Q1 2025 Corebridge Financial Inc Earnings Call
John Barnidge, Jamminder Bhullar, Thomas Gallagher, Thomas Gallagher,
Karli: Good morning all and thank you for joining us for the Corebridge Financial Inc. first call to 2025 earnings call. My name is Carlien, I'll be called next in the call today. See, let's register a question during the week and do so by pressing star 4.1 on your telephone keypad and some reasons why I'm not questioning this star 4.2. And I'd like to hand over to our host, Isil Muderrisoglu, for the originals.
Speaker Change: Good morning everyone and welcome to Corebridge Financial's earnings update for the first quarter of 2025. Joining me on the call are Kevin Hogan, President and Chief Executive Officer, and Elias Habayeb, Chief Financial Officer.
Karli: We will begin with prepared remarks by Kevin and Elias and then we will take your questions.
Karli: Today's comments may contain forward-looking statements which are subject to risk and uncertainties. These statements are not guaranteed the future performance or events and are based upon management's current expectations and assumptions.
Karli: Corbridge's 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.
Karli: Acceptives required by the applicable securities laws, Corebridge is under no obligation to update any forward-looking statements, if circumstances or management's estimates or opinions should change, and your caution to not place undue reliance on any forward-looking statements.
Additionally, today's remarks may refer to non-GAAP financial measures.
Karli: The reconciliation of such measures to the most comparable gap figures is included in our earnings release, financial supplement, and earnings presentation.
Speaker Change: All of which are available on our website at investors.corebridgefinancial.com With that, I would like to now turn the call over to Kevin and Elias for that prepared remarks.
Good morning everyone and thank you for joining [inaudible]
Speaker Change: The Macroecan Amagun certainty and heightened volatility of these past few months remind us that we live in a complex, ever-changing world.
Speaker Change: At times like this, when conditions are uncertain, the mission of Corebridge to proudly partner with individuals, financial professionals, and institutions to make it possible for more people to take action in their financial lives becomes more relevant than ever.
Speaker Change: Over 11,000 Americans are turning 65 every day, and the long-term impact of a market sound turn can be significant for retirees and those nearing retirees.
Speaker Change: Our company stands ready to support our customers in times like these and our strength and stability have enabled us to serve through many periods of volatility and uncertainty.
Speaker Change: Turning to first quarter results on slide three. We are pleased to report another strong quarter that reflects the continued benefits of our diversified business model, strong balance sheet, and discipline execution.
Speaker Change: Corporate reported operating earnings per share of $1.16 and ROE of 11.8%.
Speaker Change: We also returned $454 million to shareholders delivering a payout ratio of 70 percent.
Speaker Change: Our balance sheet remains resilient with holding company liquidity of $2.4 billion in a high-quality general account investment portfolio conservatively positioned with an average rating of single
Speaker Change: Central to our success are four strategic pillars that drive EPS growth and long-term value creation. Organic growth, balance sheet optimization, expense efficiencies, and active capital management.
Speaker Change: I will review the results of the quarter in the context of each.
Speaker Change: First, organic growth, where the breadth and diversity of our product portfolio and distribution platform are meaningful differentiators.
Speaker Change: Courbridge had a very good start to the year, delivering robust premiums and deposits of $9.3 billion, although lower in total than last year's exceptionally strong level.
Speaker Change: We are seeing sustained customer demand driven by an aging U.S. population and an advisor community that recognizes the value of annuities.
Speaker Change: In support of our growth, we are investing in digital capabilities, expanding our product offerings, and deepening relationships with our distribution partners while also developing new channels.
Speaker Change: In individual retirement, we continue to benefit from favorable market and demographic conditions, producing premiums and deposits of $4.7 billion.
Speaker Change: We have consistently maintained a top-tier market position over the last 10 years as our broad product suite serves a wide range of retirement deeds.
Speaker Change: We are also building momentum following the successful introduction of our Rinal product in October 2024, delivering over $260 million of sales in the first quarter.
Speaker Change: We are now actively selling through our largest distribution partners and after launching in California last month are admitted in all but two states.
Speaker Change: Looking forward, we are well-positioned in the fast-growing by-the-market, given our strong product, broad reach, and long-tenured relationships.
Speaker Change: Group retirement continues to deliver steady periodic in-plan deposits driven by increased advisor focus and sustained client demand.
Speaker Change: Our employee advisor force is growing and the investments we are making in the advisor productivity are beginning to yield results with in-plant average enrollments up 9% and in-plant average deposits up 10%.
Speaker Change: Additionally, I am pleased to note that we added our Ryla product to the Outer Plan offering, delivering approximately $50 million of sales in the first quarter.
Speaker Change: We also continue to grow our advisory and brokerage business with 5% AUMA growth year over year, even with lower equity market performance in 2025.
Speaker Change: Life Insurance delivered another quarter of attractive performance, including both strong sales and mortality results better than expectations.
Speaker Change: This business continues to perform well supported by our strong product positioning, digital and automated underwriting capabilities and expanding distribution.
Speaker Change: With nearly $1 trillion of gross enforce, this business remains a mainstay for Corebridge, providing stability during periods of market volatility.
Speaker Change: Institutional Markets has continued to focus on growing our GIT program with discipline and I am pleased to say that we have been successful with GIT reserves increasing 48% year over year.
Speaker Change: We also continue to capture attractive opportunities in pension risk transfer with a promising pipeline of transactions developing over the rest of the year.
Speaker Change: Across Corebridge, we are proud of the new business we are generating that discipline we have maintained in the momentum we are building.
Speaker Change: We remain focused on targeting profitable business with double digit IRRs even as conditions evolve, sometimes rapidly.
Speaker Change: We have consistently demonstrated the ability to pivot across product and channel, dialing up or down, to focus our efforts where risk-adjusted returns are the most attractive and customer needs the greatest.
Speaker Change: Turning to the second strategic pillar, optimizing our balance sheet, we have also made meaningful progress.
Speaker Change: Through proactive asset liability management and disciplined risk oversight, we are enhancing our financial strength while positioning Corebridge for long-term success.
Speaker Change: From Muder continues to be an important part of our capital management strategy and in the first quarter we see that approximately two billion dollars in reserves to our affiliated
Speaker Change: We also remain active in exploring opportunities across our company to enhance capital efficiency and increase shareholder value.
Speaker Change: Moving to the third strategic pillar, we continue to drive operating efficiency and improve operating leverage.
These efforts help support discipline growth and financial flexibility.
Speaker Change: As we continue to transform Corebridge, we recently conducted a voluntary early retirement program for eligible colleagues in the U.S.
Speaker Change: Through this program, we expect to further reduce our expense base and at the same time, create capacity to invest in new skills and capabilities and reshape our workforce.
Speaker Change: We are also pursuing opportunities to enhance efficiency as we further digitize end-to-end processes that support our insurance operations.
Speaker Change: Additionally, we continue to make investments to further modernize our finance and actuarial capabilities.
Speaker Change: Turning to the fourth strategic pillar we are committed to providing an attractive and growing return to our shareholders in a thoughtful and balanced manner while maintaining the flexibility to pursue growth and innovation. Thank you very much.
Speaker Change: Over the last 12 months through our share repurchase program, we have reduced share count by over 10%.
Speaker Change: Together, these four strategic pillars are helping us build a stronger, more agile company, and we are well positioned to generate sustainable growth and create long-term value for shareholders.
Speaker Change: Moving to our financial targets, I am pleased to note that Corebridge continues to deliver.
Speaker Change: Our expectation is for annual run rate EPS to increase on average in the range of 10-15% over the long term.
Speaker Change: Elias will provide more perspective on our outlook as well as an update on our market sensitivities.
Elias Habayeb: Corebridge achieves a run rate ROE of 12.3% in the first quarter and we remain committed to our 12 to 14% annual target.
Elias Habayeb: The life-fleet RBC ratio remains above target, even with recent market volatility.
moving to side side
Elias Habayeb: Since 2017, regardless of market cycle, Corebridge has been able to significantly grow our business while maintaining a strong balance sheet and consistent cast generation.
Elias Habayeb: At the same time, our light-sleep RBC ratio has consistently exceeded target, and our insurance companies have generated, on average, over 2.1 billion dollars in cash annually.
These outcomes collectively demonstrate the Corebridge Value Proposition.
Elias Habayeb: We are well positioned across a range of map row environments to continue creating shareholder value and to continue delivering for our customers.
And now, I will hand the call over to Elias.
Elias Habayeb: Thank you, Kevin. I will begin my comments today on slide 6.
Speaker Change: Corporate reported first quarter adjusted pre-tax operating income of $810 million or operating earnings per share of $1.16. A 5% increase year over year on a pair share basis.
Speaker Change: Our operating EPS included two notable items this quarter, resulting in a favorable impact of one cent.
Details can be found in our earnings presentation.
Speaker Change: Annualized alternative investment returns were fixed and short of our long-term expectations.
largely due to real-estate equity returns.
Speaker Change: Adjusting for notable items and alternative investment returns, we delivered run rate operating EPS of $1.21 and adjusted ROE of 12.3 percent.
moving to slide seven.
Speaker Change: Core sources of income excluding notable items and the sale of our international life business grew by 1% year over year, driven by higher fee income and improved underwriting margin.
Bass Bread Income Decline by 3% over the same period.
Speaker Change: This was driven by profitable growth, offset by the earning of fed rate actions from the second half of 2024, and dynamics in group retirement as its earnings transition from spread to fee income.
Speaker Change: Sequentially, base-bred income increased by 3%. This change was mainly driven by profitable growth that outweighed the earn-in-of-fed rate actions which was in line with our prior guidance.
Speaker Change: In total, the underlying fundamentals behind base spread income continue to be bolstered by 8% growth in the general account and attractive new money yields which exceeded roll-off yields in the portfolio by approximately 100 basis points.
Speaker Change: Additionally, fee income improved by 1% year over year, largely as a result of higher account income values, along with our growing advisory and brokerage business.
Speaker Change: Underwriting margin improved by 12% year-over-year driven by more favorable mortality experience.
pivoting to expenses
Speaker Change: First quarter, general operating expenses for our insurance businesses and parent company were 5% higher year over year after excluding the sale of our international life business.
Speaker Change: This largely reflects savings from Corebridge forward offset by costs attributable to business growth as well as higher compensation and benefit expenses.
Speaker Change: Our first quarter results reflect both planned investments in talent to support growth and timing of our annual performance related equity grant.
Speaker Change: Adding to Kevin's earlier comments about the voluntary early retirement program, we currently estimate this will have a one-time cost of $85 million.
Speaker Change: As this program demonstrates, Corebridge remains disciplined in our approach to expense management and is committed to managing cost thoughtfully while supporting key strategic initiatives and business priorities.
Speaker Change: Next, I will briefly review a few highlights from each of our businesses.
Speaker Change: Details on the four segments can be found in our earnings presentation.
Speaker Change: As a reminder, results exclude the impact of notable items, variable investment income, and the sale of our international life business.
Speaker Change: While adjusted pretext operating income for individual retirement declined by 10% year-over-year, the fundamentals for this business remain strong in the market conditions attractive.
Speaker Change: As I previously shared, spread income was impacted by two factors we see as short-term in nature. Fed rate actions and our hedging activities to maintain alignment between assets and liabilities.
Speaker Change: Consistent with prior guidance, these items collectively reduce day-spread income by approximately $50 million for the quarter.
Speaker Change: In addition, results were impacted by higher DAC and commissions related to business growth also consistent with our prior guidance.
Speaker Change: For the general account, individual retirement generated net inflows of $1.1 billion, demonstrating the strength of our affid origination capabilities, product portfolio, and distribution network supported by ongoing strong customer demand.
Speaker Change: Group retirement delivered another steady quarter with core earnings of $167 million.
Speaker Change: Of note, this quarter's base spread income benefited from opportunistic asset repositioning efforts.
Speaker Change: Given the ongoing shift in our customer base and resulting net outflows, we expect to see continuation of the transition from spread to fee-based income over time.
Speaker Change: As a result, net outflows were $1.8 billion, which is consistent with our prior guidance and in line with levels observed in the first half of 2024.
Speaker Change: We continue to be excited about the opportunities in this space, especially as customers seek solutions to position their portfolios for retirement. And as such, we remain focused on efforts to grow the advisory and brokerage business.
Life Insurance continues to be a strong performer.
Speaker Change: Adjusted pre-tax operating income increased by 23% year-over-year, primarily driven by more favorable mortality experience.
Speaker Change: in institutional markets, adjusted pre-tax operating income was virtually flat year over year.
Speaker Change: supported by robust reserve growth of 17% over the same period. As a reminder, earnings from this segment may reflect some quarterly volatility, but we expect earnings to increase over time as a reserve's growth.
Speaker Change: Overall, Corebridge continues to benefit from our diversified and complementary portfolio of market leading businesses.
which remains the key component of our shareholder value proposition.
Speaker Change: Moving to Slide 8, where I will focus on three key areas of Corebridge.
Capital liquidity and the balance sheet
Excluding $1 billion to cover the April 2025 debt maturity.
Speaker Change: Corebridge ended the quarter with $1.4 billion of cash on hand at the holding company.
Speaker Change: supported by $600 million of distributions from our U.S. insurance companies in this quarter.
Speaker Change: This level exceeds the holding company's needs for the next 12 months and I will note that we have no material debt maturities until 2027.
Speaker Change: Our insurance companies have a strong liquidity profile driven by positive operating cash flows, liquid-invested assets, and contingent liquidity sources.
Speaker Change: All of which help provide ample flexibility to respond to the range of macro environments.
Speaker Change: Our insurance companies also remain well-capitalized with their respective careful ratios exceeding targets.
Corbridge: Corebridge continues to actively manage capital in the discipline and forward-looking manner, maintaining a sufficient buffer to withstand market volatility and capture attractive growth opportunities.
Corbridge: This active management includes our hedging programs which continue to perform as expected.
Corbridge: These programs help safeguard statutory capital, support our ability to deliver consistent cash flows and protect long-term value for shareholders.
Corbridge: Further, they are important to our balance sheet management strategy and are designed to help protect it against market movements, including during periods of volatility like we're currently experiencing.
Corbridge: Given the uncertain economic landscape and growing concerns about a recession,
Corbridge: We understand there's heightened focus on insurers investment portfolios so let me pause here and offer a few highlights on our $223 billion investment portfolio.
Corbridge: First and foremost, our portfolios diversify across as-a-class sector geography and issuer, making it less vulnerable to systemic risk and it's proven to be resilient across past credit cycles.
Corbridge: Approximately 97% is invested in fixed income and short-term investments, the bulk of which consists of liquid high-quality bonds.
95% of our fixed maturity's are rated investment grade.
Corbridge: This portfolio reflects actions taken over the past few years to improve credit quality and return on capital.
Corbridge: As our investment strategy's liability driven, our credit portfolios and makes of public, private and structured products put together with the goal of maximizing risk-adjusted returns while maintaining tight alignment between our assets and liabilities.
Corbridge: For public credit, we maintain a high quality bias with significant exposure to investment grade corporate bonds that provide liquidity and regulatory capital efficiency.
Corbridge: Private Credit Allocations, the vast majority of which are traditional investment-grade corporate private placements.
benefits from illiquidity premiums and contain negotiated protective financial covenants.
Corbridge: Corbridge believes this asset class will generally perform better during a downturn due to the protections built into the transactions.
and Structure Product provide us with exposures to diversified collateral.
Corbridge: Approximately 95% is comprised of the more senior tranches with significant credit enhancements.
Corbridge: Lastly, commercial mortgage loans are performing as expected and we have maintained our conservative
I will now wrap up with our latest sensitivities.
Corbridge: We previously commented on the fourth quarter of 2024 earnings call that 2025 EPS growth would be below our long-term expectations.
Corbridge: of 10 to 15 percent due to the drag from the earning of federate actions. At that time, we anticipated EPS in 2025 would grow by mid-single digits from the 2024 base of $4.99.
These projections assumed annual equity market returns of 8%.
Corbridge: Alternative Improving over the course of the year to achieve our 8-9% target return by the end of 2025 and 50 basis points of Fed rate cuts in 2025.
Corbridge: Given recent increased volatility, we are providing updated sensitivities to equity markets and interest rates.
Corbridge: The net impact from an immediate 10% change in the S&P 500 index on the combination of fee income and advisory fee expense is approximately $85 million over the first 12 months.
Corbridge: Further, each 25 basis points move and so for impact-based portfolio income by approximately two basis points.
Corbridge: This sulfur rate sensitivity is lower than our prior guidance due to a reduction in net floating rate exposures over the past two quarters.
Corbridge: Lastly, given the lack of delectivity because of current market uncertainty, we expect alternative investments returns to fall short of our long-term return expectations of 8-9% in 2025.
Corbridge: For the second quarter, we expect alternative investment returns will be approximately half the level in the first quarter based on the information available to us at this time.
In conclusion, our proactive balance sheet management.
Corbridge: Supported by strong-reserving practices and risk controls, has enabled Corebridge to pursue profitable growth across multiple cycles while delivering on financial and capital management goals.
Corbridge: Corebridge will remain disciplined in managing our financial flexibility, balancing prudence with the agility to invest in the future.
Now, I will turn the call back to Isil.
Isil Muderrisoglu: Thank you, Elias. As a reminder, please limit yourself to one question and one follow-up. Operator, we are now ready to begin the Q&A portion of the call.
and Isil Muderrisoglu.
Speaker Change: Thank you. Good night. Open the line security. If you would like to ask a question, please press star for the one on your telephone keypad. So, Muderris, have that line of questioning. We'll be star for the by two. Our first question, handsome Dan Bergman of Cowan. Dan, your line is not open.
Jamminder Bhullar, Jamminder Bhullar,
Hey, thanks, good morning.
Speaker Change: Your base yield took a nice step up quarter or quarter, particularly in the group retirement segment. I know you mentioned some actions you took to reposition the portfolio this quarter. I wanted to see if you just give a little more detail around those actions. Thank you very much.
Speaker Change: and given you previously talked about some opportunities to optimize the asset portfolio, I guess what ending are you in for that process, and as we look ahead, how should we think about the ability to take further steps to improve yields in the coming quarters?
Elias Habayeb: Yeah, thanks Dan, appreciate the question. Look, I'll start and then I'll pass over to Elias.
Elias Habayeb: kind of as in the case of individual retirement, reflect some opportunistic asset repositioning.
Elias Habayeb: which is really part of our regular active portfolio management strategy that Elias will touch on in a bit.
Elias Habayeb: We see this business transitioning from spread to a fee-based business.
Elias Habayeb: Fee Income is already the predominant source of revenues for that business. There are going to be some variances quarter to quarter driven by sort of one-time items and some seasonality related to where we credit interest.
Elias Habayeb: from time to time, where we had opportunities to reposition affords.
Elias Habayeb: and pick up yields and improve return on capital. And when looking at the first quarter, what we did in...
Elias Habayeb: Group Retirement. We saw a similar opportunity and we did to some extent also on the individual retirement space.
Elias Habayeb: and we'll continue to do that whenever the opportunity arises and within our risk parameters, and if you look at what we did in 22, 23, 24, also against the reinforce an individual retirement, this is kind of no different than the stuff we've done previously.
and Isil Muderrisoglu
That's really awful. Thank you.
Speaker Change: and maybe just a little bit of a problem. But given the recent market volatility, just wanted to see if you could provide an update on what you're seeing in the market for your various individual retirement products, I guess how is industry demand holding up amidst the volatility and how are you finding the competitive environment across your different product areas?
Yes, sure, thanks. Look, the demand for annuities remains robust.
Speaker Change: You know, the belly of the yield curve remains supportive, you know, credit spreads, you know, I think are also relevant there. And above all, the long-term macro drivers are really very powerful trends. The aging of the population, the need for people to look after their own retirements.
and a supportive advisor community.
Speaker Change: You know, the demand for our products, sometimes in the income benefits and sometimes in the accumulation areas.
Speaker Change: You know, of our various products, fixed annuities, are the most sort of immediately sensitive. And, you know, in the fourth quarter and the first quarter, there were a few periods of lower sales.
Speaker Change: and the face of some of the market changes, and while we maintained our usual pricing discipline, but I wouldn't read too much into that. We see very strong demands continuing for the index product in particular. Fix annuity conditions remain very attractive.
Speaker Change: and we're off to a great start with our RILA products. We continue to see the way I define rational rationality of pricing and competition is whether or not we're able to meet our margins on new business and we continue to see attractive new business margins.
Speaker Change: Now, I would point out, you know, a second quarter of last year was kind of an exceptional period where everything came together and I wouldn't expect that type of quarter to necessarily repeat. But overall, the conditions are very attractive and we're confident in growing our individual retirement overall general accounts and spread income over time.
God, that's so powerful. Thank you.
Speaker Change: Thank you very much. Our next question comes from Elyse Greenspan of Wells Fargo. Elyse, your line is not open.
Elise Greenspan: Hi, thanks. You guys said this quarter, which I know you typically say in calls just that you guys are continuing to explore opportunities across the company to enhance capital efficiency. Can you just expand on what's top of mind on that list today?
Our Portfolio [inaudible]
Elise Greenspan: We continue to expand our Bermuda strategy, which is an important part of our capital management toolkit.
Elise Greenspan: and we added an additional $2 billion of reserves this quarter so we've seated $14 billion with the new strategy to date and we are early in the stages of our Bermuda strategy. We see further opportunities for both in force and new business sessions.
Elise Greenspan: In addition to that, you know, obviously external re-insurance transactions are something that we evaluate from time to time and any transaction. We've consistently said must be accretive.
Elise Greenspan: on a risk-adjusted basis. And so we continue to explore those opportunities. We're always open to considering ways to increase shareholder value, and we'll be happy to share anything new at an appropriate time.
Speaker Change: I think you said a promising pipeline of PRT deals over the rest of the year. I know some peers have just pointed to volatility, perhaps impacting deals flowing that business this year. Can you just kind of talk to what you're seeing and how you expect things to transpire over the rest of the year. Thank you.
Speaker Change: and you know, pension plans continue to be well-funded. Generally, these transactions result from, you know, committed corporate risk management strategies.
Speaker Change: They, like M and A, transactions are not predictable. We don't necessarily expect them to land regularly quarter by quarter, but the pipeline, both in the U.S. and also in the U.K. continues to be as strong as we've seen it. And we don't necessarily see any indications that volatility is going to have a significant impact on timing or pursuit of these transactions.
Speaker Change: Thank you very much. Next question comes from Joel Hurwitz of Bowling Apartness. Joel, your line is not open.
Joel Hurwitz: Hey, good morning. First, a couple of expenses. Expenses in individual retirement and corporate were...
Joel Hurwitz: We're up from where you've been running. How much would you attribute that to seasonality? And then on the voluntary separation, any expectation for expense savings running through operating earnings?
Joel Hurwitz: Hey, Joel, it's Elias. So, with this component of what you're seeing in individual retirement and the parent and the total across the board is...
Joel Hurwitz: Seasonality, you know, typically the first quarter is higher tied to, you know, the rule of 65, which is people based on age and years of service. If they meet the rule of 65, equity grants are expense up front.
Joel Hurwitz: versus over three years, and this year we had a higher dollar amount of equity grants meeting the rule of 65, so that's a component of it.
Joel Hurwitz: and the second component are payroll taxes and 401K matches are kind of front loaded and as you progress in the year those will come down. So there's definitely a seasonality there. I would say about 50% of the increase in IR is tied to that.
Joel Hurwitz: on that spot. With respect to early retirement program that's kind of one of the initiatives we are undertaking to continue to modernize.
by our organization and improve our operating leverage.
The Expectation is,
Joel Hurwitz: Portion of the Savings out of the Early Retirement Program.
Joel Hurwitz: We'll drop to the bottom line and a portion we're going to use to fund investments in new capabilities for the next leg of our journey.
Joel Hurwitz: We do expect that to benefit our expense run rate, but given the timing of when people depart, it will not fully earn into the run rate of the beginning of 26.
Okay, very helpful [inaudible]
Speaker Change: and then just a second one. In group, you've been talking about growing your out-of-plan business and the advisory and brokerage business. You just provide an update on the organic growth that you're seeing there and what sort of traction your advisors are gaining.
Speaker Change: Yes, thanks. Appreciate the questions all. I mean, you know, group retirement is appointed out, and as I mentioned is not...
Speaker Change: Solia, a spread business, and we're seeing very attractive opportunities in the outer plan and the advisory and brokerage space.
and Billion Dollars. [inaudible]
Speaker Change: We've been investing in advisor productivity and as my prepared remarks we're seeing some improvements in the productivity in terms of enrollments and deposits.
Speaker Change: and, you know, maybe the most important numbers of all is of our 1.9 million, you know, customers in this business, 1.6 million of them are still in plan only customers.
Speaker Change: and our advisors are building relationships with them in order to prepare for that important moment of household asset consolidation and so we're in the early stages of the change in the trend from spread to a fee based business but the signs are very positive across the board.
Jamminder Bhullar, Jamminder Bhullar,
Okay, thank you.
Speaker Change: Thank you very much. As a reminder, if you would like to raise a question, please press star for a vote one on your telephone keypad. And that's question comes from Suneet Kamath, of Jeffrey Suneet, your line is not opened.
Suneet Kamath: Great, thank you. So you had guided to elevated surrenders in individual retirement, I think in 1Q and then 3Q and 4Q. It didn't seem like we saw a big change here in 1Q. Is that because the...
Suneet Kamath: Surenders will roll off more in the latter half of the year and then do you have a sense of what rolled off, like what were you able to retain through other products? [inaudible]
Speaker Change: Yeah, thanks, Suneet, good morning. What we said last quarter, we do expect higher levels of flexibility and index annuity volumes.
Speaker Change: to be exiting their Surrender Charge period and that is in particular in the second half of this year.
Speaker Change: and we see this as kind of natural given the significant growth.
in the whole portfolio over the last few years.
Speaker Change: But in particular since 2022 and the rate environment really started to change and so this increase in volumes exiting surrender charge periods is not going to be consistent quarter to quarter. It really reflects where large volumes of product were sold in the past.
Speaker Change: You know, on the other hand, you know, in our experience, surrender rates reflect really where yields and credit spreads are at a given time in over the last few cycles we haven't seen anything that's outside of our expectations.
along those lines.
Speaker Change: But usually the conditions for new business are also very attractive, which is...
Speaker Change: You know, important that is really what we're focused on is the long-term growth of our general account, you know, net of any surrenders.
Speaker Change: So it's not necessarily, we look at options as to how we may preserve surrenders, but more importantly, we look at new business pricing and new business pricing is very attractive.
Speaker Change: Sixth Annuities, and most recently our Ryla, which is off to a great start.
Speaker Change: I got it. That's helpful. Thanks. And then on slide five, I thought that picture of cash generation over time was was pretty impressive. But if I look at the data, it looks like it's been relatively flatish at that kind of two billionish level.
Speaker Change: and I think on the last call you talked about increasing it by 10%. So I just want to understand what's different now that allows you to grow it and should we think about that 10% is really just a bump up or is that more of an annual basis you want to increase that by 10%. Thanks.
Elias Habayeb: Hey, Suneet, it's Elias. So, you know, if you look back historically, there is a different kind of strategy at the time and the historical numbers are a bit normalized and you could find that in the S1 in our public filings.
Elias Habayeb: Let's talk now about the strategy since we've gone public. Our strategy has been to grow earnings in increased cash generation.
to deliver on the 60 to 65% payout ratio.
Elias Habayeb: Bartarget for this year is to grow the insurance company dividends.
by 5 to 10% and we believe we're on track.
Elias Habayeb: to delivering it and sitting here today despite the market volatility.
Okay, that's helpful. Thanks.
and Isil Muderrisoglu. Thank you.
Speaker Change: Thank you very much. Our next question comes from K.V. Montazeri, must do with your bank. K.V. your line is not open.
KV Montessori: Good morning, my first questions on your guidance for base spread income.
So you've reduced your sensitivity to a short-term interest rate.
KV Montessori: And I think in your report remarks, you mentioned that it was managed you to reduce your exposure to floating rates.
KV Montessori: Story a little bit for you. So, you know, as we just talked about the first quarter spreads and spread income.
KV Montessori: You know, as in the case of group retirement did benefit from some asset repositioning [inaudible]
KV Montessori: which helped to offset the impact that we had guided to relative to the fourth quarter of our fed-rate actions.
KV Montessori: and how they affected the particular sulfur. And looking ahead, we actually continue to expect that base spread income will grow over time, even if there is a little bit of marginal spread compression.
KV Montessori: But really the overriding driver of spread income is ultimately business operations and there are very powerful drivers on the macro side and I'm not going to necessarily repeat.
KV Montessori: in current new business pricing is at or above our medium-term return expectations.
KV Montessori: The investment environment is good, our new money rates are still a hundred basis points over the roll-off and so it's not going to be a straight line, there'll be a little variability quarter to quarter [inaudible]
KV Montessori: But the fundamental trend is that the general account, we're growing the general account reserves over time and they spread income will grow over time, you know, irrespective of underlying spread dynamics.
which will be an important contributor to our growth targets.
Elias Habayeb: I'll have it over to Elias to talk a little bit about the hedging question. Yeah, I'm listening from the hedging question, you know, we've talked in the past like...
Elias Habayeb: One of the aspects of how we managed to balance sheet is the ALM profile of the balance sheet and our investment strategy is liability driven. So we adjust the asset side to what we see on the liability side.
Elias Habayeb: and what we have done is reduced our net floating rate exposure. We've held floaters in the portfolio for two reasons. One, we find them as an attractive asset class and on a relative value basis.
Elias Habayeb: at times they've offered better returns than, you know, to fix rate bonds. And separately, we've used them as a tool to manage the ALM profile of the balance sheet. So when rates increase in 22 and liability durations,
Kameh and Significantly,
Elias Habayeb: We used, in addition to derivatives, we used an increased allocation to floaters to short in the duration of the asset.
Elias Habayeb: and we will continue to manage it within that discipline.
Elias Habayeb: and as a result of what's played out in our portfolio. [inaudible]
Elias Habayeb: We've reduced the floating rate exposure. So if you recall, at the end of September when we first talked about it, we said about 8% of the investment portfolio was an in-net floating rate position that's not about 5% as of the end of March.
Elias Habayeb: from it. And that's been the driver behind why the sensitivity has improved since then.
Elias Habayeb: and that's also kind of a consistent to what we hinted at.
Elias Habayeb: Back at the third quarter earnings call when we gave the initial sensitivity that we expected that sensitivity to decline over time. So it's playing out kind of consistent with what we expected.
Elias Habayeb: and just to echo Kevin's comments, our guidance on spreading income in individual retirement as we expect it to grow over time.
Elias Habayeb: The business dynamics is great, if you look at the new money yields.
Elias Habayeb: and if you look at what happened to spread income in the quarter, while the earning of the hundred basis points was consistent with the prior guidance we gave you, it's what we were able to mitigate it with growth in the business side as well as some asset repositioning to take advantage of opportunities to improve returns in the investment portfolio within our risk and capital parameters.
and Isil Muderrisoglu. Thank you.
Speaker Change: Thank you, that's a very helpful other second pivot to technology.
Elias Habayeb: I just want to know if you can get an update on simply now and some of the other new tech initiatives you have going on. I'm thinking to pass some mention, at least for a life insurance, that 80% of...
Elias Habayeb: New Policies for other decisions. Just wanted you can expand that maybe what you're seeing in other segments and how you know using visual capabilities to further improve your process not just on the cost side but also to drive top line growth.
Elias Habayeb: Yeah, thanks, KZ. We're really proud of our life insurance business, and we have been investing in that business over...
A Number of Years
Elias Habayeb: starting with our data strategy and then ultimately building into our digital capabilities and automated underwriting.
Elias Habayeb: which is ultimately what's driving, I think a lot of the...
Succes there.
Elias Habayeb: The work we've done also in repositioning our product strategy, it was kind of hand in love with that and focusing on products that are less interest rate sensitive and also maybe a little bit less pricing sensitive.
Elias Habayeb: and we're pleased with the strong position that we have there.
Speaker Change: Elias talked about the fact that, you know, after our early voluntary early retirement program, I mean, part of those savings will drop to the bottom line, but part of those are being reinvested in the business. Important investments that we're making include further investments in our data and digital and automation strategies. We're starting to see some of the benefits of those.
Speaker Change: in our retirement services business. You'll see some of that in the advisor efficiency numbers that I quoted in my prepared remarks.
Speaker Change: and then we're also adopting a strategy of enhancing our capabilities and our finance.
Speaker Change: and Actuarial and our other administrative support activities. And so the benefits of the data digital and automation strategies.
Speaker Change: You know, on our path, and we do see it as an important opportunity to increase our scalability and our operating efficiency and operating leverage over time.
Thank you.
and Isil Muderrisoglu. Thank you.
Speaker Change: Thank you very much. Our next question comes from Alex Scott of Barclays. Alex, your line is not open.
and Elias Habayeb. Thank you. Thank you.
Good morning.
Speaker Change: The first one I have to see is on the relationship with Neapon. I think the last time you were asking one of these calls about the relationship yet and gotten through some of the regulatory approvals and so forth, it was hard to talk more about it and was interested if you had any more color on just the way that your two firms may work together in partnership.
Speaker Change: Yeah, thanks Alex. I appreciate the question. Look, we're very excited about our relationship with Nippon Life.
Speaker Change: You know, they've joined the board. They're already contributing there. You know, we're both large diverse companies that, you know, we operate in very different markets and we have a lot that we can learn from each other. We're taking a structured approach to looking at what are the various areas in which we may be able to, you know, generate some mutually beneficial commercial activities.
Speaker Change: and we're working our way through evaluating those opportunities and I'm sure that both companies will be excited to come forward when we have something significant that we've identified and that we're in a position to announce.
Thank you.
Suneet Kamath: That's helpful. Second, I hope he's just going to the asset portfolio and I know you mentioned
Speaker Change: and some in your opening remarks. I just wanted to ask about, you know, if there's anything you could...
Speaker Change: Provide that it would help frame for us how you'd expect the portfolio to perform in different types of scenarios if we were to get some kind of credit event. And the reason I asked is just, there was a little bit more invested.
Speaker Change: He's given you more of a fixed annuity company, and between now and the next time you have an earnings call, the environment could potentially change more significantly. So I just wanted to see if we could get a feel for how you expect that to perform.
Speaker Change: Yes, thanks Alex, so I'll hand over to Elias in a minute here, but I'll just start off with, look we're very comfortable.
Speaker Change: with our overall asset portfolio and our credit exposure. It reflects both years of actions to improve the quality, but also the fact that we very much focus on an asset strategy to support our liability portfolio.
Speaker Change: and I'll let Elias go through the characteristics of the portfolio that put us in this position where we're comfortable with the exposure.
Speaker Change: Hey, Alex, you know, from a credit perspective, you know, credit risk is like one of the top risks.
We proactively manage in our portfolio.
Speaker Change: and part of our strategy in addition to the liability driven is to maintain diversification so we don't have concentration risk.
Speaker Change: and maintain a high-quality portfolio. And right now 95% of the book is investment grade.
Speaker Change: and we migrated the average credit for anything of the fixed maturities.
to a single day over the last couple of years.
Speaker Change: and we have a higher allocation to liquid asset. So we do subject the portfolio to various forms of sensitivities and stress besting, and that kind of helps inform us on decisions we take. We feel comfortable from a credit loss perspective.
Speaker Change: on the portfolio. Our biggest allocation is to public credits. On the private side the largest allocation is to traditional investment grade private placements which is not a new asset class.
Ford Insurance Companies,
Speaker Change: and not for us. And those come with strong financial covenants that gives us protections.
Speaker Change: if there's stress. In addition, on structured products, we tend to be at the top end or the higher end of the capital structure which gives us significant enhancement.
to cut the losses before things play out.
Speaker Change: and we do carry a pretty meaningful allowance for loan losses on the loan side, so we feel comfortable with it.
Speaker Change: We've got tools available to us to mitigate that impact. Finally, we have a strong balance sheet. Our RBC at the end of the year was 426.
Speaker Change: You know, you combine the balance sheet with the high credit quality portfolio, with diversification and conservative reserving on the portfolio, and we kind of feel comfortable with where we are right now.
Certainly, I hope both. Thank you.
Speaker Change: Thank you very much. Our next question comes from Jimmy Bueller of J.P. Morgan. Jimmy, the line is not open.
I don't know.
Speaker Change: Jimmy, please allow us to check your lines that are locally needed.
John Barnidge, Jamminder Bhullar, Thomas Gallagher,
Speaker Change: Hi, my questions were actually answered, and I pressed R1, but I guess it didn't go through. Maybe I'll ask one on just your RBC ratio. It's still above 400%, but I wanted to see if you saw some decline in the direction of the race in the quarter given the most in the market, and just
Thank you.
from an RBC perspective. It's different than the sensitivities.
and Gap Operating Income because on an RBC basis.
Speaker Change: You've got to think through the impact available as well as your quiet capital, but given the diversification and our balance sheet as well as the hedging programs we have in
Speaker Change: Place, that impact is limited and you've got the proof points with slide five if you go back because some of those were during periods of volatility in the market and RBC was maintained above 400.
Speaker Change: The other thing I would say around market volatility and the impact of RBC, that's kind of temporary and short-term and as markets reverse the impact reverses as well with it.
Speaker Change: So to us, we look at that more as a temporary impact for us, and it's the impact is limited, given the hedging and the diversification credit to us is more meaningful from an RBC perspective, and that's what we try to proactively manage too.
Jamminder Bhullar, Jamminder Bhullar,
Speaker Change: Okay, and then I think Kevin and his remarks and you as well have given out some numbers on sensitivity to the weak market and potentially weak alternative investment income. And you were referring to just a learning should be assumed that the impact on cash loads is similar or is it higher the order for some reason.
and Isil Muderrisoglu.
Speaker Change: So the impact if you think about it in terms of fee income, that will be mirrored on the cash load site. If you think about it, terms of alternatives, that's more market to market impact in earnings versus distributions.
That's being said.
Speaker Change: You know, we remain confident in the cashews in our business.
Speaker Change: and you know we've demonstrated over time stability and the cash generation given the diversification and the business model and sitting here today we remain confident in you know being able to deliver on our you know pay out ratio target for the year.
Joseph, thank you.
Speaker Change: Thank you very much. Our next question comes from Tom Gallagher of Evercore ISI. Tom, your line is about open.
Jamminder Bhullar, Jamminder Bhullar,
Good morning.
Speaker Change: Fick's Tinkum Decisions to Blackstone and Black Rock. Are you actually...
Speaker Change: involved in the bond by bond trade. Bequeen them, or is it more of a broader...
Thank you.
Speaker Change: Overall, portfolio allocation type of responsibility you now have and then can you can you provide a little more color for? If you're selling down your floaters, what are you repositioning that into? Is it private credit? Is it?
Speaker Change: Something else, a little bit of more elaboration on what's going on beneath the surface here. Thanks.
Speaker Change: Yeah, thanks, Tom. Look, I'll start. We control our investment strategy.
Elias Habayeb: and are actively managing the portfolio through our partners but I'll hand it over to Elias to address some of your other questions.
Elias Habayeb: Yes, Thomas Elias. To Kevin's point, we drive the decisions around repositioning as well as the decisions around where money gets invested.
Elias Habayeb: The different managers, BlackRock Blackstone, but there's also our own internal team of discolk sourcing assets for us.
Elias Habayeb: It's based on what they, you know, they get the allocations based on what they, they think they could source for us and how that fits within the liabilities we offer.
Elias Habayeb: With respect to the repositioning we did in the first quarter, they got reinvested in combination. Some of it was public credit. Some of it was private credit. And we sold down some lower yielding bonds and reinvested the money. [inaudible]
Speaker Change: Gotcha. Thank you for that. And then just on the wrist transfer, I guess we've had two recent deals in the market. One VA, another pretty big life deal. I would describe them as the pricing on VA was low. The pricing on high was pretty robust. [inaudible] The price on VA was low. The price on VA was low. The price on VA was low.
Yeah, how important is the pricing versus...
Speaker Change: The View of Tail Risk, because I guess when I look at your VA block, I don't really think about it as being high risk. It seems like pretty low risk even though it's a high risk category, I guess you could call it. So I just curious how you're approaching
Speaker Change: Those two different businesses, when you consider risk transfer, is it really about optimizing shareholder value or reducing tail risk?
Speaker Change: So any transaction that we would pursue has to be a creative on a risk-adjusted basis, just repeating what I said before.
Speaker Change: and that means both in terms of price and structure. Credit protection's important, price is important and we're constantly looking at what is the value-add opportunity for the company.
Speaker Change: You know, you factor in the Taylor risk and improving the risk profile of the balance sheet, along with what you're getting for it.
Speaker Change: and Exchange, and we need to be a fair price and exchange.
Joshua, thank you.
Kevin Hogan: Thank you very much. I'd now like to hand back to Kevin Hogan for any further remarks.
Kevin Hogan: Yeah, thanks. Look, I just want to take a moment here to thank our people and our partners for being a source of strength for our customers, supporting them in both good times and bad. You know, what we do matters, and moments of uncertainty highlight the importance of how we help people take action in their financial lives.
Kevin Hogan: Thanks for your questions, thanks for joining us today and have a good day.
Kevin Hogan: As we conclude today's call, we don't thank everyone for joining, you may address your lines.
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