I will now hand the floor to Işıl Müderrisoğlu, to begin, so please go ahead.
Good morning, everyone, and welcome to Corebridge Financial's Individual Retirement Variable Annuity Transaction Conference Call. Joining me on the call are Kevin Hogan, President, and Chief Executive Officer, and Elias Habayeb, Chief Financial Officer. We will begin with prepared remarks by Kevin and Elias, and then we will take your questions. Today's comments may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations and assumptions. 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 press release and presentation, both of which are available on our website at investors.corebridgefinancial.com. With that, I would now like to turn the call over to Kevin and Elias, for their prepared remarks. Kevin.
Good morning, and thanks for joining us on short notice. Corebridge, is pleased to announce a transformative transaction that repositions the company for the future by exiting our Individual Retirement Variable Annuity F inancial risk, through a reinsurance agreement. The rationale for this transaction is compelling across the board and fully consistent with our previous statements that any transaction needs to be in the best interest of the company, accretive economically, and beneficial in terms of structure. I will cover the main levers of value, and Elias, will provide additional detail. There are several characteristics that set this transaction apart. First, it achieves a full exit from our Individual Retirement Variable Annuities. This is not a partial portfolio transfer. Second, by any definition, this is a very large transaction.
We will transfer $51 billion, of in-force account value and, under a flow reinsurance agreement, all future Individual Retirement Variable Annuity, sales as well. This is well aligned with our strategic goal of optimizing our balance sheet. Third, while Variable Annuities, were historically a growth engine, for a number of years now, other products have proven far more popular with customers and advisors. As a result, the Individual Retirement Variable Annuity, portfolio, has had significant net outflows for eight years, with a generally declining earnings contribution. As we are always seeking to create shareholder value, we recognize the timely opportunity to monetize an underappreciated and undervalued book of business with a decreasing financial contribution to Corebridge, at what we believe is an extremely attractive valuation. Finally, there is immediate and ongoing significant value for our shareholders.
The total transaction value is estimated at $2.8 billion, reflecting an earnings multiple of 9-10 times, well above where Corebridge, currently trades. The net distributable proceeds, are estimated at $2.1 billion, which represents a significant share of our current market capitalization. We plan to use a substantial majority of the proceeds for capital management, including a significant amount for share repurchases, with the balance available for investment in organic growth. To that end, our Board of Directors, has approved a $2 billion, increase in our share repurchase authorization. This transaction is expected to be accretive to EPS, on a pro forma basis once the expected share repurchases, are complete and will improve the growth profile, of the company by removing a headwind to earnings.
We are also reaffirming all our key financial targets: 12-14% ROE, RBC, above our 400%, target, a 60-65%, payout ratio, and 10-15%, annual growth, in EPS, over time, achieving all this while reducing risk, especially tail risk and policyholder behavior risk. This transformative transaction repositions the company for the future and further strengthens our already strong balance sheet and improves earnings quality. Going forward, our business portfolio, remains well diversified, and our growth opportunities across our four main businesses remain compelling, allowing us to continue to drive organic growth from a lower risk baseline with a business mix that is simpler and easier for investors to understand and to value. Collectively, we believe this transaction warrants a fresh look at Corebridge, whether in terms of financial profile, risk profile, or valuation.
I will now hand it over to Elias, to cover some of the details of the transaction.
Thank you, Kevin. Starting on slide three, this transaction checks every box from a value creation, perspective. We exit an undervalued business at an attractive multiple. We generate significant upside through an acceleration of our capital management, objectives. We reaffirm our attractive financial targets while reducing risk, and we move forward with a diversified portfolio, of higher multiple businesses. Simply put, it's a transformative transaction that delivers significant shareholder value, and repositions Corebridge, for the future. Turning to slide four, you can see the components of the value this transaction creates. As Kevin, noted, the total transaction value, is estimated at $2.8 billion, with $2.2 billion, in net seeding commission and $500 million, in capital release.
Net of taxes,, and other items, we will have an estimated $2.1 billion, of net distributable proceeds, representing about 12%, of the market capitalization, of the company. Slide five, highlights our commitment to continuing to meet our attractive financial targets, which are key drivers of long-term value creation. At the same time, we're improving quality of earnings, ,by reducing what was historically or has been a source of net income volatility, while also mitigating a range of other risks intrinsic to the VA, book. We believe it's a compelling value proposition, the same strong commitments to profitability, balance sheet strength, and capital return, but with lower risk and lower volatility. On slide six, you can see our go-forward business mix, at the more granular level. Corebridge, remains a well-diversified business, offering a broad range of higher multiple retirement and protection solutions, to meet our customer's needs.
The profile of the company, on the left side of the slide was good. The profile of the company, on the right side is even better. Turning to slide seven, I will call your attention to a few points. First, Corebridge, expects to maintain its broad product suite, and top-tier distribution position, which will be further supported by the flow reinsurance agreement, on new Variable Annuity sales. Second, the transaction structure provides a range of robust counterparty protections for Corebridge. These include comfort trusts, with defined investment guidelines, and over-collateralization, requirements, a protective hedging arrangement, and ongoing monitoring and reporting. We expect the AGL, transaction to close in the third quarter, of 2025, and the remaining transactions in the fourth quarter, subject to closing conditions and regulatory approval. Moving to slide eight, I will review the financial impacts on our earnings profile.
First, it strengthens our go-forward earnings growth profile, by removing a headwind from a declining VA, earnings stream. While this book was expected to earn approximately $300 million, in 2026, we expect this will materially decline in subsequent years given projected outflows in the VA, book. Second, the transaction is expected to be accretive to EPS, following the completion of the associated share, repurchases. On a run rate basis, the transaction should be accretive by the second half, of 2026, and we will anticipate operating EPS, growth in the 10-15%, range beginning in 2026. Third, the transaction will significantly reduce our sensitivity of our fee income, net of advisory expense, to variability in equity markets. On our first quarter, earnings call, we provided the sensitivity of $85 million, to a 10%, change in the S&P 500 index, over a 12-month, period.
With this transaction, that sensitivity will now be approximately $50 million. Turning to the balance sheet impact, with this transaction, our clean balance sheet, is further strengthened. Post-reinsurance, 99%, of our net GAAP liabilities, are from non-legacy products. This means we have no exposure to LTC, no exposure to pre-crisis Variable Annuities, and nominal exposure to ULSG. In addition, this transaction generates over a 50-point, increase to the life-lead, RBC ratio, prior to the impact of any share repurchases. Turning to slide nine, let me recap how we expect this transformative transaction to reposition the company to deliver substantial shareholder value. First, it achieves a full exit from Individual Retirement Variable Annuity Financial Risk, materially changing our business risk profile and earnings quality.
Second, it creates value upside by monetizing a declining earnings stream at an extremely attractive multiple, and we expect to deploy a substantial majority of the proceeds to share repurchases. Third, it positions us for future organic growth opportunities with a portfolio of higher multiple businesses. Finally, we can do all this while reaffirming our attractive financial targets, improving earnings quality, and reducing risk. Fundamentally, we're offering a stronger risk-adjusted value proposition to our shareholder. With that, we'll open the line to questions.
Thank you. As a reminder, to ask a question, please press Star 1 on your telephone keypad. To withdraw your question, please press Star 2. Please limit yourself to one question and one follow-up at this time. The first question is from Suneet Kamath, at Jefferies. Please go ahead.
Great. Thanks. Good morning. Just on the comment, Elias, about the accretion in the second half, of 2026, does that presume or assume that you will have executed all of the buybacks associated with this transaction by then?
Yes. So the assumption is we're losing $300 million, in earnings, and we'll offset that with the share repurchases. Given our historical track record and how we've deployed excess capital, we'd expect today, based on what we know today, to be done by the second half, of 2026.
Okay. Got it. And then on the $300 million, from VA, I mean, I guess if I think about that as a percentage, of your earnings, it's been relatively stable. I guess how should we think about that glide path? Because you say it's going to come down materially, but just want to get a sense of order of magnitude and over what time frame. Thanks.
Yeah. Thanks. Look, thanks, Suneet. VA, historically has been a growth engine for us. Clearly, it's an undervalued, unappreciated portfolio, but it's been in net outflows, now for eight years. In fact, its earnings have been declining as a percentage of the company earnings. I think it's now down to around 10%. That trajectory, we would expect to continue. Other products have proven far more popular than VA. We, in fact, expect that the earnings, the fee income, in particular, is on a declining path over the next couple of years.
Okay. Thank you.
Our next question is from Ryan Kruger, at KBW. Please go ahead.
Hey, thanks. Good morning. Just a quick one. Can you give us some rough sense of the magnitude of what closes in the third quarter, compared to what closes in the fourth quarter, and how to, I guess, think about that from a modeling standpoint, and how much of the earnings will come out of the run rate, in each of those quarters?
Hey, Ryan. It's Elias. We expect the AGL, transaction to close in the third quarter. We do not have any regulatory approval requirements in Texas, on that portion of the transaction. That should approximate approximately 90%, of the net distributable proceeds. USL, which is our New York, domiciled company, and with the sale of the investment advisor, we expect those to be in the fourth quarter, as they both require regulatory approvals.
Okay. Great. Thanks. And congratulations.
Thank you.
Thank you.
Our next question is from Alex Scott, at Barclays. Please go ahead.
Hey. Thanks for taking the question. The first one I have is just on capital generation and cash flow. I know you talked about the GAAP, earnings associated with this block. I just wanted to understand how will that translate to the capital generation, and is there any sort of influence on the cash conversion percentage, or should we think about that being more stable?
Hey, Alex. It's Elias. So listen, if you look at our insurance companies, they've been distributing $2 billion, plus, and we increased the dividends, in 2024, by 10%. And we guided that the dividends, in 2025, will increase by another 5-10%. Obviously, this transaction kind of rebaselines the dividends. I think the loss of $300 million, is a good proxy, for that. But that doesn't change our trajectory. Given what we've said in the past, that with the growth of profitability and growth in the business, we'd expect to continue to grow the dividends, over time. In terms of free cash, or conversion, we think this will have a modest impact in the short term around free cash, or conversion.
If you think about growing the RILA, business, and we've talked about growing the fee-based wealth management business, in our Group Retirement business, over time, that should benefit the free cash, or conversion from there.
Got it. That's helpful. The other one I have is just around timing potential here. I know you're talking the way it would affect the accretion, deletion, and back out to 2026, so it's clear. I, guess you have obviously a big shareholder that's got a mandate to slow down. What is your willingness to participate in more size in that as it comes to market from AIG, potentially?
Listen, we've got, as you see, the excess capital. We've been focused on open market purchases. When the opportunity arose to do block trades with AIG, we've done them in the past. If there's an opportunity to buy from AIG, in the future, we're ready to participate.
Got it. Thank you.
Our next question is from Elyse Greenspan, at Wells Fargo. Please go ahead.
Hi, thanks. I guess my first question, I just want to flesh out some of the capital stuff. So it sounds like if the AGL, transaction has 90%, of the proceeds, based on the comments, should we just infer that as quick as you can, you'll try to repurchase the incremental $2 billion, I guess, starting in the Q3, kind of running through the first half of next year? Would that be your expectations?
Elise, if this closes in Q3, the proceeds would come inside the insurance companies, and then we would follow our normal process around dividends, and regulatory approvals for dividends from the insurance companies. There will be some time lag from between when they become available in the insurance companies, versus when they become available for share repurchases. The other thing I'd say, Elise, if you look at what we did with the U.K. sales proceeds, we were very disciplined from a market perspective on how we deployed that capital. The timing, we will be disciplined over it. I don't expect from an open market perspective a big transaction if that's where we're buying it. We'll be disciplined, and we'll be deploying it over time.
Thanks. Then my second question, I recognize in some instances from a regulatory process where things can take a little bit more time when you're dealing with perhaps New York, versus other regulators. Have you guys started the regulatory process there, expecting that part of the deal to close in the fourth quarter?
Elise, we have a relationship with all our various regulators. We believe in a very open and transparent relationship. We have been, as appropriate, updating our regulators, and we will follow through the disciplines and process. We have, obviously, New York, is one that you mentioned. With the investment advisor, we have their regulators involved, which are a different body. We have a long track record, of managing through these types of transactions and expect that the regulatory process will proceed. We are very focused on being transparent through that process.
Thanks.
Our next question is from Tom Gallagher, at Evercore ISI. Please go ahead.
Thanks. First, just a question on organic growth. If I look back, VA, has been outflowing about $5 billion, a year. I'm estimating that's hit your overall organic growth by 2-3 points. I know you're just reaffirming 10-15%, EPS, growth guide, but shouldn't this help? If so, how would that influence your view of the 10-15%?
We're reaffirming our financial targets across the board, Tom, including the 10-15%, annual growth, in EPS, over time. The reality is this transaction, the full exit from the VA, as you pointed out, it has been in outflows. This improves our risk profile, our quality of earnings, but also it does improve our growth profile going forward. We continue to see a very robust environment for our index products. The fixed annuities also continue to be attractive. We're very pleased with our start with RILA. We do have a flow agreement. For those of our producers, that Variable Annuity, the traditional VA, is an important part of their portfolio. We can continue to support that portfolio need. That's just individual retirement.
The retirement services business, where we've already begun the transition from a spread-based to a fee-based business, we expect that trend to continue. From a kind of a lower fee-based profile, we expect to be able to highlight that growth more. We do see opportunities for growth. We'll continue to focus on that, but we're reaffirming our targets for this point in time.
Tom, what I would add is the 10-15%, is the average we expect per year in terms of EPS, growth. That will come from both earnings as well as capital management. Some years we might be higher. Some years we might be lower. Like as we said at the end of 2024, we expected 2025, to be below 10%, for the reasons we talked about back then. On average, as we look forward, we expect to deliver between 10-15%, per year.
Gotcha. Thanks. My follow-up is, should we assume from a broader repositioning standpoint that you're pretty much done, or could we still consider maybe a life insurance risk, transfer deal, still something that you might be contemplating? Any thoughts on the go-forward, and do you feel like this kind of repositioned you to where you need to be?
Thanks, Tom. Appreciate the question. Look, we're always looking for additional opportunities to create shareholder value. This does not end that process. That is an important obligation and responsibility that we know that we have. We will continue to evaluate potential transactions, hold them to the same standard as we did this one, which is that it needs to be accretive economically. It needs to be beneficial in terms of its structure, and it needs to be something that truly is in the best interests of the company. I think we demonstrated that with this transaction, which has improved our risk profile, our quality of earnings. We attracted a high multiple for the deal. It has allowed for us to engage in incremental capital management, while we have reaffirmed our targets and further positioned ourselves for growth. We will continue to seek opportunities to create shareholder value.
Okay. Thanks.
Our next question is from Wes Carmichael, at Autonomous Research. Please go ahead.
Hey, good morning. Thanks for taking my question. On the hedging portion, Elias, I think you mentioned this in your prepared remarks, and the materials note that the macroeconomic risk, has been hedged, but I think there's also a purchase price adjustment. So I'm just wondering, what is that purchase price adjustment tied to, and is there any macro sensitivity to that?
The purchase price—hey, Wes, Elias—the purchase price mechanism, has different elements. One element is associated to market sensitivities, and we have begun hedging it since May, from there. Separately, with the deal, part of the structure to the deal is some of the hedges that will hedge, the VA, liability going forward will remain on our balance sheet on behalf of Venerable, and we are effectively intermediating that for them.
Great. Thanks. On the flow portion, I think you're reinsuring all new VA, sales. I guess, do you expect to continue at a similar pace to what you generated historically? Is there a seeding commission associated with that? I'm just curious if there's some residual income related to new business for Corebridge.
We expect the profile, of our new business to continue. Variable Annuity, is one of the many products we have available in Individual Retirement, and our strategy remains intact, which is to offer both an income-oriented and accumulation-oriented, solution for all of our major products that allow the financial advisors, employed by our distribution partners to respond to their strategies and their individual customers' needs. We fully expect that Variable Annuity, is a relevant part for some advisors in their strategies, and we'll be able to continue to support that need. There is, of course, a seeding commission structure, etc., but we're not disclosing that at this time.
Great. Our next question is from Jimmy Bhullar, at JPMorgan. Please go ahead.
Hey, good morning. Just first to clarify some of the comments, Elias, you made on the call. On free cash flow, fair to assume that initially it's slightly negative given that the block you're transacting is in runoff, and obviously, the commissions are all expensive. Any comments on that?
Yeah, Jimmy, it's Elias. It will be modestly negative in the short term, but we're still committed to delivering on the payout ratio of 60-65%, putting aside the proceeds from the transaction. I think in the near term, once we start deploying the proceeds, you should expect us to be above the 60-65%. Once we're done, we're back to the 60-65%.
Is there anything related to this that affects results in other businesses, like stranded overhead or any other types of impact that we should expect on businesses other than annuities, or the corporate segment?
There is a modest amount of stranded cost. You would always have it with any transaction. That is factored into the $300 million, guidance that we gave you. Given our focus on expense management, and what we have demonstrated along the way, we would be looking to mitigate this over time.
Okay. And then just lastly on buybacks, you've got a fairly strong.
Jimmy, you're cheating the rules.
All right. Everybody else doing it, though I'm obligated to do it, I guess. I'm asking you relatively short and easy questions, at least. On the buybacks, should we assume that you could do some before the deal closes too? Because you've got the capital, and if you want to be measured in your pace, why or why not do some before the deal closes?
Jimmy, we're here at the end of June, and we expect the deal to close in the third quarter. We are deploying our capital, consistent with the prior guidance we gave you. We will update you when the deal closes kind of on the latest output. The one thing I can assure you, we will look to deploy as soon as we can within the discipline we've demonstrated with what we've done in the past.
Thank you.
Thank you.
Thank you. This concludes today's Corebridge Financial Conference Call, and you may now disconnect your line.