Company Participants

Lisa Foxworthy-Parker - Senior Vice President, Investor & External Relations
Chris Blunt - Chief Executive Officer
Wendy Young - Chief Financial Officer

Conference Call Participants

John Barnidge - Piper Sandler
Wes Carmichael - Autonomous Research
Mark Hughes - Truist

Operator

Good morning, and welcome to the F&G's Second Quarter Earnings Conference Call. [Operator Instructions] And as a reminder, this conference call is being recorded.

I would now like to turn the call over to Lisa Foxworthy-Parker, SVP, Investor and External Relations. Please go ahead.

Lisa Foxworthy-Parker

Great. Thanks, operator, and welcome, everyone. Joining me today are Chris Blunt, Chief Executive Officer; and Wendy Young, Chief Financial Officer. We look forward to addressing your questions following our prepared remarks.

Today's earnings call may include forward-looking statements and projections under the Private Securities Litigation Reform Act, which do not guarantee future events or performance. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events or changes in strategy. Please refer to our most recent SEC filings for a discussion of the factors that could cause actual results to differ materially from those expressed or implied.

This morning's discussion also includes non-GAAP financial measures that we believe maybe meaningful to investors. Non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules within our earnings release, financial supplement and investor presentation, all of which are available on the company's website. Today's call is being recorded and will be available for webcast replay at fglife.com. It will also be available through telephone replay beginning today at 1:00 p.m. Eastern Time through August 13, 2024.

And now, I'll turn the call over to our CEO, Chris Blunt.

Chris Blunt

Good morning, everyone. Thanks for joining us to discuss our second quarter results. We've delivered another terrific quarter and continue to build on our proven track record. Before reviewing our performance over the last three months, I'd like to highlight the strong progress we've made over the last year in delivering towards our Investor Day value creation levers.

During our Investor Day held in October 2023, we outlined the potential for upside from asset growth, margin expansion and multiple uplift. We used performance in the second quarter of 2023 as our baseline and looked out over a five-year medium-term horizon to illustrate key financial targets. Over the last 12 months, our business has been hitting on all cylinders and we are currently on pace to achieve our targets.

Starting with asset growth. Second quarter AUM before flow reinsurance of $61.4 billion increased 21% over the last year, driven by retail and PRT sales. We are well on our way toward our targeted 50% growth in AUM before flow reinsurance by 2028. We now expect to achieve this target on a net basis as well. As we deploy proceeds from the $250 million preferred stock investment that FNF made earlier this year to accelerate the growth of our retained AUM above the level considered at the time of our Investor Day.

Next, margin expansion. Adjusted return on assets, excluding significant items, expanded to 130 basis points in the second quarter, primarily driven by investment margin, disciplined expense management and accretive flow reinsurance as well as enhanced earnings power from owned distribution.

This is above our 110 basis point ROA baseline from our Investor Day and we are closing in on our targeted range of 133 basis points to 155 basis points. This strong performance has generated both ROE and multiple expansion. We've expanded adjusted return on equity, excluding significant items over the last year from 10% to 12% as we advance toward our targeted range of 13% to 14%.

Lastly, multiple uplift. We are pleased to see increasing recognition of the intrinsic value of F&G's new business platform and growing in-force book in its stock price, which was trading at approximately 7 times P/E multiple on consensus 2025 earnings at June 30. This is up from the 5 to 6 times multiple a year ago and is now more in line with peers, although not fully yet reflecting our margin expansion and growth rate of earnings.

We see further potential for improvement to the market multiple on our core business as well as a multiple rerating from our own distribution strategy. Overall, we continue to have great momentum in executing our strategy, and we're on pace to achieve our financial targets.

Now turning to results for the quarter, starting with sales. We delivered record gross sales of $4.4 billion in the second quarter, up 47% over the prior year quarter, driven by record retail sales and robust institutional sales. Record retail sales from our agency bank and broker-dealer channels were $3.2 billion, up 39% over the prior year quarter and topping the $3 billion quarterly level for the first time. This is in line with industry annuity sales that continue to surge due to favorable economic conditions.

Robust institutional market sales of $1.2 billion increased from $700 million in the prior year quarter, and can fluctuate quarter-to-quarter. This included $300 million of pension risk transfer sales, which contributed to a new record of $900 million in PRT sales for the first half of the year. And $900 million of funding agreements as we return to the FABN market for the first time in two years, given more favorable market conditions.

F&G's retained sales were $3.4 billion in the second quarter, up 55% over the prior year quarter. As a reminder, we manage the level of flow reinsurance in line with our capital targets and are able to adjust up or down over time as market economics change.

We have profitably grown retained assets under management to a record $52.2 billion at June 30. This is an increase of $6 billion or 13% over the second quarter of 2023 and driven by net new business flows, stable in-force retention and net debt and equity proceeds over the last 12 months.

AUM before flow reinsurance was $61.4 billion, adjusting for approximately $9.2 billion of cumulative new business seeded. We continue to see sustainable long-term momentum for growth across our multichannel new business platform and strong demand for our products, given very attractive demographic tailwinds as well as large and growing markets.

We serve a market with very attractive demographic tailwinds as 10,000 baby boomers are retiring every day. Demand for our fixed annuity products continues to grow as people plan for retirement that could last 30-plus years and are seeking solutions that can withstand market volatility. Both retirees and advisers are turning to fixed annuities for simplicity, relatively higher interest rates, guaranteed tax deferred growth and principal protection as an alternative to the traditional 60/40 investment portfolio.

We are strategically positioned for long-term growth by targeting large and growing markets where our products have reached beyond the traditional retail life and annuity sector and a lot of cash currently remains on the sidelines with more than $6 trillion of cash parked in money market funds and investors are expected to start putting their money to work as money market rates come down.

We expect our industry will continue to see a strong surge in sales in the near term as consumers look to lock in higher rates through products like fixed annuities. Earlier this year, we entered the fast-growing registered index-linked annuities market or RILA, which generated $45 billion of industry sales in 2023. Our product offering is differentiated in the market, uniquely meeting the needs of a relatively younger demographic.

We are focused on onboarding key partners in the broker-dealer channel in 2024 and expect steady growth towards meaningful sales in 2025. We expect RILA will be a significant contributor to sales over the next few years with the potential to grow as big as our FIA sales are today. Additionally, we continue to see a healthy pipeline in the pension risk transfer industry with $3.8 trillion of corporate pension plans at or near full funding.

We are positioned to compete in our targeted $100 million to $1 billion deal size with potential to strategically move more upmarket or down market as opportunities arise. Overall, F&G is well-positioned for growth and has terrific momentum as we leverage our strong relationships with our distribution partners, our comprehensive and competitive product portfolio designed to meet consumer needs, our multi-channel new business platform across both retail and institutional markets and our investments for growth, including our superior and scalable ecosystem.

Most importantly, we have a consistent track record of success managing through market cycles. In 2020, we grew sales and generated stable return on assets when interest rates were nearly zero.

In 2023, we grew sales and generated stable and expanding return on assets when interest rates were at multi-decade highs. That is the resiliency of our business model. F&G performs well in a low rate environment and even better at a higher rate environment.

Turning to our investment portfolio. Our fixed income yield, excluding alternative investment volatility and variable investment income was 4.6% in the second quarter 26 basis points higher than the second quarter of 2023. This reflects upside from higher yields on new investments.

Going forward, we have now hedged two-thirds of our floating rate asset exposure, which should make our investment income less susceptible to lower rates over time. Wendy will speak more to this in a moment.

The portfolio remains high quality with 96% of fixed maturities being investment grade. Credit-related impairments averaged five basis points over the last three years, which was exceptionally low given the market disruption during 2020 to 2023 from the pandemic, regional bank crisis and sharp uptick in interest rates. Through the first half of the year, credit-related impairments remained below our pricing.

Regarding our commercial real estate debt portfolio, it is high quality, diversified with the vast majority invested in defensive sectors. Our commercial mortgage loan portfolio is entirely first mortgages with an average loan-to-value of 60%. Healthy debt service coverage ratio is above one time for nearly 99% of the book and only 8% of loans maturing in the next 24 months.

Regarding the office sector, we have a below-average concentration. CMBS, CML and limited partnerships comprised 18% of the total portfolio with only 1.8% in office. Overall, our total portfolio is diversified, well-positioned and actively managed through our selective derisking programs to perform in varying market conditions. Our asset allocation strategy remains stable and our invested assets are well matched to our clean and stable liability profile.

Next, turning to our own distribution strategy. During July of 2024, F&G increased its ownership stake in Freedom Equity Group, or FEG, a top life IMO and longtime F&G partner from approximately 30% to 100%. FEG was our first investment in own distribution, having taken a minority ownership stake in late 2021, and our successful partnership has exceeded expectations. FEG is strategically positioned in the rapidly expanding multicultural markets and our joint efforts position us to accelerate IUL sales growth to meet the risk and retirement needs of those underserved market segments.

FEG is a great example of our own distribution strategy, which generates a meaningfully higher risk-adjusted return on capital than retain business and provides a diversifying source of earnings, own distribution further strengthens our relationships with key partners and with industry consolidation underway, we believe we are uniquely positioned to partner as a distribution consolidator. Our strategy is already proving to be a meaningful contributor to overall margin. To date, we have invested $680 million, and we expect EBITDA from the portfolio to be $60 million to $65 million in 2024 with double-digit annual growth over the medium term.

In summary, the first half has positioned us well for another strong year of performance in 2024. We have plenty of momentum to continue to deliver sustainable asset growth from our retail and pension risk transfer growth strategies as well as ongoing margin expansion from enhanced investment margin opportunities, operational scale benefits and fee-based earnings from accretive flow reinsurance. We are poised to further diversify our earnings given the strong growth of our middle-market life insurance business and own distribution strategies.

Let me now turn the call over to Wendy to provide further details on F&G's second quarter financial highlights.

Wendy Young

Thanks, Chris. This morning, I'll focus my comments on the following: adjusted net earnings, details on our surrender experience and strong positive cash flow position, an update on our floating rate asset hedging program as well as our strong capital and liquidity position. Starting with earnings. Adjusted net earnings attributable to common shareholders for the second quarter was $139 million or $1.10 per share and included $145 million or $1.11 per share of investment income from alternative investments and $4 million or $0.03 per share of CLO reduction gains and bond prepayment income.

The quarter also included $16 million or $0.12 per share of net expense from actuarial model updates and refinements, which are separate from our annual actuarial assumption review that will be performed in the third quarter. Investment income from alternative investments based on management's long-term expected return of approximately 10% was $165 million or $1.26 per share.

Excluding significant items, adjusted net earnings were $171 million in the second quarter, up 33% over $129 million in the second quarter of 2023. This increase reflects asset growth, margin diversification from accretive flow reinsurance and owned distribution, disciplined expense management and higher interest expense as a result of planned capital market activity.

Adjusted return on assets, excluding significant items was 130 basis points in the second quarter, comprised of 107 basis points of core margin, 14 points of flow reinsurance fee income and 9 basis points of owned distribution margin. This was up 14 basis points over the second quarter 2023 and brings our adjusted ROA over the last 12 months to 124 basis points.

With regard to surrenders, we continue to see steady growth in our FIA account value as net deposits from new business continued to well outpace terminations. FIA positive net inflows were over $575 million in the second quarter, consistent with the first quarter as shown on Page 12 of our Summer 2024 investor presentation.

As a reminder, for insurance companies like F&G, terminations typically provide a boost to earnings from the surrender charge fees and release capital that, in turn, can be deployed to new business volumes having higher surrender charges and longer surrender periods than the older contracts, further improving the liability profile.

F&G benefits from a diversified and predictable in-force book. Our funding agreements, pensioners transfer and immediate annuities are non-surrenderable. Fixed rate multi-year guaranteed annuities typically have a three, five or seven-year contractual maturity that, are lumpy. Further details on net flows for both indexed and fixed rate annuities are disclosed on Page 13, in our quarterly financial supplement.

Turning to our floating rate asset portfolio, we have now hedged $6.7 billion or approximately two-thirds of our floating rate assets to preserve the investment margin on existing assets. Our floating rate exposure was very beneficial over the last couple of years as interest rates increased.

Through hedging, we have increased our earnings stability and predictability going forward by locking in about 188 basis points of incremental yield above original pricing. This translates into approximately 15 to 20 basis points of annual incremental investment margin above pricing over the next three to five years.

For now, we expect the remaining net floating rate asset exposure to remain around the current level of $3.4 billion to help support our asset liability management objectives as most are short-term and will mature within three years.

Finally, turning to our balance sheet, we ended the quarter with F&G equity attributable to common shareholders, excluding AOCI of $5.4 billion were $42.52 per share with 126 million common shares outstanding as of June 30.

There are a couple of pages in our investor presentation providing an analysis of book value per share. Our consolidated debt outstanding increased to $2.1 billion at June 30, reflecting a $300 million net increase for the successful refinance and partial tender offer of our upcoming 2025 senior note maturity.

Our debt to capitalization ratio, excluding AOCI, was 26.4% as of June 30. We expect this ratio to revert to our long-term target of 25% once the remaining $300 million of senior notes mature in 2025.

Our annual interest expense is approximately $130 million or roughly a 7% blended yield on the $2.1 billion of total debt outstanding. We continue to target holding company cash and invested assets at two-times interest coverage.

Our capital allocation priorities, focused on deploying our capital to maximize shareholder value through continued investment in our business, as well as returning cash to shareholders.

F&G is well positioned to generate growth at attractive returns. And our scale allows us to self-fund our growth with in-force capital generation, reinsurance and capital market issuances.

For 2024, our stable and profitable in-force book is expected to generate more than $1 billion in capital, and we have a strong capital generation from existing reinsurance arrangements in the range of $500 million.

Our capital allocation priorities also support our approximately $105 million annual dividend to common shareholders as well as $16 million annual dividend on the preferred stock held by FNF. We feel the common dividend is sustainable and expected to increase overtime.

F&G continues to maintain strong capitalization and financial flexibility with all of our statutory balance sheets, including our offshore entities, which are conservatively managed to the most stringent of capital requirements of our regulators and our four rating agencies.

In summary, we continue to build on our proven track record. We have good momentum in executing our strategy and delivered another solid quarter. We remain focused on achieving our Investor Day objectives and we are seeing good momentum in driving both retained asset growth and margin expansion.

Importantly, this quarter once again demonstrates that we are positioned to perform across market cycles and that we can consistently deliver strong results with attractive and expanding margins over time. This concludes our prepared remarks.

Let me now turn it back to our operator for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question today will come from John Barnidge with Piper Sandler. Please go ahead.

John Barnidge

Good morning. Thanks for the opportunity. Can you maybe talk about the decision to increase the ownership stake in Freedom Equity Group to 130% pipeline for additional deployment. You clearly chopped a lot of wood here in a short amount of time on the owned capital in deploying that $1 billion target into targets. So, yes, curious about Freedom Equity Group and the pipeline for additional? Thank you.

Chris Blunt

Sure. Great. Thanks, John. Yes, I'd say a couple of things. One, we just love the business. It's been a long-standing partnership for us. They represent a huge chunk of our IUL sales, which is one of our more profitable products, but we just really like the business. We like the growth of the business, the earnings growth, how they're positioned. They have a dominant position in the middle market, specifically in the cultural markets in the US, which are growing very, very rapidly. So -- really excited about it. I think when we took the minority stake, the hope that was that this would play out the way that it's played out. And you're right we've now deployed almost $700 million into owned distribution. I think you heard from Wendy, it's already making a meaningful contribution to spread and giving us a diversified source of earnings.

In terms of pipeline, it's very deal specific. So Again, the $1 billion was more a question around the opportunity as opposed to a near-term target for deployment. But yes, we do think there's probably other interesting opportunities for us. But thanks for the question.

John Barnidge

Thanks for that answer, Chris. My follow-up question is on the floating rate portfolio. You clearly reduced your exposure by about two-thirds. Can you maybe talk about the earnings sensitivity of the remaining portion of the floating portfolio to movements in rates? And then maybe how is your new money rate trended as well? Thank you.

Chris Blunt

Yes. Great. So I'd say with respect to the hedging, yes, we're really pleased. I mean we -- again, the key here is not to be greedy. So we've not only done a number of portfolio derisking over the last four or five years. From a credit perspective, you just continue to tighten up the portfolio in anticipation of eventually a turn in the credit cycle.

But we try to do the same thing with respect to rates. We were getting pretty close to 20% of our portfolio in floaters. Now a lot of that was put on years ago when short-term rates were pretty close to zero. So that seemed like a smart call at the time. But as rates popped up we had an opportunity to take that risk off the table. So we've hedged that down now to where I believe it's about 6.6% of the portfolio.

So we've dramatically reduced our exposure to a drop here in short-term interest rates. So if you think about that 6.6% of the portfolio in floaters, theoretically, a 100 basis point drop in short-term rates would be only a 6.6 basis point impact to our overall yield.

And then with respect to new money rates, yes, continue to be strong. Obviously, in the last couple of weeks, we've seen some volatility. We've seen treasury rates drop, probably 40 basis points to 50 basis points, but you've seen corporate spreads widen I don't know, 12 basis points to 15 basis points. But again, we're running a really dynamic business. So we reprice our products quite frequently. And so for us, it's really is the spread in the market and is there an opportunity to deploy those premiums pretty quickly. So, we feel really good about the environment still.

John Barnidge

Thanks for the answers. Appreciate it.

Operator

And our next question will come from John Campbell with Stephens. Please go ahead.

Q – Unidentified Analyst

Hey, guys. This is Jonathan on for John. Thanks for taking my questions. So you guys had a few different records this quarter, so congrats there. I want to touch on one of those records, annuity sales in particular. You touched on the trends that are driving the strength there and it seems like that's going to continue, obviously. But maybe thinking how should we think about the growth trajectory in the back half of this year? And I know 25% is still a ways out, but any kind of direction you could provide there would be appreciated.

Chris Blunt

Sure. This is Chris. I'll start. Wendy may want to jump in here, too. But I think the momentum continues to be incredibly positive. So probably one of the big misnomers out there as well, rates are now going to start moving down and demand is going to dry-up for fixed annuities. I think we're going to see the exact opposite. I've mentioned in my talking points, money market fund assets post-COVID have doubled from $3 trillion with a T to $6 trillion. So there's a massive amount sitting in cash and I think when people start seeing those money market yields go from 5 to 4.5 to potentially 4, they're going to look to lock-in some rate, and we think that's going to bode extremely well for our core products.

Plus, if you see the short end fall in the longer end of the curve stay a bit stable, in a more traditional steep yield curve is positive for demand as well. So -- and then just on top of that, as the demographics, right? You got 10,000 boomers retiring every single day in the US. So yes, I think the demand outlook for the second half of the year, the demand outlook for 2025, I don't see anything slowing down top line growth right now.

Q – Unidentified Analyst

Okay. Thank you. And then as a follow-up, at your last Analyst Day, you guys talked to the upwards pressure you expect to see in the normalized ROA, you've clearly seen that, but it seems like you're running ahead a bit ahead of schedule. Last quarter, you posted a record but take down the sustainability. This quarter, you posted another record. So maybe that was just conservative -- conservatism or maybe there were some favorable things in play. So, I'm hoping you can talk a bit more to the strength this quarter. And moving forward, how are you thinking about the import metric and whether that outlook changes a lot depending on the rate environment?

Chris Blunt

Yes. I'll just frame a couple of high-level things. And then Wendy can talk to the specifics of how you should think about the quarter itself. But again, I take everybody back to our Investor Day presentation of October of last year. And we were try to be really specific about where the uplift was going to come from. We saw uplift on the investment portfolio of just continually optimizing the portfolio, and we've seen good progress there. We've seen some uplift, obviously, from the rise in short-term rates, and we had a significant portion of the portfolio in floaters. We're getting operating expense scale as we've been growing our assets at a pretty healthy clip. And yet, we've committed to hold our fixed expenses to a single-digit rate, and we've been doing that. So that's a source of uplift. And then as you're starting to see, we're getting tremendous leverage from flow reinsurance. When we take a sale and put it on a reinsurance balance sheet. We're generally capturing a disproportionate amount of the spread relative to the amount of required capital. So that's obviously accretive.

And then lastly, has been owned distribution. So yes, I would say, overall, those things are progressing at a faster clip than we probably anticipated. So you want to get too excited, right? Games not over in the third inning, but you'd rather be up by a few runs in the third than down. And then, Wendy, do you want to talk about the 130 and maybe some of the one-timers that might be in there?

Wendy Young

Sure. Thanks, Chris. So, I'll point you to Page 22 of the investor presentation. We've added a column last quarter, the last 12 months. And that will kind of normalize out even any noise that we get quarter-to-quarter, there'll be some positive and negatives in there. This quarter, we had some additional CLO prepayments and then we had a model conversion that we put into place due to materiality in the quarter, so a bit of noise in there. But the last 12 months is now at 124, and we view that as very sustainable.

Q – Unidentified Analyst

Perfect. Thank you, guys.

Operator

And our next question will come from Wes Carmichael with Autonomous Research. Please go ahead.

Wes Carmichael

Hey good morning. First question is on funding agreement issuance in the quarter. Can you talk about what made that market a little bit more attractive? And how should we think about your outlook for issuance for the remainder of the year in FABN?

Chris Blunt

Yes. I would say, Wes, it's a market that obviously was pretty dormant for us for the last couple of years. But as you saw rates start to stabilize and come down, there's a bit of a lag effect in terms of the statutory rate that affects your cost of capital. And at the same time, new money yields were coming up, and we have seen attractive investment opportunities where we could earn a good spread. So it's something that we look at pretty much constantly. And when it makes sense -- particularly when it makes sense relative to other uses of that capital, we tend to participate. I don't know, Wendy, if you want to add anything to that?

Wendy Young

No, you hit the nail on the head there. As far as going forward, those factors, it will depend on the valuation rate and the spread that we can earn off of that. So if it looks positive, then we potentially could see additional activity. But it's kind of a week-to-week view of the market, and we just monitor it very closely.

Wes Carmichael

Got it. And then -- and just on surrenders and FIA, I know you've talked about it a little bit in your prepared remarks, but can you talk about the experience just in the quarter? I realize you're still in a net flow position, but it's a pretty big sequential tick up and I think there's about a couple of billion of FIA account values that are sitting outside of the surrender charge right now. So, just wondering, if you kind of expect a little bit of elevated surrenders in the near term.

Chris Blunt

Yes. Two things I would say if they're out of surrender charge, we would expect that and priced for that already. So that's not necessarily wouldn't be an outlier in terms of how we planned going forward. And I just want to reiterate what Wendy said, someone this is more analogous, probably to refinancing your mortgage. So that's what's happening. You're in this huge refinancing where the movement rates were so strong that yes, add blocks of business and policies where it's actually smart for the customer to move into a new policy, get better terms. Agents are obviously incented to do that as well. So they're doing well. And actually, for us, it's not a bad thing at all. I mean, we're capturing surrender charge income. So we're covered from that perspective.

And now we're writing a new policy, and I think people underestimate the impact of that, meaning what the stuff we're writing right now might prove to be some of the stickiest assets we've ever written because if rates do, in fact, move down from here, it's going to be very hard to move those contracts prematurely.

So yes, I don't think there was anything in the activity that either surprised us or was troubling. And I think we're going to see it probably continue for another couple of quarters and would expect that will probably stabilize next year. But Wendy, anything you want to call out specifically?

Wendy Young

No. I mean if we're looking just at the FIA, yes, there was an uptick, but there's a lot of activity going on in that refinancing, as Chris indicated, and there's also lags to that. So as Chris said, we do expect excess renders to continue until rates drop significantly.

Chris Blunt

And the only thing I'd add less to that is obviously, it benefits a lot of our own distribution because some of the investments we've made have been in annuity-oriented IMOs and they're just crushing it in this environment, not only in terms of new sales, but obviously in terms of smart replacement sales.

Q – Wes Carmichael

That's helpful. And maybe just one more. But on base spreads, if we kind of exclude all, I think that did kind of quarter-over-quarter contract a little bit. And just kind of wondering how you're thinking about that going forward, especially in the macro backdrop. There's -- a few of your peers are pointing to where investment spreads have probably peaked and could kind of potentially compress a little bit going forward. So just curious how you guys are thinking about that, too.

Chris Blunt

I would just say, Wes, it's really hard to generalize, right, because everybody's got access to different investment opportunities. And so yes, we wouldn't consider that material like a few basis points. You're going to see noise quarter-to-quarter. But we're not -- right now, I wouldn't characterize that we're experiencing spread compression. You'll see volatility, but it's not like, oh, we have this hugely profitable blocks runoff to be replaced by less profitable. I mean we're pretty comfortable with the returns we're generating on our new business right now. So and then some of that "core margin" could also be a function of how much we choose to flow out versus retain. I don't know, Wendy, do you want to comment on that?

Wendy Young

Yes, that's where I was going to go, Wes. If you look at our ROA, FIA, the core margin actually did increase sequentially, but then there's additional from the flow and own distribution. And we've tried to highlight that in the QFS. What's, what's coming from those two items. So you can kind of go back into the -- what we consider core by taking the product margin and the expenses and get to that core, and that has increased.

Q – Wes Carmichael

Thank you.

Operator

[Operator Instructions] Our next question will come from Mark Hughes with Truist. Please go ahead.

Mark Hughes

Yeah. Thank you. Good morning.

Chris Blunt

Good morning, Mark.

Wendy Young

Good morning.

Mark Hughes

Good morning, Chris, morning, Wendy. Chris, the PRT business, if we see a declining interest rates, what is that going to do for the pipeline, new opportunities?

Chris Blunt

Yeah. It's an excellent question. I don't think you're going to see a material change in the pipeline. There's a long lead time for people to run a process and for consultants in particular, to do RFPs. So I don't think you can see any near-term impact on that. Most of the plans are pretty comfortably above that 100 funding level, where there's certainly a lot of them. So the pipeline right now looks really, really strong. If you saw some dramatic rates plummeted 200 basis points. I don't think we're going to see that. Maybe you could see a slowing in that market. But I don't think we're going to see any material change to the pipeline anytime soon.

Mark Hughes

And then on the RILA, you talked about targeting kind of the younger demographic. Could you talk about that? And then also, I think you mentioned you're pursuing some strategic relationships to the extent that you can give us some sort of sense of magnitude, timing and what it all means, that would be great.

Chris Blunt

Sure. Happy to. Yeah, I'm smiling because younger demographic, I just bought one. I don't know if I fall in that category, but younger meaning as a general rule for folks who have an elevated time line relative to when they're actually looking to turn on income, but they're great products for that purpose. So one extremely large market, as we've talked about before, allows us to tap into folks with one, a bit younger, but two also with a different risk tolerance. Every product we have sold to date has a complete floor of 0 for people. Here's an opportunity for folks to say, hey, I'll take some limited downside risk. I'll get a buffer a cushion on the downside. And therefore, can have more upside. So we're super excited about that.

It will be a slow ramp up simply because you have to add distributors, and that's a process. Now we've added a couple of big ones recently. So I think that's going to help accelerate some of our growth. So as we said, I think it will be probably not much of a contributor this year to be pretty modest. But I would also say that we have plenty of other sales opportunities. But when we get into 2025 and beyond, I think this will start becoming significant. And if you said, gee, over the medium term, call it, the next five years, could it start to rival the volumes that we see in our FIA business, I think we actually think that it can.

It's also a great diversifier in terms of these -- we now meet a ton of consumer need off of really one core platform right, which is this whole indexed platform. And I think that's another piece that people miss. Initially, it was kind of a niche product. It's no longer a product. It's a platform. So you can have income now, guaranteed income in the future, you can have sort of more of a buffer style of more upside, plan fixed annuity. So we're able to hit a ton of consumer need right now with one core chassis.

Mark Hughes

Well, when buys one of these things, that's when I'll note, it's for a younger demographic.

Chris Blunt

Perfect.

Wendy Young

Right, Mark.

Mark Hughes

Here we go. One other question. One of the other major RILA players is kind of participating in some of these targeted funds, getting some flows in that way. I know in the times past, you've talked in kind of a different way, I'll say about that opportunity? What do you think about that?

Chris Blunt

Yeah. I would say, the idea of annuities and 401(k) plans is a great -- it's a great idea. I do think it's getting closer to getting some real adoption. We research it constantly. And it looks like the market is there and we see a slot for us to play, I suspect at some point, we will play. It just hasn't been our number one priority.

We have so many opportunities right now in some of these other core channels. It's more -- much more complex, as you know, to pull off. So yes, I don't think anything has changed from that perspective. I don't think we view this as something that we're a segment of the market that we're urgently expecting to jump into.

Mark Hughes

Understood. Thank you.

Operator

And this will conclude our question-and-answer session. I'd like to turn the conference back over to CEO, Chris Blunt, for any closing remarks.

Chris Blunt

Great. Thanks. We're very pleased with our performance through the first half of the year. F&G's business is well positioned for the current market and for the longer-term growth. Our opportunities are compelling with many prospects ahead to drive asset growth, deliver margin expansion and generate accretive returns. So thanks for joining us. We appreciate your interest in F&G. And look forward to updating you on our third quarter earnings call.

Operator

Thank you for attending today's presentation. And the conference has now concluded. You may now disconnect your lines at this time.