Corebridge Financial, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Reinsurance Transaction: Closed the AGL portion of the variable annuity reinsurance transaction, representing ~90% of the value, with remaining portions expected to close in Q4. The transaction achieves a full exit from Individual Retirement variable annuity financial risk, monetized an undervalued book at an attractive price, generating $2.1 billion of net distributable proceeds for share repurchases and other uses.
• Organic Growth: Individual retirement sales exceeded last year's record second quarter, and RILA product cumulative sales passed $1 billion 9 months after launch. Group Retirement has fee income larger than spread income, with advisory and brokerage assets at $16.8 billion (up 10% YOY).
• Strategic Pillars: Focus on profitable growth, cash generation, strong payout ratio, and executing on four strategic pillars: organic growth, balance sheet optimization, expense efficiency, and capital management.
• Business Portfolio: Post-transaction, ~99% of net GAAP liabilities are from non-legacy products, diversifying the business and reducing risk. Ongoing business portfolio offers diversified retirement and protection solutions with higher multiples than reinsured VAs.

Segment Performance

• Individual Retirement: Core sources of income down 3% year-over-year but flat sequentially. Record sales with premiums and deposits at $6.8 billion. New RILA product achieved sales of $0.5 billion in Q2, less than a year after launch. Net inflows excluding variable annuities were $3.2 billion, up 4% year-over-year.
• Group Retirement: Transitioning from spread-based to fee-based. Fee income flat year-over-year, but fee earning assets up 7% sequentially. Base spread income decreased 18% year-over-year due to demographic shift and net outflows.
• Advisory and Brokerage: Assets under management and administration increased 10% year-over-year to $16.8 billion.
• Life Insurance: Underwriting margin excluding VII grew 9% year-over-year, and adjusted pretax operating income was up 44% year-over-year, aided by favorable mortality experience and growth in the Life business.
• Institutional Markets: Reserves increased 17% year-over-year, supporting a 64% year-over-year increase in total sources of income, with GIC reserves growing by $4.7 billion or 40% year-over-year.

Guidance

• Objective to grow earnings per share at an average of 10% to 15% per year over time by executing on strategic pillars.
• Plan to use the majority of the reinsurance transaction proceeds for share repurchases. Insurance company dividends to the holding company target 5%-10% growth in 2025. Reaffirmed the goal to grow EPS by 10%-15% on average annually, focusing on growing earnings and share repurchases.

Risks

• Variable annuity reinsurance transaction subject to customary closing conditions and regulatory approvals.
• Market volatility and Fed rate actions can impact base spread income.
• Episodic nature of some business segments like Institutional Markets, with potential impact from large plan exits and external events.

Question and Answer

Q: On capital and insurance company dividends, how may the quarterly dividend amount trend once the VA transaction is fully closed?

A: Elias noted insurance company dividends are expected to grow 5%-10% in 2025, with a minor impact from the VA transaction, and the goal is to deliver a 60%-65% payout ratio.

Q: On Group Retirement growth and inorganic opportunities, Kevin mentioned the large opportunity in Group Retirement with fee income already larger than spread income, and that inorganic growth would be considered strategically.

A: Kevin highlighted the $16.8 billion advisory and brokerage assets (up 10% YOY) and $104 billion fee income and out-of-plan assets (up 3% YOY), with significant future opportunity in Wealth Management as in-plan customers reach retirement. Inorganic growth would be considered at the time, consistent with strategy.

Q: On Individual Retirement sales strength, Kevin discussed robust demand for annuities, favorable conditions, strong sales of RILA and index products, and expectations of continued growth in spread income.

A: Kevin noted record sales in Individual Retirement, $6.8 billion in premiums/deposits, $0.5 billion in RILA sales in Q2, and sequential growth in spread income, with favorable conditions and a broad capital management toolkit supporting the business.

Q: On the VA deal and deployment of proceeds, Elias explained the distributable proceeds are at the insurance company, and they need to go through normal regulatory processes to distribute, expecting to begin distributing by the end of the quarter for use in Q4.

A: Elias stated the distributable proceeds are at the insurance company, and they will go through the normal process with regulators to distribute, with the first batch expected by the end of the quarter for deployment in Q4.

Q: On AI implementation and digitization, Kevin discussed the use of AI in Life Insurance with automated underwriting transacting ~80% of new decisions, and ongoing efforts to digitize end-to-end processes across businesses.

A: Kevin mentioned Life Insurance has a virtually digital business, while other businesses are at earlier stages of digitization, but they are confident in improving operating leverage over time.

Q: On RILA product rollout, Kevin provided an update on RILA sales, with over $1 billion in sales since launch, launched with over 200 distribution partners in all but one state, and seeing sales from both existing and new distribution sources.

A: Kevin noted RILA had ~$500 million in sales in Individual Retirement and over $600 million including Group Retirement in Q2, launched with 200+ distribution partners, and seeing sales from both existing and new sources with no cannibalization.

Q: On Life Insurance mortality and surrender wall, Elias discussed favorable mortality frequency and severity in the quarter, and Kevin mentioned higher fixed and index annuity volumes exiting surrender charge periods in the second half, with surrenders reflecting external conditions and new business growth.