Fortitude Life Insurance & Annuity Co.
11/13/2025 | Press release | Distributed by Public on 11/13/2025 12:07
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Fortitude Life Insurance & Annuity Company and its wholly-owned subsidiary (collectively, "FLIAC" or the "Company"), with its principal offices in Jersey City, New Jersey, is a wholly-owned subsidiary of Fortitude Group Holdings, LLC ("FGH").
The following analysis of our financial condition and results of operations should be read in conjunction with the MD&A, the "Risk Factors" section, and the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, as well as the statements under "Forward-Looking Statements" and the Unaudited Interim Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Overview
The Company was established in 1969 and has been a provider of annuity contracts for the individual market in the United States. The Company's products have been sold primarily to individuals to provide for long-term savings and retirement needs and to address the economic impact of premature death, estate planning concerns and supplemental retirement income.
The Company has sold a wide array of annuities, including deferred and immediate variable annuities with (1) fixed interest rate allocation options, subject to a market value adjustment, that are registered with the United States Securities and Exchange Commission (the "SEC"), and (2) fixed-rate allocation options subject to a limited market value adjustment or no market value adjustment and not registered with the SEC. The Company ceased offering these products.
Funding Agreements and Funding Agreement Backed Notes
In September 2025, the Company established a funding agreement backed notes (FABN) program that allows Fortitude Global Funding (FGF), a special-purpose unaffiliated trust, to offer FABNs to institutional investors. In October 2025, FGF purchased $500 million of funding agreements from FLIAC using the net proceeds from notes issued under the FABN program. The funding agreements issued by FLIAC have matching interest and maturity payment terms with the associated notes issued under the FABN program. The board-authorized capacity under the FABN program is $3 billion. See "New Reinsurance Transactions" below for further information regarding the funding agreements.
New Reinsurance Transactions
In October 2025, FLIAC closed on a reinsurance agreement to cede, on a modified coinsurance basis, 85% of the funding agreement liabilities associated with the FABN program to a Bermuda-domiciled affiliate of the Company.
In October 2025, FLIAC closed on a flow reinsurance agreement with an unaffiliated subsidiary of a U.S. based life insurance company to assume, on a coinsurance basis, certain newly-written fixed annuity policies.
Fair Value of Insurance Liabilities - Actuarial Assumption Updates
In the third quarter of both 2025 and 2024, the Company completed its annual review of actuarial assumptions related to its fair value of insurance liabilities. Based on those reviews, the Company updated certain assumptions associated with its variable annuity contracts with guaranteed benefits and certain other insurance contracts, which resulted in an increase (decrease) in its fair value of insurance liabilities of $11 million and $(3) million during the third quarters of 2025 and 2024, respectively.
The impact of the respective assumption updates on the Consolidated Statement of Operations was included within "Policyholder benefits and changes in fair value of insurance liabilities".
The assumptions used in establishing our insurance liabilities are generally based on the Company's experience, industry experience, market observable data, and/or other factors, as applicable. The Company evaluates its actuarial assumptions at least annually and updates them as appropriate, unless a material change that the Company feels is indicative of a long-term trend is observed in an interim period. Generally, the Company does not expect trends to change significantly in the short-term and, to the extent these trends may change, the Company expects such changes to be gradual over the long-term. See Note 7 in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 for further discussion regarding significant assumptions related to our fair value of insurance liabilities.
Impact of a Changing Interest Rate Environment
As a financial services company, market interest rates are a key driver of our results of operations and financial condition. Changes in interest rates can affect our results of operations and/or our financial condition in several ways, including favorable or adverse impacts to:
•investment-related activity, including: investment income returns, net interest margins, net investment spread results, new money rates, mortgage loan prepayments and bond redemptions;
•the recoverability of deferred tax assets related to losses on our fixed maturity securities portfolio;
•hedging costs and other risk mitigation activities;
•insurance reserve levels and market experience true-ups;
•customer account values, including their impact on fee income;
•product design features, crediting rates and sales mix; and
•policyholder behavior, including surrender or withdrawal activity.
For more information on interest rate risks, see "Risk Factors-Market Risk" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.
Revenues and Expenses
The Company earns revenues principally from contract fees, mortality and expense fees, and asset administration fees from annuity and investment products, all of which primarily result from the sale and servicing of annuity products. The Company also earnsnet investment income from the investment of general account and other funds. The Company's operating expenses principally consist of annuity benefit guarantees provided, reserves established for anticipated future annuity benefit guarantees, and costs of managing risk related to these products. The Company's operating expenses also include general business expenses, reinsurance expense allowances, and commissions and other costs of selling and servicing the various products it sold.
Accounting Policies & Pronouncements
Application of Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the application of accounting policies that often involve a significant degree of judgment. Management on an ongoing basis, reviews estimates and assumptions used in the preparation of financial statements. If management determines that modifications in assumptions and estimates are appropriate given current facts and circumstances, the Company's results of operations and financial position as reported in the Unaudited Consolidated Interim Financial Statements could change significantly.
Management believes the accounting policies relating to the following areas are most dependent on the application of estimates and assumptions and require management's most difficult, subjective, or complex judgments:
•Insurance liabilities;
•Valuation of investments, including derivatives; and
•Taxes on income, including valuation allowances
Recent Accounting Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of an Accounting Standards Update ("ASU") to the Accounting Standards Codification. We consider the applicability and impact of all ASUs in our preparation of the financial statements. ASUs listed below include those that have been adopted during the current fiscal year and/or those that have been issued but not yet adopted as of the date of this filing. ASUs not listed below were assessed and determined to be either not applicable or not material.
| Standard | Description | Effective date and method of adoption | Effect on the financial statements or other significant matters | ||||||||
| ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures | This ASU improved reportable segment disclosures, primarily through enhanced disclosures regarding a company's significant segment expenses and certain other items. The update also required expanded disclosures regarding the chief operating decision maker ("CODM") and the information they are provided when assessing segment performance and allocating resources. |
The Company adopted the update for interim reporting periods beginning January 1, 2025 using the retrospective method. The Company adopted this update for annual disclosures on January 1, 2024 using the retrospective method. |
This adoption of the update for both interim and annual periods expanded the Company's disclosures but did not have an impact on its financial position or results of operations. See Note 3 herein for further information regarding the expanded interim disclosures. See Note 3 within the Company's Annual Report on Form 10-K for the year ended December 31, 2024 for further information regarding the expanded annual disclosures. |
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ASUs issued but not yet adopted as of September 30, 2025:
| Standard | Description | Effective date and method of adoption | Effect on the financial statements or other significant matters | ||||||||
| ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures | This ASU improves income tax disclosure requirements by requiring 1. the use of consistent categories and greater disaggregation of information in the rate reconciliation and 2. income taxes paid disaggregated by jurisdiction. | Effective for annual reporting periods beginning January 1, 2025, and is required to be applied prospectively with the option of retrospective application. Early adoption is permitted. | The update is expected to expand the Company's disclosures but will not have an impact on the Company's financial position or results of operations. | ||||||||
| ASU 2024-03, Income Statement - Reporting Comprehensive Income (Topic 220): Expense Disaggregation Disclosures | This ASU requires additional disclosures regarding certain expense types included in the income statement. The requirements include disclosure of the amounts associated with 1. purchases of inventory, 2. employee compensation, 3. depreciation and 4. intangible asset amortization. These disclosures should be included in each relevant expense caption. Furthermore, entities must disclose specific expenses, gains, or losses already required under US GAAP, offer a qualitative description of amounts not separately quantified, and present the total amount of selling expenses along with a definition of these expenses in their annual reports. | Effective for annual reporting periods beginning January 1, 2027, and interim reporting periods beginning January 1, 2028, using either the prospective or retrospective method. Early adoption is permitted | The Company is currently evaluating the potential impact of this update on its financial position, results of operations, and disclosures. | ||||||||
Segment and Product Overview
Our business is comprised of two major blocks of in-force policies, which we refer to as the "Retained Business" and the "Ceded Business". The Retained Business consists of variable annuity products with guaranteed lifetime withdrawal benefit features as well as smaller blocks of variable annuity products with certain other living benefit and death benefit features. The Retained Business also includes variable universal life and fixed payout annuity products. The Retained Business is actively managed by FLIAC management and the Company retains the full economic benefits and risks. The Retained Business consists of variable annuity contracts originated between 1993 - 2010. These products allow the holder to direct investments into certain separate account funds to receive tax deferred build-up within the contract. Most of the contracts have optional living benefit riders, commonly known as guaranteed minimum withdrawal benefits, which entitle the holder to elect to withdraw a guaranteed amount from the contract while alive, irrespective of the balance in their separate account. Almost all of the contracts also offer a guaranteed amount payable to a beneficiary upon the death of the holder, which is commonly known as a guaranteed minimum death benefit.
The Ceded Business represents certain business (primarily registered index linked-annuities and fixed annuities, which includes fixed indexed and fixed deferred annuities, and other variable annuities) where 100 percent of the assets and liabilities have been fully ceded to The Prudential Insurance Company of America ("Prudential Insurance") and Pruco Life Insurance Company ("Pruco Life") under existing coinsurance and modified coinsurance agreements. The Ceded Business will continue to impact certain line items within the Company's financial statements but will not have a material impact to stockholders' equity or net income and will represent the economic impact assumed by Prudential Insurance and Pruco Life.
Changes in Financial Position
The following is a discussion regarding changes in the financial position of the Company by reportable segment.
Retained Business
Assets increased $143 million to $25,736 million at September 30, 2025 from $25,593 million at December 31, 2024. The increase was primarily driven by higher fair values related to fixed maturity securities, reflecting a decline in interest rates during 2025. Partially offsetting the overall increase in assets were lower fair values associated with equity derivatives resulting from higher equity market movements, and a decline in separate account assets driven by expected policyholder surrenders and withdrawals, partially offset by higher asset values due to favorable equity market movements and a decline in interest rates.
Liabilities increased $154 million to $24,598 million at September 30, 2025 from $24,444 million at December 31, 2024. The increase was primarily driven by higher liabilities associated with secured borrowing arrangements, partially offset by a decline in separate account liabilities, corresponding to the decrease in separate account assets, as discussed above.
Equity decreased $11 million to $1,138 million at September 30, 2025 from $1,149 million at December 31, 2024, driven by the $37 million year-to-date increase in the own-credit risk (OCR) component of the fair value of insurance liabilities, resulting in an unfavorable impact to accumulated other comprehensive loss, which was partially offset by year-to-date net income of $26 million.
Ceded Business
Assets increased $100 million to $4,446 million at September 30, 2025 from $4,346 million at December 31, 2024. The increase was primarily driven by higher fair values associated with equity options, driven by higher equity market movements, partially offset by lower reinsurance recoverables and a decline in the deposit asset due to the expected run off of the business.
Liabilities increased $100 million to $4,446 million at September 30, 2025 from $4,346 million at December 31, 2024. The increase was primarily driven by a higher fair value of insurance liabilities resulting from a decline in interest rates, which was partially offset by the impact of higher equity market movements.
There was no equity within our Ceded Business at both September 30, 2025 and December 31, 2024 as the assets are fully offset by the liabilities.
Results of Operations
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES
Quarter-to-Date Comparison to Prior Period
Retained Business
Income from operations before income taxes was $82 million for the three months ended September 30, 2025 compared to a loss from operations before income taxes of $24 million for the three months ended September 30, 2024. The improvement was driven by the net favorable impact of higher equity market movements and lower interest rates on derivatives and insurance liabilities during the three months ended September 30, 2025, compared to the net unfavorable impact of similar movements during the three months ended September 30, 2024. Also contributing to the favorable movement during the three months ended September 30, 2025 was the impact of tightening credit spreads on fixed maturity securities, which had an offsetting impact regarding the own-credit risk (OCR) component of the fair value of insurance liabilities, which is reflected in other comprehensive income. Partially offsetting the overall favorable movement during the three months ended September 30, 2025, was the unfavorable impact of the annual assumption update during the third quarter of 2025.
Ceded Business
There was no impact to the income from operations before income taxes as all revenues and expenses are ceded to Prudential Insurance or Pruco Life.
Year-to-Date Comparison to Prior Period
Retained Business
Income from operations before income taxes was $23 million for the nine months ended September 30, 2025, compared to $112 million for the nine months ended September 30, 2024. The decrease was primarily driven by the net unfavorable impacts of declining interest rates and higher equity market movements during the nine months ended September 30, 2025, compared to the net favorable impacts of similar movements during the nine months ended September 30, 2024. Also contributing to the decline was the unfavorable relative impact of the annual assumption update during the third quarter of 2025 compared to the same period of 2024.
Ceded Business
There was no impact to the income from operations before income taxes as all revenues and expenses are ceded to Prudential Insurance or Pruco Life.
REVENUES, BENEFITS, AND EXPENSES
Quarter-to-Date Comparison to Prior Period
Retained Business
Revenues were $41 million for the three months ended September 30, 2025 compared to $364 million during the three months ended September 30, 2024. The decrease was primarily driven by higher investment losses related to equity derivatives due to higher equity market movements during the 2025 period.
Benefits and expenses were $(41) million for the three months ended September 30, 2025 compared to $388 million during the three months ended September 30, 2024. The change was driven by favorable decreases in the fair value of insurance liabilities, excluding changes in OCR, resulting from higher equity market movements.
Ceded Business
There was no impact to the income from operations before income taxes as all revenues and expenses are ceded to Prudential Insurance or Pruco Life.
Year-to-Date Comparison to Prior Period
Retained Business
Revenues were $287 million for the nine months ended September 30, 2025 compared to $166 million for the nine months ended September 30, 2024. The favorable change was primarily driven by lower investment losses related to a decline in interest rates for the nine months ended September 30, 2025.
Benefits and expenses were $264 million for the nine months ended September 30, 2025 compared to $54 million for the nine months ended September 30, 2024. The increase was primarily driven by unfavorable changes in the fair value of insurance liabilities, excluding changes in OCR, resulting from a decline in interest rates during 2025. This unfavorable impact was partially offset by favorable equity market performance during 2025. In contrast, the comparable period of 2024 experienced stable interest rates and higher equity market movements, which resulted in favorable changes in the fair value of insurance liabilities, excluding changes in OCR, during the nine months ended September 30, 2024.
Ceded Business
There was no impact to the income from operations before income taxes as all revenues and expenses are ceded back to Prudential Insurance or Pruco Life.
Income Taxes
For information regarding income taxes, see Note 7 to the Consolidated Unaudited Interim Financial Statements.
Liquidity and Capital Resources
This section supplements and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.
Overview
Liquidity is a measure of a company's ability to generate cash flows sufficient to meet the short-term and long-term cash requirements of the Company. Capital refers to the long-term financial resources available to support the operations of our business, fund business growth, and provide a cushion to withstand adverse circumstances. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of our business, general economic conditions, our ability to borrow and our access to capital markets.
Effective and prudent liquidity and capital management is a priority across the organization. Management monitors the liquidity of the Company on a daily basis and projects borrowing and capital needs over a multi-year time horizon. We use a Risk Appetite Framework ("RAF") to ensure that all risks taken by the Company aligns with our capacity and willingness to take those risks. The RAF provides a dynamic assessment of capital and liquidity stress impacts and is intended to ensure that sufficient resources are available to absorb those impacts. We believe that our capital and liquidity resources are sufficient to satisfy the capital and liquidity requirements of the Company.
Our businesses are subject to comprehensive regulation and supervision by domestic and international regulators. These regulations currently include requirements (many of which are the subject of ongoing rule-making) relating to capital, leverage, liquidity, stress-testing, overall risk management, credit exposure reporting and credit concentration. For information on these regulatory initiatives and their potential impact on us, see "Business - Regulation" and "Risk Factors" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.
Capital
We manage FLIAC to regulatory capital levels and utilize the risk-based capital ("RBC") ratio as a primary measure of capital adequacy. RBC is calculated based on statutory financial statements and risk formulas consistent with the practices of the National Association of Insurance Commissioners ("NAIC"). RBC considers, among other things, risks related to the type and quality of the invested assets, insurance-related risks associated with an insurer's products and liabilities, equity market and
interest rate risks and general business risks. RBC determines the minimum amount of capital required of an insurer to support its operations and underwriting coverage. The ratio of a company's Total Adjusted Capital ("TAC") to RBC is the corresponding RBC ratio. RBC ratio calculations are intended to assist insurance regulators in measuring an insurer's solvency and ability to pay future claims. The reporting of RBC measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities, but is available to the public. The Company's capital levels substantially exceed the minimum level required by applicable insurance regulations. Our regulatory capital levels may be affected in the future by changes to the applicable regulations, proposals for which are currently under consideration by both domestic and international insurance regulators.
The regulatory capital level of the Company can be materially impacted by interest rate and equity market fluctuations, changes in the values of derivatives, the level of impairments recorded, and credit quality migration of the investment portfolio, among other items. In addition, the reinsurance of business or the recapture of business subject to reinsurance arrangements due to defaults by, or credit quality migration affecting, the reinsurers or for other reasons could negatively impact regulatory capital levels. The Company's regulatory capital level is also affected by statutory accounting rules, which are subject to change by each applicable insurance regulator.
Dividends to Parent
During the first quarter of 2024, a $150 million dividend was approved by the Company's board of directors, $75 million of which was considered an ordinary dividend and not subject to approval by the Arizona Department of Insurance and Financial Institutions ("DIFI") prior to payment and was accrued as of March 31, 2024. The other $75 million was conditioned upon the Company receiving written approval from the Arizona DIFI prior to payment and was not accrued for as of March 31, 2024. In April 2024, the Company received written approval from the Arizona DIFI and the entire $150 million dividend was distributed in cash to FGH in the second quarter of 2024.
In September 2024, the Company's board of directors approved a $150 million dividend, which was conditioned upon the Company receiving written approval from the Arizona DIFI prior to payment and was not accrued for as of September 30, 2024. During the fourth quarter of 2024, the Company received written approval from the Arizona DIFI and paid, in cash, the $150 million extraordinary dividend to FGH.
During the three and nine months ended September 30, 2025, the Company did not pay dividends to FGH and there were no dividends approved by the Company's board of directors.
Liquidity
Our liquidity is managed to ensure stable, reliable and cost-effective sources of cash flows to meet all of our obligations. Liquidity is provided by a variety of sources, as described more fully below, including portfolios of liquid assets. Our investment portfolios are integral to the overall liquidity of the Company. We use a projection process for cash flows from operations to ensure sufficient liquidity to meet projected cash outflows, including claims.
Liquidity is measured against internally-developed benchmarks that take into account the characteristics of both the asset portfolio and the liabilities that they support. We consider attributes of the various categories of liquid assets (for example, type of asset and credit quality) in calculating internal liquidity measures to evaluate our liquidity under various stress scenarios, including company-specific and market-wide events. We continue to believe that cash generated by ongoing operations and the liquidity profile of our assets provide sufficient liquidity under reasonably foreseeable stress scenarios.
The principal sources of the Company's liquidity are premiums and certain annuity considerations, investment and fee income, investment maturities, sales of investments, borrowings from its parent and affiliates, and banking relationships through secured or unsecured agreements. The principal uses of that liquidity include benefits, claims, and payments to policyholders and contractholders in connection with surrenders, withdrawals and net policy loan activity. Other uses of liquidity include commissions, general and administrative expenses, purchases of investments, the payment of dividends and returns of capital to the parent company, hedging and reinsurance activity and payments in connection with financing activities.
In managing liquidity, we consider the risk of policyholder and contractholder withdrawals of funds earlier than our assumptions when selecting assets to support these contractual obligations. We also consider the risk of future collateral requirements under stressed market conditions in respect of the derivatives we utilize.
Liquid Assets
Liquid assets include cash and cash equivalents, short-term investments, and fixed maturity securities. As of September 30, 2025 and December 31, 2024, the Company had liquid assets of $5.9 billion and $5.6 billion, respectively, which includes $1.5 billion of modified coinsurance assets contained within the Ceded business, for each respective period. As of September 30, 2025 and December 31, 2024, the portion of liquid assets comprised of cash and cash equivalents and short-term investments was $0.7 billion and $0.6 billion, respectively.
Liquidity Regarding Hedging Activities
The hedging portion of our risk management strategy for the Retained Business is being managed within the Company. We enter into a range of exchange-traded, cleared, and other OTC derivatives in order to hedge market sensitive exposures against changes in certain capital market risks. The portion of the risk management strategy comprising the hedging portion requires access to liquidity to meet the Company's payment obligations relating to these derivatives, such as payments for periodic settlements, purchases, maturities and terminations. These liquidity needs can vary materially due to, among other items, changes in interest rates, equity markets, mortality, and policyholder behavior.
The hedging portion of the risk management strategy may also result in derivative-related collateral postings to (when we are in a net pay position) or from (when we are in a net receive position) counterparties. The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged. Depending on market conditions, the collateral posting requirements can result in material liquidity needs when we are in a net pay position.
Intercompany Liquidity Agreement
FLIAC entered into an intercompany liquidity agreement with FGH that allows the Company to borrow or loans funds of up to $300 million to meet the short-term liquidity and other capital needs of itself and FGH and its affiliates.
During the second quarter of 2025, the Company loaned $50 million of funds to FGH under the agreement. The loan, which had an initial maturity date in September 2025, was extended to December 2025 and remained outstanding as of September 30, 2025.
The Company did not borrow any funds under the agreement during the three and nine months ended September 30, 2025 and neither borrowed nor loaned any funds during the three and nine months ended September 30, 2024.
Letter of Credit Facilities
In the second quarter of 2025, the Company was added as a participant to two uncommitted bilateral letter of credit agreements to support its collateral requirements, which allows it to issue up to $300 million under these facilities. Both letter of credit agreements were initially established for certain of the Company's affiliates. Both agreements contain certain restrictive and maintenance covenants customary for facilities of this type. The ability to utilize the facilities is also subject to the ability and willingness of the banks to issue the letter of credit. The Company is currently in compliance with all covenants associated with these facilities. The Company has not utilized either credit facility since being added as a participant.
The Company is also eligible to issue a standby letter of credit with another bank, allowing issuance of up to $100 million until its expiration in December 2027. The facility contains certain restrictive and maintenance covenants customary for facilities of this type. In addition, borrowings are not contingent on the Company's credit ratings nor subject to material adverse change clauses, however, the Company will be required to maintain a minimum Company Action Level ("CAL") Risk-based Capital ratio of 250% to maintain the agreement. As of September 30, 2025, there were no amounts outstanding under this credit facility.
The maximum board-approved overall capacity of the letter of credit program is $1,500 million for all participants. The maximum board-approved amount for letters of credit that can be issued under this program for FLIAC is $500 million.
Secured Borrowing Arrangements
In the normal course of business, we may enter into repurchase agreements and securities lending transactions with unaffiliated financial institutions, which are typically large or highly rated, to earn spread income and facilitate trading activity. Under these agreements, the Company transfers securities to the counterparty and receives cash as collateral. The cash received is generally invested in short-term investments and fixed maturity securities. As of September 30, 2025, the amount of liabilities associated with these arrangements was $1,451 million.
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