Corebridge Financial Inc

NYSE:CRBG

Earnings Call Analysis

Corebridge Financial Reports Strong Growth and Shareholder Returns

Corebridge Financial reported robust third-quarter results, with operating earnings per share soaring 31% year-over-year to $1.38. Core income sources increased by 4%, aided by a 40% rise in Individual Retirement deposits to $5.5 billion. The company returned $848 million to shareholders, bolstered by the sale of its UK Life Insurance business. Despite potential short-term impacts from rate cuts, management expects EPS growth to remain strong, projecting a payout ratio of 60% to 65% for the year. Their strategic initiatives, including launching a new registered index-linked annuity, highlight their commitment to meet evolving market demands.

Corebridge Financial's Strong Third Quarter Performance

Corebridge Financial reported robust results for the third quarter of 2024, showcasing a remarkable operating earnings per share (EPS) of $1.38, representing a 31% increase year-over-year. The company also saw a 13% rise in run-rate EPS. This strong performance is attributed to diverse income sources, with a 4% growth in core income overall. The company's disciplined execution and strong balance sheet management have effectively created shareholder value through earnings growth and significant capital returns.

Diverse Sources of Income Drive Growth

Corebridge's earnings growth is backed by its diversified business model, with core sources of income—including fee income, spreads, and underwriting—growing steadily. Notably, fee income surged by 11%, driven by positive account values and an active advisory and brokerage segment. Moreover, underwriting margins improved by 4% due to favorable mortality experiences, while base spread income experienced a slight increase of 1% from the prior year, albeit a 3% decline on a sequential basis.

Capital Return and Operational Efficiency

In the third quarter, Corebridge returned $848 million to shareholders, part of which came from its U.K. Life Insurance business's sale, bringing the total capital returned to $1.8 billion for the year-to-date. The company aims for a payout ratio between 60% to 65% for 2024. Additionally, operational efficiencies from their modernization program have led to over $320 million in savings, with an expectation of reaching an additional $80 million by 2025. These strategies highlight the company's focus on sustainable growth and strong financial health.

Investment Strategies and Market Position

Corebridge sits in favorable market conditions due to the increasing retirement-age population in the U.S. and a noticeable life insurance protection gap. The individual retirement segment saw a 40% increase in premiums and deposits, driven by significant sales activity and improved surrenders. The introduction of their first registered index-linked annuity (RILA) has strengthened their market position, appealing to numerous distribution partners. Their commitment to a broad product portfolio ensures they remain competitive across all major categories.

Strategic Focus for the Future

Looking ahead, Corebridge plans to maintain growth in earnings per share and cash flows, anticipating robust returns despite some pressures from economic conditions. They projected operating EPS growth to relax around a 25 basis point decline in short-term rates, with less than a 2 basis point impact on base yield. The long-term expectation for alternative investment returns remains between 8% to 9%. The management's strategy emphasizes ongoing capital management and operational efficiency to weather potential short-term challenges.

Earnings Call Transcript 2024-Q3

[Operator]

Hello, everyone, and welcome to the Corebridge Financial, Inc. Third Quarter 2021 Earnings Call. My name is Charlie, and I'll be coordinating the call today. [Operator Instructions]

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

[Isil Muderrisoglu, executive]

Good morning, everyone, and welcome to Corebridge Financial's earnings update for the third quarter of 2024. Joining me on the call are Kevin Hogan, President and Chief Executive Officer; and Elias Habayeb, Chief Financial Officer. We will begin with prepared remarks by Kevin and Elias, and then we will take your questions.

Today's comments may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations and assumptions. Corebridge's filings with the SEC provide details on important factors that may cause actual results or events to differ materially from those expressed or implied by such forward-looking statements. Except as required by the applicable securities laws, Corebridge is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change, and you are cautioned to not place undue reliance on any forward-looking statements. Additionally, today's remarks may refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on our website at investors.corbridgefinancial.com.

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

[Kevin Hogan, executive]

Thank you, Isil, and good morning, everyone.

Today, I will review our results for the third quarter and detail how Corebridge Financial once again delivered on our value proposition. Through our diversified business model, strong balance sheet and focused execution, we continued to create shareholder value demonstrated by growth in earnings and cash generation and return of significant capital to shareholders.

Moving to Slide 3. Corebridge had a very strong quarter as we grew operating earnings per share to $1.38, a 31% increase year-over-year. Additionally, our run rate EPS increased 13% over the same period. With solid fundamentals across our diversified businesses, our core sources of income grew 4% year-over-year and 5% sequentially. Each of our sources of income, fee spread and underwriting increased year-over-year. We achieved these attractive business results while also maintaining a strong balance sheet, once supported by high-quality assets and liabilities, prudent risk management and diversification. We are heavily focused on asset liability management, which is embedded across all facets of Corebridge. Our asset strategy is driven by our liability profile and our broad product portfolio reflects a long tradition of thoughtful product design and dynamic product management. Reflecting our risk management focus, Corebridge had no significant reserve adjustments as part of our 2024 annual actuarial assumption update. Built on our strong foundation, Corebridge continues to create shareholder value through disciplined execution. Total capital return to shareholders for the third quarter was $848 million, including part of the proceeds from the sale of our U.K. Life Insurance business.

Moving to Slide 4. Our market-leading businesses continue to serve customers' needs and support our distribution partners' strategies. Our addressable markets are significant and each benefit from strong tailwinds given a large and growing retirement aged U.S. population and a Life Insurance protection gap. The macroeconomic environment also continues to be supportive of our business. Interest rates at mid durations are expected to remain at attractive levels and new money rates were in excess of 6%. As Elias will expand upon, there may be some short-term impacts from lower rates at the short end of the yield curve but these will be more than offset by growth in the overall portfolio over time. A steeper curve is generally better for our business.

Now turning to the businesses. In Individual Retirement, premiums and deposits increased 40% year-over-year to $5.5 billion. General account net flows supported by strong sales volume and improving surrenders were nearly $1.7 billion for the quarter and $5.3 million for the year-to-date, a level that already exceeds what we reach for full year 2023. These straw flows in the general account continued to serve as a platform to drive current and future earnings. Last month, Individual Retirement expanded on what is already one of the broadest annuity platforms in the industry with the launch of our first registered index-linked annuity or RILA. As part of the product development process, we leverage the long-standing relationships we have with distribution partners and our deep understanding of their strategies. Our RILA brings together the most sought-after features already in the market, together with a lock strategy that is exclusive to Core bridge. The product is already resonating with our partners, and we are pleased with the reception to date. Financial professionals at nearly 200 of our top distribution partners were positioned to sell our RILA from day 1, making it our largest new product launch ever. Corebridge now stands as the only top 3 annuity provider with an offering in every major product category. Group Retirement produced another solid quarter. Excluding planned acquisitions, premiums and deposits grew 10% year-over-year. Advisory and brokerage assets under administration increased 22% and and out-of-plan proprietary annuity premiums and deposits increased 17%. The long-term growth opportunity for advisory, brokerage and out-of-plan annuities is significant as 1.6 million of our customers are in plan only. Both in plant and out of plan, our experienced team of financial professionals are an essential part of our success, and we have been investing to further improve their efficiency, resulting in an increase in average productivity per adviser of 15% year-over-year. Life Insurance an important part of our diversified portfolio had a very strong quarter. Sales growth was 14% year-over-year, which continues to outpace the industry as it has for 8 consecutive quarters. Our modern approach to new business is a key reason for this success. With our data-driven practices, 80% of newly issued policies are auto decisioned. Building off this capability, we have developed a digital policy application process called Simply Now, that provides a contemporary purchasing experience with the underwriting decision typically delivered in a matter of minutes. This feature is attractive to many financial professionals, facilitating further expansion of our Life Insurance distribution platform. Institutional Markets also had a strong quarter. Reserves increased 20% year-over-year, supporting ongoing earnings growth, and we issued $1 billion of [indiscernible] this quarter, furthering our strategy to become a more regular issuer. With pension risk transfer, we see a robust pipeline of large potential transactions for the remainder of this year and going into 2025. As a reminder, we specialize in complex transactions that take time to develop and are not consistent quarter-to-quarter and cash flows. The first is organic growth. I just spent a few minutes talking about our strong business fundamentals and the opportunities ahead. We believe Corebridge will continue to grow our balance sheet organically, which will, in turn, contribute to increased earnings per share over time. The second strategic lever is balance sheet optimization. We will continue to pursue opportunities to actively manage both sides -- both our assets and liabilities to drive higher return on capital. To this end, we are expanding our Bermuda strategy and continue to explore additional opportunities to enhance our financial flexibility. The third is expense efficiency. We successfully delivered on Corebridge Forward, the first phase of our modernization and expense efficiency program. As of September 30, approximately $320 million in savings have earned in from this program, and we expect the final $80 million to earn in through 2025. Corebridge is moving to the next phase of modernization. We are further digitizing end-to-end processes that support our insurance operations to improve the customer journey and the distribution partner experience. We are also building on the significant investments we made as part of our separation process to further modernize our finance and actuarial capabilities. We are committed to delivering improved performance and enhanced operational efficiency over time. The fourth lever is capital management. Corebridge remains focused on effectively managing capital to drive increased shareholder returns, executing on opportunities with the goal to provide an attractive and growing cash return to shareholders.

Next, I want to spend a moment to update you on the progress we are making against some of our key financial goals. First, adjusted return on average equity. Year-to-date, we have delivered a run rate ROE of 13.3%, a 130 basis point improvement year-over-year and well within our 12% to 14% target range. Third quarter ROE represents a 315 basis point increase since the IPO. Second, operating earnings per share. Year-to-date, we have delivered run rate EPS of $3.70, a 13% improvement year-over-year. Discrete third quarter EPS represents a 36% improvement since the IPO. And third, capital return. Corebridge has returned $1.8 billion to shareholders over the first 9 months of the year, and we are on target to achieve a payout ratio of 60% to 65% for the year, excluding proceeds from the sale of our U.K. Life Insurance business. Since the IPO, Corebridge has returned $4.3 billion [Audio Gap] consistently demonstrated the discipline to allocate capital to growth opportunities, where risk-adjusted returns are the most attractive and where customer needs are the greatest, while also delivering significant returns to shareholders and maintaining a strong financial position.

Looking forward, we are focused on growing earnings per share and cash flows and continuing to increase long-term shareholder value.

I will now turn the call over to Elias.

[Elias Habayeb, executive]

Thank you, Kevin.

I will begin my remarks today on Slide 6, where I'll provide an overview of our key financial results for the quarter. Corebridge reported adjusted pretax operating income of $1 billion or operating earnings per share of $1.38, a 31% improvement year-over-year on a per share basis. Our operating EPS included 4 notable items this quarter, resulting in a favorable impact of $0.11, details can be found in our earnings presentation. Annualized alternative investment returns were approximately 7% in the quarter, which were $0.02 short of our long-term expectation of 8% to 9%. Positive returns in traditional private equity benefited from a corporate event and foreign exchange movements. This was partially offset by a mark-to-market loss from 1 investment in our hedge fund portfolio. As expected, real estate equity returns improved from the first half of the year. Adjusting for notable items and alternative investment returns, we delivered run rate operating EPS of $1.29, a 13% increase year-over-year and a 36% increase since the IPO. This improvement was driven by continued organic growth, balance sheet optimization, expense efficiencies and active capital management.

Turning to Slide 7. Our earnings are driven by diverse sources of income that positions Corebridge to deliver attractive returns under different market conditions. And this quarter was no exception. Core sources of income, excluding notable items, grew 4% year-over-year by an increase in each of our sources. Fee income, which comprises approximately 30% and of our core sources of income improved 11%, driven by higher account values along with our growing advisory and brokerage business. On a comparable basis, underwriting margin improved 4% by more favorable mortality experience. Base spread income improved 1% over the prior year, but declined 3% sequentially. The drivers behind the growth in base spread income were consistent with prior quarters. The sequential decline was driven by the impact of hedging floating rate exposures in individual retirement as well as elevated prepayments on higher-yielding assets in group retirement. Even with that, based that investment spread in individual retirement has remained relatively stable over the last 3 quarters. Looking forward, given the Fed entered into its easing cycle, we wanted to provide you with sensitivities to potential rate actions. Before any additional management actions, a 25 basis point decrease in sulfur would impact base yield by less than 2 basis points in the first 12 months. We expect this impact will moderate as a result of the runoff of the portfolio, additional hedging activities and active management of crediting rates on in-force business. Floating rate assets have been a source of attractive yields and play an important role in duration management, complementing other tools we use to actively maintain alignment of the balance sheet. Currently, our floating rate exposure, net of hedging and floating rate liabilities is approximately 8% and of the general account investment portfolio. A significant portion of these assets back annuities that are outside their surrender charge period. Separately, we have entered into certain macro hedges as part of our balance sheet management strategy. Under the same scenario I just mentioned, any potential impact could equate to less than 1 basis points on base yield. As with the case of any macro hedge, we adjust our positions relative to the prevailing market conditions. While we expect to see base spread income in individual retirement to continue to grow over time, we could see some pressure in the short term. Furthermore, we expect to see continued growth in institutional market spread earnings aligned with the growth in the business.

Moving to Slide 8. Corebridge has a long track record of delivering attractive financial results under different market conditions. We are not beholden to any 1 business or product and our 4 businesses complement each other. For instance, underwriting margin, which has been a steady and reliable source of income, serves as a natural counterbalance to other sources of income that are more sensitive to macroeconomic conditions such as spread and fee income. Further, when interest rates have declined, asset values have risen driving an increase in fee income and alternative investment returns that have offset impacts to spread income. As a result, core sources of income have shown steady resilience over the longer term, enabling us to generate consistent and growing cash flows from our insurance companies and ultimately delivering strong returns to our shareholders. The combination of our diversified market-leading businesses working together is a key component of our shareholder value proposition.

Now turning to individual business highlights, which exclude the impact of notable items, variable investment income and the sale of our International Life business. In Individual Retirement, adjusted pretax operating income grew by 5% year-over-year, primarily driven by the growth in both spread and fee income. Fixed annuity surrenders continued to improve from their peak earlier in the year and were 13% for the quarter. Group Retirement delivered another steady quarter through its combination of spread and fee income. Fee income increased 12% year-over-year. We continue to see this business transition to a more capital-light fee-based revenue stream reflecting the changing dynamics in the business. As our implant customers transition from employment to retirement, we're seeing advisory and brokerage services grow while net outflows continue in the general account. Both spreads and fee income will continue to reflect the impact of net flows and asset values. Looking to the fourth quarter, their seasonality in net flows with raised levels of outflows at the end of the year resulting from required minimum distribution by plan participants. Additionally, we've been informed of 2 upcoming large group plan exits, but they're predominantly invested in our group mutual fund product, thus having a limited impact to earnings. In life insurance, adjusted pretax operating income increased by 8% year-over-year. This expansion was primarily driven by more favorable mortality experience. In Institutional Markets, adjusted pretax operating income grew by 50% year-over-year, primarily driven by higher spread income arising from portfolio growth. Our reserves have grown $7 billion or 20% year-over-year with the expansion of our pension risk transfer business and higher volume of GIC issuances. Our financial results for the quarter demonstrate the benefits from multiple sources of income as well as the ability to improve efficiency while also growing the balance sheet. On that point, general operating expenses for our insurance businesses and parent company were favorable by 3% year-over-year after excluding the sale of our International Life business, bringing our cumulative improvement from the end of 2022 to 14%. This was driven primarily by expense efficiencies from Corebridge forward. Looking forward to the fourth quarter, we expect some seasonality in expenses. Now turning to the annual actuarial assumption update. This year's update resulted in almost no impact to adjusted pretax operating income and is the third consecutive year with limited impact on operating earnings.

Moving to Slide 9. Corebridge continues to maintain a strong balance sheet and our ability to generate consistent cash flows from our insurance subsidiary, provides us with the flexibility to act on attractive opportunities and deliver on commitments to our shareholders. Holding company liquidity remained strong at $2 billion, and the Life Fleet RBC is above target. We issued $750 million of junior subordinated notes in September, paying off the remaining $250 million balance on the delayed draw term loan and earmarking $500 million for prefunding a portion of our debt maturing in 2025. Adjusting for the prefunding, our financial leverage ratio would have been 29.6%. Distributions from the domestic insurance companies were $550 million in the third quarter, bringing the year-to-date distribution to $1.7 billion, a 10% increase over the prior year. We are on track to distribute over $2 billion in 2024.

In conclusion, our diversified business model balance sheet and disciplined execution continue to create shareholder value as demonstrated by the growth in our earnings and cash generation.

With that, I'll now turn the call back to Isil.

[Isil Muderrisoglu, executive]

Thank you, Elias. [Operator Instructions]

Operator, we are now ready to begin the Q&A portion of the call.

[Operator]

[Operator Instructions] Our first question comes from Alex Scott of Barclays.

[Unknown Analyst]

First one I had is on some of the comments around financial flexibility. I think it was specifically noted that you're looking at additional opportunities increase by flexibility.

[Isil Muderrisoglu, executive]

Alex, I'm sorry, we can barely hear you. Can you speak up?

[Unknown Analyst]

My apologies. Is that better?

[Isil Muderrisoglu, executive]

That's better, thank you.

[Unknown Analyst]

So I just wanted to ask about the additional opportunities for financial flexibility. I know you all have already done a lot on this front, but I was hoping you could add some context on what you're looking at specifically.

[Elias Habayeb, executive]

So Alex, it's Elias. So as you know, we're very proactive with managing our balance sheet, and we look for opportunities kind of to improve our financial flexibility as we did with our Bermuda strategy as well as look for opportunities creating shareholder value as we did with their International Life operations. The Bermuda strategy is progressing, as we've talked about before, whereby we're leveraging the excess capital we have in Bermuda to support new business generation and individual retirement that reduces some of the strain we have on new business, and that's part of the strategy to grow earnings and cash flows over time. And as we've said before, we see broader opportunities for Bermuda that we are -- that will be explored, and we'll be back to you guys when we have something to talk about.

[Unknown Analyst]

Understood. One of the other things I noticed in the presentation was just referenced that you're generating expense efficiencies beyond just Corebridge Forward, and I was interested if you could give us some more color on some of the things you're doing there and what you're doing to improve efficiency.

[Kevin Hogan, executive]

Yes. Thanks, Alex. Look, Corporate Forward gave us a great start. And through it, we updated our operating model. We modernized a lot of our IT infrastructure. We moved a lot of that infrastructure to the cloud. All of our IT is now sitting in one version of the cloud or another. We exited our data centers, and we upgraded most of our enterprise platforms, including some of the finance and actuarial platforms in part in preparation for LDTI, but also in part in preparation for the separation. And so the next phase is actually being able to put a lot of that capability and tools to work. And the areas that our immediate focus are after transitioning much of our middle and back office insurance operations work, we now have the opportunity to automate and digitize that and eliminate a lot of the work associated with it while improving the underlying customer and distribution partner experience. And then we've also have an opportunity to further enhance our finance and actuarial practices. Those are the immediate areas of focus because of the tools that we put in place, along with the investments that we made preparing for separation. We don't have a particular target or announcement of a program in place at this time. We're working through the plan. But this modernization journey is just beyond for us.

[Operator]

Our next question comes from Wes Carmichael of Autonomous Research.

[Wesley Carmichael, analyst]

First question is on RILA. You talked about being up and running with a number of distribution partners on day 1. I guess how are you thinking about the contribution from RILA, maybe in 2025? How long do you expect the sales of that product to ramp up?

[Elias Habayeb, executive]

Yes. Look, I mean, RILA has been one of the fastest-growing parts of the market over the last couple of years. And the reality is our largest distribution partners have been asking us to provide a RILA entry. And we feel we brought our historical creativity to our version of the product. And frankly, the initial reception has been very strong in the first couple of weeks, but it is just the first couple of weeks. The pipeline is building quickly. The number of producers that have been trained on the product is increasing on a daily basis and and we're seeing that pipeline continue to build. And we're excited about the RILA product because has attractive margins. It supports our overall diversification. And it fits within our overall strategy, which is to support our distribution products partners with a range of products that support different customers' needs and risk appetites at different times. And the RILA product supports a different customer risk appetite than indexed annuities or the variable annuity products. And so we're seeing an expansion of our overall capabilities there. In terms of what it may contribute in 2025, each of our individual retirement products are in a strong position and contribute attractive margins. And so we see it as a strong complement but aren't prepared to talk about any targets at this point in time.

[Wesley Carmichael, analyst]

Okay. My follow-up is on capital. And thinking about Bermuda. And you talked about it a little bit, Elias, but going forward, should we expect cash flows to the parent company from your Bermuda company, or should we really expect you to kind of effectively utilize their capital that is there to support new business from individual retirement.

[Elias Habayeb, executive]

Yes. Thanks, Wes. So look, I mean, as we've talked about before, as next pool in our capital management toolkit. It provides a lot of opportunities for us. Right now, we're focusing on our fixed and indexed annuity new business. But there's other products that may benefit from us seeding new business into Bermuda. We could potentially engage in portfolio transactions on the in-force business. And then ultimately, Bermuda is an environment that has been attractive for attracting third-party capital, which is an option we'll consider at an appropriate point in time. But all of these, we look as part of our capital management toolkit, which is designed to facilitate our ability to invest in new business at attractive margins and then be able to maintain a strong balance sheet and provide an attractive and growing cash return to shareholders over time.

[Operator]

Our next question comes from Suneet Kamath.

[Suneet Kamath, analyst]

I wanted to start with annuities. Kevin, the industry sales have been strong. Your sales have been strong, held up pretty well even with the pullback in rates in the third quarter. I guess the question is, how sustainable do you think not like your level of sales, industry level of sales is as we kind of move from this year kind of into next year?

[Kevin Hogan, executive]

Yes. Thanks, Suneet. What I would say is that the underlying drivers for the annuity industry don't change with the short end of the curve. And really, the need for people in this country to plan and prepare for their own retirement is huge. I'm getting and getting larger. And structurally, I think that's one of the things that has driven the opportunity. Now certainly, the environment the last couple of years has been very favorable, but it's really the 5- to 10-year part of the curve that's most relevant in pricing the annuities products, the spread businesses. And that part of the curve based on the current outlook is going to continue to allow for these products to be a very attractive part of a long-term savings plan. The second thing I would say is that the adviser community, there's a whole new range of advisers in the last couple of years that have learned about the value of annuities as part of that long-term savings program. And so we believe that the conditions for the annuity business are going to continue to be very supportive. And so whether the volumes will continue at the pace of the last couple of quarters, it's really going to depend on what the conditions are each quarter, where interest rates are and where people believe interest rates are going to go.

[Suneet Kamath, analyst]

Got it. And then, I guess, Elias, on the base spread income commentary that you had in your prepared remarks, I guess, I was hoping you could unpack that just a little bit because what I wasn't clear on is how much of this impacted pressure that you talked about is actually going to happen? And sort of how much of it could happen if the Fed decides to move a certain way. So can you just maybe revisit that with a little bit of granularity.

[Elias Habayeb, executive]

Yes. So Suneet, it's Elias. So the sensitivity we gave to the time there's a 25 basis point rate cut, and we've already had 50 is the impact on us from a base net yield perspective is less than 2 basis points. And to put that in context, we've increased our base yield by over 100 basis points in the last 2 years since the beginning of there. So there will be some sensitivity that we would expect to play out. That over will be mitigated to some extent with additional hedging activities, the floaters do have a shorter duration. So they'll run up quicker than some of the other bonds in our portfolio as well as most of the floating rate positions we have back annuities that are outside the surrender charge period. and we're pretty active from a crediting perspective, but that will take some time since you can only adjust it at the annual anniversary date of the annuity. That being said, we continue to believe that spread income and individual retirement will grow over time, but there could be some short-term pressure. And -- but we continue to believe we will continue to grow our earnings per share and deliver on our financial targets irrespective of the rate environment and what the Fed might do.

[Operator]

Our next question comes from Ryan Krueger of KBW.

[Ryan Krueger, analyst]

One more follow-up on the short-term rates. I just wanted to make sure I understood. Was the message that 25 basis point decline in SOFR has less than a 2 basis point impact on your yield, but then the additional macro hedges reduces that to more like 1 basis point. Was that -- did I understand that correctly?

[Elias Habayeb, executive]

Ryan, it's Elias. No, the way it works is this is a point-in-time sensitivity. So with respect to the investment portfolio, the sensitivity is less than 2 basis points the macro hedges, if they don't change is additive. But with respect to the macro hedges, those are part of our enterprise balance sheet management strategy, which we're proactive in managing. We've actually reduced these positions over the course of the year. And based on what the outlook is now, there's a chance that I think we would expect to reduce them even further. So I would look at the macro hedge as kind of a little different. The only reason we are giving that sensitivity is for a completeness at a point in time. But if you look at the investment portfolio, that's where the true sensitivity is. And every 25 basis points there is less than 2 basis points on base yield, which since the BNF 22, we've increased it by over 100 basis points.

[Ryan Krueger, analyst]

Okay. Got it. That makes sense. And then just at a higher level, I mean, I think you were certainly mentioning other levers you have outside of of spread income. I guess when you think about maybe 2025, do you expect that you'll be able to grow just consolidated earnings on a run rate basis in dollars despite the spread pressure you're facing?

[Elias Habayeb, executive]

So Ryan, there are a number of variables that play in it. We're focused on growing earnings as well as growing EPS by both the growing earnings as well as growing capital. There's obviously some sensitivity to our earnings that we view as short term. But the longer-term trajectories, we expect to be growing earnings as well as growing EPS through earnings and capital return.

[Kevin Hogan, executive]

And Ryan, this is Kevin. I'll just jump in. Each of our businesses is actually in a very strong position. Individual Retirement, I think we've explained the difference between the overall dynamic of new sales being at very attractive margins and expect it to continue to be based on where in the middle of the current 5 to 10 years is anticipated to be -- there's some short-term impacts, as Elias just described. But we see an attractive ongoing condition for this business. In Group Retirement, fee income now exceeds spread income. This is a dynamic we've been talking about in this portfolio sometime. And the sources of our spread -- our fee income like the implant fee asset base is up 10% year-over-year. The advisory and brokerage asset base is up 22% and out-of-plan assets are up 11%. So Group Retirement continues to, I think, grow its potential sources of earnings. Our life business is in excellent shape. We've outgrown the market 8 quarters in a row after really focusing our portfolio on less interest sensitive parts of the business and then institutional markets is in a strong position. So this short-term impact on spreads, I wouldn't overstate our multiple sources of income, that's a strategy that we [indiscernible] from different market conditions and each of the businesses is well positioned relative to its market.

[Operator]

Our next question comes from Tom Gallagher of Evercore.

[Thomas Gallagher, analyst]

First question on capital management. Second one on asset liability management, but the capital management question is just, obviously, a very strong level of share repurchase in 3Q. Can you remind us; a, how much you've used up from the U.K. Life proceeds, and how we should think about a run rate heading into 4Q. If I just look at normalized buyback from capital generation, it's probably half of that amount that you did in Q3, but curious if you still have access that you might lean into if there's opportunities in the fourth quarter.

[Elias Habayeb, executive]

So Tom, it's Elias. So our target capital -- overall capital return both share repurchase dividends is 60% to 65%. We expect to cover that organically. The U.K. proceeds were extra. And we've deployed a meaningful portion of the U.K. proceeds in the third quarter. I would be thinking in terms of 60% to 65% in the fourth quarter for this year.

[Thomas Gallagher, analyst]

Got you. And my my ALM question is, Elias, I heard what you said about the floating rate, 8% of the general account, mainly backing annuities outside of surrender charge. I presume that's an ALM setup to prevent against a rising rate shock type scenario, just thinking about why you would position it that way. So we'll call it more hedge-oriented, defensive-oriented. Given that we're seeing a change in the macro, Fed beginning to cut rates, would you consider repositioning that or at least hedging it in a way where it we'll call it, maybe optimizes the change in macro here, or are you comfortable just sticking with this big floating rate portfolio backing that block?

[Kevin Hogan, executive]

Tom, it's Kevin. I think I'll jump in here. Let's unpack it a little bit. So we always manage ALM and our equation carefully, as part of our balance sheet management. And as interest rates change dynamic changes, that will change -- either the liabilities will lengthen or shorten. And as we saw a couple of years ago, when interest rates started to rise sharply. And so floating rate assets play an important role for us in ALM and helping manage duration. And as the overall shape of the yield curve changes, that will determine the length of the liabilities, and we'll dynamically manage our floating rate portfolio accordingly. But another role that the floating rate assets play is liquidity relative to particularly those annuities that are outside the surrender charge period. And just as a reminder, we never have reinsured our back book, and we benefited from that in the recent environment. We continue to benefit actually from that in-force business, but the floating rate portfolio has been a part of that benefit to that to that in-force business. So floaters are not purely from a perspective of ALM, but they've been very attractive risk-adjusted returns, and we respond to that. We do have some shorter dated liabilities that they support, particularly in the annuities business, the last couple of years, some of the 3-year, 4-year surrender business has become more popular. And then we have -- we also have the annuities outside of surrender. So we'll continue to dynamically manage the floating rate portfolio. It isn't just a defensive hedge the way that you described it.

[Audio Gap]

[Elyse Greenspan, analyst]

[Audio Gap] question is just on PRT deal flow. I think it's been a little slower since the first quarter. Just was hoping to get an update there in terms of the environment and the pipeline for transactions you see over the balance of this year and into 2025?

[Kevin Hogan, executive]

Yes. Thanks, Elyse. So just a reminder, we do focus on full plan terminations. We've focused on full plan terms really since 2016. We find the market -- we find the economic more attractive than the full plan term segment because they're a little bit more complex transactions. And there's fewer companies that have prepared the administration to be able to support them. We can continue to see a very strong pipeline of full plan terminations. Because of the complexity of these, they don't land necessarily every quarter. And I described that the pipeline for the remainder of this year is attractive. In fact, we've already landed a decent-sized transaction for the fourth quarter that we've been working on for a number of quarters. And we see the pipeline going into next year also very attractive. So long -- in the medium term, we continue to see very attractive economic opportunities. The pipelines are full. The transactions are moving forward. plans are largely funded and activity levels remain high, both in the U.S. and in the U.K.

[Elyse Greenspan, analyst]

And then my second question is on capital as well, right? So $2 billion apparent when we take into account the prefunded debt, still a pretty healthy level, right, at like $1.5 billion. So obviously, that's been helped, right, by some of the transactions that you've done. As we just think about going forward, when do you think you might bring that down right more? I think you've spoken in the past, right, to kind of keeping that in line with annual needs.

[Elias Habayeb, executive]

Elyse, it's Elias. So as we've said in the past, we manage our parent liquidity to cover the next 12-month needs. And I think you've seen like we've worked through a lot of the onetime expenses we've had the parent expenses are down from over $200 million run rate down to about a $150 million run rate. So that's all contributing to a lower need at the parent. The $1.5 billion that you're referencing right now at the end of the quarter, which excludes the $500 million with earmarked for the early '25 maturity is in excess of that 12-month needs. And consistent with what we've said in the past, we'd expect that to continue to trend down.

[Operator]

Our next question comes from Wilma Burdis of Raymond James.

[Wilma Jackson Burdis, analyst]

You touched on this a bit earlier, but could you talk more specifically about the proportion of fixed annuities that have been written over the last couple of years in terms of 3-year duration, 4 years, 5 years, 7 years, maybe just talk a little bit about that. Distributors have mentioned to me that 3-year fixed annuities have been the most popular during the recent period of higher rates. So I just wanted to see if that's what you're also seeing.

[Kevin Hogan, executive]

Yes. So Wilma, in terms of the dynamics, the -- generally, depending upon an investor's position, clearly, the shorter duration products would be attractive for customers that see less certainty in the longer-term rate environment than the longer term. There were definitely periods when the rate curve started to change that there was a lot of uncertainty around there. So quite a bit of the shorter-duration product was attractive to customers at that time, more recently with some broader perspective on where medium-term rates may be, in particular, the 5- to 10-year part of the curve. We've seen a return to the more traditional 5- and 7-year surrendered products. And it really is something that depends on the strategy of each of our distribution partners and the position of a given customer and what fits with their long-term portfolio expectations over time. So we don't necessarily have a strategy of directing towards one duration or another. Our strategy, as with all of our products is to have multiple solutions available, those include both products with income benefits or products that are accumulation-focused or products that are short or medium or long duration. And of course, we've just rounded out our portfolio with our new RILA product, which we're looking forward to further developing.

[Wilma Jackson Burdis, analyst]

I think you touched on this a little bit earlier as well, but the environment actually looks somewhat favorable for me -- to me to continue to sell annuities, especially fixed. And as you mentioned, it sounds like you're seeing longer dated products as well. So is that what you're seeing?

[Kevin Hogan, executive]

I think the environment continues to be excellent for annuities among our other products. And as I mentioned earlier, the demand is definitely there. The adviser community understands the value of these products, especially at the kind of rate environment that we anticipate being able to continue to see. And so yes, I mean, we're seeing a lot of demand for fixed annuity. The demand for fixed annuity is a little bit more reflective of the immediacy of where rate changes are. But the demand for index annuity has been consistently growing over time. There's a particular part of the investor appetite that still very much appeals to a traditional variable annuity. And then the RILA speaks to a risk appetite that's a little bit more aggressive than would be interested in an indexed annuity, but maybe not all the way to the appetite of a traditional variable annuity. So I think across the board, the environment for the annuity industry remains very attractive.

[Operator]

Our next question comes from Josh Shanker of Bank of America.

[Joshua Shanker, analyst]

I just want to talk about given the strong repurchase activity in the quarter. How much excess capital do you have, not just the buffer you have, but the amount that you would want to be returning to shareholders remain from M&A transactions and just your capital optimization overall? And are there any thoughts at all about long-term free cash flow conversion on your earnings, whether it can be pushed higher than you have said in recent conference calls and whatnot.

[Elias Habayeb, executive]

So Josh, it's Elias. What I would say is this, our balance sheet is in a very strong position. We've been proactive in managing it to make sure it's in a very strong position. Our capital ratios are above our targets. Our parent liquidity is above kind of where our parent needs are. We've been pursuing opportunities to improve our financial flexibility, and there are other opportunities out there we're exploring. And when it comes from a capital distribution perspective, we've been pretty disciplined on kind of balancing giving an attractive cash return back to shareholders with investing in the business, which is kind of continuing to grow earnings and cash flows over time. So I think we've done a pretty good job there. And I think if you look at our balance sheet to date, it continues to be in a very strong position, which is part of the 4 levers we have to grow our earnings per share and create shareholder value. So we're in a good position to deliver on that.

[Joshua Shanker, analyst]

And so I mean if we think about modeling out do you intend to operate above your long-term desired capital ratios for the long term, or do you expect to get those down to in line or in target with the range of your goals for capital leverage.

[Elias Habayeb, executive]

So the way we look at the balance sheet is not just looking at 1 metric. The way we look at the health of the balance sheet, as you know, we look at our capital ratios, our leverage profile, our liquidity profile as well as the risk profile of the balance sheet. And that kind of informs us where we want to have the balance sheet, and what are we comfortable with to do or not do. The leverage rate -- sorry, the RBC ratio of 400 is a management threshold that we've set for us from that perspective. But it's just 1 of the metrics we look at. it's not a bright line that it has to be at 400 or 410 or 380 or whatever. So we look at it collectively and make our decisions after looking at the collective profile of the balance sheet.

[Operator]

Our final question of today comes from Dan Bergman of TD Cowen.

[Daniel Bergman, analyst]

Maybe just on alternative investment returns. There are still a little bit below long-term expectations in the quarter, but continued to show nice sequential improvement. Based on the prepared remarks, it sounded like there were some noise and one-off items in the quarter. But first, I just wanted to see if you had any initial view into what you'd expect for alternatives in the fourth quarter. And then maybe just more broadly heading into 2025, would you expect alternative returns to be back at long-term levels, or could the higher interest rate environment caused some ongoing pressure?

[Elias Habayeb, executive]

So listen, we had a really good quarter in the third quarter. If you look at what's the trend line been. To your point, the returns have been improving. We expect the fourth quarter to be another good quarter I don't think it's going to be as good as the third quarter given we had a corporate event and some FX benefit on the foreign funds that we had invested in. So our best insight based on what we know today, it will be between where the second quarter is and where the third quarter was. Looking into '25, listen, we continue to believe in our long-term expectation of returns being in the 8% to 9% range. And obviously, as you know, there's macro factors and other things that could influence it. It's early to predict anything right now beyond what's our long-term expectation around variable investment income.

[Daniel Bergman, analyst]

Got it. That's really helpful. And then maybe just a quick one on life insurance. It sounded like the strong earnings there were driven by favorable mortality. So I just wanted to see if you could give a little bit more color on the experience in the quarter and kind of trends you're seeing in that business? And should we expect any go-forward impact to run rate earnings or change in volatility levels from the recaptured business?

[Elias Habayeb, executive]

So let me start with the recaptured business. So that was a decision on our part. It made a lot of economic sense to recapture it. And as we look forward, we don't think that adds any meaningful incremental potential volatility, and we think the impact on run rate earnings is limited from on an annual basis on recapturing that treaty. With respect to mortality, listen, mortality can be volatile from quarter-to-quarter and their seasonality around second and third quarter tend to be lower, first and fourth quarter tend to be higher. What we -- if you look back the last couple of years, we've been experiencing mortality experience in line with our pricing expectations or better from there. But quarter-to-quarter, there could be volatility more to mortality.

[Kevin Hogan, executive]

Yes. What I would say -- I would just add, look, I mean, we've worked hard in the Life business. We're very comfortable with the product range that we're focusing on right now, which is less interest sensitive. We've made investments in our digital and automated underwriting capability that are really paying off. We've been focused on mortality, not just recently, but for a very long time. We've had a leading term suite for many, many years. And the third quarter mortality was not just within pricing expectations but well within pricing expectations. So we feel really good about the position to serve the need for the protection gap in the U.S. Our consistent growth has shown that. In terms of what the mortality will be, even in a large portfolio, mortality can be volatile from time to time. But we're very comfortable with our position in the Life business.

So thanks, everybody. As I conclude today, I want to share a few words of gratitude with my colleagues at Corebridge. This has been a remarkable 2 years since our initial public offering. And thanks to all of you, we're living our purpose every day where we help people to take action to plan, save for and achieve secure financial futures. I'm grateful for all of your outstanding work and your ability to deliver quarter after quarter.

Thanks, everybody, for joining the call, and have a good day.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may disconnect your lines.