Corebridge Financial Inc

NYSE:CRBG

Earnings Call Analysis

Corebridge's Strong Earnings and Bright Outlook

Corebridge Financial, Inc. had a triumphant year, finishing with a robust fourth quarter. Adjusted pretax operating income reached $820 million, a significant enhancement of 12% per share on a year-over-year basis. Adjusting for nonrecurring items, earnings per share (EPS) would have been $1.15, marking a 25% year-over-year improvement. Key drivers of earnings included growth in base spread income, fee income improvement, and a solid 16% rise in net investment income. Despite a slight underperformance in variable investment income due to alternative investment returns, Corebridge remained focused on capitalizing market opportunities and optimizing portfolio with disciplined capital management. They have also maintained a strong credit quality in their investment portfolio, with an average credit rating of 'A flat'. The company's solid performance is anticipated to persist into 2024, backed by a robust pipeline in full plan terminations and a focus on continuous operational improvement with $350 million in target achievements expected to enhance financial performance.

Corebridge's Strong Performance in 2023

Corebridge delivered a robust performance in 2023, evidencing a commitment to operational excellence and strategic growth, delivering a 12% year-over-year increase in both adjusted after-tax operating income and non-GAAP operating earnings per share, resulting in adjusted operating EPS of $4.10. This was underpinned by a notable increase in adjusted return on average equity to 12.2%, which marked an over 200 basis point improvement from the previous year.

Product Growth and Diversified Income Sources

The company thrived on a diverse product suite and distribution strategy that has allowed nimble reactions to market conditions. The significant growth areas included spread-based products, particularly fixed annuities, which increased sales volume over 200% since 2020, and pension risk transfers, marking a 130% increase in the same period. Fourth-quarter growth dynamics were attributed to new investment opportunities and an increase in fee income across various segments, despite a reduction in underwriting margin due to increased claims in the life insurance sector.

Solid Capital Position and Shareholder Returns

Maintaining robust capital and liquidity, Corebridge ended the year strongly with $1.6 billion in holding company liquidity. The company showcased its commitment to shareholder returns, with a 60% run rate payout ratio in Q4, excluding special dividends, and returned $1.1 billion to shareholders. Looking ahead, Corebridge is on track to deliver a consistent payout ratio of 60-65%, sustaining its capital distribution strategy.

Strategic Outlook and Growth Opportunities

Overall, Corebridge's forward-looking strategy emphasizes the optimization of business mix, with a clear focus on growth and capital efficiency. The company is enhancing its financial flexibility, highlighted by the expected regulatory advancements in Bermuda, aimed at supporting business development and capital optimization. Additionally, the company is well-positioned to capitalize on robust pipelines in pension risk transfer markets in the U.S. and the U.K.

Operational Efficiency and Continuous Improvement

With half of the $350 million target savings from the Corebridge Forward initiative expected to earn into the run rate in 2024, the company anticipates further beneficence through continuous improvement and investments in its operating platform, seeking additional gains in operational efficiency to bolster future performance.

Investment Income and Portfolio Resilience

Significant strides in net investment income, specifically base portfolio income, have fortified Corebridge's financial position, showcasing a 17% growth over the previous year quarter to nearly $2.6 billion. This performance was achieved while improving credit quality, with the overall portfolio remaining diversified, actively managed, and high-quality with 95% of fixed maturities rated in investment grade. Despite potential volatility, the outlook remains strong with expectations for revenue growth, albeit at a moderated pace.

Earnings Call Transcript 2023-Q4

[Operator]

Hello, everyone, and welcome to the Corebridge Financial, Inc. Fourth Quarter 2023 Earnings Call. My name is Seb, and I will be the operator for your call today. [Operator Instructions]

I will now hand the floor over to Isil Muderrisoglu to begin the call. Please go ahead.

[Isil Muderrisoglu, executive]

Good morning, everyone, and welcome to Corebridge Financial earnings update for the fourth quarter and full year of 2023. 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 law, 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 investor.corebridgefinancial.com.

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

[Kevin Hogan, executive]

Thank you, Isil, and good morning.

2023 was both an important year for Corebridge and a successful one. We've executed with focus and determination capitalized on attractive market opportunities, made tremendous progress on our strategic and operational priorities. And in each and every quarter, we delivered quality financial results. This morning, I will review the first full calendar year for Corebridge through 5 different lenses: profitability, sales, sources of income, operating expenses and capital return. Elias will then provide details on our fourth quarter results and offer some guidance for the year ahead.

But first, I want to remind you of the value proposition we laid out at our IPO. Corebridge operates 4 market-leading businesses that provide a broad set of protection and retirement solutions to individuals and institutions. We manufacture a wide range of products that appeal to different market segments while also designed to generate attractive returns. We have a high-quality in-force portfolio and have managed it carefully. The diversity in our product suite and the breadth of our distribution strategy allow us to be nimble and react to evolving market conditions. We have the ability to dial up and dial down product sales based on changes in customer demand and where risk-adjusted returns are the most attractive, as evidenced by our recent emphasis on spread-based products, such as fixed annuities, which has grown over 200% since 2020 and, pension risk transfer, which has grown 130% over the same period.

Our leading distribution platform is also a significant contributor to our agility, with over 1,200 distribution relationships with banks, broker-dealers, wirehouses, independent marketing organizations and general and independent agencies as well as our own financial adviser and our direct channel. We continue to invest in our platforms to improve efficiency, scalability and productivity such as we have been undertaking with Corebridge Forward, our modernization program.

Our competitiveness is further supported by our asset origination capabilities that have been enhanced by our investment partnerships with Blackstone and BlackRock. Our strategy is to grow our company in a way that creates value for both our customers and our shareholders. Collectively, our diversified businesses and dynamic business model have a long track record of delivering attractive financial results and consistent cash flows under different macro environments.

Together with our strong balance sheet, we are well positioned to deliver long-term value to our shareholders by remaining focused on improving profitability and returning a meaningful amount of capital. With that as background, I would like to review our 2023 financial results.

Corebridge is pleased to report very strong results not only for the fourth quarter but also for the full year. We grew 2023 adjusted after-tax operating income to $2.6 billion, a 12% increase year-over-year. Our full year non-GAAP operating earnings per share also rose by 12% to $4.10, and our 2023 adjusted return on average equity increased on a run rate basis to 12.2%, an improvement of over 200 basis points from the prior year. Corebridge drove profitability through strong top line growth, margin expansion and expense efficiency. We benefited from the investments we have made in our operating model, which positioned us to capitalize on historic market opportunities.

In 2023, we grew premiums and deposits across our broad portfolio of spread-based products by 60%. These products are particularly attractive now, producing strong margins with double-digit IRRs.

Looking across the entire Corebridge portfolio, premiums and deposits were $10.5 billion for the fourth quarter and $39.9 billion for the year. The full year volume of almost $40 billion is a new record for us and one of several high watermarks for 2023, including fixed annuities, fixed index annuities, guaranteed investment contracts and pension risk transfer sales.

Complementing this growth, we leveraged our unique investment platform to scale the origination of attractive assets that are well matched to our liabilities and to opportunistically lock in favorable yields from which we expect to see benefits for years to come. Our new operating model enabled us to rapidly expand capacity to support record sales volumes, especially in the latter part of the year.

We also grew our aggregate core sources of income, which increased 12% for the full year to $7.1 billion. Our 4 established businesses generate an attractive mix of spread income, fee income and underwriting margin. We enjoyed meaningful growth of spread income supported by market conditions, while at the same time, fee income stabilized with improved asset valuations and the expansion of our advisory and brokerage business and Group Retirement. And we continue to generate a solid underwriting margin from improved full year mortality experience.

Taking a look at our spread businesses, we increased full year base spread income by nearly $900 million or 30% to $3.7 billion. We were able to serve our customers and distribution partners' needs with attractive products reflecting some of the most supportive market conditions in recent memory. With interest rates at levels not seen in over a decade, we seized the opportunity. As we look ahead to 2024, the environment remains attractive for new business, and we remain well positioned to serve our markets.

Although we invested as appropriate to increase our capacity in both sales and operations to support this unique growth opportunity, we also remain steadfastly focused on expenses. Between the fourth quarter of 2022 and the fourth quarter of 2023, we reduced our operating expenses by 14%. A key contributor has been Corebridge Forward. We have achieved or contracted on 88% of our exit run rate savings goal of $400 million, and we expect the vast majority to earn into our results by the end of 2024. This program is near its completion as we transition to a focus on continuous improvement.

Turning to capital management. We have been clear since the outside of Corebridge that we are committed to deploying capital to create value for shareholders. In 2023, we demonstrated our ability to do this, with strong cash flows from our insurance companies, supported by important strategic transactions. We closed the sale of Laya Healthcare in Ireland and remain on track to close the sale of our U.K. life business in the second quarter of 2024 as we streamline our portfolio with a continuing focus on life and retirement solutions in the United States. Collectively, the sale of our international life operations will generate over $1 billion of value.

Corebridge returned over $2.2 billion to shareholders in our first full calendar year as a public company, including special dividends, and we remain committed to delivering a 60% to 65% payout ratio in 2024. Our delivery of these attractive levels of shareholder return reflects the confidence we have in our financial position. We entered 2024 with a strong balance sheet and ample levels of liquidity and capital, representing enhanced financial flexibility. For over a decade and across various economic cycles, we have consistently maintained a Life Fleet RBC ratio above our target. At the same time, our insurance companies have distributed over $2 billion annually to our holding company. We are routinely able to maintain healthy capital levels regardless of the macro environment while simultaneously supporting new business volume and robust capital return.

Finally, I want to turn to the operational separation from AIG. This has been a complex program demanding considerable expertise and coordination, and we are nearing the end of our work. We established the capabilities required of a stand-alone public company, implemented our own capital structure, created and brought to life a new brand and disentangled functions, systems and infrastructure.

On the IT side, just as one example, we migrated nearly 700 physical applications, hundreds of operating platforms and thousands of end users. These efforts did not distract us from continuing to serve our customers and distribution partners.

At the end of 2023, our total spend on operational separation was $425 million. As we said before, some work has indeed extended into 2024, along with a handful of transition services agreements. All of this required an extraordinary effort. For our employees, you have my gratitude. We ask a lot of all of you, and you delivered. I also want to thank our partners and AIG for helping to make our operational separation of success.

Returning to where I began my remarks, 2023 was our first full calendar year as a public company, and it was a very productive one. The fourth quarter was a strong conclusion to what was a very good year.

I will now turn the call over to Elias who will go into more detail on the results for the quarter.

[Elias Habayeb, executive]

Thank you, Kevin. Corebridge delivered excellent results, both in the fourth quarter as well as the full year of 2023 while improving our financial position. We executed across strategic and operational priorities and made significant progress on the financial goals we established at the time of the IPO. Corebridge increased profitability by capitalizing on market opportunities while reducing our operating expenses. We strengthened our core businesses and enhanced our financial flexibility while returning significant capital to shareholders.

Corebridge reported fourth quarter adjusted pretax operating income of $820 million or earnings per share of $1.04, an increase of 12% year-over-year on a per share basis. Operating EPS included a $0.06 impact from nonrecurring items in our investment portfolio related to a prior period true-up on certain investments. This was offset by a $0.17 impact from alternative investment returns below our long-term expectations. Adjusting for these 2 items, our operating EPS would have been $1.15. This is a 25% improvement year-over-year on a comparative basis.

Our aggregate core sources of income, which excludes variable investment income, improved year-over-year driven by growth in base spread income and in fee income, partially offset by a reduction in underwriting margin. The increase in base spread income, our largest source of earnings, was driven by higher new money yields and growth of our broad portfolio of spread-based products.

On average, new money yields were 7% in the fourth quarter or 190 basis points above yields on assets that matured or were sold in our general accounts. Total invested assets grew by approximately $11 billion.

The increase in fee income, our second largest source of earnings, reflected the improvements in underlying asset valuations and the expansion of advisory and brokerage services in our Group Retirement segment. The decline in underwriting margin was the result of a higher frequency of smaller claims in our universal life book this quarter and net favorable nonrecurring items impacting our Life Insurance segment in the prior year quarter.

Pivoting to net investment income. Net investment income for our insurance companies on an APTOI basis improved 16% year-over-year. Base portfolio income grew 17% over the prior year quarter to nearly $2.6 billion. Reported base yields increased 45 basis points year-over-year to 4.87%. Excluding the impact from the aforementioned nonrecurring items, base yields increased 51 basis points over the prior year quarter.

Based on our current interest rate and net flows outlook for 2024, we expect base portfolio income, along with associated base yield, will continue to grow, albeit at a slower pace. Corebridge improved base yield this quarter while also moving up in credit quality. Our general account investment portfolio is well positioned to perform under various market conditions. It is diversified, actively managed and remains high quality, with an average credit rating of A flat. 95% of fixed maturities were rated in investment grade as of December 31. The credit metrics in our Corebridge fixed income portfolio remained strong, and for the full year, the portfolio experienced net positive rating migrations, with upgrades outpacing downgrades. The credit fundamentals in our commercial mortgage loan portfolio remained resilient and are evolving as expected.

LTV and debt service coverage ratios remain strong. Less than 1.5% of our loans have an LTV greater than 80% with a debt service coverage ratio below 1x. Our team is now focused on resolving 2024 maturities, of which office maturities are only $240 million or approximately 3% of the office portfolio. Corebridge remains proactive in reserving for potential losses in the portfolio and continues to maintain a robust loan loss allowance, which is reassessed on a quarterly basis.

As of December 31, our allowance is equal to 1.8% of the total CMO book, unchanged from the prior quarter. We also continue to hold an allowance in excess of 5% for our traditional office portfolio. We continue to believe our exposure to the office sector is manageable and remain convinced that the dislocation in this sector will play out over time.

Now moving to variable investment income. Alternative investments, which represent only 3% of our total invested assets or $5.5 billion, delivered a $23 million loss in the quarter. Positive returns in traditional private equity were offset by losses in real estate equity and hedge funds. During 2023, we reduced our hedge fund holdings by over 70%, ending the year with a portfolio of approximately $200 million. Alternative investments continue to be an important asset class as part of our strategic asset allocation. Over the last 5 years, these investments have returned an average of 14%, and we continue to have a long-term performance expectation of 8% to 9% for the asset class.

Given the increases in cap rates during the fourth quarter, we are expecting further mark-to-market losses on our real estate equity investments in the first quarter of 2024. Real estate equity constitutes approximately 25% of our alternative investments or less than 1% of our total invested assets. Despite these valuation impacts, the portfolio continues to perform well, with strong cash flows at the property level.

Pivoting to the business segments, which continued their strong performance during the fourth quarter. Individual Retirement reported adjusted pretax operating income of $628 million, a 35% increase year-over-year, primarily driven by higher base spread income resulting from general account product growth and base spread expansion. Over the last 12 months, this business has contributed approximately 60% Corebridge's insurance segment operating results. The compelling value proposition of our fixed and fixed index annuities has been responsible for approximately 51% of our earnings. Variable annuities have contributed only 9% to our adjusted pretax operating income.

Base net investment spread for Individual Retirement rose 37 basis points from the prior year quarter and 4 basis points sequentially. We expect base spread income will continue to grow over the coming year. However, base net investment spread expansion likely has peaked. That being said, base spread on the overall portfolio remain at very attractive levels.

The operational capacity expansion we discussed during last quarter's earnings call allowed us to deliver over $3 billion of fixed annuity sales during the third -- during the last 3 months of the year. This along with persistently strong fixed index annuity sales helped Individual Retirement delivered positive general account net flows of roughly $1.7 billion. Our fourth quarter fixed annuity surrender rate declined 80 basis points sequentially. While we expect surrender rates largely to track changes in interest rates, periodically, we may see movements in the surrender rate as blocks of business exit their surrender charge protection. For instance, in the first quarter of 2024 we expect a higher volume of annuities exiting the surrender charge protection, which should result in an elevated surrender rate. That being said, we continue to project general account net flows will remain positive.

Group Retirement reported adjusted pretax operating income of $179 million, a 4% increase year-over-year. This includes higher fee income and lower expenses, partially offset by lower base spread income. Over the last 12 months, the business has contributed approximately 20% to Corebridge's insurance segment operating results.

Group Retirement is a consistent performer. Excluding variable investment income, it has steadily delivered an average of $179 million of earnings per quarter over the last 16 quarters. Importantly, it is less capital-intensive than our other businesses, with an even split between spread and fee income. As with others in the industry and broader demographic trends in the country, our net outflows are typically driven by customers at or near retirement and transitioning from asset accumulation to asset distribution. These older-age cohorts tend to have higher guaranteed minimum interest rates and larger account values. Concurrently, our net inflows are dominated by our younger-age cohorts with lower guaranteed minimum interest rates. Additionally, we're seeing inflows from auto plan fixed and fixed index annuity sales and our broader offering of advisory and brokerage services, which collectively grew in excess of 40% year-over-year.

Finally, I would remind you that there is seasonality in our net flows resulting from required minimum distributions by plan participants. We typically see raised levels of outflows at the end of the year, which we saw again in the fourth quarter. The impact was approximately $400 million.

Life Insurance reported adjusted pretax operating income of $79 million, a 44% decrease year-over-year, mainly driven by mortality experience in our universal life book this quarter and $22 million of net favorable nonrecurring items from the fourth quarter of 2022. Our traditional mortality experience, which is primarily comprised of churn, was favorable this quarter, and overall mortality experience for the full year, inclusive of reserve impact, was consistent with our expectations.

As a reminder, our sale of Laya Healthcare closed on October 31. So results from this business were only included in our financials for 1 month of the fourth quarter. As we have demonstrated, we're always looking for ways to optimize our portfolio, both in-force and new business. We will continue to regularly review opportunities to increase shareholder value.

Institutional Markets reported adjusted pretax operating income of $93 million, a 55% increase year-over-year, primarily driven by higher base spread income. Our reserves have grown $8 billion or 26% year-over-year, with the expansion of our PRT and GIC businesses. Looking forward, we continue to expect meaningful opportunities to further expand both businesses at attractive margins, which should lead to ongoing growth of base spread income and distributable cash flows.

Corporate & Other reported an adjusted pretax operating loss of $159 million, primarily the result of our stand-alone capital structure and new parent companies since the IPO.

Wrapping up, Corebridge continues to maintain strong capital and liquidity positions. We ended the year with $1.6 billion of holding company liquidity exceeding our next 12-month needs. In the fourth quarter, Corebridge delivered a run rate payout ratio of 60%, excluding special dividends. We returned $1.1 billion to shareholders, comprised of $250 million of share repurchases, approximately $145 million of regular quarterly dividends, and a $730 million special dividend that distributed the proceeds from our sale of Laya Healthcare.

We estimate our Life Fleet RBC ratio to be in the range of 400% to 430% as of the end of the year. This was after distributing $2 billion from our insurance companies, which translates into approximately 50 RBC points.

Corebridge is starting 2024 in a strong position with enhanced financial flexibility, and we believe we're on track to deliver on our goals, including a payout ratio of 60% to 65%. Consistent with our approach of creating value and enhancing financial flexibility, we're working to have our Bermuda entity support further business development activities. This will provide Corebridge with additional capacity to grow while optimizing our capital. We're working through the necessary regulatory approvals, which we expect to complete in 2024.

In conclusion, 2023 was a very successful year for Corebridge, with the fourth quarter an excellent capstone. We've made tremendous progress, and we remain focused on delivering on our financial goals in 2024.

I will now turn the call back to Isil.

[Isil Muderrisoglu, executive]

Thanks, Elias. As a reminder, please limit yourself to one question and one follow-up. Operator, we are ready to begin the Q&A portion of our call.

[Operator]

[Operator Instructions] Our first question comes from Ryan Krueger from KBW.

[Ryan Krueger, analyst]

My first question was on the Bermuda comment you just made. Just curious, do you view Bermuda as more of an opportunity to improve capital efficiency on new business? Or do you -- in addition to that, do you also see an opportunity to improve the capital efficiency of the existing in-force?

[Kevin Hogan, executive]

Yes. Thanks, Ryan. As we understand our opportunity, our obligation is to constantly review the portfolio and look for opportunities to create value. And I think we've had a history of execution there, including in Bermuda. We're very familiar with the Bermuda environment. We have a well-capitalized legal entity in Bermuda. And per Elias' comments, we're working now on enhancing its position. We do see various opportunities in Bermuda, obviously, supporting new growth, which is what we're focused on at this point. But it does create opportunities for enhancing capital efficiencies. And we'll continue to review opportunities of an affiliated reinsurer of our own in Bermuda as well as other potential alternative solutions and continue to understand what the market conditions are and where there may be value generation opportunities.

We don't have anything else to report at this time. But we're focused on enhancing the capabilities of our Bermuda entity.

[Ryan Krueger, analyst]

Got it. And then a follow-up was on interest rate sensitivity. I know you've given overall interest rate sensitivity in the past. I was hoping you could give us a little bit more color on isolating your sensitivity to short-term rates, specifically -- and if you've taken any actions or plan to take any actions to reduce the floating rate sensitivity if rates start to decline.

[Elias Habayeb, executive]

Ryan, it's Elias. So on the interest rate sensitivity in the past, we have given the sensitivity to a 100 basis point change across the curve, and that was like $165 million in the first 12 months. If you look at the portfolio, the portfolio since then has grown, so that's a little higher, but not that materially different.

With respect to actions around the portfolio, listen, we -- our investment strategy follows our kind of liability profile. We do have some floating rate liabilities like in Institutional Markets, which are back to a floating rate assets. But on top of it, we're very disciplined from an ALM perspective. And we try to match interest rate duration very tightly. And we will react as that profile changes. We're pretty disciplined on that front.

[Operator]

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

[Joshua Shanker, analyst]

Obviously, a very big quarter for fixed annuity sales. I wonder if you can talk a little bit about distributor and customer behavior as interest rates have fallen a lot. Have they rotated into other products? Are fixed annuity sales still attractive? And how we should sort of think about the mix given the current interest rate environment?

[Kevin Hogan, executive]

Yes. Thanks, Josh. Fixed annuities and fixed index annuities continue to be very attractive. They were attractive at times when the rate environment was a little bit lower, and the rate environment continues to be very supportive. And I think that the fixed income asset class is something that people have really woken up to as part of the long-term savings plan. Since the turn in interest rates really back in 2022 and the advisers that we work with are continuing to focus on ensuring that people are securing their financial futures relative to those long-term plans.

And what I would say is that, I mean, we're very proud of our execution in working with our distribution partners to mobilize these very attractive products. And even if rates were to come back a little bit, we still see extremely attractive margins. These are extremely attractive return profiles for our customers. And we feel very confident in our position with the fixed and indexed annuities businesses.

[Joshua Shanker, analyst]

And I'm not asking specific numbers, but the amount of flows that we saw in 4Q, can we look at it and say that the 2024 outlook looks to be in some sort of a supportive range of the generation you did in the last quarter of '23?

[Kevin Hogan, executive]

Well, the last quarter of 2023 was a unique quarter, and I think what the future environment is going to be in both terms of sales and surrenders is going to ultimately depend where rates are. As I just mentioned, we continue to see strong demand, and surrenders continue to be within our expectations.

If rates were to go up again, we would see increased surrenders again, which also creates new business opportunities. As Elias pointed out, we do have some blocks that will be exiting their surrender protection period, and we would expect that surrenders would increase a little bit as we do in the first quarter, but we still expect for the general account to continue to grow.

[Operator]

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

[Joel Hurwitz, analyst]

So a very strong year for new business generation for you guys, particularly in Individual Retirement and Institutional Markets. I guess, can you help size the amount of capital deployed for -- deployed in '23 for organic growth and how that might have compared to prior year?

[Elias Habayeb, executive]

Joel, it's Elias. We have not given any quantification, but here's what I'll tell you. We're very disciplined with how we manage the balance sheet. And we're very proactive with how we manage the balance sheet.

During 2023, we grew our RBC from 411% at the beginning of the year and where we're ending between 420% and 430%. At the same time, the insurance company has distributed about $2 billion of dividends, and that was about 50 RBC points, and we had a record sales period, and we were able to kind of deliver through that. And my expectation is the discipline we've demonstrated from a capital perspective is that's kind of core to us, and we're going to continue that going forward.

[Joel Hurwitz, analyst]

Okay. I guess just sticking on that, so $2 billion again in distributions from the insurance subs. I guess how do you see that growing, right? Your earnings have grown quite significantly, particularly this year and should be pretty solid moving forward. How do you see that $2 billion growing in and supporting your payout ratio over the medium term?

[Elias Habayeb, executive]

Well, we do see -- given the growth in earnings and the strength of the balance sheet, we expect the dividends from the insurance companies over time to grow in line to fund us at the 60% to 65% payout ratio. And if you look at the track record of our insurance companies, they've distributed over $2 billion a year. And we've got strong parent liquidity and a strong balance sheet. So sitting here today as the CFO, I feel confident in our ability to deliver on the 60% to 65%.

[Operator]

Our next question is from Jimmy Bhullar from JPMorgan.

[Jamminder Bhullar, analyst]

So first, just a question on spreads in the Group Retirement business. So they've expanded this year versus last year, and I'm talking about the base spread. But if we look sequentially, they're down each of the last 2 quarters. So clearly, they're at very attractive levels. But assuming interest rates stay where they are right now, would you expect further improvement in spreads? Or are they to a point where any future benefits on yields are going to be offset by just competitive conditions and you having to raise crediting rates as well as we've seen in the last couple of quarters?

[Kevin Hogan, executive]

Yes. So thanks, Jimmy. There's a number of dynamics in Group Retirement that, I think, have reflected with respect to that trend that you observed there. And part of it is that the age of the -- let's first talk about the implant part of the business, right? I mean there's customers, as Elias pointed out to, that are at that retirement age that are moving from accumulation to decumulation. And sometimes those customers, as you would expect, have larger account values but also higher guaranteed minimum interest rates. And these are the areas where we're seeing the net outflows. It's in the younger customers that are earlier in their savings periods that we're actually seeing offsetting positive inflows, and of course, those come along with lower guaranteed minimum interest rates.

And so the effect that you're seeing there with a little bit of spread compression is in part an outcome of this dynamic between the older and the younger customers.

But the other part of the Group Retirement business that I would -- I'd point to is the out-of-plan business. This is where we have the fixed annuities, indexed annuities as well as the advisory and brokerage platform, which actually has $42 billion in assets under management today and is growing. And the total assets under management in the Group Retirement business are also growing. It reached $122 billion today. And as Elias pointed out, the earnings have been consistent in that business for the last number of years.

And there's a strong balance between spread income and fee income in Group Retirement. So the spread income is one dynamic, but the growth in the fee income base is another dynamic, and we see upside opportunities across this business.

[Elias Habayeb, executive]

And if I can add, Jimmy, if you look at the numbers, while base spread income came down, fee income went up 7% year-over-year. And then the advisory and brokerage net flows are not included in our net flows. So if you adjust that, actually, the net outflows would be less.

[Jamminder Bhullar, analyst]

Yes, yes. And then maybe one on individual life. If we look at your margins over the course of this year, they've fluctuated, like last quarter was better than normal, this quarter seemed like it was worse than normal. Is that just sort of aberration and normal volatility? And do you view this -- the year as a whole, 2024 as a whole -- or '23 as a whole sort of a good level to use for margins in individual life going forward?

[Kevin Hogan, executive]

Yes. Thanks, Jimmy. In the universal life, it still has sort of the volatility effect. I mean LDTI did not necessarily change the reporting basis for the UL business. And in mortality, there is expected volatility. As you pointed out, the fourth quarter was a little bit high for us, but the previous couple of quarters were actually well within expectations. And as we look at the full year, just within UL, that remained within our expectations and across the entire mortality portfolio was within our expectations.

And so we do view it as a full year level, and we haven't seen anything in the data that suggests any change to our long-term assumptions.

[Operator]

Our next question is from Tom Gallagher from Evercore ISI.

[Thomas Gallagher, analyst]

Just a follow-up on Ryan's question. Given that you're going to be setting up the Bermuda captive, are you more likely to consider internal reinsurance as your primary option to optimize capital? Or are you also strongly considering external potential risk transfer as well?

[Kevin Hogan, executive]

Yes. Thank, Tom. We consider all options. We understand that, that is our opportunity as well as our obligation as management to look for opportunities to optimize the portfolio and create shareholder value. As I mentioned earlier, we have a Bermuda entity, and it is capitalized. We are working on essentially expanding its license to be able to support part of our new business. But there are other opportunities that we have relative to the Bermuda entity over time.

But in addition to that, we are currently aware of market conditions with external parties relative to potential transactions and evaluating those opportunities. And we will continue to do so. And as I pointed out earlier, we have nothing to report at this time.

[Thomas Gallagher, analyst]

Great. That's helpful color, Kevin. The -- my follow-up is just on the investment side. So one observation and question is, I noticed your commercial mortgage loan reserves for office actually declined from 3Q. I think it was 5.9% last quarter, down to 5.2% this quarter. Just curious what drove that. Was that from maturities or from closures?

And then a broader question on multifamily. I know that's your biggest exposure on the commercial mortgage loan side, there's been some new market concerns in that asset class. Just if you could give a little perspective on how you're feeling about multifamily.

[Elias Habayeb, executive]

Tom, it's Elias. We have no foreclosures in the book. So the reduction in our allowance for offices more having to do with resolution loans, but there's no foreclosures in our portfolio. And we continue to believe our allowance for loan loss in total and specifically on office continues to be pretty robust from there.

With respect to multifamily, yes, it is our largest exposure, and we participate in it both on the debt and the equity side, and we feel comfortable with our portfolio. It's high-quality. Cash flow to the property levels are strong. LTVs, debt service coverage ratios are strong. With respect to kind of concerns about rent control specifically in New York, our exposure to rent control is de minimis in our portfolio. So that's not something we're worried about.

[Operator]

Next question is from Elyse Greenspan from Wells Fargo.

[Elyse Greenspan, analyst]

My first question, just on capital return. You guys started right buying back shares in the open market. How should we think about, in '24, the balance of buying back shares in the open market and then wanting to participate as there is future secondaries from AIG?

[Elias Habayeb, executive]

Elyse, it's Elias. Listen, I think our outlook is we're going to buy back shares in open market. And if there's opportunities to participate in AIG sell-downs, we will consider it and do it. But our game plan, we're not dependent on AIG to do a secondary for us to deliver on our capital return.

[Elyse Greenspan, analyst]

Okay. And then my second question, we saw PRT activity picked up in the fourth quarter. My sense is we're not seeing as much of the same seasonality with Q4 being the highest as we used to in the past. If you can you just give us a sense of the outlook that you have on the PRT side? And if you expect or don't expect to see seasonality with transactions in '24?

[Kevin Hogan, executive]

Yes. Thanks, Elyse. What we see in pension risk transfer is a very strong pipeline continuing for the market segments that we're focused on, which is full plan terminations. Full plan terminations are somewhat more structured and complex than some of the longevity-focused transactions. And the pipeline for those is a little bit longer term. I think there has been a bit of a change in calendarization with the change in the external market. But both for the U.S. and for the U.K., which are the 2 markets where we participate, we see a very robust pipeline coming into 2024.

[Operator]

Our next question is from John Barnidge at Piper Sandler.

[John Barnidge, analyst]

With the expense saves fully earning in by the end of '24 and a focus on continuous improvement, how should we be thinking about the operating expense growth as you would think -- as you would look towards '25?

[Kevin Hogan, executive]

Yes, thanks. So we are very happy with the progress on Corebridge Forward so far. We've achieved about $350 million of the target there, and we expect about half of that to earn into our run rate this year. And we still have the continuing outcomes from Corebridge Forward to deliver. As we look beyond and adoption of a sense of continuous improvement, I think this is where we'll benefit from the investments that we've made in our operating platform, and we'll continue to respond to growth opportunities as they emerge. And so we would expect an incremental improvement in operational efficiency as we benefit from the work that we've done so far and continue to focus from that.

[John Barnidge, analyst]

And then a question on the higher frequency and smaller claims in the life portfolio. Some have talked about infectious disease season being earlier this year, more 4Q than 1Q. Does that experience line up with that thought process as well?

[Kevin Hogan, executive]

Actually, in our case, we haven't observed this particular dynamic. And as I pointed out earlier, as we look into the data, we haven't seen anything to suggest other than just an anomalous quarter. And mortality, while in many respects, is very predictable, the actual timing of mortality is not so predictable. And that's why we do continue to expect them to see some volatility quarter-to-quarter, and we need to look at mortality over a longer time frame.

[Operator]

Our next question is from Suneet Kamath from Jefferies.

[Suneet Kamath, analyst]

Listening to your prepared remarks, I had thought that the commentary that you made about optimization of the business mix was in your discussion on the Life Insurance business. So is that really where we should think about your focus being? Or is it broader than that?

[Kevin Hogan, executive]

With respect to the Life Insurance business, we have changed our business mix in the last couple of years. We've been kind of open talking about that and moving away from more interest-sensitive products into our very successful term suite as well as simplified products for the middle market and our indexed universal life product range. And those are the segments that we continue to focus on and anticipate serve.

[Elias Habayeb, executive]

Yes. Suneet, the other thing I had, given our broad suite of products, we're constantly optimizing given where we see demand for product as well as where we think we can get the best risk-adjusted returns on the capital we deploy. So that's a regular activity.

[Suneet Kamath, analyst]

Okay. Got it. And then I guess just going back to the annuity sales, obviously, very strong here in the quarter. Can you just provide some color on maybe where those sales are coming from, if it's a particular channel and maybe how much of that is coming from rollovers of 401(k) plans or assets?

[Kevin Hogan, executive]

So the channels that are the most robust for us right now with respect to fixed and fixed-index annuities are the bank and the broker-dealer channels with a lesser participation in the IMO channel. And in terms of the sources of the assets, we don't report on what the various sources of the asset is. What I'll say is that as we've experienced and as we would expect, customers coming out of existing annuities products certainly have the opportunity to reinvest. And as people move from accumulation to decumulation, fixed income is an important part of the strategy of many of the advisers that they are working with. And so I think what we're seeing is a combination of new investments in fixed income because the value proposition for fixed income investments is much stronger now than just a couple of years ago as well as some regular activity of people reinvesting in their existing annuity products.

[Operator]

Our next question comes from Mike Ward at Citi.

[Michael Ward, analyst]

Maybe on the Bermuda entity real quick. I was just wondering if you could maybe help us think about any potential impact on free cash flow conversion from higher utilization of that over time?

[Elias Habayeb, executive]

Mike, it's Elias. So here's what I'd say about the Bermuda entity at this point. We believe it will increase our financial flexibility that either gives us flexibility for more growth or to do other things with it. We're still through the regulatory process. So we're not going to quantify anything at this point. So we're done through that process at this stage.

[Michael Ward, analyst]

Okay. And then maybe on CRE, just kind of curious, the maturities that you've had so far or the ones that are in the sort of the immediate future, just kind of wondering how the resolutions have progressed. Are you taking equity? Are you making equity investments at all? Or how have they gone so far?

[Elias Habayeb, executive]

So on -- if I look at the '23 maturities, it's been a combination where we got paid off or we've agreed to an extension. And generally, whenever we've agreed an extension, we either got a partial pay down or we had the equity put in more -- the equity investor put in more equity in the property and draft cash, which ended up improving our credit position in there. We have not taken so far any equity in any of these properties.

[Operator]

We have no further questions on the call at this time. So I will hand the call back to Kevin Hogan.

[Kevin Hogan, executive]

Okay. Thank you. Before we end today's call, I want to make one more point to our listeners and remind everyone of the enterprise we're building here.

At Corebridge, we operate with what is a unique collection of 4 businesses that together enables our company to perform across different macroeconomic environments. We're flexible and nimble and can tailor our strategy to match changes in demand as well as our evolving view of profitability and risk. With this diversified and dynamic business model, supported by our strong balance sheet, our solid capital and liquidity positions and our history of disciplined execution, Corebridge remains focused on delivering attractive results and creating long-term value.

Thank you for joining us this morning, and have a good day.

[Operator]

This concludes today's conference call. Thank you all very much for joining. You may now disconnect your lines.