# Fidelity National Financial, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Fidelity National Financial, Inc.](/companies/fnf.md) (CIK 1331875)
- Form: 10-Q
- Filed: 2023-08-09
- Accepted by EDGAR: Aug 9, 2023, 16:12 ET
- Period: 2023-06-30
- Accession: 0001331875-23-000046
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1331875/000133187523000046/fnf-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1331875/000133187523000046/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $514.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $932.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $43.0m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $85.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $90.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $104.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $219.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $160.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.81 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.59 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.81 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.59 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 271,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 271,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $3.14bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $243.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $6.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-06-30 | $3.14bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-06-30 | $73.02bn | us-gaap:Assets |
| Total liabilities | at 2023-06-30 | $66.34bn | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $3.70bn | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-06-30 | $6.23bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 105,088 characters.

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, hopes, intentions or strategies regarding the future. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results could vary materially from those forward-looking statements contained herein due to many factors, including, but not limited to: the potential impact of the F&G Distribution on relationships, including employees, suppliers, customers and competitors; changes in general economic, business and political conditions, including changes in the financial markets; weakness or adverse changes in the level of real estate activity, which may be caused by, among other things, high or increasing interest rates, a limited supply of mortgage funding, or a weak U.S. economy; our potential inability to find suitable acquisition candidates, acquisitions in lines of business that will not necessarily be limited to our traditional areas of focus, or difficulties in consummating and integrating acquisitions; our dependence on distributions from our title insurance underwriters as our main source of cash flow; significant competition that our operating subsidiaries face; compliance with extensive government regulation of our operating subsidiaries; and other risks detailed in the “Statement Regarding Forward-Looking Information,” “Risk Factors” and other sections of our Annual Report on Form 10-K (our "Annual Report") for the year ended December 31, 2022 and other filings with the SEC.

The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022.

### Overview

For a description of our business, including descriptions of segments and recent business developments, see the discussion in Note A *Basis of Financial Statements* in the accompanying unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I of this Report, which is incorporated by reference into this Part I, Item 2.

### Business Trends and Conditions

#### Title

Our Title segment revenue is closely related to the level of real estate activity that includes sales, mortgage financing and mortgage refinancing. Declines in the level of real estate activity or the average price of real estate sales will adversely affect our title insurance revenues.

We have found that residential real estate activity is generally dependent on the following factors:

- mortgage interest rates;
- mortgage funding supply;
- housing inventory and home prices;
- supply and demand for commercial real estate; and
- the strength of the United States economy, including employment levels.

The most recent forecast of the Mortgage Bankers Association ("MBA"), as of July 20, 2023, estimates (actual for fiscal year 2022) the size of the U.S. residential mortgage originations market as shown in the following table for 2022 - 2025 in its "Mortgage Finance Forecast" (in trillions):

|  | 2025 | 2024 | 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Purchase transactions | $1.8 | $1.6 | $1.4 | $1.6 |
| Refinance transactions | $0.7 | $0.6 | $0.4 | $0.6 |
| Total U.S. mortgage originations forecast | $2.5 | $2.2 | $1.8 | $2.2 |

As of July 20, 2023, the MBA expects residential purchase transactions to decrease in 2023 before increasing in 2024 and 2025. Additionally, the MBA expects residential refinance transactions and overall mortgage originations to decrease in 2023 before increasing in 2024 and 2025.

The Federal Reserve raised the benchmark interest rate from near zero as of March 2022 to a range between 5.0% and 5.25% as of June 2023. Average interest rates for a 30-year fixed rate mortgage increased to 6.5% for the three and six months ended June 30, 2023, as compared to 5.3% and 4.6% for the corresponding periods of 2022. On July 26, 2023, the Federal Reserve raised the benchmark interest rate by an additional 25 basis points.

A shortage in the supply of homes for sale, increasing home prices, rising mortgage interest rates, disrupted labor markets and geopolitical uncertainties associated with the war in Ukraine created some volatility in the residential real estate market in

2022, which has continued into 2023. Existing-home sales decreased 19% in June 2023 as compared to the corresponding period in 2022 while median existing-home sales prices decreased from a record-high of $413,800 in June 2022 to $410,200 in March 2023, a 1% decrease compared with the corresponding period in 2022.

Other economic indicators used to measure the health of the U.S. economy, including the unemployment rate, have remained strong. The unemployment rate was 3.6% in June 2023 and 2022, which was near the record-low of 3.5% set in February 2020.

Because commercial real estate transactions tend to be generally driven by supply and demand for commercial space and occupancy rates in a particular area rather than by interest rate fluctuations, we believe that our commercial real estate title insurance business is less dependent on the industry cycles discussed above than our residential real estate title business. Commercial real estate transaction volume is also often linked to the availability of financing. Factors including U.S. tax reform and a shift in U.S. monetary policy have had, or are expected to have, varying effects on availability of financing in the U.S. Lower corporate and individual tax rates and corporate tax-deductibility of capital expenditures have provided increased capacity and incentive for investments in commercial real estate. In the first half of 2022, we experienced strong demand in commercial real estate markets and, therefore, experienced relatively high volumes and fee-per-file in our commercial business when compared to historical results. In the three and six months ended June 30, 2023, order volumes and fee per file decreased when compared with the prior year period.

We continually monitor mortgage origination trends and believe that, based on our ability to produce industry leading operating margins through all economic cycles, we are well positioned to adjust our operations for adverse changes in real estate activity and to take advantage of increased volume when demand increases.

*Seasonality.* Historically, real estate transactions have produced seasonal revenue fluctuations in the real estate industry. The first calendar quarter is typically the weakest quarter in terms of revenue due to the generally low volume of home sales during January and February. The second and third calendar quarters are typically the strongest quarters in terms of revenue, primarily due to a higher volume of residential transactions in the spring and summer months. The fourth quarter is typically strong due to the desire of commercial entities to complete transactions by year-end. We have noted short-term fluctuations through recent years in resale and refinance transactions as a result of changes in interest rates. The rapid rise in mortgage rates and resulting decline in housing affordability has resulted in deviations in seasonality from historical patterns in 2022, which has continued into 2023.

#### F&G

The following factors represent some of the key trends and uncertainties that have influenced the development of our F&G segment and its historical financial performance, and we believe these key trends and uncertainties will continue to influence the business and financial performance of our F&G segment 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 in our F&G segment, which vary in response to changes in market conditions. See Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2022 for further discussion of risk factors that could affect market conditions.

### Interest Rate Environment

Some of our F&G products include guaranteed minimum crediting rates, most notably our fixed rate annuities. As of June 30, 2023, our reserves, net of reinsurance, and average crediting rate on our fixed rate annuities were $6.0 billion and 3%, respectively. We are required to pay the 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 Item 7A of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022 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.

See Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022 for a more detailed discussion of industry factors and trends affecting our Results of Operations.

### Critical Accounting Policies and Estimates

As a result of the adoption of ASU 2018-12, we have applied the following additional critical accounting policies and estimates in preparing our Condensed Consolidated Financial Statements included in Item 1 of Part I of this Report. Other than the following additional critical accounting policies and estimates, which are further described in the Notes to our unaudited Condensed Consolidated Financial Statements included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Item 2 of Part I, there have been no material changes to our critical accounting policies described in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022. See Note A *Basis of Financial Statements* included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional description of certain significant accounting policies that have been followed in preparing our unaudited Condensed Consolidated Financial Statements.

### Reserves for Future Policy Benefits and Certain Information on Contractholder Funds

The determination of future policy benefit ("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, the death of a named annuitant or pension risk transfer (“PRT”) certificate holder 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 refers 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 market risk benefits ("MRBs") on a direct and net basis as of June 30, 2023 and December 31, 2022 are summarized as follows:

*(In millions)*

|  | As of June 30, 2023 Direct | Deposit Asset/ Reinsurance Recoverable | Net |
| --- | ---: | ---: | ---: |
| Fixed indexed annuities (“FIA”) | $26,518 | $(17) | $26,501 |
| Fixed rate annuities | 11,484 | (5,431) | 6,053 |
| Single premium immediate annuities (“SPIA”) and other | 1,810 | (116) | 1,694 |
| IUL and other life | 3,651 | (1,512) | 2,139 |
| Funding agreement backed notes ("FABN") | 4,756 | — | 4,756 |
| PRT | 2,879 | — | 2,879 |
| **Total** | $51,098 | $(7,076) | $44,022 |

*(In millions)*

|  | 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 |
| FABN | 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 accompanying unaudited Condensed Consolidated Balance Sheets with changes in fair value included as a component of Benefits and other changes in policy reserves in our accompanying unaudited Condensed Consolidated Statements of Earnings.

For life-contingent immediate annuity policies (which includes life-contingent PRT annuities), 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 future policy benefits.

### Valuation of Fixed Maturity, Preferred and Equity Securities, and Derivatives and Reinsurance Recoverable

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 income (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 the cost of the specific investments sold 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 C *Fair*

*Value of Financial Instruments* and Note D *Investments* to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

The fair value of derivative assets and liabilities is based upon valuation pricing models and represents what we would expect to receive or pay at the balance sheet date if we canceled the options, entered into offsetting positions, or exercised the options. Fair values for these instruments 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 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 and are classified as Level 3. 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 six months ended June 30, 2023 and the year ended 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 C *Fair Value of Financial Instruments* and Note E *Derivative Financial Instruments* to our unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

As discussed in Note L *Reinsurance* of our unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, FGL Insurance entered into a reinsurance agreement with Kubera effective December 31, 2018, to cede certain MYGAs and other fixed rate annuity GAAP and statutory reserves on a coinsurance funds withheld basis, net of applicable existing reinsurance. Effective October 31, 2021, this agreement was novated from Kubera to Somerset. Additionally, FGL Insurance entered into a reinsurance agreement with Aspida Re effective January 1, 2021, and amended in August 2021 and September 2022, to cede a quota share of MYGA business on a funds withheld basis. Fair value movements in the funds withheld balances associated with these arrangements create an obligation for FGL Insurance to pay Somerset and Aspida Re at a later date, which results in embedded derivatives. These embedded derivatives are considered total return swaps with contractual returns that are attributable to the assets and liabilities associated with the reinsurance arrangements. The fair value of the total return swaps are based on the change in fair value of the underlying assets held in the funds withheld portfolio. Investment results for the assets that support the coinsurance with funds withheld reinsurance arrangement, including gains and losses from sales, are passed directly to the reinsurer pursuant to contractual terms of the reinsurance arrangement. The reinsurance related 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 accompanying unaudited Condensed Consolidated Balance Sheets. The related gains or losses are reported in Recognized gains and losses, net on the accompanying unaudited Condensed Consolidated Statements of Earnings.

### 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”) 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.

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.

### Results of Operations

### Consolidated Results of Operations

*Net Earnings.* The following table presents certain financial data for the periods indicated:

*(In millions)*

| Revenues: | Three months ended June 30, 2023 | 2022 | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Direct title insurance premiums | $541 | $859 | $969 | $1,626 |
| Agency title insurance premiums | 713 | 1,203 | 1,263 | 2,302 |
| Escrow, title-related and other fees | 1,212 | 786 | 2,092 | 2,078 |
| Interest and investment income | 618 | 463 | 1,229 | 941 |
| Recognized gains and losses, net | (16) | (676) | (11) | (1,145) |
| Total revenues | 3,068 | 2,635 | 5,542 | 5,802 |
| Expenses: |  |  |  |  |
| Benefits and other changes in policy reserves | 817 | (377) | 1,629 | (174) |
| Personnel costs | 755 | 839 | 1,432 | 1,662 |
| Agent commissions | 550 | 930 | 970 | 1,774 |
| Other operating expenses | 394 | 457 | 754 | 899 |
| Market risk benefit (gains) losses | (30) | (189) | 29 | (119) |
| Depreciation and amortization | 151 | 120 | 285 | 235 |
| Provision for title claim losses | 56 | 93 | 100 | 177 |
| Interest expense | 43 | 31 | 85 | 61 |
| Total expenses | 2,736 | 1,904 | 5,284 | 4,515 |
| Earnings before income taxes and equity in earnings of unconsolidated affiliates | 332 | 731 | 258 | 1,287 |
| Income tax expense | 90 | 202 | 104 | 358 |
| Equity in earnings of unconsolidated affiliates | 1 | 14 | 1 | 16 |
| Net earnings | $243 | $543 | $155 | $945 |

#### Revenues.

Total revenues increased by $433 million in the three months ended June 30, 2023 and decreased by $260 million in the six months ended June 30, 2023 compared to the corresponding periods in 2022.

Net earnings decreased by $300 million in the three months ended June 30, 2023 and decreased by $790 million in the six months ended June 30, 2023 compared to the corresponding periods in 2022.

The change in revenue and net earnings from our reportable segments is discussed in further detail at the segment level below.

#### Expenses.

Our operating expenses consist primarily of Personnel costs; Other operating expenses, which in our title business are incurred as orders are received and processed; Agent commissions, which are incurred as title agency revenue is recognized; and Benefits and other changes in policy reserves, which in our F&G segment are charged to earnings in the period they are earned by the policyholder based on their selected strategy. For traditional life and immediate annuities, policy benefit claims are charged to expense in the period that the claims are incurred, net of reinsurance recoveries. Title insurance premiums, escrow and title-related fees are generally recognized as income at the time the underlying transaction closes or other service is provided. Direct title operations revenue often lags approximately 45-60 days behind expenses and therefore gross margins may fluctuate. The changes in the market environment, mix of business between direct and agency operations and the contributions from our various business units have historically impacted margins and net earnings. We have implemented programs and have taken necessary actions to maintain expense levels consistent with revenue streams. However, a short-term lag exists in reducing controllable fixed costs and certain fixed costs are incurred regardless of revenue levels.

Personnel costs include base salaries, commissions, benefits, stock-based compensation and bonuses paid to employees, and are one of our most significant operating expenses.

Agent commissions represent the portion of premiums retained by our third-party agents pursuant to the terms of their respective agency contracts.

Benefit expenses for deferred annuity, FIA and IUL policies include index credits and interest credited to contractholder account balances and benefit claims in excess of contract account balances, net of reinsurance recoveries. Other changes in policy reserves include the change in the fair value of the FIA embedded derivative and the change in the reserve for secondary guarantee benefit payments. Other changes in policy reserves also include the change in reserves for life insurance products.

Other operating expenses consist primarily of facilities expenses, title plant maintenance, premium taxes (which insurance underwriters are required to pay on title premiums in lieu of franchise and other state taxes), appraisal fees and other cost of sales on ServiceLink product offerings and other title-related products, postage and courier services, computer services, professional services, travel expenses, general insurance and bad debt expense on our trade and notes receivable.

The provision for title claim losses includes an estimate of anticipated title and title-related claims, and escrow losses.

The change in expenses attributable to our reportable segments is discussed in further detail at the segment level below.

Income tax expense was $90 million and $202 million in the three months ended June 30, 2023 and 2022, respectively, and $104 million and $358 million in the six months ended June 30, 2023 and 2022, respectively. Income tax expense as a percentage of earnings before income taxes was 27% and 28% in the three months ended June 30, 2023 and 2022, respectively and 40% and 28% in the six months ended June 30, 2023 and 2022, respectively. The decrease in income tax expense as a percentage of earnings before taxes in the three months ended June 30, 2023 as compared to the corresponding period in 2022 is primarily attributable to the recording of valuation allowances in 2022, partially offset by the recording of valuation allowances in 2023. The increase in income tax expense as a percentage of earnings before taxes in the six months ended June 30, 2023 as compared to the corresponding period in 2022 is primarily attributable to recording of valuation allowances in 2023. The valuation allowance is associated with tax benefits from deferred tax assets related to recognized valuation losses on equity securities that we will more likely than not be able to realize for tax purposes. Additionally, the tax benefit associated with the valuation losses on equity securities in the three and six months ended June 30, 2023 was further reduced by an increase in the valuation allowance in 2023.

The Inflation Reduction Act of 2022 (the "IRA") was signed into law on August 16, 2022. Among other changes, the IRA introduced a 15% corporate alternative minimum tax on adjusted financial statement income and a 1% excise tax on treasury stock repurchases. The effective date of these provisions was January 1, 2023. We do not anticipate that the IRA will have a material effect on our current or future financial condition or results from operations.

### Title

The following table presents the results from operations of our Title segment:

*(In millions)*

| Revenues: | Three months ended June 30, 2023 | 2022 | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Direct title insurance premiums | $541 | $859 | $969 | $1,626 |
| Agency title insurance premiums | 713 | 1,203 | 1,263 | 2,302 |
| Escrow, title-related and other fees | 581 | 706 | 1,052 | 1,371 |
| Interest and investment income | 79 | 35 | 160 | 62 |
| Recognized gains and losses, net | (50) | (249) | (28) | (424) |
| Total revenues | 1,864 | 2,554 | 3,416 | 4,937 |
| Expenses: |  |  |  |  |
| Personnel costs | 656 | 821 | 1,254 | 1,597 |
| Agent commissions | 550 | 930 | 970 | 1,774 |
| Other operating expenses | 330 | 409 | 626 | 806 |
| Depreciation and amortization | 39 | 34 | 76 | 67 |
| Provision for title claim losses | 56 | 93 | 100 | 177 |
| Total expenses | 1,631 | 2,287 | 3,026 | 4,421 |
| Earnings before income taxes and equity in earnings of unconsolidated affiliates | $233 | $267 | $390 | $516 |
| Orders opened by direct title operations (in thousands) | 347 | 443 | 655 | 965 |
| Orders closed by direct title operations (in thousands) | 233 | 348 | 421 | 728 |
| Fee per file (in dollars) | $3,598 | $3,557 | $3,530 | $3,210 |

Total revenues for the Title segment decreased by $690 million, or 27%, in the three months ended June 30, 2023 and decreased by $1,521 million, or 31% in the six months ended June 30, 2023 from the corresponding periods in 2022.

The following table presents the percentages of title insurance premiums generated by our direct and agency operations:

*(Dollars in millions)*

|  | Three months ended June 30, 2023 | % of Total | 2022 | % of Total | Six months ended June 30, 2023 | % of Total | 2022 | % of Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Title premiums from direct operations | $541 | 43% | $859 | 42% | $969 | 43% | $1,626 | 41% |
| Title premiums from agency operations | 713 | 57 | 1,203 | 58 | 1,263 | 57 | 2,302 | 59 |
| Total title premiums | $1,254 | 100% | $2,062 | 100% | $2,232 | 100% | $3,928 | 100% |

Title premiums decreased by $808 million, or 39% in the three months ended June 30, 2023 from the corresponding period in 2022. The decrease was comprised of a decrease in Title premiums from direct operations of $318 million, or 37%, and a decrease in Title premiums from agency operations of $490 million, or 41%.

Title premiums decreased by $1,696 million, or 43%, in the six months ended June 30, 2023 as compared to the corresponding period in 2022. The decrease was comprised of a decrease in Title premiums from direct operations of $657 million, or 40%, and a decrease in Title premiums from agency operations of $1,039 million or 45%.

The following table presents the percentages of opened and closed title insurance orders generated by purchase and refinance transactions by our direct operations:

|  | Three months ended June 30, 2023 | 2022 | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Opened title insurance orders from purchase transactions (1) | 79% | 75% | 79% | 68% |
| Opened title insurance orders from refinance transactions (1) | 21 | 25 | 21 | 32 |
|  | 100% | 100% | 100% | 100% |
| Closed title insurance orders from purchase transactions (1) | 81% | 71% | 80% | 62% |
| Closed title insurance orders from refinance transactions (1) | 19 | 29 | 20 | 38 |
|  | 100% | 100% | 100% | 100% |

81

(1) Percentages exclude consideration of an immaterial number of non-purchase and non-refinance orders.

Title premiums from direct operations decreased in the three and six months ended June 30, 2023 from the corresponding period in 2022. The decreases were primarily attributable to decreased closed order volume, partially offset by increases in the average fee per file, which were driven by increases in the proportion of purchase transactions versus refinance transactions.

We experienced a significant decrease in closed title insurance order volume from both purchase and refinance transactions in the three and six months ended June 30, 2023 from the corresponding periods in 2022. Total closed order volume was 233,000 in the three months ended June 30, 2023 compared to 348,000 in the three months ended June 30, 2022 and 421,000 in the six months ended June 30, 2023 compared to 728,000 in the six months ended June 30, 2022. This represented an overall decrease of 33% and 42% in the three and six months ended June 30, 2023, respectively, from the corresponding periods in 2022. The decreases were primarily attributable to higher average mortgage interest rates in the three and six months ended June 30, 2023 when compared to the corresponding periods in 2022.

Total opened title insurance order volume decreased in the three and six months ended June 30, 2023 from the corresponding periods in 2022. The decreases were attributable to decreased opened title orders from both purchase and refinance transactions.

The average fee per file in our direct operations was $3,598 and $3,530 in the three and six months ended June 30, 2023, respectively, compared to $3,557 and $3,210 in the three and six months ended June 30, 2022. The increase in average fee per file in the three and six months ended June 30, 2023 reflects an increased proportion of purchase transactions relative to total closed orders compared to the corresponding periods in 2022. The fee per file tends to change as the mix of refinance and purchase transactions changes, because purchase transactions involve the issuance of both a lender’s policy and an owner’s policy, resulting in higher fees, whereas refinance transactions only require a lender’s policy, resulting in lower fees.

Title premiums from agency operations decreased $490 million, or 41%, in the three months ended June 30, 2023 and decreased $1,039 million, or 45% in the six months ended June 30, 2023 from the corresponding period in 2022. The current trends in the agency business reflect a softening residential purchase environment in many markets throughout the country and a dramatic decline in residential refinance transactions, consistent with recent trends in our direct business.

Escrow, title-related and other fees decreased by $125 million, or 18%, in the three months ended June 30, 2023 and decreased $319 million or 23% in the six months ended June 30, 2023 from the corresponding periods in 2022. Escrow fees decreased by $76 million, or 26%, in the three months ended June 30, 2023 and $181 million, or 32% in the six months ended June 30, 2023 from the corresponding periods in 2022. The decreases in the three and six month periods were primarily attributable to the decrease in residential refinance transactions, which have relatively higher escrow fees per transaction than residential purchase and commercial transactions. Other fees, excluding escrow fees, decreased by $49 million, or 12%, in the three months ended June 30, 2023 and decreased by $138 million, or 17% in the six months ended June 30, 2023 from the corresponding periods in 2022. The decreases in Other fees were attributable to various immaterial items.

Interest and investment income levels are primarily a function of securities markets, interest rates and the amount of cash available for investment. Interest and investment income increased $44 million, or 126%, in the three months ended June 30, 2023 and increased $98 million, or 158% in the six months ended June 30, 2023 from the corresponding periods in 2022. The increases were primarily attributable to increased income from our tax-deferred property exchange business and higher yields on our short-term investments when compared to the corresponding period in 2022.

Net recognized losses were $50 million and $249 million in the three months ended June 30, 2023 and 2022, respectively. Net recognized losses were $28 million and $424 million in the six months ended June 30, 2023 and 2022, respectively. The variations in recognized gains and losses, net in the three and six months ended June 30, 2023 compared to the corresponding periods in 2022 are primarily attributable to fluctuations in non-cash valuation changes on our equity and preferred security holdings in addition to various other immaterial items.

Personnel costs include base salaries, commissions, benefits, stock-based compensation and bonuses paid to employees, and are one of our most significant operating expenses. Personnel costs decreased $165 million, or 20%, in the three months ended June 30, 2023 and decreased $343 million, or 21% in the six months ended June 30, 2023 compared to the corresponding periods in 2022. The decreases are due to lower average head count in the 2023 periods in response to the decline in title orders. Personnel costs as a percentage of total revenues from direct title premiums and escrow, title-related and other fees were 58% and 52% for the three months ended June 30, 2023 and 2022, respectively, and 62% and 53% for the six months ended June 30, 2023 and 2022, respectively. Average employee count in the Title segment was 21,527 and 26,283 in the three months ended June 30, 2023 and 2022, respectively, and 21,521 and 26,628 in the six months ended June 30, 2023 and 2022, respectively.

Other operating expenses decreased by $79 million, or 19%, in the three months ended June 30, 2023, and decreased by $180 million, or 22% in the six months ended June 30, 2023 from the corresponding periods in 2022. Other operating expenses as a percentage of total revenue excluding agency premiums, interest and investment income, and recognized gains and losses were 29% and 26% in the three months ended June 30, 2023 and 2022, respectively, and 31% and 27% in the six months ended June 30, 2023 and 2022, respectively.

Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. Agent commissions and the resulting percentage of agent premiums that we retain vary according to regional differences in real estate closing practices and state regulations.

The following table illustrates the relationship of agent premiums and agent commissions, which has remained relatively consistent since 2022:

|  | Three months ended June 30, |  | Six months ended June 30, |  |
| --- | ---: | ---: | ---: | ---: |
|  | **2023%** | **2022%** | **2023%** | **2022%** |
|  | **(Dollars in millions)** |  |  |  |
| Agent premiums | $713 100% | $1,203 100% | $1,263 100% | $2,302 100% |
| Agent commissions | 550 77% | 930 77% | 970 77% | 1,774 77% |
| Net retained agent premiums | $163 23% | $273 23% | $293 23% | $528 23% |

The claim loss provision for title insurance was $56 million and $93 million for the three months ended June 30, 2023 and 2022, respectively, and $100 million and $177 million for the six months ended June 30, 2023, and 2022, respectively. The provision reflects an average provision rate of 4.5% of title premiums in all periods. We continually monitor and evaluate our loss provision level, actual claims paid, and the loss reserve position each quarter. This loss provision rate is set to provide for losses on current year policies, but due to development of prior years and our long claim duration, it periodically includes amounts of estimated adverse or positive development on prior years' policies.

### F&G

### Segment Overview

Through our majority-owned F&G subsidiary, we have five distribution channels across retail and 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 ownership and F&G’s subsequent rating upgrades in mid-2020, we launched into banks and broker dealers. Further, in 2021, we launched two institutional channels to originate Funding Agreement Backed Note ("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.

### 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, 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 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.

Under U.S. GAAP, premium collections for deferred annuities, FIAs, 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, cost of insurance and other charges deducted from contractholder funds, 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 value of insurance and reinsurance contracts acquired ("VOBA"), deferred acquisition costs ("DAC"), deferred sales inducements ("DSI") and unearned revenue liability ("URL"), other operating costs and expenses, and income taxes.

We hedge certain portions of our 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.

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, the cost of hedging our risk 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.

### F&G Results of Operations

The results of operations of our F&G segment for the three and six months ended June 30, 2023 and 2022 were as follows:

*(In millions)*

| Revenues: | Three months ended June 30, 2023 | June 30, 2022 | Six months ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Life insurance premiums and other fees | $576 | $71 | $941 | $667 |
| Interest and investment income | 525 | 425 | 1,044 | 876 |
| Recognized gains and (losses), net | 67 | (426) | 52 | (723) |
| **Total revenues** | 1,168 | 70 | 2,037 | 820 |
| **Benefits and expenses:** |  |  |  |  |
| Benefits and other changes in policy reserves | 817 | (377) | 1,629 | (174) |
| Market risk benefit (gains) losses | (30) | (189) | 29 | (119) |
| Depreciation and amortization | 104 | 80 | 109 | 64 |
| Personnel costs | 56 | 34 | 69 | 49 |
| Other operating expenses | 33 | 31 | 194 | 156 |
| Interest expense | 25 | 9 | 47 | 17 |
| **Total benefits and expenses** | 1,005 | (412) | 2,077 | (7) |
| Earnings (loss) before income taxes | 163 | 482 | (40) | 827 |
| **Income tax expense (benefit)** | 33 | 97 | 25 | 203 |
| **Net earnings (loss)** | $130 | $385 | $(65) | $624 |

### 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, included within Escrow, title-related and other fees on the accompanying unaudited Condensed Consolidated Statements of Earnings, for the three and six months ended June 30, 2023 and 2022:

*(In millions)*

|  | Three months ended June 30, 2023 | June 30, 2022 | Six months ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Life-contingent pension risk transfer premiums | $474 | $(5) | $737 | $520 |
| Traditional life insurance premiums | 5 | 2 | 11 | 7 |
| Life-contingent immediate annuity premiums | 5 | 7 | 11 | 12 |
| Surrender charges | 16 | 13 | 39 | 23 |
| Policyholder fees and other income | 76 | 54 | 143 | 105 |
| **Life insurance premiums and other fees** | $576 | $71 | $941 | $667 |

- Life insurance premiums and other fees for the three and six months ended June 30, 2023 increased compared to the three and six months ended June 30, 2022 reflecting higher PRT premiums.
- Surrender charges increased for the three months and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022, primarily reflecting amounts assessed against policy withdrawals in excess of the policyholder's allowable penalty-free amounts primarily on our FIA policies.
- Policyholder fees and other income increased for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022, primarily due to increased GMWB rider fees, cost of insurance charges on IUL

policies and IUL premium loads. 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 for the three and six months ended June 30, 2023 and June 30, 2022:

*(In millions)*

|  | Three months ended June 30, 2023 | June 30, 2022 | Six months ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Fixed maturity securities, available-for-sale | $448 | $336 | $880 | $655 |
| Equity securities | 4 | 4 | 9 | 8 |
| Preferred securities | 12 | 15 | 22 | 26 |
| Mortgage loans | 57 | 49 | 108 | 88 |
| Invested cash and short-term investments | 17 | 9 | 33 | 13 |
| Limited partnerships | 44 | 58 | 101 | 171 |
| Other investments | 5 | 1 | 14 | 7 |
| Gross investment income | 587 | 472 | $1,167 | $968 |
| Investment expense | (62) | (47) | (123) | (92) |
| **Interest and investment income** | $525 | $425 | $1,044 | $876 |

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 $76 million and $134 million for the three and six months ended June 30, 2023, respectively, and $20 million and $38 million for the three and six months ended June 30, 2022, respectively.

### Recognized gains and (losses), net

Below is a summary of the major components included in recognized gains and losses, net for the three and six months ended June 30, 2023 and June 30, 2022:

*(In millions)*

|  | Three months ended June 30, 2023 | June 30, 2022 | Six months ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net realized and unrealized (losses) gains on fixed maturity available-for-sale securities, equity securities and other invested assets | $(29) | $(162) | $(77) | $(269) |
| Change in allowance for expected credit losses | (21) | (6) | (29) | (7) |
| Net realized and unrealized (losses) gains on certain derivatives instruments | 99 | (394) | 157 | (702) |
| Change in fair value of reinsurance related embedded derivatives | 17 | 141 | (2) | 263 |
| Change in fair value of other derivatives and embedded derivatives | 1 | (5) | 3 | (8) |
| **Recognized gains and (losses), net** | $67 | $(426) | $52 | $(723) |

Recognized gains and losses, net 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. Recognized gains (losses) attributable to these agreements, and thus excluded from the totals in the table above, was $21 million and $(1) million for the three and six months ended June 30, 2023, respectively, and $151 million and $279 million for the three and six month periods ended June 30, 2022, respectively.

- For the three and six months ended June 30, 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 and mark-to-market gains on our equity securities and realized gains on other invested assets.
- For the three and six months ended June 30, 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 mark-to-market losses on our equity securities and realized losses on fixed maturity available-for-sale 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. 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 (“FWH”) portfolio.

We utilize a combination of static (call options) and dynamic (long futures contracts) instruments in our 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.

The components of the realized and unrealized gains (losses) on certain derivative instruments hedging our indexed annuity and universal life products are summarized in the table below for the three and six months ended June 30, 2023 and June 30, 2022:

*(In millions)*

| Call options: | Three months ended June 30, 2023 | June 30, 2022 | Six months ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Realized (losses) gains | $(68) | $(41) | $(159) | $4 |
| Change in unrealized (losses) gains | 166 | (354) | 312 | (713) |
| Futures contracts: |  |  |  |  |
| (Losses) gains on futures contracts expiration | 3 | (4) | 6 | (2) |
| Change in unrealized gains (losses) | (2) | (4) | (1) | (3) |
| Foreign currency forward: |  |  |  |  |
| (Losses) gains on foreign currency forward | — | 9 | (1) | 12 |
| **Total net change in fair value** | $99 | $(394) | $157 | $(702) |
| Annual Point-to-Point Change in S&P 500 Index during the periods | 8% | (16)% | 16% | (21)% |

- 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 average index credits to policyholders are as follows:

|  | Three months ended June 30, 2023 | June 30, 2022 | Six months ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Average Crediting Rate | 1% | 1% | 1% | 2% |
| S&P 500 Index: |  |  |  |  |
| Point-to-point strategy | 1% | 1% | 1% | 2% |
| Monthly average strategy | 1% | 3% | —% | 3% |
| Monthly point-to-point strategy | —% | —% | —% | 1% |
| 3 year high water mark | 7% | 9% | 10% | 12% |

- 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 F&G 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)*

|  | Three months ended June 30, 2023 | June 30, 2022 | Six months ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| PRT agreements | $488 | $— | $754 | $532 |
| FIA/IUL market related liability movements | 119 | (555) | 488 | (1,114) |
| Index credits, interest credited & bonuses | 170 | 148 | 304 | 354 |
| Other changes in policy reserves | 40 | 30 | 83 | 54 |
| **Total benefits and other changes in policy reserves** | $817 | $(377) | $1,629 | $(174) |

- PRT agreements increased for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022, reflecting higher PRT transactions during the periods and are subject to fluctuation period to period.
- The FIA/IUL market related liability movements during the three and six months ended June 30, 2023 and 2022, respectively, are mainly driven by changes in the equity markets, non-performance spreads, and risk free rates during the periods. The change in risk free rates and non-performance spreads (decreased) increased the FIA market related liability by $(59) million and $(253) million during the three months ended June 30, 2023 and 2022, respectively. The change in risk free rates and non-performance spreads (decreased) increased the FIA market related liability by $6 million and $(559) million during the six months ended June 30, 2023 and 2022, respectively. The remaining changes in market value of the market related liability movements for all periods 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 first quarter of 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. These changes resulted in an increase in contractholder funds of $102 million.
- Index credits, interest credited & bonuses for the three months ended June 30, 2023, were higher compared to the three months ended June 30, 2022, and primarily reflected higher amounts for PRT, based the growth in the portfolio, and fixed rate annuities, partially offset by lower index credits on FIA policies as a result of market movement during the respective periods. Index credits, interest credited & bonuses for the six months ended June 30, 2023, were lower compared to the six months ended June 30, 2022, and primarily reflected lower index credits on FIA policies as a result of market movement during the respective periods partially offset by higher amounts for PRT and fixed rate annuities. Refer to average policyholder index discussion above for details on drivers.

### Market Risk Benefit Losses

Below is a summary of market risk benefit losses:

*(In millions)*

|  | Three months ended June 30, 2023 | June 30, 2022 | Six months ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Market risk benefits (gains) losses** | $(30) | $(189) | $29 | $(119) |

- 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 three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, primarily reflect a favorable GMWB utilization assumption change in 2022, less favorable market related movements and higher attributed fees. In addition, actual policyholder behavior for the three and six months ended June 30, 2023 was more in line with expected, as compared to the three and six months ended June 30, 2022, resulting in a favorable change to the market risk benefit (gains) losses.

### Depreciation and Amortization

Below is a summary of the major components included in depreciation and amortization:

*(In millions)*

|  | Three months ended June 30, 2023 | June 30, 2022 | Six months ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Amortization of VOBA, DAC and DSI | $97 | $70 | $179 | $139 |
| Amortization of other intangible assets and other depreciation | 7 | 10 | 15 | 17 |
| **Total depreciation and amortization** | $104 | $80 | $194 | $156 |

- VOBA, DAC 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 three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 and primarily reflected increased DAC and DSI associated with the growth in business.

### Personnel Costs and Other Operating Expenses

Below is a summary of personnel costs and other operating expenses:

*(In millions)*

|  | Three months ended June 30, 2023 | June 30, 2022 | Six months ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Personnel costs | 56 | 34 | $109 | $64 |
| Other operating expenses | 33 | 31 | 69 | 49 |
| **Total personnel costs and other operating costs** | $89 | $65 | $178 | $113 |

- Personnel costs and other operating expenses for the three and six months ended June 30, 2023 were higher compared to the three and six months ended June 30, 2022, and primarily reflect headcount growth to support higher volumes and strategic growth capabilities.

### Other Items Affecting Net Earnings

### Income Tax (Benefit) Expense

Below is a summary of the major components included in income tax (benefit) expense:

*(Dollars in millions)*

|  | Three months ended June 30, 2023 | June 30, 2022 | Six months ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Income (loss) before taxes | $163 | $482 | $(40) | $827 |
| Income tax expense (benefit) before valuation allowance | 31 | 97 | (14) | 165 |
| Change in valuation allowance | 2 | — | 39 | 38 |
| **Federal income tax expense** | $33 | $97 | $25 | $203 |
| Effective rate | 20% | 20% | (63)% | 25% |

- Income tax expense for the three months ended June 30, 2023 was $33 million, compared to income tax expense of $97 million for the three months ended June 30, 2022. The effective tax rate was 20% for both periods. The decrease in income tax expense quarter over quarter is primarily related to the decrease in pre-tax income.
- Income tax expense for the six months ended June 30, 2023 was $25 million, compared to income tax expense of $203 million for the six months ended June 30, 2022. The effective tax rate was (63)% and 25% for the six months ended June 30, 2023 and June 30, 2022, respectively. The decrease in income tax expense period over period is primarily related to the decrease in pre-tax income.

### 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 and balance risk across diverse asset classes and is primarily invested in high quality fixed income securities.

As of June 30, 2023 and December 31, 2022, the fair value of our investment portfolio was approximately $46 billion and $41 billion, respectively, and was divided among the following asset classes and sectors:

*(Dollars in millions)*

| Fixed maturity securities, available for sale: | June 30, 2023 Fair Value | Percent | December 31, 2022 Fair Value | Percent |
| --- | ---: | ---: | ---: | ---: |
| United States Government full faith and credit | $211 | —% | $32 | —% |
| United States Government sponsored entities | 37 | —% | 42 | —% |
| United States municipalities, states and territories | 1,558 | 3% | 1,410 | 3% |
| Foreign Governments | 170 | —% | 148 | —% |
| Corporate securities: |  |  |  |  |
| Finance, insurance and real estate | 6,222 | 14% | 5,085 | 12% |
| Manufacturing, construction and mining | 893 | 2% | 737 | 2% |
| Utilities, energy and related sectors | 2,180 | 5% | 2,275 | 6% |
| Wholesale/retail trade | 2,065 | 5% | 2,008 | 5% |
| Services, media and other | 3,406 | 7% | 2,794 | 7% |
| Hybrid securities | 677 | 1% | 705 | 2% |
| Non-agency residential mortgage-backed securities | 1,974 | 4% | 1,479 | 4% |
| Commercial mortgage-backed securities | 3,949 | 9% | 3,036 | 7% |
| Asset-backed securities | 8,057 | 18% | 7,245 | 18% |
| Collateral loan obligations ("CLO") | 4,783 | 10% | 4,222 | 10% |
| **Total fixed maturity available for sale securities** | 36,182 | 78% | 31,218 | 76% |
| Equity securities (a) | 756 | 2% | 823 | 2% |
| Limited partnerships: |  |  |  |  |
| Private equity | 1,175 | 3% | 1,129 | 3% |
| Real assets | 435 | 1% | 431 | 1% |
| Credit | 988 | 2% | 867 | 2% |
| **Limited Partnerships** | $2,598 | 6% | $2,427 | 6% |
| Commercial mortgage loans | 2,144 | 5% | 2,083 | 5% |
| Residential mortgage loans | 2,377 | 5% | 1,892 | 5% |
| Other (primarily derivatives and company owned life insurance) | 1,419 | 3% | 809 | 2% |
| Short term investments | 347 | 1% | 1,556 | 4% |
| **Total investments** | $45,823 | 100% | $40,808 | 100% |
| (a) Includes investment grade non-redeemable preferred stocks ($607 million and $672 million as of June 30, 2023 and December 31, 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 (i) corporate securities rated investment grade by established nationally recognized statistical rating organizations (each, an “NRSRO”), (ii) U.S. Government and government-sponsored agency securities, or (iii) securities of comparable investment quality, if not rated.

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 an 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 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 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 at June 30, 2023 and December 31, 2022:

*(Dollars in millions)*

| NRSRO Rating | NAIC Designation | June 30, 2023 Fair Value | Fair Value Percent | December 31, 2022 Fair Value | Fair Value Percent |
| --- | ---: | ---: | ---: | ---: | ---: |
| AAA/AA/A | 1 | $23,055 | 64% | $18,681 | 60% |
| BBB | 2 | 11,261 | 31% | 10,737 | 34% |
| BB | 3 | 1,531 | 4% | 1,425 | 5% |
| B | 4 | 187 | 1% | 236 | 1% |
| CCC | 5 | 69 | —% | 67 | —% |
| CC or lower | 6 | 79 | —% | 72 | —% |
| **Total** |  | $36,182 | 100% | $31,218 | 100% |

91

### Investment Industry Concentration

The tables below present the top ten 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 June 30, 2023 and December 31, 2022. 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 June 30, 2023 classifications:

| Top 10 Industry Concentration | June 30, 2023 Fair Value (In millions) | Percent of Total Fair Value |
| --- | ---: | ---: |
| ABS Other | $8,057 | 22% |
| CLO securities | 4,783 | 13% |
| Commercial mortgage backed securities | 3,949 | 11% |
| Diversified financial services | 2,906 | 8% |
| Banking | 2,116 | 6% |
| Whole loan collateralized mortgage obligations | 1,685 | 5% |
| Municipal | 1,558 | 4% |
| Insurance | 1,555 | 4% |
| Electric | 1,067 | 3% |
| Telecommunications | 598 | 2% |
| **Total** | $28,274 | 78% |
|  | **December 31, 2022** |  |
| **Top 10 Industry Concentration** | **Fair Value (In millions)** | **Percent of Total Fair Value** |
| ABS Other | $7,245 | 23% |
| CLO securities | 4,222 | 13% |
| Whole loan collateralized mortgage backed obligation ("CMO") | 3,655 | 12% |
| Banking | 2,855 | 9% |
| Municipal | 1,410 | 4% |
| Electric | 1,379 | 4% |
| Life Insurance | 1,376 | 4% |
| Technology | 855 | 3% |
| Healthcare | 659 | 2% |
| Commercial MBS | 571 | 2% |
| **Total** | $24,227 | 76% |

92

The amortized cost and fair value of fixed maturity AFS securities by contractual maturities as of June 30, 2023 and December 31, 2022, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

*(In millions)*

| Corporate, Non-structured Hybrids, Municipal and U.S. Government securities: | June 30, 2023 Amortized Cost | Fair Value | December 31, 2022 Amortized Cost | Fair Value |
| --- | ---: | ---: | ---: | ---: |
| Due in one year or less | $227 | $222 | $124 | $123 |
| Due after one year through five years | 3,116 | 2,968 | 2,193 | 2,059 |
| Due after five years through ten years | 2,065 | 1,862 | 1,840 | 1,633 |
| Due after ten years | 15,046 | 12,330 | 14,417 | 11,379 |
| Subtotal | $20,454 | $17,382 | $18,574 | $15,194 |
| **Other securities, which provide for periodic payments:** |  |  |  |  |
| Asset-backed securities | $13,492 | $12,840 | $12,209 | $11,467 |
| Commercial-mortgage-backed securities | 4,307 | 3,949 | 3,309 | 3,036 |
| Residential mortgage-backed securities | 2,121 | 2,011 | 1,631 | 1,521 |
| Subtotal | $19,920 | $18,800 | $17,149 | $16,024 |
| **Total fixed maturity available-for-sale securities** | $40,374 | $36,182 | $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 was $36 million and $53 million as of June 30, 2023, respectively, and $40 million and $54 million as of December 31, 2022, respectively. As of June 30, 2023 and December 31, 2022 approximately 94% 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 June 30, 2023, the CLO and ABS positions were trading at a net unrealized loss position of $130 million and $515 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.

The following table summarizes the credit quality by NRSRO rating, or NAIC designation equivalent, of our AFS ABS portfolio (dollars in millions) at June 30,2023 and December 31, 2022.

| NRSRO Rating | NAIC Designation | June 30, 2023 Fair Value | Percent | December 31, 2022 Fair Value | Percent |
| --- | ---: | ---: | ---: | ---: | ---: |
| AAA/AA/A | 1 | $6,247 | 77% | $5,570 | 77% |
| BBB | 2 | 1,365 | 17% | 1,232 | 17% |
| BB | 3 | 366 | 5% | 344 | 5% |
| B | 4 | 47 | 1% | 72 | 1% |
| CCC | 5 | 8 | —% | 9 | —% |
| CC and lower | 6 | 24 | —% | 18 | —% |
| **Total** |  | $8,057 | 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 June 30, 2023 and December 31, 2022.

| NRSRO Rating | NAIC Designation | June 30, 2023 Fair Value | Percent | December 31, 2022 Fair Value | Percent |
| --- | ---: | ---: | ---: | ---: | ---: |
| AAA/AA/A | 1 | $2,968 | 62% | $2,678 | 64% |
| BBB | 2 | 1,374 | 29% | 1,225 | 29% |
| BB | 3 | 384 | 8% | 256 | 6% |
| B | 4 | 19 | —% | 19 | —% |
| CCC | 5 | — | —% | 9 | —% |
| CC and lower | 6 | 38 | 1% | 35 | 1% |
| **Total** |  | $4,783 | 100% | $4,222 | 100% |

### Municipal Bond Exposure

Our municipal bond exposure is a combination of general obligation bonds (fair value of $232 million and $188 million and an amortized cost of $269 million and $231 million as of June 30, 2023 and December 31, 2022, respectively) and special revenue bonds (fair value of $1,324 million and $1,017 million and an amortized cost of $1,522 million and $1,248 million as of June 30, 2023 and December 31, 2022, respectively).

Across all municipal bonds, the largest issuer represented 5% and 6% of the category as of June 30, 2023 and December 31, 2022, respectively, with less than 1% of the entire portfolio rated NAIC 1. Our focus within municipal bonds is on NAIC 1 rated instruments, and 97% of our municipal bond exposure is rated NAIC 1 as of June 30, 2023.

### 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. LTV and DSC ratios are utilized to assess the risk and quality of CMLs. As of June 30, 2023 and December 31, 2022, our mortgage loans on real estate portfolio had a weighted average DSC ratio of 2.3 times and 2.4 times, respectively, and a weighted average LTV ratio of 55% and 57%, respectively. See Note D *Investments* to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information on our CMLs, including our distribution by property type, geographic region and LTV and DSC ratios.

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 June 30, 2023, we had one CML that was delinquent in principal or interest payments and none in the process of foreclosure. As of December 31, 2022, we had one CML that was delinquent in principal or interest payments or in process of foreclosure.

#### Residential Mortgage Loans

F&G's RMLs are closed end, amortizing loans and 100% of the properties are in the United States. F&G diversifies its RML portfolio by state to attempt to reduce concentration risk. RMLs have a primary credit quality indicator of either a performing or nonperforming loan. F&G defines non-performing 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 D *Investments* to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q 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 June 30, 2023 and December 31, 2022, were as follows:

*(In millions)*

| Fixed maturity securities, available for sale: | June 30, 2023 Number of securities Amortized Cost Allowance for Expected Credit Losses Unrealized Losses Fair Value |
| --- | ---: |
| United States Government full faith and credit | 12 $67 $— $(2) $65 |
| United States Government sponsored agencies | 57 34 — (4) 30 |
| United States municipalities, states and territories | 193 1,588 — (246) 1,342 |
| Foreign Governments | 64 202 — (41) 161 |
| Corporate securities: |  |
| Finance, insurance and real estate | 805 6,591 — (858) 5,733 |
| Manufacturing, construction and mining | 129 1,002 — (163) 839 |
| Utilities, energy and related sectors | 356 2,558 — (532) 2,026 |
| Wholesale/retail trade | 388 2,311 — (444) 1,867 |
| Services, media and other | 497 3,787 — (770) 3,017 |
| Hybrid securities | 44 725 — (74) 651 |
| Non-agency residential mortgage-backed securities | 316 1,759 (5) (110) 1,644 |
| Commercial mortgage-backed securities | 527 3,617 (15) (345) 3,257 |
| Asset-backed securities | 1,133 11,202 (6) (710) 10,486 |
| **Total fixed maturity available for sale securities** | 4,521 35,443 (26) (4,299) 31,118 |
| Equity securities | 49 729 — (130) 599 |
| **Total investments** | 4,570 $36,172 $(26) $(4,429) $31,717 |
|  | **December 31, 2022** |
|  | **Number of securities** **Amortized Cost** **Allowance for Expected Credit Losses** **Unrealized Losses** **Fair Value** |
| Fixed maturity securities, available for sale: | **(In millions)** |
| 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 |

96

The gross unrealized loss position on the fixed maturity AFS fixed and equity portfolio was $4,429 million and $4,744 million as of June 30, 2023 and December 31, 2022, respectively. Most components of the portfolio exhibited price depreciation caused by lower treasury rates and spread compression. The total amortized cost of all securities in an unrealized loss position was $36,172 million and $34,164 million as of June 30, 2023 and December 31, 2022, respectively. The average market value/book value of the investment category with the largest unrealized loss position was 87% for Finance, insurance and real estate as of June 30, 2023. In the aggregate, Finance, insurance and real estate represented 19% of the total unrealized loss position as of June 30, 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 AFS 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 June 30, 2023 and December 31, 2022, were as follows:

*(Dollars in millions)*

| Investment grade: | June 30, 2023 Number of securities Amortized Cost Fair Value Allowance for Credit Loss Gross Unrealized Losses |
| --- | ---: |
| Less than six months | — $— $— $— $— |
| Six months or more and less than twelve months | 5 12 11 — (1) |
| Twelve months or greater | 78 858 573 — (285) |
| Total investment grade | 83 870 584 — (286) |
| **Below investment grade:** |  |
| Less than six months | 2 10 9 — (1) |
| Six months or more and less than twelve months | — — — — — |
| Twelve months or greater | 9 67 55 — (12) |
| Total below investment grade | 11 77 64 — (13) |
| **Total** | 94 $947 $648 $— $(299) |
|  | **December 31, 2022** |
|  | **Number of securities** **Amortized Cost** **Fair Value** **Allowance for Credit Loss** **Gross Unrealized Losses** |
| **Investment grade:** | **(Dollars in Millions)** |
| 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) |

97

### Expected Credit Losses and Watch List

F&G prepares 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 June 30, 2023, our watch list included 88 securities in an unrealized loss position with an amortized cost of $947 million, no allowance for credit loss, unrealized losses of $298 million and a fair value of $648 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 59 and 64 structured securities with a fair value of $254 million and $162 million to which we had potential credit exposure as of June 30, 2023 and December 31, 2022, respectively. Our analysis of these structured securities, which included cash flow testing, resulted in allowances for expected credit losses of $32 million and $16 million as of June 30, 2023 and December 31, 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 June 30, 2023 and December 31, 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 D *Investments* to the unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

### 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 maturities, as of June 30, 2023 and December 31, 2022, refer to Note D *Investments* to the unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

### Concentrations of Financial Instruments

For certain information regarding our concentrations of financial instruments, refer to Note D *Investments* to the unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

There have been no other material changes in the concentrations of financial instruments described in our Annual Report on Form 10-K for the year ended December 31, 2022.

### Derivatives

We are exposed to credit loss in the event of nonperformance by our counterparties on call options. We attempt to reduce this credit risk by purchasing such options from large, well-established financial institutions.

We also hold cash and cash equivalents received from counterparties for call option collateral, as well as U.S. Government securities pledged as call option 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 unaudited Condensed Consolidated Balance Sheets.

See Note E *Derivative Financial Instruments* to the unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information regarding our derivatives and our exposure to credit loss on call options.

### Corporate and Other

The Corporate and Other segment consists of the operations of the parent holding company and our real estate technology subsidiaries. This segment also includes certain other unallocated corporate overhead expenses and eliminations of revenues and expenses between it and our Title segment.

The following table presents the results of operations of our Corporate and Other segment:

*(In millions)*

| Revenues: | Three months ended June 30, 2023 | 2022 | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Escrow, title-related and other fees | $55 | $9 | $99 | $40 |
| Interest and investment income | 14 | 3 | 25 | 3 |
| Recognized gains and losses, net | (33) | (1) | (35) | 2 |
| Total revenues | 36 | 11 | 89 | 45 |
| Expenses: |  |  |  |  |
| Personnel costs | 43 | (16) | 69 | 1 |
| Other operating expenses | 31 | 17 | 59 | 44 |
| Depreciation and amortization | 8 | 6 | 15 | 12 |
| Interest expense | 18 | 22 | 38 | 44 |
| Total expenses | 100 | 29 | 181 | 101 |
| Loss from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates | $(64) | $(18) | $(92) | $(56) |

The revenue in the Corporate and Other segment represents revenue generated by our non-title real estate technology subsidiaries as well as mark-to-market valuation changes on certain corporate deferred compensation plans.

Total revenues in the Corporate and Other segment increased $25 million, or 227%, in the three months ended June 30, 2023 and increased $44 million, or 98% in the six months ended June 30, 2023 from the corresponding periods in 2022. The increases are primarily attributable to an increase in valuations associated with our deferred compensation plan assets of approximately $51 million and $64 million in the three and six months ended June 30, 2023, respectively, and various other immaterial items.

Personnel costs in the Corporate and Other segment increased $59 million, or 369%, in the three months ended June 30, 2023, and increased $68 million, or 6,800% in the six months ended June 30, 2023 from the corresponding periods in 2022. The increases in the 2023 periods were primarily attributable to the aforementioned increases in valuations associated with our deferred compensation plan assets, which increased both revenue and personnel costs, and various other immaterial items.

Other operating expenses in the Corporate and Other segment increased $14 million, or 82%, in the three months ended June 30, 2023 and increased $15 million, or 34% in the six months ended June 30, 2023 from the corresponding periods in 2022. The increases were attributable to various immaterial items.

Interest expense in the Corporate and Other segment decreased $4 million, or 18%, in the three months ended June 30, 2023 and decreased $6 million or 14%, in the six months ended June 30, 2023 from the corresponding periods in 2022. The decrease was primarily attributable to lower average debt outstanding in the three and six months ended June 30, 2023 from the corresponding periods in 2022.

### Liquidity and Capital Resources

*Cash Requirements.* Our current cash requirements include personnel costs, operating expenses, claim 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 $0.45 per share in the second quarter of 2023, or approximately $121 million to our common shareholders. On August 8, 2023, our Board of Directors declared cash dividends of $0.45 per share, payable on September 29, 2023, to FNF common shareholders of record as of September 15, 2023. 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. The declaration of any future dividends is at the discretion of our Board of Directors.

As of June 30, 2023, we had cash and cash equivalents of $3,136 million, short term investments of $972 million and available capacity under our Revolving Credit Facility of $800 million. We continually assess our capital allocation strategy, including decisions relating to the amount of our dividend, reducing debt, repurchasing our stock, 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 our Revolving 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 of 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.

Our insurance subsidiaries generate cash from premiums earned and their respective investment portfolios, and these funds are adequate to satisfy the payments of claims and other liabilities. Due to the magnitude of our investment portfolio in relation to our title claim loss reserves, we do not specifically match durations of our investments to the cash outflows required to pay claims, but do manage outflows on a shorter time frame.

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. Our insurance subsidiaries are restricted by state regulation in their ability to pay dividends and make distributions. Each applicable state of domicile regulates the extent to which our title underwriters can pay dividends or make other distributions. As of December 31, 2022, $1,442 million of our net assets were restricted from dividend payments without prior approval from the relevant departments of insurance. We anticipate that our title insurance subsidiaries will pay or make dividends in the remainder of 2023 of approximately $307 million. Our underwritten title companies and non-insurance subsidiaries are not regulated to the same extent as our insurance subsidiaries.

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. Further, depending on business and regulatory conditions, we may in the future need to retain cash in our underwriters or even contribute cash to one or more of them in order to maintain their ratings or their statutory capital position. Such a requirement could be the result of investment losses, reserve charges, adverse operating conditions in the current economic environment or changes in statutory accounting requirements by regulators.

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 six months ended June 30, 2023 and 2022 totaled $3,139 million and $1,495 million, respectively. The increase in cash provided by operating activities in 2023 of $1,644 million is primarily attributable to increased net cash inflows associated with the change in funds withheld from reinsurers of approximately $1,363 million, increased net cash inflows associated with the change in future policy benefits of approximately $91 million and reduced net cash outflows associated with the timing of receipts and payments of prepaid assets and payables of approximately $631 million, partially offset by the decrease in net earnings of approximately $790 million in 2023 and increased net cash outflows associated with the change in reinsurance recoverable of approximately $236 million.

*Investing Cash Flows.* Our cash flows used in investing activities for the six months ended June 30, 2023 and 2022 were $4,231 million and $5,891 million, respectively. The decrease in cash used in investing activities in 2023 of $1,660 million was primarily attributable to increased cash inflows from net proceeds from sales and maturities of short-term investments of approximately $3,272 million and increased cash inflows from distributions from unconsolidated affiliates of approximately $94 million, partially offset by decreased proceeds from sales, calls and maturities of investment securities of approximately $1,313 million, increased purchases of investment securities of approximately $212 million and increased cash outflows associated with acquisitions of approximately $273 million.

*Capital Expenditures.* Total capital expenditures for property and equipment and capitalized software were $69 million and $77 million for the six months ended June 30, 2023 and 2022, respectively.

*Financing Cash Flows.* Our cash flows provided by financing activities for the six months ended June 30, 2023 and 2022 were $1,942 million and $2,462 million, respectively. The decrease in cash provided by financing activities in 2023 of $520 million was primarily attributable to reduced cash inflows from contractholder deposits of approximately $666 million, increased cash outflows from contractholder withdrawals of approximately $336 million, and decreased cash inflows associated with the change in secured trust deposits of approximately $215 million, partially offset by the issuance of the 7.40% F&G Notes of $500 million in 2023, and reduced cash outflows associated with the purchase of treasury stock of approximately $292 million.

*Financing Arrangements.* For a description of our financing arrangements see Note G *Notes Payable* included in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022.

*Capital Stock Transactions*. On August 3, 2021, our Board of Directors approved the 2021 Repurchase Program (the "Repurchase Program") under which we may purchase up to 25 million shares of our FNF common stock through July 31, 2024. We repurchased 100,000 shares of FNF common stock during the six months ended June 30, 2023 for approximately $4 million, at an average price of $38.45 per share. Subsequent to June 30, 2023 and through market close on August 8, 2023 we have not repurchased additional shares under this program. Since the original commencement of the Repurchase Program, we repurchased a total of 16,449,565 FNF common shares for approximately $701 million, at an average price of $42.60 per share.

*Equity and Preferred Security Investments.* Our equity and preferred security investments may be subject to significant volatility. Currently prevailing accounting standards require us to record the change in fair value of equity and preferred security investments held as of any given period end within earnings. Our results of operations in future periods is anticipated to be subject to such volatility.

*Off-Balance Sheet Arrangements.* Other than our unfunded investment commitments discussed below, there have been no significant changes to our off-balance sheet arrangements since our Annual Report on Form 10-K for the year ended December 31, 2022.

We have unfunded investment commitments as of June 30, 2023 based upon the timing of when investments are executed compared to when the actual investments are funded, as some investments require that funding occur over a period of months or years. Please refer to Note F *Commitments and Contingencies* to the unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional details on unfunded investment commitments.

## Market risk

As filed, 137 characters.

There have been no material changes in the market risks described in our Annual Report on Form 10-K for the year ended December 31, 2022.

## Controls and procedures

As filed, 1,250 characters.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is: (a) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms; and (b) accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 6,816 characters.

In addition to the information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the "Risk Factors" disclosed under "Item 1A. Risk Factors" in our Annual Report on Form 10-K, which was filed with the SEC on February 27, 2023. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

We adopted Accounting Standards Update (“ASU”) 2018-12, Financial Services-Insurance (Topic 944), Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”) using the full retrospective transition method effective January 1, 2023, with changes applied as of January 1, 2021, also referred to as the transition date. The following updates to Risk Factors relate to the adoption of ASU 2018-12. There have been no other material changes from the Risk Factors previously disclosed in "Item 1A. Risk Factors" in our Annual Report filed with the SEC on February 27, 2023 and hereby incorporated by reference.

ASU 2018-12 requires that VOBA, DAC and DSI be amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization. Based on this change, we have removed the risk factor previously titled “*The pattern of amortizing our VOBA, DAC and DSI balances relies on assumptions and estimates made by management. Changes in these assumptions and estimates could impact our results of operations and financial condition.”*

***Interest rate fluctuations could adversely affect our business, financial condition, liquidity and results of operations.***

Interest rate risk is a significant market risk for us, as our F&G business involves issuing interest rate sensitive obligations backed primarily by investments in fixed income assets. F&G also maintains a portion of the assets in its investment portfolio in floating rate instruments and had executed a variable interest rate Credit Agreement, which are both subject to an element of market risk from changes in interest rates.

Prior to 2022, interest rates had been at or near historical low levels over the preceding several years. A prolonged period of low rates exposes us to the risk of not achieving returns sufficient to meet our earnings targets and/or our contractual obligations. Furthermore, low or declining interest rates may reduce the rate of policyholder surrenders and withdrawals on our life insurance and annuity products, thus increasing the duration of the liabilities, creating asset and liability duration mismatches and increasing the risk of having to reinvest assets at yields below the amounts required to support our obligations. Lower interest rates may also result in decreased sales of certain insurance products, negatively impacting our profitability from new business.

During periods of increasing interest rates, we may offer higher crediting rates on interest-sensitive products, such as universal life insurance and fixed rate annuities, and we may increase crediting rates on in-force products to keep these products competitive. We may be required to accept lower spread income (the difference between the returns we earn on our investments and the amounts we credit to contract holders), thus reducing our profitability, as returns on our portfolio of invested assets may not increase as quickly as current interest rates. Rapidly rising interest rates may also expose us to the risk of financial disintermediation, which is an increase in policy surrenders, withdrawals and requests for policy loans as customers seek to achieve higher returns elsewhere, requiring us to liquidate assets in an unrealized loss position. If we experience unexpected withdrawal activity, we could exhaust our liquid assets and be forced to liquidate other less liquid assets such as limited partnership investments. We may have difficulty selling these investments in a timely manner and/or be forced to sell them for less than we otherwise would have been able to realize, which could have a material adverse effect on our business, financial condition or operating results. We have developed and maintain asset liability management programs and procedures that are, we believe, designed to mitigate interest rate risk by matching asset cash flows to expected liability cash flows. In addition, we assess surrender charges on withdrawals in excess of allowable penalty-free amounts that occur during the surrender charge period. There can be no assurance that actual withdrawals, contract benefits, and maturities will match our estimates. Despite our efforts to reduce the impact of rising interest rates, we may be required to sell assets to raise the cash necessary to respond to an increase in surrenders, withdrawals and loans, thereby realizing capital losses on the assets sold.

Liabilities that are held on our balance sheet at fair value, including embedded derivatives on our FIA and IUL business and MRBs on our FIA and fixed rate annuity business, are sensitive to fluctuations in interest rates. Decreases in interest rates generally would have the impact of increasing the value of these liabilities, which will result in a reduction in our net income. Liabilities for future policyholder benefits are valued using locked-in discount rates, and any changes in interest rates since the inception of those contracts are reflected in OCI. Decreases in interest rates would result in a reduction in our OCI. In addition, certain statutory capital and reserve requirements are based on formulas or models that consider interest rates and a prolonged period of low interest rates may increase the statutory capital we are required to hold as well as the amount of assets we must maintain to support statutory reserves.

Economic conditions, including higher interest rates, could materially adversely affected our business, results of operations and financial condition. However, we cannot predict if it will impact our business, results of operations or financial condition in the future for the forgoing reasons.

### Equity market volatility could negatively impact our business.

The estimated cost of providing GMWB riders associated with our annuity 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 or contractholder funds balance liabilities associated with such products, resulting in a reduction in our revenues and net income.

Filed Aug 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001331875-23-000046. Last ingested by Listed: Nov 5, 2026, 18:19 ET. No prices; not investment advice.