Q3 2024 Corebridge Financial Inc Earnings Call

Hello everyone and welcome to the Cool Bridge Financial Inca-Surkaw to 2024 earnings call. My name is Charlie and I'll be coordinating the cool today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star, followed by one on a telephone keypad.

If all questions could please mute locally once they've asked their questions to reduce the risk of background noise, that would be greatly appreciated.

Speaker Change: On our 100th to our host, Isil Muderrisoglu, Head of Investor and Rating Agency Relations to begin. Isil, please go ahead.

Isil Muderrisoglu: Good morning everyone and welcome to Corbridge Financial's earnings update for the third quarter of 2024.

Isil Muderrisoglu: Joining me on the call, Kevin Hogan, President and Chief Executive Officer, and Elias Habayeb Chief Financial Officer. We will begin with prepared remarks by Kevin and Elias, and then we will take your questions.

Isil Muderrisoglu: Today's comments may contain forward-looking statements which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations and assumptions.

Isil Muderrisoglu: Corborges filings with the SEC provide details on important factors that may cause actual results or events to differ materially from those expressed or implied by such forward-looking statements.

Isil Muderrisoglu: Accepted as required by the applicable securities laws, Corbbridge is under no obligation to update any forward-looking statements, if circumstances or management estimates.

Or opinions should change, and your caution to not place and do reliance on any forward-looking statements.

Additionally, today's remarks may refer to non-GAAP financial measures.

The reconciliation of such measures to the most comparable GAP figures is included in our earnings release.

Isil Muderrisoglu: Financial Supplement and Earnings Presentation, all of which are available on our website at investors.corbridgefinancial.com. With that, I would like to now turn the call over to Kevin and Elias for their prepared remarks. Kevin? Thank you, Isil, and good morning, everyone.

Kevin: Today, I will review our results for the third quarter and detail how Corbridge Financial once again delivered on our value proposition.

Kevin: Through our diversified business model, strong balance sheet, and focused execution, we continued to create shareholder value demonstrated by growth in earnings and cash generation and return of significant capital to shareholders.

Kevin: Moving to slide 3, Corbridge had a very strong quarter as we grew operating earnings per share to $1.38, a 31% increase year over year.

Kevin: Additionally, our run rate EPS increased 13% over the same period.

Kevin: With solid fundamentals across our diversified businesses, our core sources of income grew 4% year-over-year and 5% sequentially.

Kevin: Each of our sources of income, fee, spread, and underwriting, increased year over year.

Kevin: We achieved these attractive business results while also maintaining a strong balance sheet, one supported by high quality assets and liabilities, prudent risk management, and diversification.

Kevin: We are heavily focused on asset liability management, which is embedded across all facets of CoreBridge.

Kevin: Our asset strategy is driven by our liability profile, and our broad product portfolio reflects a long tradition of thoughtful product design and dynamic product management.

Kevin: Reflecting our risk management focus, CoreBridge had no significant reserve adjustments as part of our 2024 annual actuarial assumption update.

Kevin: Built on our strong foundation, CoreBridge continues to create shareholder value through disciplined execution.

Kevin: Total capital return to shareholders for the third quarter was $848 million including part of the proceeds from the sale of our UK life insurance business.

Kevin: Moving to slide four.

Kevin: Our market-leading businesses continue to serve customers' needs and support our distribution partners' strategies.

Kevin: Our addressable markets are significant and each benefit from strong tailwinds given a large and growing retirement-aged U.S. population and a life insurance protection gap.

Kevin: The macroeconomic environment also continues to be supportive of our business.

Kevin: Interest rates at mid durations are expected to remain at attractive levels and new money rates were in excess of six percent.

Kevin: As Elias will expand upon, there may be some short-term impacts from lower rates at the short end of the yield curve, but these will be more than offset by growth in the overall portfolio over time.

Kevin: A steeper curve is generally better for our business.

Kevin: Now, turning to the businesses.

Kevin: In individual retirement, premiums and deposits increased 40% year over year to $5.5 billion.

Kevin: General account net flows, supported by strong sales volume and improving surrenders, were nearly $1.7 billion for the quarter and $5.3 billion for the year to date, a level that already exceeds what we reached for full year 2023.

Kevin: These strong flows in the general account continue to serve as a platform to drive current and future earnings.

Kevin: Last month, individual retirement expanded on what is already one of the broadest annuity platforms in the industry with the launch of our first registered index-linked annuity, or RILA.

Kevin: As part of the product development process, we leverage the long-standing relationships we have with distribution partners and our deep understanding of their strategies.

Kevin: Our RILA brings together the most sought-after features already in the market together with a lock strategy that is exclusive to CoreBridge.

Kevin: The product is already resonating with our partners, and we are pleased with the reception to date.

Kevin: Financial professionals at nearly 200 of our top distribution partners were positioned to sell our RYLA from day one, making it our largest new product launch ever.

Kevin: Corbridge now stands as the only top three annuity provider with an offering in every major product category.

Kevin: Thank you. Bye.

Kevin: Group retirement produced another solid quarter. Excluding plan acquisitions, premiums and deposits grew 10% year over year.

Kevin: Advisory and brokerage assets under administration increased 22 percent, and outer plan proprietary annuity premiums and deposits increased 17 percent.

Kevin: The long-term growth opportunity for advisory, brokerage, and out-of-plan annuities is significant as 1.6 million of our customers are in-plan only.

Kevin: Both in-plan and out-of-plan, our experienced team of financial professionals are an essential part of our success, and we have been investing to further improve their efficiency, resulting in an increase in average productivity per advisor of 15% year over year.

Kevin: Life insurance, an important part of our diversified portfolio, had a very strong quarter.

Kevin: Sales growth was 14% year-over-year which continues to outpace the industry as it has for eight consecutive quarters.

Kevin: Our modern approach to new business is a key reason for this success.

Kevin: With our data-driven practices, 80% of newly issued policies are auto-decisioned.

Kevin: Building off this capability, we have developed a digital policy application process called Simply Now that provides a contemporary purchasing experience with the underwriting decision typically delivered in a matter of minutes.

Kevin: This feature is attractive to many financial professionals, facilitating further expansion of our life insurance distribution platform.

Kevin: Institutional markets also had a strong quarter.

Kevin: Reserves increased 20% year-over-year, supporting ongoing earnings growth, and we issued $1 billion of DICs this quarter, furthering our strategy to become a more regular issuer.

Kevin: With pension risk transfer, we see a robust pipeline of large potential transactions for the remainder of this year and going into 2025.

Kevin: As a reminder, we specialize in complex transactions that take time to develop and are not consistent quarter to quarter.

Kevin: Turning to slide five, you will see the four strategic levers that CoreBridge is focused on to grow earnings per share and cash flows.

Kevin: The first is organic growth. I just spent a few minutes talking about our strong business fundamentals and the opportunities ahead.

Kevin: We believe Corbridge will continue to grow our balance sheet organically, which will in turn contribute to increased earnings per share over time.

Kevin: The second strategic lever is balance sheet optimization.

Kevin: We will continue to pursue opportunities to actively manage both our assets and liabilities to drive higher return on capital.

Kevin: To this end, we are expanding our Bermuda Strategy and continue to explore additional opportunities to enhance our financial flexibility.

Kevin: and Elias Habayeb.

Kevin: The third is expense efficiency.

Kevin: We successfully delivered on CoreBridge Forward, the first phase of our modernization and expense efficiency program.

Kevin: As of September 30, approximately $320 million in savings have earned in from this program, and we expect the final $80 million to earn in through 2025.

Kevin: Corbidge is moving to the next phase of modernization.

Kevin: We are further digitizing end-to-end processes that support our insurance operations to improve the customer journey and the distribution partner experience.

Kevin: We are also building on the significant investments we made as part of our separation process to further modernize our finance and actuarial capabilities.

Kevin: We are committed to delivering improved performance and enhanced operational efficiency over time.

Kevin: The fourth lever is capital management.

Kevin: Cordridge remains focused on effectively managing capital to drive increased shareholder returns, executing on opportunities with the goal to provide an attractive and growing cash return to shareholders.

Kevin: Next, I want to spend a moment to update you on the progress we are making against some of our key financial goals.

Kevin: First, adjusted return on average equity.

Kevin: Year-to-date, we have delivered a run rate ROE of 13.3 percent, a 130 basis points improvement year over year, and well within our 12 to 14 percent target range.

Kevin: Third quarter ROE represents a 315 basis point increase since the IPO.

Kevin: Second, operating earnings per share.

Kevin: Year-to-date, we have delivered run rate EPS of $3.70, a 13% improvement year-over-year.

Kevin: Discrete third quarter EPS represents a 36% improvement since the IPO.

Kevin: And third, capital return.

Kevin: Corbridge has returned 1.8 billion dollars to shareholders over the first nine months of the year and we are on target to achieve a payout ratio of 60 to 65 percent for the year excluding proceeds from the sale of our UK life insurance business.

Kevin: Since the IPO, Corbridge has returned $4.3 billion of capital to shareholders, including over $1 billion from our international life divestitures.

Kevin: , Elias Habayeb , Elias Habayeb , Elias Habayeb, Elias Muderrisoglu, Elias Habeyeb, Elias Habayeb,

Kevin: Corbridge has consistently demonstrated the discipline to allocate capital to growth opportunities where risk-adjusted returns are the most attractive and where customer needs are the greatest, while also delivering significant returns to shareholders and maintaining a strong financial position.

Speaker Change: Looking forward, we are focused on growing earnings per share and cash flows and continuing to increase long-term shareholder value. I will now turn the call over to Elias.

Elias Habayeb: Thank you, Kevin. I will begin my remarks today on slide 6, where I'll provide an overview of our key financial results for the quarter.

Elias Habayeb: Corbridge reported adjusted pre-tax operating income of $1 billion, or operating earnings per share of $1.38, a 31% improvement year-over-year on a per-share basis.

Speaker Change: Our operating EPS included four notable items this quarter, resulting in a favorable impact of $0.11. Details can be found in our earnings presentation.

Speaker Change: Annualized alternative investment returns were approximately 7% in the quarter, which were 2 cents short of our long-term expectation of 8-9%.

Speaker Change: Positive returns in traditional private equity benefited from a corporate event and foreign exchange movements.

Speaker Change: This was partially offset by a mark-to-market loss from one investment in our hedge fund portfolio. As expected, real estate equity returns improved from the first half of the year.

Speaker Change: Adjusting for notable items and alternative investment returns, we delivered run rate operating EPS of $1.29, a 13% increase year-over-year and a 36% increase since the IPO.

Speaker Change: This improvement was driven by continued organic growth, balance sheet optimization, expense efficiencies, and active capital management.

Speaker Change: Turning to slide 7.

Speaker Change: Our earnings are driven by diverse sources of income that positions Corbridge to deliver attractive returns under different market conditions, and this quarter was no exception.

Speaker Change: Core sources of income, excluding notable items, grew 4% year-over-year by an increase in each of our sources.

Speaker Change: Fee income, which comprises approximately 30% of our core sources of income, improved 11% and driven by higher account values along with our growing advisory and brokerage business.

Speaker Change: On a comparable basis, underwriting margin improved 4% by more favorable mortality experience.

Speaker Change: Base spread income improved 1% over the prior year, but declined 3% sequentially.

Speaker Change: The drivers behind the growth in base-spread income were consistent with prior quarters.

Speaker Change: The sequential decline was driven by the impact of hedging floating rate exposures in individual retirement as well as elevated prepayments on higher yielding assets in group retirement.

Speaker Change: Even with that, base debt investment spread in individual retirement has remained relatively stable over the last three quarters.

Speaker Change: Looking forward, given the Fed entered into its easing cycle, we wanted to provide you with sensitivities to potential rate actions.

Speaker Change: Before any additional management actions, a 25 basis points decrease in SOFR would impact base yield by less than 2 basis points in the first 12 months.

Speaker Change: We expect this impact will moderate as a result of the runoff of the portfolio, additional hedging activities, and active management of crediting rates on enforced business.

Speaker Change: and Elias Habayeb. Thank you. Thank you.

Speaker Change: Floating rate assets have been a source of attractive yields and play an important role in duration management, complementing other tools we use to actively maintain alignment of the balance sheet.

Speaker Change: Currently, our floating rate exposures, net of hedging, and floating rate liabilities is approximately 8% of the general account investment portfolio.

Speaker Change: A significant portion of these assets back annuities that are outside their surrender charge period.

Speaker Change: Separately, we have entered into certain macro hedges as part of our balance sheet management strategy.

Speaker Change: Under the same scenario I just mentioned, any potential impact could equate to less than one basis point on base yield.

Speaker Change: As with the case of any macro hedge, we adjust our positions relative to the prevailing market conditions.

Speaker Change: While we expect to see base spread income in individual retirement to continue to grow over time, we could see some pressure in the short term.

Speaker Change: Furthermore, we expect to see continued growth in institutional market spread earnings aligned with the growth in the business.

Speaker Change: Moving to slide 8.

Speaker Change: Corbridge has a long track record of delivering attractive financial results under different market conditions.

Speaker Change: We are not beholden to any one business or product, and our four businesses complement each other.

Speaker Change: For instance, underwriting margin, which has been a steady and reliable source of income, serves as a natural counterbalance to other sources of income that are more sensitive to macroeconomic conditions, such as spread and fee income.

Speaker Change: Further, when interest rates have declined, asset values have risen, driving an increase in fee income and alternative investment returns that have offset impacts to spread income.

Speaker Change: As a result, core sources of income have shown steady resilience over the longer term, enabling us to generate consistent and growing cash flows from our insurance companies and ultimately delivering strong returns to our shareholders.

Speaker Change: The combination of our diversified, market-leading businesses working together is a key component of our shareholder value proposition.

Speaker Change: Now, turning to individual business highlights, which exclude the impact of notable items, variable investment income, and the sale of our international life business.

Speaker Change: In individual retirement, adjusted pre-tax operating income grew by 5% year over year, primarily driven by the growth in both spread and fee income.

Speaker Change: Fixed annuity surrenders continued to improve from their peak earlier in the year and were 13% for the quarter.

Speaker Change: Group retirement delivered another steady quarter through its combination of spread and fee income. Fee income increased 12% year over year.

Speaker Change: We continue to see this business transition to a more capital light fee-based revenue stream reflecting the changing dynamics in the business.

Speaker Change: As our in-plant customers transition from employment to retirement, we're seeing advisory and brokerage services grow while net outflows continue in the general account.

Speaker Change: Both spread and fee income will continue to reflect the impact of net flows and asset values.

Speaker Change: Looking to the fourth quarter, their seasonality and net flows would raise levels of outflows at the end of the year resulting from required minimum distribution by planned participants.

Speaker Change: Additionally, we've been informed of two upcoming large group plan exits, but they're predominantly invested in our group mutual fund product, thus having a limited impact to earnings.

Speaker Change: In life insurance, adjusted pre-tax operating income increased by 8% year over year. This expansion was primarily driven by more favorable mortality experience.

Speaker Change: In institutional markets, adjusted pre-tax operating income grew by 50% year over year, primarily driven by higher spread income arising from portfolio growth.

Speaker Change: Our reserves have grown $7 billion, or 20% year-over-year, with the expansion of our pension risk transfer business and higher volume of GIC issuances.

Speaker Change: Our financial results for the quarter demonstrate the benefits from multiple sources of income as well as the ability to improve efficiency while also growing the balance sheet.

Speaker Change: on that point.

Speaker Change: General operating expenses for our insurance businesses and parent companies were favorable by 3% year-over-year after excluding the sale of our international life business, bringing our cumulative improvement from the end of 2022 to 14%.

Speaker Change: This was driven primarily by expense efficiencies from core bridge forward.

Speaker Change: Looking forward to the fourth quarter, we expect some seasonality and expenses.

Speaker Change: Now, turning to the Annual Actuarial Assumption Update.

Speaker Change: This year's update resulted in almost no impact to adjusted pre-tax operating income and is the third consecutive year with limited impact on operating earnings.

Speaker Change: Moving to slide 9.

Speaker Change: Corbridge continues to maintain a strong balance sheet and our ability to generate consistent cash flows from our insurance subsidiaries provides us with the flexibility to act on attractive opportunities and deliver on commitments to our shareholders.

Speaker Change: Holding company liquidity remains strong at two billion dollars and the Lifeleet RBC is above target.

Speaker Change: paying off the remaining $250 million balance on the delay-draw term loan and earmarking $500 million for pre-funding a portion of our debt maturing in 2025.

Speaker Change: Adjusting for the pre-funding, our financial leverage ratio would have been 29.6%.

Speaker Change: Distributions from the domestic insurance companies were $550 million in the third quarter, bringing the year-to-date distribution to $1.7 billion, a 10% increase over the prior year.

Speaker Change: We are on track to distribute over $2 billion in 2024.

Speaker Change: In conclusion, our diversified business model, strong balance sheet, and disciplined execution continue to create shareholder value as demonstrated by the growth in our earnings and cash generation. With that, I'll now turn the call back to Isil.

Isil Muderrisoglu: Thank you, Elias. As a reminder, please limit yourselves to one question and one follow-up. Operator, we are now ready to begin the Q&A portion of the call.

Speaker Change: Thank you for watching!

Speaker Change: Thank you. If you'd like to ask a question, please press star followed by 1 on your telephone keypad. If you'd like to withdraw your question, please press star followed by 2. When preparing to ask your question, please ensure you are unmuted locally.

Speaker Change: We ask that all questioners please mute locally once they've asked their question to reduce the risk of any background noise. And as a reminder, that's star followed by one.

Speaker Change: Our first question comes from Alex Scott of Barclays. Alex, your line is open, please go ahead.

Alex Scott: Good morning.

Alex Scott: First one I have is on some of the comments around financial flexibility. I think it was

Alex Scott: specifically noted that you're looking at an additional operation.

Speaker Change: opportunities to increase financial

Speaker Change: Thank you.

Speaker Change: Alex, I'm sorry, we can barely hear you. Can you speak up?

Speaker Change: and Elias Habayeb. Thank you.

Speaker Change: Elias Habayeb

Alex: My apologies. Is that better? That's better. Thank you.

Alex: So I just wanted to ask about the additional opportunities for financial flexibility. I know you all have already done a lot on this front, but was hoping you could add some context on what you're looking at specifically.

Speaker Change: So, Alex, it's Elias. So, you know, as you know, we're very proactive with managing our balance sheet.

Speaker Change: and we look for opportunities kind of to improve our financial flexibility as we did with our Bermuda strategy as well as look for opportunities creating shareholder value as we did with their international life operations.

Alex: The Bermuda strategy is progressing as we've talked about before.

Alex: whereby we're leveraging the excess capital we have in Bermuda to support new business generation and individual retirement. That reduces some of the strain we have on new business and that's part of the strategy to grow earnings and cash flows over time.

Alex: And as we said before, we see broader opportunities for Bermuda that will be explored and we'll be back to you guys when we have something to talk about.

Speaker Change: Understood, thanks. You know, one of the other things I noticed from the presentation was there's just reference that you're generating expense efficiencies beyond just Corbridge-Ford and, you know, I was interested if you could give us some more color on, you know, some of the things you're doing there and, you know, what you're doing to improve efficiency.

Speaker Change: Yeah, thanks Alex. Corbett's Forward gave us a great start.

Speaker Change: And, you know, through it, we updated our operating model. We modernized a lot of our IT infrastructure. We moved a lot of that infrastructure to the cloud. All of our IT is now sitting in one version of the cloud or another. We exited our data centers, and we upgraded most of our enterprise platforms, including some of the finance and actuarial platforms.

Speaker Change: in part in preparation for LDTI, but also in part in preparation for the separation.

Alex: And so the next phase is actually being able to put a lot of that capability and tools to work.

Alex: And the areas that are our immediate focus are, you know, after transitioning much of our middle and back office insurance operations work, we now have the opportunity to automate and digitize that and eliminate a lot of the work associated with it while improving the underlying customer and distribution partner experience.

Alex: And then we've also have an opportunity to further enhance our finance and actuarial practices. Those are the two, you know, immediate areas of focus because of the tools that we put in place.

Alex: along with the investments that we made preparing for separation. We don't have a particular target or announcement of a program in place at this time. We're working through the plan, but, you know, this modernization journey has just begun for us.

Alex: and Elias Habayeb. Thank you.

Speaker Change: Very helpful, thank you.

Alex: Thank you. Our next question comes from Wes Carmichael of Autonomous Research. Wes, your line is open, please go ahead.

Wes Carmichael: Hey, thank you. Good morning. First question is on Ryla. You talked about being up and running with a number of distribution partners on day one. I guess how are you thinking about the contribution from Ryla maybe in 2025? How long do you expect sales of that product to ramp up?

Speaker Change: Yeah, thanks. Look, I mean, Ryla has been one of the fastest growing parts of the market over the last couple of years and

Alex: The reality is our largest distribution partners have been asking us to provide a RILA entry. And, you know, we feel we brought our historical creativity, you know, to our version of the product. And frankly, the initial reception has been very strong in the first couple of weeks.

Alex: But it is just the, you know, the first couple of weeks.

Alex: The pipeline is building quickly. The number of producers that have been, you know, trained on the product is increasing on a daily basis. And we're seeing that pipeline, you know, continue to build. And, you know, we're excited about the Ryla product because...

Alex: It has attractive margins, it supports our overall diversification, and it fits within our overall strategy, which is to support our distribution partners with a range of products that support different customers' needs and risk appetites at different times.

Alex: and the rival product supports a different customer risk appetite than indexed annuities or the variable annuity product and so you know we're seeing an expansion of our overall capabilities there. In terms of what it may contribute in 2025 you know each of our individual retirement products are in a strong position and contribute attractive margins and so we see it as a strong complement but aren't prepared to talk about any targets at this point in

Speaker Change: Okay, thanks Damon. My follow-up was on Capitol and thinking about Bermuda and you talked about it a little bit Elias, but going forward should we expect...

Alex: cash flows to the parent company from your Bermuda company? Or should we really expect you to kind of effectively utilize the excess capital that's there to support new business from individual retirement?

Alex: Yeah, thanks, Wes. So look, I mean, as, as we've talked about before, we think of Bermuda as the next tool in our capital management toolkit.

Alex: It provides, you know, a lot of opportunities.

Alex: For us, right now, we're focusing on our fixed and indexed annuity new business.

Alex: But there's other products that may benefit from us, you know, seeding new business into Bermuda. We could potentially, you know, engage in portfolio transactions.

Alex: on the in-force business. And then ultimately Bermuda is an environment that has been attractive for attracting third-party...

Alex: Capital, which is an option we'll consider at an appropriate point in time. But all of these, we look as part of our capital management toolkit, which is designed to facilitate our ability to invest in new business at attractive margins and then be able to maintain a strong balance sheet and provide an attractive and growing cash return to shareholders over time.

Alex: Thanks.

Speaker Change: Our next question comes from Sunit Kamath. Sunit, your line is open, please go ahead.

Sunit Kamath: Thanks, I wanted to start with annuities. Kevin, the industry sales have been strong, your sales have been strong. Held up pretty well even with the pullback in rates in the third quarter. I guess the question is, how sustainable do you think your level of sales, industry level of sales is as we kind of move from this year kind of into next year?

Kevin Hogan: Yeah, thanks, Jeanette. What I would say is that the underlying drivers for the annuity industry don't change with the short end of the curve.

Alex: and really the need for people in this country to plan and prepare for their own retirement is huge.

Alex: And getting larger and structurally, I think that's one of the things that, you know, has driven the opportunity that now certainly the environment, the last couple of years has been very favorable, but it's really the five to ten year part of the curve. That's most.

Alex: relevant in pricing, you know, the annuities products to spread businesses and that part of the curve based on the current outlook is going to continue to allow for these products to be a very attractive part of a long term savings plan.

Alex: The second thing I would say is that the advisor community, you know, there's been a whole new range of advisors in the last couple of years that have learned about the value of annuities as part of that long-term savings program. And so we believe that the conditions for, you know, the annuity business are going to continue to be very supportive.

Alex: And so whether the volumes will, you know, continue at the pace of the last couple of quarters is really going to depend on what the conditions are each quarter, where interest rates are and where people believe interest rates are going to go.

Alex Scott: Got it. And then I guess Elias, on the base spread income commentary that you had in your prepared remarks, I guess I was hoping you could unpack that just a little bit because what I wasn't clear on is how much of this impact and pressure that you talked about is actually going to happen and sort of how much of it could happen if the Fed decides to move a certain way. So can you just maybe revisit that with a little bit of granularity? Thanks.

Elias Habayeb: Yeah, so Sunit, it's Eli. So, you know, the sensitivity we gave to, you know, to the extent there's a 25 basis point rate cut, and we've already had 50, is the impact on us from a base net yield perspective is less than two basis points.

Alex: And to put that in context, you know, we've increased our base yield by over a hundred basis points in the last two years.

Alex: since the beginning of 22.

Alex: there. So there will be some sensitivity that we would expect to play out.

Alex: That will be mitigated to some extent with additional hedging activities. The floaters do have a shorter duration, so they'll run up.

Alex: quicker than some of the other bonds in our portfolio.

Alex: As well as most of the floating rate positions we have back annuities that are outside the surrender charge period.

Alex: And we're pretty active from a crediting perspective, but that will take some time.

Alex: since you can only adjust it.

Alex: at the annual anniversary date of the annuity.

Alex: That being said, you know, we continue to believe that spread income and individual retirement will grow over time.

Alex: but there could be some short-term pressure. And but we continue to believe we will continue to grow our earnings per share and deliver on our financial targets irrespective of the rate environment and what the Fed might do.

Speaker Change: Okay, thanks.

Speaker Change: Thank you. Our next question comes from Ryan Kruger of KBW. Ryan, your line is open, please go ahead.

Ryan Kruger: Thank you.

Ryan Kruger: Hey, good morning. One more follow-up on the short-term rates. Just wanted to make sure I understood.

Ryan Kruger: Was the message that 25 basis point decline in SOFR has less than a two basis point impact on your yield but then the additional macro hedges reduces that to more like one basis point? Did I understand that correctly?

Alex: Hey Ryan, it's Elias. Now the way it works is this is a point-in-time sensitivity, so with respect to the investment portfolio, the sensitivity is less than two basis points.

Alex: The macro hedges, if they don't change, is additive.

Alex: But with respect to the macro hedges, those are part of our enterprise balance sheet management strategy, which we're proactive in managing. We've actually reduced these positions over the course of the year and based on what the outlook is now, there's a chance that I think we would expect to reduce them even further.

Alex: So, I would look at the macro-hedges kind of a little different. The only reason we're giving that sensitivity is for completeness as a point in time.

Alex: But if you look at the investment portfolio, that's where the true sensitivity is. And every 25 basis points there is less than 2 basis points on base yield, which, since the beginning of 2022, we've increased it by over 100 basis points.

Speaker Change: Okay, got it. That makes sense.

Speaker Change: We're focused on growing earnings as well as, you know, growing EPS by both the growing earnings.

Alex: as well as growing capital. You know, there's obviously some sensitivity to our earnings that we view as short-term, but the longer-term trajectories we expect to be growing earnings as well as growing EPS through earnings and capital return.

Alex: Yeah, and Brian, hey, this is Kevin. I just, I just jumped in. I said, each of our businesses.

Alex: is actually in a very strong position. Individual retirement, I think, you know, we've explained the difference between the overall dynamic of new sales being at very attractive margins and expected to continue to be based on where the middle of the curve, five to ten years,

Alex: anticipated to be. There's some short-term impacts as Elias just described, but we see an attractive ongoing condition for this business.

Alex: In group retirement, you know, fee income now exceeds spread income. This is a dynamic we've been talking about in this portfolio some time and and the sources of our, you know, spread our fee income by the in plan fee asset base is up 10% year over year, the advisory and brokerage asset base is up 22%.

Alex: out-of-plan assets are up 11%, so group retirement, you know, continues to, I think, you know, grow its potential sources of earnings.

Alex: Our life business is in excellent shape. We've outgrown the market eight quarters in a row after really focusing our portfolio on, you know, less interest-sensitive parts of the business and then institutional markets is in a strong position.

Alex: You know, this short-term impact on spreads, I wouldn't overstate, are multiple sources of income. That's a strategy that, you know, we benefit from in different market conditions, and each of the businesses is well-positioned relative to its market.

Alex: and Elias Habayeb.

Alex: Thank you.

Elias Habayeb: Elias Habayeb Elias Habayeb

Speaker Change: Thank you. Our next question comes from Tom Gallagher of Evercore. Tom, your line is open, please proceed.

Tom Gallagher: Morning. First question on capital management, second one on asset liability management, but the capital management question is just obviously a very strong level of share repurchase in 3Q. Can you remind us, A, how much you've used up from the UK life proceeds?

Alex: and how we should think about a run rate heading into 4Q. If I just look at normalized...

Alex: buybacks from Capital Generation. It's probably half of that amount that you did in Q3, but curious if you still have access that you might lean into if there's opportunities in the fourth quarter.

Alex: to 65 percent.

Alex: We expect to cover that organically.

Speaker Change: The UK proceeds were extra, and we've deployed a meaningful portion of the UK proceeds in the third quarter. I would be thinking in terms of 60 to 65 percent in the fourth quarter for this year.

Alex: Gotcha.

Alex: and my...

Alex: My ALM question is, Elias, I heard what you said about the floating rate...

Alex: 8% of the general account.

Alex: mainly backing annuities outside of surrender charge. I presume that's an ALM set up.

Alex: to prevent against a rising rate shock type scenario.

Alex: just thinking about why you would position it that way.

Alex: what we'll call it maybe optimizes the change in macro here or are you comfortable just sticking with this big floating rate portfolio backing that that block?

Alex: Hey, Tom, it's Kevin. You know, I think I'll jump in here. Let's unpack it a little bit. So, you know, we always manage ALM and our ALM equation carefully as part of our balance sheet management. And as interest rates change, the dynamic changes.

Alex: That will change, either the liabilities will lengthen or shorten. And as we saw a couple of years ago when interest rates started to rise sharply. And so floating rate assets play an important role for us in ALM in helping manage duration.

Alex: and as the overall, you know, shape of the yield curve changes, that will determine the length of the liabilities and will dynamically manage our floating rate portfolio accordingly.

Alex: But another role that the floating rate assets play is liquidity.

Alex: relative to particularly those annuities that are outside the surrender charge period. And just as a reminder, we never have.

Alex: reinsured our back book and we've benefited from that.

Alex: in the recent environment. We continue to benefit actually from that in-force business, but the floating rate portfolio has...

Alex: been a part of that benefit to that.

Alex: to that enforced business. So, you know, floaters are not purely from a perspective of ALM.

Alex: But they've been very attractive risk-adjusted returns, and we respond to that.

Alex: We do have some shorter-dated liabilities that they support, particularly in the annuities business. The last couple of years, some of the three-year, four-year surrender business has become more popular. And then we also have the annuities outside of surrender.

Alex: So we'll continue to dynamically, you know, manage the floating rate portfolio. It isn't just a defensive hedge the way that you described it.

Speaker Change: Thanks for that.

Speaker Change: Christopher Jones, Obama www.iclnbbs.org Let's start in Brown Corporate Law Rightfuls Order with respect to RMD.

Alex: Please see the complete disclaimer at https://sites.google.com

Alex: Thank you very much.

Speaker Change: Our next question comes from Elise Greenspan of Wells Fargo. Elise, your line is open, please go ahead.

Elise Greenspan: Hi, thanks. Good morning. My first question is just, you know, on PRT deal flow. I think it's been, you know, a little slower since the first quarter. Just was hoping to get an update there just in terms of the environment and the pipeline for transactions you see over the balance of this year and into 2025.

Speaker Change: Yeah, thanks Elise. So, you know, just a reminder we do focus on full plan terminations.

Speaker Change: We've focused on full-plan terms really since 2016. We find the market, you know, we find the economic, you know, more attractive than the full-plan term segment because they're a little bit more complex.

Speaker Change: There's fewer companies that have prepared the administration.

Speaker Change: to be able to support them. We continue to see a very strong pipeline of full-plan terminations. Because of the complexity of these, they don't land necessarily every quarter. And I described that, you know, the pipeline for the remainder of this year is attractive. In fact, we've already landed a decent-sized transaction for the fourth quarter that we've been working on for a number of quarters.

Speaker Change: And we see the pipeline going into next year also very attractive. So, you know, in the medium term, we continue to see very attractive economic opportunities.

Speaker Change: The pipelines are full. The transactions are moving forward. Plans are largely funded. And activity levels remain high both in the US and in the UK.

Speaker Change: Thanks. And then my second question is on capital as well, right? So $2 billion, apparent when we, you know, take

Speaker Change: into account the pre-funded debt, you know, still, you know, pretty healthy level right at like one and a half billion.

Speaker Change: So, you know, obviously that's been helped by some of the transactions that you've done.

Speaker Change: As we just think about, you know, going forward, when do you think you might, you know, bring that line down, right, more, I think you've spoken in the past, right, to kind of keeping that in line with, you know, annual, annual needs?

Elias Habayeb: Hey Lisa, it's Elias. So as we've said in the past, we manage our parent liquidity to govern next 12 month needs.

Speaker Change: And I think you've seen, like, we've worked through a lot of the one-time expenses we've had.

Elias Habayeb: The parent expenses are down from over $200 million run rate down to about a $150 million run rate.

Speaker Change: So that's all contributing to a lower need at the parent. The $1.5 billion that you're referencing right now at the end of the quarter, which excludes the $500 million we've earmarked for the early 25 maturity, is in excess of that 12-month need.

Speaker Change: and consistent with what we've said in the past, we'd expect that to continue to trend down.

Speaker Change: Thank you for watching!

Speaker Change: Thank you. Our next question comes from Wilma Burdis of Raymond James. Wilma, your line is open, please go ahead.

Wilma Burdis: Good morning. You touched on this a bit earlier, but could you talk more specifically about the proportion of Dixie Newies?

Wilma Burdis: that have been written over the last couple of years in terms of three-year duration, four years, five years, seven years, maybe just talk a little bit about that. Distributors have mentioned to me that three-year fixed annuities have been the most popular during the recent period of higher rates, so I just wanted to see if that's what you're also seeing. Thanks.

Wilma Burdis: you know, be attractive for customers that see less certainty in the longer term, you know, rate environment.

Wilma Burdis: than the longer term.

Speaker Change: There were definitely periods when the rate curve started to change that, you know, there was a lot of uncertainty around there, so quite a bit of the shorter duration.

Wilma Burdis: product was attractive to customers at that.

Speaker Change: at that time, but more recently with some, you know, broader perspective on where medium-term rates

Speaker Change: may be in particular the 5 to 10 year part of the curve. We've seen a return to the more traditional 5 and 7 year surrender products.

Speaker Change: and it really is something that depends on the strategy of each of our distribution partners and the position of a given customer and what fits with their long-term portfolio expectations over time.

Speaker Change: So we don't necessarily have a strategy of directing towards one duration or another. Our strategy, as with all of our products, is to have multiple solutions available. Those include both

Speaker Change: products with income benefits or products that are accumulation focused or products that are short or medium or long duration. And of course, we've just rounded out our portfolio with our new RILA product, which we're looking forward to further developing.

Speaker Change: I think you touched on this a little bit earlier as well, but the environment actually looks somewhat favorable for me to continue to sell annuities, especially fixed and as you mentioned, it sounds like you're seeing longer dated products as well. So is that what you're seeing? Thanks.

Speaker Change: I think the environment continues to be excellent for annuities among our other products.

Speaker Change: And, you know, as I mentioned earlier, the demand is definitely there.

Speaker Change: The advisor community understands the value of these products, especially, you know, at the kind of rate environment that we anticipate being able to continue to see.

Speaker Change: And so, yes, I mean, we're seeing a lot of demand for fixed annuity. The demand for fixed annuity is a little bit more reflective of the immediacy of where, you know, rate changes are. But the demand for index annuity has been consistently growing.

Speaker Change: over time. There's a particular part of the investor appetite that still very much appeals to a traditional variable annuity, and then the RILA, you know, speaks to, you know, a risk appetite that's a little bit more aggressive than would be interested in an indexed annuity, but maybe not all the way to the appetite of a traditional

Speaker Change: variable annuity. So, you know, I think across the board the environment for the annuity industry remains very attractive.

Elias Habayeb: Elias Habayeb

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from Josh Shanker of Banks America. Josh, your line is open, please go ahead.

Josh Shanker: Thank you very much. I just want to talk about, given the strong reverse activity in the quarter, how much excess capital do you have? Not just the buffer you have, but the amount that you would want to be returning to shareholders. Remaining from M&A transactions and just your capital optimization overall, and are there any thoughts at all about long-term free cash flow conversion on your earnings, whether it can be pushed higher than you have said in recent conference calls and whatnot?

Speaker Change: So Josh, you're polite.

Speaker Change: You know what I would say is this, our balance sheet is in a very strong position, we've been proactive in managing it to make sure it's in a very strong position.

Speaker Change: Our capital ratios are above our targets.

Speaker Change: Our parent liquidity is above kind of where our parent needs are.

Speaker Change: We've, you know, we've been pursuing opportunities to...

Speaker Change: improve our financial flexibility, and there are other opportunities out there we're exploring.

Speaker Change: And when it comes from a capital distribution perspective, we've been pretty disciplined.

Speaker Change: on kind of balancing giving an attractive cash return back to shareholders.

Speaker Change: with investing in the business, which is kind of continuing to grow earnings and cash flows over time. So I think we've done a pretty good job there, and I think if you look at our balance sheet to date, it continues to be in a very strong position, which.

Speaker Change: You know, it's part of the four levers we have to grow our earnings per share and create shareholder value. So we're in a good position to deliver on that.

Speaker Change: If we think about modeling out, do you intend to operate above your long-term desired capital ratios for the long-term, or do you expect to get those down to in-line or in target range with your goals for capital leverage?

Speaker Change: So the way we look at the balance sheet is not just looking at one metric.

Speaker Change: The way we look at the health of the balance sheet is, you know, we look at our capital ratios, our leverage profile, our liquidity profile, as well as the risk profile of the balance sheet.

Speaker Change: to do or not do. You know, the leverage rate, sorry, the RBC ratio of 400 is a management threshold.

Speaker Change: that we've set for us from that perspective, but it's just one of the metrics we look at. It's not a bright line that it has to be at 400 or 410 or 380 or whatever.

Speaker Change: So, we look at it collectively and make our decisions after looking at the collective profile of the balance sheet.

Speaker Change: Thank you for the descriptive language.

Speaker Change: Thank you. Our final question of today comes from Dan Bergman of TD Cowan. Dan, your line is open, please go ahead.

Dan Bergman: Thanks. Good morning. Maybe just on alternative investment returns, they are still a little bit below long-term expectations in the quarter, but continue to show nice sequential improvement. Based on the prepared remarks, it sounded like there were some noise and one-off items in the quarter. But first, I just wanted to see if you had any initial view into what you'd expect for alternatives in the fourth quarter. And then maybe just more broadly heading into 2025, would you expect alternative returns to be back at long-term levels, or could the higher interest rate environment cause some ongoing pressure?

Speaker Change: We had a really good quarter in the third quarter, if you look at what's the trend line been, you know, to your point, the returns have been improving.

Speaker Change: We expect the fourth quarter to be another good quarter. I don't think it's going to be as good as the third quarter given we had a corporate event and some FX benefits on the foreign funds that we had invested in.

Speaker Change: So, our best insight, based on what we know today, it will be between where the second quarter is and where the third quarter was.

Speaker Change: Looking into 2025, listen, we continue to believe in our long-term expectation of returns being in the 8-9% range.

Speaker Change: And obviously, as you know, there's macro factors and other things that could influence it. I think it's early to predict anything right now beyond what's our long-term expectation around variable investment income.

Elias Habayeb: Elias Habayeb

Speaker Change: Got it. That's really helpful. Thanks. And then maybe just a quick one on life insurance. It sounded like the strong earnings there were driven by favorable mortality. So I just wanted to see if you could give a little bit more color on the experience in the quarter and kind of trends you're seeing in that business. And should we expect any go-forward impact to run rate earnings or change in volatility levels from the recaptured business?

Speaker Change: And as we look forward, we don't think that adds any meaningful incremental potential volatility. And we think the impact on run rate earnings is limited on an annual basis on recapturing that treaty.

Speaker Change: around it when, you know, second and third quarter tend to be lower, first and fourth quarter tend to be higher. What we've is, if you look back the last couple years, you know, we've been experiencing mortality experience in line with our pricing expectations or better.

Speaker Change: from there, but quarter to quarter there could be volatility more to mortality.

Speaker Change: Yeah, what I would say, I would just add, look, I mean, we've worked hard in the life business.

Speaker Change: We're very comfortable with the product range that we're focusing on right now, which is less interest sensitive. We've made investments in our digital and automated underwriting capability that are really paying off.

Speaker Change: We've been focused on mortality not just recently, but for a very long time. We've had a leading term sweep for many, many years.

Speaker Change: And, you know, the third quarter mortality was not just within pricing expectations, but, you know, well within pricing expectations. So

Speaker Change: You know, we feel really good about the position to serve the need for the protection gap in the U.S.

Speaker Change: Our consistent growth has shown that. In terms of what the mortality will be, even in a large portfolio, mortality can be volatile from time to time.

Speaker Change: But we're very comfortable with our position in the life business.

Speaker Change: Okay. Thank you. Thank you very much. So thanks everybody. As I conclude today, I want to share a few words of gratitude with my colleagues at Corbridge. This has been a remarkable two years since our initial public offering and thanks to all of you. We're living our purpose every day where we help people to take action to plan, save for, and achieve secure financial futures.

Speaker Change: I'm grateful for all of your outstanding work and your ability to deliver quarter after quarter.

Speaker Change: Thanks everybody for joining the call and have a good day.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.

Speaker Change: [music]