Where an annuity CFO's judgement sits on the balance sheet

Wrenfield earns its living on the difference between what the general account yields and what we credit to policyholders. In 2025 the portfolio yielded 5.08 per cent and our aggregate cost of funds, including the options we buy to fund index credits, was 2.94 per cent. My job is to keep that spread honest. That means separating yield earned by taking more credit risk from yield earned by accepting less liquidity, and pricing each against what the liabilities permit. Indexed annuities complicate the arithmetic, because the cost of the call options behind each year's index credit moves with volatility and interest rates. The chief actuary and I set renewal rates and index caps together each week, using the same asset assumptions the investment team uses to buy. I also report spread by product and by year of issue, so the board can see when an old cohort is quietly subsidising a new one.

About 27 per cent of our general account sits in assets without a daily public price: private placements, commercial and residential mortgage loans and asset-based finance. They earn more than public bonds for good reasons, including bespoke covenants and collateral, and for one uncomfortable reason, which is that nobody marks them every day. Every privately priced position at Wrenfield carries two valuations: the manager's own, and one from a valuation firm that our Audit Committee appoints. Where the two differ by more than three points, the committee discusses the position by name. I watch the statutory side as closely. A private rating usually decides an asset's NAIC designation and therefore the capital it consumes, and regulators have become more willing to challenge ratings that no public market has tested. Since 2022 Thresholm Capital Partners has managed $5.2 billion for us, and the board sees its fees net of every layer of each structure.

A US life insurer keeps two sets of accounts, and its capital is judged mainly on the statutory one. Our operating company's risk-based capital ratio, measured against the company action level, was 415 per cent at December 2025. The board's floor is 375 per cent and we plan to operate above 400. Rating agencies apply their own capital models, which weigh some assets, especially below-investment-grade and structured holdings, more heavily than the regulatory formula, so every capital decision I prepare is tested against both. The holding company depends on dividends from the insurer, and our domiciliary state's insurance law limits ordinary dividends, so I keep at least two years of interest and shareholder dividends at the holding company: $620 million at the end of 2025. When the office loan losses of 2023 cost us 18 points of capital ratio, that buffer allowed us to pause buybacks rather than cut the dividend.

I treat reinsurance as a financing decision whose cost must be compared with equity and debt. We use three forms. A funds-withheld agreement lets a reinsurer take a share of a fixed annuity block while the assets stay on our balance sheet and under our investment guidelines; we signed our first in 2018. Coinsurance moves both the liability and the assets, as it did when our closed long-term care block went to Sallowfield Re in 2025. Yearly renewable term cover handles mortality on our closed universal life block. In every case I look first at what secures the reinsurer's promise: the trust or funds-withheld account, the guidelines governing it, our recapture rights and what happens if the reinsurer is downgraded. Five years at a life reinsurer taught me that a transaction's real value is settled in those clauses, long after the headline capital release has been announced to investors.

Wrenfield adopted the FASB's targeted improvements to the accounting for long-duration contracts, known as LDTI, on 1 January 2023, with comparative periods restated from 1 January 2021. Most of the lifetime income riders on our indexed annuities became market risk benefits measured at fair value, so their value now moves with interest rates, equity markets and our own credit spread, the last of these through other comprehensive income. Together with the embedded derivatives in our indexed products, that makes reported net income volatile in ways that say little about the cash the business produces. I do not hide the volatility. We publish adjusted operating income with a full reconciliation, and every quarter I show the Audit Committee which assumption changes moved which lines. The controls behind those numbers are mine to certify, so I spend real time on model governance: who may change an assumption, who reviews the change and how it reaches the ledger.