Corebridge Financial Stock

All right. We are going to get started with the next session. So it's great to have -- I think we're referring to it as the new Equitable for now. We have Marc Costantini, the CEO of Corebridge and soon to be the CEO of the new Equitable. And then we have Robin Raju, the current CFO of Equitable and will be the CFO of the combined company post-merger when it closes. So we'll get started.

Maybe just to start, just stepping back, why did Corebridge and Equitable ultimately decide to merge? And what's your new vision for the new company going forward and the financial benefits that you expect to emerge from this merger?

Yes. Ryan, thank you. It's great to see you, and thanks to everybody for attending. It's great for Robin and I to be with all of you. So I mean, taking a step back, there's a significant amount of tailwind in our business, right? It's very cache, but a number of people are retiring every year, reaching age 65. And I think the worries of people have gone from worrying from dying too soon to living too long. And then when you look at the businesses that both Corebridge and Equitable had, they're extremely complementary. And it's a bit obvious, but when you look at doing transactions such as this one and the size of this one, you really have to strive for 1 plus 1 equals 3.

And when you look at the complementary nature of the businesses from the asset management business, the advisory business and the former Equitable Advisors and the Corebridge Advisors, the Group Retirement business and the Institutional Markets business and what it could do for our balance sheet. And last but not least, the Individual Retirement business and the extremely complementary nature of, obviously, Equitable being the market leader in the RILA space and Corebridge obviously, having a top 5 position in the fixed annuity and fixed index annuity. And overarching all of that is world-class distribution, right? And it's vital in our business to have world-class distribution in the form of retail wholesaling in the form of direct to advisory and worksite.

So it's very complementary. And you bring these 2 platforms together and there's scale advantages, which I'm sure we'll talk about it, but the scale manifests itself in many different ways. But it's going to be a company that will have a market cap of north of $30 billion and over $25 billion of statutory capital tied to it. And so it's great financials, which I'm sure Robin will add some comments here, but that's what brought these 2 great companies together.

Yes. And before we get into the financials, one good thing when these companies come together, and Marc talks about it a lot is the impact we're going to have on clients and the reach we're going to have on clients. Together, we're going to serve over 10 million-plus clients, the combined company. So that's compelling because more customers mean more opportunities to grow. Purely from a financial side, though, I couldn't think of a more compelling transaction when it comes down to it. We're going to be the #1 U.S. insurer in terms of U.S.-based earnings and cash flow.

I wouldn't want exposure to any other retirement market. And if that's the source of our earnings and cash flows, that's a great position to be with the tailwinds in the market that Marc spoke about. We're going to have $5 billion of operating earnings, the combined business, $4 billion of cash flows, and we're going to deliver a 15% return on equity. So this is going to be a compelling transaction for shareholders, but we're really excited about what we're going to be doing for customers going forward.

I think it's been almost 6 months now since the merger was announced. Can you give a little color on what you've been able to accomplish so far as you prepare for the day 1 of the merger close? And also just what the reaction has been from employees and distributors and other business partners?

Yes. So I would say when we announced the transaction in late March, we were quite prescriptive, Mark Pearson, Robin and myself about what it would do to our balance sheets and all that. But first and foremost, we said as well, we have to get the organization going, right? So we're sitting here today in early September, and we've announced the 3 most senior layers of the organization. That's 500 executives that have been appointed to the firm. And those executives basically are running their day-to-day kind of responsibilities delivering on '26 until year-end when we are expecting to close, but as well planning for the future.

So in line with that, we've got this integration and transformation office we put in place. It's been staffed, and it's well on its way of orchestrating all of the integration activities that need to take place to hit the ground running on Jan 1 when we hope to close. What it's done as well is we've secured, obviously, a number of our approvals. So the FINRA has approved the transaction. Our shareholders have approved the transaction. The antitrust process has taken place. Obviously, our shareholders approved the transaction last month or in July. And so we're working through the regulatory process now.

And there's 4 or 5 key states that oversee and govern the activity of both Equitable and Corebridge that we're actively engaged in, and there's a couple of international regulatory bodies tied to AllianceBernstein that we're dealing with. But we are sitting here confident that we're marching towards the close at the end of the year, and then we'll hit the ground running very quickly in terms of bringing together a lot of the synergies that Robin speaks so well about, but as well the growth. This is a growth story, right?

In our comments, we just made the first question, this is all about growth. It's about serving more customers. It's about getting ahead of the retirement curve and really delivering solutions to the end consumer, as Robin said. And in terms of distributors, we have had a number of discussions across both firms with distributors. And we haven't heard of any revenue dis-synergies, I guess, as people refer to them to. I think the large distributors are embracing this. The largest distributors want to have long-standing, deep companies and manufacturers that know this business have been there through various cycles and deliver on their promises.

And obviously, you're staring at a company that does all of that when we come together and have done so historically in each of our cases. So the employees, I mean, it's a merger. So it creates 100% anxiety across both platforms, right? And our responsibility as management is to engage with the employees to be transparent, to be quick, as I mentioned, to make decisions and be -- and treat everybody the way you'd like to be treated, whether you've got a go-forward role or whether you've got a different role or whether you're leaving the organization, how the organization treats you says a lot more about who we are, and we're working very hard to make sure that's the case, and there's a lot of transparency as we're marching towards the merger. So...

Great. I want to dig into some of the targets. So one -- you guided to 10% plus accretion. A component of that -- the biggest component of that was $500 million of expense synergies. Can you talk more about the sequencing of -- and the key components to drive that? And then how -- I guess, how big of a technology upgrade does that expense save target contemplate as well?

Sure. So we announced of the 10% plus accretion, we said about 6% to 8% is going to come from the expense synergies that we have across both firms. I break it into 4 buckets. Headcount, obviously, you have duplication in roles, so there'll only be one person in one seat. That's probably going to be where you get the front-loaded savings in any merger that we have. And as Mark said, we've already announced the first 3 layers of the organization. So we already know that we're very highly confident in that number coming through based on where we are today, which is a great sign of our success and our confidence in achieving the overall $500 million.

The other areas are going to be vendor consolidation. If you think about where you get benefits from scale, you get really pricing power with your vendors. Now we can't do that yet. Some of that we have to wait, obviously, to January 1. But let's -- but we know, Marc and I know that together, both firms, and we know by the inbounds that we get from a lot of our vendors that we're going to have the ability to get at scale pricing, which is going to drive bottom line savings. The third category would be IT consolidation. That's going to be a big piece of work that we do from now to year-end on picking what platforms that we're going to integrate.

That's why it was so important that we get the leaders that are going to be accountable for that decisions upfront. So now the people that are accountable for the different businesses, for the different corporate functions, they will have to make the decisions on what are the best systems and IT integration that we'll do. And that will come through probably more so in 2028 than 2027 because that's going to take time in planning and process. But our Head of IT, he gives -- he has this phrase he wants to integrate, transform and innovate. You can't do all at once, but we have to sequence it properly to make sure that we can run faster going forward post this. And then obviously, with any merger, you're going to have some real estate consolidation as well.

So that will be something that we pick up naturally, whether it's in New York or other areas, but that's going to be another piece that will come through later in 2028. But where we sit here today, Marc and I and the board, we're highly confident in achieving that expense synergy number. And it's really down to the actions that we have already in place and putting us in a position where we can make decisions come 2027 and start running right away.

Great. So the other component of the EPS accretion was a 2% to 4% contribution from capital and tax synergies. What are those synergies more specifically resulting from? And then how quickly will they emerge? Is that going to be pretty quickly and free up capital that can be redeployed? Or does it occur over time?

Sure. Well, both occur -- will occur over the 2 years. So within the 2% to 4% accretion that's part of the 10% plus accretion from the merger, there'll be a portion related to cash tax savings, and that's us leveraging the non-life DTAs on Corebridge's balance sheet to offset some of the non-life earnings that we have from AllianceBernstein and the Wealth Management business. So that's going to be real cash savings that we achieve post close. Then we will have capital synergies, and we'll have some between the first 2 years, and I anticipate we'll have more later. Some capital synergies come from -- if we decide to consolidate legal entities, but we can get it even without consolidation through internal reinsurance in some areas.

So that, again, will probably happen in 2028, where you get the cash tax savings immediately. And then post 2028, I mean, you've seen both companies, Corebridge and Equitable, we've had a good track record of capital optimization and making sure we can deliver value to shareholders and invest in growth. And so anticipate that's just going to be part of our DNA as a management team to unlock capital value and allocate it to the best sources.

Then on revenue synergies, you haven't officially given us a quantification of the revenue synergies, and they weren't part of the accretion guidance, but you have talked about some of the areas that you think will provide synergies. I guess, can you review what those are and how meaningful you think they can be?

Yes. And it's interesting because we had a lot of discussions leading up to the announcement in March as to where we would focus kind of our guidance. And we agreed on expense synergies and some of these capital and tax that Robin just walked through because they're tangible and a lot of people in this room and others could put tangible value on it. And very quickly, when people grasp what Robin just said, we started getting peppered, Robin and I with a lot of questions about growth. And we did guide when we said we announced the merger that we were going to direct like $90 billion to $100 billion of assets that are on Corebridge's balance sheet, both the general account and separate accounts to AllianceBernstein along the same time lines that Robin just mentioned.

And that's net flows of $90 billion to $100 billion that AllianceBernstein would otherwise have received, right? So that -- right there, that's a 10% to 12% increase into their asset base and their margins and revenue. That does not include as well bringing all these great origination teams together, the ones at Corebridge, at Equitable and AllianceBernstein under one plateau. And what I -- one of the things I think we need to step back and reflect on is that when you look at the production that Equitable has and you add it to the production that Corebridge has across our retail market and our institutional market, you're looking at an engine here that's going to generate over $60 billion a year of institutional and retail spread business.

And that creates a lot of origination capability, that creates a lot of access to investment that otherwise would not be available to each firm, right? So that's smattering numbers. And then you look at what we're going to do on the Group Retirement side, plus the Advisory business plus just AB itself, you see a lot of revenue flow that way. And the synergies as well is through the distribution. Equitable Advisors, I think Robin has said many times, does like $2-ish billion or so of fixed annuities and fixed index annuities that now will have, let's say, a proprietary offering to do so. Equitable has a VUL product that was on our design table.

So we could quickly introduce that product into our distribution at Corebridge. And then you have the advisers and the penetration of the plans. If you listen to a lot of what we say, we need to cross-sell, upsell those plans. And with the number of advisers a collective firm will have, we'll be able to accelerate the growth of the penetration and service that these clients deserve. And on the institutional market side, the sheer size of the balance sheet that will be in the circa $500 billion of on-balance sheet assets will give an appetite for a lot bigger, I would say, PRT business and a lot bigger appetite for the GIC FABN products.

So we see a lot of growth opportunities on the revenue side. And I would say the story that's not said enough, and you'll hear Robin and I say a lot more next year when we march towards Investor Day is that this is all about growth. It's all about serving more customers. It's all about growth and the expense synergies obviously fall into place for all the reasons that Robin said.

Great. So Equitable recently announced the sale of its employee benefits business. Are there other divestitures that you would consider from here of the combined companies? I guess the one thing that comes to mind is kind of the remaining life exposure that the legacy Equitable had? Or do you feel pretty set on the business mix at this point going forward?

Yes. So look, this merger, it all comes back to scale. And scale matters in the businesses that we were in. Let me touch first the Equitable Employee Benefits transaction. We actually like the employee benefits market. We think it's a good market. We just weren't at scale and we weren't profitable. So it's tough to compete. When you have to allocate capital to these other businesses, trying to grow a business as a greenfield at scale, it was going to take too much time. And so -- The Hartford, when they approached us, it was clear that they're a better owner of the business. They're in the small business market. They can leverage our platform to go in. So I think it was a win-win, which is what you want in a transaction for both.

But it doesn't mean that we didn't like the employee benefits market. It's just an at-scale point. If you look broader post-merger, like as Marc just mentioned, this is a growth story. We really want to allocate capital to fund growth to support Americans retire going forward. Sure, you may see some more cleanup reinsurance transactions. That's what I spoke about earlier. That's like capital optimization. But when Marc and I get together, believe me, we don't talk about, oh, should we do reinsurance here, should we do reinsurance there? That's -- I think both companies successfully use reinsurance to shift the balance sheet. And we're at a place where it's not needed at this time, and it's really how do we fund the growth ambitions that we have for both companies by allocating capital appropriately.

Right. So we're shifting more to growth then. In the annuity business, so volumes have doubled basically in the retail annuity market, but it has also attracted a lot more competition at the same time. I guess, can you talk about how you're viewing competitive conditions today in the retail annuity market and how the new combined company is positioned within that?

Yes. We like our chances. I say that because we will have the broadest product portfolio. I would say, look at the manufacturing capabilities of the new Equitable and compare it to any other player in the industry and look at the history of proven success in manufacturing those products profitably while serving customers better and delivering value to shareholders. I don't think anybody compares to this NewCo. Look at the distribution depth and breadth of the new firm. Pretty much every retail outlet that serves a retirement need and a retirement end consumer will be touched by our distribution.

People talk about scale. And to me, scale is an ability to touch every customer you can manufacture a solution for profitably while delivering extreme value to that customer and serving the shareholder well. I don't think other companies compare to that. So is there increased competition in some of the space? Yes, there is. But I mean I've been tied to this business for the better part of 36 years. There's always been robust competition, right? And it's a matter of what's the, I would say, capital and thoughtful capital that's coming to the market for serving clients' needs. And that capital needs to have an ability to originate assets to back those liabilities, but needs to understand the liabilities they're writing as well. And this firm has deep experience on both sides of that balance sheet.

So we feel we're in it for the long run. And from the discussions we've had with distributors, I would say, for many distributors, we're as important to them as they are important to us, which puts the relationship in a very good stead, right? And that scale that we talk about, that matters, right, because not having the new Equitable on your shelf is not something that many distributors would find appealing, right? And that puts us in a very good spot. Now I think you're implicitly referring to some of the newer entrants that are asset-intensive or funded by alts and all that. And I think they pick their spots. They operate in distributions that maybe we have access to and they have access to, but they don't have the presence and the depth and the history behind their promises that we have. So we welcome rational competition. We welcome rational competition, yes.

It's going to be difficult to compete with us though. if you think we're going to have one of the lowest unit cost in the industry, we're going to have great asset capabilities from AllianceBernstein, Blackstone, BlackRock to get a good risk-adjusted yield, and we have world-class distribution. So it's going to be really hard to be competitive on a disciplined way versus us. So we expect we're going to grow, but also deliver great returns given those attributes.

I guess somewhat related, but -- and maybe I don't know if this is a combined question or one for each of you at this point since the merger hasn't closed. But can you talk about the spread dynamics in, I guess, each company's retirement business at this point in time and how to think about the near-term trajectory there?

Yes, I can give you maybe the Corebridge's perspective and to your point about we're operating independently. So I think if you have been listening and following Corebridge, it's been a story of a transition and a pivot in our Group Retirement business, right? The Group Retirement business has a circa $130 billion of assets tied to it, $80 billion is in the retirement space and $50 billion is in the out-of-plan business. We've been obviously cross-servicing and cross-penetrating our plans basically and growing our advisory business that is in excess of $20 billion now of that $50 billion. And we have 1.5 million participants in plan that we're trying to penetrate and serve and cross serve, and that's created like 300,000 of these out-of-plan members that have the $50 billion of asset.

And we are approaching it in terms of taking our business from a largely spread-based business to a fee-based business. And as you have seen in Q2, we basically clipped the 50-50 kind of approach there. So we are in a good position, and we're growing and cross-pollinating. I think the merger will even bring more attention and ability to penetrate those plans. As a stand-alone company, we felt there was a $30 billion opportunity there in terms of upside of cross-selling and upselling in our plans. With the merger, I think that accelerates.

So to the spread comment, we -- leading up to year-end and into Q1, we were defending that we had floating rate assets. And we were saying, hey, if there's contraction, if rates are going down, it's about $20 million, $25 million for every 25 basis points. Well, the same thing happens when rates go up. So that's a tailwind to our spreads. I think we guided when we started the year to $2.55 billion of absolute spread income. We are sitting here confident that we will achieve that. So I think our spread business is doing well. I think the block of business is behaving overall as we intended, including our individual retirement business here as I talk about the spread business. So I think we're sitting here in a good position, and we feel confident, obviously, bringing Equitable with Corebridge that will only accelerate some of the dynamics I just mentioned for our block.

One of the areas I'm excited about the merger, too, is innovation that's going to come out of both businesses. And when you innovate, you can get outsized margins early. And that's a little bit what happened with Equitable with our RILA product. We were first to the market. We were educating advisers on the needs to have equity exposure as you're nearing retirement. But we were the only ones there. And so we had outsized margins. We're writing new business at 20% plus IRRs for many years. And then everybody came to the market. Now the pie has gotten bigger, and we've continued to grow and maintained our market share, but margins have normalized. And so now we're writing what I would call at scale margins, 15% IRRs on that RILA product.

But from the pre-2020 business that had big margins on it, that business rolls off and now margins have stabilized. And so that's the spread compression that you saw. And you also saw in the first 2 quarters now, as we guided, margins have stabilized. Spreads have stabilized in that business overall. So going forward, we expect spreads to continue to be stable and NIM net interest margin to grow as book value grows ex embedded derivatives. And that's how we are confident with that as we've seen in the last few quarters. And the RILA block, the pre-2020 is now less than 10% of the total block. So it's not really significant at this point.

Got it. And then the variable component of spread. Any updated comments from either company on third quarter expectations for variable investment income at this point?

Sure. I could start. Alts continues to be a volatile category for sure, as you've seen over the last few years with interest rates and change in dynamics where public equity markets are, we underperformed our long-term target the last few years. In the third quarter, we're expecting 4% to 5% growth, so a rebound from the lower second quarter that we have. So we should be at a 4% to 5% annualized growth rate for the third quarter. The drag in the portfolio is really coming from real estate equity at this time and some of the venture investments where you're seeing some of the growth equity funds have more recovery with the delay in equity markets. And then we'd expect if markets are normalized, that return should come back to longer-term targets over time.

You mean a 4% to 5% return. Is that correct?

Correct. Yes.

So for Corebridge, I think coming in and out of Q2, we guided to very soft, I would say, VII results for the balance of the year. I would say that for Q3, we will exceed the guidance we mentioned and we'll be more in the ZIP code that Robin just mentioned, north of 5% for the quarter for VII. So I think that's a positive versus what we had guided. Now what I would say as well, and I want to give perspective to the audience here, both companies' alts exposure is way less than the industry average. And our view, and it's very much aligned with Equitable is that the alts play a role in people's portfolio. And when I say people, I mean companies' portfolio because if you're issuing, let's say, a liability, a life liability or a pension risk transfer that has liabilities that exceed 25, 30 years, there's no good spread assets available, right?

And economically, alts are the right asset to defease that liability until you can move those assets to some good spread assets, right? So -- and it's -- each of us personally, if you have a 30-year outlook, do you invest in fixed income or do you invest in equities, right? So it's the same economic equation. It's just that the accounting makes it flow through operating income, which creates that volatility. But if you're buy and hold and you get the capital appreciation and the actual return and investment income over the course of time, which is what we're both saying here, it's a great asset to defease that long-tail liability, which is why we buy it to start.

Shifting to the Wealth business. So Equitable's Wealth Management business has had very good momentum across financial metrics. Can you speak a bit about what's been driving that and the continued runway for revenue growth and margin expansion? And then, I guess, as a related follow-up, Marc touched on this a little bit, but just how can that all be accelerated with the wealth platform that will be then kind of connected with Corebridge?

We're really excited about the Wealth business at Equitable. It's doubled in earnings since our Investor Day, and it hit our target 2 years below plan. Why is that? I think it comes down to the people and the advice that we provide. So one thing that's unique to Equitable, I think, than many other wealth managers there is we recruit new people to the business, and we hire experienced hires. That's important because it ensures that we maintain discipline. And what really separates us is the training. So we have holistic life planning training programs, and we help our advisers transition from they start in the schools and they become wealth planners over time. And that's the best way we've seen to increase productivity.

The proof is you've seen the double-digit productivity that we've had every year since we broke that business out as a segment. And the way we've done it is really unique because we do have these 2 levels of recruiting and the training that we provide overall. And I think that is really the secret sauce of Equitable. It's that strong performance culture and people helping each other out and trying to touch more customers overall. If you look from a net flow perspective, we've had double-digit organic growth in that business. I would say it's like top quartile. I can't find anyone that has better organic growth in their wealth business than we do in Equitable Advisors.

And that's a proof point of more customers touching us and the productivity that we have in that business overall. We also have another Wealth Management business, too, that we are excited about is the private wealth business at AllianceBernstein. That's a real gem inside AllianceBernstein that not a lot of people speak about that really provides a unique solution orientation towards ultra-high net worth as well. So both businesses together, we touch clients in the mass affluent and we touch clients in the high net worth area, and that excites us going forward. And Marc, you should touch upon it. You've met now, I think, some of the Equitable Advisors and some of the people what your thoughts around that.

Yes. No, I would say that as a somewhat objective assessment, when we started having a dialogue with Equitable, I would say my view and my strong view was that Equitable Advisors was a gem and the private wealth business at AllianceBernstein was a gem. And I would say the last 6 months have only proven to make it, my belief they're even stronger based on all the dynamics that Robin has said. And I have met 30-odd-plus people of the leadership there and some of the people on the ground in the branches. And it's amazing how they go after doing what's right for their customers first and packaging the right solutions for their financial needs and how the culture there is incredible.

Now I would say we have 1,000 or so advisers at Corebridge. And we invited some of the leadership of Equitable advisers to one of our main national meetings a few months ago. And the similar culture kind of runs through the Corebridge advisers to the point where a very senior leader at Equitable Advisors that was there said, if I close my eyes, I think I was at an Equitable Advisors meeting given the cultural assessment and as well. So the challenge for both organizations is you got to bring those 2 together and you're dealing with personalities that don't like to disrupt their book, right? So we got to be thoughtful how we bring it together and make sure that 1 plus 1 equals 3. But obviously, the platform and the success that Equitable Advisors has had is incredibly attractive for our future and speaks volume about why we're bullish on the value proposition we'll have going forward.

Then on the Institutional Markets business, so both companies have been generating double-digit growth in balances, Equitable is more focused on spread lending. I think there's more PRT as part of the Corebridge portfolio along with other liabilities. Do you see the merger changing much on the growth rates of those businesses? Can you do more as a combined company? Or should we just think about it as you can continue to grow in that double-digit type range?

I think we're going to increase the growth rate across all of our businesses with the revenue synergies that we have. If you think -- Marc mentioned it on the spread lending business, now you have a bigger balance sheet, you can do more and you could be disciplined. From an Equitable perspective, one thing that was interesting is we did want to broaden out our liabilities. And an institutional business is a great way to allocate capital in a disciplined manner. And you saw me outside in looking at Corebridge in the second quarter, how they were disciplined in allocating capital between institutional and retail depending on where cost of funds is. Now we can do it at a much bigger and broader scale.

So having an institutional business that's at scale outside in looking at Corebridge's PRT business, that's a good business that we would have loved to get into. But again, we can't do it at scale. And now we're at the merger, we can do it at scale. So having these different businesses plays an important part in terms of capital allocation. And it really drives discipline that Equitable couldn't do by itself today or would have taken years, 10 years to develop our institutional business where Corebridge is at today. So from my perspective, like it really helps increase the growth rate, but also allows us to be very disciplined capital allocators as well.

I guess, Marc, on the Individual Life business, you've been pretty positive on that business and its potential since from the get-go since you came into Corebridge. I guess what's driving the optimism there? And then what have you been doing to position that business to have better growth?

Yes. So I am bullish on the Life business. And I'm bullish on the Life business at Corebridge and the new Equitable based on a couple of facts that I'm going to mention here. First of all, if you look at -- and I looked at it objectively when I joined the firm last December, if you look at the last 12, 16 quarters, the Corebridge's Life business has printed mortality gains, okay? So what does that mean? Okay? That means a few things. That means the business has been well underwritten and the business is performing and mortality is improving, right? Because that's versus expected, right? And then you look at what's the market segment we're serving versus other market segments. And it's serving, I would say, the mid-market and the emerging affluent market, right?

So -- and that slice, and you can -- we can talk about it, I mean actually about what's driving that mortality, and I'm happy to do so if we had more time. But that bodes well for the life business. Then I look at -- I went to the new business area, and I said, hey, how are we processing business? How is our STP, show me how the firms think of our operations? And we had very low grades. I'm going, okay, we're writing a decent amount of business. We're printing mortality margins, and we are less than appealing operationally. If we make ourselves appealing operationally and we make ourselves the easiest to do business and we create connectivity with the distribution and the end adviser, then we can easily accelerate the growth without putting any margin at risk. And the margin of the business are attractive and they naturally diversify your balance sheet because we're obviously writing a lot of longevity business on the annuity side.

Now the balance sheet of Corebridge is still net long mortality, meaning we've got more mortality risk than longevity risk. I like that. I like that a lot because if I went to the casino and red was living longer and black was dying sooner, I put my money on red based on all the money that's going into biotech and developments. I think there will be a nonlinear shift in the mortality curve, and I'm happy to talk about that in detail as well. So that's why I'm bullish on mortality. I'm bullish on mortality written thoughtfully and at good margins. And I think that's what we have at Corebridge.

So is the main driver of better growth potential there, the operational...

Yes, it is the operational -- without changing the product margins without necessarily doing -- putting yourself in a position where you're writing a business that you'll find unappealing down the road. So that doesn't mean we won't have assumption updates based on policy on older blocks or other blocks. I'm just telling you that the business we're writing in the business that's printing mortality margins is an attractive one.

At AllianceBernstein, you've -- it's already achieved the private markets AUM target ahead of schedule. The margins are within the target range. Like what are the key milestones maybe from here now that you've achieved those 2 things?

Yes. So at Investor Day, we announced that we want to grow AB's private credit business to $90 billion to $100 billion. Ryan, as you mentioned, we achieved that well in advance of our target. AB has done a good job of building new capabilities and leveraging the Equitable insurance capabilities to accelerate growth. So we hired a private ABS team that came over that was able to produce good risk-adjusted returns to us. They've now also built out their CML platform. That allowed us to move $12 billion in CML assets to them in July. That's a huge differentiator for AB that other traditional asset managers don't have.

They have an insurer to help build new capabilities. And then AB has unique distribution. Private wealth, we talked about, but also in Asia, where they're local in the markets and they have 25-plus years of history, a strong brand, where they can now distribute these products to third parties. That's going to be accretive to margins over time. Right now, new business at AB generates about 45% to 50% incremental margin that we put on. So that's a good tailwind for us as we want margins to grow over time as well. But AB, as we mentioned, has been a differentiator for Equitable with this flywheel effect. It's just going to now run faster with the Corebridge merger now $90 billion to $100 billion of assets, general account and separate account moving over. As Marc mentioned earlier, that would take 10 years to do. So now we can make AllianceBernstein a $1 trillion asset manager after this merger. That's going to be -- put them and separate them in terms of their growth profile and where they want to invest going forward as well.

I mean the only thing I would add to that great story is to make it even better is that when you look at the combined firm, there'll be like $80 billion to $90 billion of origination a year demand, right? There's the new business flow, plus there's a $500 billion asset that rolls over, right? And some of that will need to be redeployed. So you're looking at in addition to all of what we're doing off balance sheet, just the on-balance sheet origination need will be north of $80 billion. So that arms AB and everything Robin said with a lot of opportunity.

And just one on the regulatory front, like any particular key issues or debates you're focused on that could either impact the industry or Equitable Corebridge?

Well, may I start a hot topic right now, I guess, always on the regulatory side of it. And one thing I know Marc agrees with me, like the one thing the combined companies want to do is advocate for a healthier industry. Like we need to do our part, write good business, print good margins, be disciplined allocators of capital. But we want to advocate for a good, healthy industry overall. And you've seen Equitable do that. We started with VM-21 under reversion to mean. That took a long time as, Ryan, to become effective, but that's -- that's now in place. We did structured capital charges. So you see that impacting below BBB and below CLO businesses, and that has changed. You've seen some companies indicate that's going to change their risk profile for those securities overall. And then also reinsurance.

We're advocates of reinsurance. Both companies leverage Bermuda because we believe it's an economic regime and a disciplined regime. But our local regulators should have disclosures and understand what assets are moving offshore and why they're moving offshore and have good visibility with that as well. And I think where the NAIC and where the industry is moving to is transparency. And I think transparency is important to build trust. And ultimately, if the whole industry wants to re-rate and have a higher rating going forward as a PE multiple, we need to have more trust, more trust from clients and more trust from shareholders. And I think a healthier industry and continuing to advocate for a healthy industry is important for all of us.

All right. Excellent. We're going to wrap it up there. Thank you to the new Equitable team.

Thank you, Ryan.

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

I would now like to 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 second quarter of 2026. Joining me on the call are Marc Costantini, President and Chief Executive Officer; Chris Filiaggi, our Interim Chief Financial Officer; and Lisa Longino, our Chief Investment Officer. We will begin with prepared remarks by Marc 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's 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.corebridgefinancial.com.

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

Good morning, and thanks for joining us. I'm delighted to be with you today following the successful shareholder vote approving the merger with Equitable. The shareholder support of this transaction is a powerful validation of the attractiveness of the combined company. We're more confident than ever about the future we're building together.

Turning to the second quarter highlights. We delivered strong results consistent with our full year guidance. Core sources of income were up 5% year-over-year, while variable investment income came in below our long-term expectations, our underlying fundamentals remain strong. Our run rate earnings per share were up 16% year-over-year. Consistent with guidance, our adjusted return on equity, excluding VII, was up 90 basis points year-over-year to 10.9%. And our cash generation remains strong. We've now generated cash in excess of $400 million for 14 consecutive quarters, showcasing the strength of our balance sheet and underlying businesses. In the second quarter, we returned $412 million of capital to shareholders, including $300 million of share repurchases for a year-to-date normalized payout ratio of 84%.

Turning to Slide 4. Our top line performance was resilient. While total company sales were down year-over-year, sales increased sequentially by 13%. Furthermore, on a rolling 12-month basis, which adjusts for seasonal fluctuations and the lumpy nature of the pension risk transfer business, we saw total company sales growth by 4% year-over-year. This is a testament to our product depth and commitment to margin integrity across cycles. Equally important, we excel at allocating capital efficiently. Of note, our breadth of distribution enables us to shift between products and businesses to where the risk-adjusted returns are most attractive.

In Individual Retirement, we've been a top 5 provider for more than a decade and are the only insurer with a top 10 sales ranking across all annuity products. We continue to prioritize pricing discipline given tighter competition. Conditions improved in the latter part of the quarter as yields growth and sales momentum resumed, making June the strongest sales month of the year. All else being equal, we expect steady sales and positive net flows for the rest of the year.

In Group Retirement, our transition from a spread to fee-based business is continuing in line with expectations. In the quarter, our wealth management assets rose to $20 billion, an 18% increase year-over-year. We continue to see a $30 billion growth opportunity by further capturing IRA rollovers and consolidating household assets within our current customer base. As a result of our efforts to improve the customer experience, we are also starting to see an uptick in group retirement business wins. In our Life business, we've been a top-tier provider of term life for nearly a decade. In the quarter, we delivered run rate earnings above our typical guide, reflecting strong underwriting results. Our sales continue to benefit from our platform that leverages automated underwriting for more than 80% of the new business.

Turning to Institutional Markets. The GIC market has grown rapidly over the past few years with Corebridge's reserves nearly doubling over the same time period. In the quarter, we issued $1.8 billion of GICs at attractive IRRs, and we continue to see meaningful opportunities for the remainder of the year. Our GIC book represents 5% of our general account compared to 10% to 15% for major competitors, demonstrating ample room for additional growth. In the PRT market, we still expect activity to be weighted in the back half of the year. Nothing in this market has changed. Pension plans remain overfunded. The appetite for derisking solutions remain strong, and we expect the double-digit reserve growth we've achieved since 2021 to continue.

Turning to Slide 5. Since we announced the transaction, our conviction has only grown that the merged company will be uniquely positioned to deliver exceptional value. Our industry is in the midst of significant growth opportunity. Annuity sales have grown from roughly $250 billion a year in 2021 to more than $450 billion in 2025. Despite this growth, new Corebridge research finds that only 28% of people are confident spending in retirement with fears of running out of money being the top concern. By contrast, those with a decumulation plan, especially one that includes guaranteed lifetime income, are far more confident. In short, many more Americans want and need our advice and solutions.

Another powerful trend is the massive transfer of wealth between generations with $100 trillion in assets that is expected to be transferred by mid-century, which will fuel growth in the wealth business. In addition, the life insurance protection gap remains significant with 100 million Americans expressing a need for coverage. The merger creates a company that is well positioned to capture this opportunity and drive profitable growth. Starting out, the combined firm will have over 10 million customers. Given the tremendous financial needs we see, our aspiration is to significantly grow that number over time. We will have all the right attributes to succeed. Our scale will give us a lower cost of capital, greater efficiency, comprehensive customer solutions and the ability to invest more while attracting top talent.

We'll have a large and formidable multichannel distribution system to reach the broadest possible customer base. Our integrated business model will capture the full value chain from manufacturing through distribution to asset management. And our commitment to sound financial principles means we'll write business at attractive margins and deliver consistent capital return. By 2027, the combined company is set to unlock a compelling financial performance with $5 billion of earnings, $4 billion in cash generation and a return on equity of over 15%. With $500 million in cost synergies directly supporting these targets and a clear pathway to additional value through revenue synergies, we have a clear right to win. We continue to make excellent progress towards closing the transaction.

In addition to the successful shareholder vote, the leadership structure of the combined company continues to take shape. We have determined the first 3 levels of the organization, and I'm confident we're building the right team to win. The joint integration and transformation office continues to coordinate all merger activity with the goal of ensuring operational excellence for the new company. We are actively collaborating with key distribution partners to ensure a seamless transition. And on day 1, we are well positioned to win with our customers. The regulatory review process is proceeding on pace. Federal antitrust review is complete, FINRA approval of the broker-dealer change in control is complete and all state and international regulatory filings have been submitted.

We expect to announce the Board of the new company in the near future, and we still anticipate that the transaction will close by year-end, allowing us to hit the ground running in 2027. To win in our industry, we need to have a differentiated customer value proposition, go-to market with world-class distribution and be the easiest company to do business with. Putting the customer at the center of everything we do is a top to bottom commitment. Our customer council sponsored by the executive leadership team is driving customer focus across a number of initiatives, everything from the frontline service experience and the technology enablement to our corporate culture and customer safeguards.

Our new customer champions network representing every business and function at Corebridge is ensuring we bring the voice of the customer and our distribution partners to everything we do. Across every phase of the customer journey, we're committed to driving continuous improvement. In Group Retirement, our plan sponsored Net Promoter Score, a key customer service metric rose 19 points year-over-year, but we still have more work to do. My goal for the Group Retirement business is top quartile service. Digital remains a key focus area. For example, we recently launched AI agents in our Group Retirement customer contact center to provide a better call experience. This quickly reduced repeat calls and average handling times.

In Life, we enhanced our digital service infrastructure and more broadly, we're implementing a new business acquisition platform. Our goal is an industry-leading new business experience that increases fully digital submissions and speeds up suitability checks with 50% of policies issued in 30 minutes or less. Within Individual Retirement, our focus is on empowering financial advisers by removing friction from their day-to-day operations. Through our support of the Insured Retirement Institute's digital-first initiative, we are modernizing the tool advisers rely on while simultaneously refining our internal workflows to eliminate application errors and accelerate policy issuance. By streamlining these touch points, we enable advisers to dedicate more time to their clients and the growth of their practices, all while driving greater operational efficiency behind the scenes.

In closing, I want to express the strong commitment of the entire leadership team to exceptional value creation, both now and in the future. Thank you again for your approval of the merger. I'm confident the combined company has the right to win, and I can't wait for day 1 to get here.

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

Thank you, Marc. Starting with Slide 6. Performance in the second quarter was on track with the full year guidance provided at the start of the year, highlighting diverse earnings and sustained growth across our businesses. We reported adjusted pretax operating income of $664 million and earnings per share of $1.12, driven by growth in base spread income and fee income. Second quarter results were impacted by underperformance for variable investment income. Excluding the impact of VII, EPS increased by 14% year-over-year. Within VII, alternative investments underperformed, impacted by the market decline in software, coupled with market volatility related to the resurgence of conflict in the Middle East and the broader macro and geopolitical environment.

As we said earlier in the second quarter, we do not foresee this environment materially changing over the short term and expect VII returns to remain below target for the remainder of the year. Adjusting for long-term alternative investment returns, we delivered a run rate operating EPS of $1.35, representing a 16% increase year-over-year. Finally, adjusted ROE was 11.4% or 13.8% on a run rate basis within our 12% to 14% ROE targeted range. Excluding VII, this reflects a 90 basis point increase year-over-year, underscoring our commitment to consistent profitable growth.

Turning to Slide 7. Core sources of income, which excludes VII, increased 5% year-over-year, illustrating our ability to grow across a variety of markets. Within that, spread income increased by 4%, benefiting from asset repositioning and growth in the underlying business as we have consistently reported positive net flows. More notably, these earnings reflect the full earn-in of the 2025 Fed rate cuts and our reduced sensitivity to short-term interest rates. Fee income increased 15%, driven by growth in assets under management and administration and favorable market tailwinds.

Lastly, underwriting margin decreased 1% year-over-year. We continue to see positive underwriting results, though they were less favorable than the prior year quarter. Echoing Marc's comments regarding the investments we are making to become the easiest company to do business with, we reported an increase in second quarter general operating expenses in line with the guidance provided at the start of the year.

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 $1.4 billion in holding company liquidity, supported by our insurance company distributions of $475 million of dividends in the quarter, and our liquidity exceeds the holding company's needs for the next 12 months. Capital return to shareholders was $412 million in the quarter. Excluding proceeds from the earlier VA reinsurance transaction, we maintained our payout target with a year-to-date payout ratio of 84%, which reflects the acceleration of share repurchases in the first half of the year.

Looking ahead, we are committed to approximately $350 million in share repurchases in the second half of the year. 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. Most of these results exclude the impact of variable investment income and notable items. Starting with Individual Retirement, sales were $3.8 billion and net flows remained positive, contributing to continued growth in AUMA. While sales declined year-over-year and sequentially, I want to emphasize Marc's point earlier. We continue to prioritize margin integrity over volume. By adhering to our rigorous pricing drills, we have effectively pivoted our capital deployment towards higher-growth areas of our portfolio that offer superior risk-adjusted returns.

As we look at the full year, we still expect spread compression to level off by the end of 2026 as older business continues to roll off, and we reaffirm our estimate for base spread income to be approximately $2.55 billion. In addition, fee income increased 17% year-over-year, reflecting growth in the underlying business. Lastly, APTOI was flat year-over-year, reflecting increased spread and fee income, offset by higher sales-related expenses, while APTOI increased 5% sequentially.

Turning to Group Retirement. Our results this quarter illustrate our broader strategy to grow capital-light earnings with the transition from spread-based products towards capital-light fee-based business. Reflecting that shift, fee income increased 15% year-over-year. Spreads increased sequentially, reflecting the benefit of asset repositioning, though they remain lower year-over-year due to general account outflows in line with the demographic mix shift. AUMA continues to grow sequentially and year-over-year, even with the net outflows for the quarter.

Looking ahead, we do not expect any large plan surrenders for the remainder of the year. APTOI decreased 7% year-over-year, reflecting lower spread income and higher operating expenses, partially offset by growth in fee income. We continue to be excited about the opportunities for Group Retirement. We believe our competitive advantage lies in our ability to serve as a lifelong partner to our customers as they transition their needs from in-plan to out of plan, ensuring we provide value at every stage of their retirement journey.

Turning to Life Insurance. We generated $870 million in sales this quarter, an increase year-over-year and sequentially. APTOI declined 11% year-over-year. Mortality and underwriting results were favorable, though less so than the prior year quarter. On a run rate basis, APTOI was $122 million, above the top end of our guide we provided at the start of the year. We remain confident in the steady cash flow and stability this segment provides for the broader portfolio.

Institutional Markets remains a consistent growth engine. We continue to be attracted to the risk-adjusted returns as evidenced by both underlying reserves and total earnings trending upwards. Second quarter sales were strong at $2.6 billion, illustrating our ability to efficiently allocate capital across our businesses. Sales included over $1.8 billion of DIC issuances, maintaining the consistent momentum we've seen and highlighting our ongoing commitment to the market. APTOI increased 36% year-over-year. This growth was underpinned by a 17% expansion in our reserves and a 12% increase in AUMA.

Lastly, on pension risk transfer, sales in this space are inherently lumpy. While we and the entire industry have seen lower activity in the market, we still anticipate an uptick when we move into the second half of 2026. Looking at our investment portfolio, we continue to manage our portfolio with discipline through a dynamic market environment while remaining proactive in identifying opportunities that support attractive risk-adjusted returns. The portfolio remains high quality with an average credit rating of A- and 96% investment grade.

We also continue to see positive credit migration across both corporate bonds and securitized products, reinforcing the strength and resilience of the portfolio. New money yields remain above roll-off yields, which continues to support growth in net investment income. As I mentioned earlier, we were able to execute asset repositioning at higher yields, further enhancing the earnings of our investment earnings without taking on additional risk. Within private debt, the book remains 91% investment grade and our private credit assets continues to perform in line with our expectations. Overall, we remain comfortable with the position of our investment portfolio. It is well diversified, actively managed and aligned with the nature and duration of our liabilities.

In closing, our second quarter results reflect the resilience and strategic discipline that defined Corebridge. We delivered solid performance in line with our expectations, supported by strong underlying fundamentals in our core businesses and are well positioned to navigate the current environment. We remain confident in our ability to generate earnings and deliver on our commitments to shareholders. We appreciate your continued trust and are excited about the path ahead.

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 Ryan Krueger with KBW.

My first question was on retail annuities and the competitive dynamics. I know you -- I guess curious a little bit more on what you saw change during the quarter. I think you cited pretty competitive conditions earlier in the quarter that led to softer sales, but then a better June. So hoping to get a little bit more color on what you're seeing there.

Ryan, it's Marc here. Good to hear your voice. Thanks for your question. So yes, I would say as we were finishing up on Q1 and heading into Q2, we saw some additional competitive tension, I would say, in the simple designs. And as you know, and as we've mentioned before, we have a significant depth and breadth of distribution across multiple channels. And in our view, and this is an important point here, we see ourselves, first and foremost, as judicious capital allocators. And when I say distribution channels, I look at not only the retail and across all those distribution channels, but our institutional markets as well and the great business we have there. So -- and we saw more opportunities going into Q2 on the institutional market side, and we took advantage of that. And we hold our risk return kind of attributes and objectives very strongly, and we manage very dynamically against those. And that's what you saw in Q2.

Now as you mentioned, we saw the dynamic fluctuate over the quarter, and we ended the quarter in June being our strongest sales month on the retail side, and we entered July with some very good momentum. And we saw that momentum continue through July. So we expect, obviously, our retail sales to rebound in Q3. So there's -- having said so, we see and we continue to see very significant opportunity on the institutional market side. So I think that capital allocation and the dynamic nature of our distribution is evidenced to these results and what we'll see for the rest of the year. So thank you.

And then I had a question on Individual Retirement base spread income. You reiterated the full year guidance despite some of the benefits from the opportunistic asset repositioning actions you took in the quarter. I mean maybe it's splitting hairs, but just curious kind of why no upside to the original guidance given those actions or maybe they were contemplated to begin with.

Ryan, it's Chris. Thanks for the question. So I think the way that I would think about it, yes, we are reiterating the guidance of 255.0. While we did see some improvements in the base spread as the book continues to roll off, we would still expect to see some compression in spreads over the next couple of quarters, which we would still expect to bottom out at the end of 2026. So I think that's how you should think about it. While there's some positivity this quarter, there's still going to be natural roll-off on the book, which is going to have single-digit compression for the rest of the year.

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

First question, just a follow-up on institutional spread product, Marc, that you were highlighting. Would -- is this really your growth there, was that really a function of being more opportunistic at a time when retail was challenged? Or do you see that as a bigger runway and growth opportunity in the coming quarters when you think about capacity and pricing and margin and that sort of thing?

Yes, Tom, great to hear your voice as well. So I would say that overall, we see a lot of opportunity on the institutional market side, and we see a lot of upside as we move forward. I think as I mentioned in my remarks, it's -- our funding agreement bank business is like 5% or so of our balance sheet. If you look at the environment, a lot of players are hovering more around 10% to 15%, I think so. So we have a lot of runway and upside there. I think when you combine the balance sheets of ourselves and Equitable, I think you'll have even more, I would say, demand and appeal for that type of offering for us.

So I do see some growth at attractive risk return margins as we move forward. In addition to -- as Chris mentioned in his remarks, at the back half of the year, we see opportunities on the pension risk transfer side. And I would say we started in Q3 with some, I would say, tailwinds in both those businesses, again, as I mentioned to Ryan, that we have some tailwinds on the retail side as well going into Q3. So that's kind of my perspective.

My follow-up is just any update on how things are progressing with potential collaboration with Nippon Life on Japanese annuity products? Is that still super early, unclear? Is that any line of sight on anything tangible coming together there?

Yes. Thanks, Tom. I would say that we continue to have very robust discussions with Nippon about co-manufacturing products for the local Japanese market. We and they feel that their economy and the demand for products that where we have a significant expertise in manufacturing is growing in Japan. And it's not lost on Nippon that there's a vibrant opportunity there through their proprietary channel and to their third-party broker-dealer channel, right, and bank channel. So I guess the way I'll say it is we're probably in the third or fourth inning of those discussions, but they are moving in a good direction.

But it's too early to tell when we kind of agree on whatever we could do put together. And then obviously, like it is the case here in North America, you need to file the product with the FSA and needs to be developed and manufactured and start issuing it. So that's -- there's a time lag there as well. So -- but we are cautiously optimistic that there will be a lot of opportunity for us in Nippon. And they have wonderful brand and distribution there, which -- and the collaboration is strong across both firms. So we are excited about the prospects that you mentioned there.

Your next question comes from the line of Suneet Kamath with Jefferies.

I wanted to start with annuities and the expense ratio. Just based on some of the work we've done, it looks like on a pro forma basis, your expense ratio is going to be materially below some of your peers. So I wanted to sort of test that with you. And then relatedly, if that's true, I would assume one of the potential outcomes is in environments where things are a little bit irrational from a competitive perspective, that expense advantage should allow you to continue to grow and hit your returns. So I just want to test those 2 ideas out with you.

Suneet, it's Marc. So thanks for your question. I would say, as we announced this transaction, and you've heard, obviously, Robin and myself, in particularly talking about it a lot, we expect that expense savings of $500 million plus, $100 million a year within 2 years of obviously, the merger. So that speaks to, obviously, the expense efficiency. And obviously, scale is a big part of the reason that this market remains attractive to us. You need scale. There's a fixed cost to kind of digitizing our business, implementing and deploying AI. And there's obviously a scale advantage to the expense ratio as you're implicitly referring to here in our business. And we do expect to see the benefit of that.

But I would say it will span a number of dimensions from the efficiency of our capital use, the efficiency and the depth and breadth of our distribution, our ability to pivot products depending on where we see the opportunities and the client needs, the institutional market side that I just discussed with Tom here. So I would say -- and obviously, on the origination side, the great partnership we'll have, obviously, with AllianceBernstein, our own origination and the great partnership we have with Blackstone and BlackRock, I think, will give us on the main across all these dimensions, very significant competitive presence, and that's why we're looking forward to the merger, very much. So all of that, I would say, would factor into how we see the market.

Okay. That's helpful. And then I guess shifting gears to alternatives. It sounds like a lot of the other companies that have reported are guiding to a better sort of second half relative to the first half. And I think you're saying things will still be challenged in the second half. So is there something sort of unique about your portfolio versus others? Or are you just being conservative there?

Yes. Suneet, I'll mention one comment, and I'll pass it to Lisa, our Chief Investment Officer, which -- she will give you some perspective. But I would remind everybody that when you look at the concentration of alts on our balance sheet, it's like less than 3%, right? And it's very thoughtfully to that level, which lines up with our long-tail liabilities. And you can see a lot of the alts being deployed against our institutional markets and more specifically our pension risk transfer business, which has longer tail liabilities, some of our Life business, obviously. And it's an economically attractive asset to defeat those long-tail liabilities that otherwise, there's no credit assets available, right? So I think that's the frame we need to think about it when you think about how we manage the portfolio. Now to the specific question you have, I'll pass it to Lisa.

Thanks, Marc. As Marc mentioned, when we think about our long-term return, it's over the very long term and over multiple cycles. And our portfolio is primarily PE, but it's real estate equity in the form of funds and then there's residual hedge funds. And what you have seen in the past is PE -- our alts performance has been impacted by maybe real estate returns or hedge funds. But in this quarter, the marks on our PE funds drove the underperformance. And up until this time, PE has really been meeting our long-term expectations. And so what you're seeing is normally with our PE portfolio, it's very broad and diverse, and we'll have weakness in one sector offset by strength in another.

Unfortunately, in this past quarter, the market was weaker all around. The large backlog of PE exits in existing investments have not been meaningfully reduced. So we're not getting the realizations that would generate gains to offset some of our marks. We did guide lower, and we think just continued in the market around AI valuations, geopolitical uncertainty, that could impact returns going forward. Higher rates can certainly impact the mark-to-market on real estate funds. And although we think we could see positive returns in the second half, we are not going to hit or do not expect to hit our long-term expectations for this year in particular.

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

I wanted to start on base spreads, have another one there. Can you just provide some more color on the actions that you took in the quarter to support the expansion? How much was repositioned? And do you see further similar opportunities in the back half of the year?

So I'll take that. Joel, it's Lisa Longino. Thanks for the question. With our portfolio, we -- as Chris mentioned in his script, this is a very high-quality, well-diversified portfolio and 96% of it is investment grade. The portfolio has remained resilient through a variety of cycles, but we do proactively manage the portfolio with a focus on our overall balance sheet. And regarding asset repositioning that we've done, it really entails assessing names or sectors we're less sanguine in and we'll rotate into other sectors where we prefer the outlook or we see relative value opportunity. So this is very proactive. And given the move in rates, this repositioning has allowed us to increase yield while maintaining our credit quality. So we feel pretty comfortable with it. It's something we continue to do. And so that really sums it up.

Got it. That's helpful. And then just wanted to touch on buyback expectations for the back half of the year. Chris, I think you said around $350 million in the second half, which will bring you back to your payout ratio target. I guess just given the strong capital and cash generation and where the stock is trading at, would you consider drawing down some of the excess to exceed your payout ratio for this year?

Joel, it's Chris. Thanks for the question. So we have about $1.4 billion of capital at the holdco that is in excess of our 12-month needs. But at this point, we remain committed to approximately $350 million of share repurchases during the year in line with our premerger plans. For 2026, that would mean we repurchased about $1.9 billion share repurchases. And if you look at '25 and '26, we would have repurchased over $4 billion of share repurchases. So I think overall, at this point, we feel comfortable with our levels. And as we look to the combined company and the $4 billion of cash generation of the NewCo, I think we'll have an opportunity to revisit that as part of our Investor Day.

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

Just had a question. Equitable announced the divestiture of the company's employee benefits business. It sounds like maybe that was a little bit unique as the company was approached by the Hartford. But as you look at the portfolio post the VA transaction, are there any other subscale businesses you think about divesting? Any risk transfer you might see ahead of the merger or closely after?

Wes, it's Marc here. Thanks for the question. And yes, that was a great transaction, in my opinion, and a wonderful one for Hartford and a wonderful one for Equitable and for the new Equitable as we move forward. And as I think you will have heard from Mark and Robin there, obviously, it's the sale of a subscale business, but a wonderful platform that augments what Hartford is doing. So win-win on many dimensions. Now to your question, I would say that, that was the only subscale operation. When you look at the combination, everything else I think we will have a leadership kind of position and then an opportunity for growth and upside. So the short answer to your question is, no, we don't see any other businesses currently or activities that we see as having the same characteristics that led to this transaction. So that's my perspective.

Just switching gears. In Life Insurance, you've seen some pretty good core results there in the quarter. But just taking a step back, like how are you thinking about longer-term mortality trends in that business? It seems like mortality for the industry at least has been more favorable. So do you see that continuing? And how are you thinking about that headed into the assumption review?

Yes. Thank you, Wes. That's a very good question. One of the things, and I think I may have mentioned this to some of you over the 6, 7 months I've been here. When I dug into the balance sheet and the businesses, I saw mortality results being very favorable here versus expected for a number of quarters, which speaks very highly to the quality of the underwriting, the quality of the business, the quality of the distribution. And that continues to be the case, and we saw that continue in Q2 with some very strong mortality results. And you've seen, I think, in some pockets across the industry, some very favorable mortality. And there's some impact, I think, of coming out of COVID and what that did and as well as some of these new drugs, obviously, that are affecting people's longevity.

So all in all, we are bullish on the Life business. And as well, in line with some of the comments I made before, I see no reason why our business should not be twice the size it is right now, given the distribution opportunity we have and the attractive risk return profile and the complementary nature of that liability versus everything else we're doing. And I'll mention as well that as we come together with Equitable, we'll have access to the VUL product. And I think we've mentioned there's a lot of revenue synergies, and that's definitely going to be one in terms of adopting that chassis into our distribution of it. So we see upside on the Life side based on mortality and other dynamics in the market and demand, obviously, from the Americans for protections.

Your next question comes from the line of Yaron Kinar with Mizuho.

I'm actually with Mizuho. You had mentioned that sales in the Individual Retirement business were getting a bit better in June. In which of the retirement products are you seeing that improvement? Is it kind of across the board? Are you still seeing more pressure in fixed annuities?

Yaron, it's Marc here. So I would say that the nice trends in sales we've seen heading into June and into Q3 are across the board, but we introduced some enhancements to our products and our features on our index annuity. We refined some of our living benefit offerings, and we introduced some additional indices and structures. So it's a complementary aspect of some new solutions for our distribution and as well as some upside across a number of the product lines. So I would say it's across the board and not one in particular. But it's -- again, I would say there's a lot of competitive activity in the simpler structures, and we try to focus on some of the more sophisticated client solutions.

And then on the rotation into some of the new assets that were allowed you to get some better yields. Can you maybe talk about the asset classes that you rotated in? Are they still the same classes mainly are you showing kind of corporate debt? Or are you moving more into private credit? Where were these opportunities showing up?

I can answer that. Thanks for the question. So in terms of what we sold, we really sold lower-yielding high-yield assets some EM and we actually sold some lower-yielding private assets that we have a secondary private trader, and that shows liquidity actually in that asset class. And really, what we rotated into was investment grade that was public assets, RMBS and some private ABS, but over 50% of the purchases were in single A or higher. So again, felt very good about incremental yield while maintaining or in some cases, improving the credit quality.

Your next question comes from the line of Tracy Benguigui with Wolfe Research.

A question on adding $100 billion of AUM to AB through the Equitable merger over time. How does that stack up against the existing Blackstone mandate, which looks about $20 billion short of the $92.5 billion target by the third quarter '27. To confirm, is the base case is just to absorb the make-whole rather than reallocate internally managed assets to Blackstone since forcing that mandate would actually skew the general account more heavily towards private credit. Otherwise, it satisfying the Blackstone mandate that it takes priority, doesn't feeding that make-whole and feeding that mandate push out the revenue synergies from the incremental AB AUM?

Tracy, it's Marc. So I'm going to try to deconstruct your comments or questions here. The first comment I will make is Blackstone is a great partner of ours. They originate very good assets at a very attractive yield. And the fees they charge are more than made up by the overall yield and quality of the origination and how complementary it is to the rest of what we do, as is the case, by the way, for BlackRock and our own origination team and what the new, obviously, relationship AllianceBernstein will do.

So I just want to say that. And it is true that we have a commitment to get to $92.5 billion by end of Q3. However, we look at the sourcing, we look at the nature of liabilities we write, we look at the need and then we find the best origination to meet that need irrespective of what the sources and how it comes to be and whether we're $20 billion, $15 billion or anything else short, it's a temporary kind of process. So if there's a make-whole to be made, it's going to be a temporary charge, if that's the case, and we will get to $92.5 billion given the size of the balance sheet and the growth we have across our business organically. So that's the first step.

Now you asked about the $100 billion that is going to AllianceBernstein over time. That is going to be complementary to whatever Blackstone does. I think we mentioned that the combined entity will need origination at $80-plus billion a year. If you look at the 6-, 7-year duration on our product, that means that 15-or-so percent turns over every year. So you'll get some natural attrition of the current assets that will flow to AB. As we grow the business, we'll have origination. And yes, we will reposition some of the assets on our current balance sheet to AllianceBernstein. And we see a significant opportunity of partnering with AllianceBernstein and this great origination capability we have on a go-forward basis, and we'll be able to be very complementary to Blackstone, as I mentioned in my original comments here. So thanks for your question.

Great. I have a question on the GIC market where you're pretty active. We saw a reinsurer assume $500 million FABN as part of a risk transfer deal, and this is a more capital-light business. So I could see the traction by the counterparty. Can you see yourself lending your higher rating that helps get a decent cost of funds and reinsuring that through a counterparty with maybe a lower rating and earn some fee from that? I'm just curious if we could see this type of market.

Yes. Thanks, Tracy. I think you're referring to a recent transaction that was announced. And obviously, best to ask them the details as to the structures on how it all came to be. But you're talking about, is there a source of astute, I would say, leveraging of capital and capital deployment and capital allocation. And I would say that whether it's 2 structures such as you're saying or other structures, I would say that the current Corebridge and Equitable and the combined entity will be highly focused on astute capital allocation, as you saw in terms of our sales between the retail institutional markets, but as well using various tools available to optimize, obviously, the outcomes for all our stakeholders and all of you on the phone, obviously. So I won't point to exactly that structure, but I would say capital allocation and optimized capital allocation is something that we do.

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

First one, you had mentioned some of the product enhancements you implemented this quarter in retail annuities. But I was wondering if the asset repositioning was also meant to improve your competitive position in the market? Or was that just more about portfolio and spread optimization?

So Pablo, you kind of -- we lost at the end, but I think we got the gist of your question, it's Marc. So I would say that any action that Lisa spoke about tied to the prior questions are in-force management. We have obviously a pricing matrix and a pricing approach that is very, I would say, robust between Lisa, ALM and our liability folks on a weekly basis for all of our new business activities. So -- and that's how we approach it, and then we optimize the portfolio and the balance sheet as we see, obviously, the capital markets and the environment around us evolve.

Got it. That makes sense, Marc. And then second question, just on mortality. I wanted to flip to the longevity and PRT side, right? So I'm aware that the covered populations are exactly the same, but I was wondering if you're seeing some negative offset to the Life Insurance benefit as you look at your pension annuitant potentially living longer.

Yes. Thank you very much. Your question is if we're seeing better mortality on the insurance side, are we seeing additional longevity on our PRT business?

And I think you mentioned -- you answered your own question when you say a very different population base, very different origination and very different mortality tables used in both markets to price the business, which is reflective of the actual mortality in each of those markets.

Your next question comes from the line of Joshua Shanker with Bank of America.

There was a lot of talk about the opportunity in the back half of the year on the PRT market. I want to understand, are those transaction discussions currently underway? Or do you have a high confidence that Corebridge will be the winner of those transactions? And are we in a new sort of era where PRT is a back half weighted sort of business for you guys?

Yes. Thank you, Josh. It's Marc here. I appreciate the question. And I think you've seen some evidence for us that our PRT sales and activity are weighted to the back half. What I think is different in 2026 is that there's been lesser activity in the front half of the year than otherwise we would have seen, which enhances, obviously, the amount of activity we expect in the back half of the year. Now specifically to Corebridge, we target a certain case size and we target a certain, I would say, plan type that has both current and deferred kind of retirees that positions us well tied to the prior discussion we just had about mortality longevity and expertise in underwriting there.

So -- and the pipeline for businesses like the PRT business, it takes 4 to 6 months to build by the time, the plans that are very well funded, by the way. And obviously, the interest rate levels are very attractive. So that's why we think there will be robust activity in the back half in combination with the pipeline we see in activity in the market. And we do feel we can get the business that we target given the value add we bring to some of those structures, which is why we said what we said about the -- what we see for the balance of the year.

But just to understand, so the bidding is occurring right now with you in a number of key PRT players?

Sorry, you kind of -- we lost your question there. We didn't come in clear. Can you repeat it?

Yes, I'm just trying to understand right now, there's a bidding process who can execute this best for their customers. And are you in a number of PRT competitors in the bidding process right now? Or is this already basically baked into the back half of the year?

Yes. So I would say it's a combination of everything you're saying. There's -- the process are at different levels of maturity, and we have a sense of where we are in each of the process and how we view kind of our ability to be successful. Now, time will tell whether -- what we're guiding here will happen, but we feel pretty good about our prospects in the second half of the year.

Your next question comes from the line of Wilma Burdis with Raymond James.

Life Insurance sales were elevated this quarter. Was there anything in particular driving the increase that we can expect going forward for Life sales?

Wilma, thank you for your question. I would say we are bullish on our Life business. As I mentioned earlier, like I expect and want ourselves to double over the course of time. We feel we have great distribution opportunity. And some of the things that have been holding us back over the last few years are tied to connectivity to our various distribution. We've been obviously appropriately focused on the separation, and now we're very much deploying our investment dollars to make sure that we make it ourselves the easiest company to do business with, and we make ourselves obviously very easy for our distribution partners to do business with.

And we're seeing green shoots in our license tied to that. And I think that's where we see the growth, and that's what's driving the growth of our business. And as I mentioned, there's obviously a need for protection across America. So there's an unmet need there that we'd like to get ahead of.

Okay. And then going to kind of combine 2 questions, but pensions are well funded. Do you think that pushes some of the PRT deals into next year? And then I guess, along those lines, I know you touched on it earlier, but maybe you can talk a little bit more about the opportunity to expand institutional business when you combine with Equitable.

Yes. So on the PRT side, I don't have much more to add just to say that we feel pretty good about the second half of the year, and we feel pretty good about that space in the ensuing years in 2027 plus. And one of the implicit kind of questions or comments, and this is as we bring together the 2 balance sheets and our much stronger and bigger capital base and balance sheet, I think that will give us an opportunity to take bigger sizes of the PRT.

So when you think about revenue synergies and things we'll talk about more at Investor Day next year, I would say, growing our Institutional Markets business across, obviously, the funding agreement side, but as well the PRT side and other services we offer there will be one of the revenue synergies of this merger, which then speaks to the second half of your question, which is do we see more opportunity on the spread lending side of our Institutional Markets business?

And the answer is yes. And as I mentioned in my remarks, 5 or so percent of our balance sheet is tied to FABN kind of offerings, where there's a much greater percent for some of our peers. So there's a lot of upside for the new -- Corebridge and the new Equitable as we move forward.

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

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.