F&G Annuities & Life, Inc. 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations for the years ended December 31, 2023, December 31, 2022 and December 31, 2021 should be read together with, and is qualified in its entirety by reference to, our Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K which have been prepared in accordance with GAAP. The following discussion may contain forward-looking statements based on assumptions we believe to be reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Note Regarding Forward-Looking Statements.” Overview The following describes the business of F&G Annuities & Life, Inc. and its subsidiaries. Except where otherwise noted in this Report, all references to “we,” “us,” “our,” the “Company,” or “F&G” are to F&G Annuities & Life, Inc. and its subsidiaries, taken together. For a description of our business see the discussion under “ Business ” in Item 1 of Part I of this Annual Report on Form 10-K, and Note A - Business and Summary of Significant Accounting Policies in Part II - Item 8 of this Annual Report on Form 10-K, which are incorporated by reference into this Item 7 of Part II of this Annual Report on Form 10-K. F&G adopted Accounting Standards Update (“ASU”) 2018-12, Financial Services-Insurance (Topic 944), Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”) on January 1, 2023, with a transition date of January 1, 2021, which is the earliest period presented in the annual December 31, 2023 Consolidated Financial Statements. We elected to adopt ASU 2018-12 using the full retrospective transition method and balances for liability for future policy benefits (“FPB”), deferred acquisition costs (“DAC”) and balances amortized on a basis consistent with DAC (value of business acquired (“VOBA”), deferred sales inducements (“DSI”), and unearned revenue liabilities (“URL”)), and market risk benefits (“MRB”) were adjusted to conform to ASU 2018-12 starting as of the FNF acquisition date, June 1, 2020 (the “FNF Acquisition Date”). The 2022 and 2021 financial information contained herein have been adjusted for our full retrospective adoption of this update. For more information, refer to Note A - Business and Summary of Significant Accounting Policies, Note F - Intangibles , Note G - Market Risk Benefits, Note H - Income Taxes, Note I - Contractholder Funds , Note J - Future Policy Benefits , Note K - Accounts Payable and Accrued Liabilities , Note P - ASU 2018-12 Transition and Note T - Recent Accounting Pronouncement s in Part II - Item 8 of this Annual Report on Form 10-K. Business Trends and Conditions The following factors represent some of the key trends and uncertainties that have influenced the development of the Company and its historical financial performance, and we believe these key trends and uncertainties will continue to influence the business and financial performance of the Company in the future. Market Conditions Market volatility has affected, and may continue to affect, our business and financial performance in varying ways. Volatility can pressure sales and reduce demand as consumers hesitate to make financial decisions. To enhance the attractiveness and profitability of our products and services, we continually monitor the behavior of our customers, as evidenced by annuitization rates and lapse rates, which vary in response to changes in market conditions. See “ Part I. Item 1A. Risk Factors” in this Annual Report on Form 10-K for further discussion of risk factors that could affect market conditions. Interest Rate Environment Some of our products include guaranteed minimum crediting rates, most notably our fixed rate annuities. As of December 31, 2023 and December 31, 2022, our reserves, net of reinsurance, and average crediting rate on our fixed rate annuities were $6 billion and 4%, respectively, and $6 billion and 3%, respectively. We are required to pay the 75 guaranteed minimum crediting rates even if earnings on our investment portfolio decline, which would negatively impact earnings. In addition, we expect more policyholders to hold policies with comparatively high guaranteed rates for a longer period in a low interest rate environment. Conversely, a rise in average yield on our investment portfolio would increase earnings if the average interest rate we pay on our products does not rise correspondingly. Similarly, we expect that policyholders would be less likely to hold policies with existing guarantees as interest rates rise and the relative value of other new business offerings are increased, which would negatively impact our earnings and cash flows. See “ Quantitative and Qualitative Disclosure about Market Risk ” and “ Part I. Item 1A. Risk Factors ” in this Annual Report on Form 10-K for a more detailed discussion of interest rate risk. Aging of the U.S. Population We believe that the aging of the U.S. population will increase the demand for our fixed index annuity (“FIA”) and indexed universal life (“IUL”) products. As the Baby Boomer generation prepares for retirement, we believe that demand for retirement savings, growth, and income products will grow. Over 10,000 people will turn 65 each day in the United States over the next 15 years, and according to the U.S. Census Bureau, the proportion of the U.S. population over the age of 65 is expected to grow from 18% in 2023 to 21% in 2035. The impact of this growth may be offset to some extent by asset outflows as an increasing percentage of the population begins withdrawing assets to convert their savings into income. Industry Factors and Trends Affecting Our Results of Operations We operate in the sector of the insurance industry that focuses on the needs of middle-income Americans. The underserved middle-income market represents a major growth opportunity for us. As a tool for addressing the unmet need for retirement planning, we believe that many middle-income Americans have grown to appreciate the financial certainty that we believe annuities such as our FIA products afford. For example, the FIA market grew from nearly $12 billion of sales in 2002 to $79 billion of sales in 2022. Additionally, this market demand has positively impacted the IUL market as it has expanded from $100 million of annual premiums in 2002 to $3 billion of annual premiums in 2022. Critical Accounting Policies and Estimates The accounting estimates described below are those we consider critical in preparing our Consolidated Financial Statements. Management is required to make estimates and assumptions that can affect the reported amounts of assets and liabilities and disclosures with respect to contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. See Note A - Business and Summary of Significant Accounting Policies to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report for additional description of the significant accounting policies that have been followed in preparing our Consolidated Financial Statements. Reserves for Future Policy Benefits and Certain Information on Contractholder Funds The determination of FPB reserves is dependent on actuarial assumptions. The principal assumptions used to establish liabilities for FPBs are established at issue of the contract and include discount rates, mortality and cash surrender or policy lapse for our traditional life insurance products. The assumptions used require considerable judgment. We review policyholder behavior experience at least annually and update these assumptions when deemed necessary based on additional information that becomes available. Discount rate assumptions are updated at each reporting period and also incorporate changes in risk free rates and option market values. Changes in, or deviations from, the assumptions previously used can significantly affect our reserve levels and related results of operations in a positive or negative direction. Mortality refers to the incidence of death on covered lives, which triggers contractual death benefit provisions. On our deferred annuities and life insurance products, these provisions may allow for lump sum payments, payments over a period of time, or spousal continuation of the contract. On our life-contingent immediate annuities (which includes life-contingent pension risk transfer (“PRT”) annuities), the death of a named annuitant or certificate holder 76 may trigger the cessation or reduction of future life-contingent payments due, depending on the presence of a joint annuitant/certificate holder and any remaining guaranteed non-life contingent payment periods. We utilize a combination of internal and industry experience when setting our mortality assumptions. A surrender rate is the percentage of account value surrendered by the policyholder in exchange for receipt of a cash surrender value. A lapse rate is the percentage of account value canceled by us due to nonpayment of premiums required to maintain coverage on our life insurance products. We make estimates of expected full and partial surrenders of our deferred annuity products based on a combination of internal and industry experience. Management’s best estimate of surrender behavior generally represents a medium-to-long term perspective, as we expect to experience a range of policyholder behavior and market conditions period to period. If actual surrender rates are significantly different from those estimated, such differences could have a significant effect on our reserve levels and related results of operations. Discount rates refer to the interest rates used to discount future cash flows to the current period to determine a present value. For liability for FPB reserves the discount rate used is based on the yield curve for A-rated corporate bonds as of the valuation date. Changes in the discount rates from the at-issue or at-purchase discount rates flow through other comprehensive income (“OCI”). Our aggregate reserves for contractholder funds, FPBs and MRBs on a direct and net basis as of December 31, 2023 and December 31, 2022, are summarized as follows (in millions): As of December 31, 2023 Direct Deposit Asset/ Reinsurance Recoverable Net Fixed indexed annuities ("FIA") $ 27,809 $ (17) $ 27,792 Fixed rate annuities 13,445 (7,521) 5,924 Single premium immediate annuities ("SPIA") and other 1,814 (115) 1,699 IUL and other life 3,828 (1,307) 2,521 Funding agreements 5,152 — 5,152 PRT 4,203 — 4,203 Total $ 56,251 $ (8,960) $ 47,291 As of December 31, 2022 Direct Deposit Asset/ Reinsurance Recoverable Net FIA $ 24,704 $ (16) $ 24,688 Fixed rate annuities 9,360 (3,723) 5,637 SPIA and other 1,829 (118) 1,711 IUL and other life 3,486 (1,560) 1,926 Funding agreements 4,595 — 4,595 PRT 2,172 — 2,172 Total $ 46,146 $ (5,417) $ 40,729 FIA and IUL products contain an embedded derivative; a feature that permits the holder to elect an interest rate return or an equity-index linked component, where interest credited to the contract is linked to the performance of various equity indices. The FIA/IUL embedded derivatives are valued at fair value and included in the liability for Contractholder funds in our Consolidated Balance Sheets with changes in fair value included as a component of Benefits and other changes in policy reserves in our Consolidated Statements of Operations. For life-contingent immediate annuity policies, gross premiums received in excess of net premiums are deferred at initial recognition as a deferred profit liability (“DPL”). Gross premiums are measured using assumptions consistent with those used in the measurement of the related liability for FPBs. 77 Valuation of Fixed Maturity, Preferred and Equity Securities, and Derivatives Our investments in fixed maturity securities have been designated as available-for-sale (“AFS”) and are carried at fair value, net of allowance for expected credit losses, with unrealized gains and losses included within accumulated other comprehensive earnings (loss) (“AOCI”), net of deferred income taxes. Our equity securities are carried at fair value with unrealized gains and losses included in net income (loss). Realized gains and losses on the sale of investments are determined on the basis of first-in first-out cost basis and are credited or charged to income on a trade date basis. Management’s assessment of all available data when determining fair value of the AFS securities is necessary to appropriately apply fair value accounting. Management utilizes information from independent pricing services, who take into account perceived market movements and sector news, as well as a security’s terms and conditions, including any features specific to that issue that may influence risk and marketability. Depending on the security, the priority of the use of observable market inputs may change as some observable market inputs may not be relevant or additional inputs may be necessary. We generally obtain one value from our primary external pricing service. In situations where a price is not available from the independent pricing service, we may obtain broker quotes or prices from additional parties recognized to be market participants. We believe the broker quotes are prices at which trades could be executed based on historical trades executed at broker-quoted or slightly higher prices. When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies, including discounted cash flows, matrix pricing, or other similar techniques. We validate external valuations at least quarterly through a combination of procedures that include the evaluation of methodologies used by the pricing services, comparisons to valuations from other independent pricing services, analytical reviews and performance analysis of the prices against trends, and maintenance of a securities watch list. See Note B - Fair Value of Financial Instruments and Note C - Investments to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. The fair value of derivative assets and liabilities is based upon valuation pricing models or independent broker quotes and represents what we would expect to receive or pay at the balance sheet date if we canceled or exercised the derivative or entered into offsetting positions. Fair values for instruments utilizing valuation pricing models are determined internally using a conventional model and market observable inputs, including interest rates, yield curve volatilities and other factors. Credit risk related to the counterparty is considered when estimating the fair values of these derivatives. However, we are largely protected by collateral arrangements with counterparties when individual counterparty exposures exceed certain thresholds. The fair value of futures contracts (specifically for FIA contracts) at the balance sheet date represents the cumulative unsettled variation margin (open trade equity net of cash settlements). The fair value of an interest rate swap represents the change in projected interest rates between the reporting date and the date the interest rate swap was executed. The fair values of the embedded derivatives in our FIA and IUL contracts are derived using market value of options, use of current and budgeted option cost, swap rates, mortality rates, surrender rates, partial withdrawals, and non-performance spread. The discount rate used to determine the fair value of our FIA/IUL embedded derivative liabilities includes an adjustment to reflect the risk that these obligations will not be fulfilled (“non-performance risk”). For the years ended December 31, 2023 and December 31, 2022, our non-performance risk adjustment was based on the expected loss due to default in debt obligations for similarly rated financial companies. See Note B - Fair Value of Financial Instruments and Note D - Derivative Financial Instruments to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. F&G cedes certain business on a coinsurance funds withheld basis. Investment results for the assets that support the coinsurance that are segregated within the funds withheld account are passed directly to the reinsurer pursuant to the contractual terms of the reinsurance arrangement, which creates embedded derivatives considered to be total return swaps. These total return swaps are not clearly and closely related to the underlying insurance contract and thus require bifurcation. The fair value of the total return swaps is based on the change in fair value of the underlying assets held in the funds withheld account. These embedded derivatives are reported in Prepaid expenses and other assets if in a net gain position, or Accounts payable and accrued liabilities, if in a net loss position on the Consolidated Balance Sheets. The related gains or losses are reported in Recognized gains and 78 (losses), net on the Consolidated Statements of Operations. See Note E - Reinsurance to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. We categorize our fixed maturity securities, preferred securities, equity securities and derivatives into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. The following table presents the fair value of fixed maturity securities and equity securities by pricing source, hierarchy level and net asset value (“NAV”) as of December 31, 2023 and 2022. As of December 31, 2023 (Dollars in millions) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) NAV Total Fixed maturity securities available-for-sale and equity securities: Prices via third party pricing services $ 586 $ 31,195 $ 895 $ — $ 32,676 Priced via independent broker quotations — — 8,290 — 8,290 Priced via other methods — — — 59 59 Total $ 586 $ 31,195 $ 9,185 $ 59 $ 41,025 % of Total 2 % 76 % 22 % — % 100 % As of December 31, 2022 (Dollars in millions) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) NAV Total Fixed maturity securities available-for-sale and equity securities: Prices via third party pricing services $ 427 $ 23,493 $ 1,234 $ — $ 25,154 Priced via independent broker quotations — — 6,840 — 6,840 Priced via other methods — — — 47 47 Total $ 427 $ 23,493 $ 8,074 $ 47 $ 32,041 % of Total 1 % 74 % 25 % — % 100 % Market Risk Benefits MRBs are contracts or contract features that both provide protection to the contract holder from other-than-nominal capital market risk (equity, interest and foreign exchange risk) and expose the Company to other-than-nominal capital market risk. MRBs include certain contract features primarily on FIA contracts that provide minimum guarantees to policyholders, such as Guaranteed Minimum Death Benefit (“GMDBs”) and Guaranteed Minimum Withdrawal Benefits (“GMWBs”) and Guaranteed Minimum Accumulation Benefits (“GMAB”) riders. MRBs are measured at fair value using a risk neutral valuation method, which is based on current net amounts at risk, market data, internal and industry experience, and other factors. The principal policyholder behavior assumptions used to calculate MRBs are established at issue of the contract and include mortality, contract full and partial surrenders, and utilization of the GMWB rider benefits. The assumptions used reflect a combination of internal experience, industry experience, and judgment. We review overall policyholder behavior experience at least annually and update these assumptions when deemed necessary based on additional information that becomes available. Changes in, or deviations from, the assumptions previously used can significantly affect our MRBs and related results of operations in a positive or negative direction. In the 4th quarter of 2023 the assumption for future mortality improvement was updated to a change in the industry future mortality improvement table. This change had an adverse effect on our MRB balances for the period. See Note G - Market Risk Benefits to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on 79 Form 10-K for further information on the changes in MRB during the years ended December 31, 2023, 2022 and 2021. Mortality refers to the incidence of death amongst policyholders on covered lives, which triggers contractual death benefit provisions. These provisions may allow for lump sum payments, payments over a period of time, or spousal continuation of the contract. We utilize a combination of actual internal and industry experience when setting our mortality assumptions. A surrender rate is the percentage of account value surrendered by the policyholder in exchange for receipt of a cash surrender value. We make estimates of expected full and partial surrenders of our deferred annuity products based on a combination of internal and industry experience. Management’s best estimate of surrender generally represents a medium-to-long term perspective, as we expect to experience a range of policyholder behavior and market conditions period to period. If actual surrender rates are significantly different from those estimated, such differences could have a significant effect on our MRBs and related results of operations. We have been issuing GMWB products since 2008. We make assumptions for policyholder behavior as it relates to GMWB utilization using a higher degree of industry experience and judgment than our other behavioral assumptions because internal experience, which we review annually, is still emerging. If emerging experience deviates from our assumptions on GMWB utilization, it could have a significant effect on MRBs and related results of operations. Goodwill As of December 31, 2023 and December 31, 2022, goodwill was $ 1,749 million. The goodwill was recorded in connection with the FNF Acquisition. In evaluating the recoverability of goodwill, we first determined that based on the level at which the operating results are shared with and regularly reviewed by the Company’s Chief Operating Decision Maker, the Company is a single reporting unit. Next, we perform a qualitative analysis at the reporting unit level to determine whether there are any events or circumstances that would indicate it is more likely than not that the fair value of our recorded goodwill exceeds its carrying value. Based on the results of this analysis, an annual goodwill impairment test may be completed based on an analysis of the discounted future cash flows generated by the underlying assets. The process of determining whether or not goodwill is impaired or recoverable relies on projections of future cash flows, operating results and market conditions. Future cash flow estimates are based partly on projections of market conditions such as the volume and mix of refinance and purchase transactions and interest rates, which are beyond our control and are likely to fluctuate. While we believe that our estimates of future cash flows are reasonable, these estimates are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ from what is assumed in our impairment tests. Such analyses are particularly sensitive to changes in estimates of future cash flows and discount rates. Changes to these estimates might result in material changes in fair value and determination of the recoverability of goodwill, which may result in charges against earnings and a reduction in the carrying value of our goodwill in the future. We completed annual goodwill impairment analyses in the fourth quarter of each period presented using a September 30 measurement date. For the years ended December 31, 2023 and 2022, and we determined there were no events or circumstances that indicated that the carrying value exceeded the fair value. Accounting for Income Taxes As part of the process of preparing the Consolidated Financial Statements, we are required to determine income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing recognition of items for income tax and accounting purposes. These differences result in deferred income tax assets and liabilities, which are included within the Consolidated Balance Sheets. We must then assess the likelihood that deferred income tax assets will be realized and, to the extent we believe that realizability is not likely, establish a valuation allowance. Determination of income tax expense requires estimates and can involve complex issues that may require an extended period to resolve. Further, the estimated level of annual pre-tax income can cause the overall effective income tax rate to vary from 80 period to period. We believe that our tax positions comply with applicable tax law and that we adequately provide for any known tax contingencies. We believe the estimates and assumptions used to support our evaluation of tax benefit realization are reasonable. Final determination of prior-year tax liabilities, either by settlement with tax authorities or expiration of statutes of limitations, could be materially different than estimates reflected in assets and liabilities and historical income tax provisions. The outcome of these final determinations could have a material effect on our income tax provision, net income or cash flows in the period that determination is made. For the year ended December 31, 2023, changes in market conditions, including changing interest rates, resulted in deferred tax assets related to the net unrealized capital losses in the Company’s investment portfolio. U.S. GAAP requires the evaluation of the recoverability of deferred tax assets and the establishment of a valuation allowance, if necessary, to reduce the deferred tax asset to an amount that is more likely than not to be realized. When assessing the need for valuation allowance on the unrealized capital loss deferred tax assets, we assert a tax planning strategy to hold the vast majority of underlying securities to recovery or maturity. Our ability to assert such a tax planning strategy is dependent upon factors such as the Company’s asset/liability matching process, overall investment strategy, projected future annuity product sales, and expected liquidity needs. In the event these estimates differ from our prior estimates due to the receipt of new information, we may be required to significantly change the income tax expense recorded in the Consolidated Financial Statements. This includes a further significant decline in value of assets incorporated into our tax planning strategies which could lead to an increase of our valuation allowance on deferred tax assets having an adverse effect on current and future results. Refer to Note H - Income Taxes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for details. Business Overview We are in three distinct retail channels and two institutional markets. Our three retail channels include agent-based Independent Marketing Organizations (“IMOs”), banks and broker dealers. We have deep, long-tenured relationships with our network of leading IMOs and their agents to serve the needs of the middle-income market and develop competitive annuity and life products to align with their evolving needs. Upon FNF’s acquisition of F&G on June 1, 2020 (the “FNF Acquisition), and F&G’s subsequent rating upgrades in mid-2020, we launched into banks and broker dealers. Further, in 2021, we launched into two institutional markets to originate Funding Agreement Backed Notes (“FABN”) and PRT transactions. The FABN Program offers funding agreements to institutional clients by means of capital markets transactions through investment banks. The funding agreements issued under the FABN Program are in addition to those issued to the Federal Home Loan Bank of Atlanta (“FHLB”). The PRT solutions business was launched by building an experienced team and then working with brokers and institutional consultants for distribution. These markets leverage our existing team's spread-based capabilities as well as our strategic partnership with Blackstone. In setting the features and pricing of our flagship FIA products relative to our targeted net margin, we take into account our expectations regarding (1) the difference between the net investment income we earn and the sum of the interest credited to policyholders and the cost of hedging our risk on the policies; (2) fees, including surrender charges and rider fees, partly offset by vesting bonuses that we pay our policyholders; and (3) a number of related expenses, including benefits and changes in reserves, acquisition costs, and general and administrative expenses. On March 16, 2022, FNF announced its intention to partially spin off F&G through a dividend to FNF shareholders. On December 1, 2022, FNF distributed, on a pro rata basis, approximately 15% of the common stock of F&G. FNF retained control of F&G through ownership of approximately 85% of F&G common stock. Effective December 1, 2022, F&G commenced “regular-way” trading of its common stock on the New York Stock Exchange (“NYSE”) under the symbol “FG”. Key Components of Our Historical Results of Operations Through our insurance subsidiaries, we issue a broad portfolio of deferred annuities (FIA and fixed rate annuities), IUL insurance, immediate annuities, funding agreements and PRT solutions. A deferred annuity is a type of contract that accumulates value on a tax deferred basis and typically begins making specified periodic or lump 81 sum payments a certain number of years after the contract has been issued. IUL insurance is a complementary type of contract that accumulates value in a cash value account and provides a payment to designated beneficiaries upon the policyholder’s death. An immediate annuity is a type of contract that begins making specified payments within one annuity period (e.g., one month or one year) and typically makes payments of principal and interest earnings over a period of time. As defined by the Iowa Insurance Division (“IID”), a funding agreement is an agreement for an insurer to accept and accumulate funds and to make one or more payments at future dates in amounts that are not based on mortality or morbidity contingencies of the person to whom the funding agreement is issued. In essence, funding agreement providers issue fixed maturity contracts with fixed or floating interest rates in exchange for a single upfront premium. Our PRT products are comparable to income annuities, as we generally receive a single, upfront premium in exchange for paying a guaranteed stream of future income payments which are typically fixed in nature, but may vary in duration based on participant mortality experience. Under GAAP, premium collections for deferred annuities (FIAs and fixed rate annuities), immediate annuities and PRT without life contingency, and deposits received for funding agreements are reported in the financial statements as deposit liabilities (i.e., contractholder funds) instead of as sales or revenues. Similarly, cash payments to customers are reported as decreases in the liability for contractholder funds and not as expenses. Sources of revenues for products accounted for as deposit liabilities are net investment income, surrender charges, cost of insurance and other charges deducted from contractholder funds (i.e., amortization of URL), and net realized gains (losses) on investments. Components of expenses for products accounted for as deposit liabilities are interest-sensitive and index product benefits (primarily interest credited to account balances or the hedging cost of providing index credits to the policyholder), amortization of VOBA, DAC and DSI, and other operating costs and expenses. F&G hedges certain portions of its exposure to product related equity market risk by entering into derivative transactions. We purchase derivatives consisting predominantly of call options and, to a lesser degree, futures contracts (specifically for FIA contracts) on the equity indices underlying the applicable policy. These derivatives are used to offset the reserve impact of the index credits due to policyholders under the FIA and IUL contracts. The majority of all such call options are one-year options purchased to match the funding requirements underlying the FIA/IUL contracts. We attempt to manage the cost of these purchases through the terms of our FIA/IUL contracts, which permit us to change caps, spread, or participation rates on each policy's annual anniversary, subject to certain guaranteed minimums that must be maintained. The call options and futures contracts are marked to fair value with the change in fair value included as a component of net investment gains (losses). The change in fair value of the call options and futures contracts includes the gains and losses recognized at the expiration of the instruments’ terms or upon early termination and the changes in fair value of open positions. In addition, to reduce market risks from interest rate changes on our earnings associated with our floating rate investments, during the year ended December 31, 2023 we have executed pay-float and receive-fixed interest rate swaps. As noted above, MRBs are contracts or contract features that both provide protection to the contract holder from other-than-nominal capital market risk (equity, interest and foreign exchange risk) and expose the Company to other-than-nominal capital market risk. MRBs are measured at fair value using a risk neutral valuation method, which is based on current net amounts at risk, market data, internal and industry experience, and other factors. The change in fair value of MRBs generally reflects impacts from actual policyholder behavior (including surrenders of the benefit), changes in interest rates, and changes in equity market returns. Generally higher interest rates and equity returns result in gains whereas lower interest rates and equity returns result in losses. Earnings from products accounted for as deposit liabilities are primarily generated from the excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging our risk on FIA/IUL policies. With respect to FIAs/IULs, which includes the expenses incurred to fund the index credits. Proceeds received upon expiration or early termination of call options purchased to fund annual index credits are recorded as part of the change in fair value of derivatives and are largely offset by an expense for index credits earned on annuity contractholder fund balances. Our profitability depends in large part upon the amount of assets under management (“AUM”) (see “— Non-GAAP Financial Measures ”), the excess of net investment income over the sum of interest credited to policyholders and the cost of hedging our risk on indexed product policies, earned on our average assets under management (“ AAUM ” — see “— Non-GAAP Financial Measures ”), our ability to manage our expenses and the costs of 82 acquiring new business (principally commissions to agents and bonuses credited to policyholders). As we grow AUM, earnings generally increase. AUM increases when cash inflows, which include sales, exceed cash outflows. Managing the excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging our risk on indexed product policies, involves the ability to maximize returns on our AUM and minimize risks such as interest rate changes and defaults or impairment of investments. It also includes our ability to manage interest rates credited to policyholders and costs of the options and futures purchased to fund the annual index credits on the FIA/IULs. We analyze returns on AAUM to measure our profitability. Non-GAAP Financial Measures In addition to reporting financial results in accordance with GAAP, this document includes non-GAAP financial measures, which the Company believes are useful to help investors better understand its financial performance, competitive position and prospects for the future. Management believes these non-GAAP financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods. Our non-GAAP measures may not be comparable to similarly titled measures of other organizations because other organizations may not calculate such non-GAAP measures in the same manner as we do. The presentation of this financial information is not intended to be considered in isolation of or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. By disclosing these non-GAAP financial measures, the Company believes it offers investors a greater understanding of, and an enhanced level of transparency into, the means by which the Company’s management operates the Company. Any non-GAAP measures should be considered in context with the GAAP financial presentation and should not be considered in isolation or as a substitute for GAAP net earnings, net earnings attributable to common shareholders, or any other measures derived in accordance with GAAP as measures of operating performance or liquidity. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are provided within. Adjusted Net Earnings Adjusted net earnings is a non-GAAP economic measure we use to evaluate financial performance each period. Adjusted net earnings is calculated by adjusting net earnings (loss) to eliminate: (i) Recognized (gains) and losses, net: the impact of net investment gains/losses, including changes in allowance for expected credit losses and other than temporary impairment (“OTTI”) losses, recognized in operations; and the effects of changes in fair value of the reinsurance related embedded derivative and other derivatives, including interest rate swaps and forwards; (ii) Market related liability adjustments: the impacts related to changes in the fair value, including both realized and unrealized gains and losses, of index product related derivatives and embedded derivatives, net of hedging cost; the impact of initial pension risk transfer deferred profit liability losses, including amortization from previously deferred pension risk transfer deferred profit liability losses; and the changes in the fair value of market risk benefits by deferring current period changes and amortizing that amount over the life of the market risk benefit; (iii) Purchase price amortization: the impacts related to the amortization of certain intangibles (internally developed software, trademarks and value of distribution asset recognized as a result of acquisition activities); (iv) Transaction costs: the impacts related to acquisition, integration and merger related items; (v) Other “non-recurring,” “infrequent” or “unusual items”: Management excludes certain items determined to be “non-recurring,” “infrequent” or “unusual” from adjusted net earnings when incurred if it is determined these expenses are not a reflection of the core business and when the nature of the item is such that it is not reasonably likely to recur within two years and/or there was not a similar item in the preceding two years; and (vi) Income taxes: the income tax impact related to the above-mentioned adjustments is measured using an effective tax rate, as appropriate by tax jurisdiction. 83 While these adjustments are an integral part of the overall performance of F&G, market conditions and/or the non-operating nature of these items can overshadow the underlying performance of the core business. Accordingly, management considers this to be a useful measure internally and to investors and analysts in analyzing the trends of our operations. Adjusted net earnings should not be used as a substitute for net earnings (loss). However, we believe the adjustments made to net earnings (loss) in order to derive adjusted net earnings provide an understanding of our overall results of operations. For example, we could have strong operating results in a given period, yet report net income that is materially less, if during such period the fair value of our derivative assets hedging the FIA and IUL index credit obligations decreased due to general equity market conditions but the embedded derivative liability related to the index credit obligation did not decrease in the same proportion as the derivative assets because of non-equity market factors such as interest rate and non-performance credit spread movements. Similarly, we could also have poor operating results in a given period yet show net earnings (loss) that is materially greater, if during such period the fair value of the derivative assets increased but the embedded derivative liability did not increase in the same proportion as the derivative assets. We hedge our index credits with a combination of static and dynamic strategies, which can result in earnings volatility, the effects of which are generally likely to reverse over time. Our management and board of directors review adjusted net earnings and net earnings (loss) as part of their examination of our overall financial results. However, these examples illustrate the significant impact derivative and embedded derivative movements can have on our net earnings (loss). Accordingly, our management performs a review and analysis of these items, as part of their review of our hedging results each period. Amounts attributable to the fair value accounting for derivatives hedging the FIA and IUL index credits and the related embedded derivative liability fluctuate from period to period based upon changes in the derivative’s underlying index, changes in the interest rates and non-performance credit spreads used to discount the embedded derivative liability, and the fair value assumptions reflected in the embedded derivative liability. The accounting standards for fair value measurement require the discount rates used in the calculation of the embedded derivative liability to be based on risk-free interest rates adjusted for our non-performance as of the reporting date. The impact of the change in fair values of these derivatives and hedging costs has been removed from net earnings (loss) in calculating adjusted net earnings. Adjusted Return on Assets Adjusted return on assets is calculated by dividing year-to-date annualized adjusted net earnings by year-to-date AAUM. Return on assets is comprised of net investment income, less cost of funds, and less expenses (including operating expenses, interest expense and income taxes) consistent with our adjusted net earnings definition and related adjustments. Cost of funds includes liability costs related to cost of crediting as well as other liability costs. Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing financial performance and profitability earned on AAUM. Assets Under Management (“AUM”) AUM is comprised of the following components and is reported net of reinsurance qualifying for risk transfer in accordance with GAAP: (i) total invested assets at amortized cost, excluding investments in unconsolidated affiliates and derivatives; (ii) investments in unconsolidated affiliates at carrying value; (iii) related party loans and investments; (iv) accrued investment income; (v) the net payable/receivable for the purchase/sale of investments; and (vi) cash and cash equivalents excluding derivative collateral at the end of the period. 84 Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the size of our investment portfolio that is retained. Average Assets Under Management (“AAUM”) YTD AAUM is calculated as AUM at the beginning of the period and the end of each month in the period, divided by the total number of months in the period plus one. Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the rate of return on retained assets. Sales Annuity, IUL, funding agreement and non-life contingent PRT sales are not derived from any specific GAAP income statement accounts or line items and should not be viewed as a substitute for any financial measure determined in accordance with GAAP. Sales from these products are recorded as deposit liabilities (i.e., contractholder funds) within the Company's consolidated financial statements in accordance with GAAP. Life contingent PRT sales are recorded as premiums in revenues within the consolidated financial statements. Management believes that presentation of sales, as measured for management purposes, enhances the understanding of our business and helps depict longer term trends that may not be apparent in the results of operations due to the timing of sales and revenue recognition. Total Equity excluding AOCI Total equity excluding AOCI is based on total equity excluding the effect of AOCI. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments, changes in instrument-specific credit risk for market risk benefits and discount rate assumption changes for the future policy benefits, management considers this non-GAAP financial measure to provide useful supplemental information internally and to investors and analysts assessing the level of earned equity on total equity. Yield on AAUM Yield on AAUM is calculated by dividing annualized net investment income on an adjusted net earnings basis by AAUM. Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the level of return earned on AAUM. 85 Results of Operations The results of operations for the years ended December 31, 2023, 2022 and 2021 were as follows (in millions): Year ended December 31, 2023 December 31, 2022 December 31, 2021 Revenues: Life insurance premiums and other fees $ 2,413 $ 1,704 $ 1,407 Interest and investment income 2,211 1,655 1,852 Recognized gains and (losses), net (124) (1,010) 715 Total revenues 4,500 2,349 3,974 Benefits and expenses: Benefits and other changes in policy reserves 3,553 1,126 1,932 Market risk benefit (gains) losses 95 (182) (44) Depreciation and amortization 412 324 271 Personnel costs 232 157 129 Other operating expenses 146 102 105 Interest expense 97 29 29 Total benefits and expenses 4,535 1,556 2,422 Earnings (loss) before income taxes (35) 793 1,552 Income tax expense 23 158 320 Earnings (loss) from continuing operations $ (58) $ 635 $ 1,232 Earnings from discontinued operations, net of tax — — 8 Net earnings (loss) $ (58) $ 635 $ 1,240 The following table summarizes sales by product type (in millions) (see “ Non-GAAP Financial Measures” ): Year ended December 31, 2023 December 31, 2022 December 31, 2021 FIA $ 4,699 $ 4,550 $ 4,310 Fixed rate annuities ("MYGA") 5,066 3,744 1,738 Total annuity 9,765 8,294 6,048 IUL 156 127 87 Funding agreements 1,256 1,443 2,310 PRT 1,976 1,390 1,147 Gross Sales $ 13,153 $ 11,254 $ 9,592 Sales attributable to flow reinsurance to third parties (3,915) (2,248) (869) Net Sales $ 9,238 $ 9,006 $ 8,723 • Total annuity sales increased during the years ended December 31, 2023 and 2022, reflecting F&G's productive and expanding retail distribution through independent agents, banks and broker dealers, enhanced product features and pricing actions taken to align to the macro environment. • Funding agreements, reflecting FABN and FHLB agreements, were lower for the years ended December 31, 2023 and 2022, and are subject to fluctuation period to period based on economic conditions and the timing of entering the new agreements. • PRT sales increased during the years ended December 31, 2023 and 2022, reflecting the robust PRT market. During the years ended December 31, 2023, we closed 9 pension risk transfer transactions. Since entering the pension risk transfer market in 2021 through December 31, 2022, we have closed 20 transactions involving more than 80,000 plan participants and resulting in over $4.5 billion cumulative plan transaction value from inception. 86 • Sales attributable to flow reinsurance to third parties were higher during the year ended December 31, 2023 compared to the year ended December 31, 2022, reflecting the higher level of MYGA sales, the addition of new reinsurers and changes in the percentages ceded during the periods. Revenues Life insurance premiums and other fees Life insurance premiums and other fees primarily reflect premiums on life-contingent PRTs and traditional life insurance products, which are recognized as revenue when due from the policyholder, as well as policy rider fees primarily on FIA policies, the cost of insurance on IUL policies and surrender charges assessed against policy withdrawals in excess of the policyholder's allowable penalty-free amounts (up to 10% of the prior year's value, subject to certain limitations). The following table summarizes the Life insurance premiums and other fees, on the Consolidated Statements of Operations for the respective periods (in millions): Year ended December 31, 2023 December 31, 2022 December 31, 2021 Life-contingent pension risk transfer premiums $ 1,964 $ 1,362 $ 1,147 Traditional life insurance premiums 19 15 18 Life-contingent immediate annuity premiums 24 18 13 Surrender charges 103 58 33 Policyholder fees and other income 303 251 196 Life insurance premiums and other fees $ 2,413 $ 1,704 $ 1,407 • Life-contingent pension risk transfer premiums increased for the years ended December 31, 2023 and 2022, reflecting higher PRT sales. • Surrender charges increased for the years ended December 31, 2023 and 2022 primarily reflecting increases in withdrawals from policyholders with surrender changes and market value adjustments (MVAs), primarily on our FIA policies. See “ Item 1. Business – The Products We Offer – Withdrawal Option for Deferred Annuities” , in this Annual Report on Form 10-K for additional discussion on surrender charges and MVAs. • Policyholder fees and other income increased for the years ended December 31, 2023 and 2022, primarily due to increased GMWB rider fees and cost of insurance charges, net of changes in URL on IUL policies from growth in business. GMWB rider fees are based on the policyholder's benefit base and are collected at the end of the policy year. Interest and investment income Below is a summary of interest and investment income (in millions): Year ended December 31, 2023 December 31, 2022 December 31, 2021 Fixed maturity securities, available-for-sale $ 1,843 $ 1,431 $ 1,213 Equity securities 20 17 11 Preferred securities 41 49 47 Mortgage loans 229 186 131 Invested cash and short-term investments 76 33 7 Limited partnerships 229 110 589 Other investments 27 20 17 Gross investment income 2,465 1,846 2,015 Investment expense (254) (191) (163) Interest and investment income $ 2,211 $ 1,655 $ 1,852 87 Interest and investment income is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these agreements. Interest and investment income attributable to these agreements, and thus excluded from the totals in the table above, was $339 million, $109 million and $53 million, for the years ended December 31, 2023, 2022 and 2021, respectively. Our AAUM and yield on AAUM are summarized as follows (annualized) (dollars in millions) (see “ Non-GAAP Financial Measures” ): Year ended December 31, 2023 December 31, 2022 December 31, 2021 AAUM $ 46,265 $ 40,069 $ 31,938 Yield on AAUM 4.78 % 4.13 % 5.80 % • AAUM was higher for the years ended December 31, 2023 and 2022, reflecting net new business asset flows, stable inforce retention and net debt proceeds. • Interest and investment income was higher for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to $258 million from invested asset growth, $192 million from returns on alternative investments and $106 million of all other rate impacts. • Interest and investment income was lower for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by $686 million of lower returns on alternative investments due to decreases in fair value of these investments (primarily limited partnerships), partially offset by invested asset growth. Recognized gains and (losses), net Below is a summary of the major components included in recognized gains and losses, net (in millions): Year ended December 31, 2023 December 31, 2022 December 31, 2021 Net realized and unrealized (losses) gains on fixed maturity available-for-sale securities, equity securities and other invested assets $ (111) $ (461) $ 57 Change in allowance for expected credit losses (37) (34) 4 Net realized and unrealized (losses) gains on certain derivatives instruments 147 (857) 615 Change in fair value of reinsurance related embedded derivatives (128) 352 34 Change in fair value of other derivatives and embedded derivatives 5 (10) 5 Recognized gains and (losses), net $ (124) $ (1,010) $ 715 Recognized gains and losses are shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these agreements. Recognized gains and losses attributable to these agreements, and thus excluded from the totals in the table above, was $(123) million, $381 million and $15 million for the years ended December 31, 2023, 2022 and 2021, respectively. • For the year ended December 31, 2023, net realized and unrealized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets is primarily the result of realized losses on fixed maturity available-for-sale securities, partially offset by mark-to-market gains on our equity securities and realized gains on other invested assets. • For the year ended December 31, 2022, net realized and unrealized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets is primarily the result of realized losses on fixed maturity available-for-sale securities and mark-to-market losses on our equity securities. 88 • For the year ended December 31, 2021, net realized and unrealized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets is primarily the result of realized gains on fixed maturity available-for-sale securities, partially offset by mark-to-market losses on our equity securities. • For all periods, net realized and unrealized gains (losses) on certain derivative instruments primarily relate to the net realized and unrealized gains (losses) on options and futures used to hedge FIA and IUL products, including gains on option and futures expiration and changes in the fair value of interest rate swaps. See the table below for primary drivers of gains (losses) on certain derivatives. • The fair value of reinsurance related embedded derivative is based on the change in fair value of the underlying assets held in the funds withheld portfolio. We utilize a combination of static (call options) and dynamic (long futures contracts) instruments in our product hedging strategy. A substantial portion of the call options and futures contracts are based upon the S&P 500 Index with the remainder based upon other equity, bond and gold market indices. During the year ended December 31, 2023, we began to utilize interest rate swaps to reduce market risks from interest rate changes on our earnings associated with our floating rate investments. The components of the realized and unrealized gains (losses) on certain derivative instruments hedging our indexed annuity, universal life products and floating rate investments are summarized in the table below (dollars in millions): Year ended December 31, 2023 December 31, 2022 December 31, 2021 Call options: Realized (losses) gains $ (216) $ (170) $ 437 Change in unrealized (losses) gains 308 (692) 160 Futures contracts: (Losses) gains on futures contracts expiration 7 (6) 9 Change in unrealized gains (losses) 2 (1) (1) Interest rate swaps 48 — — Foreign currency forward: Gains on foreign currency forward (2) 11 10 Total net change in fair value $ 147 $ (858) $ 615 Annual Point-to-Point Change in S&P 500 Index during the periods 24 % (19) % 27 % Secured Overnight Financing Rates 5.38 % 4.30 % 0.05 % • Realized gains and losses on certain derivative instruments are directly correlated to the performance of the indices upon which the call options and futures contracts are based and the value of the derivatives at the time of expiration compared to the value at the time of purchase. Gains (losses) on option expiration reflect the movement during each period on options settled during the respective period. • The change in unrealized gains (losses) due to fair value of call options is primarily driven by the underlying performance of the S&P 500 Index during each respective period relative to the S&P 500 Index on the policyholder buy dates. • The net change in fair value of the call options and futures contracts was primarily driven by movements in the S&P 500 Index relative to the policyholder buy dates. • The net change in fair value of the interest rate swaps was primarily driven by fluctuations in the interest rate index underlying the swap contracts. 89 The average index credits to policyholders are as follows: Year ended December 31, 2023 December 31, 2022 December 31, 2021 Average Crediting Rate 1 % 1 % 5 % S&P 500 Index: Point-to-point strategy 2 % 1 % 4 % Monthly average strategy 1 % 2 % 3 % Monthly point-to-point strategy — % — % 7 % 3 year high water mark 8 % 13 % 16 % • Actual amounts credited to contractholder fund balances may differ from the index appreciation due to contractual features in the FIA contracts and certain IUL contracts (caps, spreads and participation rates), which allow us to manage the cost of the options purchased to fund the annual index credits. • The credits for the periods presented were based on comparing the S&P 500 Index on each issue date in the period to the same issue date in the respective prior year periods. Benefits and expenses Benefits and other changes in policy reserves Below is a summary of the major components included in Benefits and other changes in policy reserves (in millions): Year ended December 31, 2023 December 31, 2022 December 31, 2021 PRT agreements $ 2,016 $ 1,399 $ 1,161 FIA/IUL market related liability movements 588 (1,010) (377) Index credits, interest credited & bonuses 831 593 1,019 Other changes in policy reserves 118 144 129 Total benefits and other changes in policy reserves $ 3,553 $ 1,126 $ 1,932 • PRT agreements increased for the years ended December 31, 2023 and 2022 reflecting higher pension risk transfer group annuity obligations. • The FIA/IUL market related liability movements for all periods presented are mainly driven by changes in the equity markets, non-performance spreads, and risk-free rates during the respective periods. The change in risk free rates and non-performance spreads (decreased) increased the FIA market related liability by $106 million, $(656) million and $(74) million during the years ended December 31, 2023, 2022 and 2021, respectively. The remaining change in market value of the market related liability movements was driven by equity market impacts. See “ Revenues - Recognized gains and (losses), net ” above for summary and discussion of net unrealized gains (losses) on certain derivative instruments. • Annually, typically in the third quarter, we review assumptions associated with reserves for policy benefits and product guarantees. • During the third quarter and for the year ended December 31, 2023, based on increases in interest rates and pricing changes, we updated certain FIA assumptions used to calculate the fair value of the embedded derivative component within contractholder funds and also aligned reserves to actual policyholder behavior. These changes, taken together, resulted in an increase in total benefits and other changes in policy reserves of approximately $73 million. 90 • During the fourth quarter of 2022, based on increases in interest rates and pricing changes during 2022, we updated certain FIA assumptions used to calculate the fair value of the embedded derivative component within contractholder funds and the fair value of market risk benefits. These changes, taken together, resulted in an increase in contractholder funds and market risk benefits of approximately $99 million. • During the third quarter of 2021, we implemented a new actuarial valuation system, and as a result, our third quarter 2021 assumption updates include model refinements and assumption updates resulting from the implementation. The system implementation and assumption review process included refinements in the calculation of the fair value of the embedded derivative component of our fixed indexed annuities. These changes, taken together, resulted in a decrease in contractholder funds and future policy reserves of approximately $435 million. • Index credits, interest credited & bonuses for the year ended December 31, 2023 were higher compared to the year ended December 31, 2022, primarily reflecting higher index credits and interest credited on FIA and other policies as a result of market movement during the respective periods and higher interest credited associated with the growth in PRT agreements. Index credits, interest credited & bonuses for the year ended December 31, 2022 were lower compared with the year ended December 31, 2021, primarily reflecting lower index credits on FIA policies as a result of market movement during the respective periods. Refer to average policyholder index discussion above for details on drivers. Market risk benefit (gains) losses Below is a summary of market risk benefit (gains) losses (in millions): Year ended December 31, 2023 December 31, 2022 December 31, 2021 Market risk benefit (gains) losses $ 95 $ (182) $ (44) • Market risk benefits (gains) losses is primarily driven by attributed fees collected, effects of market related movements (including changes in equity markets and risk-free rates), actual policyholder behavior as compared with expected and changes in assumptions during the periods. ▪ Changes in market risk benefit (gains) losses for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily reflect less favorable market related movements, a favorable GMWB utilization assumption change in 2022 (that did not recur in 2023) and higher attributed fees. These changes were partially offset by actual policyholder behavior for the year ended December 31, 2023 being more in line with expected, as compared to the year ended December 31, 2022, resulting in a favorable change to the market risk benefit (gains) losses. ▪ Market risk benefit gains increased for the year ended December 31, 2022, compared with the year ended December 31, 2021, primarily reflecting favorable market related movements, primarily higher increases in risk free rates. In addition, the favorable impact of a GMWB utilization assumption change in 2022 was mostly offset by unfavorable impacts of actual policyholder 91 behavior differing from expected when comparing the year ended December 31, 2022, with the year ended December 31, 2021. Depreciation and amortization Below is a summary of the major components included in depreciation and amortization (in millions): Year ended December 31, 2023 December 31, 2022 December 31, 2021 Amortization of VOBA, DAC and DSI $ 382 $ 300 $ 255 Amortization of other intangible assets and other depreciation 30 24 16 Total depreciation and amortization $ 412 $ 324 $ 271 • DAC, VOBA and DSI are amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization. Depreciation and amortization increased for the years ended December 31, 2023 and 2022, primarily reflecting increased DAC and DSI associated with the growth of the business. The increase for the year ended December 31, 2023 also reflects a slightly increased amortization rate on some DAC and DSI balances due to updates to the surrender and mortality assumptions for the FIA and fixed-rate annuity blocks. Personnel costs and other operating expenses Below is a summary of personnel costs and other operating expenses (in millions): Year ended December 31, 2023 December 31, 2022 December 31, 2021 Personnel costs $ 232 $ 157 $ 129 Other operating expenses 146 102 105 Total personnel costs and other operating costs $ 378 $ 259 $ 234 • Personnel costs and other operating expenses increased for the years ended December 31, 2023 and 2022, primarily reflecting headcount growth to support higher sales and assets volumes and strategic growth capabilities. Interest expense Below is a summary of interest expense (in millions): Year ended December 31, 2023 December 31, 2022 December 31, 2021 Interest expense $ 97 $ 29 $ 29 Total interest expense $ 97 $ 29 $ 29 • Interest expense increased for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily reflecting a full year of interest on our revolving credit facility and the issuance of the 7.40% F&G Notes in January of 2023. 92 Other items affecting net earnings Income tax expense (benefit) Below is a summary of the major components included in income tax expense (benefit) (dollars in millions): Year ended December 31, 2023 December 31, 2022 December 31, 2021 Earnings (loss) before taxes $ (35) $ 793 $ 1,552 Income tax expense (benefit) before valuation allowance (12) 131 338 Change in valuation allowance 35 27 (18) Income tax expense $ 23 $ 158 $ 320 Effective rate (66) % 20 % 21 % • The income tax expense for the year ended December 31, 2023 was $23 million compared to income tax expense of $158 million for the year ended December 31, 2022. The effective tax rate was (66)% and 20%, respectively, for the years ended December 31, 2023 and December 31, 2022. The effective tax rate for the year ended December 31, 2023 differs from the statutory rate of 21% primarily due to a tax valuation allowance expense recorded on unrealized losses and capital loss carryforwards. The effective tax rate for the year ended December 31, 2022 differs from the statutory rate of 21% primarily due to favorable permanent tax adjustments. The income tax expense for the year ended December 31, 2021 was $320 million. The effective tax rate was 21% for the year ended December 31, 2021. • See Note H - Income Taxes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further information. Adjusted Net Earnings (See “Non-GAAP Financial Measures”) The table below shows the adjustments made to reconcile Net earnings from continuing operations to Adjusted net earnings (in millions): Year ended December 31, 2023 December 31, 2022 December 31, 2021 Net earnings (loss) $ (58) $ 635 $ 1,232 Non-GAAP adjustments: Recognized (gains) and losses, net Net realized and unrealized (gains) losses on fixed maturity available-for-sale securities, equity securities and other invested assets 98 446 (56) Change in allowance for expected credit losses 48 24 (5) Change in fair value of reinsurance related embedded derivatives 128 (352) (34) Change in fair value of other derivatives and embedded derivatives (60) (1) (14) Recognized (gains) losses, net 214 117 (109) Market related liability adjustments 258 (534) (233) Purchase price amortization 22 21 26 Transaction costs and other non-recurring items (a) 3 10 (430) Income taxes on non-GAAP adjustments (104) 104 154 Adjusted net earnings $ 335 $ 353 $ 640 (a) For the twelve months ended December 31, 2021, reflects a one-time favorable adjustment to benefits and other changes in policy reserves resulting from an actuarial system conversion which reflects modeling enhancement and other refinements of $435 million. 93 The commentary below is intended to provide additional information on the significant income and expense items that help explain the trends in our ANE for each time period, as we believe these items provide further clarity to the financial performance of the business. • Adjusted net earnings of $335 million for the year ended December 31, 2023 included $405 million of investment income from alternative investments and $5 million of bond prepay income, partially offset by $37 million tax valuation allowance, $10 million of one-time fixed asset impairment charge and $9 million actuarial industry assumption updates. Alternative investments investment income based on management’s long-term expected return of approximately 10% was $558 million. • Adjusted net earnings of $353 million for the year ended December 31, 2022 included $202 million of investment income from alternative investments, $66 million gain from actuarial assumption updates, $20 million net, tax benefits and $13 million net, CLO redemption gains and other income and expense items. Alternative investments investment income based on management’s long-term expected return of approximately 10% was $419 million. • Adjusted net earnings of $640 million for the twelve months ended December 31, 2021 includes alternative investments net investment income of $497 million. Alternative investments net investment income based on management’s long-term expected return of approximately 10% was $236 million. Actual net investment income was higher due to increases in fair value of these investments. Other significant income and expense items included $73 million of CLO redemption gains and other income and $10 million of other items • . Investment Portfolio The types of assets in which we may invest are influenced by various state laws, which prescribe qualified investment assets applicable to insurance companies. Within the parameters of these laws, we invest in assets giving consideration to four primary investment objectives: (i) maintain robust absolute returns; (ii) provide reliable yield and investment income; (iii) preserve capital; and (iv) provide liquidity to meet policyholder and other corporate obligations. Our investment portfolio is designed to contribute stable earnings, excluding short-term mark-to-market effects, and balance risk across diverse asset classes and is primarily invested in high quality fixed income securities. 94 As of December 31, 2023 and December 31, 2022, the fair value of our investment portfolio was approximately $52 billion and $41 billion, respectively, and was divided among the following asset classes and sectors (dollars in millions): December 31, 2023 December 31, 2022 Fair Value Percent Fair Value Percent Fixed maturity securities, available for sale: United States Government full faith and credit $ 261 1 % $ 32 — % United States Government sponsored entities 31 — % 42 — % United States municipalities, states and territories 1,567 3 % 1,410 3 % Foreign Governments 226 — % 148 — % Corporate securities: Finance, insurance and real estate 6,895 13 % 5,085 12 % Manufacturing, construction and mining 947 2 % 737 2 % Utilities, energy and related sectors 2,374 5 % 2,275 6 % Wholesale/retail trade 2,433 5 % 2,008 5 % Services, media and other 3,930 8 % 2,794 7 % Hybrid securities 618 1 % 705 2 % Non-agency residential mortgage-backed securities 2,393 5 % 1,479 4 % Commercial mortgage-backed securities 4,410 9 % 3,036 7 % Asset-backed securities 8,929 17 % 7,245 18 % Collateral loan obligations ("CLO") 5,405 10 % 4,222 10 % Total fixed maturity available for sale securities $ 40,419 79 % $ 31,218 76 % Equity securities (a) 606 1 % 823 2 % Limited partnerships: Private equity 1,277 2 % 1,129 3 % Real assets 463 1 % 431 1 % Credit 1,039 2 % 867 2 % Limited partnerships $ 2,779 5 % $ 2,427 6 % Commercial mortgage loans 2,253 4 % 2,083 5 % Residential mortgage loans 2,545 5 % 1,892 5 % Other (primarily derivatives and company owned life insurance) 1,697 3 % 809 2 % Short term investments 1,452 3 % 1,556 4 % Total investments $ 51,751 100 % $ 40,808 100 % (a) Includes investment grade non-redeemable preferred stocks ($428 million and $672 million at December 31, 2023 and 2022, respectively). Insurance statutes regulate the type of investments that our life insurance subsidiaries are permitted to make and limit the amount of funds that may be used for any one type of investment. In light of these statutes and regulations, and our business and investment strategy, we generally seek to invest in primarily high-grade fixed-income assets across a wide range of sectors, including Corporate securities, U.S. Government and government-sponsored agency securities, and Structured securities, among others. The NAIC’s Securities Valuation Office (“SVO”) is responsible for the day-to-day credit quality assessment and valuation of securities owned by state regulated insurance companies. Insurance companies report ownership of securities to the SVO when such securities are eligible for regulatory filings. The SVO conducts credit analysis on these securities for the purpose of assigning an NAIC designation or unit price. Typically, if a security has been rated by a nationally recognized statistical rating organization (“NRSRO”), the SVO utilizes that rating and assigns an NAIC designation based upon the NAIC published comparison of NRSRO ratings to NAIC designations. The NAIC determines ratings for non-agency Residential Mortgage-backed Securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”) using modeling that estimates security level expected losses under a variety of economic scenarios. For such assets issued prior to January 1, 2013, an insurer’s amortized cost basis in applicable assets can impact the assigned rating. In the tables below, we present the rating of structured 95 securities based on ratings from the NAIC rating methodologies described above (which in some cases do not correspond to rating agency designations). All NAIC designations (e.g., NAIC 1-6) are based on the NAIC methodologies. The following table summarizes the credit quality by NRSRO rating, or NAIC designation equivalent, of our fixed income portfolio (dollars in millions) at December 31, 2023 and 2022: December 31, 2023 December 31, 2022 NRSRO Rating NAIC Designation Amortized Cost Fair Value Fair Value Percent Amortized Cost Fair Value Fair Value Percent AAA/AA/A 1 $ 28,052 $ 26,170 65 % $ 21,294 $ 18,681 60 % BBB 2 13,421 12,302 30 % 12,422 10,737 34 % BB 3 1,633 1,554 4 % 1,588 1,425 5 % B 4 268 215 1 % 259 236 1 % CCC 5 103 72 — % 87 67 — % CC and lower 6 124 106 — % 73 72 — % Total $ 43,601 $ 40,419 100 % $ 35,723 $ 31,218 100 % Investment Concentrations The tables below present the top ten structured security and industry categories of our fixed maturity and equity securities including the fair value and percent of total fixed maturity and equity securities fair value as of December 31, 2023 and 2022 (dollars in millions). Effective January 1, 2023, we updated our industry classifications as a result of a change in our investment accounting software and related service providers. Our investment strategy has remained consistent and our portfolio mix has not materially changed. The December 31, 2022 table was updated to reflect a consistent presentation with the December 31, 2023 classifications: December 31, 2023 Top 10 Concentrations Fair Value Percent of Total Fair Value ABS Other $ 8,929 22 % CLO securities 5,405 13 % Commercial mortgage-backed securities 4,410 11 % Diversified financial services 3,272 8 % Banking 2,048 5 % Whole loan collateralized mortgage obligation 2,043 5 % Municipal 1,600 4 % Insurance 1,567 4 % Electric 1,086 3 % Telecommunications 696 2 % Total $ 31,056 77 % 96 December 31, 2022 Top 10 Concentrations Fair Value Percent of Total Fair Value ABS Other $ 7,359 23 % CLO securities 3,856 12 % Commercial mortgage-backed securities 3,399 11 % Diversified financial services 2,620 8 % Banking 1,850 6 % Insurance 1,545 5 % Municipal 1,428 4 % Whole loan collateralized mortgage obligations 1,278 4 % Electric 1,014 3 % Telecommunications 547 2 % Total $ 24,896 78 % The amortized cost and fair value of fixed maturity AFS securities by contractual maturities as of December 31, 2023 and 2022 (dollars in millions), are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. December 31, 2023 December 31, 2022 Amortized Cost Fair Value Amortized Cost Fair Value Corporate, Non-structured Hybrids, Municipal and U.S. Government securities: Due in one year or less $ 383 $ 374 $ 124 $ 123 Due after one year through five years 3,207 3,129 2,193 2,059 Due after five years through ten years 2,822 2,680 1,840 1,633 Due after ten years 15,333 13,068 14,417 11,379 Subtotal $ 21,745 $ 19,251 $ 18,574 $ 15,194 Other securities, which provide for periodic payments Asset-backed securities $ 14,623 $ 14,334 $ 12,209 $ 11,467 Commercial mortgage-backed securities 4,732 4,410 3,309 3,036 Residential mortgage-backed securities 2,501 2,424 1,631 1,521 Subtotal $ 21,856 $ 21,168 $ 17,149 $ 16,024 Total fixed maturity available-for-sale securities $ 43,601 $ 40,419 $ 35,723 $ 31,218 Non-Agency RMBS Exposure Our investment in non-agency RMBS securities is predicated on the conservative and adequate cushion between purchase price and NAIC 1 rating, general lack of sensitivity to interest rates, positive convexity to prepayment rates and correlation between the price of the securities and the unfolding recovery of the housing market. The fair value of our investments in subprime securities and Alt-A RMBS securities were $33 million and $49 million as of December 31, 2023, respectively, and $40 million and $54 million as of December 31, 2022, respectively. As of December 31, 2023 and 2022, approximately 95% and 91%, respectively, of the subprime and Alt-A RMBS exposures were rated NAIC 2 or higher. ABS and CLO Exposures Our ABS exposures are largely diversified by underlying collateral and issuer type. Our CLO exposures are generally senior tranches of CLOs which have leveraged loans as their underlying collateral. As of December 31, 2023, the CLO and ABS positions were trading at a net unrealized gain position of $65 million and a net unrealized loss of $344 million, respectively. As of December 31, 2022, the CLO and ABS positions were trading at a net unrealized loss position of $236 million and $499 million, respectively. 97 The following table summarizes the credit quality by NRSRO rating, or NAIC designation equivalent, of our AFS ABS portfolio (dollars in millions) at December 31, 2023 and 2022. December 31, 2023 December 31, 2022 Fair Value Percent Fair Value Percent NRSRO Rating NAIC Designation AAA/AA/A 1 $ 7,023 79% $ 5,570 77% BBB 2 1,375 15% 1,232 17% BB 3 418 5% 344 5% B 4 59 1% 72 1% CCC 5 13 —% 9 —% CC and lower 6 41 —% 18 —% Total $ 8,929 100% $ 7,245 100% The following table summarizes the credit quality by NRSRO rating, or NAIC designation equivalent, of our AFS CLO portfolio (dollars in millions) at December 31, 2023 and 2022. December 31, 2023 December 31, 2022 Fair Value Percent Fair Value Percent NRSRO Rating NAIC Designation AAA/AA/A 1 $ 3,288 61% $ 2,678 64% BBB 2 1,582 29% 1,225 29% BB 3 480 9% 256 6% B 4 17 —% 19 —% CCC 5 — —% 9 —% CC and lower 6 38 1% 35 1% Total $ 5,405 100% $ 4,222 100% Municipal Bond Exposure Our municipal bond exposure is a combination of general obligation bonds (fair value of $231 million and $188 million and an amortized cost of $268 million and $231 million as of December 31, 2023 and 2022, respectively) and special revenue bonds (fair value of $1,334 million and $1,017 million and an amortized cost of $1,506 million and $1,248 million as of December 31, 2023 and 2022, respectively). Across all municipal bonds, the largest issuer represented 5% and 6% of the category as of December 31, 2023 and 2022, respectively, with less than 1% of the entire portfolio and is rated NAIC 1. Our focus within municipal bonds is on NAIC 1 rated instruments, with 98% and 96% of our municipal bond exposure rated NAIC 1 as of December 31, 2023 and 2022, respectively. Mortgage Loans Commercial Mortgage Loans We diversify our commercial mortgage loans (“CMLs”) portfolio by geographic region and property type to attempt to reduce concentration risk. We continuously evaluate CMLs based on relevant current information to ensure properties are performing at a level to secure the related debt. Loan-to-value (“LTV”) and debt service coverage (“DSC”) ratios are utilized to assess the risk and quality of CMLs. As of December 31, 2023 and 2022, our mortgage loans on real estate portfolio had a weighted average DSC ratio of 2.3 times and 2.3 times, respectively, and a weighted average LTV ratio of 55% and 57%, respectively. 98 We consider a CML delinquent when a loan payment is greater than 30 days past due. For mortgage loans that are determined to require foreclosure, the carrying value is reduced to the fair value of the underlying collateral, net of estimated costs to obtain and sell at the point of foreclosure. At December 31, 2023 and 2022, we had no CMLs that were delinquent in principal or interest payments and none in the process of foreclosure. See Note C - Investments to the Consolidated Financial Statements included in this report for additional information on our CMLs, including our distribution by property type, geographic region, LTV and DSC ratios. Residential Mortgage Loans (“RML”) Our residential mortgage loans are closed end, amortizing loans and 100% of the properties are in the United States. We diversify our RML portfolio by state to attempt to reduce concentration risk. RMLs have a primary credit quality indicator of either a performing or nonperforming loan. We define nonperforming RMLs as those that are 90 or more days past due and/or in nonaccrual status. Loans are placed on nonaccrual status when they are over 90 days delinquent. If a loan becomes over 90 days delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current can be put in place. See Note C - Investments to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on our RMLs. Unrealized Losses The amortized cost and fair value of the fixed maturity securities and the equity securities that were in an unrealized loss position as of December 31, 2023 and 2022, were as follows (dollars in millions): December 31, 2023 Number of Securities Amortized Cost Allowance for Expected Credit Losses Unrealized Losses Fair Value Fixed maturity securities, available for sale: United States Government full faith and credit 8 $ 15 $ — $ (1) $ 14 United States Government sponsored agencies 56 30 — (3) 27 United States municipalities, states and territories 180 1,498 — (222) 1,276 Foreign Governments 50 209 — (39) 170 Corporate securities: Finance, insurance and real estate 637 5,529 — (690) 4,839 Manufacturing, construction and mining 117 965 — (135) 830 Utilities, energy and related sectors 316 2,402 — (471) 1,931 Wholesale/retail trade 332 2,165 — (397) 1,768 Services, media and other 401 3,370 — (686) 2,684 Hybrid securities 36 597 — (53) 544 Non-agency residential mortgage-backed securities 244 1,118 (2) (101) 1,015 Commercial mortgage-backed securities 435 3,198 (22) (323) 2,853 Asset-backed securities 800 8,078 (9) (470) 7,599 Total fixed maturity available for sale securities 3,612 29,174 (33) (3,591) 25,550 Equity securities 41 567 — (100) 467 Total investments 3,653 $ 29,741 $ (33) $ (3,691) $ 26,017 99 December 31, 2022 Number of Securities Amortized Cost Allowance for Expected Credit Losses Unrealized Losses Fair Value Fixed maturity securities, available for sale: United States Government full faith and credit 6 $ 34 $ — $ (2) $ 32 United States Government sponsored agencies 58 39 — (4) 35 United States municipalities, states and territories 167 1,590 — (289) 1,301 Foreign Governments 44 169 — (37) 132 Corporate securities: Finance, insurance and real estate 526 5,586 (15) (876) 4,695 Manufacturing, construction and mining 120 850 — (160) 690 Utilities, energy and related sectors 333 2,825 — (644) 2,181 Wholesale/retail trade 316 2,418 — (532) 1,886 Services, media and other 360 3,354 — (783) 2,571 Hybrid securities 43 706 — (84) 622 Non-agency residential mortgage-backed securities 241 1,353 (5) (105) 1,243 Commercial mortgage-backed securities 365 2,850 — (284) 2,566 Asset-backed securities 1,147 11,511 (1) (770) 10,740 Total fixed maturity available for sale securities 3,726 33,285 (21) (4,570) 28,694 Equity securities 59 879 — (174) 705 Total investments 3,785 $ 34,164 $ (21) $ (4,744) $ 29,399 The gross unrealized loss position on the fixed maturity available-for-sale fixed and equity portfolio was $3,691 million and $4,744 million as of December 31, 2023 and 2022, respectively. Most components of the portfolio exhibited price depreciation caused by higher treasury rates and wider spreads. The total amortized cost of all securities in an unrealized loss position was $29,741 million and $34,164 million as of December 31, 2023 and 2022, respectively. The average market value/book value of the investment category with the largest unrealized loss position was 88% for finance, insurance and real estate as of December 31, 2023. In the aggregate, finance, insurance and real estate represented 19% of the total unrealized loss position as of December 31, 2023. The average market value/book value of the investment category with the largest unrealized loss position was 84% for finance, insurance and real estate as of December 31, 2022. In aggregate, finance, insurance and real estate represented 18% of the total unrealized loss position as of December 31, 2022. The amortized cost and fair value of fixed maturity available for sale securities under watch list analysis and the number of months in a loss position with investment grade securities (NRSRO rating of BBB/Baa or higher) as of December 31, 2023 and 2022, were as follows (dollars in millions): December 31, 2023 Number of Securities Amortized Cost Fair Value Allowance for Credit Loss Gross Unrealized Losses Investment grade: Less than six months 1 $ 15 $ 14 $ — $ (1) Six months or more and less than twelve months 1 54 44 — (10) Twelve months or greater 47 634 444 — (190) Total investment grade 49 703 502 — (201) Below investment grade: Less than six months — — — — — Six months or more and less than twelve months — — — — — Twelve months or greater 3 19 15 — (4) Total below investment grade 3 19 15 — (4) Total 52 $ 722 $ 517 $ — $ (205) 100 December 31, 2022 Number of Securities Amortized Cost Fair Value Allowance for Credit Loss Gross Unrealized Losses Investment grade: Less than six months 6 $ 5 $ 3 $ — $ (2) Six months or more and less than twelve months 49 299 200 — (99) Twelve months or greater 76 969 634 — (335) Total investment grade 131 1,273 837 — (436) Below investment grade: Less than six months 1 32 13 15 (4) Six months or more and less than twelve months 12 124 94 — (30) Twelve months or greater 2 6 4 — (2) Total below investment grade 15 162 111 15 (36) Total 146 $ 1,435 $ 948 $ 15 $ (472) Expected Credit Losses and Watch List We prepare a watch list to identify securities to evaluate for expected credit losses. Factors used in preparing the watch list include fair values relative to amortized cost, ratings and negative ratings actions and other factors. Detailed analysis is performed for each security on the watch list to further assess the presence of credit impairment loss indicators and, where present, calculate an allowance for expected credit loss or direct write-down of a security’s amortized cost. At December 31, 2023, our watch list included 52 securities in an unrealized loss position with an amortized cost of $722 million, no allowance for expected credit losses, unrealized losses of $205 million and a fair value of $517 million. At December 31, 2022, our watch list included 146 securities in an unrealized loss position with an amortized cost of $1,435 million, allowance for expected credit losses of $15 million, unrealized losses of $472 million and a fair value of $948 million. The watch list excludes structured securities as we have separate processes to evaluate the credit quality on the structured securities. There were 101 and 64 structured securities with a fair value of $316 million and $162 million to which we had potential credit exposure as of December 31, 2023 and 2022, respectively. Our analysis of these structured securities, which included cash flow testing, resulted in allowances for expected credit losses of $35 million and $16 million as of December 31, 2023 and 2022, respectively. Exposure to Sovereign Debt and Certain Other Exposures Our investment portfolio had an immaterial amount of direct exposure to European sovereign debt as of December 31, 2023 and 2022, respectively. We have no exposure to investments in Russia or Ukraine and de minimis investments in peripheral countries in the region. Interest and Investment Income For discussion regarding our net investment income and net investment gains (losses) refer to Note C - Investments to the Consolidated Financial Statements included in this Annual Report on Form 10-K. AFS Securities For additional information regarding our AFS securities, including the amortized cost, gross unrealized gains (losses), and fair value as well as the amortized cost and fair value of fixed maturity AFS securities by contractual 101 maturities, as of December 31, 2023 and 2022, refer to Note C - Investments to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Concentrations of Financial Instruments For certain information regarding our concentrations of financial instruments, refer to Note C - Investments to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Derivatives We are exposed to credit loss in the event of nonperformance by our counterparties on derivative instruments. We attempt to reduce this credit risk by purchasing such derivative instruments from large, well-established financial institutions. We also hold cash and cash equivalents received from counterparties for derivative instrument collateral, as well as U.S. Government securities pledged as derivative instrument collateral, if our counterparty’s net exposures exceed pre-determined thresholds. We are required to pay counterparties the effective federal funds rate each day for cash collateral posted to F&G for daily mark-to-market margin changes. We reduce the negative interest cost associated with cash collateral posted from counterparties under various ISDA agreements by reinvesting derivative cash collateral. This program permits collateral cash received to be invested in short term Treasury securities, bank deposits and commercial paper rated A1/P1, which are included in Cash and cash equivalents in the accompanying Consolidated Balance Sheets. See Note D - Derivatives to the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for additional information regarding our derivatives and our exposure to credit loss on derivatives. Liquidity and Capital Resources Liquidity refers to the ability of an enterprise to generate adequate amounts of cash from its normal operations to meet cash requirements with a prudent margin of safety. Our principal sources of cash flow from operating activities are annuity considerations, insurance premiums, and fees and investment income. We also generate cash inflows from investing activities resulting from maturities and sales of invested assets and from financing activities including inflows on our investment-type products and proceeds from borrowing activities. Our operating activities provided cash of $5,834 million and $3,171 million for the years ended December 31, 2023 and 2022, respectively. When considering our liquidity and cash flow, it is important to distinguish between the needs of our insurance subsidiaries and the needs of the holding company, F&G Annuities & Life, Inc. As a holding company with no operations of its own, F&G Annuities & Life, Inc. derives its cash primarily from its insurance subsidiaries and CF Bermuda Holdings Ltd. (“CF Bermuda”), a Bermuda exempted limited liability company and a wholly owned direct subsidiary of the Company, a downstream holding company that provides additional sources of liquidity. Dividends from our insurance subsidiaries flow through CF Bermuda to F&G Annuities & Life, Inc. F&G Cayman Re, a licensed class D insurer in the Cayman Islands and a wholly owned direct subsidiary of the Company, could also provide dividends directly to F&G Annuities & Life, Inc. The sources of liquidity of the holding company are principally comprised of dividends from subsidiaries, lines of credit (at the F&G Annuities & Life, Inc. level), existing surplus notes, investment income on holding company assets and the ability to raise long-term public financing under an SEC-filed registration statement or private placement offering. These sources of liquidity and cash flow support the general corporate needs of the holding company, interest and debt service, funding acquisitions and investment in core businesses. Our cash flows associated with collateral received from and posted with counterparties change as the market value of the underlying derivative contract changes. As the value of a derivative asset declines (or increases), the collateral required to be posted by our counterparties would also decline (or increase). Likewise, when the value of a derivative liability declines (or increases), the collateral we are required to post to our counterparties would also decline (or increase). 102 On February 16, 2024, F&G entered into an amendment and extension of its existing senior unsecured revolving credit agreement (the “Credit Agreement”). The maturity date of the Credit Agreement has been extended by approximately two years from November 22, 2025 to November 22, 2027. Total commitments will increase from $665 million to $750 million. Pricing and advance rates remain unchanged. Financial covenants also remain essentially the same. On February 21, 2023, we entered into an agreement to increase the available aggregate principal amount of the Credit Agreement by $115 million to $665 million. As noted below, we used $150 million of net proceeds from our 7.95% F&G Notes to pay down the Credit Agreement to a balance of approximately $365 million as of December 31, 2023. On January 12, 2024 we completed a $250 million preferred stock investment from FNF. F&G will use net proceeds from the investment to support the growth of its assets under management. Under the terms of the agreement, FNF agreed to invest $250 million in exchange for 5,000,000 shares of F&G’s 6.875% Series A Mandatory Convertible Preferred Stock, par value $.001 per share, liquidation preference of $50.00 per share (the “FNF Preferred Stock”). Unless earlier converted at the option of the holder, each outstanding share of the FNF Preferred Stock will automatically convert into shares of F&G common stock on January 15, 2027. Generally, no dividends will be declared or paid on F&G common stock and no common stock can be acquired by F&G unless all preferred dividends are declared and paid on the outstanding FNF Preferred Stock. The offer and the sale of the FNF Preferred Stock were made in a private placement pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act. The agreement was negotiated pursuant to market terms and pricing by a Special Committee of F&G’s Board of Directors comprised of independent members of the Board, in consultation with an independent financial advisor and independent legal counsel. Cash Requirements. Our current cash requirements include personnel costs, operating expenses, benefit payments, funding agreement payments, taxes, payments of interest and principal on our debt, capital expenditures, business acquisitions, stock repurchases and dividends on our common stock. We paid dividends of $0.20 per share of common stock in the first three quarters of 2023 and $0.21 per share in the fourth quarter, approximately $101 million, to our common shareholders. On February 14, 2024, our Board of Directors declared a quarterly cash dividend of $0.21 per share, payable on March 29, 2024, to F&G common shareholders of record as of March 15, 2024. There are no restrictions on our retained earnings regarding our ability to pay dividends to our shareholders, although there are limits on the ability of certain subsidiaries to pay dividends to us, as described below. As discussed above, there are certain conditions on the declaration and payment of dividends pursuant to our recent preferred stock issuance. The declaration of any future dividends is at the discretion of our Board of Directors. On February 14, 2024, our Board of Directors also declared a quarterly cash dividend of $0.8976 per share on the FNF Preferred Stock for the period from January 12, 2024 to and excluding April 15, 2024, to be paid on April 15, 2024, to FNF Preferred Stock record holders as of April 1, 2024. On March 21, 2023, F&G’s Board of Directors approved a new three-year stock repurchase program, effective March 21, 2023, under which the Company may repurchase up to $25 million of F&G common stock. On November 7, 2023, the Board of Directors increased the share repurchase authorization to $50 million. The Company believes the share repurchase program is an efficient means of returning cash to shareholders when we consider the shares to be undervalued. Purchases may be made from time to time by the Company in the open market at prevailing market prices or through privately negotiated transactions or accelerated share repurchase transactions through November 6, 2026. All purchases are held as treasury stock. The timing and extent of share repurchases will depend on a variety of factors, including, market conditions, regulatory requirements, and considerations as determined by management. During the year ended December 31, 2023, the Company purchased approximately 869,000 shares pursuant to the program, for a total cost of approximately $18 million with an average cost per share of $21.07. At December 31, 2023, the total remaining authorization of F&G common stock that may be repurchased was approximately $32 million. As of December 31, 2023 and 2022, we had cash and cash equivalents of $1,563 million and $960 million, respectively, and short term investments of $1,452 million and $1,556 million, respectively. As of December 31, 2023 we had $300 million of remaining capacity under our revolving credit facility (prior to the commitment increase discussed above) and $200 million of capacity under our revolving credit facility with FNF (the “FNF Credit Facility ” ). No amounts were outstanding under the FNF Credit Facility as of December 31, 2023 or 2022. We continually assess our capital allocation strategy, including decisions relating to the amount of our dividend, if any, 103 reducing debt, investing in growth of our subsidiaries, making acquisitions and/or conserving cash. We believe that all anticipated cash requirements for current operations will be met from internally generated funds, through cash dividends from subsidiaries, cash generated by investment securities, potential sales of non-strategic assets, potential issuances of additional debt or equity securities, and borrowings on the revolving credit facility or the FNF Credit Facility. Our short-term and long-term liquidity requirements are monitored regularly to ensure that we can meet our cash requirements. We forecast the needs of all our subsidiaries and periodically review their short-term and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts. Refer to Financing Arrangements below and Note L - Notes Payable of the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K for further information regarding our borrowings. Our two significant sources of internally generated funds are dividends and other payments from our subsidiaries. As a holding company, we receive cash from our subsidiaries in the form of dividends and as reimbursement for operating and other administrative expenses we incur. The reimbursements are paid within the guidelines of management agreements among us and our subsidiaries. As discussed below, our insurance subsidiaries are restricted by state regulation and other laws in their ability to pay dividends and make distributions. As of December 31, 2023, approximately $4.2 billion of our net assets were restricted from dividend payments without prior approval from the relevant departments of insurance. The maximum dividend permitted by law is not necessarily indicative of an insurer’s actual ability to pay dividends, which may be constrained by business and regulatory considerations, such as the impact of dividends on surplus, which could affect an insurer’s ratings or competitive position, the amount of premiums that can be written and the ability to pay future dividends. Dividend and Other Distribution Payment Limitations The insurance laws of Iowa and New York regulate the amount of dividends that may be paid in any year by FGL Insurance and FGL NY Insurance, respectively. Likewise, the insurance laws of Bermuda limit the maximum amount of annual dividends and distributions that may be paid or distributed by F&G Life Re without prior regulatory approval and those of the Cayman Islands require that, among other things, F&G Cayman Re maintain minimum levels of statutory capital, surplus and liquidity, meet solvency standards, submit to periodic examinations of its financial condition and restrict payments of dividends and reductions of capital. Please refer to “Item 1. Business” and Note O - Insurance Subsidiary Financial Information and Regulatory Matters to the Consolidated Financial Statements included in this Annual Report on Form 10-K, for additional details on dividends from insurance subsidiaries, statutory capital and risk-based capital. Cash flow from our operations Cash flow from our operations will be used for general corporate purposes including to reinvest in operations, repay debt, pay dividends, repurchase stock, pursue other strategic initiatives and/or conserve cash. Operating Cash Flow . Our cash flows provided by operations for the years ended December 31, 2023, 2022, and 2021 were $5,834 million, $3,171 million and $1,871 million, respectively. The primary cash inflows from operating activities include net investment income and insurance premiums. The primary cash outflows from operating activities are comprised of benefit payments and operating expenses. Cash provided by operations for the years ended December 31, 2023 and 2022 included approximately $1,300 million and $1,300 million of net cash received for PRT transactions, respectively, included in the change in future policy benefits. Investing Cash Flows. Our cash used in investing activities for the years ended December 31, 2023, 2022, and 2021 were $8,918 million, $9,370 million, $6,862 million, respectively. The primary cash inflows from investing activities are the proceeds from sales, calls, maturities and redemptions of investments, including those resulting from our portfolio repositioning. The primary cash outflows from investing activities are the purchases of fixed maturity securities and other investments. Cash used in investing activities for the years ended December 31, 2023 and 2022 included purchases of fixed maturity securities and other investments associated with investing the net cash received from our investment-type products, generated from financing cash flows and PRT transactions, generated from operating activities, as well as cash received from borrowings generated from financing activities in both periods. 104 Financing Cash Flows. Our cash flows provided by financing activities for the years ended December 31, 2023, 2022, and 2021 were $3,687 million, $5,626 million and $5,635 million, respectively. The primary cash inflows from financing activities are inflows on our investment-type products and proceeds from borrowing activities. The primary cash outflows from financing activities are withdrawals on our investment-type products, repayments of outstanding borrowings, dividend payments and stock repurchases. Cash provided by financing activities for the year ended December 31, 2023 included $845 million of proceeds from debt issuances, partially offset by net partial revolver pay downs of $185 million, dividend payments of approximately $101 million and common stock repurchases of $18 million. Cash provided by financing activities for the year ended December 31, 2022 included proceeds from revolving credit borrowings of $550 million and approximately $700 million of net cash received for FABN transactions. Financing Arrangements. At December 31, 2023, we had outstanding (i) $365 million of gross principal balance outstanding under the Credit Agreement and (ii) $550 million aggregate principal amount of 5.50% senior notes due 2025 (the “5.50% F&G Notes”). In addition, on January 13, 2023, we completed the issuance and sale of $500 million aggregate principal amount of our 7.40% Senior Notes due 2028 (the “7.40% F&G Notes”). On December 6th, 2023, we completed the issuance and sale of $345 million aggregate principal amount of our 7.95%% Senior Notes due 2053 (“the 7.95% F&G Notes”). We used $150 million of net proceeds from our 7.95% F&G Notes to pay down the Credit Agreement to a balance of approximately $365 million as of December 31, 2023. For further description of our financing arrangements see Note L - Notes Payable to the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K. The Credit Agreement imposes significant operating and financial restrictions, including financial covenants, and the Credit Agreement and the indentures governing the 7.95% F&G Notes, the 7.40% F&G Notes, and the 5.50% F&G Notes limit, among other things, our and our subsidiaries’ ability to: • incur or assume additional indebtedness, including guarantees; • incur or assume liens; • engage in mergers or consolidations; • convey, transfer, lease or dispose of assets; • make certain investments; • enter into transactions with affiliates; • declare or make any dividend payments or distributions or repurchase capital stock or other equity interests; • change the nature of our business materially; • make changes in accounting treatment or reporting practices that affect the calculation of financial covenants, or change our fiscal year; and • enter into certain agreements that would restrict the ability of subsidiaries to make payments to us. As of December 31, 2023, we were in compliance with all covenants. 105 Obligations - Contractual and Other. As of December 31, 2023, our required annual payments relating to contractual and other obligations were as follows: 2024 2025 2026 2027 2028 Thereafter Total Notes payable principal repayment $ 365 $ 550 $ — $ — $ 500 $ 345 $ 1,760 Operating lease payments 2 2 2 2 2 3 13 Annuity and universal life products 4,795 6,305 5,746 5,467 6,705 41,007 70,025 Pension risk transfer annuity payments 312 301 292 282 271 3,300 4,758 Funding agreements (FABN / FHLB) 914 761 1,268 968 1,052 321 5,284 Interest on fixed rate notes payable 95 77 64 64 27 686 1,013 Total $ 6,483 $ 7,996 $ 7,372 $ 6,783 $ 8,557 $ 45,662 $ 82,853 Preferred and Equity Security Investments. Our preferred and equity security investments may be subject to significant volatility. Currently prevailing accounting standards require us to record the change in fair value of preferred and equity security investments held as of any given period end within earnings. Our results of operations in future periods are anticipated to be subject to such volatility. Off-Balance Sheet Arrangements. Throughout our history, we have entered in indemnifications in the ordinary course of business with our customers, suppliers, service providers, business partners and in certain instances, when we sold businesses. Additionally, we have indemnified our directors and officers who are, or were, serving at our request in such capacities. Although the specific terms or number of such arrangements is not precisely known due to the extensive history of our past operations, costs incurred to settle claims related to these indemnifications have not been material to our financial statements. We have no reason to believe that future costs to settle claims related to our former operations will have a material impact on our financial position, results of operations or cash flows. We have unfunded commitments as of December 31, 2023 based upon the timing of when investments and agreements are executed or signed compared to when the actual commitments are funded or closed. Some investments require that funding occur over a period of months or years. Please refer to Note C - Investments and Note N - Commitments and Contingencies to the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K for additional details on unfunded commitments. FHLB Collateral. We are currently a member of the FHLB and are required to maintain a collateral deposit that backs any funding agreements issued. We use these funding agreements as part of a spread enhancement strategy. We have the ability to obtain funding from the FHLB based on a percentage of the value of our assets, subject to the availability of eligible collateral. Collateral is pledged based on the outstanding balances of FHLB funding agreements. The amount of funding varies based on the type, rating and maturity of the collateral posted to the FHLB. Generally, U.S. government agency notes, mortgage-backed securities, municipal bonds, and commercial and residential whole loans are pledged to the FHLB as collateral. Market value fluctuations resulting from changes in interest rates, spreads and other risk factors for each type of asset are monitored and additional collateral is either pledged or released as needed. Our borrowing capacity under these credit facilities does not have an expiration date as long as we maintain a satisfactory level of creditworthiness based on the FHLB’s credit assessment. As of December 31, 2023 and 2022, we had $2,514 million and $1,983 million, respectively, in FHLB non-putable funding agreements included under Contractholder Funds on our Consolidated Balance Sheet. As of December 31, 2023 and 2022, we had assets with a fair value of approximately $4,345 million and $3,387 million, respectively, which collateralized the FHLB funding agreements. Assets pledged to the FHLB are included in fixed maturities, AFS, on our Consolidated Balance Sheets. Collateral-Derivative Contracts. Under the terms of our ISDA agreements, we may receive from, or deliver to, counterparties collateral to assure that all terms of the ISDA agreements will be met with regard to the Credit Support Annex (“CSA”). The terms of the CSA call for us to pay interest on any cash received equal to the federal funds rate. As of December 31, 2023 and 2022, $775 million and $219 million, respectively, of collateral was posted by our counterparties as they did not meet the net exposure thresholds. Collateral requirements are monitored on a daily basis and incorporate changes in market values of both the derivatives contract as well as the collateral pledged. Market value fluctuations are due to changes in interest rates, spreads and other risk factors. 106 Guarantor Financial Information Our 2023 issuances of the 7.40% F&G Notes and the 7.95% F&G Notes are fully and unconditionally guaranteed on a senior, unsecured, unsubordinated basis, jointly and severally, by each of our existing and future direct and indirect subsidiaries that are guarantors of our obligations under the credit agreement (collectively, the “obligor group”). Refer to Note L - Notes Payable of the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K for further information regarding these borrowings. Set forth below is summarized unaudited financial information of the obligor group, as presented on a combined basis (dollars in millions). Intercompany transactions and balances within the obligor group have been eliminated. In addition, financial information of any non-guarantor subsidiaries, which would normally be consolidated by either F&G or the guarantors under GAAP, has been excluded from such presentation. Year ended December 31, 2023 December 31, 2022 Summarized Statement of Operations: Total revenues $ (5) $ (20) Total expenses (94) (15) Income tax (expense) benefit (1) 13 Net earnings (loss) $ (100) $ (22) December 31, 2023 December 31, 2022 Summarized Balance Sheet: Investments $ 532 $ 348 Cash and cash equivalents 322 184 Goodwill 1,725 1,725 Due from non-guarantor affiliates 64 40 Other assets 33 37 Total assets $ 2,676 $ 2,334 Notes payable $ 1,754 $ 1,114 Other liabilities 145 127 Total liabilities $ 1,899 $ 1,241