Corebridge Financial CEO Kevin Hogan at Barclays 22nd Annual Global Financial Services Conference

Fantastic. Thanks, Alex. I appreciate the opportunity to be here this afternoon. I want to thank Barclays for organizing the Global Financial Services Conference and everybody here in the room for joining us. It's a little bit difficult for me to believe, but in the next week we're going to celebrate the two-year anniversary of the IPO of Corebridge Financial. As I think back on it, I'm very proud of what our team has accomplished. In that time, we've returned $3.5 billion of capital to our shareholders, we've grown our premiums and deposits by 34%, and we are well on track to deliver the financial targets that we set at the time of the IPO, including a 12% to 14% return on equity, even though alternative returns are returning at a slightly lower level than our long-term expectations. We're already on track to deliver the 60% to 65% payout ratio on adjusted after-tax operating income, even excluding the UK life transaction this year. The fact that we were able to accomplish all of that while also completing a complex separation from our former parent company and the divestiture of our international operations, I think reinforces our execution capability. Now what Corebridge Financial is, is a pure-play US-focused life and retirement specialist. Each of our four businesses—individual retirement, group retirement, life insurance, and institutional markets—are leaders in their markets. They have a strong distribution platform, a differentiated go-to-market strategy, and all of them benefit from one of the most important macro trends in this country: the aging of America. We've been focused on four strategic levers to deliver what we have up until now, and we continue to have upside in each of these levers. First is organic growth. When I say organic growth, I mean modest organic growth, enough to grow our earnings and cash flows so that we can provide not only an attractive return to our shareholders but a growing return. Our sources of income are up 15% since the IPO, and as I said, each of our businesses are very well positioned. We're not dependent on any one rate environment or any one external environment; they have multiple products, multiple channels, multiple sources of income. The second lever is balance sheet optimization. We actively manage our ALM profile, which we think is important given the nature of our business, but we're also optimizing our asset portfolio. As an indication, over the last couple of years we've actually improved the credit quality of the portfolio to single A from A- while also increasing yield. We have further opportunities to optimize our balance sheet and our asset portfolio, and with our strong origination platform we continue to source assets which are attractive to support the liability facilities representing the products that we sell. The third lever that we're pulling is expense efficiency. We delivered on the Corebridge Forward modernization and expense reduction program. We've delivered $280 million that is already earned in of the $400 million run rate savings, and we anticipate the bulk of the remainder to earn in this year. But we haven't stopped there. We're using the capabilities that we built to continue focusing on expense efficiency and adopting a philosophy of continuous improvement. The fourth lever is active capital management. We've demonstrated that since the IPO, and it continues to be a focus of ours. We're committed to that 60% to 65% payout ratio, and we are confident in our ability to continue to grow earnings per share. Like I said, we have multiple products, multiple sources of income, we're not dependent on any one external environment, we have a strong balance sheet, high-quality investment portfolio, and we're executing with discipline. So I feel really strongly that Corebridge continues to represent a compelling investment opportunity.

Yeah, I think it's much more than just the recent interest rate cycle, actually. This isn't just a moment in time. There are three structural drivers to the annuity opportunity in the country. The first one I touched on at the beginning: the aging of America. With 4 million people turning 65 this year and each year for the next decade, the driver of the demand is going to be significant. It's related to the second factor: the support of the advisor community. There's a whole new generation of financial advisors that have started to understand the value of fixed-income-oriented products as part of a long-term savings plan. We're seeing that in multiple channels, not just in the bank channel but also in the broker-dealer channels. Certainly the interest rate environment is something that's helped relative to the timing of these long-term investment plans, but the most important part of the curve to pricing annuities is the belly of the curve, the 5- to 10-year area. If you even look at what the forward expectations are for that part of the curve, I think these products are going to continue to be a very attractive part of a long-term savings plan. The other thing I would say is that there's a broad range of annuities out there. Not all products are interest sensitive. We have a broad range of fixed annuities, indexed annuities, variable annuities, each of which have both income solutions as well as accumulation solutions. We have a very strong relationship with our distribution partners. We focus on the top 50 independent distribution organizations in the country, and we understand that each of them have slightly different strategies to work with their advisors. So we have a broad range of products to serve what the advisor strategy is for a particular customer at any given time. I don't think of this as a moment in time; I actually think of this as our moment to serve. I'll also add that while we have a broad product range, we are looking forward to introducing our own version of an RIA product sometime before the end of the year. We serve a broad range of customer needs, and the risk appetite for RIAs is slightly different than our other products. So we actually see a long-term upside opportunity in the annuities. It isn't just dependent on the rate environment, but the conditions are very attractive for the business for the foreseeable future.

Look, the market is competitive. Price is relevant, but we haven't seen behavior that I would characterize as irrational. The way I think about that is whether or not we're able to achieve our new business margins on the business that we're writing, and we are, and we're comfortable with the business that we are writing. So I think that's one context. The second thing I would say is that spread income is only one of our sources of income. We have multiple sources of income, so as I mentioned, we can serve our advisors in a variety of areas and products. Back to the competitive environment, we have a very strong relationship between our investments team and our business team. We're aware of what assets are available at any given point in time to support products, and we'll never issue a liability that we don't know what the asset strategy is to support it. But at the same time, we have a broad enough set of liabilities that when attractive assets are available, we have the confidence that we can acquire them and find a way to put them to work. We've long been in the spread businesses, so a relevant part of our liabilities do have illiquid periods. For the illiquidity part of the liabilities, private and structured credit has long been one of the asset classes that we originate in order to support those liabilities. While that may be new to some parts of the market, that has been an element of our strategy for some time. We like private and structured credit. We have an illiquidity premium that we can take advantage of as opposed to going up the risk curve. We like the structural subordination, we like the credit protections as opposed to unsecured credit, and unsecured credit is always subject to idiosyncratic risk. So our asset strategy reflects our liabilities. We are pricing new business to what the conditions are now, and we're comfortable with where that new business pricing is. As I pointed out, we have a multiple range of products and multiple sources of income, and we have great relationships with our distribution partners. Our strategy is to understand not just what they want on the shelf one or two quarters from now, but what their strategy calls for one or two years from now, which allows us to start to build products and services now to support their strategies then. Just as an indication, of the retail annuities that we sold in the last year, 30% of them have a feature which is proprietary to a single distribution partner. So we have a lot of differentiation. We support advisor strategies. Yes, the environment is competitive, but we find it to be rational, and the business that we're writing is very attractive.

Sure, absolutely. Let's start with Bermuda. We're always looking for opportunities to optimize our regulatory capital, and we see Bermuda as the next tool in our toolkit relative to that. There are certain products that the Bermuda regulatory environment favors, and also economic principles. One of them is tight matching of assets and liability profile, which is a part of our management strategy and has long been. So there are certain of our products, not all of them, that benefit from that environment. We chose to start by reinsuring part of our new business sales of fixed annuities and index annuities. But as we look at our further use of Bermuda, there are other products that we can begin to reinsure some of our new business into Bermuda. Then as a next step, we have the opportunity to potentially engage in portfolio transactions that also have characteristics that benefit from the Bermuda environment. As we expand in Bermuda, Bermuda is an environment where there are opportunities to potentially attract third-party capital, and at an appropriate time we will further explore that potential. More broadly relative to transactions, we're also always looking for opportunities to optimize our portfolio. I think we've over the years demonstrated the ability to execute transactions both large and small. On the larger end, when we created Fortitude Re and divested of that, that demonstrated our ability to execute complex transactions. More recently, with the sale of our international subsidiaries generating $1.3 billion in proceeds, we demonstrated an ability to act efficiently. So we're constantly on the lookout for further ways to optimize the portfolio. That includes external reinsurance transactions. We've been in a number of discussions; some go further than others relative to that. But any transaction needs to be accretive for our shareholders. It needs to be accretive in terms of value, accretive in terms of structure, risk, and so forth. So we are prepared to act as we identify a transaction that benefits our shareholders, and I think we've demonstrated the ability to execute efficiently.

Yeah, sure. Thanks, Alex. Appreciate it. Look, of course in our portfolio there's certainly some elements of interest rate sensitivity, as much related to our active asset liability matching strategy as anything. You're asking about the spread businesses. The spread businesses are just one of our businesses, as I mentioned, 54% of our sources of income. As I think about managing the spread business, I'll talk about the new business part separately from the in-force. In terms of new business, because of this close relationship that we have between the investments and the new business team, we're pricing to current conditions—where yields are and credit spreads are. We're not trying to guess where they go. With our capabilities, for the most sensitive product right now, which is fixed annuities, we reprice once a week. We have the ability to reprice more frequently. During the pandemic, there were times where we were repricing daily when there was external volatility that warranted that. So we will price the new business at what today's spreads are, and if we can make our margin, we'll deploy that capital. We have other products, other channels that we can mobilize that capital to. We have other options if we're not able to make those margins. But right now, we're confident that we will, based on the drivers that are there and the competitive environment that exists. So looking forward, whatever the external environment is, that's one strategy. Now let's talk about the in-force. We believe in ALM; it's one of our disciplines. So as rates change going forward, we expect that the earnings from the in-force are going to earn through per our expectations. We're confident in our ability to price the new business, we're comfortable with the in-force, and as I talked about, the part of the curve that's most sensitive for the pricing of the new business is that 5- to 10-year area. Even looking at what the forward outlook for that is, we're confident in the business there. So we're confident in delivering growth in earnings per share. We're not dependent on any one product or channel or any one external environment.

Yeah, absolutely. Our alternatives portfolio, as a reminder, is about $5.5 billion. Around 75% of it is private equity, 25% real estate equity, and we have a small portfolio of hedge funds. The alternatives we expect over a long period of time to return 8% to 9%. They do not always return that; sometimes they return less, like the last couple of quarters, sometimes they return more. If you look over the last five years, our alternative returns have been around 14%. So it's a comfortable part of the asset allocation that we have. In terms of the third quarter, we're seeing trends similar to the second quarter, and we expect alternative returns to be in the same dollar zip code as we expected. Real estate equity we think will perform a little bit better in the second half than what it did in the first half. But as returns are coming in for the third quarter, we are aware of some losses on the hedge funds and also on some call and tender activity that may offset that. So in a nutshell, in the third quarter we would expect dollar returns for alternatives to be in the same zip code as in the second quarter.

Yeah, sure. Absolutely. First of all, we have a high-quality investment portfolio. 95% of it is investment grade. It is also a highly diversified portfolio, and diversification is an important part of our credit management strategy. The third thing is that we do believe in active management of the portfolio. Going back to the beginning part of the pandemic, we began de-risking certain elements of it, and more recently we've continued that. We've been able to improve the credit quality in the portfolio, as I mentioned, to single A from A-, while maintaining or increasing the actual yield in the portfolio. We've been able to do that by selling some of our higher-yield investments and reallocating to higher-grade investments and capturing comparable returns at a lower capital charge. We continue to do that; we did some of it in the first half, we've found quite a bit of it in the last two years. So we believe in active portfolio management. The next thing I would say is that we've historically had a conservative—I should say prudent—reserving philosophy. So we're comfortable with the reserves that we have in the portfolio. With the strong balance sheet that we have, with the multiple sources of income that we have, with not being dependent on any one product or channel at any given time, and with the high-quality, well-diversified, actively managed asset portfolio, as well as a prudent reserving position, we believe that we're as well positioned as anyone could be for a credit event that might be related to some potential recession. I talked about private credit before; we get questions about private credit. We actually see private and structured credit as a very relevant asset class to support the liabilities in our portfolio, and we're comfortable with our position there.

Sure, absolutely. Like the rest of our asset portfolios, our CML portfolio is high quality and well diversified. Our largest allocation is to multifamily. But you asked about the office portfolio. Our US office portfolio is about 2% of our invested assets. The sector is under some pressure, as we had talked about at the time. But we have continued to see the portfolio evolve as we had anticipated. The balances are down about 10% year-over-year, associated with paydowns in the portfolio. We have a well-distributed maturity profile. For this year, we have about $100 million of maturities left, and we're already starting to focus on maturities for next year. As with the rest of our investment portfolio, we believe that we are prudently reserved. We've increased our reserves in this portfolio to around 6%, which I think you will find is on the more conservative end, and that reflects our philosophy. So the sector is under some pressure, it's performing largely as we had expected, and we are confident that with our strong balance sheet and diverse sources of income, any exposure we may have to losses in the commercial mortgage loan area, the office area, is something that is manageable for us and it's going to play out over a long period of time.

Yeah, so we focus on a subset of the PRT business that's not quite as seasonal. Since 2016, we've focused on the full plan termination space, a subset of the market. We focus on that because in order to administer these more complex programs, there are fewer participants, and therefore we find the economics more attractive. We treat each of these transactions as if they're a miniature M&A transaction. We have to understand both the liabilities and the assets and the economics from a variety of different perspectives. Starting with the liability side, back in 2016 we began building the data sources to be able to understand the optionalities in the liabilities. So the first phase is really understanding the liability profile and how it's going to evolve over time. The next phase is then determining what are the assets that are necessary to support that liability profile and determine that portfolio. In these transactions, most of the time we get paid not necessarily in cash but in assets in kind. So the third element is making sure you have the strategy for transitioning from the assets that you get to the assets that you need and appropriately hedging those exposures to not take on any undue risk. As you can imagine, these are more complex transactions, close negotiations with the consultants and with the clients. Therefore, we don't necessarily have one to announce each quarter. But over time, we do expect that this portfolio is going to continue to grow. The pipeline in both the US and the UK is very strong. This year's expected volumes are anticipated to be about the same as last year's, and our outlook for next year is actually in the comparable area. So this is a long-term growth opportunity for us. In the first half of the year, our reserves are up 17% in the pension risk transfer space year-over-year. So in pension risk transfers, like the rest of our institutional markets business, we have confidence in its ability to contribute to our growth in earnings and cash flows over time and contribute to our ability to grow our earnings per share.

Yeah, absolutely. Look, risk management is a core part of our strategy, and it has long been, and it was of our predecessors. So we have been able to avoid some of the industry pitfalls such as—we haven't had a reserve issue on guaranteed universal life, and frankly we have no long-term care. That means that we can focus on the portfolio and how we're going to grow the portfolio. We chose to focus on a subset of the life insurance business a number of years ago that is less interest rate sensitive than the broad part of the market and that we believe represents a long-term growth opportunity. So we have our leading term suite, we have a strong index universal life suite, and more recently we've been investing a lot in our middle market capabilities. I think our investments in the data infrastructure that's necessary, in the predictive modeling that supports that business, in the automated underwriting, as well as in the digital customer experience, are what have allowed us to outgrow the market for eight consecutive quarters. I think there's a long-term upside opportunity in each of those areas because the macro opportunity that drives the life insurance business is both the aging of America but also the fact that there are 60 million people that are either uninsured or underinsured in the marketplace. Those two trends together are driving a lot of that opportunity. So life is a very important business to us, and we see the upside of growing both its earnings and cash flows and contributing to our growth in earnings per share over time.

Peak 65 essentially defines our marketplace. The fact that 4 million people are going to turn age 65 each year for the next decade—each of our businesses serves needs directly related to that macro trend. In individual retirement, we have multiple products: fixed, indexed, and variable annuities, both income solutions and accumulation solutions. We have strong relationships with our distribution partners, and we meet what each of their strategies is relative to their advisors. So individual retirement is extremely well positioned, and we're introducing our own RIA sometime before the end of the year, which is the next step in our product suite. In the group retirement business, we haven't talked about group, but we have a very profitable and strong in-plan business. But the real growth opportunity and where we serve this Peak 65 opportunity is in the wealth management opportunity in that business. We have two opportunities to serve: we serve during the end plan period while employees and participants are working, but then we have the ability to build a relationship with them to serve them after they retire. Of the 1.9 million customers in our group retirement business, 1.7 million of them have yet to retire. That's a huge opportunity for our field force of advisors to build relationships and to serve that wealth management opportunity over time. Just as a snapshot, the people that have retired that we serve represent 14% of the customer base but 34% of the assets in group retirement. So that wealth management opportunity is significant. In the life insurance business, the investments we've made in our digital platform are making it easier for customers to buy, and I talked about the macro trends there. Then institutional markets—ultimately, the pension risk transfer business is also an outcome of that aging of America as companies look to de-risk their pension obligations. So Peak 65 defines our marketplace, it defines our opportunity, and that opportunity is significant.

Yeah, absolutely. Look, since the IPO, I think we've demonstrated our focus on active capital management. We paid our first dividend, I think, 30 days from the IPO. We engaged our repurchase program about six months from the IPO. We've returned $3.5 billion since then. This year we've already returned $1.4 billion to shareholders. So clearly we're committed to that as a part of our strategy. Our strategy is to maintain a strong balance sheet while providing an attractive, growing cash return to our shareholders. Our insurance subsidiaries are strong enough to be the foundation of that opportunity. Our subsidiaries have distributed $2 billion a year for the last couple of years to the parent company. Because we have the opportunity to not only provide that return to shareholders but also invest in growth in the business—one of my strategies is modest organic growth to grow the earnings and cash flows so that we can then grow that shareholder return over time. If you look at the distributions from our insurance subsidiaries this year, that's also beginning to show modest incremental growth, which is how we're going to meet this promise. We're focused on this 60% to 65% payout ratio, excluding transactions, etc. Over time, as we grow our earnings per share, we have a strong balance sheet, multiple sources of income, we're not dependent on any rate environment, we're going to be able to deliver on that promise of growing earnings per share and providing that attractive and growing cash return to shareholders.

Absolutely. Group retirement—the heart and soul of group retirement is Valic Financial Advisors, our field force of 1,100 financial professionals. They play three important roles for the group retirement business. First, they are the face of our relationship with our plan sponsors. We chose a number of years ago to focus on those plan sponsors that want human advisors actively involved with their participants. That's a part of our business model. That element of the relationship with the plan sponsors is very valuable. Plan sponsors know that when our advisors work with their customers, they're likely to save 35% more and have 50% more assets at retirement than participants that don't work with the advisors. So I think that's a very important element of that business model. Now, we have the opportunity. Our advisors work with participants while they're in plan—young school teachers or young healthcare workers, etc.—getting off to the right habits early on and building those over their careers. That's our in-plan part of the defined contribution industry. For the last number of years, we've seen some outflows in that in-plan business, but the earnings have been very stable. That is the base on which we can build this next opportunity that I'll talk about: the relationship that the advisor has as those participants reach retirement and household asset consolidation, and can continue to serve them past that retirement period. Valic Financial Advisors is a full-service broker-dealer, a duly registered RIA. They have all of the services available that any independent financial advisor firm would. We also have a proprietary product suite that reflects the experience that we have in our individual retirement and our life businesses that have to fight and compete in the independent marketplace. The features in the products that the Valic Financial Advisors have available reflect being honed in that competitive independent marketplace, and we bring the best-of-breed features to those products. So our Valic Financial Advisors are very equipped to serve that opportunity. I just cited the numbers, but it is compelling: 1.9 million customers in group retirement, 1.7 yet to retire, and the people that have retired—14% of the customer base, 34% of the asset base. So we believe that the group retirement business is going to be a long-term contributor to the growth of our portfolio and the shape of our earnings profile across the portfolio.

Yeah, absolutely. We have a long experience in the fixed annuity business; we've been in it for decades. In our experience, what drives surrender rates is where base rates and credit spreads are. That determines generally where crediting rates are going to be in the market. When crediting rates are up, surrender rates are up; when crediting rates are down, surrender rates are generally down. We haven't really seen anything in this most recent interest rate cycle that has been outside of our expectations. The second thing that sometimes drives surrender rates is when there are blocks of business that are exiting their surrender protection. Because this is a very interest rate sensitive business, sometimes there are large blocks of sales, and it's natural when they come up to their five- or seven-year period, whatever it may be, that you'll see a spike in surrender rates. We know that that is temporary. We did have one of those earlier this year; we anticipated it, we talked about it, we saw it in the first quarter, and then in the second quarter we saw surrender rates begin to normalize. In our second quarter, surrender rates were the lowest in five quarters. So far in the third quarter, we've seen a continuation of that trend. So we have a lot of experience in the fixed annuity business managing the in-force portfolio, managing crediting rates, being prepared for and managing surrenders. It's a part of managing that business, and it's a part that we're prepared for.

So look, we're focusing on what we can control. What that means is we're focusing on executing on our strategies, delivering on our commitments, and maximizing shareholder value. We have a very strong foundation off of which to build. We have multiple products, multiple channels, etc. We have four market-leading businesses, each of which have a very strong distribution platform that represents decades of experience, and each of them are supported by this extremely important macro trend of the aging of America. So in terms of our market positions, we're in a very strong position. We have a highly diversified portfolio. Each of our businesses has multiple products, they serve multiple channels, they serve different customer needs, different risk appetites, and we continue to add to that portfolio with our RIA coming up in the second half of the year. That means that we have diverse sources of income, and we're not subject to any particular rate environment or any particular external environment, but we'll have sustainability over time. We have a strong and clean balance sheet. We have been focused on risk management; we have avoided many of the legacy pitfalls, and we have minimal legacy exposures in the balance sheet. We have a high-quality, carefully managed investment portfolio, and we've recently enhanced our origination capability with partnerships with two of the most powerful originators of assets that are attractive for our industry. So we feel great about our position relative to our investment strategy—a strategy that we control. We decide what our ALM position is, we determine what our origination partners are providing for us that fits our strategy and our portfolio. We're delivering very strong financial results. We've delivered on the 12% to 14% ROE, we're delivering on that 60% to 65% payout ratio, we are confident in our ability to continue to grow earnings per share. I think that's what we have to do. But with multiple products, multiple channels, multiple sources of income, no one influenced by whatever external conditions are, a track record that we're developing of disciplined execution, committed to an attractive and growing cash return to shareholders, we think that Corebridge represents a compelling investment opportunity.

Thank you very much for having us. Thanks everyone.