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spk08: Hello everyone and welcome to the Corbridge Financial Inc fourth quarter 2023 earnings call. My name is Seb and I will be the operator for your call today. If you would like to ask a question during the Q&A session you can do so by pressing star 1 on your telephone keypad or press star 2 if you would like to withdraw your question. In the interest of time and fairness please limit yourself to one question and one follow-up. I will now hand the floor over to Ishil Mudarisolu to begin the call. Please go ahead.
spk09: Good morning, everyone, and welcome to Corbridge Financial's 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 Habayev, 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. Corbridge'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, Corbridge 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 and Elias for their prepared remarks. Kevin?
spk12: Thank you, Isha, and good morning. 2023 was both an important year for Corbridge and a successful one. We 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 Corbridge through five 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. Corbridge operates four 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, wire houses, independent marketing organizations, and general and independent agencies, as well as our own financial advisor 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. Corbridge 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. Corbridge 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 drew 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 four 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 in group retirement. And we continue to generate a solid underwriting margin from an 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 memories. 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 In the fourth quarter of 2023, we reduced our operating expenses by 14%. A key contributor has been Corbridge 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 outset of Cordridge 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 Leia Healthcare in Ireland and remain on track to close the sale of our UK 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-sweet RBC ratio above our targets. 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 standalone 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 asked 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 a 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.
spk13: 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. Corporates reported fourth-quarter adjusted pre-tax 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 six-cent impact from non-recurring 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 two 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 margins. 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 lifebook this quarter and net favorable non-recurring items impacting our life insurance segment in the prior year quarter. Visiting to net investment income. Net investment income for our insurance companies on an APTY basis improved 16% year-over-year. Base portfolio income grew 17% over the prior year quarter to nearly $2.6 billion. Reported base yield increased 45 basis points year-over-year to 4.87%, excluding the impact from the aforementioned non-recurring items base yield 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. Corporates 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 single A flat. 95% of fixed maturities were rated investment grade as of December 31st. The credit metrics in our corporate fixed income portfolio remain strong And for the full year, the portfolio experienced net positive ratings migrations with upgrades outpacing downgrades. The credit fundamentals in our commercial mortgage loan portfolio remain resilient and are evolving as expected. LTB and debt service coverage ratios remain strong. Less than 1.5% of our loans have an LTB greater than 80% with a debt service coverage ratio below one times. Our team is now focused on resolving 2024 maturities, of which office maturities are only $240 million, or approximately 3% of the office portfolio. Corbridge 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 31st, our allowance was equal to 1.8% of the total CML 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 incomes. 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 five 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 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 retirements reported adjusted pre-tax 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% to Corbidge'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 pre-tax operating income. Base net investment spread for individual retirement rose 37 basis points from the prior year quarter and four 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 spreads 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 last three months of the year. This, along with persistently strong fixed index annuity sales, helped individual retirement deliver 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 their 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 retirements reported adjusted pre-tax 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 Corbidge'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 next inflows are dominated by our younger age cohorts with lower guaranteed minimum interest rates. Additionally, we're seeing inflows from out-of-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 free tax 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 non-recurring items from the fourth quarter of 2022. Our traditional mortality experience, which is primarily comprised of term, 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 Leia Healthcare closed on October 31st, so results from this business were only included in our financials for one 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 pre-tax 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' attractive margins, which should lead to ongoing growth of base-spread income and distributable cash flows. Corporates and others reported an adjusted pre-tax operating loss of $159 million, primarily the result of our standalone capital structure and new parent companies' census since the IPO. Wrapping up. Corbridge 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, Corbridge 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 LEIA Healthcare. We estimate our live fleet RPC 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. Corbridge 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 Corbridge 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 Corbridge 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 not turn the call back to Isha.
spk09: 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.
spk08: Thank you. As a reminder, it's star 1 on your telephone keypad to ask a question or star 2 if you'd like to withdraw your question. Our first question comes from Ryan Kruger from KBW. Please go ahead.
spk07: Hey, thanks. Good morning. 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?
spk12: Yeah, thanks, Ryan. Good morning. You know, 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's comments, we're working now on, you know, enhancing its positions. 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, you know, we're focused on enhancing the capabilities of our Bermuda entity.
spk07: Got it. Thanks. And then 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 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.
spk13: Hey, Ryan, it's Elias. So on the interest rate sensitivity, in the past we've given the sensitivity to 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, our investment strategy follows our kind of liability profile. We do have some floating rate liabilities like an institutional market, which are backed with floating rate assets. But on top of it, we're very disciplined from an ALM perspective. And, you know, we try to match interest rate duration very tightly, and we will react as that profile changes. We're pretty disciplined on that front.
spk07: Okay, thank you.
spk08: Our next question is from Josh Shanker at Bank of America. Please go ahead.
spk03: Yeah, thank you very much. Obviously, a very big quarter for fixed annuity sales. I wonder if you can talk a little 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 industry environment?
spk12: Yeah, thanks, Josh. Fixed annuities and fixed index annuities continue to be very attractive. They were attractive at times when, you know, the rate environment was a little bit lower and the rate environment continues to be very supportive. And I think that the, you know, the fixed income asset class is something that people have really woken up to as part of a long-term savings plan since the turn in interest rates really back in 2022. And the advisors 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 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.
spk03: 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 supportive range of the generation you did in the last quarter of 23?
spk12: 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 the general account to continue to grow.
spk03: Thank you very much. Thank you.
spk08: Our next question is from Joel Howitz from Dowling & Partners. Please go ahead.
spk05: Hey, good morning. So a very strong year for new business generation for you guys, particularly individual retirement institutional markets. I guess, can you help size the amount of capital deployed in 23 for organic growth and how that might have compared to the prior year?
spk13: Hey, 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 were very proactive with how we managed to balance sheet. During 2023, we grew our RBC from, you know, 411 at the beginning of the year and where we're ending between 420 and 430%. At the same time, the insurance companies 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, you know, that's kind of core to us, and we're going to continue that going forward.
spk05: 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, right? particularly this year and should be pretty solid moving forward. How do you see that $2 billion growing and supporting your payout ratio over the medium term?
spk13: Well, you know, 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, you know, sitting here today as the CFO, I feel confident in our ability to deliver on the 60% to 65%.
spk05: Okay, great. Thank you.
spk08: Our next question is from Jimmy Bula from J.P. Morgan. Please go ahead.
spk11: Good morning. 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 two 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 the last couple of quarters?
spk12: Yeah, so thanks, Jimmy. There's a number of dynamics in group retirement that, you know, I think have, you know, reflected with respect to that, you know, trend that you observed there. And, you know, part of it is that the age of the, you know, let's first talk about the in-plan part of the business, right? I mean, there's customers, as Elias pointed out, too, that are at that retirement age that are moving from accumulation to de-accumulation. 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 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. They've 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.
spk13: And if I can add, you know, 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.
spk00: Yeah, yeah.
spk11: And then maybe one on individual life. If we look at your margins over the course of this year, they fluctuated. Like last quarter was better than normal. This quarter seems like it was worse than normal. Is that just on 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 and individual life going forward.
spk12: Yeah, thanks, Jenny. You know, 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, you know, 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.
spk08: Thank you. Our next question is from Tom Gallagher from Evercore ISI. Please go ahead.
spk10: Good morning. Hey, 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?
spk12: Yeah, thanks, Tom. We consider all options. We understand that. 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.
spk10: Great. That's great. That's helpful color, Kevin. My follow-up is just on the investment side. So one observation in 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 foreclosures? 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. Thanks.
spk13: Hey, Tom, it's Eli. We have no foreclosures in the book. So the reduction in our allowances for office is more having to do with resolution of 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. We participate in it both on the debt and the equity side, and we feel comfortable with our portfolio. It's high quality. Cash flows and 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.
spk10: Great. Thanks, Elias.
spk08: Our next question is from Elise Greenspan from Wells Fargo. Please go ahead.
spk06: Hi, thanks. Good morning. My first question, just on capital return, you know, 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, you know, wanting to participate as there is future, you know, secondaries from AIG?
spk13: At least I select. Listen, I think our outlook is, you know, we're going to buy back shares in open markets. And if there's opportunities to participate in AIG sell downs, we'll consider it and do it. But, you know, our game plan, you know, we're not dependent on AIG to do a secondary for us to deliver on our capital returns.
spk06: Okay, thanks. And then my second question, we saw, you know, PRT activity picked up in the fourth quarter. You know, my sense is, you know, we're not seeing as much of the same seasonality with Q4, you know, you know, being the highest as we used to in the past. Can you just give us a sense of the outlook that you have on the PRT side and, you know, if you expect or don't expect to see seasonality with transactions in 24?
spk12: Yeah, thanks, Elise. What we see in pension risk transfer is a very strong pipeline continuing for the market segment 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 US and for the UK, which are the two markets where we participate, we see a very robust pipeline coming into 2024. Thank you.
spk08: Our next question is from John Barnage at Piper Sandler. Please go ahead.
spk02: Thank you very much. Good morning. With the expense savings 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 look towards 25?
spk12: Yeah, thanks. So, you know, we're very happy with the progress on corporate 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 an 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 there.
spk02: Thank you very much. And then question on the higher frequency and smaller claims and 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?
spk12: 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, you know, while in many respects is very predictable, the actual timing of mortality is not so predictable. And that's why, you know, 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.
spk02: Thank you very much.
spk12: Thank you.
spk08: Our next question is from Sunit Kamath from Jefferies. Please go ahead.
spk01: Thank you. So as I was 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?
spk12: 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 serving.
spk13: 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 could get the best risk-adjusted returns on the capital we deploy.
spk11: So that's a regular activity.
spk01: 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 401K plans or assets?
spk12: So the channels that are the most robust for us right now with respect to fixed and fixed-indexed 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 assets 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 advisors that they are working with. And so I think what we're seeing is a combination of new investments and fixed income because the value proposition for fixed income investments is much stronger now than just a couple of years ago, as well as a regular activity of people reinvesting their existing ability products.
spk01: Okay, thanks.
spk08: Our next question comes from Mike Ward at Citi. Please go ahead.
spk04: Thanks, guys. Good morning. 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.
spk13: Hey, 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.
spk04: 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 immediate future, just kind of wondering how the resolutions have progressed. You know, are you taking equity, are you making equity investments at all, or how have they gone so far?
spk13: So 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 to an extension, we either got a partial pay down or we had the equity put in more, you know, the equity investor put in more equity in the property and trapped cash, which ended up improving our credit position in there. We have not taken so far any equity in any of these properties.
spk00: Okay. Thank you.
spk08: We have no further questions on the call at this time, so I will hand the call back to Kevin Hogan.
spk12: Okay, thank you. Before we end today's call, I want to make one more point for our listeners and remind everyone of the enterprise we're building here. At CoreBridge, we operate with what is a unique collection of four 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 and 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.
spk08: This concludes today's conference call. Thank you very much for joining. You may now disconnect.
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