CRBG - NYSE

Hello, everyone, and welcome to today's Corebridge Financial Fourth Quarter 2025 Earnings Call. My name is Seb, and I'll be the operator for your call today. [Operator Instructions] I will now hand over to Isil Muderrisoglu to begin the call.

Good morning, everyone, and welcome to Corebridge Financial's Earnings Update for the Fourth Quarter and Full Year 2025. Joining me on the call are Marc Costantini, President and Chief Executive Officer; and Elias Habayeb, Chief Financial Officer. We will begin with prepared remarks by Marc and Elias, and then we will take your questions. Today's comments may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations and assumptions. Corebridge's filings with the SEC provide details on important factors that may cause actual results or events to differ materially from those expressed or implied by such forward-looking statements. Except as required by the applicable securities laws, Corebridge is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change, and you are cautioned to not place undue reliance on any forward-looking statements. Additionally, today's remarks may refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available at our website at investors.corebridgefinancial.com. With that, I would now like to turn the call over to Marc and Elias for their prepared remarks. Marc?

Good morning, and thanks for joining us. I want to begin by recognizing Kevin Hogan, who led this business for more than a decade, executed Corebridge's successful launch as a stand-alone company and established a solid foundation for future growth. His help through the transition was invaluable and demonstrated a hallmark of his leadership style. His unwavering commitment to the success of his colleagues and company. For me, it's a tremendous honor to lead this great franchise with its noble purpose. Customer needs have never been greater for financial protection, wealth accumulation and retirements with dignity and confidence. And that means our opportunity to create value for customers and shareholders alike has never been greater. In my remarks this morning, I'd like to recap the company's 2025 performance through a strategic lens and share my early impressions of the company's strengths and opportunities. Then I'll turn it over to Elias for additional color on both our fourth quarter results and the company's 2026 outlook. Corebridge had a strong year in 2025. Earnings per share were up 4% year-over-year. Return on average equity was up 20 basis points and capital returned to our shareholders was up 13%. To create long-term value for our shareholders in our industry, we must demonstrate an ability to grow profitably and generate consistent and growing cash flows from the insurance companies, while preserving balance sheet strength. Corebridge did all 3. Our growth in 2025 was strong with sales up 4% to a record $42 billion. We launched our RILA product, Market Lock in a crowded field and quickly joined the top 10 providers. In fact, we are the only company to have a top 10 position across every major annuity product category. Market Lock is now available through more than 200 distribution partners across the United States and we expect continued growth in 2026. Our diverse businesses at Corebridge give us flexibility to adjust our capital allocation between our different offerings based on where risk-adjusted returns are the highest and customer demand is the strongest. An example of that is the higher allocation to our institutional markets business in 2025. We grew institutional market sales by 24% overall led by pension risk transfers and guaranteed investment contracts to drive both current and future earnings growth. Proactively managing our balance sheet and maintaining financial flexibility are foundational to Corporate. In 2025, Corebridge executed the industry's largest variable annuity reinsurance transaction to date the final portions of which closed last month. The transaction derisked the company's most complex liabilities. And going forward, our legacy liabilities comprised approximately 1% of the balance sheet. In addition, we finished the year with a Life Fleet RBC ratio above 430% and holding company liquidity of $2.3 billion, both exceeding our targets. Finally, we continue to expand our Bermuda strategy where we have ceded approximately $20 billion of reserves to date providing critical financial optionality that help Corebridge deliver on its financial and strategic goals. Disciplined execution of these levers is essential to driving shareholder value and ensuring resilient cash flows. As promised, the company is returning the substantial majority of the proceeds from the VA reinsurance transaction to shareholders in the form of share repurchases, which helped lift our 2025 payout ratio to 110%. Excluding the VA reinsurance transaction proceeds, we grew our insurance company dividends to the parent by 6% year-over-year, in line with our guidance, reflecting our continued confidence in our financial flexibility, we are pleased to report that our Board of Directors has approved a 4% increase in our [ Cove ] common stock dividend to $0.25 per share, above the pace of inflation. As Elias will discuss further, we've also taken action to reduce our sensitivity to short-term interest rate movements down nearly 75% since mid-2024. At the 10-week mark in my tenure as CEO, I want to provide some initial thoughts on the business. The 4 strategic pillars that have guided Corebridge for the past few years remain a useful lens to view the company's prospects. Although I am adding a fifth call win with customers. As I've told the team, my focus on delivering a superior customer value proposition could not be stronger. Everything from ongoing product innovation to industry-leading service to a seamless end-to-end digital experience. As I look at our key strengths and opportunities, I'll begin with the powerful demographic tailwinds that are driving strong customer demand for retirement solutions. Corebridge is well positioned to meet these needs. I believe our vast distribution network provides us with a clear competitive advantage. The average relationship with our top 25 partners is a quarter century long and more than 40% of the annuity sales came from products that have bespoke features tailored for each specific distributor. With many partners, not only are they one of our top distributors, but we are one of their top manufacturers commanding significant shelf space. I've competed against this distribution powerhouse in the past, and I can tell you how hard it is to replicate. Furthermore, our diversified business model is a proven source of strength. Our breadth of product and service offerings helps provide more stability to our financial results, allowing us to allocate capital to where returns are the most attractive and demand is the strongest. I also believe Corebridge has an underappreciated critical differentiator that supports growth. Some companies in our space are liability-driven, designing products and then searching for assets to support them. Others are asset-driven originating attractive opportunities and then finding suitable liabilities. Corebridge excels at both. Another strength is our Bermuda strategy. It is an important lever for growth, profitability and capital efficiency, and we will continue to take full advantage of it. One area of opportunity is fee-based earnings. We plan to grow them faster to achieve better balance across our sources of earnings. In Group Retirement, for example, there is a tremendous potential to grow Wealth Management by capturing more IRA rollovers and consolidating household assets. We have a captive opportunity within and out of plan clients to further expand and deepen our relationship. We believe this alone represents a $30 billion opportunity. But we have some work to do. We are actively investing to significantly enhanced customer experience adding more advisers and upgrading our digital wealth management capabilities. Collectively, we believe these investments will improve retention levels and grow our wealth management business. I also believe we are striking the right balance between returning capital to shareholders and investing for growth. Our 60% to 65% payout ratio rewards shareholders with cash to date while our reinvestment in the business reward shareholders with cash in the future. Both are important. Since the IPO, the company has successfully reduced expenses with the Corebridge Forward program. which is a testament to the work the team has done to get ready to compete as a stand-alone entity. Going forward, I believe Corebridge must do 2 things at once: deliver continuous improvement in our operating leverage while also making strategic investments to drive faster growth. We need to invest more to accelerate the pace of digitization, which is essential to improving our productivity as well as our distribution partners and customers' experience. The easier we are to do business with the greater the share market we can capture from the demographic surge fueling growth in our industry, all of which adds up to my most important early impression. The significant opportunity Corebridge has to grow faster and more profitably. As we further differentiate our customer value proposition and more fully capitalize on our world-class distribution we will continue to create sustained shareholder value. In closing, I joined Corebridge because I believe in this franchise and believe we are capable of more than we've ever achieved before. We have a huge opportunity in front of us. We have hard to replicate competitive advantages, and we have a world-class team ready to show what they can do. Finally, as this is his last earnings call, I want to express my heartfelt thanks to Elias. He is an excellent CFO who helped me get under the hood and quickly understand all the moving parts at Corebridge. I wish him all the best in his next chapter. Elias?

Thank you, Marc. Turning to Slide 5. Corebridge delivered another quarter with strong financial performance driven by the strategic pillars we have consistently executed on since the IPO. We reported adjusted pretax operating income of $760 million or operating EPS of $1.22, representing a 15% year-over-year increase. This quarter's operating EPS included $0.10 of notable items and $0.07 from alternative investment returns driven by underperformance in real estate equity. Adjusting for these 2 items, our run rate operating EPS was $1.19, which represents a 7% year-over-year increase. Finally, our adjusted ROE was 12.5%, an increase of 140 basis points from the fourth quarter of 2024 and consistent with our goal of 12% to 14%. Turning to Slide 6. Our core sources of income, excluding notable items, were up 1% year-over-year, driven by improved spread and fee income partially offset by lower underwriting margins. Fee income, which makes up approximately 20% of our core income sources improved by 9%, driven by increased product fees and growth in assets under management and administration, benefiting primarily from favorable market conditions. Base spread income grew 4%, driven by strong sales and general account net flows robust asset origination and effective portfolio management capabilities. Lastly, underwriting margin, excluding VII and notable items, decreased 10% year-over-year due to lower mortality gains. Our broad suite of retirement and protection offerings allow for the generation of resilient and growing distributable cash flows across a variety of market conditions, which would not have been possible had we been dependent on a single product or channel. Turning to Slide 7. Full year 2025 capital return totaled $2.6 billion, including $1.2 billion in the fourth quarter alone. This brings our annual payout ratio to 110% or 75% when excluding the VA reinsurance proceeds. We concluded the year with holding company liquidity exceeding $2.3 billion, supported by $1.3 billion in distributions from our U.S. insurance subsidiaries in the fourth quarter. Next, I'll briefly review a few highlights from each of our businesses, the details of which can be found in the appendix to our earnings presentation. As a reminder, results exclude the impact of VII and notable items were applicable. In Individual Retirement, [ APTI ] increased 3% year-over-year. This was driven by an increase in both spread and fee income, partially offset by higher [ DAC ] and non-deferrable commissions due to continued growth in the business. The Fed rate cuts in 2025 contributed to the 6 basis points compression in base spreads. Excluding the impact of the rate cuts, the base spread compression in the quarter was marginal. More importantly, base spread income increased both year-over-year and sequentially, even with the earn-in of the Fed rate cuts, thanks to continued strong demand for our products. Fourth quarter sales were $4.3 billion. While this reflects some softening due to our pricing discipline and typical year-end seasonality our full year sales remained strong at $20.6 billion. Net flows for the quarter remained positive at over $600 million supported by our successful RILA launch, which generated full year sales of $1.9 billion. Surrender activity in the quarter was in line with expectations. Turning to Group Retirement. We continue to see a natural evolution of the business as we adapt to our customers nearing peak retirement age. This key demographic change is driving a purposeful mix shift from spread to fee income, which requires less capital. Accordingly, [ APTI ] decreased 1% year-over-year, reflecting lower base spread income from this demographic evolution. This is partially offset by growth in fee income, which increased 2% year-over-year. Sales were up 13% year-over-year due to the growth of our RILA products and our out-of-plan offering. Finally, expenses were slightly elevated this quarter due to a modest litigation reserve. In Life Insurance, [ APTI ] declined 30% year-over-year, primarily due to lower underwriting margins. While mortality experience was favorable this quarter, it was less pronounced than the meaningfully more favorable results we saw last year. On a run rate basis, this quarter results were consistent with our prior guidance of approximately $110 million to $120 million per quarter other than the first quarter of each year where mortality experience is the highest. Turning to Institutional Markets. Total [ APTI ] was up 8% year-over-year with full year earnings up 19% from 2024 levels. There has been significant growth across the business, where reserves grew by 23% year-over-year driven by attractive opportunities in pension risk transfer transactions and GICs. This demonstrates the strength of our business model as we opportunistically allocated capital to where we saw the highest relative risk-adjusted returns. Lastly, I want to provide additional details regarding our outlook as we enter 2026. We remain committed to delivering on our financial targets, and this reflects our confidence in the strength of the business and its financial performance for the year ahead. We expect to grow our total sources of income for the year on the strength of our favorable demographic trends, a competitive and diverse product suite and industry-leading distribution. While our retirement businesses base spread income will face some pressure from additional Fed rate cuts. That sensitivity is dramatically reduced, as Marc noted. Specifically, an additional 25 basis points reduction in SOFR will impact operating earnings by $20 million to $25 million on a go-forward basis. The impact would have been $45 million as of last September. Consistent with prior guidance, we estimate that the base spread compression in Individual Retirement should level off by the end of 2026 based on the latest market outlook assuming 2 Fed rate cuts in 2026, our current net flows projection and investment plans. We also estimate that overall base spread income for the Individual Retirement business will be in the

Thank you, Elias. As a reminder, please limit yourselves to 1 question and 1 follow-up. Operator, we are now ready to begin the Q&A portion of the call.

[Operator Instructions] The first question is from Suneet Kamath with Jefferies.

Elias best of luck in your new role. The first question is on the SOFR sensitivity. I guess, how are you able to reduce that so significantly? I would imagine there's got to be some give up somewhere. So just curious on how you're able to do that.

Suneet, it's Elias. Thank you. On the SOFR sensitivity, listen, our investment strategy is liability-driven. And we manage the ALM profile of the balance sheet very tightly. As we've disclosed in the past, we had some macro hedges. We were able, over the course to adjust the investment allocation, which gave us the flexibility to reduce these macro hedges, and that's what kind of reduced our sensitivity. So we were able to better align the ALM profile with assets and we didn't need the derivatives anymore.

Okay. Understood. And then, I guess for Marc, in your prepared remarks, you spent some time talking about investment spending. Should we view the incremental $60 million that you're talking about for 2026 as sort of the go-forward annual amount of spending that you're going to do? Or are you thinking about something that could be bigger than that?

Yes. Thank you, Suneet, and thanks for your question, and it's great to be on this call, and I appreciate all the interest and attention from all of you on the call, and I know it's my first and I look forward to many. So to answer your question, when I start at the macro level and say operating leverage is very important for us. And Underlying all of our work we do here, we will continue to drive operating leverage to growth in our franchise and our business. So that will always be one of the fundamental objectives, which you'll see and as has been demonstrated by this firm over the last number of years, we are driving operating leverage. Having said so, to your point, we need to invest in our business. And I mentioned in my remarks that winning with customers is very important, right? And then that starts and stops as well with the delivery to our distribution to the end consumer, which we need to further digitize. And those investments are spread across the firm to achieve that and continue to obviously put Corebridge at the forefront of delivering customer value. So as we look at the outlook, I would say we'll continue to invest there. And the

Next question is from John Barnidge with Piper Sandler.

Good morning. Thanks for the opportunity. My first question, can you talk about the PRT volume, it was a real active quarter. What's your outlook for that for the year? And how do you think about operating globally in that market?

John, it's Marc. Thanks for the question. So I would say our institutional management business, as Elias gave the details, it's grown by over 24% in 2025. And obviously, that was on the back of a growing PRT franchise and a growing GIC franchise amongst other things as well as some of our balance sheet products. One of the key things that as well Elias mentioned is the judicious capital allocation around the franchise to the highest return businesses we have and that was manifested obviously results of our institutional management business. Credit to that team, we do look primarily obviously in the U.S. and in the U.K. for opportunities in the PRT business, and we came across some attractive ones in 2025. That business, by its nature, is lumpy, right? So it will go up and down, but we feel we have a value proposition that's differentiated in the market, and we continue to be quite optimistic about its future. So we do see some bright lights as we look forward in that business.

And John, if I may add, if you look at pension plans still, they're overfunded. So when we think about the opportunity, there's a meaningful opportunity for continued corporate balance sheet derisking.

And my follow-up question. Can you maybe talk about your exposure to software and investment portfolio. And then maybe as it relates to the real estate footprint exposure to that asset class, I don't know, software as well.

Yes, I'll start, John, and then I'll pass it to Elias for some more detailed kind of -- at a high level, I would say we're not worried about our software exposure, and that's the main takeaway. And that's driven by, obviously, how we look at concentration to names, how we look at concentration to segments and how we look to concentration to industries and make sure we have a diversified balance sheet across all sectors. So our exposure there is not very big, and Elias is going to give you details here.

John. On the software side, listen, from a direct exposure side, we got $1 billion in our public credit side, and that's mostly to the likes of more Microsoft and Oracle. And then we have about $350 million within our direct lending book, which to us, when you think of a balance sheet, over $250 billion, it's de minimis. On the real estate side, to clarify, I'm assuming you're asking about data centers.

Yes.

Yes. On the data center side, we do invest in debt backed by data centers. We're very selective in where we invested. It's typically associated with hyperscalers, and we make sure the debt matures before the leases on those property mature. And that's kind of important from an underwriting perspective. So again, we feel very comfortable with that exposure.

Our next question is from Alex Scott with Barclays.

First one I had is on Group Retirement. I heard the -- a little bit more detailed outlook that you gave for spread in Individual. And I thought maybe I'd ask the same question of Group, that's a spot we're just been a fair amount of spread compression and there's some offsetting, I guess, fee growth over time. But I just wanted to understand how that dynamic will look in '26 and what to expect.

Alex, it's Marc. Thanks for the question. Maybe I'll start a bit as a view of the business. Our Group Retirement business is an important segment for us. Obviously, it's a source of diversification for us. It's a first source of diversification in a few respects. One of them is distribution related. And as you'll find out as we have these discussions, distribution is very important to me and the firm. And this gives us access to different distribution, the different access to the customer to, obviously, the record-keeping platform. But more importantly, as we pivot the business, which is implicit in your question, the Wealth Management aspect, right, and we're cross-selling and off-selling into those plans. I mentioned in my remarks, we have upwards of 1.5 million plus in-force participants. We have 250,000 or so out of plan participants, and we're growing that out of plan kind of value proposition, which is fee-based, right, which is important to our future as well as we try to balance, obviously, the revenue profile of the firm. So -- but the business is in transition, right? And it's in transition from spread business to fee business and that takes some time. We think there's another 12 to 24 months in that transition while we hit the trough there in terms of overall revenue, and then we'll start to increase. So that's how we view the business, but we're still very -- an important component of our firm, and it's one that we want to see continue growing.

Got it. Helpful. Second one I have to you is on the broader competitive landscape for Individual Retirement. Could you comment just on the adequacy of the IRRs and prices you're able to get right now, how you're viewing the market and willingness to kind of go bigger with growth over the next few years?

Yes. So a very good question. Thank you. I'll say that I've been in this business for 35, 36 years, and you always have competitive pressures, and it's a very competitive segment. But we have tailwinds. As an industry, obviously, there's a retirement need as [indiscernible] we meet. So I think there will be growth overall, and that's what creates a competitive interest. Obviously, the interest rate cycle over the last few years and as well, obviously, the spread environment, the corporate spread and credit spread environment has tightened, and that's created some additional pressures, as you mentioned here. But we have something that very few others have to rely on, which is incredible distribution. And as I mentioned in my remarks, we're a top quartile across many firms. We've obviously introduced this RILA product over last year and very quickly became a top 10 provider. As we launched that product, we had the ambition of being a top 5 player, which is where we are across all our product lines. And as I mentioned to the prior question as well, we have this availability of kind of moving our capital around where we see the highest IRR. So while we're very responsive to the rate environment, and that causes us to obviously course correct our pricing on our fixed annuities we do obviously have the opportunity to deploy it elsewhere in the IM side. But yes, there is competition on the retail side, but we're not adverse to the competition. And we offer as well some income benefits and living benefits that perhaps not everybody else does. So we have value proposition that's differentiated on the main, on the whole, like we feel comfortable with the risk return profile of our business.

Our next question is from Yaron Kinar from Mizuho.

Thank you. So I'm trying to think through the longer-term 10% to 15% EPS growth target. Is the idea that the boost from the excess capital deployment from the VA deal will be ultimately replaced by accelerating sales and deposit growth through that new fifth pillar that you introduced, Marc? And would that also mean that 2027 and '8 may actually be transition years with less EPS growth as that this pillar is still ramping up?

Yes. Thank you, Yaron. I appreciate the question. I guess I want to say we provided guidance, and obviously, Elias [indiscernible] on it. And I think as we look at 2026, and we look at obviously what the interest rate cycle has done and what credit spreads have done, that's working its way through 2026. And we feel that at the end of '26 and going into '27, obviously, we'll have a turnaround there. So our guidance is obviously in the lower half for 2026 of our of our stated objectives. But as we turn to 2027, I would look at 2027 guidance to be in the upper half of our guidance as opposed to the lower half in 2026. And that's how I would see and obviously, that would bleed into 2028 and beyond.

And is that driven by that fifth pillar? Or is that more from the kind of the residual impact of the buybacks in '26?

I would say it's a combination of everything we do. So it's the growth and penetration across all of our business segments and as well, obviously, our commitment to the free cash flow generation and the return to our shareholders. So it's a combination of the 2 that's going to drive that growth.

Got it. And then my second question, can you size the 2 planned departures that are expected for the second and third quarter?

Yaron, it's Elias. I don't have those exactly in front of me, but I think in total, they're in the $2 billion to $3 billion range across the board.

Got it. Good luck Elias with your transition.

Our next question is from Tom Gallagher with Evercore ISI. Please go ahead.

Good morning. Elias, good luck. Marc, welcome. The I guess, Marc, first question I had for you, I was listening to your prepared remarks and other comments you've made. And you seem to be describing Corebridge as having a competitive moat on the distribution side. And I think you referenced 40% of annuity sales having some bespoke and tailored products for specific distribution. Anyway, I think the investor perception on Corebridge is that you're selling a commodity product in an increasingly crowded field with alt managers muscling their way in. So clearly, your view, and you've been in this industry a very long time through different roles is very different than, I think, the common perception. What would you say -- what gives you the confidence that your view is the right view? I don't know if there's -- maybe which is that point you made, but is there anything you could say to demonstrate or disprove that commodity perception?

Yes, Tom. Thanks for the question. And appreciate it. So I think there's 2 things we have to do to counter the effect of the competitive forces. And it's driven by winning with customers, which to me means being the easiest company to do business with. And we have to strive to be the easiest company to do business with because that will give you an avenue of growth and revenue growth that will not be completely based on that commodity pricing you're referring to. The second one is you need a distribution powerhouse to touch that ultimate customers to advisers, brokers, financial planners and the like. So -- and we feel and I feel strongly that we have that differentiated value proposition on the distribution side. And we are building the platform to be the easiest company to do business. We're on a combination of the 2 will allow you to compete effectively and print the target margins we seek to provide in our business, and that's how we're going to approach it. And as well, one of the comments I made is tied to the fact that we have liability-driven expertise, and we have assets driven expertise and not every company has that, and we feel that provides us a competitive advantage to take some thoughtful, I would say, biometric insurance grids to combine it with the asset risk. And some of our competitors, not all of them are comfortable taking all those risks, but we're comfortable and we've proven our ability to manage through those risks through time. So that's what -- that's why I feel we are different.

Got you. And for my follow-up, Elias, just question on -- I know you raised what was a fairly expensive $500 million preferred in 4Q. And I think the proceeds are largely going to Bermuda to fund capital needs there. How do -- how should we think about cash flow capital generation for the next few years? I mean, on one hand, it looks like maybe you've paid upfront for the cost of some capital optimization strategy. And so I guess the reason I'm asking all of that is I'm just wondering because now we have to factor in the cost of that preferred, but are you going to get a benefit on that on the back end here where maybe free cash flow conversion is a bit better than the 60% to 65%.

So Tom, the way I look at it is like, listen, if you look at 2026, and 2025 and '26 given the VA deal, we've distributed a lot of capital out of our U.S. companies, and we're using most of it to return back to shareholders in the form of share repurchases. And kind of we're being mindful of the kind of what we do with the U.S. companies. What the preferred security does. And I don't look at it necessarily it's very expensive, I look at it as to what's the opportunity that we use that capital for. And if you look at the IRRs where we're selling new business at, it's accretive. And so that takes care of Bermuda for 2026 from our strategy there. We grew putting aside the proceeds from the VA deal, dividends from the insurance companies by 6% and '25 relative to '26 that's consistent with the guidance we gave you. I think that's a good guidance to think about for '26 also. And we're confident, like, listen, as we grow our business and the denominator grows, we're going to deliver on the 60% to 65% organically and with the denominator growing, that means we're returning more cash every year to shareholders. Now the one clarification is on the -- for insurance company dividend distributions for '26 you got a rebaseline 2025 for the lost distributable earnings from the VA transaction. Once you do that, our anticipation would be growing it in the 5% to 10% range.

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

Just wanted to come back to the retail annuities competitive landscape, just given right your sales were down pretty significantly quarter-over-quarter and flows were well below where they've been for several quarters now. So and we see more and more enter the market. So just curious how the competitive dynamics have been evolving there? And what exactly you saw in the fourth quarter?

Yes. Thank Joel, It's Marc. I appreciate the question. So maybe some overall comments before we talk about Q4 in particular. When you look at the full year, we were in very positive net sales for -- in our Individual Retirement business. We have over $7 billion of net sales. Our assets continue growing. The business continues growing. Obviously, the interest rate cycle, I mentioned earlier in my remarks that we are responsive on a weekly basis to the interest rate cycle and to the credit cycle. So obviously, we were responsive to that in Q4, and it had some temporary effect on our sales. I'll go back to the fact that in RILA, we are going to be a top 5 player in that market. That's our ambition, and we'll get there. We are a top 5 player in every other segment. As we look towards 2026, we are looking to grow that fixed annuity business, Individual Retirement business. So we are confident going into 2026 about our portfolio and our prospects.

And to add to Marc, and part of the modeling guidance we gave, Joel, is we expect from our retail annuity business to continue to have positive net flows going into the future. The fundamentals are pretty strong, and we see demand kind of strong for needs for retirement solutions.

Got it. That's helpful. And then, Marc, you talked about the [ wallet ] opportunity. How do you see that developing over the coming years? And can you elaborate more on some of the investments that you think you have to make to fully capture that opportunity?

Yes. Thank you, Joel. Yes. It's we are very ambitious on that business, and it's the cross-sell and upsell to, obviously, our recordkeeping business. And we have a selective opportunity to go into those plans and to actually grow our relationship with those participants. And I'll give you a couple of proof points, right? If you look at our recordkeeping business, that's about $80 billion or so. I would say the average balance we have for those participants is 50,000 to 60,000 on average. If you look at our outer plan, kind of relationships where we've basically obviously have a bigger share of wallet of those families it's close to triple that level. So that's why we're thinking and that's why I mentioned in my opening remarks that we think we have a $30 billion opportunity there. So that's the upside. And how do we capture that upside? Well, we got to have a more robust offering on the wealth management side. We've got to obviously digitize. We got to hire more wealth advisers and we have to professionalize and continue to professionalize that workforce to attempt to go after those participants, and that's what we're doing, and that's where those investment dollars are going.

Our next question is from Wilma Burdis with Raymond James.

Hey, good morning, GICs and similar products seem to have taken a step back in 4Q '25, not just at Corebridge, but maybe across a few different companies. I'm wondering if there's something specific to the interest rate and/or credit environment in 4Q '25 or if that's just a quarterly fluctuation?

And Wilma, just to be clear, you were asking about GICs?

Yes.

Yes. I think what you see, if you go back to fourth quarter, there is volatility in the rate environment, which kind of limited some windows out there. But I think you got to look at it we look at it on an opportunistic basis where the opportunity is, and we do both the capital markets as well as private placement. So key to us is what assets do we have, what returns can we get? And does it achieve our return hurdle. And that's kind of drives us. But if you follow -- we did one in January, which is not in the fourth quarter results. So I think the market is still there just that in the fourth quarter, there is a period of volatility.

Okay. And [indiscernible] is a while out, but should we expect benefits in '27 from the reduction in short-term interest rate sensitivity? And is there any way to quantify any cash benefit for the change in the derivatives program?

Yes. Listen, I think on the derivatives program and the sensitivity we gave you that sensitivity. Our balance sheet will continue to evolve with how the liability side evolves, and we'll kind of update you on sensitivities going forward. In terms of the derivatives when we think about it, no, I think what we've done is by getting the derivatives off the books is we've reduced the sensitivities to interest rates -- short-term interest rates. And where we stand right now with our outlook and what the market outlook is we see this kind of exposure from potential Fed easing ending in '26. And as we look into '27, we see lower exposure from that perspective. And to Marc's earlier comment, we expect to grow earnings in '27 that together with capital management puts us in the top half of our 10% to 15% range. And the earnings growth is going to come as a result of continued growth in the business and improving our operating leverage from the investments that are being made.

Our next question comes from Wes Carmichael with Wells Fargo.

First question on the modeling items for ultra turns. I think Elias for 2026, you're expecting returns to be closer to the long-term assumption of 8% to 9%, but you mentioned lower real estate equity returns in the first quarter. I just wonder if you could maybe size that for us in the first quarter.

Yes, happy to. So yes, so we think the economic environment is supportive when we look at the full year to deliver on the 8% to 9% return on our alternative. It's a little early, but we are seeing some softness in the first quarter with real estate equity. It's a recovery is lagging what we're seeing on the private equity side. I think right now, but it's very early, maybe $20 million to $30 million impact, but that's very early.

That's helpful. And I guess my follow-up on the asset side, Marc, you mentioned that corporate spreads are very tight. We can all see that. And you've got the relationship with Blackstone and BlackRock. But I just wanted to ask, is -- are there additional opportunities to think about on the asset side, whether that's maybe expanding the Blackstone relationship. Would you look at additional partnerships with other alternative managers? I'm just curious if there's more to do where you could increase the net yield on the portfolio.

Yes. Thank you, Wes. Appreciate the question. I guess, in 2025, when you look at the size of our firm and the origination, we originated upwards of $55 billion in 2025 alone. And that was done in partnership, obviously, with our own investment team that originated the 1/3 of it, BlackRock, originated another 1/3 of it, in Blackstone, as you mentioned, originated another 1/3 of it. So we feel we've got 3 world-class teams originating very choice assets with the right risk return profile, obviously, we're very prudent there and want to be thoughtful about investing for the long term. And I think we're quite happy with those 2 strategic relationships we have with Blackstone and BlackRock, and they have provided us a source of very attractive assets. Now their credit markets or the credit markets. So I think what we have to be as thoughtful about where we place our money, how we invest it and make sure we do the prudent thing over different cycles and not necessarily fall into the trap of going after the yield and regretting it in the future so but we're quite happy with those partnerships, and I think they're sourcing very good assets for us.

Our next question is from Jack Matten with BMO.

Just one follow-up on the Individual Retirement spread outlook. I guess if you look at the longer-term kind of base spread profile over the past decade plus, it's created to be closer to the lower end of that range. I guess, do you think that's like more of a new normal now once we see spreads stabilize given where credit spreads are in competition in that space? Or is your expectation we could eventually see maybe an upward reversion over time towards the longer-term average margins in that business?

Jack, it's Elias. Listen, what's -- if you look at what's driving the compression in our base spread, it's a big driver of it is the relative margins between where new business margins are and where to enforce this. And if you look at our in-force, we have a lot of annuities that were written in a lower interest rate environment and we were successful in repositioning assets to take advantage of higher yields in the last 3 years from it. So that's one of the factors that's contributing to that compression. We see that playing out through the end of '26. When we look beyond '26, we do expect the margins will start growing from that point on, given the dynamics that's changing within our in-force portfolio relative to new business and easing of any sensitivities or pressure from what the Fed might do.

That's helpful. And maybe just a follow-up on the [ NAICs VM22 ] reserving changes. Just any thoughts on what this could mean for Corebridge. There could be some puts and takes across different lines of business, but I'm just curious how you kind of see that playing out given your business mix?

Jack, it's Marc. Obviously, it's something that we follow closely, and we work very closely, obviously, with the industry and the NIC, and we participate actively, obviously, in testing our own balance sheet. And we're not getting into any of the details. We're quite comfortable with the impact is [ VM22 ] would have on our balance sheet when implemented. So I think you'll see some no surprises from Corebridge when it comes to that.

Our next question is from Tracy Benguigui from Wolfe Research.

When I think about RILA, there are many puts and takes, including pricing, distribution, product design. On product design. You talked about some of the benefit features. But turning to the indices, I see that you introduced the crypto-linked RILA. What is the take-up by policyholders? And should I think about relatively higher basis risk for a crypto index than, let's say, the S&P 500? And if so, how are you managing that?

Tracy, it's Marc. Thank you for your question. You are correct that we did introduce a new version of our RILA product just a few weeks ago, and we're quite proud of the fact that it's differentiating and has some crypto exposure. Before we do any introduction of such new features, whatever, it goes to a judicious process on the risk management side and making sure that some of the components that you mentioned there are well managed to the cycle. It's too early to tell what the take-up rate has given us a couple of weeks in, but we're requite comfortable that we've met all of our usual approach to risk manage the portfolio.

And Tracy, what I'd add is to kind of -- this is a good example of what Marc was talking about, where we look to differentiate ourselves in the market based on product features. So we're not just competing on price. So that -- this is a good example of one where it demonstrates that.

Well, I also had a question on the preferred raise. Marc, you said Bermuda is one of your strengths. Can you share your vision on how Corebridge could optimize capital further through sessions to our affiliated Bermuda muni entity? And what the shorter-term capital needs are? I'm just curious if you could support future capital needs through organic capital generation or since preferred as a new category for rating agency purposes would you envision any other type of hybrid debt raising?

Yes. So Tracy, maybe I'll start and Elias may want to add some more detailed color. So -- and at a high level, we will -- and we always strive to deliver on our guidance, right, which includes, obviously, the free cash flow generation of 60 to 65 and obviously, the return through dividends and buybacks associated with that. So whatever kind of capital management activity we have, we do so against obviously delivering on that guidance. Obviously, Bermuda, as we and others use is a good, obviously, capital management kind of optimization approach and obviously, Elias and one of your colleagues were discussing that earlier. We will continue to look at our business and optimize it from a capital management perspective and the cash flow and economics underlying it. And that in Bermuda will be a very important component of that, and it will continue to be in the future. How we manage the overall capital profile of the business and leverage as well. We have, obviously, our stated objectives there, which we try to manage against judiciously so -- and how we go about it, I think will be something we're always thoughtful about as we move forward. So I don't know if Elias has anything to add to that.

No. I agree with everything Marc says and Tracy, I'd point you to 2024 and 2025, where we -- in each year, we hit record sales, and we've increased the dividends from the insurance companies without the financial flexibility, Bermuda provides, we would not have been able to accomplish that. The other thing I just want to clarify, Tracy, the bitcoin index that we've provided with in an index annuity that's in the [indiscernible] product.