Corebridge Financial, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Financial statements are unaudited. Corebridge provides U.S. retirement and life insurance products through Individual Retirement, Group Retirement, Life Insurance, Institutional Markets, and Corporate and Other. AIG owned 65.6% of the company at quarter-end.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $5.505bn | $6.538bn | $15.524bn | $20.568bn |
| Net income attributable to Corebridge | $2.101bn | $2.406bn | $2.413bn | $8.366bn |
| Diluted EPS | $3.28 | $3.72 | $3.72 | $12.96 |
| Adjusted pre-tax operating income (APTOI; non-GAAP) | $813m | $630m | $2.373bn | $2.150bn |
| Adjusted after-tax operating income attributable to common shareholders (non-GAAP) | $675m | $527m | $1.986bn | $1.761bn |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $2.590bn | $2.150bn |
- Q3 GAAP revenue fell 16% and Corebridge-attributable net income fell 13% year over year, while APTOI rose 29%. For the nine months, GAAP revenue fell 25% and attributable net income fell 71%, while APTOI increased 10%.
- GAAP results include sizable, volatile realized gains and losses, particularly from the Fortitude Re funds-withheld embedded derivative. That item generated a $1.080bn gain in Q3 2023 and $177m for the nine months, versus $1.463bn and $6.694bn, respectively, in 2022. APTOI excludes Fortitude Re-related results and other specified items; it is not a GAAP substitute.
- Q3 APTOI improved mainly on higher investment income and lower policyholder benefits, partly offset by lower premiums and higher interest credited. Nine-month APTOI gains reflected higher premiums and investment income, partly offset by higher benefits, interest credited, and lower fees.
- Q3 2023 premiums were $701m versus $1.301bn; nine-month premiums were $5.249bn versus $3.047bn. Management attributed the Q3 decline and nine-month increase primarily to the timing and amount of new pension risk transfer business.
Segments: APTOI
| Segment | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Individual Retirement | $576m | $375m | $1.684bn | $1.208bn |
| Group Retirement | $192m | $190m | $575m | $611m |
| Life Insurance | $136m | $124m | $294m | $305m |
| Institutional Markets | $75m | $83m | $286m | $274m |
| Corporate and Other | $(166)m | $(142)m | $(466)m | $(248)m |
Individual Retirement’s improvement was driven chiefly by stronger base portfolio yields. Corporate and Other losses widened, primarily due to higher financial-debt interest expense.
Balance sheet, investment portfolio, debt and liquidity
- At September 30, total assets were $355.6bn, total liabilities $346.3bn, and total equity $9.3bn. Corebridge shareholders’ equity was $8.4bn, down from $9.4bn at December 31, 2022; book value per share was $13.21 versus $14.54. Adjusted book value per share, a non-GAAP measure, was $38.23 versus $36.34.
- Accumulated other comprehensive loss was $19.3bn. Q3 other comprehensive loss was $4.1bn, including a $5.1bn after-tax decline in unrealized value of other investments, partly offset by a $1.1bn benefit from discount-rate changes in insurance liabilities. The available-for-sale bond portfolio had $151.4bn fair value against $180.0bn amortized cost, with $29.6bn gross unrealized losses and $1.2bn gross unrealized gains.
- Total investments were $216.9bn, including $151.4bn of available-for-sale bonds and $46.1bn of mortgage and other loans. Management said the large unrealized bond losses were primarily market-related and reported no intent or expected requirement to sell affected securities before recovery; that assessment does not eliminate valuation or liquidity risk.
- Short-term debt was $1.0bn and long-term debt was $8.4bn, compared with $1.5bn and $7.9bn at year-end. Debt of consolidated investment entities was $2.6bn, down from $6.0bn; this debt is generally non-recourse to Corebridge. In September, the company issued $500m of 6.05% senior notes due 2033 and used the proceeds and cash to repay $500m of its delayed-draw term loan.
- Corebridge Parent and non-regulated holding companies reported $4.2bn of liquidity sources: $1.7bn cash and short-term investments plus $2.5bn available under a committed revolving facility. The facility was undrawn, and the filing says it includes financial covenants. Consolidated cash and restricted cash were $581m at period-end. Nine-month operating cash flow was $2.6bn; financing included $846m of common dividends and $246m of share repurchases.
- The company reported $5.7bn due to Federal Home Loan Banks under insurance-company funding agreements. These are included in policyholder contract deposits, rather than financial debt.
Material changes and other key metrics
- Individual Retirement annuity net flows were negative $743m for Q3 and negative $439m for the nine months, versus positive $696m and $2.198bn in 2022. Fixed annuity surrender rates rose to 17.7% for Q3 from 9.7%; fixed-index annuity rates rose to 6.4% from 4.6%.
- Group Retirement net flows were negative $2.188bn for Q3 and negative $4.753bn for the nine months. Its surrender rate was 14.5% for Q3 versus 10.4% a year earlier.
- Institutional Markets premiums and deposits rose to $7.329bn for the nine months from $2.774bn, driven mainly by higher pension risk transfer premiums and guaranteed investment contract deposits. This growth also brought higher policyholder benefits and interest credited.
- Net investment income increased to $2.657bn for Q3 from $2.160bn and to $8.066bn for the nine months from $7.021bn. Higher base portfolio income was partly offset by lower variable investment income in some businesses.
- Corebridge adopted long-duration targeted improvements (LDTI) accounting in 2023, with a January 1, 2021 transition date; comparative 2022 statements were revised. At transition, adoption reduced beginning AOCI by $2.3bn and increased beginning shareholders’ net investment by $1.2bn. This change affects comparability with previously reported periods.
Outlook, management commentary and risks
- The filing provides no specific consolidated earnings or revenue guidance. Management said higher reinvestment yields can support spread income and sales, but higher rates can also increase annuity surrenders, raise crediting costs, and reduce values and fee income on fixed-income assets in separate accounts and advisory businesses.
- Corebridge expects to achieve about $400m of annual run-rate expense reductions through its Corebridge Forward initiative, with most targeted within 24 months of the IPO. By September 30, it had acted on or contracted approximately $322m of exit run-rate savings and incurred about $150m of the initiative’s estimated $300m one-time cost. It had incurred $366m of separation costs against an estimated $350m–$450m total.
- On September 25, Corebridge agreed to sell AIG Life (United Kingdom) to Aviva for £460m cash, subject to adjustments and approvals, with closing expected in the first half of 2024. The sale of Laya to AXA for €650m closed October 31, 2023. Both businesses were classified as held for sale at quarter-end.
- Management cited market volatility, interest rates, credit spreads, inflation, geopolitical events, regulatory change, policyholder claims and behavior, reinsurance collectability, and access to subsidiary capital as material uncertainties. Alternative investments include illiquid private-equity holdings and hedge-fund side pockets. The commercial mortgage portfolio was $34.0bn; its allowance for credit losses rose to $681m from $531m at year-end. Management reported a 1.9x weighted-average debt-service coverage ratio and 59% weighted-average loan-to-value ratio.
- Legal matters include disputes with reinsurers over yearly renewable term rate increases and California life-insurance litigation. In Moriarty, the court granted the plaintiff summary judgment in August 2023, allowed a renewed class-certification motion, and certified an interlocutory appeal by AGL; proceedings were stayed pending the appeal. The company has accrued its current estimate of probable losses but says the ultimate exposure is uncertain.
- The annual actuarial review increased nine-month APTOI and pre-tax income by $22m in 2023, compared with $29m and $132m, respectively, in 2022. The 2023 result included favorable assumption changes partly offset by updated premium assumptions and other refinements.
Important facts for investors to verify
- How recurring operating performance compares with GAAP earnings, given the large Fortitude Re derivative and other market-sensitive items excluded from APTOI.
- Whether annuity surrenders and negative net flows persist, and how they affect liquidity, fee income, and the cost of policyholder crediting rates.
- The sensitivity of investment values, insurance liabilities, and hedge results to interest rates, credit spreads, equity markets, and policyholder behavior; also monitor commercial real estate credit performance and allowance changes.
- Progress and proceeds from the U.K. and Laya divestitures, delivery of the targeted expense savings, and any material developments in the California litigation or reinsurance disputes.
- Current statutory capital and dividend capacity. The filing states the Life Fleet RBC ratio exceeded its 400% minimum target at December 31, 2022; it does not provide a clear September 30, 2023 ratio in the presented text.
- Debt maturities, revolving-credit covenants, rating triggers, and any collateral needs. Parent debt ratings were BBB+/Baa2 for senior unsecured debt and BBB-/Baa3 for hybrid junior subordinated debt, with stable outlooks as reported.