F&G Annuities & Life, Inc. (FG) Earnings Call Transcript

Good morning, and welcome to F&G's third quarter earnings call. During today's presentation, all calls will be placed in a listen-only mode. [Operator Instructions] I would like to turn the conference over to Lisa Foxworthy Parker, Senior Vice President, Investor and External Relations. Please go ahead.

Thanks, operator, and welcome, everyone. I'm joined today by Con Murphy, Chief Executive Officer and President; and Mike Bailey, Chief Financial Officer. 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 quarterly and annual reports and other SEC filings for details on important factors that could cause actual results to differ materially from those expressed or implied. This morning's discussion also includes non-GAAP measures, which management believes are relevant in assessing the financial performance of the business. Non-GAAP measures have been reconciled to GAAP where required and in accordance with SEC rules within our earnings materials available on the company's investor website. Please note that today's call is being recorded and will be available for a webcast replay. And with that, I'll hand the call over to Conor Murphy.

Good morning, and thank you for joining today's call. We delivered strong third quarter results demonstrating solid performance across our business as our momentum continues heading into year-end. We generated record AUM before flow reinsurance and the investment portfolio is performing very well. We continue to expand our retail and institutional franchises and delivered our best core retail sales quarter in history. We have made great progress on our operating expense target. We delivered strong adjusted net earnings in the third quarter that were right in line with our expectations, and we remain focused on expanding the earnings contribution of our fee-based flow reinsurance, middle market life insurance and own distribution strategies. As proud as I am of our financial performance, I'm especially proud of our team. Following the leadership transition last quarter, we have truly coalesced around our shared mission to help people turn their aspirations into reality. Together, we proudly serve over 1 million customers and their families through our annuity and life solutions on over 150,000 pensioners who have trusted F&G to help them navigate their futures. Today, I would like to share some perspective on our AUM growth and highlights of our third quarter sales results discuss the performance and positioning of our investment portfolio and briefly touch on owned distribution. Then I'll turn it over to Mike to cover our results in more detail. From a top line perspective, AUM before reinsurance increased to $76.2 billion at September 30, up 7% over the prior year. This includes retained assets under management of $56.2 billion. One question that I often receive is how we view growth? As a reminder, we view AUM as our primary metric to track the top line growth of our business since sales volumes may fluctuate year-to-year depending on opportunities and returns. Our top line AUM growth is driven by positive net flows. This is where our strategy over the past 5 years has really paid off. We have successfully scaled the business from $26 billion gross AUM in 2019 and to over $76 billion AUM today, while significantly diversifying by product and channel. Today, we are 1 of the largest sellers of annuities and life insurance in the industry with a diverse product suite across multiple distribution channels. Importantly, we remain disciplined and right business that clears our return targets. In today's competitive environment, others may have shorter-term needs to prioritize growth over profitability. However, we are focused on creating long-term value. Our business model provides the flexibility to choose our product mix sales volume and level of reinsurance as market conditions change. And this is where our pristine predictable in-force book comes into play. This is a younger book. There are no problematic legacy liabilities. Retail annuities are 92% surrender-protected, Pension risk transfer, funding agreements and immediate annuities are not surrenderable. Asset and liability cash flows are well matched. Our new business and in-force are actively managed to maintain our return targets. This results in strong in-force capital generation and in-force flows that complement our new business loads. Looking at our sales results more closely. For the third quarter, gross sales were $3 billion. This was comprised of $2.3 billion of core sales and nearly $700 million of opportunistic sales as we continue to allocate capital to the highest return opportunities. Record core retail sales of indexed annuities and index life were $2.1 billion for the third quarter, a 24% increase over the prior year quarter and a 17% increase over the sequential quarter. This reflects our continued focus to grow core retail sales over the prior year quarter, while maintaining our target returns. Once again, F&G has demonstrated noteworthy growth in contrast to industry FIA sales, which contracted again this quarter versus the prior year. The majority of our fixed indexed annuity sales are sold through independent marketing organizations to middle-market consumers. We believe this is 1 of the most attractive segments of the market on 1 where our scale, product capabilities and distribution relationships provide meaningful competitive advantage. Core institutional sales of pension risk transfers were $200 million for the third quarter. We have sold over $700 million of PRT in the first 9 months and expect to generate between $1 billion to $1.5 billion for the full year. Opportunistic sales were comprised of $600 million of funding agreements and $100 million of multiyear guaranteed annuity for the third quarter. As a reminder, we have deemphasized MYGA sales over the past year due to returns currently below our threshold. We have significant flexibility in our product mix and are not dependent on any 1 product to sustain attractive inflows. For the first 9 months of the year, gross sales were approximately $9 billion, comprised of $6 billion of core sales and nearly $3 billion of opportunistic sales. Excluding MYGAs gross sales were $8.5 billion in the first 9 months of 2026, up 9% over $7.8 billion in the first 9 months of 2025. F&G's net sales were $5.1 billion in the first 9 months of 2026, including $1.4 billion in the third quarter. This reflects low reinsurance in line with capital targets for about 50% of fixed indexed annuities and about 90% of MYGAs. Next, turning to F&G's retained investment portfolio, which has performed very well once again this quarter. Our portfolio was high quality with 97% of fixed maturities being investment grade. It is well matched to the liability profile and diversified across asset types. Our fixed income yield was 4.98% in the third quarter, an increase of 7 basis points over the second quarter of 2026 and 5 basis points over the third quarter of 2025. Credit-related impairments have remained low and stable, averaging 6 basis points over the past 5 years and a modest 2 basis points in the first 9 months of the year. Our private credit portfolio continues to perform well as expected. Our software exposure across the retained portfolio is below 5%. We are highly selective with most positions protected by high switching costs, large competitive moats, regulatory barriers and embedded in workflows that are integral and difficult to disrupt. Our investments in AI infrastructure are below 3% of the retained portfolio. We are focused on investment-grade deals with high-quality counterparties, that fully amortized within the initial contract and have no reliance on terminal value. They have short maturities, strict underwriting and robust conservative credit protections. Our alternative investments portfolio was $4 billion. This includes approximately $3 billion of limited partnerships that comprise 5% of the retained portfolio and $1 billion of other equity interests that comprised 2% of the retained portfolio. Many of these alternative investments are still in the earlier phases of their value creation cycle, so we are not yet fully realizing the long-term expected returns. During the third quarter, we saw our annualized return at approximately 5%, down from 6% in the sequential quarter and 8% in the first quarter of 2026. To break this down further, our limited partnerships generated an annualized return of approximately 9% in the third quarter, in line with the sequential quarter and in line with our expectation for returns in the early to mid-stage of their life cycle. However, this was partially offset by a lower return in the third quarter on the other equity interest component of the alternatives portfolio. As seen, our limited partnership portfolio has momentum and although hard to predict, we don't expect as much offset from the other equity interests in the fourth quarter. Turning to the questions that we have all received around affiliated investments in recent months, for F&G, this is very straightforward. There are a lot of reasons why our strategic partnership with Blackstone, which is now in its ninth year is important to us. Starting with the notion of affiliated investments, Blackstone is not an affiliate of F&G. Blackstone owns 0% equity stake in F&G. F&G owns 0% equity stake in Blackstone. F&G's credit exposure to Blackstone portfolio companies is modest at only 2% of the retained portfolio. And F&G has flexibility to add new asset managers to augment origination and through flow reinsurance. For our $76 billion of AUM before reinsurance, the majority of the $56 billion retained book is managed by Blackstone and the majority of the $20 billion of cumulative net reinsurance to third parties is largely managed by other asset managers. Turning to our independent governance model. F&G's CIO and CRO offices set strategic asset allocation and risk limits. We start with F&G's liability profile, which drives the investment strategy. F&G's investment committee reviews and determines whether or not the recommended investments are appropriate and approve all major decisions. F&G's robust internal risk assessment process ensures suitability for our insurance company balance sheet. Blackstone is solely F&G's asset management partner, it does not own nor is it involved in governance of the insurance company, and Blackstone is responsible for idea generation on security selection. As our Chief Investment Officer, often describes, we pick the neighborhood Blackstone picks the houses and we inspect the house. Next turning to our commitment to transparency. As a public company, we give serious consideration to the level and quality of our investment disclosures and continue to expand and evolve them based on investor and analyst feedback. Our investment portfolio was managed completely separate from SNFs and there are no sports franchises, entertainment venues, or related hospitality properties in our investment portfolio. To be clear, we have no affiliated investments with either Blackstone or FMS. F&G's affiliated investments under a statutory definition are our wholly owned subsidiaries. And finally, we also have regular engagement with our Iowa regulator who is an active group supervisor that monitors the investment portfolio and approves all reinsurance transactions. Overall, we have a clear governance structure, a mature enterprise risk management capabilities, and we have a very clean governance model with Blackstone with no inherent conflict of interest. Turning briefly to peak altitude, our attractive small cap distribution franchise. As a reminder, our own distribution strategy is a capital-light diversified source of fee-based earnings. Here, we have invested approximately $700 million in drilling life and annuity distribution businesses that generated approximately $80 million in annual EBITDA in 2025. The portfolio is performing well with plenty of runway ahead to continue to grow. We believe the market is ascribing little to no value in our share price today for the value peak as previously announced, we have launched a process to explore strategic alternatives for Peak altitude to capture its significant growth opportunities and unlock that intrinsic value for F&G shareholders. Today, I can report that the process is active and ongoing, and we'll provide more specifics at the appropriate time. F&G reported GAAP equity, excluding AOCI of $6.7 billion at quarter end, and has grown its book value per share, excluding AOCI, to $51.37 up 87% since the 2020 FNF acquisition. We believe that the components of our business, our new business platform, our profitable in-force block and our capital-light fee-based strategies represent a distinct and measurable source of value. I think 1 of the most important, and in our view, underappreciated aspects of our business is that we have such a clean and simple in-force book without any problematic legacy liabilities. That was a big part of what attracted me and Mike to the company. The $54 billion retained in-force book is the engine that funds new business growth and contributes to positive net flows that together with the new business engine drives steady AUM growth. Taken together, we believe that sum of the parts framework reveals meaningful value that has not yet fully reflected in F&G's current market valuation. I would also highlight that at recent levels, the F&G stock has an especially attractive dividend yield of around 5%, which is above average for the publicly traded life and annuity sector. Our focus remains on executing against the opportunities in front of us, maintaining our return discipline, growing our AUM and earnings and creating long-term value for our shareholders. Let me now turn the call over to Mike to provide further details on F&G's third quarter highlights.

Thank you, Conor. Starting with earnings. On a reported basis, adjusted net earnings were $96 million or $0.74 per share in the third quarter. Alternative investment income was $60 million or $0.46 per share below management's current long-term expected return of 12%. Alternative investment income was at the low end of the range that was preannounced in early October. We completed our annual actuarial assumption review in the third quarter. As a result, amortization expense was approximately $6 million after tax hire in the third quarter. We expect that level of higher amortization to remain during 2027 and diminished to neutral during 2028. For the third quarter, this was more than offset by a benefit from favorable PRT and IUL mortality, reflecting quarterly variability and timing, as Conor had described the last quarter. Compared to the second quarter of 2026, adjusted net earnings increased by $11 million. This reflects higher product margin, steady fee-based flow reinsurance fee income, 1 distribution margin and IUL product fees and disciplined expense management. These items were partially offset by lower returns on alternative investments. Compared to the third quarter of 2025, adjusted net earnings decreased by $69 million with 3 primary drivers as expected. First, the after-tax effect of lower returns on alternative investments and bond prepaid income was $32 million. Secondly, the after-tax incremental benefit of F&G Life prior to its sale was $21 million in the prior year period. Finally, the after-tax effect of lower surrender charge fee income was $6 million. Otherwise, business fundamentals were solid year-over-year with consistent core spread, steady fee-based flow reinsurance fee income, owned distribution margin and IUL product fees and disciplined expense management. Next, turning to scale benefit. As AUM grows and we continue to manage expenses, we are benefiting from increased scale. As a reminder, we are targeting a cumulative 15 basis points or 25% improvement in our operating expense ratio over the 3-year period from 60 basis points at year-end 2024 and to 45 basis points by year-end 2027. At the end of the third quarter, our ratio of operating expense to AUM before reinsurance decreased to 46 basis points. The third quarter ratio decreased despite the typical seasonal increase in operating expenses that we expect in Q3, which continues into Q4 as well. Now regarding our returns. As reported, adjusted ROE, excluding AOCI, was 6.7% for the third quarter. Taking into consideration management's long-term expected return for alternative investments would have resulted in 3.4 percentage points of additional ROE. Notably, reported ROE reflects higher average adjusted equity in the denominator resulting from favorable GAAP net income. This was driven by market risk benefit liability adjustments, which are excluded from adjusted net earnings. Total FMG equity be attributable to common shareholders, excluding AOCI, was $6.7 billion or $51.37 per share as of September 30, 2026. This reflects an increase of $712 million or $5.44 per share as compared with June 30, 2026, primarily driven by $355 million of favorable market risk benefit liability adjustments and $297 million of actuarial reserve releases following the annual assumption review. As reported, adjusted ROA was 69 basis points for the third quarter. Taking into consideration management's long-term expected return for alternative investments would have resulted in 37 basis points of additional ROA for the quarter. Turning to our strong capital position. We remain committed to our long-term target of approximately 25% debt to capitalization, excluding AOCI, and we were below that target at quarter end. We continue to target holding company cash and invested assets at 2x interest coverage, which covers more than 1 year of holdco liquidity requirements. Our annualized interest expense is approximately $165 million or roughly a 7% blended yield on the $2.3 billion of total debt outstanding. We expect to maintain our estimated company action level risk-based capital or RBC ratio at our target of approximately 400%. F&G maintains strong capitalization and financial flexibility. We conservatively manage to the most stringent capital requirements of our regulators and 4 rating efficiencies. Turning quickly to our ratings. Recently, Moody's affirmed our ratings, and we are not currently under any negative credit watch. Following their review, which highlighted FNS reduced ownership stake in F&G at year-end that increased the public float and was beneficial for us. Moody's commented that their outlook for F&G was negative. Over the outlook period, Moody's will evaluate the evolution of F&G's stand-alone profile, both with and without the current 1 notch support of F&F. I would highlight that F&G already holds stand-alone financial strength ratings of A- by Fitch and A by A.M. Best, in addition to our A- rating by S&P and A3 rating by Moody's. In our view, nothing has inherently changed in our business. And regardless of our cart ratings, we continue to manage the business to an A level. We also have multiple reliable sources of capital supporting our business. Our strong in-force book provides a stable foundation of earnings and capital generation. We expect even stronger capital flexibility in the future as we move towards a more fee-based, higher-margin and less capital-intensive business model. Our reinsurance sidecar provides on-demand third-party capital that we can access without diluting shareholders. For the inaugural year, we have seen steady usage of the $1 billion reinsurance sidecar, with approximately $800 million of remaining capacity at September 30. Our strategic flow reinsurance partnerships add another layer of flexibility allowing us to adjust retained sales levels and support cash from operations as we grow. We have added yet another noteworthy flow reinsurance partner in July as we continue to be a partner of choice for the industry. Our statutory excess capital provides additional capital strength in line with our ratings. And as the balance sheet continues to delever, our available debt capacity will only grow over time. For the first 9 months, our capital self-funded the following: $113 million of holding company interest expense, $112 million of common and preferred dividends paid and $120 million in opportunistic share repurchases. We view repurchases as a tool at our disposal that we weigh up against other opportunities while balancing the public float. We did all of this while maintaining momentum in our core retail and core institutional businesses. As Conor mentioned, we remain disciplined in allocating capital to our highest return opportunities and have deemphasized MYGA sales at this time due to returns currently below our threshold. Taken together, our capital allocation reflects the financial strength and flexibility we have built and our confidence in the future. I look forward to partnering with Connor to continue to build an industry-leading business. I was drawn to F&G because it is well positioned for success through continuing to scale Leveraging our pristine balance sheet, which contains no variable annuity, universal life with secondary guarantee or long term care liabilities, expanding strong relationships, including key long-term distribution partners Blackstone and other complementary asset managers and strategic relationships with highly rated reinsurers. Maintaining pricing discipline and our commitment to return targets, being diligent in allocating to the highest return opportunities, delivering on our more fee-based, higher-margin and less capital-intensive strategy, innovating through our agile operating model, and cultivating the extensive and diverse experience of our leadership team in the insurance sector, all of which leads to creating long-term shareholder value. This concludes our prepared remarks. And let me now turn the call back to our operator for questions.

The first question comes from Wilma Burtis with Raymond James.

Can you just talk about retail sales in FIA and Ryland, which were some of the highest to date -- what are you seeing in the market? And have you seen market share open up amidst some, I guess, regulatory pressures at some other carriers.

So yes, as we mentioned, this was our best quarter ever with respect to core retail, and we're particularly focused on core retail compared perhaps with the more opportunistic. I'll start off with saying it's not because of anything revolutionary or very different. This is the momentum that's been building throughout the last many quarters continuing into this quarter. It's not because of new products or capabilities in particular. It's just -- it's the grinding of the sales team and kudos to them. And it's been in the same -- it's been with the same partners. We didn't have any new distribution partners or anything else. So we've been very disciplined. We've been maintaining our profitability profile. So it's just been a really solid recognition of what we have been able to do and I mentioned a little bit in the opening remarks, but on the FIA basis, I got Limmer information yesterday that suggested that the industry was down 6% in the first 9 months and we were up 12% on the FIA basis. So that's good. So I think we're right around that #5, #6 spot on FIA. I think you mentioned Rail as well. Obviously, we were a later entrant to that. So we're top 20. We're not top 10. But yes, we wrote -- I think by August, we had written as much RILA this year as we wrote in all of last year. I think part of that, too, is that there's such a need for these products, particularly in Middle America, multicultural America. Light business has been strong as well, but I would say we've written about the same number of policies as last year, but the premium dollars are down a bit because Middle America accounted for the same level of premium payments that perhaps they could a year ago. So that's good. I know you -- your reference to other entities, perhaps being off some shelves -- that -- I don't expect that will be noteworthy for us in the grand scheme of things. We do sell through the banks and broker dealers. I would argue that's probably the most competitive spot. So it will definitely create room for folks but we sell more in the independent distribution organization. So it will be less meaningful of a shift for us. But I would also say, in a particular year, any company can show higher or lower growth but in the FIA space over sort of a 5-year period, it's mostly the same entities that write, broadly speaking, the same level of business, and it all kind of evens out pretty much over the longer term.

Okay. And then can you talk about expected VII returns is 12% to 14% to next year or even maybe in 2018, especially in light of the higher interest rate environment.

Yes. So right now, we do have an expected return of 12%. As we mentioned on the call, it was a good quarter with respect to the LP portfolio. That's 3/4 of what's in there for us. So they, on a stand-alone basis were over 9% in the quarter. So that was pretty good. In our instance, we also have equity residuals. So within our space, we had the equity residuals where we had just some negative market sentiment running through the process that the valuation agents run. And I think that can lead to a -- we had a bit of a mark, if you will, in the quarter, which led to a negative return. We do this on a 1 quarter lag, and we know -- we've got pretty good color on that segment of the market for our Q4 already, and it's pretty benign. It's a positive number. It's not a negative that pulled us down last quarter. So my crystal ball on this, honestly, isn't much more than a quarter. Do I expect a pretty good third -- sorry, fourth quarter, yes. But it's probably an expectation that better than Q3, I don't expect it will be the full 12%. And then we'll continue to revisit these all the time. We'll revisit them as part of the planning process, et cetera, as well. So if I could just remind you and for everybody, it's in the the disclosure the 1 page in the presentation or on the alts portfolio, with the aging, if you will, the maturity of our portfolio, this is right around where we expect to be. So we have a longer-term expectation, but we're not -- they're not -- they're not fully grown yet. So these are the types of returns that we expect. But again, I'm trying to be careful to not go more than kind of a quarter eye on that perspective.

Understood. And then is the $6 million DAC the only notable related to the assumption update in this quarter's adjusted net earnings? And maybe just if you could give us a little bit more color there.

Yes. So I would say there it's Mike. Two things. So the $6 million after tax that I quoted is notable item in terms of A&E for the quarter from a net income perspective, as we covered. We did have roughly $300 million reduction in reserves. In addition, there were some market risk benefit liabilities that reduced as well, causing kind of a strong net income quarter. But if I think about the unlocking, I mean, really what happens here is we've seen elevated surrenders. We've been seeing that in surrender income and we sort of trued up our starting the assumptions to what we think will be our best estimate. And so that $6 million after tax will be sort of elevated DAC amortization over 2027 and into 2028, that should normalize back to shorter current levels as the business projects out. If I may, just to be clear on where we'll see that in cost of funds, in our financial supplement, we do break apart cost of funds. And we do show kind of a sequential approximately $11 million pretax improvement in the line item that would include that number. So if I were to normalize that for DAC amortization, absent the increase in amortization coming from unlocking, we would have seen there's roughly a $20 million improvement period-over-period. And that's driven by favorable mortality relative to the second quarter. Connor has signaled on the second quarter earnings call that we thought there were some timing impacts relative to mortality, that's worth about half of the $20 million and then the remaining is more in line with what we would expect to generate from the block.

The next question comes from Joel Hurwitz with Dowling & Partners.

Just wanted to start on flow reinsurance. On the FIA side, you've talked about around flowing out around 50%, but it looks to have have dipped -- or I guess, your retained portion has dipped below that 50% mark the past couple of quarters. Just -- any color on what's driving the increased use of flow reinsurance the past 2 quarters and how you're thinking about that going forward?

Yes. Joe, thank you. it's a little bit as we go. So within the FIA space, we have the income products and the accumulation products, I would say that it was a particularly strong quarter on the income side, where we have a couple of noteworthy reinsurance partners, but 1 of them only came on board at the beginning of the third quarter. So when you have strong reinsurance partners with a healthy appetite that can impact the level that you reinsure. And I think we reinsured out probably closer to 2/3 this period. the accumulation side is where we have the sidecar with Blackstone. So it can move a little bit within that range, but it's not -- I said it's really down to what the best economic return opportunity is for us in conjunction with our partners.

Got it. That's helpful. And then just shifting to the regulatory front. The NAIC is exploring new risk charges on reinsurance to nonreciprocal jurisdictions like the Caymans -- you guys have some exposure there. both with an affiliate as well as the side car? Just interested how you're thinking about the potential implications if that's pushed through -- and then just on, just wanted to see if there's an update on the M22 implementation and potential impacts there for you guys.

Joel, it's Mike. I'm glad you asked that question. Regulatory developments are an important topic for us, and we continually monitor at both the federal and state levels. We have been tracking the work being done by the NAIC committee on nonreciprocal jurisdictions. We understand that AG 55 related disclosures are sort of being reviewed across the industry, and we certainly appreciate the focus on those disclosures, and we welcome fair and appropriate regulation, but we do prefer that such regulation and changes to regulation be properly vetted and based on detailed analysis. We view the NAIC's work in this area as very manageable for our third-party reinsurance business. While the details of the proposal are still emerging based on how we structure our offshore reinsurance treaties, we are very comfortable that there would not be a material impact to our capital position. And we based that on -- first of all, the majority of our flow reinsurance partners are based in Bermuda, which has reciprocal jurisdiction. Secondly, the majority of our reinsurance partners were holding assets equal to the statutory reserves on our balance sheet. Additionally, we're holding over collateralization to the tune of 3% to 4%. And then third, we review each of these reinsurance treaties with our Iowa regulator and every treaty is subject to AG55 asset adequacy testing and analysis. And then finally, we ensure that our reinsurance partners follow the Iowa investment guidelines to ensure appropriate asset allocations. So we view the NAIC work in this area very manageable for our affiliated reinsurance business, which I think is what you're specifically asking about, while F&G has a Cayman entity where we see 80% of our PRT business for the purpose of differentiating between white collar and blue collar mortality. This has been reviewed by our Iowa regulator and undergoes G55/cash flow testing analysis. And this appropriate mortality differentiation has not been available under the current U.S. statutory framework. And that results we've done in reserve. We expect the new statutory framework, M22, to update this PRT mortality requirement. And at that time, we would expect to reevaluate PRT sessions to our Cayman entity. We would also have the option to recapture business ceded to king, and we're monitoring the NAIC's discussion around the ability to retrospectively apply 22 which in every capture scenario would put us on equal footing similar to our current utilization of our human entity. One last point, our Blackstone sidecar uses full U.S. stat reserving with over collateralization and a full RBC with no modifications. So if we sort of bring all that together, we continue to work with our regulators and on the issue, and we do not expect a noteworthy impact on F&G's capital position from the proposals that are partly floating around.

Okay. I guess just anything else more broader on VM22 implementation? I know you touched on it a little there on the PRT side, what about on?

Yes. And so we'll just add a little more to that, Joel. We're actively building models. We have -- we anticipate early adoption of 2 for some of our businesses. And then we certainly will -- PRT being a perfect -- perfect example, we have V-22 model available, and we just need to make sure that we have clarity on when we're adopting and what we're allowed to do retrospectively. We view VM-22 as a positive development. in certain situations, we're using certain third-party reinsurance partners to hold what is essentially much more of a principle-based reserve, and we would love to do that directly within our own Iowa-based entity.

The next question comes from Alex Scott with Barclays.