Corebridge Financial, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are to December 31, 2022. Corebridge provides retirement and life-insurance products through Individual Retirement, Group Retirement, Life Insurance and Institutional Markets. AIG owned 77.3% of the company at quarter-end.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $4.262 billion | $7.240 billion |
| Net income (loss) attributable to Corebridge | $(459) million | $3.366 billion |
| Diluted earnings (loss) per share | $(0.70) | $5.22 |
| Adjusted pre-tax operating income (APTOI) | $724 million | $909 million |
| Adjusted after-tax operating income attributable to common shareholders | $632 million | $743 million |
| Net cash from operating activities | $301 million | $(3) million |
GAAP results were substantially affected by market-sensitive items, especially the Fortitude Re funds-withheld embedded derivative: net realized losses were $1.458 billion, including a $1.025 billion loss on that derivative, versus $2.887 billion of net realized gains in Q1 2022, including a $2.837 billion gain on the derivative. The company says much of the Fortitude Re earnings volatility is offset in other comprehensive income (OCI). Adjusted revenues increased to $5.363 billion from $4.088 billion, while APTOI declined. These adjusted measures are non-GAAP and exclude specified items.
Total net investment income was $2.695 billion, up from $2.581 billion. Policyholder benefits were $2.495 billion versus $1.168 billion, while interest credited was $1.026 billion versus $878 million. The income-tax benefit was $216 million; the effective tax rate on the loss was 32.3%.
Financial position, liquidity and capital
- Total assets were $366.7 billion; total liabilities were $354.2 billion. Corebridge shareholders’ equity was $11.6 billion, up from $9.4 billion at year-end; book value per share was $17.83 and adjusted book value per share was $35.88.
- Investments totaled $223.7 billion. Available-for-sale bonds had fair value of $159.1 billion against amortized cost of $179.5 billion. Gross unrealized losses were $22.0 billion; management attributed unrealized losses to non-credit factors and said it neither intended nor expected to be required to sell before recovery.
- Cash was $465 million; cash and restricted cash were $524 million. Holding-company and intermediate-company liquidity sources totaled $4.263 billion, including $1.763 billion of cash and short-term investments and a $2.5 billion committed revolving facility.
- Short-term debt was $1.5 billion and long-term debt was $7.871 billion. An additional $2.688 billion of consolidated investment-entity debt was described as non-recourse to Corebridge. The $1.5 billion delayed-draw term loan was due to reach the end of its then-current interest period on June 21, 2023, with continuation options under the agreement.
- Operating cash flow was $301 million; investing activities used $1.477 billion and financing activities provided $1.065 billion. Policyholder deposits exceeded withdrawals by $1.758 billion. Common dividends paid were $149 million.
- Fixed-maturity securities of the insurance operating subsidiaries were 94% investment grade at March 31, 2023. The company reported its Life Fleet RBC ratio was above its 400% minimum target at December 31, 2022; a March 31 ratio is not provided here.
Material changes and segment results
Compared with Q1 2022, the $5.0 billion decline in GAAP revenue and the shift to a net loss chiefly reflect the reversal of Fortitude Re derivative gains, along with less favorable market-risk-benefit fair-value changes. APTOI fell $185 million; management cited lower fee income, higher interest expense after 2022 debt issuance and borrowing, partly offset by higher base investment income. Q1 2023 also included $1.424 billion of fixed-maturity securities received in pension risk-transfer transactions, a non-cash investing activity.
| Segment APTOI | Q1 2023 | Q1 2022 |
|---|---|---|
| Individual Retirement | $534 million | $468 million |
| Group Retirement | $186 million | $242 million |
| Life Insurance | $82 million | $84 million |
| Institutional Markets | $85 million | $115 million |
| Corporate and Other | $(163) million | $0 million |
Individual Retirement benefited from stronger base spreads, while Group Retirement and Institutional Markets were pressured by lower variable investment income, particularly from alternative investments. Institutional Markets premiums and deposits rose to $2.163 billion from $327 million, primarily due to pension risk-transfer business and new GIC deposits. Individual Retirement fixed-annuity surrender rates rose to 15.1% from 6.8%; fixed-index annuity rates rose to 6.7% from 4.0%. Group Retirement surrender rates increased to 11.0% from 8.5%.
Corebridge adopted the long-duration contract accounting standard (LDTI) in 2023 and recast the presented prior-year comparative figures. Adoption changed the presentation and measurement of insurance liabilities, market risk benefits and acquisition costs; it reduced beginning AOCI by $2.3 billion and increased beginning shareholders’ net investment by $1.2 billion at the January 1, 2021 transition date.
Outlook, risks and unusual items
- Management said higher rates improve new-investment yields and can support spread-product sales, but may also raise surrenders and crediting costs and reduce fee income by lowering fixed-income and separate-account values. Fixed-annuity sales were strong, while higher rates also contributed to increased surrender activity.
- Management expects Corebridge Forward to deliver about $400 million of annual pre-tax run-rate expense reductions, with most expected within 24 months of the IPO. About $281 million of exit run-rate savings had been acted on or contracted by March 31, 2023. The initiative is expected to cost about $300 million pre-tax; approximately $102 million had been incurred. Estimated one-time separation costs were $350 million–$450 million pre-tax from January 1, 2022; $232 million had been incurred by quarter-end.
- Key exposures include interest rates, credit spreads, equity markets, commercial real estate, alternative-investment valuations, policyholder behavior, reinsurer performance and the ability to access subsidiary capital. The company cautions that hedges may not fully offset market-risk-benefit movements.
- Legal matters include disputes and arbitration over requested rate increases under certain yearly renewable term reinsurance agreements and the Moriarty California life-insurance class action. The company accrued its current estimate of probable loss for these matters but says unresolved litigation outcomes are difficult to quantify.
- Commitments to invest in funds and real estate totaled $4.6 billion. AIG guarantees and related reimbursement and collateral obligations remain relevant; a downgrade could trigger collateral requirements under certain agreements.
- After quarter-end, the board authorized a $1.0 billion share-repurchase program on May 4, 2023; purchases are discretionary. On May 8, the company declared a $0.23-per-share dividend payable June 30, 2023.
Investor verification priorities
- Reconcile GAAP earnings with APTOI and assess the effect of Fortitude Re embedded-derivative movements and their OCI offsets.
- Review surrender and withdrawal trends, especially in fixed annuities, and their implications for liquidity and spread income.
- Assess the quality, concentration and liquidity of the investment portfolio, including unrealized bond losses, commercial real estate exposure and alternative investments.
- Confirm debt refinancing and interest costs, holding-company liquidity, subsidiary dividend capacity and any rating-triggered collateral needs.
- Track execution and costs of the separation and Corebridge Forward savings plans, and monitor the cited reinsurance and litigation contingencies.