Corebridge Financial, Inc. Q3 FY2025 earnings call

• CFO Elias Habayeb will depart in April with a 6-month transition period for a smooth handover. A search for a new CFO has begun.
• Corebridge's diversified businesses achieved the highest sales since IPO, strengthened the balance sheet, delivered strong earnings, and returned capital to shareholders. The variable annuity transaction with Venerable was a key inflection point.
• Executing on 4 strategic pillars:
  • Strong organic growth with total premiums and deposits of $12.3 billion, including strong performance in Individual Retirement and Institutional Markets.
  • Optimizing balance sheet and creating capital efficiency, with significant capital freed up by the VA reinsurance transaction and exploring additional value-accretive opportunities like expanding the Bermuda strategy.
  • Improving operating leverage through modernizing operations, including a voluntary early retirement program to invest in key areas like digital.
  • Active capital management, having returned over $1.4 billion to shareholders year-to-date.
• Macro environment favorable for Corebridge's businesses, with tailwinds in Individual and Group Retirement, Life Insurance, and Institutional Markets.

Corebridge delivered solid performance in the third quarter. Excluding VII and notable items, adjusted pretax operating income was $678 million and operating earnings per share was $0.99. Total sources of income increased approximately 1% year-over-year after excluding VII and notable items. Individual Retirement had core sources of income flat year-over-year, with index annuity sales at an all-time high and RILA sales growing. Group Retirement had core sources of income growing 1%, with fee income now accounting for approximately 60% of core revenue. Life Insurance had core sources of income flat year-over-year, with adjusted pretax operating income down 8% year-over-year largely due to onetime costs. Institutional Markets had the strongest sales quarter since the IPO with both PRT and GIC showing exceptional growth. Revenue contribution details by segment in terms of percentage were not explicitly provided, but each segment played a role in the overall financial performance.

• Alternative investment returns for Q4 2025 are expected to be below the long-term expectation of 8%-9% due to lagging real estate equity performance.
• The VA reinsurance transaction is anticipated to be accretive to pre-recast EPS by the second half of 2026 after completing share repurchases funded by the transaction proceeds.
• Spread income is expected to continue contributing to EPS growth targets over time, with Fed actions potentially causing short-term headwinds but fundamentals behind spread products remaining strong.
• Targets include 12%-14% return on equity, average 10%-15% annual EPS growth rate, and 60%-65% payout ratio while maintaining the Life Fleet RBC ratio above target.

• The annual actuarial assumption update resulted in a $98 million charge, but it is expected to have a limited impact on go-forward run rate earnings.
• Alternative investment returns face challenges with mixed performance in private equity, hedge funds, and real estate equity.
• Regulatory developments related to private credit could be a consideration, but currently not expected to materially affect the strategy.
• PRT transactions can experience variability in quarterly volume.

Q: What are the drivers of the 7 basis point decline in Individual Retirement's base spread yield quarter-over-quarter?

A: Elias Habayeb explained that there is marginal compression due to the differential between the spread on new business versus in-force, expected to level off and potentially grow from the end of 2026. Additionally, the VA transaction reallocation of assets accounted for a onetime impact of about 5 basis points, with 1-2 basis points from the new vs in-force spread differential.

Q: Elaborate on the investments in the Group Retirement business for in-plan guarantees and wealth management?

A: Kevin Hogan stated investments include automation and digitization in the in-plan business, growing and professionalizing the adviser force, and expanding the product/service shelf for wealth management. Advisory and brokerage assets are up 9% year-over-year to $17.6 billion, and out-of-plan assets have reached $28.8 billion.

Q: Provide color on private credit metrics?

A: Elias Habayeb said private credit includes ~$30 billion private placements (90% investment grade) and ~$3.5 billion middle market loans (performing well). Main rating agencies are used for rating, and the below investment grade portfolio is small and performing within yield.

Q: What is the strategic importance of VALIC within Corebridge?

A: Kevin Hogan emphasized that VALIC Financial Advisors is a valuable strategic asset with 1.9 million customers, 1.6 million of whom are in-plan only, representing a future opportunity for the out-of-plan wealth management business. The transition from spread to fee-based business has long-term strategic potential.

Q: Outlook on risk transfer in the Life Insurance business?

A: Elias Habayeb said Corebridge actively seeks opportunities to increase shareholder value. The Life business has been repositioned, with investments in automated underwriting and digital platforms, and mortality performing favorably. Opportunities like the Bermuda strategy, external reinsurance, etc., are being explored.

Q: What is the impact of the Bermuda strategy?

A: Elias Habayeb said the Bermuda strategy provides financial optionality to evaluate the best use of capital to maximize shareholder value. Kevin Hogan added it gives potential to grow and develop the strategy, offering financial optionality