Corebridge Financial Aktie

All right. Good afternoon, everybody. We're here with the CEO of Corebridge, and the future CEO of Equitable, Marc Costantini; and as well as Chris Filiaggi, the Interim CFO of Corebridge. Marc and Chris, thank you guys both for joining us. It's a privilege to have you guys here. So a lot of exciting stuff going on.

If we can start, Marc, on the subject of the merger, right? Corebridge merging with Equitable will create a full-scale retirement platform, with a variety of complementary annuity products, broader distribution as well as the capabilities from AllianceBernstein. As we think about the merger, can you maybe help us think about the progress thus far? And where do you see the growth opportunities for annuities, group retirement, institutional and a variety of other things.

Thanks, Bob. It's great to be here and great to be here with Chris, obviously, as well, and thanks for hosting us. It's very nice of you. So the -- how is it going so far? What I would say is that we announced the transaction at the end of March, so call it 2 months ago, give or take. And at the time when we announced that we made, I would say, strong commitments, both firms obviously coming together that, first of all, from a leadership perspective, we would announce the first 3 layers of the organization by end of Q2 summer months type of thing. If you may have seen that we announced the first layer, the layer of the executive team that will work alongside me in leading this company on a go-forward basis. So that's been done.

And we're going through now the -- what we call the wave two of the process, and that's in flight right now, and we would expect over the coming weeks that, that wave would be communicated as well. I would say, as we've gone down these waves, there will be more internal communications versus, let's say, my leadership team, which was made more -- communicated in a more public fashion. But -- so that's one.

Then in concert with that, we committed to get going on the integration planning. And I emphasize planning given we operate very much as a separate companies until the transaction comes to a close. But we have an integration and transformation office that was set up. We have individuals from both companies that are leading those efforts and working alongside the people running the businesses on a daily basis. And we're working towards all of the integration plans that would take place once we close later this year at the end of the year.

And tied to that, obviously, we've done all of our proxy has been filed. Our -- all our regulatory filings have been done, both domestically and internationally tied to, you mentioned AllianceBernstein. I think a number of them touched that. Our FINRA process is in flight. So we have -- we continue to be, I would say, very opportunistic and optimistic, I should say, that we will close this transaction by the end of the year.

So in terms of synergies, I'll say just a couple of comments before maybe letting you ask a few more questions. But I would say one of the attractive aspects of this transaction is it's not just an expense synergy kind of transaction as we bring together these 2 great firms. We did guide and we did share guidance about the expense synergies, and we did say it was going to be accretive day 1 given the structure and the economics, and it was going to be double-digit accretion going into 2029 on a run rate basis.

But there's a lot of revenue synergies that are coming with this transaction. We communicated $90-plus billion of assets coming to AllianceBernstein from the Corebridge side of the balance sheet. So that's -- and there's more to come there on the revenue side, on the growth side. So it is definitely a growth story and it's tied to serving more Americans as they try to -- and help them retire with confidence and dignity basically so.

Got it. So it's really like a layer-by-layer, brick-by-brick type of process that's ongoing, but on time. That's very helpful. So if we think about what you just said about synergy, right? If we think about product side, obviously, both companies have very comprehensive annuity suites. Can you maybe help us think about what the product mix will like going forward? You're also having an Investor Day this year. So I would be curious if you can give us a preview in terms of how you think about the low-hanging fruit opportunities on the revenue side? And what are the milestones you're looking at as well?

Yes. Yes. No, it's -- I appreciate you highlighting these revenue synergies because we haven't spoken details about them, and I'll still keep my comments at a high level pending that Investor Day that's going to happen in the second quarter of next year, more than likely. So, I would say, in addition to the $90 billion of assets, and maybe we can double-click on the $90-plus billion, which will make AllianceBernstein a $1 trillion platform, which otherwise would take them a number of years to get there given the nature of their activity.

And the $90 billion would come from both the on-balance sheet activity from Corebridge, let's say, the $250-plus billion of assets we have on our general account and some of the, what I call, separate account or off-balance sheet assets we manage through some of our funding vehicles versus whether it's a traditional variable annuity or group annuity contract or obviously other types of separate account products. So it's a combination of those assets that will migrate to AllianceBernstein in time, but in time being in more of the same time line, I would say, as we would exercise against our expense synergies. So that's value add for sure.

But over and above that, one of the benefits of this transaction and for those of you that have heard me speak before, like I believe very, very strongly, were in world-class distribution. And I believe strongly in what attracted me to Corebridge in the first place is our world-class wholesale distribution, our very strong, I would say, worksite distribution on the Group Retirement side and obviously, our very strong distribution on Institutional Market side.

We have a retail wealth management distribution. It's about -- we round it to about 1,000 individuals or so. I say all this because Equitable obviously has a very prominent and large and scale wealth management operation that has, let's say, 4,500, 4,600 individuals. So we're going to combine the two.

And I say that because they sell a lot of proprietary products through that channel, right? So their RILA sales, for example, a large share of their RILA sales, which have better economics come from that channel. They sell fixed annuities and fixed index annuities, which were a leading -- Corebridge is a leading manufacturer in the industry, and we don't have access to that channel, and we will now after the merger. So -- and they do $2 billion to $3 billion of fixed annuities and fixed index annuities, which will be obviously available to the Corebridge balance sheet. So that's another synergy.

We manufacture and actively sell an index universal life product. That as well is their product that's popular on their platform there on the wealth management side. So that's one that we'll be able to cross-sell. They have a VUL product, variable universal life product, and that product was on our design table. So we'll be able to obviously port that product to our distribution system on the Corebridge side. And so those are just some of the kind of ideas.

Now there's another revenue growth, I would say, synergy and opportunity, which is with our partnership with Nippon Life. And that Corebridge, Nippon owns, let's say, I'll round up to 27% of Corebridge, and they will own over 15% of the go-forward new Equitable. And I say there's a revenue growth for that synergy, because one of the attractive, I would say, activity of Equitable is to AllianceBernstein is their global footprint, and they're a very active player in that region, and they've got a great brand and distribution.

And there will be opportunity to partner with Nippon, potentially as -- obviously, they look at the NewCo and as well for us to manufacture spread products for the local Japanese economy, which is reflating and has the need for similar products that we, obviously, manufacture here for -- in our home country so.

Got it. So it's quite a bit to look forward to for the Investor Day. So maybe, Chris, one for you, right? Obviously, we talked about expense synergy. And then one of the main drivers you're guiding to is the $500 million of expense synergy. Can you maybe provide some pacing in terms of the timing and when we're going to get there? How much is expected on year 1 versus, let's say, go-forward year 2, year 3 post close?

Yes, sure. Happy to shed some light on that. So maybe I want to start by reiterating that we think the $500 million expense synergy target is achievable. As we've done some of the pre-integration work, as Marc alluded to, I think that reaffirmed our commitment and ability to make sure we can achieve the $500 million.

When I think about how that's going to earn in, I would expect to earn in about 30% by the end of year 1, 75% by the end of year 2, and the rest of it should trickle in shortly thereafter.

When I look across the broader areas of potential opportunities, I think we see a lot of different areas and opportunities to harmonize and synergize the expenses. So first, if I look at the back-office functions, there's room to consolidate back-office functions. There's ability to rationalize vendor contracts and how we negotiate with vendors and face off them.

When we look at the IT landscape and we look across the systems, there are meaningful opportunities to consolidate and simplify the IT stack. And then lastly, I would point to an area like real estate where there's an ability to simplify and real estate -- to simplify the real estate footprint for both companies.

Got it. No, that's very helpful. So maybe here's another one, the way we think about it. If you look at the broader insurance market, it's been the marriage between insurance and asset manager has really evolved over the last, call it, 10, 15 years. In this post-merger environment, you would have 3 very strong brands, AllianceBernstein, BlackRock and Blackstone. Can you maybe help us think about how you envision these partnerships evolve going forward?

Yes. That's a very good question, Bob. So maybe some context. At Corebridge, we have these strategic partnerships with BlackRock and Blackstone. So they're obviously very live and vibrant. To give context, last year in 2025, we originated $55 billion of assets at Corebridge, which speaks to obviously the gross flows that we get on our retirement business. But as well as assets turn over, right? So -- and we could not have originated all of that by ourselves.

So 1/3 of it was originated by our own, obviously, internal capabilities. 1/3 was from BlackRock and 1/3 was from Blackstone, right? So -- and if you look at the combined NewCo, and if you, let's say, whether you do so practically when we close or you do so implicitly here, if you take our internal origination and you add that to AllianceBernstein, which will be obviously the affiliated manager of the firm, I would say, in total, when you look across the platform, I can easily see upwards of $80-plus billion that needs to be originated, right? So I think a large part of that origination, obviously will come from AllianceBernstein and our current origination capabilities, as I mentioned.

But BlackRock and Blackstone will continue to be vibrant partners, right? And I think there's a lot of silver lining there because they are world-class in what they do as well. We need to originate, obviously, from different sources. And they bring obviously differentiated capabilities and complementary capabilities to what's currently in place at AllianceBernstein and what we currently originate ourselves, right? So and it has a layer as well.

When you think about the origination, like they originate, then it comes to our general account, kind of oversight, and Lisa Longino, is the Chief Investment Officer of Corebridge and will be the Chief Investment Officer of the NewCo. She has our own team, and we have our own risk appetite, whatever. So there's another layer of underwriting before it hits our balance sheet, and then we'll have like 3 world-class originators to help us serve Americans better, right? And that's what we're here to do. So we think there's a big plus and silver lining to this, as I said.

So one of the effect of the industry's evolution of this asset manager and life insurance is really the increasingly importance of VII as part of earnings. So maybe this one to you, Chris, is that the industry seems to be posting below target VII returns for some time, right, on and off. Can you maybe talk about how Corebridge is navigating these industry-wide headwinds? And then what is your long-term thinking and outlook when it comes to VII and then the structure of this going forward?

Yes, happy to share some thoughts there. So for purposes of Q2, I think a lot of the conditions that we saw in the first quarter, we're seeing repeat themselves in Q2. We see ongoing market volatility. We see uncertainty, geopolitical environment. And we see disruptions in the software and private credit space. And all of that contributes to near-term headwinds for the company.

For purposes of Q2, my expectation is that our alternative returns are lower than what they were in 1Q. When I look at VII in total, I expect it to be roughly consistent with where we were for the first quarter. When we think about the full year results and what we should expect for the full year, we do expect on a full year basis, we come in somewhere in the 1% to 2% range. Now that is, of course, below our long-term expectations.

But when we look at alternative assets in general, over the long term, they've generally returned over 10%. And we still continue to believe that they're an appropriate asset class and a good fit for our ALM matching. They're very well suited for long-dated liabilities like PRT and some of our other long-dated liabilities.

Thank you, Chris. The other part of investment portfolio right is really private credit. And then when we think about private credit headlines, obviously, that has been an issue that's often discussed, right? But if we think about the portfolio you have and then can you maybe help us think about the risk that you see within private credit? And then maybe also importantly, just a broader risk management framework because it feels like every 2 years, the industry is facing something of asset concerns. But yes, maybe just help us with both things here.

Yes. I think where I would start, when we think about private credit, there are fundamentally more private companies than public companies, and there is a need for private companies to have debt financing. This is an area where insurers, including Corebridge, have had a long successful track record lending to private companies. I don't foresee that's changing.

When we talk about private credit, what we're really talking about is what we would consider our middle market lending book. That's a $3.3 billion book on a $250 billion asset portfolio. So it's a very small piece of the overall pie. When we talk -- when we think about software in that middle market lending book, that's about less than $300 million of that $3.3 billion book. So again, a very small piece. All those software assets continue to perform.

Middle market lending is also an area where we have very attractive risk-adjusted returns, and we feel very well compensated for the risk that we take. And to the extent that losses do emerge in middle market lending, we expect that to play out over time, and we expect those to be yield adjustments, not fundamentally credit events.

When I zoom out and I think about the entirety of our portfolio, we do routinely rigorously stress test the entirety of our investment portfolio. To the extent there were short-term headwinds from an RBC credit perspective, we expect that to recover in a reasonably short period of time.

So Marc, if we think about it from a business perspective in the segments, right, Individual Retirement, you talked about the opportunities post-merger, but both fixed annuity, RILA market have becoming more competitive over time. And if you're thinking about the competitive landscape, are you seeing irrational behaviors from your competitors? How do you see the competitive landscape? I'm just curious your thoughts on that.

Yes. Thank you, Bob. So okay, maybe some context. So in 2025, I would say that both Equitable and Corebridge, if you add it together, originated on the individual side, Individual Retirement side, we have an Institutional Markets business, which I'll mention in a second here, but $45-ish billion of flows, right? So that's a significant amount of flow.

If you think about it, the market itself overall is, call it, $450 billion to $500 billion or so, has significant tailwinds in terms of the demographic realities of the graying of America, the need for saving for retirement and some sort of guaranteed aspect of that and as well the decumulation or lifetime income that people need in retirement.

So I say all that because having the 3 products, and the 3 products have 3 different client applications, right? And what we often forget in these settings and the insurance industry in general, I think, needs to focus more on this -- communicating this is, hey, we are here to help Americans retire with confidence and dignity, and each American has a different need, and I would say, risk appetite and personal financial situation that requires different types of savings vehicles to get there, right.

So from the fixed annuity, which has obviously a guaranteed kind of feature to it, to the RILA, which has more equity upside and acceptance of some downside, there is one of these products that fits their needs. So first and foremost, it's like let's get enough and world-class distribution on all aspects to get in front of the consumer through the adviser where he or she would adviser her at the end consumer about the right products and accumulation for their products.

And we feel the competitive nature of how we want to approach that is by differentiating the fact that we are one-stop shopping. So if you like dealing with the new Equitable as we come together, you could buy all of the services that is needed for your client, whereas when we think about it, if you're a financial adviser, how many stories can you learn, right? And how many new business processes, how many wholesalers, how many service folks can you learn? So the more you can do all of your business to one firm that you have come to respect, and that, obviously, hold to their promises they're making, the better it will be.

So the competitive pressures are real and the competitive pressures typically seep into the industry and the simpler designs, right? And I think what we pride ourselves in is our ability to originate great assets, as we talked about before, but as well design and innovate in the solutions to the end consumer so that price doesn't become always the reason why people choose XYZ, then there's a distribution, the service, the promise, as I said, right? So -- but yes, there is always going to be competitors.

But I would say through the years, and I've been doing this for over 35 years, it's always been a competitive environment. It's a matter of what does the flavor of ice cream look like in the current format, right? And so -- and I think our response to this, and my response to this is if you look through various cycles, you'll see that Corebridge and Equitable have always been in the top echelon of our markets because we matter to the distributors as much as obviously they matter to us. And a lot of our products are bespoke into these different distribution channels.

And the other thing I would say is then we -- and what I think investors should look at is are we sound allocators of our capital to the highest return for our shareholders while serving the end consumer as best we can, right? So -- and then this is where other distribution venues like Institutional Markets comes into play where we'll do more FABN or GIC-like products or we'll go into the PRT market, as Chris was saying, or we'll go into other markets where we feel the clearing price and the cost of the liabilities is such that our origination that we're getting, gets the right risk return trade-offs.

So I know it's a long answer to your question, but -- and all of those markets somewhat have their own competitive kind of energies or forces at play. And we feel that service distribution, managing complexity and delivering simplicity, and being easy to do business with will be a differentiator that will ultimately lead to companies like such as our own, not to have to compete on price always.

Size and scale does matter.

Yes, size and scale matters.

Especially since they come up with a new flavor ice cream all that time.

Correct.

Chris, maybe on that, similar line of thinking, right, because -- maybe partially because of competition, spread compression has been an ongoing problem with the industry could be partially because of that. Curious of how you think about managing the issue. The company reduces short-term sensitivity to rates by, call it, 70%, 75% since 2024. But as the combined entity, what are the actions you think that's worth taking? Or what are some of the things you're really paying attention to?

Yes. So I think that's a great question. When we think about spread compression, people generally think of what's happening on the competitive landscape. And what we've generally seen is that when there's spread compression from competition, that tends to be low single-digit basis points.

For us, the issue has historically been the floating rate assets. We've reduced our floating rate assets by 75% over the last 2 years. At this point, the -- a 25 basis point change in SOFR is going to result in somewhere in a $20 million to $25 million impact to earnings as we believe that's very manageable.

When we think about base spread income for Individual Retirement and where we expect that to land, we still expect that to be within our guidance from earlier in the year. We still believe spreads will bottom out towards the bottom of 2026. When we look ahead to the combined company in NewCo, we see a lot more diversified sources of earnings across spread income, fee income, asset management and underwriting. So we see a lot of benefit and upside to the combined company in diversifying some of those sources of earnings.

Got it. That's very helpful. Maybe shifting a little bit to the Group Retirement business, right? Like fee business now is becoming a more critical piece of the overall company for Corebridge. But as you think about the post-merger environment, curious how you're really thinking about the fee business and how that fits into the future of the merged entity, the new Equitable, so to speak, right? And also, just curious how you think about flow and then how you think about the growth opportunities there as well.

Yes. Yes. So I would say maybe some color on Corebridge and us entering into this transaction. So we, in our Group Retirement business, which is the main source of our fees for us, we sold our variable annuity business last year at quite attractive clearing price, and we've returned the capital to our shareholders, as you well know. So the main driver of fee income for us is in that Wealth Management kind of activity in our Group Retirement business. And we were going through and are going through this pivot where we're taking traditional recordkeeping and investment in spread assets and moving it as we're penetrating that participant and the family household to fee kind of businesses.

And that's creating, I would say, a transition in the economics and the profile of that business. And we are into it and have another 18, 24 months before we see kind of that turning on. That's by itself as Corebridge, right? And -- when you look at one of the attractive components of us coming together with Equitable and there are many, but one of them is from the Corebridge perspective, this complements and augments the diversity, diversification of our balance sheet, because the AllianceBernstein kind of revenue and earnings profile, which we talked about earlier that we could cross-sell into our general account and off-balance sheet assets in terms of sourcing and origination.

But as well this Wealth Management business that Equitable has and is very good. Equitable Advisors is obviously a top-notch adviser. And if you combine those individuals and they can accelerate that transformation of our Group Retirement business, let alone bringing together the 2 Group Retirement platforms and accessing more participants that way. So that's how kind of where we see the upside on the fee. And I strongly believe that having some balance and diversification in the revenue profile, the earnings profile, the capital base, the risk profile of the firm both in spread businesses, fee businesses and some of the, what I would call, biometric insurance risk is very appealing for investors.

Got it. Yes, they do. It sounds like there's a lot of more things to come.

More things to come.

More things to come. Yes. Maybe also on the Institutional Market, pension risk transfer has been lumpy, episodic, which is fairly normal. And then we're also expecting some level of activity picking up in the second half of this year. Can you maybe talk about pension risk opportunities -- pension risk transfer opportunities in 2026 and beyond.

Yes. Thank you. So our pension risk transfer business, which is part of our Institutional Markets business at Corebridge has been a vibrant growth area for us. And we're very active domestically here in the U.S., and we're active in the U.K. and some of the funded reinsurance type pension closeouts there. And I would say both -- and given the rate where interest rates and where interest rates are, both planned fundings are pretty attractive. So there's still a propensity for fiduciaries to look at closing out their obligations here to engaging a transaction such as a pension risk transfer.

And we feel that there's, again, $40 billion, $50-ish billion markets in both sources, as I said, and we are active participants there. And as you mentioned, Bob, if you see our behavior in this market, we are selective. We go after a certain type of case, a certain profile of pensioners, and it ties to what I was saying earlier about the differentiating capabilities and history and knowledge we bring so that we don't compete purely on the payouts and the simpler liabilities. And we feel it's a way to deploy our capital thoughtfully against the other places where we can get the right risk return profile.

So -- and I would expect, and we've guided both Chris and I to our audiences that we expect to have a similar year this year to what we've had in the past, which is a $4 billion to $5 billion type of overall profile to that business. And we have obviously an FABN and GIC on the side on the Institutional Market side. So we see some activity buildup in the second half of the year, and it will remain to be seen how it materializes for us, but that's kind of how we see the market right now.

Excellent. Maybe also the other one, if we look at Life Insurance, even though this is a life insurance sector, I would say not everybody want Life Insurance business. So if you think about the long-term role of Life Insurance within the combined company, can you maybe give us some thoughts into where does that fit going forward?

Yes. So our Life business has attractive economics, and it's a business that I've said before in my 6 months here in observing the business and the economics and the distribution and the outlets and the target clients. That we could easily be double the size, and I would welcome that because there's a natural hedge there between the mortality and the longevity we wrote and we write. And -- but more so than that, there's a need, right? There's a need for providing thoughtful life insurance at different stages of someone's life.

And I think our distributors want to sell more of the Corebridge Life Insurance products. And with Equitable, obviously, we'll have the variable universal life, as I said. But more than anything else, to me, it's an investment in infrastructure and connectivity, and the ease of doing business, which is without changing the product structure, the economics, we can drive volume by being easier to do business with them, and by being faster to do business with them and by improving our service value proposition, which is where we're putting some of our investment dollars now. So we are "bullish" on the Life business at Corebridge, particularly in the segments we're in.

That's helpful. Obviously, this is not going to be a financial conference without talking about AI. If we think about -- you noted that the deployment of the AI-powered digital agents will help servicing representatives and navigating complex group retirement plans, information, things of that nature. Can you maybe talk about the -- your longer-term vision of how this AI phase will look like for the merged company, how you wish that the combined entity will kind of evolve in terms of capabilities along with the technology itself?

Yes. So again, I'll speak for Corebridge more directly, but I think some of my comments apply across the merged company. We are behind in AI and digital and investment. And the company has gone through the separation from AIG. Obviously, that's complete. That's behind us. But obviously, the focus and attention of my colleagues across the company, whereby successfully separating from AIG, which has been done, right? But it took a 2-, 3-year and it took the attention spend and you had to stand up a lot of functions and infrastructure to be obviously a self-standing public company, which successfully done, obviously, delivered on the guidance that was set out to all of the investors and quite proud of, obviously, what the company represents now and the number of customers and how we serve them.

But tied to that, there's been less investment and focus on modernizing infrastructure on digitizing on AI deployment, right? So -- and we've said that this year alone, we're going to spend another $50 million to $70 million on improving digitization technology and thoughtful investment in AI.

So here's a few silver linings. I said all that, last year, the firm did upwards of $35 billion to $40 billion of top line, right? And obviously, we delivered. So imagine what we could do if we're thoughtful here. So -- and the other silver lining, which is, I think, going to be obvious to the audience is that, it doesn't take a lot to catch up given the pace at which progress and advances are taking place and sometimes being a fast follower and deploying certain things puts you in a better light and a better focus and more efficiency.

The last thing I'll say is that there's a fixed cost to all of this deployment and investment. And if you look at the combined co, obviously, operating leverage will be immense, right? And we're going to spread that cost over a much larger expense platform. And the other benefit, I would say, that sometimes gets lost, in some of our comments is that 100% of this operating leverage is in one country and one market. And I say that because some companies have various activities across the world, and that's great, by the way. I'm not here criticizing that. However, as they deploy some of this, there's tailoring for each market.

But in our case, obviously, as we build and develop stuff, it's through one distribution channel, one market and whatever. I think we got a lot of benefits of scale there to be had to that fixed cost. And we're going to deploy it thoughtfully to grow distribution, grow the ease of doing business to obviously have advisers see us as the one-stop shop to help identify more customers where the products and services we manufacture are good for them and to make the experience as we onboard pleasurable. And as we deliver our promises at the back end as well. And all of the infrastructure in the middle we will rely on third-party providers that will drive the efficiency and need to implement AI for them to deliver top-notch service, which is what people like ourselves and others will expect of them.

One thing you brought up is really one-stop shop distribution, right? Equitable and Corebridge, I would make the argument is brand of equals, right? Both are very recognizable. But from that perspective, the decision was to pick the Equitable brand, right?

Yes.

So as you think about the managing and potential distribution relationship or changes in distribution going forward, can you maybe help us think about that balance? Or like how are you planning to do that? And then what is really the Corebridge's presence in the middle market and how that helps as well from a distribution perspective?

Yes, yes. Thank you. So I mentioned the integration and transformation office. This is one of the items that is very high on their list to how -- as we come together towards year-end, and we go to market as a merged company in the future, what products, to what distribution and under what brand and how quickly and simplest things like websites, e-mail addresses, how a distributor through which platform do you clear where does the liability end up? Those are all being worked on now.

And thoughtfully, and I would say putting ourselves in the shoes of the end consumer plus the distributor first and how would those individuals and those firms like to interface with us, balance with, obviously, the expense synergies that Chris was mentioning that are real and attainable that we feel strongly will create the operating leverage, I just discussed in my prior remarks.

So I say all that because in some respects, we want to move very fast. In some respects, we got to be thoughtful in how we do this. But I would say that the selection of Equitable as the go-forward brand was not an easy decision for us at Corebridge for obvious reasons. There was a lot of emotional attachment to this 5-year-old brand. And I think it's been something to the employees, and it was very meaningful to our distributors and our customers. But it is a 5-year-old brand, and we're merging with a 167-year-old brand household name as well. And with AllianceBernstein, obviously, a world-class asset manager.

So it's only logical to pick that brand, but it's logical with your head, it's emotional with your heart. And -- but that's the brand ultimately that we have now. The one thing I will say is that there'll be a new release of the brand that will try to bring together, I would say, connotations of each firm into the new Equitable so that everybody can embrace the go-forward company and feel part of the family go-forward, which is employees, communities, obviously, distributors and then consumers.

More to look forward, Marc?

More to look forward to. Yes.

Well, we're out of time. So I really appreciate you spending the time with us. Thank you very much.

Thanks a lot, Bob.

Hello, everyone. Thank you for joining us, and welcome to Corebridge Financial Inc. First Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Isil Muderrisoglu, Head of Investor and Rating Agency Relations. Please go ahead.

Good morning, everyone, and welcome to Corebridge Financial's earnings update for the first quarter of 2026. Joining me on the call are Mark Costantini, President and Chief Executive Officer; Chris Filiaggi, our Interim Chief Financial Officer and Chief Accounting Officer; and Lisa Longino, our Chief Investment Officer. We will begin with prepared remarks by Mark and Chris, and then we will take your questions.

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. Corebridge'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. Except as 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 you are cautioned to not place undue 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 GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on our website at investors.corbridgefinancial.com.

With that, I would now like to turn the call over to Mark and Chris for their prepared remarks. Marc?

Good morning. and thanks for joining us. I'd like to formally welcome our CFO, Chris Filiaggi, to the call as well as our Chief Investment Officer, Lisa Longino, I'll begin this morning with a recap on the strategic rationale of our transformative merger with Equitable and an update on progress we've made to date followed by some observations on the current market environment and our corporate business model performed in the first quarter.

I'll also spontalize some of the actions we're taking to win with customers. Turning to Slide 3, we are bringing together 3 outstanding franchises to create a diversified financial services company with leading positions in retirement, life, wealth and asset management. Together, we will have more than 12 million customers and $1.5 trillion in assets under management and administration. Our combined distribution capabilities will be formidable. We will have a large multichannel distribution ecosystem to reach the broadest possible customer base.

Our enhanced scale will drive significant synergies, $500 million in expense synergies plus meaningful upside opportunities from additional revenue tax and capital synergies. Our greater scale should reduce our cost of capital to help us provide better customer solutions at lower cost, allow for greater investment and strengthen our ability to attract top talent. The transaction will allow us to further diversify our source of income, which helps provide resilient earnings across market cycles.

Our growth prospects will be considerable across the combined company's businesses with our integrated model allowing us to capture the full value chain. The balance sheet of the combined company will be robust. By 2027, we expect earnings to exceed $5 billion per year, cash generation will be strong and consistent, topping $4 billion per year. The merger will be immediately accretive to both earnings per share and cash generation. both of which should increase to 10-plus percent by year-end 2028.

Turning to Slide 4. The upside potential for all our businesses will be strengthened with the merger. In individual retirement and life, we will have meaningful revenue synergies. For example, our fixed and fixed index annuities will complement Equitable's annuity offerings and their variable universal life product will complement our life offerings. Together, we will be a leader in the [indiscernible] group retirement space with a large workplace distribution force. We will have more capabilities and balance sheet capacity to support our growth in institutional markets.

In the combined company's asset management and wealth management businesses, Alliance Bernstein will have nearly $1 trillion in AUM and we'll have over 5,000 advisers to drive growth. We are making good progress on steps required to close this transformative transaction. We already have completed a vast majority of our regulatory filings, our Form S-4, including the shareholder proxy statement will be filed with the U.S. Securities and Exchange Commission shortly. We believe the shareholders of both companies will approve the transaction, given its compelling rationale. The executive team of the combined company has been determined and will be communicated soon. I'm confident we have the right leadership to execute on all our strategic objectives.

Both companies have established integration management offices that are hard at work planning a seamless integration that captures the full value of the synergies. Finally, an important update on the timing of share repurchases. As we indicated in the 8-K filed earlier this month, we are exploring undertaking share repurchases prior to the closing of the merger including during the period from filing the preliminary proxy with the SEC until we mail the final proxy to shareholders.

We also continue to expect another opportunity when we can repurchase shares after the shareholder board December, subject to normal blackout periods. Any remaining capital we plan to deploy will be facilitated post close likely through an accelerated share repurchase.

Turning to Slide 5. Corebridge demonstrated strong performance driven by favorable industry demographics and sustained customer demand in the first quarter. Despite facing heightened market volatility and competition, our disciplined approach continues to deliver solid results. Our wide array of product and service offerings enable us to meet a wide variety of customer needs, enhance the stability of our financial results and allow us to allocate capital where returns are the highest. Our powerful balance sheet continues to give us financial flexibility and our disciplined execution shows up in everything we do.

Our overall performance in the quarter was strong. Excluding variable investment income and notable items, year-over-year operating earnings per share were up 13% and adjusted return on equity was up 120 basis points. The foundation of our success is winning with customers and I include our distribution partners and plan sponsors in that category. We were proud to be ranked #1 by J.D. Power for partner satisfaction and annuity distribution. This validates our strategic focus on the adviser experience and our goal of being the easiest firm in the industry to do business with.

We also continue to see strong momentum in our Group Retirement NPS and with planned sponsor satisfaction rising year-over-year. I'll have more to say about how we're investing in customer experience in a minute. In Individual Retirement, we delivered strong sales of $4.3 billion, while maintaining pricing discipline and consistently positive net flows. The market outlook remains positive -- the Peak 65 surge is continuing with another 4 million Americans hitting that retirement milestone this year. In Group Retirement, we continue to see the transition from a spratifee-based business. Fee-based earnings are approximately 60% of the total with advisory and brokerage assets rising to all-time highs, growing 14% year-over-year, benefiting from record levels and net inflows.

In life, excluding VII and seasonally higher mortality, we continue to deliver earnings within our guided range, reinforcing a stable earnings for the company. And in institutional markets -- the underlying business continues to grow with an 18% increase in reserves. We issued $1 billion of guaranteed investment contracts in January, including our first-ever Canadian dollar-denominated GIC. The pension risk transfer pipeline remains healthy with greater activity expected in the second half of the year.

I believe the key to our success will be a relentless focus on putting the customer at the center of everything we do. Our road map is simple: to deliver a differentiated customer value proposition, be the easiest company to do business with and maintain a world-class distribution. That is how we generate more value for customers and investors alike. As I said on my first earnings call 3 months ago, we're going to make the investments needed to improve the customer experience. Those efforts are well underway at Corebridge in 2026. A few highlights. We've launched a customer council steered by the executive leadership group and comprised of cross-functional senior leaders from across the company.

They are showcasing key initiatives, sharing best practices, identifying quick wins and above all, ensuring we maintain a customer-first mindset. Across our retail operations, we're modernizing how new business is onboarded by further enhancing digital submissions, strengthening upfront suitability checks and improving real-time application status, all of which has removed uncertainty, delay and friction from the process. We've launched a new wealth management digital experience last month that allows clients to seamlessly navigate their product and service relationship with us and stay connected with their financial adviser.

We're moving permanent life products onto our digital submission platform, and we're launching a new payroll platform that makes it easier for group retirement plan sponsors to integrate their payroll data with us.

In closing, we're excited about the future of our business. Externally, powerful demographic tailwinds are creating a large market opportunity. Internally, our customer-first mindset and emphasis on operating at speed will enable us to capture a significant share of that opportunity. The result will be a company that delivers significant growth in earnings per share cash generation and shareholder value. This is true of Corebridge today and will continue into the future as a combined company.

With that, I'm pleased to turn the call over to Chris.

Thank you, Marc. I'm excited to join today's call and will provide further color on our performance for the first quarter. Starting with Slide 6. Our results this quarter underscore the strength of the Corebridge model, consistent growth and active capital deployment balanced by expense control and portfolio optimization. Performance was largely in line with our guidance from the fourth quarter, highlighting our diverse stable earnings patterns and agility and capital management.

We reported adjusted pretax operating income of $629 million and earnings per share of $1.05. The first quarter results were impacted by underperformance of our variable investment income. Excluding the impact of VII and notables, EPS increased by 13% year-over-year, demonstrating the underlying strength of our core businesses. VII returns were impacted by several components including positive alternative investment returns, offset by unrealized mark-to-market losses on investments accounted for at fair value with changes in fair value reported in adjusted pretax operating income.

Adjusting for long-term alternative investment returns and notable items, we delivered a run rate operating EPS of $1.17, representing a 9% increase year-over-year. Finally, adjusted ROE was 10.6% or approximately 12% on a run rate basis. Excluding VII and notables, this reflects a 120 basis point increase year-over-year, underscoring our commitment to consistent profitable growth. Turning to Slide 7. Our businesses continue to evolve, delivering highly diversified sources of earnings and strong, stable cash generation regardless of the market environment. Our core sources of income, excluding alternatives and notable items, increased 1% year-over-year with some variation in the underlying components.

Fee income increased by 9%, driven by growth in assets under management and advisory alongside favorable market tailwinds. Spread income increased by 1%, which is in line with our guidance around the earning of the majority of the 2025 fed rate cuts. To put that in perspective, had those rate cuts not occurred base spread income would have been approximately $20 million to $25 million higher. Underwriting margin decreased 2% year-over-year due to exceptionally favorable mortality in the first quarter of 2025.

Lastly, general operating expenses were in line with our expectations. This reflects ongoing investments we are making in our platform, as Mark highlighted earlier, as well as typical first quarter seasonality. Looking ahead, we remain fully committed to disciplined expense management and improving our operating leverage over time.

Turning to Slide 8 and looking at our capital position. Our balance sheet continues to be healthy and strong. We ended the quarter with over $1.7 billion in holding company liquidity, supported by our U.S. insurance companies distributing $925 million of dividends in the quarter and our level of liquidity exceeds the holding company's needs for the next 12 months. Capital return to shareholders reached $1.4 billion in the quarter. This included the completion of our planned capital returns related to the VA reinsurance transaction totaling $1.8 billion. Excluding those VA reinsurance proceeds, we maintained our payout target with a payout ratio of 88%.

Lastly, our insurance companies remain well capitalized with capital ratios exceeding our targets. Next, I'll review a few highlights from each of our businesses. The details of which can be found in the appendix to our earnings presentation. These results exclude the impact of notable items and variable investment income.

Starting with Individual Retirement, we continue to be very positive about this business. The outlook is backed by strong fundamentals and demographic tailwinds that continue to drive demand for our retirement solutions. Premiums and deposits were $4.3 billion, demonstrating growth both sequentially and on a year-over-year basis. Leveraging [indiscernible] first quarter industry projections, we maintained our market share of total annuity sales year-over-year. This includes our newer Vila product, highlighting our success with key distribution partners.

Net flows into the general account remained positive at approximately $0.5 billion, contributing to continued growth in the underlying business. We saw surrender activity in line with our expectations. This reflects fixed and index annuities reaching the end of their tender charge periods. As we look at the full year, we reaffirm our estimate for big spread income to be approximately $2.55 billion. While we continue to see some spread compression, we still expect it to level off by the end of 2026, assuming the current market outlook and 2 additional Fed rate cuts.

Lastly, AP TOI increased 1% year-over-year, supported by growth in spread and fee income, highlighting the growth in the underlying business. Turning to Group Retirement. We are seeing this business evolve as a growing percentage of the American workforce is reaching retirement age. This demographic shift and the steps we are taking because of it are fundamentally changing how we generate value, moving us toward a more diversified and resilient earnings profile.

Continued momentum in our advisory and brokerage initiatives resulted in a record level AUMA and net flows of over $300 million in the first quarter. The strong performance is directly related to our efforts focused on the adviser experience and operational ease of doing business, which is delivering early measurable wins as we continue to invest in the platform. APT line decreased 17% year-over-year. This reflects lower spread income, partially offset by growth in fee income. This transition is intentional.

As our clients move into the decumulation phase, we are seeing a natural mix shift away from the spread-based products and towards fee-based income. This aligns with our broader strategy to emphasize capital-light earnings, which now account for nearly 60% of group retirement earnings. Our Life Insurance business delivered another strong quarter, in line with the guidance we provided back in the fourth quarter, reflecting higher seasonal mortality in the range of $15 million to $20 million. This performance is consistent with both our historical experience and seasonal expectations for the start of the year.

We generated $850 million in sales this quarter, in line with first quarter expectations. [indiscernible] declined 5% year-over-year. While mortality trends are favorable and aligned with first quarter expectations, they were below the exceptional mortality experienced in the prior year quarter. Going forward, we remain confident in the steady cash flow and stability this segment provides for the broader portfolio. Institutional markets continues to be a consistent growth engine with both underlying reserves and total earnings trending upward. First quarter sales included over $1 billion in GICs maintaining the consistent momentum we've seen highlighting our ongoing commitment to the GIC and FABN market.

APT OI increased 15% year-over-year. This growth was underpinned by an 18% expansion in our reserves and a 13% increase in assets under management and administration. Lastly, a comment on pension risk transfer. Sales in this space are inherently episodic. While we expect volume variability from quarter-to-quarter, our pipeline remains strong. We anticipate an uptick in activity we move into the second half of 2026.

Next, I'd like to take a moment to address recent headlines regarding the life insurance industry and its investment portfolios. Corebridge has a long-standing history in private placements recognizing that the vast majority of companies today are privately held rather than public. We are able to utilize this asset class to achieve diversification across our portfolio that isn't available through public issuance alone. These assets are a natural fit for our liabilities and allow us to not only capture an illiquidity premium, but to do so with the protection of financial covenants, while maintaining a high-quality investment grade profile.

Corebridge maintains control over all aspects of our asset portfolio and risk profile, whether our private debt is originated internally or externally, we maintain rigorous ongoing processes to underwrite, reunderwrite, rate and model our private assets. Out of the $284 billion statutory investment portfolio, $49 billion is in private debt, which is a high-quality diversified book, where 91% of the assets are rated investment grade. To provide further context on our private debt, I'll address a couple of recent areas of focus, beginning with private credit over what we categorize as middle-market lending.

Our allocation here stands at $3.3 billion, representing only 1% of our total portfolio. These investments have attractive risk-adjusted returns and we continue to expect [indiscernible] losses in the middle market lending will be yield adjustments and not credit events. Further, within the middle market allocation, our debt exposure to the software sector is less than $300 million and all of it is currently performing. Another area of focus in the financial press has been BDCs, like middle market lending, this represents a small part of our portfolio where we hold $1.7 billion of debt issued by BDCs. Our entire exposure consists of debt instruments with no equity holdings in these originations. We Generally, we are a senior lender in these investments and the average asset coverage ratio is approaching 2x, meaning significant asset impairment would be necessary to impact our position in the capital stack.

Given our current exposure, robust management processes and the alignment of our liabilities, we remain very comfortable with our positioning. Our rating migration has been net positive over the last 4 years, and we routinely perform sensitivity testing to ensure we remain well capitalized across all market cycles.

In clothing, we remain focused on maintaining a strong balance sheet while generating growing returns to shareholders. Our guidance laid out in the fourth quarter remains largely in place, and we continue to believe 8% to 9% is the appropriate expectation for alternative investment returns over the long term although we do anticipate continued market-driven headwinds based on the current environment.

With that, I will turn the call back to Isil.

Thank you, Chris. 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.

[Operator Instructions] Your first question comes from the line of Suneet Kamath with Jefferies.

Marc, I wanted to start on distribution. Just curious what you're hearing from your distribution partners post the merger announcement, is there anything that we should be thinking about in terms of sort of limitations on how much product they want to get from any one counterparty? Or is that not really a concern?

Yes. Suneet, thanks for the question. I appreciate it. It's actually a very good question because as we were going through the process with Equitable when we're looking at various levels of synergies, we did challenge ourselves in terms of what I guess I would refer to as dis-synergies. And as we announced it, and both firms obviously reached out to all of our distribution partners. I must say to to our delight, we haven't heard any, I would say, apprehension about the depth and breadth of the the presence will have across these channels.

And part of it is because the suite of products, both companies are bringing to the merger are very complementary. So -- so if you even pick the largest distributors on each side, the overlap is de minimis, so and the overall volume and -- at the end of the day, we feel strongly, and this is a strong premise around this transaction that scale matters and the manufacturing depth and breadth matters. And it's easier, we feel for an adviser for he or she to learn a handful of stories and be comfortable dealing with a handful of manufacturers, but when it comes to obviously, the distribution side, but there's a servicing side as well and how they live the brand. So we feel that's value add. So the answer to your question is we haven't heard of any, and we were obviously very pleased by that outcome.

Okay. That's helpful. And then, I guess, I just want to make sure we're thinking about this right. When you talk about the $4 billion of cash and the $5 billion of earnings, mean that would sort of imply free cash flow conversion of like 80%, which seems high. So I'm assuming that $4 billion of cash is sort of before holdco expenses, but -- just wanted to get a little bit more color on how you're coming up with those numbers and what they include.

Yes. Thank you, Suneet. Yes. So the short answer is, you are correct. And that's kind of the pro forma that both firms put out there when we obviously communicated this transaction a month or so ago. And so I'll leave it at that, but that's right. And that's pro forma guidance of where we expect the obviously, operating income to be in the flows, obviously, from the operating entities. And and it reflects, obviously, the very attractive synergies we'll get out of the transaction as well.

Your next question comes from Alex Scott with Barclays.

First on how you envision health management strategy evolving over time? I know you're not ready to give revenue synergies, that kind of thing. But Mark, I've heard you talk about Wealth Management. I know Equitable, I think, is maybe even gotten a little further down the road with their build-out of wealth management. How do you expect to leverage that? What are you planning to do on that front, even if you could just provide something more qualitative.

Yes. Alex, it's great to take here, Voice. So you're right. We -- and the collective we are very bullish on the wealth management space. I think if I objectively look at what Equitable advisers has done and what they've done with that business and the margins and the accretion and the growth of the margins over time and the volume and the AUMs, I think they have wonderful story. And obviously, they have an operating model that's proven to be successful. And they've got 4,500, 4,600 advisers, obviously, in the market. So on our side, I'm going to around about 1,000 advisers we have as part of that business. And we are investing a lot on the infrastructure there to, as you know, cross-sell and upsell, obviously, into those plan participants, and we feel there's a great opportunity there. I think we mentioned in the last call that we think that's upwards of $30 billion of upside there, and we're as Chris mentioned in his remarks, we are harvesting that opportunity right now.

Having said all that, your implicit observation there that their platform is more mature and advanced is true, right? And -- so in the category of the devil is in the detail that we are working through now and between now and close that into after close, how we bring both organizations to bear and ensure that 1 plus 1 equals 3, but we are very sensitive to the fact that we're talking about individuals that are larger have clients that want to grow their own book of business opportunistically, and we are being obviously attentive to that as we bring the 2 organizations together and it's too early to tell exactly what it looks like. But we are very, very, obviously, bullish on that business as we look forward.

Got it. Helpful. Second one I had is just on artificial intelligence and investment that you're going to make there over time. I heard some of the comments in your introductory commentary around the initiatives you've already got going on some of the digital interfaces that I think you mentioned. How are you coordinating those efforts with Equitable? I mean how quickly can you start working together on AI adoption just given -- I know this transaction probably takes some time to get the closure and so forth, but that a lot of these initiatives are taking shape very quickly in the background.

Yes. Thank you. That's obviously a very important topic, and I'll give you 3 perspectives. The first one is that each firm is operating independently between now and close, right? So let's assume closest towards year-end. What we do now is compare notes about the history and what we've done and not and develop plans as to how we come together and to integrate the firm, but we operate very much independently until they close. So some of the initiatives that they have ongoing will, I'm sure, continue and some of that we have, which I'll talk about in a second here, we'll definitely continue.

We are being thoughtful though if there's overlap in some of these initiatives so that we identify, let's say, the go-forward platform or approach so that when we plan for integration, we reflect that. So the second point I'll make is that, yes, we are accelerating our investment and deployment of AI capabilities. And I want to highlight the point that we want to invest in differentiated outcomes. And what I mean there is that we want to invest heavily in the front end and how do we enable and accelerate the distribution of our products and services to our various channels.

And I say this by wanting to arm and facilitate our distribution to provide a better service and guidance and identify faster, the better clients for the products and services that we offer and help people retire with. So that will be -- and that is a very key focus of ours. Then it's enabling a differentiated, I would say, brand and how they live our brand and that comes to the tail end servicing and claims. And I would say that a simple example of what we've deployed over the last few months is digital agents that help our group retirement plans manage their affairs. And as you can imagine, when people call and want to do certain things with their group retirement plan, there's a lot of complexity for the servicing individuals to get to the right information and get the right outcome, and we've got digital agents there now helping surface the right characteristics of every plan and contract that individual has. So that would be one example of how we've deployed it. And I think there will be more as time goes on now.

The one aspect, and you've heard me say this last quarter is that obviously, winning with customers and putting the customer at the forefront of everything we do is very important. And obviously, the digitization and implementation of thoughtful AI to our platform will be a key part of getting to that outcome.

Your next question comes from Tom Gallagher with Evercore ISI.

One question on the deal then a separate question on investment exposure. The -- so my question on the deal is the revenue synergies. And Marc, I know you're you're still getting through more detailed estimates for what these opportunities represent. But the fact that you're highlighting it as one of the parts of the strategic rationale for doing the deal, is it fair to assume that this could be material to earnings. I'll define that as 5% or more as a percent of earnings when we look to 2028 and beyond in terms of the potential opportunity here. Or is it more modest? I just want to get a broader sense because I think this is part of the strategic rationale for doing the deal.

Yes. So thanks for the question. I guess there will be ample revenue synergies that we expect on our transaction. I think we obviously guided towards the $100 billion of assets coming from the corporate side of the equation to AllianceBernstein over time. And that will be from the general account and obviously, the separate account assets. There's a lot of cross revenue synergies about us, corporate selling some of our fixed annuities and fixed index and the resented the accruable advisers channel, which I think -- you've heard, obviously, that there's billions there being written that we have access to. There's a VUL product on their side that was on our design table that we'll be able to introduce and then there's the cross-sell and upsell into these group retirement plans that I was just talking to [indiscernible] actually, I think it was Alex asking.

So -- but -- so those now -- it's too early to put a number on it. I wouldn't want to say above or below your number and and provide guidance that we haven't worked through at this point. I think as Robin and I have been mentioning to all of you, we will have an Investor Day in the first half of next year. And at the top of the list or as part of the key aspects of that will be to provide additional guidance on this revenue synergies. So far, obviously, we've indexed on the expense synergies given they were easier to identify as we went through the process, and that's what we're guiding to. And -- but there will be obviously some capital tax and revenue synergies as well tied to the transaction, which is why -- we think this one -- this transaction is obviously appealing on across many dimensions, including this one.

Okay. Fair point. I guess my question on the investment side is -- I appreciate the disclosure on the BDC debt, the $1.7 billion. We've gotten a number of questions on that. And can you -- can you just give a little more clarity on -- I think there's this perception out there that since a lot of the BDCs own risky debt, 10% plus yielding pipe loans, single B quality, how certain investors sort of equivocate that to that must be the risk for that exposure. And I think it's not. But can you talk about how you think about that $1.7 billion of BDC debt, is it all investment grade? I assume it largely is, but how that's very different than the underlying exposures that the BDCs have themselves?

Yes. Tom, I was going to have Lisa, who's on our call and give you context there. So Lisa, please?

Okay. Tom, it's nice to meet you. Thanks for the question. Look, the way we think about BDCs is, first and foremost, we look at the larger ones. We look at ones that could be public or really the majority of ours are nontraded. So given they're closed-end funds, they are regulated under the 40 Act, and they have some regulatory covenants in there that help. We view it as the portfolios are highly cash generative diversified pool, first liens with -- I mean, the conservative leverage in the low LTVs. And we spend a lot of time looking at that. And our asset managers will go in and regularly look at the portfolio monthly, how is it doing? What does the cash look like? What is picked, what trades are they doing because it is loan investments and there is leverage at the portfolio of companies, we spend a lot of time doing that. And the risk mitigants really are a significant portfolio diversity in the low LTV and even when we look at stress cases there, it does point to some solid recovery through the unsecured BDC debt because of the structuring.

So -- and we really -- we constantly review the asset coverage ratio. So -- and all of this is investment grade, solid investment grade. And as Chris mentioned, we don't have any equity exposure.

Your next question comes from Ryan Krueger with KBW.

I think your Individual Retirement sales were roughly flat year-over-year. And I think you said market share was pretty consistent. So that suggests that the industry was also about flat. Just any commentary on why you think sales have slowed at this point. I think the rate environment is still pretty similar to what it was. We obviously have the continued aging of the population. So I just was wondering if you had any perspective on why you think annuity sales have been slowing a bit after the big uptick in the last several years.

Yes. Ryan, it's Marc. So thank you for your question. Yes, I think as you mentioned, our sales are relatively flat year-over-year and quarter-over-quarter across our individual retirement side. I would note that we continue to have very robust activity in the individual retirement side on [indiscernible] side. And as you mentioned, we continue to believe that the demographic trends are very positive and a tailwind, right?

We don't have yet the Q1 market share data, right? So when we guide that we've maintained our share from our perspective, it's based on us accumulating data from our distributors and all that. But our gut tells us that actually our share will have somewhat increased, which which does mean as well, obviously, that the flows across the industry maybe have tempered a bit. I feel that, that is very temporary. And we feel, obviously, here at Corebridge that we purposely obviously have a depth and breadth of product for different obviously, solutions for the Americans as they accumulate savings for retirement and then draw on retirement income, right? And we believe there's robust demand and we don't make a quarter a trend or a conclusion as to what the direction of travel, and we feel that there's still a lot of growth in that space overall. So -- but more to come as all the actual stats come out is what I would say as well.

And then just had a question on the Japan commercial partnership you're pursuing with Nippon Life. When you think that could become operational? And how many of an opportunity do you think that could actually be for the company over time?

Yes. It's a very good question. And we have a very rich and ongoing discussions with Nippon. As you know, and you -- you've mentioned here, Nippon is a very important strategic investor in our firm. There will be obviously a or investor in the go-forward firm. And that stems as well from the core manufacturing opportunities we have with them. Like -- as you've heard me say many times, like brand and distribution matters and you need world-class and they have that in spade and Japan. And -- so we are working on co-manufacturing products. Their economy there is reflating. There's a need for the same products we sell.

Having said so, they have a process as well as they evaluate what goes through their distribution channels and what's right for the end consumer there. And we're trying to develop products with them that meet those needs and then they got to be filed. They got to be approved, and they got to be deployed. So I would say that if there's anything that would be announced at a through the course of 2026, if that happens, it takes at least another 9 to 12 months from then to actually have something in market, right, because of the nature of the regulatory process and the finding process and making sure it gets on the appropriate distribution shelf appropriately. So -- so that's kind of the frame I would give you. But we're working in collaboration with our -- obviously, with Nippon there, and I am cautiously optimistic that there will be something that we will do with Nippon over the course of time, but that's kind of the time line.

The other thing I'll say maybe is that -- if we look post merger, we have obviously some great asset management, to Alliance Bernstein, and they have a great global presence and that is another part of the equation where we think there's great revenue synergies eventually as we partner across the world.

Your next question comes from Wes Carmichael with Wells Fargo.

First question was on individual retirement. Just on the surrender rate in fixed annuities and FIA that ticked up a little bit sequentially. So just curious if you think that's going to continue to kind of stay that level from here? Was there a bit of maybe just volatility in the quarter from product exiting surrender charge. And did you see any elevated surrender charge income come through in the quarter?

Yes. Thank you, Wes. I appreciate the question. So I think as we've guided in prior quarters, there is some business that is approaching the surrender charge period across our fixed annuity and fixed connect annuity typically, those products have a 5- to 6-year kind of surrender charge period, and they're getting to the end of that point. So over the course of the '26, '27 and '28, we do see spike in that business maturing, and we would expect to see, obviously, more redemptions out of that just natural behavior and maturity of the block. And -- we do expect and always strive to have net positive flows, right?

And -- to the question earlier about the $4.3 billion of flows in a quarter, I'd like to think of our business as a $5 billion of quarter gross flows through various cycles, right? So you're looking at a circa $20 billion annuity book on an annual basis. And we feel that the maturity of the block and as business flows out, that will generate a steady stream of net positive kind of flows to our book. And that's how I would think about it versus looking at any given quarter, but that's -- so we do expect a heightened. But it's natural maturity of the business, not necessarily any type of unexpected behavior from our policyholders.

And -- so -- and there's no -- to your -- I think the other question you had was around surrender charge revenue. There's no unexpected, I would say, revenue or headwind tied to that in our business right now.

Got it. That's helpful. And I guess just second question on the insurance company cash distributions in the quarter. I think that was nearly $650 million when you exclude the VA proceeds. And that's up nicely sequentially and year-over-year. Do you kind of view that as indicative of a new run rate? Was there anything in the quarter that maybe favorably impacted that?

Yes. So I think I'll offer a comment, and then I'll hand it to Chris. I think we had heightened flows from the insurance companies in Q1, and I would expect the run rate to be lower. But Chris, maybe you want to give some color there?

Yes, sure. Thanks, Wes. Appreciate the question. So first, let me reiterate our guidance on the insurance company dividends. So our expectation was that we would have insurance company distributions at around $2.3 billion in 2026. That does include the dividend to the final $300 million from the Benra Bulls transaction. So that leaves us with about $2 billion of normalized insurance dividends. We did accelerate a portion of our dividends in 1Q. So directionally, you should expect dividends to be lower for the rest of the year, more in the $450 million to $500 million range.

Next question comes from Cave Montazeri with Deutsche Bank.

Both of my questions are going to be on the Marc's comment on making [indiscernible] the easiest company to do business with. The first one is on this newly created customer council, the initiatives that they're working on -- are they mainly digital initiatives? Or does that go beyond technology? And maybe can you share some of the quick wins you've identified that you want to start working on next?

Okay, Cave. I appreciate that question. And we are striving to be the easiest company to do business with. So I appreciate you spiking that out. And yes, so when we launched and rolled out the win with customers, I would say that win with customers was always part of the fabric of corporates and AIG Life and Retirement business. And I think the separation, obviously, to precedents and priorities. So it was always there in the DNA. And when we launched it internally and we communicated this broadly to our employees that we had a mentsense of excitement across the organization to to pivot to and pivot back to this kind of focus. So -- and it was as part of that, that this idea of forming a customer council is that we have a significant, I would say, members of our senior leadership for participating.

So now what are they up to -- so they're sharing best practices, they're sharing ideas, they're implementing, to your point, right? And I would say that you saw in some of my prepared remarks there, that we've deployed capability and a lot of it is through digitization to answer your question, right? A lot of it is how do we make the lives of our distributors, of our plan sponsors and our customers easier when they do business with Corebridge, how do we make it more predictable.

So -- and I think as you saw there, we are deploying some digital assets and new infrastructure to help employers through payroll deductions and distributions on the Group Retirement side. We are facilitating more straight through processing on the life insurance side, and we are digitizing some of the interactions on the annuity side. And that I'm getting over a cold here, but -- so that's kind of the things that we've been doing, I guess, I would say, Cave.

Great. And then my follow-up, somewhat linked to this is, and obviously, merging with Equitable is going to help you be an easier company to do business with, you have more products, et cetera, to offer. But there could also be a bit of a nightmare in terms of integrating the different platforms, IT systems, et cetera. So do you guys plan on kind of trying to run all of the back office for like a better terms separately for a while and just to make sure nothing breaks. Or is there a plan to really just integrate everything under one umbrella as quickly as possible in order to just really optimize the data that you guys have and that they have and really just offer kind of the best experience for the customers going forward.

Yes, Cave, that's another very good question. And I would say when we worked very closely with our Equable colleagues as part of the identification of the $500 million of run rate synergies, kind of platform kind of what we did with the platform, how they came together and how we pick the best platform on a go-forward basis to best serve the customers was a key part of the -- some of the outcomes here. And there's a lot of dollar investments tied to that, that were planned for. And the teams right now are working through the details of that. And I think as with anything that comes with this type of territory, every business and every function and every infrastructure will be a bit different. And the idea will be to enhance the customer experience, but not be disruptive to the customers as well, right? So I think it's kind of the -- it will depend -- depending on the business and the product line, how we approach it. But the spirit of what you're saying is definitely what we're aiming to achieve over time. But it won't happen day 1, as you can imagine, given the nature and intricacy of the model we need to operate under so.

The next question comes from Joel Hurwitz with Dowling & Partners.

I wanted to touch on variable investment income. Can you just provide some color on on what flows through other variable investment income that was negative in the quarter? And then are you seeing any rebound thus far in Q2? And maybe talk about what you're expecting for VII in the second quarter.

Yes, I'll have Lisa answer that one.

Joe, nice to meet you. Thanks for the question. So as Chris went through on VII, we -- in the quarter, we had a bit lower in [indiscernible] in the non-- that was really just nonrecurring marks on otherwise fixed income assets that are held in vehicles. And so it gets marked through operating income versus OCI. That has reversed. So we're not expecting to see that again. In addition, as we look forward into second quarter, in general, we're seeing VII slightly better. We still think second quarter could be below expectations, just given the volatility in the market.

Got it. That's helpful. And then just on buybacks, you have a nice liquidity cushion at the holdco versus your needs. I guess just any commentary on your willingness to significantly draw that down in this open window and particularly if AIG comes to the market with the rest of its stake?

Yes, Joe, it's Marc. Thanks for the question. So as you noted, obviously, we did $1.25 billion of buybacks in Q1 before, obviously, we went quiet because of the the proceedings that took place with Equitable. As I mentioned in my remarks and as we -- as part of our 8-K filing not too long ago, as we file our proxy, and we expect to later today, we do plan obviously in concert with Equable to go back in the market to do buybacks between the, obviously, the filing and the mailing of the proxies. And we won't guide us to the amount we'll do, obviously, in the market. And -- and we can certainly not speak to what AIG will be -- I know their CEO, I guess, and as part of their year-end call said that the they would like to be out of their holdings of Corebridge by year-end, but we have no insight otherwise, to provide here and know would it be our place to do so. So -- but we -- as we said, we will be active in the market between the the filing and the mailing. And obviously, we intend to be in the market as well after the vote later this summer.

So -- and we do have liquidity to deploy, as you say. But we've guided obviously to how much we would do over the course of the year, and we're going to hold to that guidance right now.

Your next question comes from Jack Matten with BMO Capital Markets.

Maybe one on group retirement. I know it's been in transition. I guess, can you help us frame the time line for when Corebridge expects earnings to stabilize in that business? Are we getting close to that point now? Or do you think it's more likely maybe after the merge closes and you see some synergies from that combination?

Jack, thanks for the question. Our expectation is that there's another 12 to 24 months for this transition to take place. So we we feel that we are trying to pivot this business and are providing this business from fee spread spread business to fee business. And we're seeing green shoots there. As Chris mentioned in his prepared remarks, obviously, we had some very good flows into that business. We're getting to the $20 billion point in terms of fee-based businesses. But there's still room to make headway there. And obviously, the spread level income on that business is heavier than the fee-based, which is why it creates that, obviously, headwind that will take 12 to 24 months from here to work true.

To your comment and question, as we try to make that dividend cross-sell and upsell to the participants. Obviously, the merger presents opportunities here in terms of the discussion we had earlier about the Equitable advisers and teaming up with that platform and those individuals to further penetrate our plans. Now -- do I expect that to happen day 1 after the close, No, right? It takes some time for the teams to get together as we mentioned earlier, before we close, we operate independently, right? So we can plan, but we can execute. So -- so I suspect that execution will take place in the first half of 2027, and then we see the green shoots appear afterwards across the various platforms, including this one. So that's kind of our perspective on that.

That's helpful. And then maybe a follow-up on the annuities marketplace. I guess, is your view that the competition is still intensifying in any of the product categories where you currently focus? Or do you think the market is settling in to do a new equilibrium at this point? And then maybe gives you kind of cogen some spreads stabilizing by the end of this year. But I think you said earlier that higher surrenders could potentially persist into next year or 2028. Just looking for any color there.

Yes. So sure. So 2 perspectives there in your question. The first one was the -- how intense the competition is. And I always find that a very interesting question because I never felt any quarter there was no competition. So the intensity of the competition ebbs and flows depending on who wants to pick their spots where. And you are correct that there's -- at the low end of the curve, there is a lot more capital being deployed there. And as you in our sales, we're being judicious on how we allocate that capital, and we typically redeploy it to our institutional markets business, and you saw us do obviously $1 billion plus of gigs in Q1. And that's how we kind of judge the allocation of capital, but that's what I would say about the market competitiveness of the business.

In terms of spreads, we continue to believe that our spreads on the IR business will level off towards year-end. And then given where we are in the interest rate cycle and where spreads are that we will basically expand from that point on. So we still expect, let's say, this year and or thereabouts to be where they would level off and then start growing and we would still guide to what we have set out there last quarter about that business as well.

Your next question comes from Wilma Burdis with Raymond James.

Given the combined scale of Corporate and Equitable and the investments you plan to make in wealth. Is it possible to accelerate the goal of making the wealth business self-clearing? If I'm recalling correctly, this would add quite a bit of margin and I'm estimating over $100 million of annual wealth earnings. So any color you can provide there on the plans?

Yes, Wilma, thanks for the question. I think you're primarily referring to Equitable's Wealth Advisors business that is not self-clearing yet, and obviously, scale gets you there. And I'm not going to offer a view yet. I'm not -- we're not informed enough to really have any view on that. I understand the economics we're referring to and the potential benefits, but we're not ready to guide to that. And I will wait again to what we do tied to any Investor Day or [indiscernible] about our view on that business and how we think we will continue to grow it.

And as I said -- as I mentioned earlier, we are very, very bullish on this business and it's one that's core to our future.

Makes sense. And -- we looked at the commentary that you all have given on capital and tax benefits and calculated that you sort of back calculated it implied about $500 million to $1.5 billion of capital freed up, just the synergies between the 2 companies. Just wanted to check if that estimate is in the ballpark or if there's anything that we are missing or any other directions on [indiscernible].

Yes. thank you for that follow-up. I would say that we have not guided to specific capital and tax benefits. I think we've guided to the fact that we think we'll have 10-plus percent EPS accretion run rate after 2028, which will be a combination of factors, which will include those you're mentioning. But more to come on all of that, including the revenue synergies, and I would point back to the discussion with Tom earlier about Investor Day and Robin and myself and others coming to all of you with more specifics across all of that. But we do firmly believe the transaction will be double-digit accretion over the next 24 months, for sure.

Your next question comes from Mike Ward with UBS.

So I was just wondering about kind of the Corebridge brand in the merger scenario. It's certainly younger than the equitable brand. Just wondering based on what you guys saw coming out of AIG, thinking through any kind of shock lapse. Is that kind of done with? Or could there be a temporary uptick post-merger.

Yes, Mike, thank you for the question. So yes, so we have decided that we are going to go forward with the [indiscernible] brand post merger. Obviously, the [indiscernible] has an incredible history in legacy, a 167-year-old brand. We are obviously going to continue to maintain and invest in the Alliance Bernstein brand, on the asset management side, that brand itself has an incredible cache across all our markets. And which means that we are moving on from the Corebridge brand.

And it was not that easy of a even though it's a 3-, 4-year old brand, a lot of people associated with Corebridge had a lot of pride in the brand, and we're a purple very proudly. I think -- but having said so, it's a 3-, 4-year old brand versus a 167-year-old one. So the right decision is to move forward with the [indiscernible] brand, which we will do probably as a combined company. So -- and we don't expect any business ramification out of bringing the brands together, and we actually think it will be value add to represent the collective firm with Equitable and go-forward basis.

Okay. And so -- and then on the -- these proposed changes to the RBC factors for CLOs and collateral loans. Just I was wondering if you guys had any early reads on the potential impact for you?

Mark, this is Lisa. Nice to meet you. Thank you for the question. Regarding the changes for CLOs, where is going to have incrementally more capital charge for the lower rated tranches and less for the upper -- all our indications are it's going to be a minimal impact to us given the structure of our CLO portfolio. So we're pretty comfortable with that.

We have run out of time, and therefore, we have reached the end of the Q&A session. This does conclude today's call. Thank you for attending. You may now disconnect.

Thank you for joining today's call to discuss the transformational merger between Corebridge and Equitable. Participating in the call will be Mark Pearson, President and CEO of Equitable Holdings; Marc Costantini, CEO of Corebridge; Robin Raju, CFO of Equitable; Elias Habayeb, CFO of Corebridge; and Onur Erzan, President of AllianceBernstein.

Before we begin, I would also like to remind everyone that this call contains forward-looking statements that include, but are not limited to, statements about the expected timing, completion and anticipated benefits of the proposed transaction between Corebridge Financial and Equitable Holdings and plans and expectations for the combined company after completion of the proposed transaction. Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Please refer to the information on the disclaimer side in the presentation for additional information. I will now turn the call over to Mark Pearson.

Good morning, and thank you for joining today's call. Earlier today, we announced an agreement to combine Corebridge and Equitable in an all-stock merger, and Marc Costantini and I are excited to present our strategic vision for the new company, which will operate under the Equitable brand.

This merger will leverage both companies' complementary strengths to enhance what we can deliver for customers, more choice, broader access to investment and retirement solutions and the strength of an industry leader with a robust balance sheet standing behind our promises. As we highlight on Slide 4, this merger will create shareholder value in 5 key ways. First, it brings together 3 outstanding franchises, Corebridge, Equitable and AllianceBernstein, to create a diversified financial services company with over 12 million customers, $1.5 trillion of assets under management and administration and leading positions across retirement, life insurance, asset management and wealth management.

The Corebridge and Equitable businesses complement each other well with different strengths and limited overlap. Second, we will have a formidable multichannel distribution platform, superior scale and more diversified sources of earnings, strengths that enable us to reach more customers, reduce our unit costs and generate more consistent earnings.

Third, we believe these competitive advantages will result in faster growth, higher profitability and more resilient results across market cycles. The breadth of our product offering and distribution will enable us to allocate capital where we see the best risk-adjusted returns and customer demand. In addition, our integrated business model allows us to capture the full value chain by acting as a product manufacturer, distributor and asset manager. The merger helps scale AB and Wealth Management, enhancing the value of these high-multiple businesses. Fourth, the combined company will have a robust balance sheet and is expected to generate over $4 billion of cash flow annually.

This will enable us to invest for growth while also delivering consistent shareholder returns. Finally, the transaction will be immediately accretive to earnings per share and cash generation, and we expect to achieve double-digit accretion by the end of 2028, supported by over $500 million of synergies. Moving to Slide 5. I will walk through the key terms of the transaction.

This is an all-stock merger with the 2 companies being combined into a newly established holding company. On a pro forma basis, Corebridge shareholders will own 51% of the new company, while Equitable shareholders will own 49%. Corebridge is expected to become the accounting acquirer and debt of both companies will be structurally Pari passu following closing. We will use the Equitable brand, and Mark Costantini will become the CEO of the new company. Robin Raju will serve as CFO, and we will have a 14-member Board of Directors with equal representation from Corebridge and Equitable. I will be honored to serve as Executive Chairman; and Alan Colberg, Chairman of Corebridge, will serve as the Lead Independent Director.

We expect the transaction to close at the end of 2026, subject to customary closing conditions, including the receipt of required regulatory approvals and approval of shareholders of both Corebridge and Equitable. I will now turn the call over to Mark to go deeper into our collective vision for the combined company and strategy for driving future growth. I'm excited about what lies ahead and look forward to working closely with Marc and the Board to shape the new company together.

Thanks, Mark. Let me start off by also conveying my excitement about today's announcement. Combining Corebridge with Equitable will create a world-class platform to help our customers plan, save for and achieve secure financial futures. Importantly, our cultural alignment will bolster our ability to execute and deliver long-term growth and value creation for all our stakeholders. We highlight the shared mission to empower families to retire with confidence on Slide 6.

It starts with winning with customers. We must provide holistic advice and innovative product solutions that meet the needs of our clients and help them achieve their financial goals. It is also critical that we enhance customer experience by improving our technology and digital solutions.

As the largest U.S. life and retirement company, we will be uniquely positioned to make the investments required to deliver on these expectations. We will also have formidable distribution capabilities. The breadth of our distribution network provides a significant competitive advantage, enabling us to reach a broad customer base and serve as a leading provider with third-party distributors. In addition, as a combined company, we are privileged to have approximately 5,000 financial advisers in our affiliate wealth management businesses who provide holistic wealth planning to clients across the wealth spectrum. This customer-first mindset is central to our strategy and cultural identity. Turning to Slide 7. Let me expand on our vision for driving growth and shareholder value. There are 4 key pillars to our strategy.

The first is to capitalize on our scale advantages and over $500 million of identified expense synergies to reduce unit costs and achieve a lower cost of capital. This will make us more profitable, drive more cash flow generation and give us added flexibility to invest in growth and attract and retain top talent.

We will also leverage our broad distribution capabilities and leading positions across the retail, institutional and worksite channels. The depth and breadth of our distribution should enable us to expand our offerings while achieving a lower average cost of funds, resulting in more profitable new business. As Mark mentioned, our integrated business model is another advantage as we capture economics across the full value chain of product manufacturing, distribution and asset management. This differentiates us from our competitors, most of whom only participate in 1 or 2 of these verticals.

Finally, we have strong financial principles that will govern how we operate. This starts with focusing on diversified cash flow generation, which we view as the strongest proof point of the economic value we are creating. We will also prioritize value over volume and price our products for a narrow range of outcomes.

Ultimately, we want to produce consistent results and cash flow across market cycles so that we can provide attractive returns to shareholders while also investing for growth. Starting with Slide 8, I will spend a few minutes walking through how the Corebridge and Equitable businesses fit together and why we believe this is such a powerful combination. There are a lot of numbers on this page that highlight the size of the combined company and our leadership positions in various segments. However, there are 3 key points that I want to emphasize. First, our business mix makes sense. We are an integrated financial services company with complementary business lines focused on retirement and life, asset management, wealth management and institutional markets.

These businesses have demographic tailwinds and synergies that enhance growth and profitability across the enterprise. Second, our size translates to functional scale and enhanced competitiveness. We expect to have one of the lowest expense ratios in the industry, a lower average cost of funds and superior asset sourcing capabilities. This should support profitable growth.

And lastly, this merger should generate meaningful synergies, including capital tax expense and revenue. We expect at least $500 million of expense synergies by the end of 2028. Robin will provide further details later on. Turning to Slide 9. We highlight our world-class multichannel distribution platform, which provides another important competitive advantage. Distribution plays a critical role in not just driving growth, but also in determining cost of funds and new business profitability. The combined company will have leadership positions in each of the 3 primary distribution channels for insurance products, which are retail, wholesale and worksite.

Beginning with retail, we have over 5,000 Equitable and Corebridge financial advisers. This channel sold $12 billion of proprietary life and annuity products in 2025, and we see upside with the addition of complementary Corebridge offerings like index annuities and index universal life. Since these are advice-driven sales where we have direct relationships with the client, we typically experience higher persistency and better profitability over time.

In the wholesale channel, which includes banks, broker-dealers and independent marketing organizations, we have over 1,200 different sales agreements and multiple products on the shelf at most firms. Our long-standing relationships mean we are well positioned with top firms, and we see opportunity to increase penetration of their advisers. Finally, we utilize worksite distribution in group retirement business to access 403(b) and 457 opportunities. For example, having advisers present in schools to work with teachers helps drive enrollments and supports better retirement outcomes. This depth and breadth of distribution enhances our competitiveness and ability to better serve our customers.

Slide 10 highlights the highly complementary nature of our retirement, institutional markets and life insurance businesses. In Individual Retirement, Equitable is the #1 RILA provider, while Corebridge is the #3 fixed and indexed annuity writer, so there is limited overlap. The combined company will have a top 5 position in all retail annuity product categories and benefit from our distribution strength.

With $250 billion of AUMA, we will have enhanced scale, resulting in lower unit costs. In Group Retirement, we are leaders in the tax-exempt 43(b) and 457 offerings. With $160 billion of combined AUMA, we see opportunity to increase penetration within these segments and can utilize greater scale to accelerate our platform digitization, both of which should drive improved flows in the future.

We see tremendous growth opportunity for our retirement businesses looking forward, supported by an aging population and increased demand for both asset accumulation and guaranteed income solutions. This will not only drive positive net flows in retirement, but also support flows to AB and distribution revenues in wealth management. Institutional Markets is also an important growth business with Corebridge having a much broader product offering than Equitable, including a top 10 position in pension risk transfer.

The larger balance sheet of the combined companies will provide additional growth capacity moving forward. Additionally, we see attractive opportunity to grow in individual life insurance. Once again, the 2 companies have complementary businesses with Equitable focused on the variable universal life market and Corebridge focused on the index universal life and term. We manufacture products where we have underwriting expertise or access to unique distribution that enables us to generate attractive returns. An exciting opportunity will be introducing the Corebridge Life offerings to Equitable advisers, which should drive incremental sales.

Finally, we believe that the technology and digitization improvements that we are both investing in striving to become one of the easiest companies to do business with will benefit all our businesses and lead to further sales growth across the board. Slide 11 highlights the significant growth opportunity in Wealth Management, which is something that we are very excited about.

We have 3 distinct businesses with about $300 billion of total AUA. Equitable Advisors provides holistic wealth planning to mass affluent clients and has 4,600 advisers and $122 billion of AUA. It generated 13% organic growth in 2025 and has a strong track record of recruiting and developing new advisers. We also have been investing to expand experienced adviser recruiting. Corebridge has approximately 900 advisers serving the 403(b) market, including about 300 advisers focused on out-of-plan assets. Bernstein Private Wealth focuses on high net worth individuals and has $156 billion of assets. It has been a consistent source of net inflows for AB with mid-single-digit net new asset growth. We like the complementary nature of these platforms, which gives us the ability to serve clients across the wealth spectrum.

We also see synergies between Equitable and Corebridge Advisors with opportunity to increase penetration with tax-exempt customers and capture more rollovers and out-of-plan assets. In addition, as these businesses grow, it should enable us to expand margins as a result of increased scale and cost synergies.

We expect Wealth Management segment earnings to grow at double-digit annual rate and investing for growth will continue to be a strategic priority. Turning to Slide 12. We firmly believe in the integration of insurance and asset management. A key source of value for the combined company is having our own global asset management capabilities through our 68% ownership of AllianceBernstein. AB is a publicly traded partnership that pays out all of its earnings, providing over $600 million of nonregulated cash flows to the holding company on an annual basis.

Our ownership stake has a current market value of approximately $8 billion, which represents a significant percentage of our combined market cap.

We believe this merger will be accretive to AB's earnings and help accelerate future growth. We expect to move at least $100 billion of Corebridge's general and separate account assets to AB over time, which will bring its total AUM to close to $1 trillion.

We also see an opportunity to commercialize some of Corebridge's internal asset origination capabilities, particularly for real estate and commercial mortgage loans by leveraging AB's global distribution. Over time, we expect to find additional sources of incremental revenues and net flows. AB also enhances our ability to originate assets for the general account and deliver differentiated risk-adjusted yields needed to support our insurance businesses. By combining AB with Corebridge's internal teams and our existing partnerships with Blackstone and BlackRock, we believe we have best-in-class origination capabilities across all asset classes.

In particular, this transaction further complements our strategic partnership with Blackstone, which brings distinguished origination capabilities to Corebridge. Blackstone has been a good partner, and we expect to continue our partnership.

As I think about what the merged business will look like across insurance, asset management and wealth management and the competitive advantages that we will have, I truly believe we are creating an industry-leading franchise that will deliver value for all our stakeholders. I will now turn the call over to Robin to provide more detail on the financial impacts and combined balance sheet.

Thanks, Marc. Let me start by echoing my excitement about this merger, which creates compelling strategic and financial value for our stakeholders. On Slide 13, we show the pro forma sources of earnings and cash flow for the combined company. The combined company will have a balanced mix with diversification across spread income, fee income and underwriting margin. The complementary nature of our businesses should result in more resilient earnings across market cycles. At a segment level, our largest earnings drivers are individual and group retirement and asset management. We will need to align segment reporting and operating earnings definitions between companies, but do not expect a material impact on overall results.

Turning to cash generation. we expect about 75% of annual cash flows to come from our insurance entities and 25% from Asset and Wealth Management. We receive about $1 billion of noninsurance cash flows each year. Turning to Page 14. A key strength for the combined company will be its large and diversified balance sheet, which will provide significant capital flexibility and resilience. Both companies have consistently reported RBC ratios above 400%, and this includes periods of high and low interest rates and rising and falling equity markets. This highlights the quality of our liabilities and the effectiveness of our hedging programs. Cash generation is a similar story with both companies producing consistent cash flow to the holding company. Note that this excludes one-off capital release benefits from business sales or reinsurance transactions. Combined cash generation has been increasing over the past 3 years, and our focus will be on driving future growth in cash flow. On Page 15, we showed a pro forma investment portfolio for the combined companies.

Our total general account will exceed $350 billion and is well diversified and conservatively positioned with 96% of fixed maturities rated investment grade and an average credit rating of A-. We also included details on our pro forma private credit portfolio since we know this is a current area of focus for investors. The total pro forma private portfolio is $63 billion, which will be about 17% of our total portfolio and over 92% of the portfolio is investment grade rated. Importantly, more than half of our private asset allocation is to traditional corporate private placements. Direct Lending, which is a primary area of concern in the market, is only 6% of our pro forma private assets portfolio and about 1% of our total general account. We use high-quality managers like AllianceBernstein, BlackRock and Blackstone and have a well-diversified portfolio of loans. For other areas of the portfolio, like private ABS and infrastructure debt, we focus on highly rated tranches where we can earn attractive spreads over similarly rated public corporate debt. We recognize that private credit is not a risk-free asset class. That said, the key is earning a higher net spread versus other asset classes due to private credit illiquidity premium. Given our significant underwriting expertise, we feel confident that we are being compensated for the risk that we're taking.

Overall, we feel very good about the quality of our investment portfolio and how it will perform in the event of a credit downturn. Both companies run extensive credit and liquidity stress tests, and these were carefully reviewed by management and outside advisers as part of the due diligence process. This should give investors comfort. Moving to Slide 16. I will cover expected synergies, which will be a key source of value creation in the merger. We will expect to achieve $500 million of annual pretax expense synergies on a run rate basis by the end of 2028. About 30% of these will earn in during the first year post close, and 75% will be recognized within 24 months. $500 million represents about 10% of the combined company's expense base and a large portion of the savings are coming from redundant service contracts, systems and head count. So we have high confidence in being able to achieve this number. We expect the cost to achieve will be about 1.5x the run rate synergies, and these costs will be reported below the line. We also expect to achieve revenue synergies over time, but these are not included in our accretion estimates.

Some examples of potential revenue synergies include Asset management earnings from transferring over $100 billion of Corebridge general account and separate account assets to Alliance Bernstein and commercializing some of Corebridge's internal asset management strategies. We also expect to distribute Corebridge's light and fixed and indexed annuity products through Equitable advisers where we can leverage our low cost of funds to enhance our competitiveness and increase our sales volume. We expect to accelerate growth in Corebridge Advisors channel and increase the level of rollover conversions from group retirement assets. Finally, we will have additional synergies for both capital and taxes. Overall, there are several potential sources of upside to our estimates. And given the lack of overlap, we see little risk of revenue dissynergies. As shown on Slide 17, a we forecast these synergies to drive 10% plus accretion to both earnings per share and cash generation by the end of 2028.

We also project an adjusted return on equity of 15% plus. From a capital standpoint, we have a pro forma year-end 2025 RBC ratio of approximately 440%, and we project a leverage ratio at close of 26%. These projections assume that we execute a similar level of share repurchases as were assumed in each company's standalone 2026 capital plan. We will be restricted from buying shares ahead of the shareholder vote, but we will look for opportunities to be in the market between that point and the closing date of the transaction. We expect to utilize an accelerated share repurchase to acquire any remaining shares shortly after the transaction closes.

Now I'll hand the call back over to Marc for some closing comments before we take any questions.

Thanks, Robin. The merger of Corporate and Equitable has clear customer and financial benefits and I will conclude by reiterating the points that Mark opened the call with. We have a shared mission and vision and are coming together to create a leading integrated retirement, life, wealth management and asset management business with distribution and scale advantages that will enable us to grow faster and more profitably than competitors. The combined company will have a robust balance sheet and generate over $4 billion of cash annually enabling us to consistently return capital to shareholders while investing for growth. We forecast double-digit accretion to EPS and cash generation by the end of 2028, supported by over $500 million of synergies, creating significant shareholder value.

Looking forward, we plan to host an Investor Day in the first half of 2027 to share our go-forward growth strategy in more detail and provide updated financial targets. And finally, I want to thank the Equitable and Corebridge teams that have worked hard over the past month to bring us here today. I especially want to thank Elias for his dedication and partnership through this process. We now look forward to taking your questions.

[Operator Instructions]

Your first question comes from the line of Alex Scott from Barclays.

Congrats for the announcement. A question I had, maybe a little nuance. Just interested in the headquarters being Houston, Texas. You guys are both sort of New York Metro based companies right now. Can you talk a bit about that decision? And as part of the expense synergy plans, moving jobs away from the New York area, any comments you have?

Alex, it's Marc Costantini here. Thanks for your question. So a 2-part question. The first one, Houston, Texas headquarters. Obviously, both firms have significant presence across all the U.S. However, we have significant presence, obviously, ourselves in Houston, Texas enter discussions with Mark and the team, we decided that Texas was probably the best place to have our headquarters formally for the firm. And as you may imagine, we're engaged with all our regulators with great interest around this transaction as we move towards close later this year.

With respect to synergies, as you mentioned and as Robin gave a lot of great details on we do expect over $500 million of synergies run rate by the end of 2028. And we have some -- obviously, used us to the integration and plans, but it's very early days. So it remains to be seen how all this comes together, but we are very confident of the $500 million go-forward synergies as we bring together these 2 great companies. Thanks.

Yes. As a follow-up, I wanted to see if you'd comment at all just at a high level around how the deal came about? If you could give us any details on just what your thinking was on each side and what brought the 2 companies together?

Alex, it's Mark Pearson. So thanks for the question. I think we've long admired each other. We, on the equitable side, we know Corebridge to be extremely well-run professional organization. And as Marc said, we've been working together this last few weeks just to have a look at the deal. And we're very excited by bringing these 3 great franchises together Corebridge Equitable and AllianceBernstein to create a really leading player in the marketplace. So we've been working extremely well together on this issue.

Your next question comes from the line of Joel Hurwitz from Dowling and Partners.

Congrats as well. I just wanted to follow up quickly on Alex's last question. And I'm curious if you could comment on any other options that were entertained before ultimately determining that this was the best option for both companies?

Thanks very much, Joel. Obviously, for both companies, what we had very clear organic growth plans. And the key issue here, as Robin has highlighted, is that -- this is in shareholders' long-term interest to enter into this merger. I think as we mentioned on the call, the scale and distribution benefits that will bring will lead to faster growth and more resilient earnings than either entity can do on their own. And that's at the heart of this transaction and why it's the best option for shareholders going forward.

Yes. And Joel, maybe I can add a couple of comments from the corporate side. We similar to what Mark just said. I mean we see this transaction as transformational for the industry. I mean, we're creating the leading retirement life wealth management and asset management organization across the U.S. As you can see in the slides here, we'll have the largest U.S.-based earnings when combining these companies. I think the business models themselves, both companies are extremely complementary. When you look up and down every product line, every distribution outlet, it's an extremely complementary offering -- and for us, obviously, having now the partnership and with AllianceBernstein that has tremendous depth and breadth of offering across here in the U.S. but as well globally. That's not lost on us, and they're a great distribution that goes along, obviously, with our partnership we have, obviously, with BlackRock and Blackstone most notably. So -- so I think we saw -- and the cultural alignment between the firms was very clear as we started these discussions. And I'm sure you'll feel it here through these discussions over the next couple of days that both firms -- we're very excited about the prospects here and are delighted to be sharing it with you today.

Great. That makes sense. And then just for my second one, Curious, are there any impacts with the Blackstone IMA that Corebridge has now that the combined entity will have AllianceBernstein under it and have some of those I guess, similar capabilities? And does this remove any of the exclusivity of that Blackstone agreement or that $92.5 billion target?

Yes. Thank you, Joel. It's a very good question. Blackstone has been a tremendous partner of ours at Core bridge over the last number of years. I think we've mentioned this on our own calls, Elias and myself, that last year in 2025, we needed to originate $55 billion of assets across Corebridge and 1/3 of those assets came from Blackstone, and we appreciated what they originated for us. And it's this is a world-class quality firm, and we expect to continue our growth with Blackstone. Having said all of that, we're like -- when we look at AllianceBernstein, we are very excited about the prospects of obviously, the partnership and the origination. And Robin mentioned in his remarks, we expect over time to move $100 billion of assets that are on balance sheet and off balance sheet from Corebridge to AllianceBernstein, and that will get that firm to clip $1 trillion of AUA, right? And that's a tremendous size firm. But that's not going to impair our growth with Blackstone as a world-class firm that we value the partnership with.

Your next question comes from the line of Wes Carmichael from Wells Fargo.

I just had a question on capital and particularly from the insurance subsidiary perspective and your guidance on cash accretion -- it seems like there could be some potential diversification benefit. But just curious, is there any plan to merge any legal entities? And could there be a capital benefit there? Or is there any thinking as how you're managing the Bermuda affiliated reinsurers?

It's Robin. Thanks for the question. And I just want to echo what the Mark said, we're so excited about the opportunity to bring these organizations together, both from a customer perspective, but also from a shareholder value perspective. As you saw we mentioned in the call, the combined companies will have over $4 billion of cash flows and that gives us a lot of capital flexibility going forward. And as I mentioned in the call, we do see on top of the $500 million expense synergies, we do see capital synergies and tax synergies that help us get that 10% plus accretion on both an earnings per share and free cash share basis.

So within our plans, you should expect some legal entity optimization within both businesses to get those capital synergies and then also those tax benefits that have come through in our run rate numbers.

Got it. And in your prepared remarks, I think you noted the need to align segment reporting between the companies. It sounded like there could be some potential drag. So I don't know if I got that right, but I just wanted to confirm that and maybe where they're are areas where reporting differs. And I guess relatedly, with PGAAP, do you expect any significant kind of mark-to-market impact, particularly within the private credit portfolio?

Yes. So the segmentation piece of it is just if you look at both companies today, we have different segments. So we just have to do the work to align to segments Equitable has the life business in corporate and other poster transaction, Corebridge has it as a stand-on. So we just have it do that work, and we'll present that to the market around the close of the transaction overall. Private credit is at fair value already in the portfolio. So we feel comfortable on the private credit side.

On the PGAAP basis, what you're going to see, and you see the Slide 20 in the deck that we have to give some of the details. But there will be work that we'll do between now and close to give you the exact numbers on a PGAAP basis and the impact to operating earnings. On an equity basis, you can assume we start since Corebridge is the accounting acquirer, we start with Corebridge's book value, and then you add the equity for the purchase price related to Equitable from an accounting standpoint, and that gives you the $30 billion plus book value going forward. So more work to be done on the details of that, and we'll give you more information as we get closer to close. But right now, we don't see anything, as I mentioned, that could impact operating earnings on a stand-alone basis prior to PGAAP that you see today.

Your next question comes from the line of Tom Gallagher from Evercore ISI.

When I look at Corebridge and Equitable, both have traded at pretty persistent discounts versus the larger cap peers like Met and Pru. Currently, you're at around a 50% discount. Now beyond the expense synergies, do you think there's any strategic or financial reason why you think becoming much larger can help you achieve materially higher valuation here like the large-cap peers -- is that I assume that's probably some version of what the thought process behind the merger from a scale, just overall, just looking at where the market is putting valuations on different competitors. But anyway, curious if you think there's anything that could -- that we're not thinking about that could be driving the thought of higher revaluation when you think about size and scale?

Tom, it's Marc here. Thanks for your question. I'll start and maybe Robin can add some comments as well. So you are correct that this brings together 2 great companies and makes an even stronger company. And there's a couple of factors here to consider. The first and foremost is we're here to serve the customer and ensure that Americans retire with confidence and dignity. And that's, first and foremost, what drives these 2 companies. But secondly, scale matters, as you say, diversification matters, the sources of revenue matters. And when you bring these 2 businesses together, whether it's through the wealth management and having 5,000 advisers plus with the $140 billion of AUA, whether it's our group retirement businesses that will have over in excess of $160 billion that we'll be able to cross-sell and upsell that portfolio. whether it's the private wealth shop within A, B that has $160 billion or so of assets.

We see a lot of growth in serving our customers as they accumulate funds for retirement and then obviously take the income -- when you look at the combined balance sheet and the AUM overall of $1.5 trillion, I think it's another quantum of scale in the market. I think that drives a lot of the expense synergies and revenue synergies and capital synergies and tax synergies of the transaction. And we think that's accretive to all of our shareholders day 1, right? And as Robin said, entering at the end of '28 entering '29, it will be double-digit accretion on the transaction. And we do expect, obviously, the complementary nature of the earnings profile and the revenue profile of the firm. to lead to obviously creating some significant shareholder value over time and the cash generation is significant here. So I don't know, Robin, if you want to add any.

Yes. I'll just build on that, just basics for our business, lower unit costs will be more attractive products for clients. And ultimately, we want to attract more clients in the U.S. retirement market, and we think better combined with our lower unit cost, the investment capabilities we have with AB, BlackRock, Blackstone and Corebridge's internal teams. Along with Equitable advisers, a bigger growth engine makes us more attractive to get access to more customers across the U.S. and capture that retirement opportunity. From a shareholder perspective, as Mark just mentioned, $4 billion of combined free cash flows better mix between spread, fee and underwriting margin and more diversification, which means we'll be more resilient across market cycles.

So overall, we're going to be bigger. We're going to be a powerhouse in the U.S. market for customers, and we're going to be a name that shareholders are going to want to own given the attractive return profile that we'll provide.

Okay. My follow-up is on the capital and tax benefits, Robin, can you dimension those at all maybe in comparison to the $1.5 billion of what I think will be onetime costs associated with the merger, like how just even ballpark scaling, how much the capital and tax benefits could be? And also, when do you think the expenses? How will the $1.5 billion play out? Will that just be spread out ratably over the next couple of years?

Yes. So just to clarify there, Tom, the $1.5 billion is from the $500 million expense synergies. So that would be $750 million of investment essentially to get that $500 million of synergies, and that's a pretty good payback if you think about that as it will be fully realizable by the end of 2028 on a run rate basis overall. The capital and tax benefits, maybe the way I would think about it is we'd expect by 2029, the cost synergies to get us anywhere from 6% to 8% EPS growth and then the capital and tax benefits to get us above that to go 10% plus. That's probably the best way I could dimensionalize it for you at this time.

Your next question comes from the line of Ryan Krueger from KBW.

My first question was on the $100 billion of AUM moving to AllianceBernstein. Can you give any sense of the potential time frame for doing so and the rough mix between general account and separate accounts?

Yes. Ryan, it's Marc here. I'll take that one. I would say, first of all, as you mentioned here, it's going to come both from the general account and the separate accounts. And it's going to be, obviously, as the -- some of these assets roll that will be resourcing them to the Corebridge AllianceBernstein. As well as we mentioned in our remarks, our own origination team here at Corebridge originates, obviously, loans and real estate, which I think will be value add to the combined firm. So we look at it in that frame. And there will be a mix, as you said, between the general account and severe account I would say it will come time and over the next 2, 3 years, as Robin said, and tied to the synergies. So that's kind of the time frame. And it will be a reasonable mix between the 2.

But at this point, we're still working through exactly the source but we're confident that it will be at least $100 billion. And then on the life insurance business, I guess I'd say that's a business where your 2 companies probably have at least a little bit of a different strategy coming into this, where Equitable has largely exited that business and you -- the Corebridge still builds a major player there.

Can you give any thoughts on the view of the combined companies of the Life insurance assist going forward?

Ryan, it's Mark Pearson here. Perhaps if I deal with one. Equitable didn't exit the life business, we did have that large transaction with RGA. And if you remember, Ryan, that was primarily because of the volatility of the block that we had and had very, very large base amounts and was giving us very, very volatile earnings. So we entered the RGA transaction to take 75% co reinsurance on that, which helped us in terms of having more predictable earnings going forward. Life insurance for our Equitable advisers remains a very, very important part of their financial planning portfolio.

So it is a business that are still in strong on the DOL side. But I guess the way I would look at this is one of the points Marc Cosentino said earlier, this is an area of complementary business where Corebridge is strong in IUL and other parts of the life insurance business. We know that Equitable advisers use these products, and this will be an early win for us to bring the Corebridge products into Equitable advisers. So an important market for advice and Corebridge is a very strong player in there. So we see it as a real upside going forward.

The one comment I'll add to that, this is the other Mark here is that we are excited about taking the VUL product into our channels. That was on our drawing board, and we're going to be able to do that now and there will be a huge upside for us on the distribution side, which is, again, very complementary. Thank you for your question.

Your next question comes from the line of Nathan Satterfield from Jefferies.

This is Nathan on for Suneet. Going back to some comments, Robin made at the end of the prepared remarks on buybacks. Is it fair to assume that both companies did fairly minimal buybacks in the first quarter and then won't be doing any in the second quarter? I guess the additional is, can you size what if any buybacks might occur in kind of the third and third and fourth quarter?

Sure. This is Robin here. And I'll take that, Nathan. So just in the first quarter, I'd say on the core bridge side, and Mark and Elias jump in, they did pretty sizable buybacks in the quarter, $1.25 billion. As you recall, they had the big buyback from AIG in the quarter. On the equitable side, we did have minimal buybacks because we were frozen out due to MPI for most of the quarter. Going forward, as I mentioned on the call, we have our consistent 2026 capital plans, but both companies they are consistent to. We will be out of the market until the shareholder vote but we will certainly look to work together to be back in the market between the shareholder vote and the close of the transaction. And whatever is not completed as part of capital plan, we'll do an ASR at the closing to make sure we meet our shareholder commitments. As you know, we look at -- we think both stocks are very attractive right now. So post the shareholder vote will certainly work to be in the market together to take advantage of the valuations in the market.

Yes. This is Elias. We did accelerate our share repurchases for the year into the first quarter. And the number Robin gave us correct. It's in total, we did $1 billion in the quarter out of our approximately $2 billion, and that includes about $0.5 billion that we did in January, plus the $750 million bilateral trash.

Sounds good. Makes sense. And then I know you've sized some of the expense synergies and you've talked about some of the potential kind of earnings synergies. Is it possible to size that in any way kind of over the next couple of years?

Yes, sure. I think in my comments, I gave on the expense synergies, the $500 million, we're going to achieve on that on a run rate basis by the end we'd expect about 30% to be by year-end on the first year. And then after 3 to first 24 months, we'd expect to achieve 75% and then be good on a run rate basis on the expense side. Keep in mind, it's not in any of our numbers, the 10% plus accretion related to EPS and free cash flow are to revenue synergies. There's going to be a lot of work between sign and close on revenue synergies. Ultimately, in the deal, yes, expense synergies will meet the numbers for shareholders, but we see huge opportunity for revenue synergies.

You heard both Mark mentioned, on the life insurance side, the complementary nature of IUL and VUL, both sides on it. If you look on the Equitable advisory side, we did $2 billion to $3 billion of third-party fixed indexed annuities and FA today. So leveraging Corebridge's capability on the fixed side and bringing that equitable adviser is going to be another easy win for us early on uplifting on the revenue side. And then AllianceBernstein, as Mark just mentioned, it's $100 billion of opportunity across separate account and general account. That's not a big number for corporates. They have -- if you take out the Blackstone relationship, they have across almost $240 billion across separate account and general accounts. So there's lots of revenue synergies there as well. And AB, and I'll let Onur comment, AB has a long history working with Corebridge as well. So there's good DNA between the firms going back for a long time.

Thanks, Rob. And yes, we are very excited about continuing to work with both Equitable and Corebridge under the new structure. There's a long-standing relationship between AB and Corebridge. It goes back many, many years, and it spans across multiple lines of business, whether it's group retirement or individual retirements. So the result it should be ready to be straightforward over the next 6 to 9 months to figure out the areas that we can be added to each other and looking forward to working together on that.

Your next question comes from the line of Jack Matten from BMO Capital Markets.

Just one on the institutional business. [ The corporate is ] pretty significant scale in PRT and other areas. I'm just wondering how you see that business fitting longer term alongside your significant retail product and distribution franchises.

Yes, it's Marc here. Thanks for your question. So yes, the Institutional Markets business is a very important business for Corebridge, which is now going to be a very important business for the combined firm going forward. And on the Equitable side, they had a very vibrant institutional business on the FABN side. We obviously on our side, have the FABN program. We have obviously the PRT business, as you mentioned. And we have other, I would say, fee-based businesses that are very attractive and growing.

And as you know, it's been a significant source of growth for Corebridge over the last couple of years where that business has grown 24%. And for us in terms of reserves and volume, which is serving obviously, some of the PRT cases you're referring to. So we think actually the combined balance sheet, the combined financial strength of the firm and the size of the firm will make us very attractive in that market. And as we've mentioned in the past, we are very disciplined in our capital allocation and choosing we're best allocated to get the best returns. And as Robin was saying in his remarks, you could see the consistency in the capital allocation, the efficiency, the scale and the margins generated that are going to be in the form of value to the customers because as well value to you as a shareholder, and we expect the institutional business to be a very big part of the future of the firm.

That's helpful. And then just one follow-up. I know you talked a lot about potential like revenue synergies, and it seems like there's good opportunity there. But wondering on the flip side of that, are there any places today or any way to dimension where you might have an overlap today in terms of sales through certain distributors. Were there could be some near-term dis-synergy there? Or is there really not material amount of overlapping and you talk to that as a near-term risk?

Yes. Thank you. That's a very good question. We spent a lot of time discussing this over the next month or so. And First and foremost, both firms have great distribution across the markets. And I think we have an immense amount of respect for our distribution partners. And I think both firms approach them with a sense of doing what's right for their advisers and brokers, and doing what's right for the end consumer, right, and customers. So that will continue, and that's another complementary nature.

Having said so, when we looked at the overlap in distribution, when you look at the retirement market, one of the reasons we're so excited is because Equitable is the #1 player in the RILA market, and we just entered it over the last 12 months. So that's very complementary. And we are a dominant player in the fixed annuity index annuity. And as Robin said, there's cross-sell option ties within the Equitable advisers, but as well, it creates a very complementary offering so we can serve our advisers and customers across the full spectrum of retirement products as a result of this merger. So that's how we see it. So we see very little dissynergies on the revenue side, actually.

Your next question comes from the line of Mike Ward at UBS.

Congrats. Just was wondering if you could share anything on the annuity hedging strategy? Is it possible that there could be any kind of enterprise change in how you accomplish that and maybe improve some of the GAAP accounting noise associated with it.

Thanks, Mike. As both Mark mentioned on the call and I did as well, I mean the nature of how liabilities were managed at both companies and the way that we both companies manage risk really have come through to historical numbers in terms of the RBC always being above 400% and the consistent cash flow generation overall. I know both sides were quite impressed on the diligence side with how we manage risk across both companies. So what we see was actually the reality when we went under the hood on both companies.

The hedging effect of this is very strong, very good, strong technical hedging capabilities across both companies as well, and I expect that, that will continue. We'll give more guidance on any GAAP volatility related to hedging on a go-forward basis as we finalize our PGAAP accounting. And so we'll come back to you as we get closer to the close of the transaction on that. But the risk management, the hedging effectiveness very strong across both companies and it comes through in the cash flow generation.

Your next question comes from the line of Pablo Singzon from JPMorgan.

Robin, you had referenced a lower cost of capital as a benefit. So not sure if you meant that to be the same as capital synergies or if that's a distinct element or if you're referring to that benefit in the context of the retailer essential retirement business. So hoping you could help us unpack that a bit.

Yes, sure. Thank you, Pablo. Look, across when we originate liabilities through Equitable advisers, we know we have better persistency through that channel through the holistic advice that they give to clients. So that leads to a lower cost of liabilities that we can source through Equitable, which will enhance returns for some of the Corebridge products that we'll put through that channel. So that's a key strategic differentiator that we have and that's why distribution is so important and it's a big part of why bringing these 2 companies together really creates values. We'll be able to attract more customers in the U.S. on top of the 12 million customers that we have access today with a better value proposition, but also a better return for shareholders.

Okay. Makes sense. And then my second question, are you expecting to make any changes in the asset allocation of the GA once the entities are combined? Or is the pro forma view a fair representation of what the GA should look like going forward?

Yes, sure. I wouldn't expect any structural changes or big changes on the general account. The way both companies manage the assets is to match the liabilities and we're fortunate as an insurance company to have illiquid liabilities, so we can earn attractive spreads on that, leveraging the asset capabilities across both companies with Alliance Bernstein, Blackstone, BlackRock and then also Corebridge's internal capabilities. Mark mentioned it earlier, but the combined companies are going to originate almost $75 billion to $80 billion in terms of retirement liabilities across the U.S. That's a huge number.

And so we're going to have a lot of assets to put to work, and we're excited to work with our asset managers to do that. But we'll be very much ALM sound asset and liability matched and we'll be able to earn a risk premium for our illiquid nature in terms of the liabilities.

There are no further questions. And this concludes today's call. Thank you for attending, and you may now disconnect.

Hello, everyone, and welcome to today's Corebridge Financial Fourth Quarter 2025 Earnings Call. My name is Seb, and I'll be the operator for your call today.

[Operator Instructions]

I will now hand it over to Isil Muderrisoglu to begin the call.

Good morning, everyone, and welcome to Corebridge Financial's Earnings Update for the Fourth Quarter and Full Year 2025. Joining me on the call are Marc Costantini, President and Chief Executive Officer; and Elias Habayeb, Chief Financial Officer. We will begin with prepared remarks by Marc and Elias, and then we will take your questions.

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. Corebridge'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.

Except as 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 you are cautioned to not place undue 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 GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available at our website at investors.corebridgefinancial.com.

With that, I would now like to turn the call over to Marc and Elias for their prepared remarks. Marc?

Good morning, and thanks for joining us. I want to begin by recognizing Kevin Hogan, who led this business for more than a decade, executed Corebridge's successful launch as a stand-alone company and established a solid foundation for future growth. His help through the transition was invaluable and demonstrated a hallmark of his leadership style. His unwavering commitment to the success of his colleagues and company. For me, it's a tremendous honor to lead this great franchise with its noble purpose. Customer needs have never been greater for financial protection, wealth accumulation and retirements with dignity and confidence. And that means our opportunity to create value for customers and shareholders alike has never been greater.

In my remarks this morning, I'd like to recap the company's 2025 performance through a strategic lens and share my early impressions of the company's strengths and opportunities. Then I'll turn it over to Elias for additional color on both our Fourth Quarter Results and the Company's 2026 Outlook.

Corebridge had a strong year in 2025. Earnings per share were up 4% year-over-year. Return on average equity was up 20 basis points and capital returned to our shareholders was up 13%. To create long-term value for our shareholders in our industry, we must demonstrate an ability to grow profitably and generate consistent and growing cash flows from the insurance companies, while preserving balance sheet strength. Corebridge did all 3.

Our growth in 2025 was strong with sales up 4% to a record $42 billion. We launched our RILA product, MarketLock in a crowded field and quickly joined the top 10 providers. In fact, we are the only company to have a top 10 position across every major annuity product category. MarketLock is now available through more than 200 distribution partners across the United States and we expect continued growth in 2026. Our diverse businesses at Corebridge give us flexibility to adjust our capital allocation between our different offerings based on where risk-adjusted returns are the highest and customer demand is the strongest.

An example of that is the higher allocation to our Institutional Markets business in 2025. We grew Institutional Markets sales by 24%, overall, led by pension risk transfers and guaranteed investment contracts to drive both current and future earnings growth. Proactively managing our balance sheet and maintaining financial flexibility are foundational to Corebridge.

In 2025, Corebridge executed the industry's largest variable annuity reinsurance transaction to date the final portions of which closed last month. The transaction derisked the company's most complex liabilities. And going forward, our legacy liabilities comprised approximately 1% of the balance sheet. In addition, we finished the year with a Life Fleet RBC ratio above 430% and holding company liquidity of $2.3 billion, both exceeding our targets.

Finally, we continue to expand our Bermuda strategy where we have ceded approximately $20 billion of reserves to date, providing critical financial optionality that help Corebridge deliver on its financial and strategic goals. Disciplined execution of these levers is essential to driving shareholder value and ensuring resilient cash flows. As promised, the company is returning the substantial majority of the proceeds from the VA reinsurance transaction to shareholders in the form of share repurchases, which helped lift our 2025 payout ratio to 110%.

Excluding the VA reinsurance transaction proceeds, we grew our insurance company dividends to the parent by 6% year-over-year, in line with our guidance, reflecting our continued confidence in our financial flexibility, we are pleased to report that our Board of Directors has approved a 4% increase in our quarterly common stock dividend to $0.25 per share, above the pace of inflation. As Elias will discuss further, we've also taken action to reduce our sensitivity to short-term interest rate movements, down nearly 75% since mid-2024.

At the 10-week mark in my tenure as CEO, I want to provide some initial thoughts on the business. The 4 strategic pillars that have guided Corebridge for the past few years remain a useful lens to view the company's prospects. Although I am adding a fifth call, Win With Customers. As I've told the team, my focus on delivering a superior customer value proposition could not be stronger. Everything from ongoing product innovation to industry-leading service to a seamless end-to-end digital experience.

As I look at our key strengths and opportunities, I'll begin with the powerful demographic tailwinds that are driving strong customer demand for Retirement Solutions. Corebridge is well positioned to meet these needs. I believe our vast distribution network provides us with a clear competitive advantage. The average relationship with our top 25 partners is a quarter-century long and more than 40% of the annuity sales came from products that have bespoke features tailored for each specific distributor. With many partners, not only are they one of our top distributors, but we are one of their top manufacturers, commanding significant shelf space. I've competed against this distribution powerhouse in the past, and I can tell you how hard it is to replicate.

Furthermore, our diversified business model is a proven source of strength. Our breadth of product and service offerings helps provide more stability to our financial results, allowing us to allocate capital to where returns are the most attractive and demand is the strongest. I also believe Corebridge has an underappreciated critical differentiator that supports growth. Some companies in our space are liability-driven, designing products and then searching for assets to support them. Others are asset-driven originating attractive opportunities and then finding suitable liabilities. Corebridge excels at both.

Another strength is our Bermuda strategy. It is an important lever for growth, profitability and capital efficiency, and we will continue to take full advantage of it. One area of opportunity is fee-based earnings. We plan to grow them faster to achieve better balance across our sources of earnings.

In Group Retirement, for example, there is a tremendous potential to grow Wealth Management by capturing more IRA rollovers and consolidating household assets. We have a captive opportunity within and out of plan clients to further expand and deepen our relationship. We believe this alone represents a $30 billion opportunity. But we have some work to do. We are actively investing to significantly enhanced customer experience adding more advisers and upgrading our Digital Wealth Management capabilities. Collectively, we believe these investments will improve retention levels and grow our Wealth Management business.

I also believe we are striking the right balance between returning capital to shareholders and investing for growth. Our 60% to 65% payout ratio rewards shareholders with cash to date, while our reinvestment in the business reward shareholders with cash in the future. Both are important.

Since the IPO, the company has successfully reduced expenses with the Corebridge Forward program. which is a testament to the work the team has done to get ready to compete as a stand-alone entity. Going forward, I believe Corebridge must do 2 things at once: deliver continuous improvement in our operating leverage, while also making strategic investments that drive faster growth. We need to invest more to accelerate the pace of digitization, which is essential to improving our productivity as well as our distribution partners and customers' experience.

The easier we are to do business with, the greater the share market we can capture from the demographic surge fueling growth in our industry, all of which adds up to my most important early impression. The significant opportunity Corebridge has to grow faster and more profitably. As we further differentiate our customer value proposition and more fully capitalize on our world-class distribution we will continue to create sustained shareholder value.

In closing, I joined Corebridge because I believe in this franchise and believe we are capable of more than we've ever achieved before. We have a huge opportunity in front of us. We have hard to replicate competitive advantages, and we have a world-class team ready to show what they can do. Finally, as this is his last earnings call, I want to express my heartfelt thanks to Elias. He is an excellent CFO who helped me get under the hood and quickly understand all the moving parts at Corebridge. I wish him all the best in his next chapter. Elias?

Thank you, Marc. Turning to Slide 5. Corebridge delivered another quarter with strong financial performance, driven by the strategic pillars we have consistently executed on since the IPO.

We reported adjusted pretax operating income of $760 million or operating EPS of $1.22, representing a 15% year-over-year increase. This quarter's operating EPS included $0.10 of notable items and $0.07 from alternative investment returns driven by underperformance in real estate equity. Adjusting for these 2 items, our run rate operating EPS was $1.19, which represents a 7% year-over-year increase. Finally, our adjusted ROE was 12.5%, an increase of 140 basis points from the fourth quarter of 2024 and consistent with our goal of 12% to 14%.

Turning to Slide 6. Our core sources of income, excluding notable items, were up 1% year-over-year, driven by improved spread and fee income, partially offset by lower underwriting margins. Fee income, which makes up approximately 20% of our core income sources improved by 9% driven by increased product fees and growth in assets under management and administration, benefiting primarily from favorable market conditions.

Base spread income grew 4%, driven by strong sales and general account net flows, robust asset origination and effective portfolio management capabilities. Lastly, underwriting margin, excluding VII and notable items, decreased 10% year-over-year due to lower mortality gains. Our broad suite of retirement and protection offerings allow for the generation of resilient and growing distributable cash flows across a variety of market conditions, which would not have been possible, had we been dependent on a single product or channel.

Turning to Slide 7. Full year 2025 capital return totaled $2.6 billion, including $1.2 billion in the fourth quarter alone. This brings our annual payout ratio to 110% or 75% when excluding the VA reinsurance proceeds. We concluded the year with holding company liquidity exceeding $2.3 billion, supported by $1.3 billion in distributions from our U.S. insurance subsidiaries in the fourth quarter.

Next, I'll briefly review a few highlights from each of our businesses, the details of which can be found in the appendix to our earnings presentation. As a reminder, results exclude the impact of VII and notable items were applicable.

In Individual Retirement, APTOI increased 3% year-over-year. This was driven by an increase in both spread and fee income, partially offset by higher DAC and non-deferrable commissions due to continued growth in the business. The Fed rate cuts in 2025 contributed to the 6 basis points compression in base spreads. Excluding the impact of the rate cuts, the base spread compression in the quarter was marginal. More importantly, base spread income increased both year-over-year and sequentially, even with the earn-in of the Fed rate cuts, thanks to continued strong demand for our products.

Fourth quarter sales were $4.3 billion. While this reflects some softening due to our pricing discipline and typical year-end seasonality, our full year sales remained strong at $20.6 billion. Net flows for the quarter remained positive at over $600 million supported by our successful RILA launch, which generated full-year sales of $1.9 billion. Surrender activity in the quarter was in line with expectations.

Turning to Group Retirement. We continue to see a natural evolution of the business as we adapt to our customers nearing peak retirement age. This key demographic change is driving a purposeful mix shift from spread to fee income, which requires less capital. Accordingly, APTOI decreased 1% year-over-year, reflecting lower base spread income from this demographic evolution. This is partially offset by growth in fee income, which increased 2% year-over-year. Sales were up 13% year-over-year due to the growth of our RILA products and our out-of-plan offering. Finally, expenses were slightly elevated this quarter due to a modest litigation reserve.

In Life Insurance, APTOI declined 30% year-over-year, primarily due to lower underwriting margins. While mortality experience was favorable this quarter, it was less pronounced than the meaningfully more favorable results we saw last year. On a run rate basis, this quarter results were consistent with our prior guidance of approximately $110 million to $120 million per quarter other than the first quarter of each year where mortality experience is the highest.

Turning to Institutional Markets. Total APTOI was up 8% year-over-year with full year earnings up 19% from 2024 levels. There has been significant growth across the business, where reserves grew by 23% year-over-year, driven by attractive opportunities in pension risk transfer transactions and GICs. This demonstrates the strength of our business model as we opportunistically allocated capital to where we saw the highest relative risk-adjusted returns.

Lastly, I want to provide additional details regarding our outlook as we enter 2026. We remain committed to delivering on our financial targets, and this reflects our confidence in the strength of the business and its financial performance for the year ahead. We expect to grow our total sources of income for the year on the strength of our favorable demographic trends, a competitive and diverse product suite and industry-leading distribution. While our Retirement business' base spread income will face some pressure from additional Fed rate cuts, that sensitivity is dramatically reduced, as Marc noted.

Specifically, an additional 25 basis points reduction in SOFR will impact operating earnings by $20 million to $25 million on a go-forward basis. The impact would have been $45 million as of last September. Consistent with prior guidance, we estimate that the base spread compression in Individual Retirement should level off by the end of 2026 based on the latest market outlook, assuming 2 Fed rate cuts in 2026, our current net flows projection and investment plans. We also estimate that overall base spread income for the Individual Retirement business will be in the ZIP code of $2.55 billion for 2026. In addition, we expect alternative investment returns to be more in line with our long-term expectations though we do see some softness in the first quarter from lower real estate equity returns.

Next, as Marc mentioned earlier, we see the opportunity to make strategic investments to drive faster growth. Specifically, investing in digitization and broadening our internal capabilities to improve customer and distribution partner experience. Accordingly, in 2026, we expect the ratio of our operating expenses to normalize run rate revenues to remain consistent with 2025. This reflects modest growth in our operating expenses in the near term approximately 4% to 5% or $60 million in operating GOE before the full benefits of these strategic investments begin to be realized.

Lastly, our disciplined and proactive balance sheet management has enabled Corebridge to pursue profitable growth, while delivering on financial and capital management goals. We've been very disciplined in our buyback program, accelerating our share repurchases to take advantage of dislocations in the market.

In the first half of 2026, we expect approximately $900 million worth of share repurchases associated with the VA reinsurance transaction, an amount that's above our normal 60% to 65% payout ratio. As a reminder, our 2026 EPS growth rate will be impacted as we have yet to fully deploy these proceeds. Accounting for all these varying drivers, I want to reiterate that we expect to meet our key financial targets for adjusted ROE, capital return and run rate EPS growth, though at the lower end of our targeted range of 10% to 15%. We believe the underlying fundamentals of our business remain, not only strong, but compelling.

Looking forward, as we further differentiate our customer value proposition, and more fully capitalized on our world-class distribution, we believe we will continue to create sustained shareholder value and deliver on our key financial targets. Finally, as this is my final call as Corebridge's CFO, I want to thank my colleagues who have been great partners in this amazing journey that began for me in 2021. I'm very proud of everything that we have accomplished, and I'm equally excited for what the future holds for Corebridge under Marc's leadership as the company embarks on the next chapter of its story.

And with that, I will turn the call back to Isil.

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.

[Operator Instructions]

The first question is from Suneet Kamath with Jefferies.

Elias, best of luck in your new role. The first question is on the SOFR sensitivity. I guess, how are you able to reduce that so significantly? I would imagine there's got to be some give up somewhere. So just curious on how you're able to do that.

Suneet, it's Elias. Thank you. On the SOFR sensitivity, listen, our investment strategy is liability-driven. And we manage the ALM profile of the balance sheet very tightly. As we've disclosed in the past, we had some macro hedges. We were able, over the course, to adjust the investment allocation, which gave us the flexibility to reduce these macro hedges, and that's what kind of reduced our sensitivity. So we were able to better align the ALM profile with assets and we didn't need the derivatives anymore.

Okay. Understood. And then, I guess for Marc, in your prepared remarks, you spent some time talking about investment spending. Should we view the incremental $60 million that you're talking about for 2026 as sort of the go-forward annual amount of spending that you're going to do? Or are you thinking about something that could be bigger than that?

Yes. Thank you, Suneet, and thanks for your question, and it's great to be on this call, and I appreciate all the interest and attention from all of you on the call, and I know it's my first and I look forward to many.

So to answer your question, when I start at the macro level, I'd say operating leverage is very important for us. And underlying all of our work we do here, we will continue to drive operating leverage to growth in our franchise and our business. So that will always be one of the fundamental objectives, which you'll see and as has been demonstrated by this firm over the last number of years, we are driving operating leverage.

Having said so, to your point, we need to invest in our business. And I mentioned in my remarks that winning with customers is very important, right? And then that starts and stops as well with the delivery to our distribution to the end consumer, which we need to further digitize. And those investments are spread across the firm to achieve that and continue to, obviously, put Corebridge at the forefront of delivering customer value. So as we look at the outlook, I would say we'll continue to invest there. And the ZIP code of investment you're looking at is, right now, what we're forecasting for 2026. But I would take it away that the operating leverage will continue to be driven to our franchise.

Next question is from John Barnidge with Piper Sandler.

My first question, can you talk about the PRT volume, it was a real active quarter. What's your outlook for that for the year? And how do you think about operating globally in that market?

John, it's Marc. So I would say our Institutional Management business, as Elias gave the details, it's grown by over 24% in 2025. And obviously, that was on the back of a growing PRT franchise and a growing GIC franchise amongst other things as well as some of our balance sheet products.

One of the key things that as well Elias mentioned is the judicious capital allocation around the franchise to the highest return businesses we have and that was manifested obviously and the results of our institutional management business. Credit to that team, we do look primarily obviously in the U.S. and in the U.K. for opportunities in the PRT business, and we came across some attractive ones in 2025. That business, by its nature, is lumpy, right? So it will go up and down, but we feel we have a value proposition that's differentiated in the market, and we continue to be quite optimistic about its future. So we do see some bright lights as we look forward in that business.

And John, if I may add, if you look at pension plans still, they're overfunded. So when we think about the opportunity, there's a meaningful opportunity for continued corporate balance sheet derisking.

And my follow-up question. Can you maybe talk about your exposure to software and investment portfolio. And then maybe as it relates to the real estate footprint exposure to that asset class, I don't know, software as well.

Yes, I'll start, John, and then I'll pass it to Elias for some more detailed kind of -- at a high level, I would say we're not worried about our software exposure, and that's the main takeaway. And that's driven by, obviously, how we look at concentration to names, how we look at concentration to segments and how we look to concentration to industries and make sure we have a diversified balance sheet across all sectors. So our exposure there is not very big, and Elias is going to give you details here.

John. On the software side, listen, from a direct exposure side, we got $1 billion in our public credit side, and that's mostly to the likes of more Microsoft and Oracle. And then we have about $350 million within our direct lending book, which to us, when you think of a balance sheet, over $250 billion, it's de minimis. On the real estate side, to clarify, I'm assuming you're asking about data centers.

Yes.

Yes. On the data center side, we do invest in debt, backed by data centers. We're very selective in where we invest it. It's typically associated with hyperscalers, and we make sure the debt matures before the leases on those property mature. And that's kind of important from an underwriting perspective. So again, we feel very comfortable with that exposure.

Our next question is from Alex Scott with Barclays.

First one I had is on Group Retirement. I heard the -- a little bit more detailed outlook that you gave for spread in Individual. And I thought maybe I'd ask the same question of Group, that's a spot where there's been a fair amount of spread compression and there's some offsetting, I guess, fee growth over time. But I just wanted to understand how that dynamic will look in '26 and what to expect.

Alex, it's Marc, again, thanks for the question. Maybe I'll start a bit as a view of the business. Our Group Retirement business is an important segment for us. Obviously, it's a source of diversification for us. It's a first source of diversification in a few respects. One of them is distribution related. And as you'll find out as we have these discussions, distribution is very important to me and the firm. And this gives us access to different distribution, the different access to the customer to, obviously, the record-keeping platform. But more importantly, as we pivot the business, which is implicit in your question, the Wealth Management aspect, right, and we're cross-selling and up-selling into those plans.

I mentioned in my remarks, we have upwards of 1.5 million plus in-force participants. We have 250,000 or so out of plan participants, and we're growing that out of plan kind of value proposition, which is fee-based, right, which is important to our future as well as we try to balance, obviously, the revenue profile of the firm.

But the business is in transition, right? And it's in transition from spread business to fee business and that takes some time. We think there's another 12 to 24 months in that transition while we hit the trough there in terms of overall revenue, and then we'll start to increase. So that's how we view the business, but we're still very -- an important component of our firm, and it's one that we want to see continue growing.

Got it. Helpful. Second one I have to you is on the broader competitive landscape for Individual Retirement. Could you comment just on the adequacy of the IRRs and prices you're able to get right now, how you're viewing the market and willingness to kind of go bigger with growth over the next few years?

Yes. So a very good question. Thank you. I'll say that I've been in this business for 35, 36 years, and you always have competitive pressures, and it's a very competitive segment. But we have tailwinds. As an industry, obviously, there's a retirement need as a need we meet. So I think there will be growth overall, and that's what creates a competitive interest.

Obviously, the interest rate cycle over the last few years and as well, obviously, the the spread environment, the corporate spread and credit spread environment has tightened, and that's created some additional pressures, as you mentioned here. But we have something that very few others have to rely on, which is incredible distribution. And as I mentioned in my remarks, we're a top quartile across many firms. We've obviously introduced this RILA product over last year and very quickly became a top 10 provider. As we launched that product, we had the ambition of being a top 5 player, which is where we are across all our product lines. And as I mentioned to the prior question as well, we have this availability of kind of moving our capital around where we see the highest IRR.

So while we're very responsive to the rate environment, and that causes us to obviously course correct our pricing on our fixed annuities, we do obviously have the opportunity to deploy it elsewhere at the IM side. But yes, there is competition on the retail side, but we're not adverse to the competition. And we offer as well some income benefits and living benefits that perhaps not everybody else does. So we have value proposition that's differentiated on the main, on the whole, like we feel comfortable with the risk return profile of our business.

Our next question is from Yaron Kinar from Mizuho.

So I'm trying to think through the longer-term 10% to 15% EPS growth target. Is the idea that the boost from the excess capital deployment from the VA deal will be ultimately replaced by accelerating sales and deposit growth through that new fifth pillar that you introduced, Marc? And would that also mean that 2027 and '28 may actually be transition years with less EPS growth as that -- this pillar is still ramping up?

Yes. Thank you, Yaron. I guess I want to say we provided guidance, and obviously, Elias on it. And I think as we look at 2026, and we look at obviously what the interest rate cycle has done and what credit spreads have done, that's working its way through 2026. And we feel that at the end of '26 and going into '27, obviously, we'll have a turnaround there.

So our guidance is obviously in the lower half for 2026 of our stated objectives. But as we turn to 2027, I would look at 2027 guidance to be in the upper half of our guidance as opposed to the lower half in 2026. And that's how I would see and obviously, that would bleed into 2028 and beyond.

And is that driven by that fifth pillar? Or is that more from the kind of the residual impact of the buybacks in '26?

No, I would say it's a combination of everything we do. So it's the growth and penetration across all of our business segments and as well, obviously, our commitment to the free cash flow generation and the return to our shareholders. So it's a combination of the 2 that's going to drive that growth.

Got it. And then my second question, can you size the 2 planned departures that are expected for the second and third quarter?

Yaron, it's Elias. I don't have those exactly in front of me, but I think in total, they're in the $2 billion to $3 billion range across the board.

Good luck, Elias, for your transition.

Our next question is from Tom Gallagher with Evercore ISI. Please go ahead.

Elias, good luck. Marc, welcome. The -- I guess, Marc, first question I had for you, I was listening to your prepared remarks and other comments you've made. And you seem to be describing Corebridge as having a competitive moat on the distribution side. And I think you referenced 40% of annuity sales having some bespoke and tailored products for specific distribution.

Anyway, I think the investor perception on Corebridge is that you're selling a commodity product in an increasingly crowded field with alt managers muscling their way in. So clearly, your view, and you've been in this industry a very long time through different roles is very different than, I think, the common perception. What would you say -- what gives you the confidence that your view is the right view? I don't know if there's -- maybe which is that point you made, but is there anything you could say to demonstrate or disprove that commodity perception?

Yes, Tom. Thanks for the question. So I think there's 2 things we have to do to counter the effect of the competitive forces. And it's driven by winning with customers, which, to me, means being the easiest company to do business with. And we have to strive to be the easiest company to do business with because that will give you an avenue of growth and revenue growth that will not be completely based on that commodity pricing you're referring to.

The second one is you need a distribution powerhouse to touch that ultimate customers through advisers, brokers, financial planners and the like. And we feel and I feel strongly that we have that differentiated value proposition on the distribution side. And we are building the platform to be the easiest company to do business with. And the combination of the 2 will allow you to compete effectively and print the target margins we seek to provide in our business, and that's how we're going to approach it.

And as well, one of the comments I made is tied to the fact that we have liability-driven expertise, and we have assets-driven expertise and not every company has that, and we feel that provides us a competitive advantage to take some thoughtful, I would say, biometric insurance grids to combine it with the asset risk. And some of our competitors, not all of them are comfortable taking all those risks, but we're comfortable and we've proven our ability to manage through those risks through time. So that's what -- that's why I feel we are different.

And for my follow-up, Elias, just question on -- I know you raised what was a fairly expensive $500 million preferred in 4Q. And I think the proceeds are largely going to Bermuda to fund capital needs there. How do -- how should we think about cash flow capital generation for the next few years? I mean, on one hand, it looks like maybe you've paid upfront for the cost of some capital optimization strategy. And so I guess the reason I'm asking all of that is I'm just wondering because now we have to factor in the cost of that preferred, but are you going to get a benefit on that on the back end here where maybe free cash flow conversion is a bit better than the 60% to 65%.

So Tom, the way I look at it is like, listen, if you look at 2026, and 2025 and '26 given the VA deal, we've distributed a lot of capital out of our U.S. companies, and we're using most of it to return back to shareholders in the form of share repurchases. And kind of we're being mindful of the kind of what we do with the U.S. companies. What the preferred security does. And I don't look at it necessarily, it's very expensive, I look at it as to what's the opportunity that we use that capital for. And if you look at the IRRs where we're selling new business at, it's accretive. And so that takes care of Bermuda for 2026 from our strategy there.

We grew putting aside the proceeds from the VA deal, dividends from the insurance companies by 6% in '25 relative to '26 that's consistent with the guidance we gave you. I think that's a good guidance to think about for '26 also. And we're confident, like, listen, as we grow our business and the denominator grows, we're going to deliver on the 60% to 65% organically and with the denominator growing, that means we're returning more cash every year to shareholders.

Now the one clarification is on the -- for insurance company dividend distributions for '26 you got a rebaseline 2025 for the lost distributable earnings from the VA transaction. Once you do that, our anticipation, we'd be growing it in the 5% to 10% range.

Our next question is from Joel Hurwitz with Dowling & Partners.

Just wanted to come back to the retail annuities competitive landscape, just given right your sales were down pretty significantly quarter-over-quarter and flows were well below where they've been for several quarters now. So -- and we see more and more enter the market. So just curious how the competitive dynamics have been evolving there? And what exactly you saw in the fourth quarter?

Yes. Thank Joel, It's Marc. So maybe some overall comments before we talk about Q4 in particular. When you look at the full year, we were in very positive net sales for -- in our Individual Retirement business, well over $7 billion of net sales. Our assets continue growing. The business continues growing. Obviously, the interest rate cycle, I mentioned earlier in my remarks that we are responsive on a weekly basis to the interest rate cycle and to the credit cycle.

So obviously, we were responsive to that in Q4, and it had some temporary effect on our sales. I'll go back to the fact that in RILA, we are going to be a top 5 player in that market. That's our ambition, and we'll get there. We are a top 5 player in every other segment. As we look towards 2026, we are looking to grow that Fixed Annuity business, Individual Retirement business. So we are confident going into 2026 about our portfolio and our prospects.

And to add to Marc, and part of the modeling guidance we gave, Joel, is we expect from our Retail Annuity Business to continue to have positive net flows going into the future. The fundamentals are pretty strong, and we see demand kind of strong for needs for Retirement Solutions.

Got it. That's helpful. And then, Marc, you talked about the Wealth opportunity. How do you see that developing over the coming years? And can you elaborate more on some of the investments that you think you have to make to fully capture that opportunity?

Yes. Thank you, Joel. Yes. It's we are very ambitious on that business, and it's the cross-sell and upsell to, obviously, our recordkeeping business. And we have a selective opportunity to go into those plans and to actually grow our relationship with those participants. And I'll give you a couple of proof points, right? If you look at our recordkeeping business, that's about $80 billion or so. I would say the average balance we have for those participants is $50,000 to $60,000 on average. If you look at our outer plan, kind of relationships where we've basically obviously have a bigger share of wallet of those families it's close to triple that level. So that's why we're thinking and that's why I mentioned in my opening remarks that we think we have a $30 billion opportunity there.

So that's the upside. And how do we capture that upside? Well, we got to have a more robust offering on the Wealth Management side. We've got to obviously digitize. We got to hire more wealth advisers and we have to professionalize and continue to professionalize that workforce to attempt to go after those participants, and that's what we're doing, and that's where those investment dollars are going.

Our next question is from Wilma Burdis with Raymond James.

GICs and similar products seem to have taken a step back in 4Q '25, not just at quarter range, but maybe across a few different companies. I'm wondering if there's something specific to the interest rate and/or credit environment in 4Q '25 or if that's just a quarterly fluctuation?

Wilma, just to be clear, you were asking about GICs?

Yes.

Yes. I think what you see, if you go back to fourth quarter, there was volatility in the rate environment, which kind of limited some windows out there. But I think you got to look at it -- we look at it on an opportunistic basis where the opportunity is, and we do both the capital markets as well as private placement. So key to us is what assets do we have, what returns can we get? And does it achieve our return hurdle. And that's kind of drives us.

But if you follow -- we did one in January, which is not in the fourth quarter results. So I think the market is still there just that in the fourth quarter, there is a period of volatility.

And [ realized ] it's a while out, but should we expect benefits in '27 from the reduction in short-term interest rate sensitivity? And is there any way to quantify any cash benefit for the change in the derivatives program?

Yes. Listen, I think on the derivatives program and the sensitivity we gave you that sensitivity. Our balance sheet will continue to evolve with how the liability side evolves, and we'll kind of update you on sensitivities going forward. In terms of the derivatives when we think about it, no, I think what we've done is by getting the derivatives off the books is we've reduced the sensitivities to interest rates -- short-term interest rates. And where we stand right now with our outlook and what the market outlook is we see this kind of exposure from potential Fed easing ending in '26.

And as we look into '27, we see lower exposure from that perspective. And to Marc's earlier comment, we expect to grow earnings in '27 that together with capital management puts us in the top half of our 10% to 15% range. And the earnings growth is going to come as a result of continued growth in the business and improving our operating leverage from the investments that are being made.

Our next question comes from Wes Carmichael with Wells Fargo.

First question on the modeling items for alt returns. I think Elias for 2026, you're expecting returns to be closer to the long-term assumption of 8% to 9% but you mentioned lower real estate equity returns in the first quarter. I just wonder if you could maybe size that for us in the first quarter.

Yes, happy to. So yes, so we think the economic environment is supportive when we look at the full year to deliver on the 8% to 9% return on our alternative. It's a little early, but we are seeing some softness in the first quarter with real estate equity. It's a recovery, it's lagging what we're seeing on the private equity side. I think right now, but it's very early, maybe $20 million to $30 million impact, but that's very early.

And I guess my follow-up on the asset side, Marc, you mentioned that corporate spreads are very tight. We can all see that. And you kept the relationship with Blackstone and BlackRock. But I just wanted to ask, is -- are there additional opportunities to think about on the asset side, whether that's maybe expanding the Blackstone relationship. Would you look at additional partnerships with other alternative managers? I'm just curious if there's more to do where you could increase the net yield on the portfolio.

Yes. Thank you, Wes. I guess, in 2025, when you look at the size of our firm and the origination, we originated upwards of $55 billion in 2025 alone. And that was done in partnership, obviously, with our own investment team that originated 1/3 of it. BlackRock, originated another 1/3 of it, and Blackstone, as you mentioned, originated another 1/3 of it. So we feel we've got 3 world-class teams originating very choice assets with the right risk return profile, obviously, we're very prudent there and want to be thoughtful about investing for the long term.

And I think we're quite happy with those 3 strategic relationships we have with Blackstone and BlackRock, and they have provided us a source of very attractive assets. Now their credit markets are the credit markets. So I think what we have to be is thoughtful about where we place our money, how we invest it and make sure we do the prudent thing over different cycles and not necessarily fall into the trap of going after the yield and regretting it in the future. But we're quite happy with those partnerships, and I think they're sourcing very good assets for us.

Our next question is from Jack Matten with BMO.

Just one follow-up on the Individual Retirement spread outlook. I guess if you look at the longer-term kind of base spread profile over the past decade plus, it's fairly attracted to be closer to the lower end of that range. I guess, do you think that's like more of a new normal now once we see spreads stabilize given where credit spreads are in competition in that space? Or is your expectation we could eventually see maybe an upward reversion overtime towards the longer-term average margins in that business?

Jack, it's Elias. Listen, what's -- if you look at what's driving the compression in our base spreads, it's -- a big driver of it is the relative margins between where new business margins are and where the in-force is. And if you look at our in-force, we have a lot of annuities that were written in a lower interest rate environment and we were successful in repositioning assets to take advantage of higher yields in the last 3 years from it. So that's one of the factors that's contributing to that compression. We see that playing out through the end of '26.

When we look beyond '26, we do expect the margins will start growing from that point on, given the dynamics that's changing within our in-force portfolio relative to new business and easing of any sensitivities or pressure from what the Fed might do.

That's helpful. And maybe just a follow-up on the NAIC's VM-22 reserving changes. Just any thoughts on what this could mean for Corebridge. Because there could be some puts and takes across different lines of business, but I'm just curious how you kind of see that playing out given your business mix?

Jack, it's Marc. Obviously, it's something that we follow closely, and we work very closely, obviously, with the industry and the NAIC, and we participate actively, obviously, in testing our own balance sheet. And we're not getting into any of the details. We're quite comfortable with the impact VM-22 would have on our balance sheet when implemented. So I think you'll see some no surprises from Corebridge when it comes to that.

Our next question is from Tracy Benguigui from Wolfe Research.

When I think about RILA, there are many puts and takes, including pricing, distribution, product design. On product design. You talked about some of the benefit features. But turning to the indices, I see that you introduced the crypto-linked RILA. What is the take-up by policyholders? And should I think about relatively higher basis risk for a crypto index than, let's say, the S&P 500? And if so, how are you managing that?

Tracy, it's Marc. Thank you for your question. You are correct that we did introduce a new version of our RILA product just a few weeks ago, and we're quite proud of the fact that it's differentiating and has some crypto exposure.

Before we do any introduction of such new features, whatever, it goes to a judicious process on the risk management side and making sure that some of the components that you mentioned there are well managed through that cycle. It's too early to tell what the take-up rate has given us, a couple of weeks in, but we feel quite comfortable that we've met all of our usual approach to risk manage the portfolio.

And Tracy, what I'd add is to kind of -- this is a good example of what Marc was talking about, where we look to differentiate ourselves in the market based on product features. So we're not just competing on price. So with that -- this is a good example of one where it demonstrates that.

Well, I also had a question on the preferred raise. Marc, you said Bermuda is one of your strengths. Can you share your vision on how Corebridge could optimize capital further through sessions to your affiliated Bermudian entity? And what the shorter-term capital needs are? I'm just curious if you could support future capital needs through organic capital generation or since preferred as a new category for you for rating agency purposes would you envision any other type of hybrid debt raising?

Yes. So Tracy, maybe I'll start and Elias may want to add some more detailed color. At a high level, we will -- and we always strive to deliver on our guidance, right, which includes, obviously, the free cash flow generation of 60% to 65% and obviously, the return through dividends and buybacks associated with that. So whatever kind of capital management activity we have, we do so against obviously delivering on that guidance.

Obviously, Bermuda, as we and others use is a good, obviously, capital management kind of optimization approach and obviously, Elias and one of your colleagues were discussing that earlier. We will continue to look at our business and optimize it from a capital management perspective and the cash flow and economics underlying it. And that -- and Bermuda will be a very important component of that, and it will continue to be in the future.

How we manage the overall capital profile of the business and leverage as well. We have, obviously, our stated objectives there, which we try to manage against judiciously, and how we go about it, I think will be something we're always thoughtful about as we move forward. So I don't know if Elias has anything to add to that.

No. I agree with everything Marc says and Tracy, I'd point you to 2024 and 2025, where we -- in each year, we hit record sales, and we've increased the dividends from the insurance companies without the financial flexibility, Bermuda provides, we would not have been able to accomplish that.

The other thing I just want to clarify, Tracy, the bitcoin index that we've provided within an index annuity and that's in the RILA product.

Thank you. We have no further questions in the queue. So this concludes today's Corebridge Financial Fourth Quarter 2025 Earnings Call. Thank you all very much for joining, and you may now disconnect.

Hello, and welcome, everyone, to the Corebridge Financial Third Quarter 2025 Earnings Call. My name is [indiscernible], and I'll be your operator today. [Operator Instructions]

I will now hand over to your host, Isil Muderrisoglu, Head of Investor and Rating Agency Relations to begin. Please go ahead.

Good morning, everyone, and welcome to Corebridge Financial's earnings update for the third quarter of 2025. Joining me on the call are 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. 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. Core Bridge'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.

Except as required by the applicable securities laws, Corebridge is under no obligation to update any forward-looking statements as circumstances or management's estimates or opinions to change, and you are cautioned to not place undue 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 GAAP figures is included in our earnings release, financial supplement and earnings presentation, 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, Elias for their prepared remarks. Kevin?

Good morning, everyone, and thank you for joining. I'll start this morning by providing some context around the announcement we made on Friday. As you have seen, our CFO, Elias Habayeb will be leaving Core Bridge in April to take a senior leadership position at a publicly listed company that we do not consider a competitor. Elias and I have worked together for many years and I know he will be missed at Core bridge. We've engaged a leading executive search firm and have begun a search process. We are pleased that there will be a 6-month transition period that will allow for Elias to oversee the completion and filing of 2025 financial statements and the finalization of the 2026 budget and business and operating plans while the search is underway.

I would also note that one of the Elias' important contributions as CFO of Corebridge has been building a very strong finance team that I am confident will support the ongoing execution of our 4 strategic pillars and our trajectory for continued growth. I know that this search will be 1 Mark Costantinis top priorities when he arrives next month, and I am confident that he and the Board will select the right person for Corebrdige's next chapter.

We expect this to be a seamless transition. With that, let me turn to third quarter results. Corporate delivered another quarter of solid performance with our diversified businesses generating the highest sales since the IPO, even as we further strengthened our balance sheet and once again delivered both strong earnings and an attractive capital return to shareholders.

Our financial results as presented reflect our position after the previously announced variable annuity transaction with Venerable, which marks an important inflection point for Core Bridge. Our company is now simpler, with a lower risk profile, higher quality of earnings and greater growth potential. Corebridge has been working since the IPO to strengthen every element of our value proposition. Our diversified business model is founded on a broad spectrum of products and services, distribution channels and market segments delivering diversified sources of income that enable us to generate sustainable cash flows and perform through various market cycles.

Across our businesses, we are committed to deploying capital where the risk-adjusted returns are the highest and customer demand is the greatest. Our spread income is now a larger percentage of the whole. Our sources of spread income streams themselves are diversified. We have a high-quality investment portfolio and minimal legacy liabilities. Our strong balance sheet provides us with financial flexibility to achieve our strategic objectives.

We have maintained capital ratios of our insurance companies above their targets. In that $1.8 billion, including partial proceeds from the VA reinsurance transaction we have more than ample liquidity at the parent. Finally, we continue to emphasize disciplined execution. The team at Corebridge has done an excellent job to date managing through a complex corporate separation divesting our international businesses, launching our strategy in Bermuda, executing one of the largest VA reinsurance transactions to date, upgrading our technology and customer service capabilities and meeting or exceeding every financial target we set at the time of the IPO.

It is a very strong foundation for continued success and shareholder value creation. Turning to Slide 4. Our results in the quarter once again demonstrate that we continue to execute on all 4 of our strategic pillars. First, we delivered strong organic growth with total premiums and deposits of $12.3 billion, reflecting ongoing strength in individual retirement. Sales of our RILA products were nearly $800 million in the third quarter and have topped $1.7 billion year-to-date. We are now the only company to have a top 10 ranking across all 4 major annuity product categories as measured by [indiscernible].

In October, we received regulatory approval to sell our Rila in New York state, one of the nation's largest annuity markets and one where we feel very well positioned. And we remain on track to launch by the end of the year. In addition to our individual businesses, we had very strong performance in institutional markets in both GIC and pension risk transfer transactions.

Overall, general account net inflows were $1.4 billion, up 27%, supporting general account growth of 6% year-over-year. Across all of our businesses, we remain disciplined in how we price new business, adjusting as market conditions evolve. For example, interest rates declined through the third quarter, prompting us to take rate actions to preserve margin.

We generally respond quickly when conditions change, even at the risk of short-term production, and that discipline remains a hallmark of how we run the business. Our diversified business model gives us optionality to allocate capital to where it will earn the highest risk-adjusted returns. We are focused on growing earnings and being responsible with the capital that our shareholders have entrusted with. Turning to our second pillar. We remain focused on optimizing our balance sheet and creating greater capital efficiency.

The capital fleet up by our transformative VA reinsurance transaction was significant. And as we've said before, we continue to explore additional opportunities that would be value accretive. One example is expanding our Bermuda strategy, which is off to a great start with $18 billion of reserves ceded since inception. Third, we continue to focus on further improving our operating leverage, and we recently completed our voluntary early retirement program, which is creating capacity to invest in and upskill in key areas such as digital.

By continuing to modernize our operations, we see ongoing opportunities to improve our customer and distribution partner experience, which is essential to growth and to further increase our operating leverage. Fourth and finally, we remain committed to active capital management. Year-to-date, we returned more than $1.4 billion to shareholders through buybacks and dividends. While our payout ratio over the period was 80%, reflecting the impact of the VA reinsurance transaction, our target payout ratio remains 60% to 65%.

Reflecting on the market, the macro environment remains attractive. The need for people to take care of themselves financially by growing their assets and locking in secure retirement income is a powerful tailwind for our individual and group retirement businesses. In Life Insurance, the large protection gap continues to represent a significant opportunity in those areas of the market where our advantages can drive attractive returns. And in institutional markets, pension plan fund levels remained very strong and plan sponsors are resolute in their intention to divest these liabilities. Corebridge is well positioned to capitalize on those trends, and we'll do it with the same commitment to strong financial metrics that you've come to expect from us, a 12% to 14% return on equity, an average 10% to 15% annual EPS growth rate over time and a 60% to 65% payout ratio, all while maintaining the life fleet RBC ratio above target.

As I prepare to hand the reins over to Mark, I'm pleased to be doing so from a position of strength. Corebridge has market-leading businesses a very strong balance sheet and robust opportunities for continued profitable growth. That's why I believe Corebridge remains a compelling investment proposition.

With that, I'll turn the call over to Elias.

Thank you, Kevin. I'll begin my comments today on Slide 5. Excluding VII and notable items, Corebridge reported third quarter adjusted pretax operating income of $678 million and operating earnings per share of $0.99. This quarter included 1 notable item that represented the charge of $98 million, resulting from the impact of our annual actuarial assumption update.

At the total company level, the annual actuarial assumption update is expected to have a limited impact on the go-forward run rate earnings. The details by business are provided in the appendix to the earnings deck. Annualized alternative investment returns this quarter were $0.11 per share below our long-term expectations, with outperformance in private equity partially offset by underperformance in hedge funds and real estate equity. Looking forward, we're beginning to see a pickup in M&A activity, which should benefit alternative investment returns.

However, we're also seeing a continued lag in real estate equity performance. Accordingly, based on what we know today, we expect alternative investment returns for the fourth quarter will be below our long-term expectations of 8% to 9%. Adjusting alternative investment returns to long-term expectations and notable items. We delivered run rate operating EPS of $1.21, which represents a 6% year-over-year increase and an adjusted run rate ROE of 12.9%, which is up 70 basis points versus the prior year.

Moving to Slide 6. Total sources of income increased approximately 1% year-over-year after excluding VII and notable items. Despite the 100 basis points of Fed rate cuts in 2024, spread income was down only 1% as business growth paired with asset optimization actions mitigated the headwinds. Fee income was up 7% year-over-year, primarily from favorable market while underwriting margins were essentially flat year-over-year.

Turning to Slide 7. I'll focus on our capital and liquidity positions. In the quarter, our insurance company distributions totaled more than $1.3 billion, including approximately $700 million of proceeds from our VA reinsurance transaction. Capital return in the quarter was a strong $509 million, including $381 million of share repurchases. Furthermore, since September 30, we have begun deploying the proceeds from the VA reinsurance transactions and have returned over $370 million to shareholders. Our holding company liquidity remains robust at $1.8 billion, well above our next 12-month needs in large part due to undeployed proceeds from the transaction.

With our light fleet RBC ratio remaining above target and our recent VA reinsurance transaction generating significant distributable proceeds. You can expect to see elevated levels of share repurchases in the coming quarters, pursuant to the $2 billion increase to our share repurchase authorized by the Board in June.

Next, I'll briefly review a few highlights from each of our businesses, the details of which can be found in the appendix to our earnings presentation. As a reminder, results exclude the impact of VII and notable items were applicable. Additionally, while we remain focused on prudently managing our expenses, we did see a short-term increase across all segments, resulting from higher compensation-related expenses consistent with our prior guidance as well as a onetime medical expense accrual.

In individual retirement, core sources of income were flat year-over-year as the impact of Fed rate actions was partially offset by strong growth and asset optimization. We saw continued strength in new business. Index Annuity sales were at an all-time high and RILA sales continued to grow reflecting strong customer demand and the benefit of our deep distribution network. Net flows were up 13% year-over-year, mostly driven by higher index annuity and RILA sales. Adjusted pretax operating income declined by 9% year-over-year. The biggest driver was higher DAC amortization and commissions, reflecting several factors, including growth in the business.

Higher fee income and lower base spread income offset each other as a result of market movements over the past year. Group Retirement results in the third quarter demonstrate the ongoing transition from a spread based to a fee-based revenue stream. Core sources of income grew 1% and as fee income increased 4.5% year-over-year, while base spread income declined by 4%. Overall, fee income now accounts for approximately 60% of group Retirement's core revenue. Adjusted pretax operating income increased 1% year-over-year as higher fee income offset lower base spread income. While assets under management and administration were flat year-over-year, advisory and brokerage assets continued their strong growth and were up 9% year-over-year to a new record high. Premiums and deposits excluding advisory and brokerage were down 10% year-over-year, reflecting previous planned exits and lower out-of-plan fixed annuity sales.

As we look ahead, we're making considerable investments in the business to upgrade the quality of our implant services and further build up our wealth management offerings, which should increase enrollments and rollover recapture. To that end, our adviser head count is the highest it's been in 2 years and our adviser productivity is up 10% year-over-year to both supporting our growth initiatives. We expect our growing number of financial advisers as well as their increased productivity to be a positive earnings driver for group retirement in the future.

In our Life Insurance business, core sources of income were flat year-over-year. Adjusted pretax operating income was down 8% year-over-year largely due to some onetime costs related to systems conversion and higher expenses mentioned earlier. Mortality continues to trend favorably, demonstrating strong underwriting on the block. Adjusting for onetime items, this quarter's life adjusted pretax operating income was $115 million, in line with our previous guidance. We continue to believe this business will generate earnings of $110 million to $120 million per quarter other than in the first quarter, which typically has higher mortality. While new business sales were down 6% year-over-year, we grew our fully digital senior life products by 19%.

In institutional markets, we had the strongest sales quarter since the IPO with both PRT and GIC showing exceptional growth. This was the sixth consecutive quarter with GIC issuances in excess of $1 billion. The outlook for PRT transactions remains promising, both for the fourth quarter and longer term as pension plans in the U.S. and the U.K. have continued appetite for derisking as planned funding levels remain very strong. That said, given the nature of PRT transaction, you can expect some continued variability in quarterly volume. Total reserves grew by $8 billion or 19%. Core sources of income were up 5% year-over-year, while adjusted pretax operating income was up 3%.

Before I close, I wanted to provide a few thoughts on the state of the market and credit, in particular. Currently, the Fed has begun its easing cycle, so short rates are moving lower and the curve is steepening. With that, you have credit spreads at the tight end of the range and defaults remain relatively low.

In addition, there's been recent headlines about increasing signs of pressure in the broadly syndicated loan market. We believe these events are idiosyncratic, and we have negligible exposure to those names. The current market environment is factored into both our asset allocation and our asset and liability management strategy. We focus on liability origination and originate assets that are predominantly high quality and fixed rate to match those liabilities. Floating rate assets along with derivatives play a smaller and specific role in our duration management.

Floaters can also offer incremental value and diversification. Given the tightness on spreads, we prefer higher quality assets that provide collateralized cash flows with credit enhancement and/or covenants rather than lower quality unsecured or idiosyncratic risk. In the context of our broader investment portfolio, it remains resilient and well positioned to manage through volatility. The portfolio is 95% investment grade, and is highly diversified among asset class, industrial sectors and geographies. In the third quarter, our portfolio continued to experience positive rating migration for bonds and commercial mortgages. We also have a deeply experienced credit team that operates in a highly rigorous and iterative underwriting process with multiple levels of approvals and ongoing monitoring and proactive portfolio management. We underwrite through the cycles and focus on title preservation and risk of loss.

In terms of the broader balance sheet, we carry moderate leverage a comfortable liquidity position and access to the capital markets. We regularly run various stress tests of our capital liquidity positions and remain comfortably within our risk appetite. I also want to provide a reminder about our earnings trajectory over the next few quarters. We published a revised financial supplement that recasts Individual Retirement's VA earnings below the line going back to the first quarter of 2024.

As we have said previously, we expect the VA reinsurance transaction to be accretive to the pre-recast by the second half of 2026 once we complete the share repurchases funded by the proceeds from the transaction. Due to timing, over the next few quarters will be lower than they would have been if we had deployed the proceeds on day 1. Additionally, similar to 2024, and any Fed rate actions are expected to have a short-term impact on spread income as we expect to mitigate the effects through growth in the business, asset optimization and other management actions.

Finally, as you know, this is our last earnings call with Kevin as CEO. I want to take this opportunity to thank Kevin for his friendship, guidance and leadership. The value core bridge has created for shareholders on his watch has been truly outstanding, and I'm deeply honored to have worked with him. With regard to my announcement, I have worked at Core bridge and AIG for over 20 years, and it's been very gratifying both on a personal and professional level.

I'm pursuing an opportunity that I believe is the right next chapter for me. I can't disclose details at this time, but an announcement will be made in due course. I'm very proud of the finance team we have built at Core bridge, and I am committed to ensuring a smooth transition for the benefit of the team, all my corporate colleagues our incoming CEO, my successor and our shareholders.

With that, I will turn the call back to Isil.

Thank you, Elias. [Operator Instructions] Operator, we are now ready to begin the Q&A portion of the call.p

[Operator Instructions] Our first question comes from Joel Hurwitz from Dowling & Partners.

And first, I just wanted to wish you both the best in the future. In terms of my question, I wanted to start on individual retirement and the base spread yield. Could you just unpack the drivers of the basis point decline quarter-over-quarter?

Yes, happy to, Joe. So listen, as we've said before, we expect spread income and individual retirement to grow over time. and that hasn't changed. We do expect some marginal compression for the dynamics we talked about in the past with the differential between the spread on new business versus in-force and that we expect to be marginal. And based on what we know today, factoring in the latest outlook on rate cuts, we expect that to go through the end of '26 and level off and potentially start growing from there. Now when you come to this quarter itself, the base spread compression due to the dynamics we've explained is in the 1 to 2 basis points. But with the VA transaction that we did, that we closed on the Texas side, which is about 90% of it, we had to reallocate assets to come up with a portfolio that we transfer to the other side. And that's kind of creating noise and it's a onetime impact of about 5 basis points. And that kind of level set kind of a new baseline were to measure compression going forward from.

Got it. That's helpful. That makes sense. And then Elias, in your prepared remarks, you mentioned considerable investments in the group business for, I think, implant guarantees and in wealth management. Can you just elaborate on the level of expected spend there? And what exactly these investments are?

Yes. Joel, it's Kevin. Look, I mean there's a couple of areas we're investing in the Group Retirement business. On the implant business, we continue to invest in our automation and digitization initiatives, improving the customer and participant experience there. And then in terms of the wealth management, there's -- it's really growing the adviser force and professionalizing the adviser force. And we've been investing in increasing the footprint of the advisers, serving both the implant and the out-of-plan opportunity. And then to a certain extent, expanding our product and service shelf to cater to the needs of that what we call wealth management, which is serving the former in-plant participants in the out-of-plan area.

We're not putting a particular number on the investments that we're making. I mean, this is part of the opportunity that we have to continue investing in the growth of the business. And we've seen the results from it. Our advisory and brokerage assets are up 9% year-over-year to a new record of $17.6 billion.

Our out-of-plan assets have reached $28.8 billion. And between the implant fee business, the autoplant business and the advisory brokerage that really makes up our -- what we think is our wealth management platform it's a big earnings base of $108 billion in assets, which is up 2% year-over-year. So we're seeing green shoots, but we continue to invest in the business.

Our next question comes from Alex Scott from Barclays.

Best wishes in your next phase here. I guess my first question is on the private credit. I know you gave some comments already. But I was just interested if you could provide a little more color around some of the metrics like how much of your bonds or what you would consider private credit or -- any commentary on the way that you have those rated and which the rating agencies use. So just trying to get a little more color on some of the concerns that are more broadly out there on private credit.

Alex, it's Elias. Yes, so true private credit for us in private credit as a broad category, it includes private placements, which insurance companies created this asset class and have been in it for years, it's like in the $30 billion range. 90% of it is investment grade. We generally use the the main rating agencies from a rating perspective on it. Below investment grade, and it's a small portfolio, it's largely the middle market loans, that's like a $3.5 million portfolio on that. And that's one we've originated some time ago. That's been originated some time ago and is performing well relative to that asset class. And -- while we've seen some deterioration, it's all within the yield. We don't see a principal loss on that.

Got it. Can you also talk about just the competitive environment for pricing on the retail annuities that you're selling and how the trade-off between volume and spread expect to translate into absolute earnings growth in spread over the next couple of years in that business. Yes, sure.

Thanks, Alex. Look, I mean, first of all, the demand for annuities remains robust in the belly of the curve and the forward suggests it's going to remain supportive, even while the short-term sort of rate outlook is a little uncertain. And the long-term macro drivers are there. with the aging of the population and the support of adviser community and people realizing they need to look after themselves. And look, I mean, once again, in the third quarter, we saw conditions were quite supportive.

Rates did come down during the quarter. And so we repriced our fixed annuities and indexed annuities several times in response and also actively managed our in-force crediting rates. But we still saw very strong opportunities in indexed annuities, especially those with income benefits where we had a second successive record quarter. RILO was also very strong, $800 million across the company, $650 million in Individual Retirement, which continues to be very well received in the market.

And we just got our approval to launch in New York, which we believe is, if not the largest, one of the largest annuity markets in the country, which we expect before the end of the year. So that momentum will continue. And fixed annuities is the most immediately sensitive business. And while it was a little lower, we still produced $2 billion, which is quite strong. And we will continue to be disciplined in allocating capital where the risk-adjusted returns are the highest. And in the second half of the quarter. We saw compelling opportunities in institutional markets, including in pension risk transfer, where we concluded $1.5 billion plus we remain a regular issuer with our sixth quarter in a row over $1 billion. So we're comfortable with our overall position.

The environment remains competitive, but we have tools by which to respond. Individual retirement is one of our spread businesses, but institutional markets is another one. And above all, we remain confident in growing both our enterprise and our individual retirement, general account and spread income over time. Fed actions will present occasional short-term headwinds. But we expect spread income to continue to contribute to our EPS growth targets over time.

Our next question comes from Jack Martin from BMO.

We currently aren't getting any response on this slide. We will move on to our next question from Tom Gallagher from Evercore ISI.

So I just had a few questions on the Group Retirement business. First 1 is just on how do I think about the surrenders and then how much you're capturing in your wealth management business. If I look at the numbers in plan, it's about 5% annual decay. When you factor in how much you're retaining on the wealth management piece as the -- as you're capturing some of the outflows, how much would -- how much would that shrink the 5% annually. How do I think about that as kind of a go-forward organic growth number when you add those 2 pieces in?

So Tom, on the implant business, the average age of the participants exceeded 59.5% about 10 years ago. And so there's kind of a natural outflow on the implant part of the business, which is consistent with what, I think, the entire defined contribution industry has been experiencing. And that's to a certain extent what you're seeing in the transition of the portfolio from spread income to fee income over time. And that is the trend that we expect to continue. As I mentioned, we're investing in the footprint of the adviser base to support both the implant and the out-of-plan businesses, and we do expect that to be a gradual transition as we shift to more of the fee income businesses. But this trend has been happening in the 403(b) space for some time.

If you go back 10 years ago, most new customers were rolling into -- or investing in a 403(B) type of a program, whereas that should add to the group mutual funds. And then over the last couple of years, we've seen a transition from the group Mutual fund entry platform to the advisory platform. So there's a natural trend there that the implant business is gradually going to be replaced by the Autopen business. We haven't published a number on our recapture rate but it is a very successful part.

And you can see that in the growth of the advisory and brokerage assets, which are up 9% year-over-year. And then I'll just briefly touch on the larger surrenders. I mean the larger surrenders that we saw continue to be in the health care space. There's a lot of consolidation that's going on there. Those are generally episodic. If there's a merger where. Our plan is the smaller of the 2 plans. Those are ultimately consolidated. We don't know if that takes 2 or 3 years from the time of the merger, but we do try to provide an announcement when we learn about those. And those are generally the group mutual fund platform, which has a smaller impact on earnings than the 403(b) part of the business.

My follow-up is just I recognize both of you are going to be transitioning out. But curious on your view of the strategic importance of VALIC within Core bridge. On one hand, I think it's a great franchise within the 403(b) market, has it stand-alone legal entity. But on the other hand, it drinks organically, and I recognize there's some offset there for wealth business. But is this something that would be under consideration of potential divestiture if you got a great price on the asset? Or do you think that's a long-term keeper when you think about within the broader franchise here?

Well, Tom, my personal opinion, and I think that this is something that is fully supported by the Board as well as the executive leadership of the company is that the Retirement Services group retirement business is an extremely valuable strategic asset. And the differentiating aspect of the value proposition of that business is Valid Financial Advisors, which is our field force of financial professionals that support these customers through their working period, and have the opportunity to develop a relationship with them and then continue to serve them and their families after they retire at the time of household asset consolidation, which is where the real opportunity in the wealth management piece of that business has bid. And there's 1.9 million customers in this business, 1.6 million of those customers are still in plan only business -- only customers and therefore, represent a future opportunity for that out of land capability that we're enhancing through the investments we're making in both the adviser force and the platform to support the adviser force. So this trend in the transition from a spread to a fee-based business, something that is going to take place over a longer period of time, but the strategic opportunity for this business is absolutely enormous, driven by the unique value proposition of financial advisers. It was over 6 or 7 years ago, we made the decision to double down on the role of the human adviser. And therefore, we have been focusing on plans that want our advisers on site and engage, and that's what gives them the opportunity to develop those relationships.

So I look straight past the short-term financial sort of transition that's taking place, and I look at the bright future strategic opportunity of this business as a tremendous asset for the company.

And with that transition, Thomas, if I can add on. You're improving the free cash flow conversion profile of the company over time by shifting the earnings to more of a capital-light or fee-based stream from a balance sheet heavy general accounts basis.

Our next question comes from Jack Martin from BMO.

First question on institutional markets. It was a strong new business quarter not just for PRT, but also GIC and corporate GIC. I guess those non-PRT businesses, can you talk about what's driving your growth there when you look about those products and what you're achieving from a spread margin standpoint?

Well, in the institutional markets, there's -- the main businesses are the guaranteed investment contracts and the pension risk transfer. And we manage those as we do any of our spread businesses relative to a target margin. There's also -- the other businesses in institutional markets include the [indiscernible] business and the [indiscernible] business, which includes insurance [indiscernible], which is kind of similar to the [indiscernible] business. And occasionally, we do also have transactions in that space. There's been an increasing demand for insurance goal that we've recently observed, and we are a participant in that market. And so those are the 3 main areas. We have a modest structured settlements business that has grown incrementally. But really, where we see the future of this business is in the GICs and in the pension risk transfers.

And pension risk transfers, we focus on the full planned termination space. we have for almost 10 years now, and we build specialized capabilities there. And full plan terminations are a subset of the overall PRT market, but the pipeline for full plan terms is very strong in both the U.S. and the U.K. And this is a significant part of the upside we see in the business.

And then a follow-up is on cash flow. I guess first part just on the timing of incremental dividends from the VA transaction. When do you expect to get the remainder of those up to the holding company? And the second part is on the, I guess, $600 million or so of maybe underlying dividends ex those additional proceeds. Is that -- so a good run rate to think about moving forward? Or would you expect the near term kind of step down just from the PA transaction?

Jeff, it's Elias. With respect first to the proceeds, from the VA transactions, we expect to take -- to distribute those out of the insurance companies over a couple of quarters. We had 700 in September, we'd look to another piece in December and then another piece early next year on that front. With respect to the $600 million, that's been our run rate. It will step down a bit, given the change in the distributable earnings profile for the insurance companies. That being said, we can expect to continue to grow it over time to deliver on our 60% to 65% payout ratio.

Our next question comes from Ryan Krueger from Keefe, Bruyette, & Woods.

You had mentioned that you took actions on to mitigate some of the short-term rate headwinds over the last year or so. I guess are you seeing any existing opportunities now given the Fed has credit cutting cycle again? Or I guess, you view that as more opportunistic in the future.

Well, Ryan, let me just start. I mean we're sort of managing in 2 different areas. And I think you maybe are asking about 2 different things. Let me start about what I mentioned in terms of managing the pricing of the product. That's more driven by where the belly of the curve is, the 5- and 10-year part of it, not so much the short-term Fed actions, the Fed actions are more relative to the shorter end of the portfolio.

Yes. So Ryan, based on the way we manage the balance sheet, we're disciplined from an ALM perspective. And so on the net floating rate exposure, we will evolve that as we see the liability side change, and we've come down more than 50%, or we've reduced our exposure by more than 50% since June of '24. And that's something we monitor closely. And when there's opportunities to reduce it, we will further reduce it, recognizing what's the outlook there. That being said, the way we manage the balance sheet is, we will always look for opportunities to optimize the balance sheet and improving return on capital. And we've done that over the course. You've seen at our track record since the IPO, we've taken action on the asset side to improve returns. And we've done that tool to also help manage the impact of rate cuts on earnings, and we will continue to do that. And the other thing I would add is if you look year-on-year, our spread income is flat. And that's in part because we were able to offset that with actions we've taken on the asset side as well as growth in the portfolio.

And as we look forward, like to us, rate cuts will be a short-term speed bump but we've got the tools to manage through it, and we expect the gross spread income over time because the fundamentals behind our spread products continue to be very strong. And remember, we offer spread products in 3 of our businesses, and we've got the flexibility like we did in the third quarter to dial to where we see the most attractive returns and deploy our capital that way.

And then in the life insurance business, it's performed pretty well over time, but there's also been a robust market for in-force reinsurance transactions. Is there anything within that business that you see as a potential opportunity when it comes to potential risk transfer?

Well, when it comes to risk transfer, Ryan, we are always actively seeking opportunities to increase shareholder value and optimize the portfolio. With respect to the Life business, we have repositioned this business substantially over the last couple of years to focus on less interest-sensitive businesses and more middle market. We've invested a lot in our automated underwriting and our digital platforms, and we're very pleased with the performance there.

We did move a substantial amount of life reserves into Fortitude RE when we created it a number of years ago. We're divesting that. And we continue to look for opportunities across the portfolio, whether that's in the form of our Bermuda strategy, external reinsurance or potential external transactions. But above all, we're very pleased with the performance of the Life business. We've invested a lot in our underwriting capabilities over the years, and our mortality has continued to actually emerge at or better than pricing expectations, and we have a very healthy in-force that we expect to continue to contribute at that level of earnings that we had earlier guided to the $110 million to $120 million a quarter except for the first quarter, which is always a little bit lower.

Our next question comes from Elyse Greenspan from Wells Fargo.

My first question is on capital return. Elias, I think you said you guys returned $370 million Q4 to date. I'm assuming that's just repurchases and that ignores the dividend, correct me if I'm wrong. And then is that the pace that we should think about for capital return for the rest of the quarter?

Elyse, it's Elias. So that number, you're correct, is only share repurchases. We expect to return a higher amount of capital in the fourth quarter. But given the distributions on the VA proceeds that we got in September, I would not though take the October number and extrapolate it as if it's all going to be at the same pace. It'd be a bit more front loaded in the quarter, but it will be less than this run rate.

And then I guess my second question is a follow-on private credit. It seems like you guys are comfortable with the allocation given Alex's question earlier in the call. I'm just curious, there's lots of headlines just on regulation. Just your view on just the regulatory regime and the direction things are headed and then just the overall allocation you guys have to private credit?

No, happy to. So as I've said before, our investment strategy is liability-driven. And we look at opportunities where we could get attractive returns and where we can afford to have private credit, we pursue it. But we're very disciplined on the underwriting side. We're aware of what's developing the regulatory front, and we're engaged with it. And that kind of becomes a consideration if we think there's a risk on how we allocate capital.

At this point, our strategy, we're comfortable with it. We understand the potential implications on the regulatory side. And based on what we know today, we don't think it will have a material impact or materially change what we've been doing.

Our next question comes from Suneet Kamath from Jefferies.

Congrats to both of you. I wanted to come back to risk transfer because Kevin, in your prepared remarks, you had mentioned that you're open to it. But sort of a follow-up to Tom's question. You do have a new CEO coming in. You do have a new CFO eventually coming in. Is it fair to assume that you're probably not going to do anything major until those 2 seats are filled in those folks have a chance to look at the overall strategy? Or is that not the right way of thinking about it?

Look, I would draw your attention to my prepared remarks relative to the transition. We have a very strong foundation in place. We have a strong team. We have a track record of execution. Looking forward to welcoming Marc. Elias is here for 6 months through the transition. I'm going to change my role to be an adviser to the Board for 6 months. And we're looking for work forward to a very smooth transition process.

. And Suneet, they're not letting me take a garden leave. I expect to be working the full 6 months.

Got it. Okay. Well sorry to hear that. I guess on Bermuda, how should we think about Bermuda? Is that -- over the long term, I'm not talking about near term, is this eventually going to allow you to increase your free cash flow conversion ratio? Or is it more an ability to just grow faster because the capital is more optimized?

So the way I look at it is it gives us financial optionality. And with that optionality will evaluate what's the best utility of that optionality and how we maximize shareholder value, and we'll allocate our capital accordingly.

Yes. So just following up from that, I mean, it really gives us potentially as we further grow and develop our Bermuda strategy, the option to do both. And I think that is ultimately what a mature Bermuda strategy that leverages all the capabilities associated with that will lead us to [indiscernible].

Our next question is from Cave Montazero from Deutsche Bank.

My first question is -- first, thank you for all the color on the credit portfolio. It's quite helpful right now. just want to follow up. You did mention that you well diversified by sector or whatnot, which makes a lot of sense. Can we assume within private credit specifically, is that also very well diversified from a sector point of view? Do you have any maybe sectors that you are more away, any exposure like outside exposure to the auto sector, for example?

On the private credit side, the majority of our exposure is an investment-grade private placement, and that's kind of diversified across sectors from there. So we follow the same kind of principles on private credit as we do kind of overall allocation credit in general. So I think it's a fair assumption that we've got it's -- the private credit portfolio is similarly diversified as the overall portfolio.

Great. My follow-up question is on obviously, quite a lumpy business. And I think it's the only business you have left that's international after the positioning of the business. I guess, do you -- are you still comfortable retaining international exposure when it comes to PRT or would that eventually become a U.S. business only. And what is kind of the near-term outlook for [indiscernible]?

So our U.K. business is a reinsurance business and reinsurance is, to a certain extent, kind of a global business. We can use our U.S. balance sheet as we do in the U.K. for PRT as a reinsurer for other potential international opportunities, and that is something that we have an opportunity to explore and to expand. And so whilst we don't have any admitted international operations, that doesn't mean that we don't retain the expertise and interest in growing in international markets in the form of reinsurance. Now to your question about pension risk transfer.

Look, the pension risk transfer opportunity is extremely robust. As per my prepared remarks pension plans are attractively funded companies are very interested in no longer having to be fiscally responsible or fiduciarily responsible for those plans. And so management teams are committed to exiting those liabilities. And there's a subset of the pension risk transfer market, both in the U.S. and the U.K., which is in a single negotiated transaction, a company can go through the multiple stages of exiting a plant. That's called a full plan termination. And we are a specialist in that part of the market.

There's fewer competitors in that part of the market. We find the economics more attractive as a result. We've built the administration capabilities to manage the complexity of those plans of the active and deferred populations, in addition to the retirees. And also we've invested in the underwriting resources to have the expertise in managing the liabilities. So we have an excellent position in that business. The pipelines are extremely strong in the U.S. and the U.K. The economics are attractive and we remain very well positioned. So we're extremely optimistic about the pension risk transfer position that we have.

Our next question comes from Wes Carmichael from Autonomous.

First question, in individual retirement, and I guess it's a question on margin. But for your fixed indexed annuity portfolio, is there an opportunity there to adjust crediting rates via caps and participation rates. And I guess, relatedly, we're hearing from some in the market that there's some higher competition for FIAs where it's tied to the S&P 500. So curious if you're seeing that as well.

Look, the entire individual retirement market is a competitive market. We're seeing competition, I think, everywhere there. I don't think it's any heightened in indexed annuities or fixed annuities or RIVA. It's an active and competitive space. And through a combination of the very strong distribution relationships that we have, the historical product creativity that we've been able to manage and then also the discipline with which we manage our new business pricing, we continue to be able to produce attractive new business there.

As I mentioned in the index annuity, we're definitely seeing -- right now, we're focused more on the income benefit aspects of that part of the portfolio. But we have a very broad range of index products as well as our other products, and we work with a broad variety of distribution channels, which helps us overcome some of those market competitive consideration.

So we're very comfortable with the overall position in the individual retirement businesses, whether that's our index business, our [indiscernible], which is performing very well and the fixed annuity business, which is a little bit more sensitive to external conditions, and we are -- as a result, we respond very quickly when there are pricing changes in that environment.

And just a follow-up. But on longer-term guidance, I think you talked about a long-term EPS growth guidance of 10% to 15% or something in that range. Just curious if anything has changed there. I know there's quite a bit of buyback that probably supports 2027. But if you think underneath the surface, when you think about rate, long-term short term, anything that's changed your view in that step.

Wes, it's Elias. Listen, we still think the 10% to 15% average annual growth is the right guidance for the company. This will be driven by growing earnings as well as share repurchases. Some years will be higher, some years will be lower, but we think that's still the right target for this company. And I think it's a pretty attractive target to be able to deliver 10% to 15% on average. It will be influenced from time to time by different factors, some outside our control, but the things we're focused on are accretive to achieving that target, whether it's on organic growth, balance sheet optimization, the expense discipline, capital management, all those things, the stuff we control will be accretive to that target.

This concludes our Q&A session for today. So I will hand back to Kevin for closing remarks.

Thank you, operator. This is my last earnings call, so I would like to share a few thoughts. In a career spanning 4 decades, it has been the honor of my professional life to serve Core Bridge as CEO. I am very proud of our executive leadership, the ladies and gentlemen of Corebridge and also our partners, and especially of the value we have created for Corebridge's stakeholders. Our employees now work for a strong independent company with significant upside career potential.

Our customers and distribution partners can rely on our commitment to innovation, modernization and professional service. We work hard to give back to the communities in which we operate. And our shareholders have seen the value of their investment in Core Bridge appreciate. Going forward, I'm confident the company is in very good hands with Mark Costantini, who can build off the strong foundation we have set in place. We look forward to introducing him to all of you soon.

I've received a lot of notes from folks, I'd like to thank you for your wishes. And thanks to everyone again, who joined us for the call. Have a great day.

Thank you. This concludes today's call. Thank you for joining us. You may now disconnect your lines.

Good afternoon, everyone. I'm Ryan Krueger, life insurance analyst at KBW. It's great to have Corebridge up on stage and Kevin Hogan, the CEO. Also want to acknowledge Elias Habayeb, CFO; Isil Muderrisoglu; and Josh Smith from Investor Relations. I got -- I worked on pronouncing that.

Kevin, so it's been about 3 years since the IPO of Corebridge. Can you discuss the progress that the company has made over that time frame and how you feel the company's position going forward?

Yes, absolutely. Thanks. And first of all, I appreciate the opportunity to be here. Nice to see everyone. It's hard to believe, in 2 weeks, we'll celebrate the 3-year anniversary of our IPO. And I'm very proud of and very pleased with the performance of our team, our partners and our business since that time. We're executing on all of the strategies necessary to deliver on the targets that we set at the time of the IPO. We said we would deliver a 12% to 14% ROE. In 2024, we delivered that. We said we'd achieve a 60% to 65% payout ratio, excluding transactions. And we've been able to be delivering on that. And we indicated we would maintain the strength of our balance sheet at a 400% RBC ratio. And we've been able to grow the business while doing that.

The 4 levers that we're pulling, the 4 elements of the strategy start with organic growth. And since the time of the IPO, we've been able to increase our sales -- annual sales volume on average around 30%, just as an example. The second element is balance sheet optimization. And through a number of transactions, including most recently our variable annuity reinsurance transaction, we've demonstrated a lot of optimization of our liability portfolio.

But through the course of the last couple of years, we've also engaged in some attractive asset repositioning. We said that we would focus on expense efficiencies. And since the time of the IPO, we've reduced our annual run rate expenses by around $400 million, and we indicated we would engage in active capital management. And on top of that 30% growth in our annual sales, we've been able to return $6 billion to our shareholders since the time of the IPO, even before the proceeds from the variable annuity transactions. So we feel good that we're on track and delivering on all of our targets.

We've also simplified the company since the time of the IPO. We have divested our international subsidiaries, and then we engaged in the big derisking transaction, generating $2.1 billion in proceeds on the VA sales. So we improved our risk profile, we improved our earnings quality. We are now a pure-play U.S.-focused retirement and life insurance provider. We go to market with 4 market-leading businesses. And each of those businesses are in a very strong position, and they're all supported by the same macro tailwinds that really drives the opportunity for our industry and for our company. And that's the aging of America, the fact that people realize they need to look after themselves and a very supportive adviser community.

So with the economic conditions where they are, we very much expect to deliver on that 10% to 15% per year growth in earnings per share over time. And ultimately, we're 3 years old. Like many start-ups, we feel like we're just getting started.

Great. Well, you mentioned the variable annuity transaction a couple of times, I wanted to dig into that a little bit. There's a very large transaction you are doing with Venerable where you're exiting your entire variable annuity business on the retail side. Can you talk more about why you decided to do that, both strategically and financially?

Absolutely. So look, variable annuity was an important growth engine for us for many years. And the reality is, is that customer interest, adviser interest started moving away from the traditional VA business quite a while ago. And this portfolio has been in decline and negative outflows for 8 years. So it's ultimately a kind of a declining asset, and we saw the opportunity to monetize that declining asset, and we're able to achieve a transaction that we believe has been very, very attractive for our shareholders. With the reality is that this type of business is not very well valued by our investors, it's not appreciated by our investors. So the multiple that investors attribute to it versus what we could achieve in a transaction were at very different areas. And that's why we believe this is the single biggest source of value creation we've achieved since the IPO itself.

So ultimately, financially, it was very attractive with the proceeds of $2.1 billion. That's a multiple around 7x, ultimately, the earnings. I think that, that is really ultimately an attractive transaction, simplify the company, reduce the risk, create great value for shareholders. And with those proceeds, we are allocating the substantial majority of the proceeds to returning capital to shareholders in the form of buybacks, and I'll get back to that in a second. But we also are investing in further organic growth in our business and investing in capabilities to support that organic growth.

So in terms of the actual transaction itself, we've closed on 90% of the value of the transaction, which is our legal entity in Texas, AGL. And those proceeds will go through the normal dividend distribution process from the insurance company to the parent. We expect to begin to put those to work in the fourth quarter of this year. And then we will continue the buyback program, and we expect that this whole transaction will be accretive by the second half of next year, and we'll get through the buyback program by then. So ultimately, I think this is a great source of value creation. That's an excellent transaction. We structured it in a way to protect ourselves from the various elements of risk associated with the transaction like that. And it's allowing our company, it's allowing our management to now fully focus on the future opportunities, which are many.

So you did the variable annuity transaction. You also divested your international businesses since the IPO. Is there anything else that could be a potential opportunity from a reinsurance standpoint that could create further value for shareholders? And what are the key criteria you look at when you think about things like that?

Absolutely. We're always looking for opportunities to create shareholder value. Transactions are an additional way for us to do that. And as we look at opportunities, what we're looking for are transactions that are accretive, both in terms of economic value, but also structure. And so to the extent that there are opportunities similar to the transaction that we did on VA, where we can achieve attractive economics where we make the company better, and we're able to structure in a protective way the elements of this transaction, then we'll look at that as part of our available opportunities. And then in terms of how to deploy the capital associated with that, we'll also run that through our disciplined process of thinking about capital management at that time.

Moving to expenses. So you mentioned you've completed the Corebridge Forward program of the $400 million annual expense saves. What were the key things that drove those expense saves? And then do you see further room for more efficiency gains going forward, whether it be in dollars or more like an expense ratio?

Yes, absolutely. So Corebridge Forward was our modernization and efficiency program we launched at the time of the IPO. There were 3 major components to it. The first was increasing our work with outsourcing partners. And ultimately, there's a process called compressed transformation associated with that. That's where we move the middle and back-office activities over to our partner. And then the process after that is to invest in automation and digitization of those underlying processes and then ultimately, to bring in more advanced tools like artificial intelligence to improve the customer distribution partner experience and position ourselves for the long-term future. So that outsourcing is an important contributor to the saves associated with the Forward program.

The second element was our IT modernization. We moved all of our IT administration to 1 version of the cloud or another that allowed us to completely exit our data centers, and we sold our data centers. So we're completely out of that and of the infrastructure. And then the third element of Corebridge Forward is what I think of is hygiene. We improved some of our procurement practices. We rationalized our real estate footprint. In many ways, this was the rightsizing of the company for the business that we are, and that's just a jumping off point for us because in looking at the opportunity beyond Corebridge Forward, our intention is to drive down our unit costs.

And so we continue to invest in automation and digitization, particularly in the finance and the actuarial areas. We recently completed and are in the process of completing an early retirement program, which start -- further repositions the company for the future. And a part of that will be additional savings that drops to the bottom line. But a part of it, we will use to continue investing in automation and digitization and building new capabilities for the long-term future of the business. All of these things will further improve our operating leverage.

But I will add that whilst we've made dramatic improvement in expenses and a lot of progress, it isn't going to be linear all the time. And in fact, as we look at the second half of this year, we would expect that rather than our normal run rate, our compensation expenses are around $25 million higher than what our normal run rate would be because of the fact of our performance relative to our plan. But longer term, we expect to continue to drive our unit costs down, and that's going to happen through further automation, efficiency and organizational design.

Maybe just a quick clarification. Is the $25 million, will that be spread through the 2 quarters or it will be in 1 specific quarter?

Yes.

Spread through the two?

Yes.

Okay. I guess, shifting more to the growth side of the business. Individual annuity sales in the U.S. I think were around $250 billion for 15 straight years, and now they're approaching $450 billion. So they're up significantly. What would you attribute that to for the industry and for Corebridge? And when you look forward, do you think that the industry can continue to maintain that type of higher level of sales or continue to grow it going forward?

Yes, I absolutely do. I think that the trends for the business continue to be very, very strong. Let's start with the macro drivers. So there's 3 main drivers. One is the aging of America. Peak 65, whatever you want to call it, 4 million people turning 65 this year and pretty much every year for the foreseeable future. And even looking beyond Peak 65, if you look at the shape of the demographic pyramid of the country, the shape even looking out to 2050 doesn't necessarily change. There's going to be a continuous recycling from the younger to the older population in a flat demographic pyramid. And that means that this opportunity for the industry is here to stay.

The second element that is driving, I think, the conditions for annuities is the fact that people for the first time are finally coming to grips with the fact that they have to look after themselves for their own retirements. They have to look after themselves for that long-term financial planning because many of the available safety nets like defined benefit pensions, et cetera, just aren't there. And so that's driving a lot of the demand side of the equation.

And then the third element is the adviser community itself. As the adviser industry continues to professionalize, as there's a new generation, a whole new generation of advisers have discovered the importance, the value of fixed income like investments as part of an asset allocation for a long-term savings plan, that's a third driver of the opportunity for annuities. And so those macro drivers, the tailwinds are there, and they're strong and long term.

The second element is the fact that the economic factor most important to pricing annuities at an attractive level is really the 5- to 10-year part of the curve, the belly of the curve. And irrespective of what may happen on the short end, the reality is looking at the forwards for that 5- to 10-year area, it's going to continue to be a very attractive environment for pricing annuities for the medium term. And ultimately, then we look at our own business and the fact that we have a broad range of products and we serve a broad range of channels so that we're able to work through whether they may be competition cycles or market cycles, et cetera, we do expect long-term growth prospects in this business. And irrespective of surrenders, et cetera, with the in-force portfolios, we expect to grow our general accounts and to grow the spread earnings over time. So I don't think that this is a short-term trend with annuities. I think that they have a very important role to play in these long-term financial plans and the conditions are very, very attractive for the business.

I guess one thing that has happened as the growth has picked up and companies like Corebridge and others have had successes, more competitors have entered the space, particularly focused on spread-based annuities. Can you discuss your view of the competitive environment in annuities at this point? Is it causing much of an impact for you? Are you still able to earn the returns that you're targeting with good growth?

Yes. So the way I think about rationality of competition is whether we can achieve our margins on the new business that we want to write. And right now, we are achieving the margins that we're looking for in that business and all of the products in that business. Some products are more subject to market cycles or external events than others, like fixed annuities, there's a little bit more volatile, but the long-term growth trends are there for index annuity and our most recent product, RILA, which is off to a good start, and I'll come back to that in a minute.

So we haven't necessarily seen signs of irrational competition. Now we have a broad range of products, and we work through a broad range of distribution partners. And our strategy is to understand our distribution partners and how think about their strategies and to have enough options for them so that for whichever adviser it is working with a customer, one of our solutions make sense. And that's something that allows us to work kind of beyond some of these competitive cycles because from time to time, a particular competitor or another may choose a promotional pricing strategy in 1 particular channel or 1 particular partner, et cetera. We have enough options that we can focus on putting our new business capital to work where the risk-adjusted returns are the most attractive and the customer needs are the greatest at any given point in time.

And we really do understand our distribution partners' needs. And this is, I think, an important differentiator. Around 10 years ago, we established a strategy to focus on the top 50 largest independent distribution organizations in the United States and to understand what their strategies are 2, 3, 4 years down the road so that we can build products and services to integrate ourselves with their strategies for the longer term. And that's led us to differentiating features in our products.

So if you look at the retail annuities that we sell, around 40% of them have a feature which is proprietary to a single distribution partner. So we have a different access, a different relationship with many of these distribution partners that facilitates us competing through the cycle. And for example, our RILA product really benefited from the insight we gained working with those distribution partners because before even putting pen to paper on the product itself, we spent 8 months with our largest distribution partners, accessing their advisers and getting insight into what are the most attractive features of the products now in the market because it was a pretty robust market. And then what are the features that are not attractive, and then what might be features that are missing. And then we took all of that back.

So when we launched our product, we had best-of-breed for all of the features that were attractive and supported by advisers. And then we layered on additional features which are differentiated for our product. And the response has been outstanding. Even though we launched the product in only late October, by the end of the second quarter, we had already done $1 billion worth of sales. And what I feel particularly good about is not only did we have that success in RILA, in the second quarter, we saw record index sales as well. So we're not seeing any kind of cannibalization effect across them. And then of the advisers that produce the RILA for us, 75% of them are advisers that have already produced other products for us, and 25% of them are actually brand new advisers to producing for us.

So that's now an expansion of our distribution footprint, and we have the opportunity to work with them with respect to our other products. So this aspect of the relationship with our distribution partners and how that facilitates our product development engine and our field force that supports it is one of the things that facilitates us competing through these various cycles.

Great. Maybe shifting to the Group Retirement business. You've been talking for a while about this gradual shift away from spread-based business towards fee-based business. Can you expand on the dynamics that are going on there and how you feel the business is positioned?

Absolutely. Well, I feel the business is positioned extremely well. And the dynamic that's going on is in the 403(b), 457 business, if you go back maybe 15 years ago, new teachers or health care workers, when they were enrolling in plans were almost always enrolling and putting their money into fixed account element of the 403(b) structure, conservative investors et cetera. And gradually, what happened is that the industry moved to an open mutual fund platform. And so the initial investment starting about 10, 15 years ago were going into the open mutual fund platform.

Now the fixed account in the 403(b) is a spread -- essentially a spread business, whereas the mutual fund platform is more of a fee business. And so that is kind of the beginning of the transition. You can imagine people that started when they were younger, contributing to the fixed deposits continue to do so. And then now there were younger participants in a group mutual fund, or more recently, an advisory platform. And so the gradual shift that's taking place is that with the aging of the customer base because we've been in this business for decades, right -- are the people that really represent the spread business. And as they're utilizing their accounts that we see that spread business decline, and we're growing the fee income part of the business.

And there's 3 parts to the fee income, right? There's the mutual fund platform, in-plan advisory and the out-of-plan advisory. Between those 3 sources of fee income, the asset base is already over $100 billion. And the trend that we've seen is that the majority of the earnings now comes from fee income in that business. And we're reinforcing our value proposition in that business because what happens is really the secret to this business is VALIC Financial Advisors, the 1,100 field force of professionals that we have in place that work with planned sponsors to ensure they have the right options available, they work with enrollees in the plans to make sure they're making smart investment decisions and investing what they should be at the right time. And then they have an opportunity to build that relationship over 20 years or 30 years to the point where that individual may retire and then engage in household asset consolidation, and that's where our advisers really become wealth managers for the upper end of the customer base that's there.

And so that -- we have a career opportunity for advisers that includes all of those phases. And the part of the business that really is, I think, the most strategic is those 1.6 million customers that we have that have yet to retire. So we're investing in the adviser base itself. We're growing the adviser footprint for both the in-plan and the out-of-plan/wealth management part of the business. We're also investing in the digital tools necessary to improve the productivity and efficiency of those advisers.

So yes, there's going to be a shift in the business from spread to fee income, but this is really a distribution opportunity and a wealth management opportunity as we enhance the tools that we have available to serve those participants in the plans as they age and retire.

I guess going back the other direction to spread again, one area that started to emerge, it may take time, but is in-plan annuities in 401(k) plans? I know you don't have a 401(k) business, but could there be an opportunity to partner with someone else and where Corebridge could be a provider of an in-plan annuity to be another avenue to grow guaranteed income?

Absolutely. We've actually been actively exploring options for in-plan income for, I think it's over 4 years now. And we have a small team dedicated to that. I believe it's going to be a huge opportunity one day. But it's early in the manifestation of that opportunity, and there's different strategies that are being tried. In-plan annuities is one potential approach to it. That's been maybe the more common one, stripping out elements of benefits or guarantees and incorporating those into plans. There's a variety of different ideas as to how to structure an income benefit into a plan like that.

And there are similar opportunities even in IRA platforms and other areas to unbundle the product in certain ways. And so we have a number of efforts going on where we're looking to test and learn about where the ultimate success is going to come from and the ultimate success will come. But I think we're in early stages, and the opportunity is very significant. You just look at the total of the defined contribution asset pool, it's absolutely enormous.

And when you add on top of that, the macro trends, the aging and that people are aware they have to look after themselves, even the younger generations below the Baby Boomers are already aware of the fact that they have to look after themselves for that long term. And so I think that's going to continue to drive the need for things like in-plan annuities or unbundled products as part of investment platforms.

In the Institutional Markets business, one of the product areas is pension risk transfer in the U.S. The market has been a little bit slower in the -- at least so far this year. What do you think is causing that? And then how does the pipeline look going forward?

Look, the pipeline for the U.S. pension risk transfer business continues to look very attractive. And I'll add that it does for the U.K. as well, and we participate in the U.K. as a reinsurer. And the reality is, is that the fundamentals are the reasons why pension risk transfer is attractive for plan sponsors to engage in are still intact, which is that plans are fully funded and their investors would like to see them out of the business of managing a large financial balance sheet exposure. And in our experience, once a company makes a decision to engage in a transaction, they very rarely reverse that decision. And there's lots of companies out there that have made that decision and are working their way through the process.

Because these can be sophisticated transactions, they're complex and they do take time to manifest and develop. And that's why you don't necessarily see one every quarter or every 2 quarters, whatever it may be. The pipeline in the U.S. is as strong as we've seen it. Now one thing that can defer action is extreme volatility. So a sponsor that may have made a decision may make a decision to execute later when there's underlying volatility. We saw a little bit of that in the first half. But we continue to see an attractive position in this business.

Now we focus on full plan terminations, which is a subset of that market. We made that decision over 10 years ago, and we invested in the administrative capabilities to support the optionality of full plan terminations. And our average transactions are, say, between $0.5 billion and $1.5 billion. We find the economics in the full plan terminations more attractive because there are fewer companies that have built that administrative capability to support those underlying options. So we feel great about our position in the U.S. and the U.K. I think that the reason why it was maybe a little slower in the first half is because of the external sort of volatility. And there is no structural change in the underlying opportunity for pension risk transfer.

Got it. You've also become a more -- a larger and more regular issuer of GICs. Is there any -- like, are there any practical limits to how big you could grow that business? And then are there any other similar spread lending type of products that you don't offer currently that you could offer?

Look, we're very pleased with our performance in the GIC business. Before the IPO, this is one of the things that we indicated that we could do more with than before the IPO, and we promised to become a more regular issuer, and we have. We relaunched our FABN program. And as of the second quarter, we've issued over $1 billion for 5 quarters in a row. So we've really reestablished ourselves there. But we see opportunities beyond FABNs in the U.S.

I'll quickly add that the GIC business is a very financially attractive business. It's a little bit opportunistic, but we definitely -- we transact GICs when we see margins in the mid-teens. And that's what we continue to look for as we incrementally grow that portfolio. We have more room in the balance sheet for GICs than what we've exercised on so far. But don't look to see us shoot to the top of the leaderboard. Like with everything, we will incrementally grow the GIC portfolio with discipline when we see the opportunities. Our liabilities are -- do not include a lot of optionality. So this is a low-risk business, the way that we've managed it. But we do see opportunities beyond the U.S. FABNs, including international issuance potentially and then areas such as private placements, et cetera. But there's a lot of different manifestations for spread businesses beyond GICs, FABNs, et cetera, and we're always open-minded to new opportunities.

In the Life Insurance business, I guess, can you talk about how it's performing? Also, what differentiates it from some of your peers that have generally been seeing more challenges in that business?

Look, I think our success in the Life business goes back over 10 years ago when we invested in our data infrastructure and started building our automated underwriting capabilities. And then a couple of years later, we made the decision to reposition our product suite to move away from interest-sensitive products to focus on more middle-market products and to build our digital end-to-end capability to simplify transactions in that part of the business, and we've really benefited from that. We've outgrown the market 8 of the last 9 quarters. Our mortality has continued to be better than our pricing expectation more often than not. And we're seeing tremendous growth in that middle market digital platform. So we believe we have built a sustainable competitive advantage there.

Our automated underwriting, 80% of our transactions go through without touching a human hand for those eligible transactions. So all of those things are contributing to the success in our Life Insurance business and the fact that we've been disciplined in risk management for many years in that underlying portfolio. So there's a huge opportunity in Life. There's a tremendous amount of underinsurance. There's an awareness of that underinsurance. And I think as technology makes it easier for people to say yes, we will continue to see incremental growth in the Life Insurance business.

And that's very valuable to us because aside from the actual earnings that it generates, it's a tremendous source of cash flow. And so the cash flows as well as the earnings and incrementally growing those are extremely attractive relative to our position in the Life Insurance business.

Great. Nippon Life became a 20% shareholder in December. Other than their ownership stake, do you see any business-related synergies with Nippon as you work together going forward?

Yes, absolutely. In the public domain that we've committed to each other to explore mutual commercial opportunities as part of their original investment in the company. And there's a number of areas we can do that. Nippon Life is a tremendous company. I actually was visiting them just a few weeks ago. And the amount of modernization they've engaged in since the pandemic is really quite something to see. And I think that there's a number of areas that we have opportunities to work with them.

One is potentially in the product area. The products in our market, the products in their market are quite different. And the environment is changing in those markets. So there are things that we can learn from each other there. There's opportunities relative to investments and asset management that we have opportunities to explore. And then there's actual digital technologies and operational strategies and things like that relative to their modernization that we're exploring. So we have a structured process in place to evaluate these opportunities, decide which ones to prioritize, and at an appropriate time, we'll be happy to be more public about what some of those might be.

Now that we're a couple of months into the quarter, I'll ask one on variable investment income. Do you have any, I guess, more insight at this point into what the third quarter may look like or the back half of the year?

Yes, absolutely. So look, alternatives are an important asset class to us, especially relative to some of our longer-dated liabilities, and they are illiquid periods. And we continue to believe that alternatives will deliver that 8% to 9% over time. We haven't necessarily seen that more recently. But if you look at over the last 5 years, we've regularly outperformed that benchmark.

And we did have a strong second quarter. We explained during the earnings call why that was. As we look at the back half of the year, we've already indicated that we don't expect it to be consistent with that 8% to 9%. Part of that is the real estate equity market, where there's lots of green shoots, but not so much activity right now. And so where we are in the third quarter right now, based on what we've seen, we would expect around $50 million in alternatives, which is below that 8% to 9% target. But I'll also quickly add, the quarter is not over yet. And so by the end of the quarter, it could be a different number. But that's based on everything we've seen so far, that's where we are.

Got it. And then my last one was just on capital deployment. You've talked a lot about the 60% to 65% capital return ratio. One thing I guess we haven't really talked about much is M&A, bolt-on M&A. Is that something that interests you at all? Or are you really focused mostly on just organic growth, dividends, buybacks?

Look, we're focused on creating shareholder value. And so we explore all options for the creation of shareholder value, and then we work things through our capital management tiering and priorities. We don't see any glaring holes in the portfolio at this point in time. We worked hard in the last 10 years well before the IPO and honing our business into the 4 U.S. market-leading businesses that we are. And so far, based on where our share price has been and where opportunities have been, it's been extremely accretive for us to engage in the capital management that we've been engaging in. And so we're not ruling out M&A. We don't see any necessary immediate opportunities, but we'll continue to be disciplined about our capital management.

Great. We're just about out of time, so I think we're going to wrap it up there. Thank you very much, Kevin, and to the Corebridge team.

Thank you.

Hello, everyone, and welcome to today's Corebridge Financial, Inc. Second Quarter 2025 Earnings Call. My name is Seth, and I'll be the operator for your call today. [Operator Instructions] I will now hand the floor to Isil Muderrisoglu to begin. Please go ahead.

Good morning, everyone, and welcome to Corebridge Financial's earnings update for the second quarter of 2025. Joining me on the call are 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.

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. Corebridge'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.

Except as 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 you are cautioned to not place undue reliance on any forward-looking statements.

Additionally, today's remarks may refer to non-GAAP financial measures. A reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on our website at investors.corebridgefinancial.com. With that, I would now like to turn the call over to Kevin and Elias for their prepared remarks. Kevin?

Good morning, everyone, and thank you for joining. I'm pleased to report that Corebridge delivered another quarter with very strong financial results and remains focused on driving shareholder value as demonstrated by our transformative reinsurance transaction that further positions our company for the future.

Starting on Slide 3. First, the variable annuity reinsurance transaction we announced is the most important value creation action we have taken since the IPO. As we announced yesterday, we have closed on the AGL portion of the transaction, which represents approximately 90% of the value. We expect the remaining portions of the transaction to close in the fourth quarter, subject to customary closing conditions and regulatory approvals.

Second, we are positioned to drive further organic growth from an even lower risk baseline. Across our businesses, we have a broad mix of attractive products and service offerings powered by an extensive distribution network. The second quarter provided a glimpse of this opportunity as individual retirement sales exceeded last year's record second quarter, and cumulative sales of our new RILA product passed $1 billion just 9 months after initial launch.

Third, we remain focused on executing on our 4 strategic pillars. We will deliver profitable growth, ample cash generation and a strong payout ratio to create ongoing additional long-term shareholder value.

Turning to Slide 4. Our transformative reinsurance transaction changes the value creation arc of the company. I want to spend a few minutes recapping the benefits. To start the transaction achieves a full exit from our individual retirement variable annuity financial risk. This is not a partial portfolio transfer. This transaction monetized an undervalued book of business with a decreasing financial contribution to Corebridge at an extremely attractive price.

The value upside of the transaction for shareholders is significant. The transaction valuation was materially above Corebridge's earnings multiple and generating $2.1 billion of net distributable proceeds, the substantial majority of which we will use for share repurchases with the balance available for investment and organic growth. This transaction also helps further improve the quality of our earnings and the risk profile of our balance sheet by reducing net income volatility while mitigating other risks intrinsic to the VA book.

Post transaction, approximately 99% of our net GAAP liabilities are from non-legacy products. That means no exposure to long-term care, no exposure to individual retirement variable annuities from before or after the financial crisis, and nominal but well-managed exposure to universal life with secondary guarantees. Maintaining our targets for profitability, financial strength and capital returns with lower risk and volatility positions the company very well for the future.

Finally, our ongoing business portfolio remains well diversified, offering a broad range of retirement and protection solutions that meet our customers' needs and attract a higher multiple than the reinsured VAs. And for our distribution partners and their customers who still value a Corebridge variable annuity, our flow reinsurance agreement means they will have continued access to our offering.

Turning to Slide 5. Our objective is to grow earnings per share at an average of 10% to 15% per year over time. To do so, we will continue to execute on all 4 of our strategic pillars. We will drive organic growth by capitalizing on the huge opportunity presented by an aging society in need of guaranteed income. Private sector pensions and public sector safety nets face an uncertain future. The only other source of income you can't outlive is an annuity. With more than 4 million Americans turning 65 every year, there's a massive need for both accumulation and decumulation annuity products to help people navigate retirement.

Corebridge's broad annuity product suite and extensive distribution network position us well to win in this space. For example, excluding the VA seeded to Venerable, Individual Retirement's net inflows in the second quarter were over $3 billion, a high watermark for the company. Each of our businesses is supported by these strong macro tailwinds.

Our balance sheet is not only similar post transaction, it is better optimized for growth. In addition to our strengthened product design, breadth of offering and distribution reach, our Bermuda strategy provides us financial flexibility to support future growth across our company and is an important part of our capital management strategy.

Our commitment to expense efficiency is unwavering. Corebridge Forward, which is now largely earned in, has helped reduced general operating expenses by 14% since the IPO. Through increased digitization and other modernization initiatives, we see additional opportunity to create a lean competitive cost base while improving our customer and distribution partner experience. And by executing consistently on our first 3 pillars, we are able to deliver on the fourth, active capital management that directly rewards our shareholders through dividends and share repurchases. We can achieve our target payout ratio without the $2.1 billion of proceeds from the reinsurance transaction.

With the transaction, we will exceed our payout ratio target for a period of time, and the additional share repurchases are expected to be EPS accretive on a pro forma basis when complete. We are confident our formula for success is proving out. As we grow profitably, use our balance sheet efficiently, manage expenses diligently and distribute cash consistently, we will continue to create long-term shareholder value all accelerated by a transformative transaction that reduces risk, improves the quality of earnings and drives higher distributions.

We think it adds up to one of the most compelling value propositions in the sector and believe investors should take a fresh look at Corebridge Financial. With that, I will turn the call over to Elias to cover our second quarter results in detail.

Thank you, Kevin. I'll begin my comments today on Slide 6. Corebridge reports its second quarter adjusted pretax operating income of $942 million or operating earnings per share of $1.36, a 20% increase year-over-year. There were no notable items in the quarter. Annualized alternative investment returns this quarter were $0.06 per share better than our long-term expectations, largely due to the impact of a weaker U.S. dollar on our foreign fund investments and normal timing adjustments as year-end fund audits were completed. Adjusting alternative investment returns to long-term expectations, we delivered run rate to operating earnings per share of $1.30, which represents an 8% year-over-year improvement and an adjusted run rate ROE of 13.7%, which is 90 basis points higher than the prior year.

Moving to Slide 7. Total sources of income increased 6% year-over-year, while core sources of income declined modestly by 2%, driven by improved underwriting margin in Life Insurance, offset by a decline in base spread income and fee income consistent with our prior guidance. Base spread income declined by 6% year-over-year, driven by the combination of Fed rate actions in 2024 and net outflows in Group Retirement as the business continues to transition from spread to fee income.

While reported fee income was down slightly year-over-year, excluding Individual Retirement's variable annuities, fee income was actually up 3% year-over-year. Underwriting margin excluding VII, continues to contribute strong results, growing 9% year-over-year, aided by favorable mortality experience and the continuing growth in our life business.

Next, I'll briefly review a few highlights from each of our businesses, the details of which can be found in the appendix of our earnings presentation. As a reminder, results exclude the impact of variable investment income and notable items where applicable. In Individual Retirement, core sources of income were down 3% year-over-year but were flat on a sequential basis. Year-over-year, base spread income was impacted by Fed rate actions and hedging activities to maintain alignment between our assets and liabilities, which we view as short term in nature.

Had it not been for these actions, base spread income would have been approximately $50 million higher. Even so, base spread income continued to grow on a sequential basis, reflecting the growth in the business. Individual Retirement had record sales this quarter with premiums and deposits at $6.8 billion, benefiting from our broad product portfolio and deep distribution network. Notably, our new RILA product achieved sales of $0.5 billion in Individual Retirement this quarter, less than a year after product launch.

Net inflows of $3.2 billion, excluding variable annuities, were up 4% year-over-year and more than doubled sequentially, resulting from robust organic growth. While adjusted pretax operating income, excluding VII, declined 8% year-over-year for the reasons just mentioned, the fundamentals in this business clearly remain strong and market conditions continue to be attractive.

Our Group Retirement business continues to transition from a spread-based to a capital-light fee-based revenue stream. While fee income was flat year-over-year, sequentially fee earning assets were up 7%, which should support fee income growth in the upcoming quarter. Base spread income decreased 18% year-over-year, given the ongoing demographic shift in our customer base and resulting net outflows. More broadly, from time to time, we do see some large plan exits, which you can see in our net flows. These flows tend to be concentrated in assets within separate accounts and mutual funds. As a result, these exits have a limited impact on our spread income.

Looking forward to the third quarter, we expect 2 additional planned exits, which we expect will have a modest impact on our spread earnings. Excluding net outflows from large planned exits, total flows have remained stable and in line with the levels we've seen in recent quarters. Furthermore, general account net outflows have slowed, improving over 25% year-over-year. Premiums and deposits are up 8% sequentially with out-of-plan deposits increasing 22%. Demand for our RILA product remains strong, and RILA sales in Group Retirement have totaled over $160 million since we launched the products in this business in late January.

In our advisory and brokerage business, the total assets under management and administration increased 10% year-over-year. We continue to be excited about the opportunities for Group Retirement and believe we have a unique value proposition. We differentiate ourselves with a field force of experienced financial professionals and proprietary tools that enhance financial planning capabilities, supporting growth in both our in-plan and our emerging Wealth Management business.

Our Life Insurance business continues to perform exceptionally well with a 12% increase year-over-year in underwriting margin and a 44% year-over-year increase in adjusted pretax operating income. The increase in underwriting margin primarily reflects ongoing pricing discipline, including the benefit of our automated underwriting platform and resulting favorable mortality experience as well as improved investment yields. New business sales were up slightly year-over-year, largely driven by growth in our traditional products, including both our guaranteed issue and simplified issue whole life products as we saw increased demand from our emerging distribution partnerships that favored our newer digital application platform.

In our Institutional Markets business, reserves increased 17% year-over-year, largely driven by strong GIC issuances and PRT transactions over the past year. This reserve growth has supported 64% year-over-year increase in our total sources of income. We are very disciplined in sourcing assets for our new business. In the case of GICs we issued in the first and second quarters, given market volatility, some asset origination funding was deferred but it has only a short-term effect and was factored into our pricing. As a result, we did see stronger reserve growth on a relative basis versus base spread income. Overall, we expect spread earnings to increase over time as reserves grow. But as we've referenced from time to time, there will be periods of inherent quarterly volatility.

Turning to new business. We continue to grow our GIC program. This was the fifth sequential quarter with issuances exceeding $1 billion. As a result, our GIC reserves have grown by $4.7 billion or 40% year-over-year. The PRT pipeline in both the U.S. and U.K. continues to remain strong as we see ongoing appetite for derisking solutions and high pension plan funded ratios.

Turning to Slide 8. Corebridge continues to drive shareholder value through consistent cash generation. The insurance company dividends to the holding company in the second quarter totaled $600 million. We returned $442 million to shareholders through dividends and share repurchases, contributing to a 64% year-to-date payout ratio. Holding company liquidity was $1.3 billion at June 30, an amount that exceeds our needs for the next 12 months.

As a reminder, first quarter holding company liquidity was elevated as we held additional funds to cover $1 billion worth of debt that matured in April. Looking forward, we have no material debt maturities until 2027. With our Life Fleet RBC ratio remaining above target and our recent VA transaction generating significant distributable proceeds, the Board of Directors authorized a $2 billion increase to our share repurchase authorization in June.

I would like to note that we plan to update our financial supplement to reflect the impact of the Individual Retirement VA transaction. This will involve recasting the historical results to be presented on a consistent basis, which we plan to release in advance of third quarter earnings.

So as we move to Q&A, a few closing comments. Corebridge continues to drive shareholder value by executing on our 4 strategic pillars: organic growth, balance sheet optimization, expense efficiency, and capital management. With the close in the third quarter of the vast majority of our variable annuity reinsurance transaction and the expected close of the remaining portion in the fourth quarter, we have strategically repositioned the company, fortifying an already diversified business mix and balance sheet, enhancing our financial flexibility, and putting the company firmly on the path to deliver continued growth, profitability and shareholder value.

We are immensely proud of the team and look forward to the balance of 2025 and beyond. With that, I will turn the call back to Isil.

Thank you, Elias. As a reminder, please limit yourself to 1 question and 1 follow-up. Operator, we are now ready to begin the Q&A portion of the call.

[Operator Instructions] Our first question is from Wes Carmichael at Autonomous.

Just my first one on capital and insurance company dividends. I think you took $600 million or so of dividends to the holding company in the quarter. Just with the VA transaction, maybe Elias, do you have any view on how that quarterly dividend amount may trend once it's fully closed, I guess, assuming a relatively consistent macro environment?

Wes, it's Elias. So yes, listen, from insurance company dividend, we've been growing that with the growth in earnings. And for 2025, our target is to grow it by 5% to 10%. There will be a minor impact with the VA transaction, given we would lose about $300 million of earnings. But we expect to continue to grow the dividend with the growth in the business, and we continue to expect to deliver 60% to 65% payout ratio.

And if I go back to one of the targets we shared earlier this year, that our goal is to grow EPS by 10% to 15% on average over time per year. There's no change to that target. We reaffirmed it and we expect to do that by growing both earnings as well as share repurchases.

Got it. Maybe a different topic, but it sounds like Wealth Management and Group Retirement is a business that you're looking to grow. Wondering if you could offer us a little more color on the size of that business today and your ambitions over the next few years. And maybe is that an area where you'd be open to inorganic growth, or multiples for asset's just too rich right now?

Yes. Thanks, Wes. Look, we see a very attractive opportunity in the Group Retirement business. It's much more than a spread business. As you pointed out, our fee income of $190 million in the quarter is always -- already larger than the spread income. But I think what's important is look at some of the sources of that future of Wealth Management opportunity. Our advisory and brokerage assets, we're already at $16.8 billion, which is up 10% year-over-year. And if you look at the fee income and the out-of-plan and the advisory and brokerage assets, that's already a big earnings base of $104 billion. It's up 3% year-over-year.

And the reality is, is that of the 1.9 million customers in this business, 1.6 million of them are still in-plan only. So we have a tremendous future opportunity for that Wealth Management piece as the in-plan customers continue to work and as they reach their age of retirement, as we engage in household asset consolidation and have a chance to continue to serve them through the rest of their lives.

We've started growing the adviser base again, supporting both the in-plan business as well as that Wealth Management business. And we anticipate continuing to grow the adviser force. In terms of whether inorganic makes sense to accelerate the growth in that business, that's something that we would consider at the time, consistent with the rest of our strategy. But we see significant opportunities in the business, which is strategically very well positioned irrespective.

And Wes, just want to add back to your question to me, I was answering you in the context kind of independent of the VA reinsurance transaction. I said before with respect to the VA reinsurance transaction, we'd expect the substantial majority of the proceeds will be used for capital management. And we'll go through our normal process for dividends with the regulators and the insurance companies. And we'd expect the earliest that this would start being deployed will be in the fourth quarter.

Our next question comes from Ryan Krueger at KBW.

First question was on Individual Retirement sales. Can you talk a little bit more about what drove the strength this quarter? Was there anything in particular about the environment that caused this? And I guess to what extent do you think this higher level of sales can be sustained going forward?

Yes. Thanks, Ryan. First of all, what I'd say is demand for the annuities remains robust across the board, and the conditions continue to be very attractive where the belly of the yield curve is, remains very supportive. And of course, the long-term macro drivers are very powerful, whether that's the aging of the population, the recognition that people have to look after themselves and a very supportive adviser community.

And we're very pleased with the conditions in the second quarter. We've determined the rationality of the competition based on our ability to achieve our margins on new business sales and the second quarter conditions were attractive. Let's take a step back and kind of unpack it a little. We were very pleased with our index suite as well as our new RILA product, which has performed very well. And we continue to be disciplined in fixed annuities, which is really the most immediately sensitive of the businesses.

And really, in the second quarter, we did almost $500 million worth of our RILA product. And then on top of that, we also had kind of a high watermark in index sales. So we haven't seen any signs of cannibalization and that's a very positive trend. We've seen incremental sales growth in both RILA and index pretty consistently to first and the second quarter. And we don't know if these favorable conditions of the second quarter will continue.

Historically, the tax planning season does prompt a little extra attention in second quarter, but the opportunities are there, the demand is there. And we have a broad capital management toolkit, including our new Bermuda strategy, and we continue to focus on allocating the capital where the risk-adjusted returns are the highest and the customer demands are the greatest. And in the second quarter, we saw those opportunities in Individual Retirement, and we continue to see a very robust position for that business.

We were able to grow the spread income sequentially for Individual Retirement and had very attractive net flows into the general account that will further contribute to the future earnings base of this business. So we feel very well positioned in Individual Retirement. The conditions continue to be attractive. We expect to continue to grow the spread income from that business over time.

And then I had a question on spread income. I think base spread income was up about $5 million to $10 million sequentially this quarter if we normalize for the onetime item in the first quarter. Do you think that's a reasonable expectation now going forward in terms of the progression and trajectory of base spread income in the Individual Retirement business, assuming no further rate cuts from the Fed?

As we pointed out, there's a bleed-in period of the resets when the Fed rate cuts occur over a couple of quarters. We're largely through that. But it did have some impact on the second quarter. Looking ahead, we continue to that the base spread income will continue to grow over time. As I pointed out, new business pricing is at our sort of medium-term return expectations. As you saw, where our coming in, it's 50 bps over the roll-off. And there might be some variability quarter-to-quarter, but the fundamental trend is that the general account reserves will continue to grow, and that will drive growth in the base spread income.

Our next question comes from John Barnidge at Piper Sandler.

With the Venerable transaction being the biggest corporate event since the IPO and stock price reaction, how does that make you think about additional liability optionality?

Well, look, we're always looking for the opportunity to create shareholder value, increase shareholder value and to optimize the portfolio. We focused on the variable annuity transaction significantly but continue to evaluate other potential transactions. Any transaction needs to be accretive on a risk-adjusted basis to make sense for us, which means from both the pricing and a structure perspective. And so we continue to evaluate -- and to the extent that there's anything to announce, we'll bring it forward.

My follow-up, can you maybe talk a little bit about the Institutional Markets volume? There's good earnings emergence, but I know it can be somewhat episodic and PRT volumes low. Some have cited litigation. Others have cited more competitive dynamics.

Yes. Thanks, John. First of all, what I'd say is we're pleased to emerge as a more regular GIC issuer. We've had 5 quarters in a row over $1 billion in issuance. And this is consistent with what we talked about, about the time of the IPO, becoming a more regular GIC issuer. We're doing it our way incrementally and with discipline.

And then in terms of pension risk transfer, look, the pipelines remain very strong in both the U.S. and the U.K. For years, we focused on full plan terminations. They're a little bit more complex. They take a little longer to develop, and so they are maybe a little bit more episodic. But the pipelines continue to be strong. As Elias' prepared remarks pointed out, plans are fully funded and companies are prepared to transact.

When there's external volatility, there is some impact on that, but we're confident in the position in the pipeline over time for both our U.S. and our U.K. income. And we do expect that the spread income will continue to grow relative to reserves over time. It isn't going to be linear quarter-to-quarter. And we feel very comfortable with both our position in the GIC business as well as what we're seeing in pension risk transfer. We haven't seen any significant impact of some of these external events.

Our next question is from Tom Gallagher of Evercore ISI.

On the Apollo call this morning, they mentioned that the headwind of the roll-off of low-cost liability should be behind them by the end of 2026, and then they're implying spreads would stabilize from that point going forward approximately. Is that directionally similar the way you think this is going to play out for Corebridge? Or do you have a different time line for how you see the spread compression playing out?

Tom, it's Elias. So listen, we're focused on growing earnings, and we expect to grow our spread income over time, given the current macro and demographic dynamics in the business. In terms of the base spread, in and of itself, like if you look at what we've been experiencing, it's been like marginal compression. If you look at second quarter versus first quarter, adjust for the notable item, it was almost flat. So there could be more marginal compression, given the dynamics of how much we've widened the spread on the in-force relative to our new businesses.

But our focus is on growing earnings. How long this marginal compression will last, there are different variables that will influence timing. But the key thing to us is where we're writing new business, it's meeting our pricing targets and we expect to continue to grow our spread income. And remember, spread income is just over 50% of our revenue sources. And when you think about the other ways we make money, we're kind of also optimistic about what the future holds for that.

For example, fee income, I called it out, we were up 3% if you exclude the variable annuity portfolio we see that the Venerable on a year-on-year basis.

That's helpful, Elias. And my follow-up, just on the VA deal, I think the majority of that is cash proceeds, not freed-up capital. Do you -- are you now sitting on most of the $2.1 billion at the holding company? Or is there -- is that cash consideration not at the holding company right now? And why would you have to wait until 4Q to begin to deploy that into larger buybacks?

So the distributable proceeds are at the insurance company, so it's the insurance companies that transacted directly with Venerable. And so now since we've increased the distributable proceeds from the insurance companies, we need to go through the normal process we do every quarter with our regulators to distribute it. And we'd expect to begin distributing it, the first batch, by the end of the quarter so it's available for the fourth quarter.

Our next question comes from Cave Montazeri of Deutsche Bank.

First question on AI. Is Life Insurance your segment that is most advanced in terms of implementing GenAI? And if so, what opportunities do you see in Individual and Group Retirements?

Well, look, I mean, we believe that artificial intelligence represents a significant opportunity for the industry. And we're fortunate that through separation, we've modernized our tools and our platforms and we have a strong foundation place to build off of. As you pointed out, we've actually been using advanced practices, in particular in the life business for a number of years now. And our automated underwriting capability in life is actually transacting around 80% of our new decisions and those are effectively instantaneous decisions. We feel very good about our capability there.

But we see ongoing opportunities with respect to tools such as artificial intelligence and other advanced practices, including continuing to improve our operating leverage and our efficiency, enhancing the customer and the distribution partner experience, accelerating our software development life cycle. And we've worked hard to ensure that we have a sound governance process in place to ensure that we're understanding and managing the risks of the investments that we're making there. But we see significant opportunities for the technology enhancements to benefit the business in various areas.

Now back to the Life Insurance portfolio, I think that our decision a number of years ago to narrow our product range and to move away from more of the interest-sensitive products has benefited us very well. And in addition to the automated underwriting, we've invested substantially in our digital platform for certain traditional products, which has served us very well. So we feel very well positioned, both in the business as well as in our use of technology, and we expect to continue to benefit from that for years to come.

My follow-up is going to be linked to this and similar next phase of modernization. How far along do you see you are right now with regards to your digitizing end-to-end processes in your insurance operations?

Well, as I pointed out, through the separation process, we've made significant progress. We've moved all of our administrative systems, our administrative platforms to 1 version of the cloud or another. And that gives us a great platform to build off of, and we're working with some very capable partners in the journey of digitizing our various workflows. It depends business by business. In Life Insurance, we have virtually a digital business now. Some of our other businesses are earlier in the journey, but we're confident in our ability to continue to improve our operating leverage over time.

Our next question is from Alex Scott of Barclays.

First one I have is on the rollout of the RILA product. Was interested if you could just give us an update on sort of where that stands. Obviously, there's been a lot of success in the sales. I was just more wondering where you're at in terms of getting the shelf space you want, roll out in the different states, et cetera.

Yes. Thanks, Alex. Appreciate it. Look, I really feel RILA is off to a great start. In Individual Retirement in the second quarter, we had just shy of $500 million in sales. And then if you add Group Retirement on top of that, we've got on top of $600 million. That brings us to over $1 billion since the launch of the product. And we're definitely seeing strong market dynamics and significant demand for RILA as well as all the Individual Retirement products.

We've launched with over 200 distribution partners so far, and we're in all but one of the states. And we're seeing 2 dynamics, right? A lot of the sales are coming from our existing distribution sources, distribution partners. One of the -- going back to one of the reasons we introduced RILA is most of our major distribution partners were asking for us to introduce our offering and to bring our historical creativity to it, and we worked closely with our partners in developing the product. And so far, it's resonated really well.

So we're expanding our share of wallet with existing distribution partners. But if you look at the second quarter sales, more than 25% of them are from advisers and distribution sources that are new to Corebridge. So not only is it enhancing our position with existing distribution but we're attracting new sources of distribution with it.

And then on top of the great success with RILA, as I think I mentioned a little while ago, we also had the strongest index annuity quarter that we've seen. So we're not seeing any kind of cannibalization effect. We're seeing a multiplier effect, and frankly, we expect that to continue.

That's helpful. Second question I had is maybe just a broad 1 on new money yields, how they compare to the roll-off yield or portfolio yield. And further, where are you finding good investment opportunities to fund the liabilities? Are there any shifts or allocations that you're leaning more into? Just trying to understand, on 1 hand, it's a high rate environment. On the other hand, spreads are quite tight. I just want to better understand the way that you guys are approaching the environment.

Alex, it's Elias. Right now, new money versus roll-off, it's a 50 basis point differential as what we saw in the second quarter. We have not changed our investment strategy or philosophy on that front. But we did, given supply in the market, we ended up with a higher allocation to public credit in the second quarter than like some of the structured credit or some of the other stuff. But we kind of view that as episodic and overall, no change in our investment strategy.

And remember, the other thing I would add is, listen, our investment strategy is liability-driven so it will evolve with what changes on the liability side of the house with where new business is coming from.

Our next question is from Suneet Kamath of Jefferies.

Just going back to the VA transaction, it sounds like maybe there was a bit of a change in terms of the accretion guidance. I believe on the VA call, you talked about accretion in the second half of next year and now sounds like it's when the buybacks are complete. So I just wanted to make sure that I got that right. And then relatedly, over what time period would you expect to complete the needed buybacks to get to accretion?

Suneet, it's Elias. There's been no change from our end. So we expect the transaction to be EPS accretive once we fully deploy the capital that we intend to, and we expect to get there by the second half of 2026. And that kind of factors in, we are thinking that deploying the proceeds that are going to go towards capital management over kind of a similar period. We're mindful of market conditions as well and kind of -- as well as by how much can we really deploy in a quarter, taking that into consideration.

Okay. And then I guess for Kevin on the annuity sales, obviously, we're seeing the industry at record levels. You guys are at record levels. But what is -- can you just talk to what is unique about your distribution? Because as I think about competitive advantages, products can be copied pretty easily but distribution tends to have some staying power. So can you just talk about where you're different versus the industry?

Well, we're very focused on having a broad product suite, on having both an income-oriented solution and accumulation-oriented solution with each of our products. And we work with our key distribution partners to truly understand their strategies, not just for the short term but for the longer term so that we can mobilize products or services to be able to support their strategies for their advisers as they evolve.

And as a result, depending upon what their strategies are, we can support them. So we're not married to any particular product at any particular time, and we maintain sort of optionality in terms of how to be able to serve their advisers. And the largest distribution partners, obviously, their strategies are evolving and we're able to evolve with them over time. And I think that, that ultimately is one of the things that gives us an advantage.

The other is, is that we work a lot to customize our products. And if you look at sort of the prior year's worth of sales, around 30% of our products have a proprietary feature that is unique to one of our major distribution partners. And so we have a broad product capability that we're able to support with respect to those various options. And then, of course, we spend a lot of time building the relationships at the wholesaler and adviser level. And ultimately, those relationships are what we continue to build on and expand.

So it's very strategic. It's very long term in orientation. It allows us to not necessarily have to position ourselves 1 way or another, but we can evolve with the market cycles and maintain a strong position with our partners. We've never focused on market share as a strategy. I think market share is a good way of determining how well we're serving our distribution partners and their customers, and we remain disciplined in pricing and they understand that part of our strategy as well.

Our next question is from Elyse Greenspan at Wells Fargo.

My first question is just on Life Insurance. I was hoping you could just provide a little bit more color on the favorable mortality that you guys saw in the quarter. And then is there any change in your go-forward quarterly guide for the business?

Elyse, it's Elias. In terms of mortality in the quarter, we found favorable severity -- sorry, favorable frequency across the portfolio and favorable severity on our traditional life block. And from a go forward, we continue to stick with our $110 million to $120 million per quarter as a run rate other than the first quarter where we expect higher mortality, given the winter season. But the mortality this quarter was really driven by favorable frequency and severity in the traditional book.

And then my second question was just if you could just talk to the surrender wall you guys had guided to previously and how you guys expect that to play out.

Yes. Thanks, Elyse. As we said last quarter, we do expect higher levels of fixed annuity and index annuity volumes to be exiting surrender charge periods in the second half of this year. It's just really kind of natural, given the historical growth in the whole portfolio. And it's not going to necessarily be consistent quarter-to-quarter because it does reflect when earlier large volumes of products were sold.

As we've discussed before, in terms of surrender rates, we believe that those will reflect where the external conditions are, where yields and credit spreads are at any given point in time. And the quotient of those 2 things, the rates and the volumes is going to determine the level of surrenders. We're prepared for surrenders as part of managing this business. And as we've seen historically, at times when the conditions suggest surrender rates are higher, new business is also higher.

And since we're focusing on long-term growth of the general account, ultimately, that's what we're focused on. So we expect that irrespective of the fact that we have higher volumes exiting the surrender charge periods, it's a natural dynamic of the business and we expect that the general account and spread income will continue to grow over time.

The next question is from Michael Ward at UBS.

I just had 1 on Individual Retirement. Appreciate the color on the yield side, but I was just curious about the crediting rate, the cost of funds component. Should we think about that pickup sort of persisting, and just in the context of sales opportunities and maybe even suggestive of you guys just being squarely focused on spread products now.

Well, first, I'll address the last comment. We're not squarely focused only on spread products. Spread products are an important part of the opportunity right now. And actually, I feel really good about our performance over the last couple of years when the interest rate cycle has been extremely supportive of the spread business. But if you go back a few years before that, we were successful with our spread businesses even in a lower rate environment, and that's really a reflection of pricing discipline and also the relationships in the distribution area that allow us to participate through various market cycles.

In terms of the dynamic you're talking about in portfolio, the creep and the cost of funds, that's more of a reflection of the fact that over the last couple of years, we've widened spreads on the in-force, and the in-force cost of funds are lower than current money cost of funds because of the years over which those were acquired. And so as the new business becomes a larger part of the overall in-force portfolio, and with some of the outflows coming in those lower cost of funds, that's where you see the marginal creep in the cost of funds. That's the difference there. The new business margins and the cost of funds on new business reflect where the current conditions are, and we continue to find spreads very attractive.

Okay. And then just post VA deal close and deployment of the proceeds, I was just wondering if you could help us think about the sources of your free cash flow in terms of which businesses you expect to drive the majority. If you could quantify it at all, it'd be helpful.

It's Elias on this one, Mike. But Mike, we've got 4 businesses and the 4 businesses kind of contribute to the cash generation from our insurance companies. They're all profitable in their own ways from that perspective. And so the VA business was 1 product of many that we offer. And kind of going forward, we continue to be comfortable with the cash generation in the insurance companies and our ability to increase that over time as we are confident in our ability to deliver on the 60% to 65% payout ratio and growing our EPS by 10% to 15% per year on average.

Yes, Mike, and I'd also just kind of remind you that the variable annuity business has been in net outflows for 8 years. And to the extent that it had a financial contribution, we would have expected that financial contribution to decline over time. So actually, after the transaction, we're positioned more attractively for long-term growth.

Our next question is from Joel Hurwitz at Dowling & Partners.

One on expenses. They looked very well managed in the quarter. Anything unusual or timing-related that you would call out? Or is that largely the Corebridge Forward benefits? And then, I guess, with that mostly earned through, can you elaborate on further opportunities to manage your expense base?

Joe, we're doing a good job on managing our expenses. I think that's what's playing through our numbers. But on a serious note, listen, we've been very focused on improving our operating leverage. Corebridge Forward was version 1.0. We've largely gotten that done and that's earned in. We are on version 2.0 right now. While we don't have a formal program like Corebridge Forward, we're pursuing a number of initiatives that will improve our operating leverage, and you're seeing some of the benefits of that come through.

We did have an early retirement program earlier in the year, where some of the savings we expect to drop to the bottom line and are dropping to the bottom line, and some we will use to invest in additional capabilities for the future. But we're pursuing digitization and modernization efforts in finance and actuarial, all of it which should contribute to improving our operating leverage as well as making our processes more efficient and improve customer service along the way.

Okay. Okay, helpful. And I didn't say you guys weren't doing a good job there. So just my follow-up on Group Retirement. Any way you could size the 2 large plan outflows that you had mentioned in your prepared remarks and any corresponding earnings impact from those outflows?

Yes. Joe, it's Elias again. Happy to. It's roughly about $1.5 billion in outflows from the plans and the impact to earnings on a run rate basis, less than $5 million a year.

Our next question is from Wilma Burdis at Raymond James.

How do you think about the economic trade-off or possibly expansion for fees for selling variable annuities versus bringing in spread-based earnings on RILAs?

Well, we're trying to grow all of our sources of income. And as I pointed out, our strategy is to deploy the capital where the risk-adjusted returns are the most attractive and the customer needs are the greatest at any given point in time. And with respect to the variable annuity product, that is a product that has not been among the more popular for a number of years. As I just reminded everyone, it's been in net outflows for 8 years. And so we consider each of our sources of income equally valuable, and we're looking for the opportunities to grow each of them according to where the opportunities are the greatest.

Yes. And Wilma, I'll add to that. The financial contribution from that VA product in Individual Retirement has been declining. So if you look at our reported fee income, it's down 1% year-over-year. But if you exclude the block that we ceded to Venerable, our fee income is actually growing. It's up 3%.

So when we look at this transaction, in addition to what Kevin said, we're monetizing a book of business that's undervalued and had decreasing financial contribution, and it will unlock significant value for shareholders and it allows us to focus on the books of business where we see the growth opportunity. So that's kind of the math we've done from our perspective internally. And we got to sell the stream of earnings at a very attractive level to Venerable.

Okay. And then could you give us a little bit more color on alts? The performance was good in 2Q. We think that, that was possibly driven by year-end valuations coming in favorably. So should this persist in the second half of the year? Maybe you can give us a little bit more color.

No, I'm happy. And listen, when we gave the guidance on the last earnings call, it was based on the information we knew at that time. And they did come in much better. Two drivers behind what drove the better performance. One is the funds get their financial statement audits done as -- on a calendar year basis, and we get them in the second quarter. So we had a more favorable true-up this year than prior years.

And separately, we do have investments in foreign funds. And so with weakening of the U.S. dollar, it contributed to a favorable result on a reported basis. Now that being said, when we look at the second half of the year, and we continue to believe these are great assets to invest in, and they should deliver about an 8% to 9% over the long term. We expect the second half of the year to be below the 8% to 9% for 2 reasons.

We expect continued weakness on valuations around real estate equity in the second half of the year. And then the uncertainty we saw in the second quarter and it somewhat continuing deal activity. So given the combination of those 2 drivers today, our outlook for the second half is, while it might be positive, it will be below the 8% to 9%.

Thank you. This concludes the Q&A session, and I will now turn the call back to Kevin for closing remarks.

Yes, thanks. Today, I am going to end with a few closing remarks. As a result of our transformative transaction, the second quarter of 2025 is the most impactful of the 12 we've had since our IPO. Going forward, Corebridge has a fundamentally different financial profile. We're a simpler company with an improved risk profile and more opportunity for organic growth and attractive businesses.

I want to thank the team that worked on the transaction, and I want to thank every Corebridge employee for executing with excellence on our strategic pillars. The value you are creating for our customers and shareholders is compelling. Thanks again to everyone who joined us for the call. Have a great day.

Thank you. This concludes today's conference call, and you may now disconnect.

Hello, everyone, and welcome to today's Corebridge Financial Individual Retirement Variable Annuity Transaction Call. My name is Seb, and I'll be the operator for your call today. [Operator Instructions]

I will now hand the floor to Isil Muderrisoglu to begin. So please go ahead.

Good morning, everyone, and welcome to Corebridge Financial's Individual Retirement Variable Annuity Transaction Conference Call. Joining me on the call are 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.

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. Corebridge'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. Except as 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 you are cautioned to not place undue 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 GAAP figures is included in our press release and presentation, both of which are available on our website at investors.corebridgefinancial.com.

With that, I would now like to turn the call over to Kevin and Elias for their prepared remarks. Kevin?

Good morning, and thanks for joining us on short notice. Corebridge is pleased to announce a transformative transaction that repositions the company for the future by exiting our Individual Retirement variable annuity financial risk through a reinsurance agreement. The rationale for this transaction is compelling across the board and fully consistent with our previous statements that any transaction needs to be in the best interest of the company, accretive economically and beneficial in terms of structure. I will cover the main levers of value and Elias will provide additional detail.

There are several characteristics that set this transaction apart. First, it achieves a full exit from our Individual Retirement variable annuities. This is not a partial portfolio transfer. Second, by any definition, this is a very large transaction. We will transfer $51 billion of in-force account value and under a flow reinsurance agreement, all future Individual Retirement variable annuity sales as well. This is well aligned with our strategic goal of optimizing our balance sheet.

Third, while variable annuities were historically a growth engine, for a number of years now, other products have proven far more popular with customers and advisers. As a result, the Individual Retirement variable annuity portfolio has had significant net outflows for 8 years with a generally declining earnings contribution. As we are always seeking to create shareholder value, we recognize the timely opportunity to monetize an underappreciated and undervalued book of business with a decreasing financial contribution to Corebridge at what we believe is an extremely attractive valuation.

Finally, there is immediate and ongoing significant value for our shareholders. The total transaction value is estimated at $2.8 billion, reflecting an earnings multiple of 9x to 10x, well above where Corebridge currently trades. The net distributable proceeds are estimated at $2.1 billion, which represents a significant share of our current market capitalization. We plan to use a substantial majority of the proceeds for capital management, including a significant amount for share repurchases with the balance available for investment in organic growth.

To that end, our Board of Directors has approved a $2 billion increase in our share repurchase authorization. This transaction is expected to be accretive to EPS on a pro forma basis once the expected share repurchases are complete and will improve the growth profile of the company by removing a headwind to earnings. We are also reaffirming all our key financial targets. 12% to 14% ROE, RBC above our 400% target, a 60% to 65% payout ratio and 10% to 15% annual growth in EPS over time, achieving all of this while reducing risk, especially tail risk and policyholder behavior risk.

This transformative transaction repositions the company for the future and further strengthens our already strong balance sheet and improves earnings quality. Going forward, our business portfolio remains well diversified, and our growth opportunities across our four main businesses remain compelling, allowing us to continue to drive organic growth from a lower risk baseline with a business mix that is simpler and easier for investors to understand and to value. Collectively, we believe this transaction warrants a fresh look at Corebridge, whether in terms of financial profile, risk profile or valuation.

I will now hand it over to Elias to cover some of the details of the transaction.

Thank you, Kevin. Starting on Slide 3. This transaction checks every box from a value creation perspective. We exit an undervalued business at an attractive multiple. We generate significant upside through an acceleration of our capital management objectives. We reaffirm our attractive financial targets while reducing risk, and we move forward with a diversified portfolio of higher multiple businesses. Simply put, it's a transformative transaction that delivers significant shareholder value and repositions Corebridge for the future.

Turning to Slide 4. You can see the components of the value this transaction creates. As Kevin noted, the total transaction value is estimated at $2.8 billion, with $2.2 billion in net ceding commission and $500 million in capital release. Net of taxes and other items, we will have an estimated $2.1 billion of net distributable proceeds representing about 12% of the market capitalization of the company.

Slide 5 highlights our commitment to continuing to meet our attractive financial targets, which are key drivers of long-term value creation. At the same time, we're improving quality of earnings by reducing what was historically or has been a source of net income volatility while also mitigating a range of other risks intrinsic to the VA book. We believe it's a compelling value proposition, the same strong commitments to profitability, balance sheet strength and capital return but with lower risk and lower volatility.

On Slide 6, you can see our go-forward business mix at a more granular level. Corebridge remains a well-diversified business, offering a broad range of higher multiple retirement and protection solutions to meet our customers needs. The profile of the company on the left side of the slide was good. The profile of the company on the right side is even better.

Turning to Slide 7. I will call your attention to a few points. First, Corebridge expects to maintain its broad product suite and top-tier distribution position, which will be further supported by the flow reinsurance agreement on new variable annuity sales. Second, the transaction structure provides a range of robust counterparty protections for Corebridge. These include comfort trusts with defined investment guidelines and over-collateralization requirements, a protective hedging arrangement and ongoing monitoring and reporting. We expect the AGL transaction to close in the third quarter of 2025 and the remaining transactions in the fourth quarter, subject to closing conditions and regulatory approval.

Moving to Slide 8, I will review the financial impacts on our earnings profile. First, it strengthens our go-forward earnings growth profile by removing a headwind from a declining VA earnings stream. While this book was expected to earn approximately $300 million in 2026, we expect this will materially decline in subsequent years given projected outflows in the VA book.

Second, the transaction is expected to be accretive to EPS following the completion of the associated share repurchases. On a run rate basis, the transaction should be accretive by the second half of 2026, and we will anticipate operating EPS growth in the 10% to 15% range beginning in 2026. Third, the transaction will significantly reduce our sensitivity of our fee income, net of advisory expense to variability in equity markets. On our first quarter earnings call, we provided the sensitivity of $85 million to a 10% change in the S&P 500 index over a 12-month period. With this transaction, that sensitivity will now be approximately $50 million.

Turning to the balance sheet impact. With this transaction, our clean balance sheet is further strengthened. Post reinsurance, 99% of our net GAAP liabilities are from non-legacy products. This means we have no exposure to LTC, no exposure to pre-crisis variable annuities and nominal exposure to ULSG. In addition, this transaction generates over a 50-point increase to the Life Fleet RBC ratio prior to the impact of any share repurchases.

Turning to Slide 9. Let me recap how we expect this transformative transaction to reposition the company to deliver substantial shareholder value. First, it achieves a full exit from Individual Retirement's variable annuity financial risk. Materially changing our business risk profile and earnings quality. Second, it creates value upside by monetizing a declining earnings stream at an extremely attractive multiple, and we expect to deploy a substantial majority of the proceeds to share repurchases. Third, it positions us for future organic growth opportunities with a portfolio of higher multiple businesses.

And finally, we can do all this while reaffirming our attractive financial targets, improving earnings quality and reducing risk. Fundamentally, we're offering a stronger risk-adjusted value proposition to our shareholders.

With that, we'll open the line to questions.

[Operator Instructions] The first question is from Suneet Kamath of Jefferies.

Just on the comment, Elias, about the accretion in the second half of '26. Does that presume or assume that you will have executed all of the buybacks associated with this transaction by then?

Yes. So the assumption is we're losing $300 million in earnings, and we'll offset that with the share repurchases. Given our historical track record and how we've deployed excess capital, we'd expect today based on what we know today to be done by the second half of 2026.

Okay. Got it. And then on the $300 million from VA, I mean, I guess if I think about that as a percentage of your earnings, it's been relatively stable. I guess how should we think about that glide path? Because you say it's going to come down materially, but just want to get a sense of order of magnitude and over what time frame?

Yes. Thanks. So look -- thanks, Suneet. VA historically has been a growth engine for us. Clearly, it's an undervalued, unappreciated portfolio. But it's been in net outflows now for 8 years. And in fact, its earnings have been declining as a percentage of the company earnings. I think it's now down to around 10%. And so that trajectory, we would expect to continue. Other products have proven far more popular than VA. So we, in fact, expect that the earnings to fee income, in particular, is on a declining path over the next couple of years.

Our next question is from Ryan Krueger at KBW.

Just quick one. Can you give us some rough sense of the magnitude of what closes in the third quarter compared to what closes in the fourth quarter and how to, I guess, think about that from a modeling standpoint and how much of the earnings will come out of the run rate in each of those quarters?

Ryan, it's Elias. So we expect the AGL transaction to close in the third quarter. We don't have any regulatory approval requirements in Texas on that portion of the transaction. And that should approximate approximately 90% of the net distributable proceeds. And then USL, which is our New York domiciled company and then with the sale of the investment adviser, we expect those to be in the fourth quarter as they both require regulatory approvals.

Congrats on the deal.

Our next question is from Alex Scott of Barclays.

The first one I have for you is just on capital generation and cash flow. I know you talked about the GAAP earnings associated with this block. I just wanted to understand how will that translate to the capital generation and is there any sort of influence on the cash conversion percentage? Or should we think about that being more stable?

Alex, it's Elias. So listen, if you look at our insurance companies, they've been distributing $2 billion plus, and we increased the dividends in '24 by 10%, and we guided that the dividends in 2025 will increase by another 5% to 10%. Obviously, this transaction kind of re-baselines the dividends. I think the loss of $300 million is a good proxy for that. But that doesn't change our trajectory given what we've said in the past that with the growth of profitability and growth in the business, we'd expect to continue to grow the dividends over time.

In terms of free cash flow conversion, we think this will have a modest impact in the short term around free cash flow conversion. But if you think about growing the RILA business, and we've talked about growing the fee-based wealth management business in our Group Retirement business. Over time, that should benefit the free cash flow conversion from there.

Got it That's helpful. The other one I have for you is just around timing potential here. I know you're talking the way it would affect the accretion dilution in back half of '26. So that's clear. But I guess you have obviously a big shareholder that's got a mandate to sell down. What is your willingness to participate in more size in that as it comes to market from AIG potentially?

Listen, we've got, as you see, the excess capital, we've been focused on open market purchases when the opportunity arose to do block trades with AIG, we've done them in the past. And if there's an opportunity to buy from AIG in the future, we're ready to participate.

Our next question is from Elyse Greenspan at Wells Fargo.

I guess my first question, I just want to flesh out some of the capital stuff. So it sounds like if the AGL transaction is 90% of the proceeds, based on the comments, should we just infer that as quick as you can, you'll try to repurchase the incremental $2 billion, I guess, starting in the Q3, kind of running through the first half of next year, would that be your expectations?

So Elyse, like if this closes in Q3, the proceeds would come inside the insurance companies. And then we would follow our normal process around dividends and regulatory approvals for dividends from the insurance companies. So there will be some time lag from between when they become available in the insurance companies versus when they become available for share repurchases.

The other thing I'd say, Elyse, if you look at what we did with the U.K. sales proceeds, we were very disciplined from a market perspective on how we deployed that capital. And so the timing, we will be disciplined over it. So I don't expect from an open market perspective, a big transaction, if that's where we're buying it. We will be disciplined, and we'll be deploying it over time.

And then my second question, I recognize in some instances, from a regulatory process, right, things can take a little bit more time when you're dealing with perhaps New York versus other regulators. Have you guys started the regulatory process there, expecting that part of the deal to close in the fourth quarter?

Look, Elyse, we have relationship with all our various regulators, we believe, in a very open and transparent relationship. And so we have been, as appropriate updating our regulators, and we'll follow through the disciplines and process. We have -- obviously, New York is one that you mentioned. And then with the investment adviser, we have their regulators involved, which are a different body. But we have a long track record of managing through these types of transactions and expect that the regulatory process will proceed and we're very focused on being transparent through that process.

Our next question is from Tom Gallagher at Evercore.

First, just a question on organic growth. If I look back, VA has been outflowing about $5 billion a year. I'm estimating that hit your overall organic growth by 2 to 3 points. I know you're just reaffirming 10% to 15% EPS growth guide, but shouldn't this help? And if so, how would that influence your view of the 10% to 15%?

We're reaffirming our financial targets across the board, Tom, including the 10% to 15% annual growth in EPS over time. But the reality is this transaction, the full exit from the VA, as you pointed out, it has been in outflows. And so this improves our risk profile, our quality of earnings, but also it does improve our growth profile going forward.

We continue to see a very robust environment for our index products. The fixed annuities also continue to be attractive, and we're very pleased with our start with RILA and we do have a flow agreement. So for those of our producers that variable annuity, the traditional VA is an important part of their portfolio, we can continue to support that portfolio need and that's just Individual Retirement.

The retirement services business where we've already begun the transition from a spread base to a fee-based business we expect that trend to continue. So from a kind of a lower fee-based profile, we expect to be able to highlight that growth more. So we do see opportunities for growth. We'll continue to focus on that, but we're reaffirming our targets for -- at this point in time.

And Tom, what I would add is the 10% to 15% is the average we expect per year in terms of EPS growth, and that will come from both earnings as well as capital management. Some years, we might be higher, some years, we might be lower. Like as we said, at the end of '24, we expected '25 to be below 10% for the reasons we talked about back then. But on average, as we look forward, we expect to deliver between 10% to 15% per year.

Got you. And then my follow-up is -- and should we assume from a broader repositioning standpoint, that you're pretty much done? Or could we still consider maybe a Life Insurance risk transfer deal, still something that you might be contemplating and any thoughts on the go forward? And do you feel like this kind of repositions you to where you need to be?

Thanks, Tom. Appreciate the question. Look, we're always looking for additional opportunities to create shareholder value. And this doesn't end that process. That's an important obligation and responsibility that we know that we have, and we'll continue to evaluate potential transactions. Hold them to the same standard as we did this one, which is that it needs to be accretive economically. It needs to be beneficial in terms of its structure, and it needs to be something that truly is in the best interest of the company.

I think we demonstrated that with this transaction, which has improved our risk profile, our quality of earnings. We attracted a high multiple for the deal. It's allowed for us to engage in incremental capital management, while we've reaffirmed our targets and further positioned ourselves for growth. So we'll continue to seek opportunities to create shareholder value.

Our next question is from Wes Carmichael of Autonomous Research.

On the hedging portion, Elias, I think you mentioned this in your prepared remarks and the materials note that the macroeconomic risk has been hedged, but I think there's also a purchase price adjustment. So I'm just wondering what is that purchase price adjustment tied to? And is there any macro sensitivity to that?

The purchase price -- Wes, it's Elias. The purchase price mechanism has different elements. And so one element is associated to market sensitivities, and we have begun hedging it since May from there. Separately, with the deal -- part of the structure to the deal is some of the hedges that will hedge the VA liability going forward, will remain on our balance sheet on behalf of Venerable, and we're effectively intermediating that for them.

Great. And on the flow portion, I think you're reinsuring all new VA sales. I guess do you expect to continue like a similar pace to what you generated historically? And is there a ceding commission associated with that? And I'm just curious if there's some residual income related to new business for Corebridge?

So we expect the profile of our new business to continue. Variable annuity is one of the many products we have available in Individual Retirement, and our strategy remains intact, which is to offer both an income-oriented and accumulation-oriented solution for all of our major products that allow the financial advisers employed by our distribution partners to respond to their strategies and their individual customer's needs and we fully expect that variable annuity is a relevant part for some advisers in their strategies, and we'll be able to continue to support that need. There is, of course, a ceding commission structure, et cetera, but we're not disclosing that at this time.

Our next question is from Jimmy Bhullar at JPMorgan.

Just first, to clarify some of the comments, Elias, you made on the call. On free cash flow, fair to assume that initially it's slightly negative, given that the block you're transacting is in runoff, and there are obviously -- the commissions are all expensed. So any comments on that?

Yes, Jimmy, it's Elias. It will be modestly negative in the short end. But we're still committed to delivering on the payout ratio of 60% to 65%, putting aside the proceeds from the transaction. So I think in the near term, once we start deploying the proceeds, you should expect this to be above the 60% to 65%. But once we're done, we're back to the 60% to 65%.

And then on -- is there anything related to this that affects results in other businesses like stranded overhead or any other types of impact that we should expect on businesses other than annuities or the corporate segment?

There is a modest amount of stranded costs. You would always have it with any transaction. That's factored into the $300 million guidance that we gave you. But given our focus on expense management and what we've demonstrated along the way, we would be looking to mitigate this over time.

Okay. And then just lastly on buybacks. You've got a fairly strong...

Jimmy, you're cheating the rules.

Everybody else is doing it. So I'm obligated to do it, I guess. But I'm asking you relatively short and easy questions at least. So -- but on the buybacks, are you -- should we assume that you could do some before the deal closes too? Because right, you've got the capital and if you want to be measured in your [ base, ] why or why not do some before the deal closes?

So Jimmy, we're here at the end of June, and we expect the deal to close in the third quarter. We are deploying our capital consistent with the prior guidance we gave you. And we will update you when the deal closes kind of on the latest outlook. But the one thing I can assure you, we would look to deploy it as soon as we can within the discipline we've demonstrated with what we've done in the past.

Thank you. This concludes today's Corebridge Financial conference call, and you may now disconnect your lines.