Good morning everyone, welcome to the Corebridge Financial, Inc. fourth quarter 2022 earnings call. My name is Emily, I'll be coordinating your call today. After the prepared remarks, you will have the opportunity to ask any questions by pressing star followed by the number one on your telephone keypad. I will now hand you over to our host, Josh Smith, Head of Investor Relations, to begin. Josh, please go ahead.
Good morning, everyone, welcome to Corebridge Financial's fourth quarter earnings update. 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, then we will take your questions. Today's remarks 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 expectation. Corebridge's filings with the SEC provide details on important factors that may cause actual results or events to differ materially. 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. 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 on our website at www.corebridgefinancial.com. With that, I would now like to turn the call over to Kevin.
Thank you, Josh, and good morning to everyone. During our call today, we will present our fourth quarter and full year 2022 results. I will speak to the competitive landscape, review the progress we are making on our core strategies, reinforce our commitment to our financial goals, and discuss how Corebridge is well-positioned to create long-term value for shareholders and other stakeholders. Elias will then deliver additional details on our financial results, offer a few comments on LDTI, and provide some guidance for 2023. Corebridge Financial had a strong debut in 2022, notwithstanding external conditions. We delivered operating earnings per share of $0.88 in the fourth quarter and $2.87 for the year. Our results for the fourth quarter and the full year demonstrate the resilience of our franchise and the competitive strengths of our businesses.
Our diverse sources of earnings, our broad product platform, and our unrivaled network of distribution partners remain strategic advantages for Corebridge and position us to perform well in different market environments. Our businesses grew in 2022 as we expanded our product range, enhanced customer solutions, advanced strategic initiatives, and began to implement a leaner operating model, all while completing our initial public offering last September. We are well on the way toward creating sustainable, profitable, and incremental growth while delivering on the strategies and financial goals we've previously outlined. Adjusting for earnings volatility related to market conditions, such as from variable investment income, the earnings power of our core insurance businesses improved, aided by tailwinds from higher interest rates, wider credit spreads, and favorable mortality, which more than offset headwinds from equity market performance.
New money rates more than doubled this year, climbing to 7% in the fourth quarter, an increase of approximately 400 basis points. Over the last 12 months, base net investment spread expanded during the second half of the year, contributing to a healthy level of organic growth. Looking at individual retirement, we delivered balanced sales with healthy margins and strong general account cash flows across our spread-based products. The breadth of our portfolio and the strength of our distribution partnerships helped us generate premiums and deposits of $3.8 billion in the fourth quarter, contributing to $15.1 billion of new deposits over the course of 2022, with positive net flows of $2.4 billion, reflecting nearly 200% growth in net flows year-over-year. In fixed annuity, we saw some of the best conditions in recent memory.
At the same time, we remained disciplined, effectively balancing competitiveness and margin growth. We delivered sales of more than $1.3 billion in each quarter of 2022, contributing to $5.7 billion in premiums and deposits for full year 2022, an 89% increase year-over-year. This extraordinary level of new business reflects a strong appetite for fixed annuity products in the marketplace, combined with the strength of our bank distribution relationships. fixed index annuity also benefited from a very attractive landscape with $1.7 billion of premiums and deposits in the fourth quarter and over $6.3 billion for the full year. Full year net inflows were $4.5 Billion. The strong position of this business is supported by our income and accumulation products, which we distribute across a broad range of channels.
In group retirement, premiums and deposits were also strong at nearly $2.2 billion for the fourth quarter or approximately $8 billion for the full year, supported by new plan acquisitions and growth of out-of-plan deposits, in particular in fixed annuities. These out-of-plan deposits reflect one part of our broader strategy for this business, which includes serving individuals outside of their traditional employer-sponsored retirement plans. As a reminder, large new plan acquisitions or surrenders are nonlinear. Thinking about retirement across group and individual, we were pleased the U.S. Congress was able to pass SECURE 2.0. This federal legislation is another important step in building a stronger retirement system and improving retirement outcomes for all Americans.
We anticipate a positive impact from SECURE 2.0 across both our individual and group retirement businesses, as this legislation should result in increased contributions, larger account balances, and delayed withdrawals from retirement accounts. Life insurance generated stable premiums and deposits year-over-year as we continue to transform this business. Sales over the last year reflect our efforts to improve the mix of business in the U.S. and to grow the business in the U.K. In institutional markets, we closed Pension Risk Transfer transactions totaling $1.3 billion in the fourth quarter. While premiums and deposits were lower in the fourth quarter and full year versus 2021, we continue to see a robust pipeline for full plan terminations in the U.S. and the U.K.
We also remain confident in our ability to become a more consistent issuer of GICs in the future, subject to market conditions. Overall, I am very pleased with the performance of our businesses and the levels of organic growth we produced in spite of challenging market and industry conditions. We have a lot of momentum, particularly since completing our IPO, we are well positioned to grow and continue to strengthen our relationships with distribution partners in the coming year. Next, I will discuss the progress we are making to advance our investment partnerships and our efficiency strategies that I outlined during our third quarter earnings call. Our partnerships with Blackstone and BlackRock continue to benefit us as they each bring considerable resources to bear in support of our strategic initiatives. Looking at Blackstone first, we continue to see great value from our growing relationship.
Blackstone's asset sourcing capabilities have aided our product competitiveness as they are able to originate attractive assets at volumes we could not previously achieve. These assets are successfully supporting all four of our businesses. For the full year, Blackstone executed approximately $8 billion of new transactions across a variety of asset classes, including private and structured credit, at an average gross yield of just over 6.5 % and an average credit quality of single A. The purchase yield on assets originated during the fourth quarter was 7.2%. We've been putting more money to work in private credit, as we believe this asset class will generally perform better during a downturn due to the structural protections that are built into these transactions.
With respect to BlackRock, they are now managing approximately $83 billion of our invested assets, primarily focused on the public liquid credit portfolio. We also continue to make strides in our migration to BlackRock's Aladdin platform, which will further modernize our infrastructure and provide us with expanded analytics and accounting capabilities. We expect to be live on this platform in 2024. Partnering with these world-class asset managers greatly enhances our access to attractive assets, but does not reflect a change to our investment strategy, risk appetite, or asset allocation process. We own the balance sheet, and we will continue to direct asset allocation regardless of the source of origination. Our investment strategy has always been, and will remain, liability driven. Our diversified and high-quality investment portfolio is well matched to our liability profile. Our risk appetite remains unchanged relative to our liabilities.
We continue to actively manage both the performance and the risk of the entire portfolio, irrespective of origination, and we are proactive in taking action on individual assets when appropriate. We believe we will be able to respond effectively to any changes in the credit cycle. Now turning to Corebridge Forward, our modernization program that will deliver both expense reduction and increased efficiency. We have contracted on $232 million of exit run rate savings. This equates to more than 50% of our stated goal of $400 million of run rate savings over the next three years. Much of the exit run rate savings to date represent refinements to our operating model, enhanced outsourcing with existing partners, real estate consolidation opportunities, and the early stages of our IT modernization, which will eventually lead to our ability to exit our data centers.
We continue to expect the majority of the run rate savings to earn in within 24 months of our IPO. Elias will provide more information in his remarks. Turning to our financial goals, we remain focused on achieving each of the targets we outlined on our last earnings call as we continue to maintain a strong balance sheet, deliver disciplined growth, and provide an attractive return to shareholders. We maintain a clear line of sight toward achieving an ROAE of 12%-14%, and we remain committed to delivering capital to our shareholders through a combination of $600 million in annual dividends along with share repurchases, resulting in a 60%-65% payout ratio on adjusted after-tax operating income. We are on target to achieve these goals within 24 months of our IPO.
Before turning the call over to Elias, I would like to add a few comments about our commitment to creating shareholder and broader stakeholder value. As I look back on 2022, market conditions were challenging. Our team demonstrated an ability to respond, leveraging our unique platform to maximize opportunities as they arose. While 2023 remains uncertain and volatile, we are well-positioned to deliver to customers, shareholders, and our other stakeholders. Our broad diversification across products and channels continues to serve us well as we are not dependent upon a single product or distribution channel. We remain nimble, and we'll pursue profitable growth by focusing on areas where risk-adjusted returns are the most attractive and on new business growth as this is most accretive to our operating earnings.
While we have recently been emphasizing capital deployment to our spread-based businesses, our fee-based business remains healthy and is poised to benefit when asset values recover and investor appetite rebounds. To summarize, the core strengths of Corebridge, coupled with changes to our operating model and the execution of our strategic initiatives, position us to continue to generate attractive financial results under various scenarios. This, in combination with our active capital management strategy, puts us in position to create long-term shareholder value. I will now turn the call over to Elias.
Thank you, Kevin. Good morning. I'll provide additional information about our financial results and key performance metrics, as well as a few updates on LDTI and some high-level guidance for 2023. We reported fourth quarter results and full year results this morning, boosted by improving base spread income and favorable mortality experience, notwithstanding recent market conditions. We continue to make meaningful progress on our strategic initiatives to improve profitability. Fourth quarter adjusted ROE was 10.6%. Operating EPS was $0.88, and Adjusted Pre-Tax Operating Income, or APTOI, was $639 million. Our results included several notable items that contributed $0.16 to our operating EPS. These were offset by alternative returns below long-term expectations of $0.12 and COVID mortality losses of $0.03. Adjusting for these items, our operating EPS would have been $0.87 for the quarter.
With respect to APTOI, our results were 31% or $287 million below the prior year quarter. Approximately $635 million of this decline was driven by the impact of market conditions and structural changes associated with debt capitalization of Corebridge, as well as divestitures completed in 2021. The principal headwind was variable investment income, which accounted for nearly $490 million of the decline. Excluding variable investments income, APTOI was 48% higher than the fourth quarter of 2021, largely due to increasing base spread income and improving mortality experience. Assets under management and administration was $357 billion as of December 31st, up 3% sequentially, reflecting both market conditions and new business growth.
The strength and diversification of our Corebridge earnings power is evident when you look at our sources of income for the fourth quarter, which in aggregate were up 15% year-over-year, excluding variable investment income. Base spread income, which is our largest source of earnings, grew 25% compared to the fourth quarter of 2021 due to higher new money rates coupled with strong growth in our spread-based products. Fee income, our second-largest source of earnings, declined 20% versus the prior year quarter, partially a function of underlying asset valuations. Underwriting margin, which is primarily derived from our life business, rose 91% year-over-year, excluding variable investment income, mainly due to improving mortality experience. Shifting to net investment income, base yield was 4.42% in the fourth quarter.
This was the second quarter in a row where we saw significant growth with a base yield up 34 basis points sequentially and 54 basis points year-over-year. This growth was driven by a combination of reinvestment activity at higher new money rates, resets on floating rate assets, and growth of the overall portfolio, as well as a one-time notable item. This notable item contributed 15 basis points to the base yield, most of which benefited our life insurance segment. To reiterate my comments during last quarter's call, we expect the benefit of higher new money rates and our partnership with Blackstone to continue to emerge during future quarters as more of the investment portfolio is reinvested at higher yields and earns in. Thus far, the improvement in base yield has outweighed any increases in policyholder crediting rates. Moving on to expenses.
Total operating expenses increased sequentially on a net basis. While our fixed cost benefits from Corebridge Forward activities, they were more than offset by incremental costs that kicked in with our IPO, continued establishment of standalone capabilities, as well as a one-time item. Following up on Kevin's earlier comments about Corebridge Forward, we have a roadmap for $400 million of expense savings, and we have acted upon or contracted approximately $232 million of exit run rate savings as of the end of 2022. Only a small percentage of these savings have earned into our results thus far.
We expect that approximately $130 million will earn in in 2023, with an offset from the full year earn in effect from incremental costs that we picked up during 2022 to operate as a standalone public company, which we estimate at $75 million-$100 million. We continue to estimate the cost to achieve will approximate $300 million over the life of the initiative, with this one-time investment delivering $400 million in annual run rate savings. The cost to achieve has been $84 million. We continue to expect the implementation of a leaner operating model will contribute approximately one point to ROE growth by 2024. We also made significant strides separating Corebridge from AIG.
To date, we've incurred about $180 million of the $350 million-$450 million estimated cost to achieve. The bulk of the remaining work is centered around separating shared applications, which should largely be completed by the end of 2023 or early 2024. I will speak to segment results, beginning with Individual Retirement, our largest business. Individual Retirement reported APTOI of $436 million, benefiting from strong growth in base spread income as well as overall lower expenses, partially offset by lower fee income. Base spread income for the quarter was up 35% over the prior year quarter, driven by spread expansion. Based net investment spreads increased 54 basis points year-over-year and 27 basis points sequentially.
Fee income declined 21% due to lower asset valuations and net outflows in our variable annuity portfolio. Our hedging programs continued to perform as expected despite volatile market conditions. The higher rates that have been driving our strong sales at attractive margins are, as expected, also leading to higher surrenders. That being said, our surrender rate remains below our expectations, and net inflows in the general account were quite strong at $740 million in the fourth quarter and over $4 billion for all of 2022. In addition, we maintain strong liquidity in the general account, well-positioning us to cover surrenders, which we expect will remain elevated in 2023 relative to historical levels due to the materially higher interest rate and credit spread environment. Group Retirement has been influenced by many of the same trends impacting Individual Retirement.
Group Retirement reported APTOI of $177 million, benefiting from strong growth in base spread income offset by lower fee income. Base spread income grew 13% versus the fourth quarter of 2021 due to spread expansion. Based net investment spread increased 17 basis points year-over-year but was flat sequentially. Fee income declined 20% year-over-year due to lower asset valuations and net outflows. While net flows remain negative, we continue to see outflows concentrated in the higher GMIR buckets with inflows in the lower GMIR buckets. This trend is expected to improve the spread profile for the business over time. We expect continued growth of our advisory and brokerage fee revenue, which reflects our strategy to pivot the business into a platform which provides for a higher stream of less capital intensive cash flows over time.
Life insurance reported APTOI of $97 million in the fourth quarter, inclusive of $22 million of notable items. Core underwriting margin, excluding notable items, improved 78% year-over-year due to improved mortality experience. Our fourth quarter mortality experience was favorable to expectation, inclusive of $21 million of COVID losses. Notable items in life insurance included approximately $64 million of a one-time item in net investment income, offset by $42 million related to the positive resolution of certain legal matters. The legal matters included a recapture of certain YRT treaties that were subject to arbitration, as well as a resolution of an unrelated litigation matter. We have now resolved a majority of our YRT disputes. Considering this business more broadly and looking forward, we expect continued growth of base portfolio income and a reversion to historical mortality levels as COVID moves into an endemic phase.
Institutional markets reported APTOI of $64 million in the fourth quarter, with stable core sources of income as compared to the prior year quarter. The year-over-year decline in APTOI was largely driven by lower variable investment income. Total insurance reserves grew 8% year-over-year, reflecting the growth of our PRT business and GIC portfolio. We're encouraged by the progression of the institutional markets business, reflecting consistent revenue growth, sorry, reserve growth, strong new business margins, and expanding spreads, which we expect will continue to improve profitability in 2023. Lastly, losses in our corporate and other segment increased sequentially due to higher interest expense resulting from a full quarter of debt service on hybrid securities and the delayed draw term loan, which was drawn down in the third quarter of 2022. Turning to our balance sheet.
We assess the strength of our balance sheet through different lenses, including, but not limited to, liquidity levels, capital ratios, financial leverage, and our risk profile. Our balance sheet remains healthy with strong liquidity and capital, as well as a balanced, diversified investment portfolio and reasonable financial leverage as of December 31st. Adjusted book value was $21.4 billion or $33.10 per share, up 9% year-over-year, but down 2% from the third quarter. The sequential decline was due to derivative and foreign exchange mark-to-market losses in the fourth quarter that partially reversed gains from the first nine months of the year. Our financial leverage ratio was 29.6% within our target range. We continue to expect that our balance sheet will naturally delever over time as a result of book value growth.
Our life fleet RBC ratio remains strong and was above target of 400%, largely aligned with the prior year quarter estimate. Recognizing there's a lot of uncertainty in the macro environment, we feel we're starting 2023 in a strong position. We ended the year with ample holding company liquidity of $1.5 billion. Our insurance companies returned $2.2 billion of normalized distributions during 2022 on par with the distributions made in each of the preceding three years. We paid dividends to our shareholders of approximately $300 million since the IPO. We declared our dividend for the first quarter of 2023, which will be paid on March 31st. This represents a dividend yield over 4% based upon our recent stock price.
As Kevin previously indicated, we remain focused on delivering on our financial goals, including achieving a total payout ratio of 60%- 65% by 2024. Pivoting to LDTI, it's important to remember that LDTI does not impact our economic returns, statutory results, or insurance company cash flows. When we begin reporting under LDTI in 2023, we expect to see reduced volatility in our operating results given changes to the accounting for market risk benefits and back. The impact to our operating earnings run rate should be neutral to modestly favorable over time. We expect continued volatility in our GAAP earnings due to the requirement to fair value market risk benefits in our GAAP results. We also expect an increase in adjusted book value, which we currently estimate to approximate $1.5 Billion as of September 30th, 2022.
In terms of the initial transition adjustment as of January 1, 2021, we currently estimate an approximate $1 billion-$1.5 billion reduction in GAAP shareholders' equity resulting from a decline in other comprehensive income offset by an increase in retained earnings. We further estimate the overall impact to GAAP shareholders' equity as of September 30, 2022, is an increase of approximately $1 billion. This favorable impact to book value reflects the benefit of Corebridge having a diversified balance sheet, including both life and annuity products. In terms of sensitivities to macro factors, our preliminary estimate of the APTOI impact from movements in equities and interest rates post-LDTI are as follows. First, an immediate 10% reduction in equities is expected to reduce fee income net of advisory fee expense by approximately $85 million over a 12-month period.
Second, an immediate upward parallel shift of 100 basis points across the treasury curve is expected to raise APTOI by approximately $165 million, $265 million, and $365 million for each of the first, second and third years following the rate increase. I would like to conclude with some commentary on our outlook for 2023. Looking ahead, we expect to achieve EPS growth resulting from our initiatives involving expense savings, investments, organic growth, and capital management. As to our sources of income over the next 12 months, we expect to see incremental growth in base spread income and underwriting margins while fee income will depend on the extent of a recovery in asset valuations. We continue to expect long-term return assumptions for our alternative investments will range between 8% and 9%.
Finally, we expect our effective tax rate will approximate 21% in 2023 before discrete items. In summary, we remain focused on executing our strategies and deploying capital in a way that aids our efforts to create sustainable and profitable long-term growth. We have a strong balance sheet, and we remain focused on delivering on our financial goals. I will now hand it back to Kevin.
Thank you, Elias. Operator, we are now ready to take questions.
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypads now. If you change your mind, please press star and then two to remove your question. In order to allow everyone a chance to ask a question, please limit yourself to one question and one follow-up, and then please feel free to rejoin the queue. Our first question today comes from Ryan Krueger with KBW. Ryan, please go ahead. Your line is open.
Hi. Thanks. Good morning. Yesterday on the AIG call, they indicated a possible secondary offering before the end of the first quarter. Was hoping for updated commentary on if you think you would be in position to commence the buyback program around that same time to be able to participate if that occurs?
Yeah. Thanks, Ryan. You know, our focus is on the, you know, delivering on our strategies and having the financial flexibility. We feel really good about where we ended the year. You know, our capital position at the end of the year was consistent with our strategy, our RBC in the 410-420 range, similar to the third quarter. That's as Elias pointed out in his prepared remarks after paying $2.2 billion in distributions. We also made a provision for some modest cash flow testing reserves in New York. Our parent liquidity is where we expect it to be.
It's within our target of being able to pay for our corporate expenses and to have the financial flexibility to invest in attractive new business as well as to complement our committed dividend with additional repurchases. Our leverage is in the range that we intend in the 25-30, granted at the higher end of the range based on where we are. We feel good about where we are. We can't comment further on AIG's plans relative to its strategy, but we have the financial flexibility that we intended.
Great. Thanks. Then follow up on the expense commentary. I just wanted to make sure I understood it correctly. Were your comments that you expect $130 million of incremental expense saves to earn in 2023 and then $75 million-$100 million of incrementally higher standalone company expenses? I just wanted to make sure that are those incremental or are they more total amounts?
Yeah.
If any of that was already incorporated into the 2022 results?
Yeah. Thanks, Ryan. There's a lot of moving parts. I'll ask Elias to sort of unpack all of the pieces.
Yeah. Ryan, on the, you know, we've acted or contracted about $232 million in savings related to exit run rate savings associated with Corebridge Forward. Little of that has earned in in 2022. The incremental portion related to the $232 million that we estimate will earn in in 2023 is $130 million. Offsetting it, as you know, we have been, if you look at over the course of the year, our expense has been coming up as we build up the capabilities to be a standalone public company. That has not fully earned into our results in 2022, so there's an offset of about $75 million-$100 million that we'll earn in next year.
Great. Thanks a lot.
The next question comes from Elyse Greenspan with Wells Fargo. Elyse, please go ahead.
Hi. Thanks. My first question was on the elevated fixed annuity surrender activity in the quarter. I was just hoping to get more color on how customers are behaving given the rising interest rate environment, and what protections do you guys have in place against disintermediation on that product?
Thanks, Elyse. So the environment, you know, for fixed annuities is very attractive, right? The higher rates, the wider spreads, means both higher sales, but also very attractive margins. And it does come along with higher surrenders, which are, you know, quite natural. And I think that there's three things to keep in mind relative to the surrenders as we look at this portfolio. The first is that while the surrenders are higher, they are lower than our expectations based on where rates and spreads, you know, were during the fourth quarter.
It is a natural part of managing a fixed annuity portfolio to manage surrenders and understand the right time to accept a surrender and essentially replace it with new business at higher margins, and that's essentially what we've chosen to do. Now, in order to be able to do that, you need to have the liquidity associated with that to be able to support the surrender without diluting the margin on the new business, and that has long been a part of our strategy to maintain that liquidity. That's the first thing to keep in mind. The surrenders, whilst they are higher, are naturally higher based on where the rates were, but lower than what we are prepared for.
The second thing I would say is that kind of indicative of that is that despite the higher surrenders, because of the strength of the new business, we have had strong positive, you know, flows of $700 million in the fourth quarter, as Elias pointed out, and $4 billion in the full year. The general account, you know, is growing. The third thing I would say is that we do actively manage crediting rates. We have the opportunity to manage crediting rates even for the business beyond the surrender charge period. That's really where we make the economic decision relative to the value of a surrender as opposed to the opportunity for new business. We're quite comfortable where the fixed annuity portfolio is.
It's possible if rates, you know, rise further, spreads widen further, that, you know, surrenders may rise. That means that new business is also likely to rise and the margins likely even more attractive than what we found in the fourth quarter.
Thanks. Then my second question, the parent liquidity went down, $500 million in the quarter. I know that interest and dividends around $250 million. What were the, you know, other sources and uses that took that down? As we think about going forward, you know, is the target are you looking for that to still be, I guess, last quarter, I think you said around $1.1 billion after you go through, you know, some of the expenses associated with the separation and the program?
Hey, Elyse, it's Elias. We manage our liquidity at the parent to cover the next 12-month worth of expenses or needs from the parent. We treat the $600 million annual dividend to our shareholders as if it's a fixed cost, so we reserve for it from that perspective. That's gonna be our philosophy, how we manage liquidity going forward. Where we ended up the year at $1.5 billion, it approximates our next 12 months needs. With respect to what drove the decline from the end of September down to the end of December, one element is debt service. You know, our debt service payments are lumped between the second and the fourth quarter. In addition, we didn't pay the third quarter dividend until October, so you add another $150 million there.
Finally, we're making progress on the one-time expenses, and that's kind of another contributor to the drop from the third quarter.
Thank you.
The next question comes from Alex Scott with Goldman Sachs. Alex, please go ahead.
Hi, good morning. First one I had is a little nuanced. You know, I was looking at your Interest Maintenance Reserve in the statutory filings, and it looked like you guys have one of the larger balances. I was interested just 'cause I think that would potentially give you more flexibility in a higher rate environment to reallocate. I know you've already sort of talked about these plans to some degree with Blackstone. Just interested in timing and just thinking through the Interest Maintenance Reserve balance. I mean, does that allow you to be a little more aggressive with reallocating more near term?
Hey, Alex, it's Elias. When we look at our investments plan, we look at totality. You know, IMR is just one element from how we look at balance sheet capacity. To us, that's not necessarily a determining factor for how we decide what to do with the investment portfolio. As Kevin said, our strategy around investments is really driven by the liabilities and where we see opportunities in the market. We consider also capital in totality and not just looking at the IMR. We do continue to have a positive IMR balance, but to note, as you've seen in our stat supplement.
Understood. Okay, thanks. The second question I had is just a follow-up on, you know, some of the commentary on the crediting rate decisions you're making. Could you talk about, you know, the benefit of higher net investment income from yields and, you know, how is your decision making around crediting rates, you know, evolving and, you know, has that changed at all? The sensitivity, that is.
Sure. You know, let's look at the fourth quarter. New money rates in the fourth quarter were about 400 basis points higher than what they were at the beginning of the year. You know, as the margins on the new business are extremely attractive, also supported by some of the asset origination, you know, through our partner, Blackstone. Which are high credit quality as well as higher, you know, returning assets in the current market. You know, the margins opportunity is really reflected in what's going on with our net spreads. If you look at the total portfolio on a sequential basis, the net spreads are up 27 basis points and year-over-year up 54 basis points.
That's a reflection of the improving earnings capacity of the business. You know, in terms of our strategy for managing crediting rates, you know, we understand what the implications of potentially increasing crediting rates could be on preservation of the business. Much of that business would be preserved irrespective of what we do with the crediting rates. Economically, you know, the new business capital and the margins on the new business capital are more valuable than the capital supporting that in-force business. It is, you know, it is a dynamic, you know, kind of trade, a surrender in fixed annuity in return for new business in indexed annuity. You know, our team has a great deal of experience in managing the cycle of the fixed annuity and indexed annuity portfolios.
I think we're benefiting from that insight.
Thank you.
The next question comes from John Barnidge with Piper Sandler. John, please go ahead.
Thank you very much. Favorable mortality experience was called out. I know U.K. is a sizable market there and has seen stubbornly elevated mortality. Sequential growth and underwriting margin in that business, was U.K. mortality improvement a driver or any additional color on underlying mortality trends as some noted an early peak in a flu? Thank you.
Yeah. thanks, John. look, we're very happy with the overall life business and the way that it's performed even through the pandemic. you know, the mortality improvement, the U.K., you know, it's a nice business. It's a fast-growing business in terms of new business, but the balance sheet is still quite small because it's a relatively young business. The real improvement in mortality for us was in the U.S., where once again, even including COVID, which remains at that sensitivity that we have projected since the beginning of the pandemic, even including COVID, was for the second quarter in a row below our pricing expectations.
The mortality performance really in the U.S., is what is driving that improvement and has, you know, consistently been quite attractive, you know, over the last couple of years. We're repositioning the portfolio in the U.S., you know, and that's also going well. We've moved away from the more interest rate sensitive businesses, you know, essentially stopped DUL and GUL a couple of years ago and are focusing on index universal life in the permanent area and then simpler protection products in the rest of the portfolio. The fourth quarter did have a couple of one-offs, as Elias mentioned, you know, the earnings have returned in this portfolio to levels that we would have expected pre-pandemic. In addition, it contributes extremely strong cash flows.
We're very happy with the position of the life business.
Thank you very much. My follow-up question, sticking with that business, are you experiencing increased reinsurance rates after the pandemic? Some other companies have noted that. Thank you.
The reinsurance rate environment following the pandemic hasn't been something that has, you know, been a material factor for us in managing the business.
Thank you very much.
Thank you.
Our next question comes from Michael Ward with Citi. Michael, please go ahead. Your line is open.
Thanks. Good morning. I was just wondering if you could discuss some of your portfolio, investment portfolio changes between asset classes. I think for the year, I noticed you guys rotated out of residential and commercial MBS and into a little bit more CLOs and ABS. I'm just curious how you see these asset classes, and I assume part of it is from your partnerships with asset managers.
Yeah. Yeah. Thanks, Michael. I'll start and then maybe hand over to Elias. You know, first of all, I'd just like to say we're very comfortable with our asset portfolio. It's a high quality, well-diversified portfolio, you know, on average credit rating of single A- , where it's been the last couple of years. Our assets reflect the profile of our liabilities, including our spread businesses, which are in many cases illiquid and longer-dated. We do, you know, actively manage the portfolio, which has performed well in different cycles. I think that's the context in which to think about our asset strategy. I'll hand over to Elias.
Yeah. Hey, Michael. Hi. How are you? With respect to your question on portfolio, we have shifted over the course of the year some of the asset allocation. That was a deliberate action. You know, as Kevin said, our investment strategy is driven by the liability side, but we've been working with our asset management partners to see what's the opportunities and see what's the appropriate asset classes for the business we write. You called out CLO specifically. You know, our total CLO portfolio as of the end of the year is about $9 billion out of about $200 billion in assets. The vast majority is investment-grade, and over 90% is in single A and better. We like that asset class. We think it makes a lot of sense. Given some of the liabilities we issue.
Our portfolio over the last 10 years has performed really well. You know, with respect to 2022, we invested a little over $2 billion in CLO. About $1.6 billion is AA rated class. We like it, we're comfortable with it, and it fits our risk appetite.
Awesome. Thanks. Helpful. I was just wondering, as you look forward and recognizing you guys have a lot to work on between expense programs, capital distributions and secondaries. Strategically, just wondering how you think about liability repositioning as in. I know we've touched on this in the past, but how do you guys think about your business mix going forward? Are you looking at making any changes from here?
Yeah, thanks, Michael. We feel very good about the portfolio that we have. I mean, we've worked hard over the last eight, 10 years to focus on the four businesses where we have very strong market positions, strategically well-positioned and supported by, you know, the tailwinds of the macro environment. As I think we demonstrated when we created Fortitude Re, we are constantly looking to optimize the liability side of the portfolio. That was a, you know, a big transaction for us and ultimately de-risking with the disposition of that. We're constantly looking for opportunities to optimize the in-force, and as you would expect, we are in the current conversation relative to where the market is relative to various transactions.
We certainly haven't seen anything yet that, you know, makes economic sense to us, but we will continue to look for, you know, opportunities to optimize. We're extremely comfortable with the portfolio that we have. We don't see any holes in the portfolio. You know, we have, as you said, a lot on our plate. We're focused on executing the strategies necessary to deliver on our financial targets, the 12%-14% ROE, having the financial flexibility, you know, to deliver beyond the dividend and engage in repurchases to get to that 60%-65% payout ratio once we get through one-time expenses. That's what we're fully focused on.
Awesome. Thank you, guys.
Thank you.
The next question comes from Erik Bass with Autonomous Research. Please go ahead, Erik.
Hi. Thank you. Just hoping you could give a little bit more color on how you see base NII building over the course of 2023, how much uplift there still could be from floating rate assets, how much incremental reinvestment is still happening with the assets transferred to Blackstone, and any sense of just portfolio cash flows to invest at clearly a lot higher new money yields.
Yeah. Thanks, Erik. I'll hand over to Elias in a minute here. The first thing I want to say is that we do not, you know, have an intention of any portfolio trade relative to the assets that we transferred to Blackstone. That's not the idea. We transferred them assets to manage, and those assets support our liabilities. It's not like there's an intention of something like that. I will, I'll ask Elias relative to the further questions on NII, you know, what's happened and where we see it going.
Erik, there's been, like, three drivers behind our base NII and base spread income growth year-over-year through 2022, and we expect that trend to continue into 2023. You know, we're benefiting from the higher new money rates. On the reinvestment side, in the fourth quarter, as Kevin quoted, you know, purchase yields on average are about 7%. That's about 400 basis points up relative to the beginning of the year and 300 basis points above where the portfolio yield was in the fourth quarter. That's gonna continue to earn in. You also got floaters. You know, the floaters will be impacted by where short-term rates are, but some of it is matching floating rate liabilities. That we will give back given what happens to rates.
Finally, growth. The portfolio is growing as you've seen during the course of 2022. Those three drivers should continue to contribute to growth in base NII as well as base spread income next year.
Got it. Thank you. Apologies if I missed this, Elias, can you spike out what you're including in the $0.16 of favorable items that you mentioned?
Yeah. The $0.16 is in the earnings deck. It's a combination of, you know, we had a lower tax rate. We've had a one-time item on investments associated with it. It's in the earnings deck. We gave you the details on it.
Okay. Thank you.
Thank you.
The next question comes from Suneet Kamath with Jefferies. Please go ahead.
Great. Thanks. I wanted to ask about the $2.2 billion of distributions to the holding company, despite the weaker markets. Is there a way to think about how much of that was RBC drawdown versus capital generated? Maybe some thoughts on what you expect for 2023.
Suneet, good to hear from you. The $2.2 is made up of two things. It's made up of dividends that were paid to the holding company, which is about $1.8 billion, as well as about $400 million in tax sharing payments paid to AIG. Those are related to tax strategies that increase taxable income but not statutory income.
Those strategies ended with the IPO when we deconsolidated from AIG on a tax basis, they reduced kind of dividend capacity dollar for dollar in the past. That's why we give you this normalized view, $2.2 billion. As it relates to the year, if you look at the past year, you know, the insurance companies distributed about $2.2 billion. We also had the macro environment, we also grew new business during the course of the year. In totality, we still ended the year above, you know, our target of $400 million, we're at $410 million-$420 million, which still puts us in a healthy position. If you look historically, our insurance companies distributed about $2 billion a year.
That's been our historical trend from there.
Got it. Okay. I guess, maybe a separate question just on your annuity philosophy. It seems like you are one of the few companies that's not pursuing the RILA market. I'm just curious, why not when it seems like pretty much everybody else is entering that market?
Yeah. Thanks, Suneet. We, when we started developing our index annuity or you know, our index annuity strategy, you know, we recognized that, you know, suite, our suite of both income-oriented and accumulation-oriented index annuities serve a similar population as to the RILA marketplace, albeit with a potential advantage of a zero floor. We have a broad range of index options for investors to invest in. Our fixed index annuity portfolio continues to expand and grow. We added an additional option more recently from Dimensional Fund Advisors that seems quite popular. We, we haven't necessarily ruled out entering the RILA marketplace, but serving a similar market with a different product has worked well for us so far.
Okay. Thanks, Kevin.
Thank you.
Those are all the questions we have time for today.
Please.
We currently have no further questions in the queue, so I'll hand the call back to Kevin Hogan for closing remarks.
Well, thanks everybody for joining the call today to ask your questions. As I mentioned, 2022 is an important year for Corebridge, and I would like to thank all of our colleagues across Corebridge, our colleagues at AIG, and our various partners for their great work throughout the year. As we look ahead to 2023, we are well-positioned to capitalize on the positive momentum of the last 12 months, which should bolster our ability to deliver on our commitments, and we look forward to creating long-term value for our shareholders. Have a good day. Thank you.
Thank you everyone for joining us today. This concludes our call. You may now disconnect your line.