Corebridge Financial, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Post-IPO Performance: Since IPO, Corebridge met or exceeded goals including adjusted ROE of 12%-14%, payout ratio of 60%-65%, and Life RBC ratio at or above 400%. Achieved $400 million run-rate expense reduction ahead of schedule, with $350 million earned to date.
• Strategic Pillars:
  • Organic Growth: Leveraged distribution partnerships and broad product suite; launched MarketLock RILA in Q4, expanding product range. Premiums and deposits totaled $41.7 billion in 2024, a 5% increase from 2023.
  • Balance Sheet Optimization: Launched Bermuda-affiliated reinsurers strategy, seeded over $12 billion of reserves, and sourced over $43 billion of assets in 2024 through partnerships with Blackstone and BlackRock.
  • Expense Discipline: Full-year general operating expenses (GOE) lower by 4% in 2024 compared to prior year, with focus on digitizing processes and modernizing finance/actuarial capabilities.
  • Active Capital Management: Increased full-year dividends from US insurance subsidiaries by 10%, returned $2.3 billion to shareholders in 2024, and Board increased share repurchase authorization by $2 billion.
• Fourth Quarter Results: Corebridge reported adjusted pretax operating income of $878 million, or operating earnings per share of $1.23, an 18% increase year-over-year. Core sources of income grew 4% year-over-year, driven by fee income and underwriting margin.

Segment Performance

• Individual Retirement: Adjusted pretax operating income declined 7% year-over-year in Q4, primarily due to base spread compression from short-term interest rate changes. Had $5 billion in premiums and deposits in Q4, with full-year net inflows of $6.9 billion, nearly double the prior year. Surrender rate for fixed annuities dropped to 9.7% in Q4 but expected to increase in 2025 as products exit surrender charge periods.
• Group Retirement: Delivered a steady quarter with balanced spread and fee income. Advisory and brokerage sales grew 31% year-over-year, but saw net outflows of $3.5 billion in Q4 due to plan losses and required minimum distributions, though core flows remained relatively stable.
• Life Insurance: Adjusted pretax operating income increased more than 100% year-over-year, driven by favorable universal life mortality experience. Strong sales volumes continued to outpace the industry.
• Institutional Markets: Adjusted pretax operating income was virtually flat year-over-year, but core earnings expected to increase as reserves grow over time.

Guidance

• Long-term EPS Growth: Expect average annual run-rate EPS growth of 10% to 15% over the long term, though growth not linear.
• 2025 Dividends: Expect dividends from insurance companies to increase 5% to 10% in 2025.
• Share Repurchase: Board increased share repurchase authorization by $2 billion, with focus on returning capital to shareholders while maintaining financial flexibility.

Risks

• Interest Rate Impact: Pressure on floating rate portfolio in 2025 due to short-term interest rate expectations, but viewed as temporary.
• Surrender Rates: Surrender rates expected to increase in 2025 as fixed and fixed-index annuity products exit surrender charge periods.
• Regulatory/Litigation: Potential impact from industry litigation on institutional markets, though no current impact on transaction pipeline observed.

Question and Answer

Q: On base spread income and Fed rate cuts, how should we think about base spread income in 2025 versus 2024?

A: Kevin Hogan noted that spread income has short-term headwinds from rate cuts but expects recovery as floater reset cycle earns through, with new business conditions supportive of future growth.

Q: What is the expectation for EPS growth in 2025?

A: Elias Habayeb stated EPS growth will be light to the 10% target due to short-term spread impacts, but driven by levers like organic growth, balance sheet optimization, expense control, and capital management.

Q: How are surrenders in individual retirement expected to trend in 2025?

A: Kevin Hogan said surrenders will reflect market conditions, with portfolio growth leading to incremental increase in products exiting surrender charge, but new business conditions remain supportive of general account growth.

Q: Any impact of industry litigation on institutional markets?

A: Kevin Hogan stated no impact on transaction pipeline or plan sponsor willingness to transact, with strong pension risk transfer pipelines in US and UK.