2 unchanged sentences
The risks related to our business also include certain market risks that may affect our financial instruments and certain liabilities.
−Removed: At present, we face the market risks associated with our marketable equity securities, liability for Contractholder Funds, and balances for MRBs which are subject to equity price volatility and with interest rate movements on our fixed income investments and liabilities for debt, FPBs, MRBs, and Contractholder Funds.
+Added: At present, we face market risks associated with our marketable equity securities, liability for Contractholder Funds, balances for MRBs which are subject to equity price volatility, and interest rate movements on both our fixed income investments and liabilities for debt, FPBs, MRBs, and Contractholder Funds.
We regularly assess these market risks and have established policies and business practices designed to protect against the adverse effects of these exposures.
−Removed: Additionally, financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash equivalents, derivatives and short-term investments.
+Added: Additionally, financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash equivalents, derivatives, long-term investments and short-term investments.
We require placement of cash in financial institutions evaluated as highly creditworthy.
Enterprise Risk Management
−Removed: We place a high priority to risk management and risk control.
+Added: We place a high priority on risk management and risk control.
As part of our effort to ensure measured risk taking, management has integrated risk management in our daily business activities and strategic planning.
−Removed: We have comprehensive risk management, governance and control procedures in place and have established a dedicated risk management function with responsibility for the formulation of our risk appetite, strategies, policies and limits.
+Added: We have comprehensive risk management, governance and control procedures in place and have established a dedicated risk management function with responsibility for the formulation of our risk appetite, risk mitigation strategies, policies and limits.
The risk management function is also responsible for monitoring our overall market risk exposures and provides review, oversight and support functions on risk-related issues.
−Removed: Our risk appetite is aligned with how our businesses are managed and how we anticipate future regulatory developments.
+Added: Our risk appetite is aligned with how our businesses are managed and anticipated future regulatory developments.
Our risk governance and control systems enable us to identify, control, monitor and aggregate risks and provide assurance that risks are being measured, monitored and reported adequately and effectively in accordance with the following three principles:
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The Chief Risk Officer (“CRO”) heads our risk management process and reports directly to our Chief Executive Officer (“CEO”).
−Removed: Our Enterprise Risk Management Committee discusses and approves all risk policies and reviews and approves risks associated with our activities.
−Removed: This includes volatility (affecting earnings and value), exposure (required capital and market risk) and insurance risks.
+Added: Our Enterprise Risk Management Committee (“ERMC”) reviews all risk policies, risk appetites, and discusses market risks associated with our activities.
+Added: Market risks include the risks of losses due to an ineffective ALM program and the risk of losses arising from fluctuations in market prices, including interest rates, exchange rates, asset prices.
+Added: These risks are monitored and assessed for appropriate mitigating activities to reduce the likelihood of erosion of the value of investments or trading positions that could result in financial losses or capital inadequacies.
We have implemented several limit structures to manage risk.
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At-risk limits on sensitivities of regulatory capital to the capital markets provide the fundamental framework to manage capital markets risks including the risk of asset / liability mismatch;
−Removed: Duration and convexity mismatch limits;
+Added: Duration mismatch limits;
Credit risk concentration limits;
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Our risk metrics cover the most important aspects in terms of performance measures where risk can materialize and are representative of the regulatory constraints to which our business is subject.
−Removed: The sensitivities for earnings and statutory capital are important metrics since they provide insight into the level of risk we take under stress scenarios.
+Added: The sensitivities for earnings
+Added: and statutory capital are important metrics since they provide insight into the level of risk we take under stress scenarios.
They also are the basis for internal risk management.
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Book value guarantees in our insurance products;
+Added: Reinvestment and disinvestment
Asset Liability Management (“ALM”)
As part of our ALM program, we have made a significant effort to identify the assets appropriate to different product lines and ensure investing strategies match the profile of these liabilities.
+Added: We monitor ALM metrics (such as duration, key-rate durations, net cash flows and liquidity) and manage the risk exposures at levels that are consistent with our risk appetite.
The ALM strategy is designed to align the expected cash flows from the investment portfolio with the expected liability cash flows.
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When the durations of assets and liabilities are similar, exposure to interest rate risk is minimized because a change in the value of assets could be expected to be largely offset by a change in the value of liabilities.
−Removed: The durations of the investment portfolio, net of investments subject to reinsurance agreements and excluding cash and cash equivalents, derivatives, policy loans, and common stocks as of December 31, 2023 and December 31, 2022, are summarized as follows:
−Removed: (Dollars in millions) December 31, 2023 December 31, 2022
+Added: The durations of the investment portfolio, net of investments subject to reinsurance agreements and excluding cash and cash equivalents, derivatives, policy loans, and common stocks as of December 31, 2024 and December 31, 2023, are summarized as follows (dollars in millions):
+Added: December 31, 2024 December 31, 2023
Duration (years) Amortized Cost % of Total Amortized Cost % of Total
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The profitability of most of our products depends on the spreads between interest yield on investments and rates credited on insurance liabilities.
−Removed: We have the ability to adjust the rates credited, primarily caps and credit rates, on the majority of the annuity liabilities at least annually, subject to minimum guaranteed values.
+Added: We have the ability to adjust the rates credited on the majority of the annuity liabilities at least annually, subject to minimum guaranteed values.
In addition, the majority of the annuity products have surrender and withdrawal penalty provisions designed to encourage persistency and to help ensure targeted spreads are earned.
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A rise in interest rates, in the absence of other countervailing changes, will result in a decline in the market value of our investment portfolio, partially offset by gains related to the fair value of MRBs.
−Removed: In addition, at December 31, 2023 we had floating rate funding agreements outstanding to match certain of our floating rate investments.
+Added: In addition, some of our deferred annuity policies contain a market value adjustment (“MVA”) during the surrender charge period, where if interest rates have risen, the MVA will decrease the surrender value, whereas if rates have fallen, it will increase the surrender value.
+Added: The MVA reduces market risk and earnings volatility from interest rate changes, should a policy surrender, as it offsets the decline in the market value of the investment portfolio in a rising rate scenario, and vice versa in a declining rate scenario
+Added: Additionally, at December 31, 2024, we had floating rate funding agreements outstanding to match certain of our floating rate investments.
Accordingly, fluctuations in market interest rates on the funding agreements will be significantly offset by corresponding changes in investment income associated with our floating rate investments.
Notes Payable
−Removed: At December 31, 2023 , we had a short-term revolving credit facility which bears interest at a floating rate.
−Removed: Accordingly, depending on the amounts outstanding during 2023, fluctuations in market interest rates will have an impact on our resulting interest expense.
+Added: At December 31, 2024 , we had a short-term revolving credit facility that bears interest at a floating rate.
+Added: Accordingly, depending on the amounts outstanding, fluctuations in market interest rates will have an impact on our resulting interest expense.
The impact to net earnings, however, will again be significantly offset by corresponding changes in investment income associated with our floating rate investments.
+Added: There was no balance outstanding on the revolving credit facility at December 31, 2024.
Equity Price Risk
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In the past, our exposure to changes in equity prices primarily resulted from our holdings of equity securities.
−Removed: Refer to Note B - Fair Value of Financial Instruments to the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for additional details on how the carrying values of these investments are determined as of the balance sheet date.
+Added: Note B - Fair Value of Financial Instruments to the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for additional details on how the carrying values of these investments are determined as of the balance sheet date.
Carrying values are subject to fluctuation and, consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported carrying value.
2 unchanged sentences
We are also exposed to equity price risk through certain insurance products.
−Removed: We offer a variety of FIA/ IUL contracts with crediting strategies linked to the performance of indices such as the S&P 500 Index, Dow Jones Industrials or the NASDAQ 100 Index, and target volatility indices.
+Added: We offer a variety of indexed annuities and IUL contracts with crediting strategies linked to the performance of indices such as the S&P 500 Index, Dow Jones Industrials or the NASDAQ 100 Index, and target volatility indices.
Additionally, the estimated cost of providing GMWB on FIA products incorporates various assumptions about the overall performance of equity markets over certain time periods.
Periods of significant and sustained downturns in equity markets or increased equity volatility could result in an increase in the valuation of the MRB liabilities and decrease in the valuation of contractholder funds liabilities associated with such products.
−Removed: To economically hedge the equity returns on these products, we purchase derivatives to hedge the FIA and IUL equity exposures.
−Removed: The primary way we hedge FIA/ IUL equity exposure is to purchase over the counter equity index call options from broker-dealer derivative counterparties approved by F&G.
−Removed: The second way to hedge FIA/ IUL equity exposure is by purchasing exchange traded equity index futures contracts.
−Removed: This hedging strategy enables us to reduce the overall hedging costs and achieve a high correlation of returns on the call options purchased relative to the index credits earned by the FIA/ IUL contractholders.
−Removed: The majority of the call options are one-year options purchased to match the funding requirements underlying the FIA/ IUL contracts.
−Removed: These hedge programs are limited to the current policy term of the FIA/ IUL contracts.
−Removed: Future returns, which may be reflected in FIA/ IUL contracts’ credited rates beyond the current policy term, are not hedged.
−Removed: We attempt to manage the costs of these purchases through the terms of the FIA/ IUL contracts, which permit us to change cap, spread or participation rates, subject to certain guaranteed minimums that must be maintained.
−Removed: The derivatives are used to fund the FIA/ IUL contract index credits and the cost of the call options purchased is treated as a component of spread earnings.
−Removed: While the FIA/ IUL hedging program does not explicitly hedge GAAP income volatility, the FIA/ IUL hedging program tends to mitigate a significant portion of the GAAP reserve changes associated with movements in the equity market.
+Added: To economically hedge the equity returns on these products, we purchase derivatives to hedge the indexed annuities and IUL equity exposures.
+Added: The primary way we hedge indexed annuities and IUL equity exposure is to purchase over the counter equity index equity options from broker-dealer derivative counterparties approved by F&G.
+Added: The second way to hedge indexed annuities and IUL equity exposure is by purchasing exchange traded equity index futures contracts.
+Added: This hedging strategy enables us to reduce the overall hedging costs and achieve a high correlation of returns on the equity options purchased relative to the index credits earned by the indexed annuity/IUL contractholders.
+Added: The majority of the equity options are one-year options purchased to match the funding requirements underlying the indexed annuity/IUL contracts.
+Added: These hedge programs are limited to the current policy term of the indexed annuity/IUL contracts.
+Added: Future returns, which may be reflected in indexed annuity/IUL contracts’ credited rates beyond the current policy term, are not hedged.
+Added: We attempt to manage the costs of these purchases through the terms of the indexed annuity/IUL contracts, which permit us to change cap, spread or participation rates, subject to certain guaranteed minimums that must be maintained.
+Added: The derivatives are used to fund the indexed annuities and IUL contract index credits and the cost of the equity options purchased is treated as a component of spread earnings.
+Added: While the indexed annuity/IUL hedging program does not explicitly hedge GAAP income volatility, the indexed annuities/ IUL hedging program tends to mitigate a significant portion of the GAAP reserve changes associated with movements in the equity market.
This is due to the fact that a key component in the calculation of GAAP reserves is the market valuation of the current term embedded derivative.
8 unchanged sentences
Other market exposures are hedged periodically depending on market conditions and our risk tolerance.
−Removed: The FIA/ IUL hedging strategy economically hedges the equity returns and exposes us to the risk that unhedged market exposures result in divergence between changes in the fair value of the liabilities and the hedging assets.
+Added: The indexed annuity/ IUL hedging strategy economically hedges the equity returns and exposes us to the risk that unhedged market exposures result in divergence between changes in the fair value of the liabilities and the hedging assets.
We use a variety of techniques, including direct estimation of market sensitivities, to monitor this risk daily.
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An increase in the levels of interest rates of 100 basis points, with all other variables held constant, would result in a decrease in the fair value of our fixed maturity securities and certain investments in preferred securities of approximately $2.6 billion, a net decrease in the fair value of interest rate swaps of approximately $0.1 billion and a net decrease in the combined fair value of embedded derivatives and MRBs of approximately $0.6 bil lion at December 31, 2024 .
−Removed: For comparison, a similar increase in the levels of interest rates of 100 basis points, with all other variables held constant, would have resulted in a decrease in the fair value of our fixed maturity securities and certain investments in preferred securities of approximately $1.9 billion and a net decrease in the combined fair value of embedded derivatives and MRBs of approximately $0.4 billion at December 31, 2022.
+Added: For comparison, a similar increase in the levels of interest rates of 100 basis points, with all other variables held constant, would have resulted in a decrease in the fair value of our fixed maturity securities and certain investments in preferred securities of approximately $2.4 billion, a net decrease in the fair value of interest rate swaps of approximately $0.1 billion and a net decrease in the combined fair value of embedded derivatives and MRBs of approximately $0.5 billion at December 31, 2023.
A 100 basis point shift in interest rates for our floating rate debt and funding agreements will increase or decrease floating expense by approximatel y $17 million and $14 million per year as of December 31, 2024 and December 31, 2023, respectively .
47 unchanged sentences
We attempt to mitigate the risk, including changes in interest rates by investing in less rate-sensitive investments, including senior tranches of collateralized loan obligations, non-agency residential mortgage-backed securities, and various types of asset-backed securities.
−Removed: Management believes this risk is also mitigated to some extent by surrender charge protection provided by our products.
+Added: Management believes this risk is also mitigated to some extent by surrender charge and MVA protection provided by our products.
We expect to continue to face these challenges and uncertainties that could adversely affect our results of operations and financial condition.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.