FGL Holdings (FG) Q3 2019 Earnings Call Transcript

FGL Holdings (FG)
Q3 2019 Earnings Call
Nov 07, 2019, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the FGL Holdings third-quarter 2019 earnings conference call and webcast. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Wes Carmichael, AVP, corporate development and investor relations. Please go ahead.

Wes Carmichael -- Assistant Vice President, Corporate Development and Investor Relations

Thank you, Christian, and good morning, everyone. We appreciate you joining our earnings call. Today, we will discuss our financial results for the third quarter of 2019, which ended on September 30. You can find the financial information for FGL Holdings on the Investors section of our website, fglife.bm.

Today's presenters include Chris Blunt, president and chief executive officer; and Dennis Vigneau, executive vice president and chief financial officer. Some of the comments we make during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. We do not intend to update any comments on this call to reflect new information, subsequent events or changes in strategy. A number of risks and uncertainties exist that could cause our actual results to differ materially from those expressed or implied.

We discussed these factors in detail in our 2018 10-K that we filed with the SEC on March 1 of this year. During this call, we may refer to non-GAAP financial measures that we believe may be meaningful to investors. Please refer to our third-quarter earnings release, financial supplement and investor presentation that we posted to our website. These documents contain a reconciliation of non-GAAP financial measures to GAAP.

And finally, all comparison comments today will be to the third quarter of 2018, unless we state otherwise. I'd now like to turn the call over to Chris.

Chris Blunt -- President and Chief Executive Officer

Thanks, Wes, and good morning, everyone. I'm pleased to announce another set of strong results for the third quarter. We continue to execute on our strategic initiatives and are delivering industry-leading returns. Dennis will go through the details shortly, but I'd like to highlight several key items at the outset and provide an overall update on the business.

But before I begin, as I announced yesterday, John Fleurant has been appointed as our new chief financial officer at F&G, effective November 11. John was recently CFO of New York Life, where I had the privilege of working with him for eight years. John will be a terrific add to our senior leadership team, and as we have discussed previously, Dennis Vigneau will remain with F&G as an executive vice president reporting to me until his retirement at year end. I want to thank Dennis for his effective stewardship of F&G and for his work to ensure a smooth transition.

Now nine months into 2019, I want to remind everyone what a unique franchise we have here at F&G, including a well-matched book of new reliabilities, a sustainable investment edge via our partnership with Blackstone, long-standing and strategic distribution relationships, numerous channel expansion opportunities, a robust pipeline of potential offshore reinsurance deals, and most importantly, a great team with an excellent corporate culture. And you see this reflected in our third-quarter results. Dennis is going to walk you through the financial details in a moment, but I want to make a few brief comments. Whether you look at reported or core earnings, we had a strong quarter, up 27% and 13%, respectively.

Turning to sales. Year-to-date, total product sales were up 29%. As we mentioned on our last conference call, given the steep decline in interest rates, we responded quickly in the second-quarter to adjust pricing to achieve our targeted returns and maintain spread. As expected, these actions impacted sales in the third quarter.

However, we've since seen competitors follow suit and our recent sales momentum has been strong. As such, for the full-year 2019, we remain set to achieve our target of double-digit sales growth for annuities. Now in addition to retail sales, F&G Re, our Bermuda reinsurance platform, is generating strong inflows. Flow reinsurance deposits were up 140% to $108 million.

In addition, we are evaluating new flow and block reinsurance opportunities, and we expect our volume of flow reinsurance to grow going forward as we bring new partners online. Coupling our Blackstone-driven investment edge with our product expertise in Bermuda domicile, we believe F&G Re has a tremendous value proposition to offer clients. Moreover, the current investment environment has improved our pipeline of flow transactions as a number of direct annuity writers seek to enhance their product economics and diversify counter-party exposure. Now in addition to our existing channels, we're making significant progress on diversifying our distribution footprint, and we'll be launching in the broker-dealer channel as planned in the first quarter of 2020.

Now before I hand it off to Dennis, I want to touch on an important point related to our partnership with Blackstone. I'm very pleased to announce that as a vote of confidence in F&G's growth prospects, Blackstone has reduced their investment management fees from 30 to 24 basis points on assets over $25 billion. This fee reduction enhances our new business pricing and further aligns both companies' interests to drive future growth and value for shareholders. So with that, I'm going to turn the call over to Dennis to discuss our results in more detail.

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

Thanks, Chris, and good morning, everyone. Today, I'll focus my comments on the following areas: The earnings and performance trends across the business, results in our investment portfolio, and then I'll wrap up with where we stand on capital heading into the end of 2019. Our third-quarter earnings reflect ongoing execution on our strategic priorities. I'm pleased to share that we have delivered strong results in the current quarter, as well as for the first nine months of 2019, amid what's been a challenging interest rate environment.

We have seen solid growth in both top and bottom lines year-to-date, as well as a strong return on equity. From a top line perspective, as Chris shared, total sales have increased 29% for the first nine months over the prior year. And although down on a sequential basis as we protect margins and competitive positioning, we are maintaining strong momentum and expect to finish the year with overall double-digit growth in sales. We also have generated meaningful increases in net investment income and overall yield lift compared to the prior year, as our portfolio reposition benefits continue to emerge, even with a challenging interest rate environment, which contributed to a modest decrease in net investment income and yield compared to the sequential quarter.

Overall, these benefits, combined with disciplined in-force management are translating nicely into expanding net investment spreads relative to the prior year, with a reported earnings growth of 27% over the prior-year quarter and an overall adjusted operating ROE of 19%. With those highlights as a backdrop, let me get into a little bit more detail in a few areas. We reported adjusted operating income available to common shareholders of $79 million or $0.36 per share, compared to $62 million or $0.29 per share last year. As I mentioned, an increase of 27%.

Our underlying earnings available to common shareholders were $59 million, even after adjusting for net favorable items that, although core to our overall operating experience and performance, are not consistent period to period. The current quarter AOI had $20 million of net favorability or $0.09 per share from the following items: An $18 million benefit from the release of a deferred tax asset valuation allowance for one of our offshore subsidiaries pursuant to our tax planning strategies; $7 million favorable annual assumption review results, modest, as expected, given the recent PGAAP exercise we went through at the end of 2017. Both of these items were partially offset by $3 million unfavorable out-of-period reinsurance expense true-up and a $2 million unfavorable SPIA mortality experienced in the quarter. For comparison, last year's third-quarter AOI of $62 million included a net $10 million of favorable items.

Adjusting for these uneven notable operating items in both periods, we had a very solid third quarter with 13% underlying growth in the quarter. We continue to experience positive uplift in AOI, driven by ongoing invested asset growth, the benefits of the portfolio reposition lift, disciplined operating expense management and generally stable net spreads, more on spreads in just a moment. We ended the quarter with a book value per share, excluding AOCI, of $7.56, including $0.09 per share of unfavorable mark-to-market movements in the quarter. This result was up 3% from last quarter.

Turning to the investment portfolio. Overall, it is performing well due to the significant reposition activities throughout 2018 and continued funding and maturation of our alternative asset portfolio. Average assets under management for the nine months totaled $27 billion, reflecting an increase of $1.6 billion, net of asset flows year-over-year and a stable in-force block. This reflects growth of 6% net of reinsurance transactions.

The net average investment yield on new money was 4.7% in the quarter and 4.8% year-to-date and including a 5% allocation to alternative assets. Purchases in the quarter reflect both new money flows and some repositioning, including deployment of the remaining proceeds from the $500 million in sales of BBB-rated corporates we did in the first half of the year and a portion of the proceeds from another $430 million reduction in BBBs completed in the current quarter. Proceeds from this nearly $1 billion sale of BBB assets year-to-date are fully reinvested as of today in higher quality corporates and structured assets. In terms of other repositioning activities, we have been working on some additional actions this year, which we will expect to achieve $15 million run rate lift overall once completed.

We saw approximately $3 million of uplift in the quarter from these reposition actions. We also continued to build our allocation to alternative assets, this program is making real progress with approximately $1 billion or 3.6% of the portfolio currently funded and a further $1.2 billion of unfunded commitments. We expect alts to be funded at about 4% of the portfolio by the end of the year, slightly ahead of the original expectation. Ultimately, we'll build to an overall 5% allocation in the portfolio.

On average, we are assuming a net 12% return for this asset class over the life of the investment. And year-to-date, the annualized return on alts was about 8% to 9%. Next, turning to net investment income and yield. Net investment income was $301 million in the quarter, up $34 million or 13% over the prior year due to the portfolio reposition uplift and invested asset growth.

Compared to the second quarter of 2019, net investment income was lower by $14 million this quarter, reflecting a few effects of the rate environment. First, $6 million lower NII on the floating rate portfolio. Secondly, $5 million lower from a measured approach to cash redeployment from the proceeds of the BBB derisk I mentioned a moment ago and the large reinsurance block transaction that closed in late June. Again, as I mentioned earlier, excess cash has been fully reinvested as of today.

There was also a $4 million reduction in alternative asset income, which, although in line with the expectation overall was lower compared to some outperformance we had in Q2. These items were further exacerbated by $4 million higher investment expenses, about half of which was a catch-up from last quarter and half was related to the portfolio mix. All of these items were partially offset by $5 million higher NII from asset growth. Overall, the reported GAAP earned yield was 4.32% in the quarter, down from the 4.6% last quarter for the cash timing and other items I just mentioned.

Given we are now fully reinvested and looking ahead, the projected yields on the portfolio should trend toward 4.5% by the end of the year. Returning to the topic of net investment spreads. As I mentioned on the second-quarter call, while the overall reported yield is an important element of our business, it is just one aspect of profitability. What is most important is that as interest rates fluctuate, which they have and will continue to, we actively manage the net investment spread.

It is net investment spread and not simply the yield that ultimately will drive earnings and overall attractive returns on capital. This quarter is another great example, as we're able to generally maintain spreads amid the declining rates and despite the lower overall portfolio yield. The portfolio reposition lift, combined with active new business pricing and in-force management allows us to continually effectively manage net spreads. The net investment spread across all products was 205 basis points, up 34 basis points compared to the prior year.

The net investment spread for fixed indexed annuities was 269 basis points in the third quarter, up 53 basis points compared to the prior year. All of this, importantly, was accomplished in a year where the 10-year treasury yield dropped roughly 100 basis points. Page 8 of our earnings presentation demonstrates the multiyear trend of our achieved spread relative to the 10-year treasury yield over time. Let me wrap up with a few thoughts on capital and liquidity.

We finished the third quarter in a strong and stable capital position with an estimated risk-based capital, or RBC, ratio of 475% on a consolidated basis, reflecting strong statutory earnings. Next, with regard to deployable capital, at the end of the quarter, we had about $300 million comprised of insurance company surplus, available debt capacity and holding company assets. Furthermore, we have a $250 million revolver and another $100 million to $200 million of readily available capital through established reinsurance relationships. Turning to share repurchases.

Since the program was announced in December, we've utilized $69 million of the $150 million authorization to buy back 8.7 million shares at an average price of $7.93 per common share, of which $17 million was deployed in the third quarter. In summary, we continue to have great momentum across the business and delivered a solid third quarter, even adjusting for the notable items in both periods. For the first nine months of 2019, we have delivered 29% growth in total sales while achieving new business profit and capital targets. We delivered 25% growth in adjusted operating income and are seeing steadily expanding net investment spreads year-over-year.

We realized an $18 million tax benefit from this quarter's valuation allowance release, and our reported AOI ETR was 14% for the nine-month year-to-date period with the tax benefit and 20% excluding that tax benefit. We expect that the ETR will grade lower over time with continued growth and expansion in the offshore business and other tax planning strategies that we are working on for 2020. Our comprehensive investment portfolio reposition is completed with a run rate uplift delivered as expected, and more to come as we look forward to the full uplift from the growing alternative asset allocation. Lastly, we are pleased to have received an upgrade from Fitch this week and are focused on further upgrades in the future.

With that, I'll turn the call back to the operator for Q&A.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question today comes from John Barnidge from Sandler O'Neill. Please go ahead. Your line is open.

John Barnidge -- Sandler O'Neill + Partners, L.P. -- Analyst

Thanks. And first, Dennis, good luck on retirement and safe road bike riding. My first question, can you talk to me about your commentary around double-digit full-year growth in annuities in the press release for the year as it relates to 4Q '19? Should we be expecting sequential growth in FIAs and MYGAs from 3Q '19 levels?

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

Hey, John. Good morning. Good question. Here's how I think about sales and how we're focusing on it for the fourth quarter.

Year-to-date, we're up 29% for total sales. Here's some anchor points for you. Even if we are flat in the fourth quarter to the prior-year fourth quarter, we'll still deliver 20% growth in sales year-over-year. To give you another data point, even if it were to drop by 10% relative to last year, we'd still deliver 18% growth year-over-year.

As I mentioned, we've got great momentum across the business, whether it's in the flow, offshore, the core FIA business, onshore and IUL continues to gain momentum. So we feel very good about where we are and very good about where we're going to land for the full year.

John Barnidge -- Sandler O'Neill + Partners, L.P. -- Analyst

OK. Great. And then surrender activity came in at 2.13% of beginning period assets in the quarter, which was the lowest level since the transaction was closed. Does this seem like a reasonable run rate assumption to assume?

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

Yeah. Great question. I'd say it's within the range of normal, maybe it's a little bit to the low side. It's a little tricky in the current interest rate environment and the volatility that's there, some of the volatility in the market.

I think there is -- as it relates to consumer behavior, perhaps and partner behavior, I just think there's a range of normal. And I think what we saw this quarter was within that range. But if it were to tick up a little bit as we go forward, that wouldn't surprise me. But it's well within our pricing.

And if not, over the last several years, it's been a bit better than pricing.

John Barnidge -- Sandler O'Neill + Partners, L.P. -- Analyst

OK. Great. My last question. Page 6 of the slide deck talked about the full launch into the broker-dealer channel in early 2020.

Can you please talk about what level of volume you see that adding and maybe possibly new product introduction to fuel that specific channel? Thank you.

Chris Blunt -- President and Chief Executive Officer

Hey, John. This is Chris. Yeah, we're excited. We've got some relationships in place already.

So we're doing a small volume of sales right now. But we're really talking about the full roll-out into some of the more meaningful independent broker-dealers and regional banks as a channel of opportunity. But I would say, first year, it's going to be modest, and that's by design. We spent a lot of time on the technology hookups.

Again, this is the world that I grew up in. And as you know as well, you get one shot to launch and leave a good impression as far as service and everything else. So I think a few hundred million is probably a reasonable expectation in year one, but we would expect that to grow very dramatically as we get into year two of our efforts there.

Operator

Thank you. We will now take our next question from John Nadel from UBS. Please go ahead. Your line is open.

John Nadel -- UBS -- Analyst

Good morning, and all the best, Dennis, absolutely. I had a couple of questions. Just wanted to nail down a couple of items on portfolio yield and spread. I think if I'm doing the math reasonably well here.

If I think about the drag from a more measured pace of investing, some of the cash proceeds from your repositioning during the quarter and maybe that couple of million dollar impact from the catch-up on investment expenses, am I getting it to the right place that that 4.32% yield for the quarter would have been more like 4.42%, maybe about 10-basis-points higher?

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

Yeah. Yeah, John, I think that's right in the ballpark of what would have been a normalized yield for the quarter.

John Nadel -- UBS -- Analyst

OK. All right. So that's helpful. And then I just wanted to square two items.

I think in your prepared remarks, you talked about gross new money yield for the quarter that was 4.7% or 4.8%. I think in the supplement, though, it looks like it's 4.3%. Is it just the difference between sort of fixed income versus alternatives there?

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

That's right. There's two points to clarify. One, the 4.7% was what we put new money work to, including a 5% allocation to alternatives. So that's what we would expect to get on that new tranche of business going forward.

The 4.3% in the supplement is only reference of what we just happened to buy in the current period as opposed to -- if you were to look at that number on an aggregate for the whole year, that number is going to be much higher.

John Nadel -- UBS -- Analyst

OK. Understood. And then just a point of clarification on the reduction in the fee rate to Blackstone from 30 to 24 above $25 billion of assets. So there's already some assets on the books that you'll benefit from here.

Was there any benefit in the third quarter from that? And then secondarily, is that applicable to all asset growth above $25 billion, inclusive of any deals you might do?

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

Yes. Great. There wasn't any benefit in the quarter. So we'll start seeing that in the fourth quarter on assets above $25 billion and it would apply to all asset classes.

That is the IMA fee that's an overlay.

John Nadel -- UBS -- Analyst

Perfect. Thank you so much.

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

Yes. You bet.

Operator

Thank you. Our next question comes from Andrew Kligerman from Credit Suisse. Please go ahead. Your line is open.

Andrew Kligerman -- Credit Suisse -- Analyst

Hey. Thank you and good morning. With regard to that fee reduction, that's a pretty significant move. And as John was just saying, you're already above $25 billion in AUM.

What was the thinking behind that?

Chris Blunt -- President and Chief Executive Officer

Yeah. Hi, Andrew. It's Chris. Thinking was really pretty straightforward, which is we're interested in high ambitions to grow, as does Blackstone.

And I think it was just trying to bring continued alignment between the two organizations, so that as we grow, we experience economies of scale at FG. It obviously helps us immediately with our competitiveness in terms of new product pricing or pricing new deals. So I think on the Blackstone part, it was wanting to be a good partner. As I've mentioned before, we're their largest client globally.

And for us, it was quite self-serving, which is we want to make sure we get economies of scale and can continue to compete. My personal belief is the impact on accelerated asset growth is going to more than pay back whatever the lower initial fees might be to Blackstone, but it was a very pleasant development for us.

Andrew Kligerman -- Credit Suisse -- Analyst

Yeah. It sounds very pleasant. OK. Shifting over to the ability to reprice the business.

I think you have 87 basis points to guaranteed minimums. Could you talk about your plans going forward? Has a lot of this been done in the quarter? Maybe how much do you think we could see going forward? I mean treasuries have dropped 100 basis points or more in the last year.

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

Yeah. Hey, Andrew. It's Dennis. They have come down.

But as we all know, recently, they're up, I think 10-year was at 1.88% today, somewhere in that ballpark. So hopefully, it just hangs in there. Here's my philosophy on managing an in-force book and how I suggest you think about it. We have roughly 1/12 of the business that's renewing every month.

We take a long-term view with an eye toward making sure that the actions we take over the life of a liability on the books is to achieve at the end of the day, the lifetime return that we set out to when the business was put on the books. We track that by tranche of business. I would say we take a balanced approach, we -- to in-force management. We want to achieve our margins, but we also want to maintain business on the books.

We want to make sure we're maintaining strong distribution relationships. And it's more art than science at the end of the day, as we navigate on an ongoing basis every month, the interest rate environment were dealt, what we can invest in. And I think we've demonstrated a pretty good track record of being able to do that across a multitude of economic environment, right? I think that Page 8 in the presentation really hammers home how we think about it, the consistency of the actions we take. What you generally won't ever see us do is take draconian dramatic action on the portfolio.

That's not our philosophy. We think we can effectively manage that with small adjustments as we go. We don't manage it every single quarter to hit the exact targeted spread, right? It's a bit of a -- it tends to flex. There may be quarters where we're above our target.

There are quarters where you may see the spread go down. But at the end of the day, we've demonstrated we've got an ability to manage it effectively. And I think I'd just leave it there.

Chris Blunt -- President and Chief Executive Officer

Yeah. I'd just add one quick thing, which is, it all goes back to the sustainable competitive edge via the partnership with Blackstone. They're able to source private credit with meaningful yield differential. You don't need a lot of that to be able to be a stable provider to your distributors, be consistently competitive, which we've proven we can do and still generate really attractive spreads.

I mean this was a year, I mean, think of the volatility, it was unbelievable. And to Dennis' point, we're going to land the plane pretty much right smack on the tarmac. And so I actually feel like it's a phenomenal case study of the resilience and the consistency of this business.

Andrew Kligerman -- Credit Suisse -- Analyst

Got it. OK. And then just lastly, on fixed annuity sales and I know you have the ability to get a nice double-digit growth rate on the year. But as we looked at the quarter for fixed annuity sales, they were down 6% year-over-year, down 23% sequentially.

And I think I understand that you cut crediting rates on your new annuities. Where are we going now as you look at the fourth quarter? Are there still significant sales pressures that you're seeing? Or have they lifted? Or neither?

Chris Blunt -- President and Chief Executive Officer

Yeah. Yeah. This is Chris. Let me -- I'll start, and Dennis can jump in here.

I'm a secretary that negates here on that question. I would say, just a reminder to everybody, we were out ahead of everybody. So I have yet to see someone prove that's not the case. We not only adjusted crediting rates, we adjusted comp, we adjusted cap rates, but we communicated really well with our distribution, like nobody likes to be making those types of cuts.

But our view was and Blackstone's view was this was not going to be transitory. We explained it. We also explained that by being early, the magnitude of ultimate cuts we thought would just be less by trying to get ahead of it. It impacted sales because when you're out ahead, you do see a drop-off.

I would say we've been rewarded for our prudence. I think we've got a really strong relationship with our distribution. So I think our view ultimately was validated in. We've got really good current momentum right now.

So yes, it's unfortunate by how the quarter fell, you can look at the year-over-year comparison, but to Dennis' earlier point, I think we're feeling really good about our outlook for the year for sales.

Andrew Kligerman -- Credit Suisse -- Analyst

So the momentum, it sounds like you kind of picked back up after everybody caught up on crediting rates. And then just maybe overall, do you see industry pressures on sales into the fourth quarter ex FG? Is there generally a bit of a pressure given the lower interest rate environment?

Chris Blunt -- President and Chief Executive Officer

Yeah. I would maybe answer it differently. We're not seeing a rational behavior. So again, we're feeling really good about our ability to generate good spreads and remain competitive and get sales.

So we haven't seen anything crazy going on the market, and we're not feeling like we need to make dramatic changes in terms of preserving our competitive position.

Andrew Kligerman -- Credit Suisse -- Analyst

And industry volumes? Yeah. I guess, I was getting at industry volumes, not so much pricing competition, but are volumes coming down or up?

Chris Blunt -- President and Chief Executive Officer

Yeah. That always comes with a lag in terms of the industry numbers so it's hard for me to judge where we are right this second, and you do get quarterly volatility. But I would come back to -- this is no longer just a product. This is the preferred chassis for insurance companies.

And so I think the tailwind, which we've talked around, around demographics, need for the product. But frankly, it's just a superior chassis. So we saw accumulation products, we saw immediate income products. We saw deferred income products.

We saw hybrid products all off of the same chassis. So I actually think the demand for this category is just going to continue to rise. We may see a blip here or there quarter-by-quarter. But I think that's a wave that's not going to stop anytime soon.

Andrew Kligerman -- Credit Suisse -- Analyst

Got it. Thanks so much.

Operator

Thank you. Our next question comes from Pablo Singzon from J.P. Morgan. Please go ahead.

Your line is open.

Pablo Singzon -- J.P. Morgan -- Analyst

Hi, Dennis. I wanted to get more insight into your in-force management philosophy and comments. So I guess, is there a way to think of how you would approach management by certain factors like type of the business, stage of the book or maybe even the gap between current rates and minimums? Like, for example, I think if you have a biz that's younger or maybe was sourced by an important or perhaps newer distribution relationship you might be more measured in existing rates there?

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

Yeah. Here's how I would sum it up. When we put a tranche of business on the books, we write down and record what the target net spread is to achieve our ultimate IRR. We look at that monthly.

I would say we generally are not looking at that relationship by relationship. We look at it by the overall product and more its vintage, and we make adjustments when and where we believe we have flexibility to effectively manage the overall business to its targeted spread. So I think that's how I'd ask you to think about it.

Pablo Singzon -- J.P. Morgan -- Analyst

OK. And then second question, so you guys have been pretty active in calibrating volumes against price on the retail annuity side. But I was wondering if you have had to do similar repricing or calibrating actions in the flow reinsurance or IUL, like -- so clearly, volumes are pretty healthy, but I'm just wondering if there's a similar underlying dynamic going on there?

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

I think, just given the very nature of the product, right, these are net spread products, you'll see similar trends. But what I will say is some of our flow reinsurance relationships have different characteristics than our traditional core business that we're writing directly on our platform. So I think it varies, but the one constant certainly has been the investment volatility this year. And -- but I think whether onshore or reinsurance business, we've been able to respond pretty effectively.

Jon Bayer -- Executive Vice President, Head of Corporate Development & Strategy

Yeah. Hey, Pablo. It's Jon Bayer. Maybe just to quickly add to that.

In terms of the flow reinsurance opportunity set, the Dennis' point around investment volatility in the recent environment, we actually have seen a pretty nice build over the last several months given that environment relative to our competitive strengths, not just on the investment side, but the product capabilities, as well as our offshore tax structure that we have. So I think it's the environment that we're in is actually benefiting and enabling us to lean into some of these flow reinsurance opportunities, perhaps more so than some of our competitors. So we're very upbeat about the opportunities there.

Pablo Singzon -- J.P. Morgan -- Analyst

Got it. And maybe a last question for Chris. So one of your competitors had hinted that it might have overshot its price reduction efforts and could therefore press on the gas again. I'm just interested to hear your thoughts there.

And in your assessment of your own pricing action so far, do you think it's appropriate? Do you think there's more to go? Or maybe you can sort of -- or do you think that there's an opportunity for you to sort of pick up sales again from here?

Chris Blunt -- President and Chief Executive Officer

Yeah. I guess, if those are the three choices, I'd say the latter. I think we feel really good about where we're positioned right now. As I said, I think we feel validated by being early, although there's always a sweaty moment when you're out early and you start to drop off.

So yes, I think we feel really good about current momentum.

Pablo Singzon -- J.P. Morgan -- Analyst

OK. Thanks.

Operator

Thank you. We will now take our next question from Dan Bergman from Citi. Please go ahead. Your line is open.

Dan Bergman -- Citi -- Analyst

Thanks. Good morning. First, I just wanted to see if there are any updated thoughts you could provide about the level of activity you're seeing in the block reinsurance market and the potential for more deals there? And just has the deal pipeline been impacted at all by the year-to-date drop in interest rates?

Jon Bayer -- Executive Vice President, Head of Corporate Development & Strategy

Yeah. Hey, Dan, John Bayer again. Thanks for the question. Look, I think it's inevitable for some of the blocks, particularly on the larger side that you see a potential impediment financially.

Obviously, that's not the only motivation that our potential clients and counter-parties would have in transacting a block. But I think more so, if there's been a little bit of a tail off, it's been there. Certainly, as we look at that sort of smaller and mid-sized opportunity, we're still seeing quite a lot of a pipeline on that front. So to us, given our size and as we're building our offshore capabilities or our offshore size, I think it's -- there's a lot of deals that are going to be very needle-moving for us, we believe, in the near term.

Chris Blunt -- President and Chief Executive Officer

Yeah. And the only thing I'd add to that, I think Jon said it well, was our focus has tended to be smaller, medium-sized blocks, but just flow opportunities right now. That pipeline looks really attractive. So if your motivation as a carrier is some capital relief, well, that doesn't change in the current environment.

If we can offer better economics to them, well, that doesn't change on the flow deal, that makes it even more attractive to Jon's point. So yes, if you were trying to unload a $20 billion block, you might be a little hesitant right now, given the volatility of interest rates, but that doesn't need to be our market, where we don't have to do all of the hunting right now. There's a lot of singles and doubles we can hit and win the game here.

Dan Bergman -- Citi -- Analyst

That's great. Thanks. And then maybe just a quick clarification question. I believe you guided to a 4.5% yield by the end of the year.

So just to confirm, should we view that as more of an expectation for the fourth-quarter result? Or more of a run rate level you expect to get to by the end of that quarter and kind of a baseline heading into 2020?

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

Yeah. I think we're going to be, as I said, trending toward that 4.50%, whether it's 4.52%, 4.48%, I think there's a range of outcomes there. To the earlier point, if you just adjust for the items in the third quarter or in the low 4.40%, we've got a number of good items in the pipeline, particularly on the alternative front. So I feel pretty good that as we trend toward that 4.50%, there's probably not going to be too much delta between that being a full-year view versus the run rate, but there's enough items in the hopper that I'd like to think if we can get enough of those close, maybe we'll see the run rate maybe be a skosh higher than that.

But look, time will tell and it will play out.

Dan Bergman -- Citi -- Analyst

Got it. Thanks so much.

Operator

Thank you. [Operator instructions] We will now take our next question from Alex Scott from Goldman Sachs. Please go ahead. Your line is open.

Alex Scott -- Goldman Sachs -- Analyst

Hey. Thanks for taking the questions. Some of my questions might have been answered already, but I thought I'd ask, just in light of the ratings upgrades, any thoughts on diversifying product distribution further, whether it's more push on the life side in the pension risk transfers, possibly funding agreement-backed notes or if there's anything else that you're contemplating? I mean how far away is some of that? And could that add to your growth?

Chris Blunt -- President and Chief Executive Officer

Yeah. Thanks, Alex. This is Chris. Could add to the growth.

But I think the few that you hit on are more likely 2021 growth opportunities. I'd say, in 2020, we've got our hands full with the broker-dealer expansion, the pipeline in Bermuda, just organic growth to our existing channels. We are having a number of conversations, including with other carriers, where there might be some clever partnerships, right, where we may be able to attack some of those channels you've mentioned a bit quicker, given that we are still A- from A.M. Best.

So there are some of those channels that might require higher rating. And we've talked to some higher-rated carriers that we might partner with. But I think you should think about that as we think about it, which is that's probably the next wave of lift in 2021. I think for 2020, we've got plenty of things going on right now to have pretty robust growth in 2020.

Alex Scott -- Goldman Sachs -- Analyst

All right. Thank you.

Operator

Thank you. We will now take a follow-up question from John Barnidge from Sandler O'Neill. Please go ahead, sir. Your line is open.

John Barnidge -- Sandler O'Neill + Partners, L.P. -- Analyst

Thanks. Given where shares have traded up to, how should we be thinking from a modeling perspective about share repurchase activity going forward, along with the growth opportunities you're planning for next year? Thank you.

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

Yeah. Hey, Johh. It's Dennis, as we've talked in the past and as we've sort of operated since we put the authorization in place, we're going to continue to be opportunistic on share repurchase, balancing that against all the other capital deployment, but we've been active all year. We'll continue to be opportunistic, and we've got, I think, roughly $80 million left as of today in the current authorization from the Board.

John Barnidge -- Sandler O'Neill + Partners, L.P. -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Pablo Singzon from JPMorgan. Go ahead, sir. Your line is open.

Pablo Singzon -- J.P. Morgan -- Analyst

All right. Thanks for taking my follow-up. So Dennis, I just wanted to ask, do you expect any forward earnings impact from the assumption review, whether in Texas or other assumptions that you adjusted?

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

I would say not too material. I mean we did have the -- our adjustment was related on the annual review as SOP 03, a very modest tweak to utilization. I don't think it's going to be material. Again, we'd just PGAAP back at the end of '17.

So that's why you're seeing such a modest outcome. I wouldn't have expected anything material, and we didn't get anything material. And I don't think the adjustments we've made are going to be noticeable going forward.

Pablo Singzon -- J.P. Morgan -- Analyst

OK. Thank you.

Operator

Thank you. Our next question is from Alex Scott from Goldman Sachs. Go ahead, sir. Your line is open.

Alex Scott -- Goldman Sachs -- Analyst

Thanks for taking the follow-up. Just one more quick one. I guess when I think about some of the actions you're taking to deepen your distribution next year, wondering if we're going to see any kind of like elevated expenses that we should be prepared for associated with that?

Chris Blunt -- President and Chief Executive Officer

Yeah. This is Chris. I think we've gotten ahead of most of that. So we -- a lot of it was frankly technology build on the operations side and the rest of it is primarily variable expense.

And so we added some sales professionals and channel leaders and marketing folks, and as I said, some development activities to make sure we have the right technology plug-and-play for the channel. So I defer to Dennis, but I don't -- we're not anticipating anything significant in 2020?

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

No. I think it will just be the variable costs associated with new business as it comes through the door.

Alex Scott -- Goldman Sachs -- Analyst

Got it. Thank you.

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

Yes. You bet. Thank you.

Operator

And ladies and gentlemen, this will conclude our question-and-answer session. I will now turn the conference back over to CEO, Chris Blunt, for closing remarks.

Chris Blunt -- President and Chief Executive Officer

Great. Thank you. So I appreciate everybody's really good questions and your interest in tuning in. I'm just going to wrap up by saying, look, this is a great business.

We have really, really good and very strong momentum right now on multiple fronts, and candidly, we think we're just getting started. So thank you.

Duration: 47 minutes

Call participants:

Wes Carmichael -- Assistant Vice President, Corporate Development and Investor Relations

Chris Blunt -- President and Chief Executive Officer

Dennis Vigneau -- Executive Vice President and Chief Financial Officer

John Barnidge -- Sandler O'Neill + Partners, L.P. -- Analyst

John Nadel -- UBS -- Analyst

Andrew Kligerman -- Credit Suisse -- Analyst

Pablo Singzon -- J.P. Morgan -- Analyst

Jon Bayer -- Executive Vice President, Head of Corporate Development & Strategy

Dan Bergman -- Citi -- Analyst

Alex Scott -- Goldman Sachs -- Analyst

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