This could lead to an undervaluation of the company, as analysts fail to factor in the long-term earnings potential of this high-growth, high-margin segment.

The Numbers:

These numbers speak for themselves. F&G is a major force in the PRT market, and their growth in this segment is only going to accelerate.

PRT Sales Growth

While F&G's retail annuity business continues to fire on all cylinders, their burgeoning PRT segment is a hidden gem that could drive substantial value for shareholders in the years to come. As the company continues to execute its selective, strategic approach to the PRT market, Wall Street may soon wake up to the reality that they've been undervaluing a company with significant untapped potential.

"Fun Fact: Did you know F&G was recognized as the number one annuity provider in the U.S. for customer satisfaction by J.D. Power? This commitment to customer satisfaction likely translates to strong retention rates, further solidifying the company's long-term growth prospects."