ebridge Financial(CRBG) - 2022 Q3 - Quarterly Report

Cautionary Statement Regarding Forward-Looking Information Overview of Forward-Looking Statements The report contains forward-looking statements subject to risks and uncertainties, identifiable by specific terminology[11] - Forward-looking statements are identified by terms such as 'believes,' 'expects,' 'may,' 'will,' 'intends,' 'estimates,' and 'anticipates,' covering financial position, results of operations, growth strategies, and regulatory impacts[11] - These statements are not guarantees of future performance, and actual outcomes may differ materially due to various risks and uncertainties[11] Key Risk Factors Actual results may differ from forward-looking statements due to interest rates, economic conditions, and operational challenges - Factors that could cause actual results to differ materially include rapidly increasing interest rates, deteriorating economic conditions, market volatility, and geopolitical tensions (e.g., Ukraine conflict)[11] - Operational risks include the unpredictability of insurance claims, inadequate reinsurance, acceleration of DAC amortization, and inaccuracies in investment valuations[11] - External and internal factors such as intense competition, technological changes, catastrophes (including climate change), and the company's separation from AIG also pose significant risks[13][15] Part I – Financial Information ITEM 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Corebridge Financial, Inc Condensed Consolidated Balance Sheets (Unaudited) Total assets and equity decreased significantly as of September 30, 2022, compared to year-end 2021 Condensed Consolidated Balance Sheets | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | |:---|:---|:---| | Total Assets | $354,595 | $416,212 | | Total Liabilities | $346,204 | $387,284 | | Total Equity | $8,374 | $28,845 | - Fixed maturity securities available for sale decreased from $198,568 million to $151,039 million, reflecting a significant decline in fair value[18] - Separate account assets decreased from $109,111 million to $81,302 million, mirroring the decline in separate account liabilities[18] Condensed Consolidated Statements of Income (Loss) (Unaudited) Net income increased substantially for the three and nine months ended September 30, 2022, driven by higher net realized gains Condensed Consolidated Statements of Income (Loss) | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Total Revenues | $7,141 | $5,521 | $22,810 | $16,551 | | Total Benefits and Expenses | $4,039 | $3,568 | $11,571 | $11,047 | | Net Income Attributable to Corebridge | $2,351 | $1,420 | $8,715 | $4,233 | - Total net realized gains significantly increased to $2,700 million for the three months ended September 30, 2022, from $571 million in the prior year, and to $9,704 million for the nine months, from $1,660 million[20] - Basic EPS for common stock was $3.64 for the three months and $13.51 for the nine months ended September 30, 2022[20] Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) The company shifted from comprehensive income to a comprehensive loss, driven by substantial unrealized depreciation of investments Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Net Income | $2,477 | $1,572 | $8,996 | $4,545 | | Other Comprehensive Income (Loss) | $(6,510) | $(1,303) | $(27,476) | $(4,061) | | Comprehensive Income (Loss) Attributable to Corebridge | $(4,140) | $121 | $(18,742) | $176 | - The change in unrealized depreciation of all other investments was a major driver, showing a loss of $6,379 million for the three months and $27,442 million for the nine months ended September 30, 2022[22] Condensed Consolidated Statements of Equity (Unaudited) Total shareholders' equity declined substantially due to a significant accumulated other comprehensive loss Condensed Consolidated Statements of Equity | Metric | Balance, Beginning of Period (9 Months Ended Sep 30, 2022) (in millions) | Balance, End of Period (9 Months Ended Sep 30, 2022) (in millions) | |:---|:---|:---| | Total Corebridge Shareholders' Equity | $27,086 | $7,529 | | Accumulated Other Comprehensive Income (Loss) | $10,167 | $(17,290) | | Retained Earnings | $8,859 | $16,783 | - Accumulated other comprehensive income (loss) shifted from a gain of $10,167 million at the beginning of the year to a loss of $17,290 million by September 30, 2022, largely due to unrealized depreciation of investments[25] - Net income attributable to Corebridge contributed $8,715 million to equity during the nine months ended September 30, 2022, partially offset by $728 million in dividends on common stock[25] Condensed Consolidated Statements of Cash Flows (Unaudited) Net cash from operating activities increased, while investing activities used more cash, resulting in a net decrease in cash Condensed Consolidated Statements of Cash Flows | Metric | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---| | Net Cash Provided by Operating Activities | $2,202 | $2,032 | | Net Cash Used in Investing Activities | $(3,330) | $(3,044) | | Net Cash Provided by Financing Activities | $980 | $1,097 | | Net Increase (Decrease) in Cash and Restricted Cash | $(157) | $84 | - Significant investing activities included $14,385 million in purchases of available-for-sale securities and $9,399 million in mortgage and other loans receivable for the nine months ended September 30, 2022[29] - Financing activities for 2022 included $7,451 million from the issuance of long-term debt and $8,312 million in repayments of short-term debt[29] NOTE 1. Overview and Basis of Presentation Corebridge is a leading U.S. retirement and life insurance provider that completed its IPO on September 19, 2022 - Corebridge Financial, Inc completed its IPO on September 19, 2022, with AIG retaining 77.7% ownership of outstanding common stock[38] - The company underwent a reorganization on December 31, 2021, to consolidate AIG's life and retirement business and most investment management operations[38] - Key transactions include a strategic partnership with Blackstone, where Blackstone manages $50 billion of assets, and the sale of an affordable housing portfolio for $4.9 billion, resulting in a $3.0 billion pre-tax gain[44][46] NOTE 2. Summary of Significant Accounting Policies The company adopted reference rate reform guidance and anticipates significant impacts from new long-duration contract standards - The company adopted reference rate reform guidance in 2022, allowing certain contract modifications to be accounted for as a continuation of existing contracts, with no material impact on financial statements[51] - Targeted improvements to accounting for long-duration contracts will be adopted on January 1, 2023, using modified retrospective transition for liabilities and DAC, and retrospective for market risk benefits (MRBs)[52] - The adoption of long-duration contract improvements is estimated to decrease pre-tax equity by $1.0 billion to $3.0 billion[52] NOTE 3. Segment Information Corebridge reports results across five segments, evaluating performance based on adjusted revenues and adjusted pre-tax operating income - Corebridge operates through five reportable segments: Individual Retirement, Group Retirement, Life Insurance, Institutional Markets, and Corporate & Other[60] - Segment performance is assessed using adjusted revenues and adjusted pre-tax operating income (APTOI), which exclude items like Fortitude-related adjustments, most net realized gains/losses, and fair value changes of embedded derivatives[60][61][62][66] Segment APTOI | Segment | 3 Months Ended Sep 30, 2022 (APTOI in millions) | 3 Months Ended Sep 30, 2021 (APTOI in millions) | 9 Months Ended Sep 30, 2022 (APTOI in millions) | 9 Months Ended Sep 30, 2021 (APTOI in millions) | |:---|:---|:---|:---|:---| | Individual Retirement | $199 | $257 | $787 | $1,391 | | Group Retirement | $180 | $317 | $569 | $958 | | Life Insurance | $103 | $121 | $151 | $90 | | Institutional Markets | $83 | $142 | $285 | $418 | | Corporate & Other | $(146) | $33 | $(262) | $(97) | | Total Corebridge APTOI | $423 | $872 | $1,544 | $2,759 | NOTE 4. Fair Value Measurements This note details the fair value measurements of assets and liabilities, categorized into a three-level hierarchy - Fair value measurements are classified into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (significant unobservable inputs)[73] Fair Value of Assets and Liabilities (Sep 30, 2022) | Category | Level 1 (in millions) | Level 2 (in millions) | Level 3 (in millions) | Total (in millions) | |:---|:---|:---|:---|:---| | Assets (Sep 30, 2022): | | | | | | Bonds available for sale | $0 | $130,740 | $20,299 | $151,039 | | Equity securities | $74 | $56 | $14 | $144 | | Separate account assets | $77,683 | $3,619 | $0 | $81,302 | | Liabilities (Sep 30, 2022): | | | | | | Policyholder contract deposits | $0 | $140 | $6,361 | $6,501 | | Derivative liabilities | $4 | $3,539 | $3 | $83 | - Changes in Level 3 assets for the nine months ended September 30, 2022, included significant net realized and unrealized losses of $391 million and a decrease of $3,163 million in other comprehensive income[92] - Significant unobservable inputs for Level 3 liabilities, such as variable annuity GMWBs and fixed index annuities, include equity volatility, lapse rates, mortality multipliers, and non-performance risk adjustments (NPA)[112] NOTE 5. Investments This note provides a detailed breakdown of the company's investment portfolio, net investment income, and realized gains and losses Investment Portfolio Summary | Category | Amortized Cost (Sep 30, 2022) (in millions) | Fair Value (Sep 30, 2022) (in millions) | Amortized Cost (Dec 31, 2021) (in millions) | Fair Value (Dec 31, 2021) (in millions) | |:---|:---|:---|:---|:---| | Bonds available for sale | $177,399 | $151,039 | $182,593 | $198,568 | | Other bond securities (at fair value) | N/A | $4,775 | N/A | $2,082 | | Equity securities (at fair value) | N/A | $144 | N/A | $242 | | Total investments | $213,806 | $213,806 | $256,318 | $256,318 | - As of September 30, 2022, 16,256 individual fixed maturity securities were in an unrealized loss position, with $27,518 million in gross unrealized losses, for which no allowance for credit loss was recorded[140] Investment Income and Gains (Losses) | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Net Investment Income | $2,160 | $3,005 | $7,021 | $8,747 | | Net Realized Gains (Losses) | $2,700 | $571 | $9,704 | $1,660 | | Change in Unrealized Appreciation (Depreciation) of Investments | $(10,048) | $(1,779) | $(42,324) | $(6,641) | NOTE 6. Lending Activities This note details the company's lending activities, primarily focusing on mortgage and other loans receivable Loan Portfolio Summary | Loan Type | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | |:---|:---|:---| | Commercial mortgages | $31,591 | $30,528 | | Residential mortgages | $4,901 | $4,672 | | Life insurance policy loans | $1,767 | $1,832 | | Commercial loans, other loans and notes receivable | $4,828 | $2,852 | | Total mortgage and other loans receivable, net | $42,539 | $39,388 | | Allowance for credit losses | $(548) | $(496) | - Commercial mortgages are primarily for apartments, offices, and retail properties, with significant concentrations in New York (20%) and California (11%) as of September 30, 2022[176] Allowance for Credit Losses Rollforward | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Allowance for credit losses, beginning of period | $484 | $560 | $496 | $657 | | Provision for loan losses | $64 | $(23) | $56 | $(120) | | Allowance for credit losses, end of period | $548 | $505 | $548 | $505 | - During the nine months ended September 30, 2022, loans with a carrying value of $143 million were modified in troubled debt restructurings (TDRs)[184] NOTE 7. Reinsurance This note details the company's reinsurance activities, particularly the modified coinsurance agreements with Fortitude Re - Corebridge has modco reinsurance agreements with Fortitude Re, where investments supporting the agreements are withheld by Corebridge, creating a funds withheld payable that contains an embedded derivative[185] Fortitude Re Financial Impact | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Net investment income - Fortitude Re funds withheld assets | $157 | $445 | $617 | $1,336 | | Net realized gains (losses) on Fortitude Re funds withheld embedded derivatives | $1,463 | $(195) | $6,694 | $(29) | | Comprehensive income (loss) | $119 | $17 | $319 | $40 | - The total reinsurance recoverables as of September 30, 2022, were $30.8 billion, with approximately 100% being investment grade[191] Reinsurance Recoverable Allowance | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Reinsurance recoverable allowance, beginning of period | $107 | $87 | $101 | $83 | | Current period provision for expected credit losses and disputes | $1 | $15 | $7 | $19 | | Reinsurance recoverable allowance, end of period | $108 | $102 | $108 | $102 | NOTE 8. Variable Interest Entities This note explains the company's involvement with Variable Interest Entities, including consolidation criteria and financial exposure - Corebridge consolidates VIEs where it is the primary beneficiary, having both the power to direct significant activities and the obligation to absorb losses or right to receive benefits[194] VIE Assets, Liabilities, and Exposure | Category | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | |:---|:---|:---| | Total Assets of Consolidated VIEs | $12,061 | $14,720 | | Total Liabilities of Consolidated VIEs | $6,117 | $7,771 | | Total Assets of Unconsolidated VIEs | $366,108 | $309,866 | | Maximum Exposure to Loss from Unconsolidated VIEs | $8,455 | $6,911 | Consolidated VIE Financial Results | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Total Revenue from Consolidated VIEs | $192 | $555 | $693 | $1,315 | | Net Income Attributable to Corebridge from Consolidated VIEs | $4 | $331 | $254 | $615 | NOTE 9. Derivatives and Hedge Accounting This note describes the company's use of derivatives for financial risk management and investment operations - Corebridge uses derivatives (interest rate, foreign exchange, equity, credit) for financial risk management and investment operations, including hedging insurance liabilities and investments[200] Derivative Notional Amounts and Fair Values (Sep 30, 2022) | Derivative Type | Gross Assets Notional Amount (Sep 30, 2022) (in millions) | Derivative Assets Fair Value (Sep 30, 2022) (in millions) | Gross Liabilities Notional Amount (Sep 30, 2022) (in millions) | Derivative Liabilities Fair Value (Sep 30, 2022) (in millions) | |:---|:---|:---|:---|:---| | Interest rate contracts | $19,319 | $1,702 | $25,514 | $3,198 | | Foreign exchange contracts | $14,219 | $2,262 | $1,424 | $264 | | Equity contracts | $24,435 | $554 | $8,584 | $84 | | Total derivatives, gross | $103,806 | $4,534 | $35,590 | $3,546 | | Total derivatives on condensed consolidated balance sheets (net of netting/collateral) | N/A | $344 | N/A | $83 | - For fair value hedges, gains/losses on hedging derivatives and hedged items are recognized in earnings, with a net impact of $1 million for interest rate contracts and $105 million for foreign exchange contracts for the three months ended September 30, 2022[208] Gains (Losses) on Derivatives Not Designated as Hedges | Classification | 3 Months Ended Sep 30, 2022 (Gains/(Losses) in millions) | 3 Months Ended Sep 30, 2021 (Gains/(Losses) in millions) | 9 Months Ended Sep 30, 2022 (Gains/(Losses) in millions) | 9 Months Ended Sep 30, 2021 (Gains/(Losses) in millions) | |:---|:---|:---|:---|:---| | Net realized gains - excluding Fortitude Re funds withheld assets | $1,581 | $357 | $4,206 | $554 | | Net realized gains (losses) on Fortitude Re funds withheld embedded derivatives | $1,463 | $(195) | $6,694 | $(29) | | Total (derivatives not designated as hedging instruments) | $3,030 | $162 | $10,891 | $500 | NOTE 10. Insurance Liabilities This note details the company's insurance liabilities, focusing on universal life policies and variable annuity guaranteed benefits Universal Life Policies with Secondary Guarantees | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Universal life policies with secondary guarantees, beginning balance | $3,151 | $4,681 | $4,505 | $4,751 | | Incurred guaranteed benefits | $176 | $75 | $564 | $419 | | Balance, end of period | $2,701 | $4,478 | $2,701 | $4,478 | - The net amount at risk for universal life policies with secondary guarantees was $68,350 million at September 30, 2022[215] Variable Annuity Guaranteed Benefits | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | |:---|:---|:---| | Individual Retirement GMDB Net Amount at Risk - gross | $4,042 | $726 | | Group Retirement GMDB Net Amount at Risk - gross | $562 | $161 | | Individual Retirement GMWB and GMDB reserve (not derivatives) | $286 | $1,085 | | Group Retirement GMWB reserves (not derivatives) | $93 | $194 | - Certain variable annuity GMWB benefits are accounted for as embedded derivatives measured at fair value, with net fair values of $0.7 billion for Individual Retirement and $(4) million for Group Retirement as of September 30, 2022[230] NOTE 11. Debt This note outlines the company's debt structure, including recent issuances and the repayment of an affiliated promissory note Debt Summary | Debt Type | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | |:---|:---|:---| | Short-term debt | $1,500 | $8,317 | | Long-term debt, net of issuance costs | $7,868 | $427 | | Debt of consolidated investment entities | $5,995 | $6,936 | | Total debt, net of issuance costs | $15,363 | $15,680 | - Corebridge Parent issued $6.5 billion of senior unsecured notes and $1.0 billion of hybrid junior subordinated notes in 2022[237][238] - The $8.3 billion affiliated senior promissory note to AIG was repaid in full during the nine months ended September 30, 2022[241] - The company entered into a $2.5 billion five-year revolving credit agreement in May 2022, with no outstanding borrowings as of September 30, 2022[244] NOTE 12. Contingencies, Commitments and Guarantees This note details the company's legal contingencies, investment commitments, and various guarantees - Corebridge is subject to various legal proceedings, regulatory investigations, and litigation, with potential for significant losses, though the estimated range of reasonably possible loss in excess of accrued amounts is not material[251] - The company has commitments to invest in limited partnerships, private equity funds, and hedge funds totaling $5.0 billion at September 30, 2022[256] - AIG provides certain guarantees to Corebridge, including General Guarantee Agreements for insurance policies and a Capital Maintenance Agreement for AGC[257][260] - Corebridge is involved in the Moriarty litigation regarding the application of California's AB 1747 to life insurance policies, with a trial date set for February 7, 2023[255] NOTE 13. Equity and Redeemable Noncontrolling Interest This note details changes in shareholders' equity, including dividends and accumulated other comprehensive income - Corebridge declared a cash dividend of $0.23 per share ($148 million) on September 30, 2022, and paid $580 million in cash dividends for the nine months ended September 30, 2022[261] Accumulated Other Comprehensive Income (Loss) | Metric | Balance as of June 30, 2022 (in millions) | Balance, September 30, 2022 (in millions) | |:---|:---|:---| | Accumulated other comprehensive income (loss) | $(10,799) | $(17,290) | | Unrealized Appreciation (Depreciation) of All Other Investments | $(10,854) | $(17,233) | | Total other comprehensive income (loss) | $(6,510) | $(27,476) | - Non-redeemable noncontrolling interest activity primarily relates to consolidated investment entities, with distributions of $1,117 million and contributions of $45 million for the nine months ended September 30, 2022[274] Redeemable Noncontrolling Interest | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Redeemable noncontrolling interest, beginning balance | $58 | $51 | $83 | $51 | | Distributions to noncontrolling interests | $(40) | $0 | $(65) | $0 | | Ending balance | $17 | $69 | $17 | $69 | NOTE 14. Earnings Per Common Share This note details the computation of basic and diluted earnings per common share following a stock split and recapitalization - On September 6, 2022, Corebridge Parent effectuated a 6,450 to 1 stock split, resulting in 645,000,000 shares of a single class of Common Stock[278] Earnings Per Common Share | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---| | Net income attributable to Corebridge common shareholders (in millions) | $2,351 | N/A | $8,715 | N/A | | Weighted average common shares outstanding - basic (in millions) | 645.7 | N/A | 645.2 | N/A | | Basic EPS - Common stock | $3.64 | N/A | $13.51 | N/A | | Diluted EPS - Common stock | $3.63 | N/A | $13.50 | N/A | - Prior to September 6, 2022, the two-class method was used, with Class B shares (owned by Blackstone) participating in income except for distributions from the affordable housing portfolio sale[278] NOTE 15. Income Taxes This note details the company's income tax accounting, including the impact of tax deconsolidation from AIG post-IPO - Post-IPO, Corebridge tax deconsolidated from the AIG Consolidated Tax Group, and the AGC Group will file separately for a five-year waiting period[281] Effective Tax Rate | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---|:---|:---|:---|:---| | Effective Tax Rate on Income from Operations | 20.1% | 19.5% | 20.0% | 17.4% | - The effective tax rate for Q3 2022 was 20.1%, differing from the 21% statutory rate due to tax benefits from deconsolidation and dividends received deduction[285] - An additional $127 million valuation allowance was established related to tax attribute carryforwards, and $1.6 billion for unrealized tax capital losses in the U.S. Life Insurance Companies' available-for-sale securities portfolio[289][292] NOTE 16. Related Parties This note details Corebridge's transactions with related parties, primarily AIG and Blackstone Related Party Transactions | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Total Revenues from Related Parties | $27 | $13 | $79 | $48 | | Total Expenses to Related Parties | $68 | $93 | $155 | $458 | - Key reorganization transactions included the transfer of investment management operations, a 3.5% ownership interest in Fortitude Re, and the purchase of AIG Technologies, Inc. and Eastgreen, Inc. from AIG[299] - Corebridge entered into a long-term asset management relationship with Blackstone, with Blackstone managing an initial $50.0 billion of the investment portfolio, increasing to $92.5 billion by Q3 2027[318] - The $8.3 billion promissory note issued to AIG in November 2021 was repaid during the nine months ended September 30, 2022[310] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a comprehensive discussion and analysis of Corebridge's financial condition and results of operations Executive Summary Corebridge is a major U.S. provider of retirement solutions and insurance products, with results impacted by key strategic partnerships - Corebridge's revenues are primarily from premiums, policy fees, net investment income, net realized gains, and advisory fee income[329] - Benefits and expenses are driven by policyholder benefits, interest credited, DAC amortization, general operating expenses, and interest expense[330] Key Financial Metrics | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Net Income Attributable to Corebridge | $2,351 | $1,420 | $8,715 | $4,233 | | Adjusted Pre-Tax Operating Income (APTOI) | $423 | $872 | $1,544 | $2,759 | - The company's strategic partnership with Blackstone involves managing $50 billion of assets, increasing to $92.5 billion by Q3 2027, and a binding letter of intent with BlackRock to transfer management of up to $90 billion of liquid fixed income assets[349][351] Use of Non-GAAP Measures This section defines and reconciles various non-GAAP financial measures used by management to evaluate performance - Adjusted revenues exclude net realized gains (losses), non-operating litigation settlements, and changes in fair value of securities used to hedge guaranteed living benefits[369] Reconciliation of Total Revenues to Adjusted Revenues | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Total Revenues | $7,141 | $5,521 | $22,810 | $16,551 | | Total Adjustments | $(2,700) | $(855) | $(10,136) | $(2,772) | | Adjusted Revenues | $4,441 | $4,666 | $12,674 | $13,779 | - APTOI excludes Fortitude-related adjustments, most net realized gains/losses, fair value changes of embedded derivatives, and other non-recurring items to provide a clearer view of underlying business operations[373][376][377] Reconciliation of Total Equity to Adjusted Book Value | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | |:---|:---|:---| | Total Corebridge shareholders' equity | $7,529 | $27,086 | | Adjusted Book Value | $21,868 | $19,548 | | Adjusted book value per common share | $33.90 | $30.31 | Key Operating Metrics This section defines and presents key operating metrics that provide insights into the company's operational scale and performance - AUM includes assets in general and separate accounts supporting life and annuity products, while AUA includes Group Retirement mutual fund assets and other third-party assets[397] Assets Under Management and Administration (AUMA) by Segment | Segment | Sep 30, 2022 (AUMA in billions) | Dec 31, 2021 (AUMA in billions) | |:---|:---|:---| | Individual Retirement | $134.5 | $160.2 | | Group Retirement | $109.2 | $139.8 | | Life Insurance | $26.7 | $34.4 | | Institutional Markets | $74.8 | $76.5 | | Total AUMA | $345.2 | $410.9 | - Fee income is defined as policy fees plus advisory fees and other fee income, while Spread income is net investment income less interest credited to policyholder account balances[399][400] Key Operating Metrics Summary | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Total Fee Income | $510 | $625 | $1,609 | $1,800 | | Total Spread Income | $750 | $1,125 | $2,391 | $3,302 | | Total Underwriting Margin | $348 | $355 | $969 | $881 | | Total Net Investment Income (APTOI basis) - Insurance operations | $1,995 | $2,457 | $6,103 | $7,166 | Consolidated Results of Operations Pre-tax income increased significantly, driven by higher realized gains, while adjusted pre-tax operating income declined Consolidated Results Summary | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Income before income tax expense | $3,102 | $1,953 | $11,239 | $5,504 | | Net income attributable to Corebridge | $2,351 | $1,420 | $8,715 | $4,233 | | Adjusted pre-tax operating income | $423 | $872 | $1,544 | $2,759 | - For the three months ended September 30, 2022, pre-tax income increased by $1.1 billion YoY, driven by $2.1 billion higher realized gains, partially offset by $845 million lower net investment income[410] - For the nine months ended September 30, 2022, pre-tax income increased by $5.7 billion YoY, primarily due to $8.0 billion higher realized gains[412] - APTOI decreased by $449 million for the three months and $1.2 billion for the nine months ended September 30, 2022, mainly due to lower net investment income and higher policyholder benefits[415][416] Business Segment Operations This section provides a detailed analysis of the financial performance of Corebridge's five business segments - Corebridge's five reportable segments are Individual Retirement, Group Retirement, Life Insurance, Institutional Markets, and Corporate and Other[418] Segment APTOI Summary | Segment | 3 Months Ended Sep 30, 2022 (APTOI in millions) | 3 Months Ended Sep 30, 2021 (APTOI in millions) | 9 Months Ended Sep 30, 2022 (APTOI in millions) | 9 Months Ended Sep 30, 2021 (APTOI in millions) | |:---|:---|:---|:---|:---| | Individual Retirement | $199 | $257 | $787 | $1,391 | | Group Retirement | $180 | $317 | $569 | $958 | | Life Insurance | $103 | $121 | $151 | $90 | | Institutional Markets | $83 | $142 | $285 | $418 | | Corporate and Other | $(146) | $33 | $(262) | $(97) | Individual Retirement The segment's APTOI decreased due to lower spread and fee income, driven by declines in variable investment income and assets Individual Retirement Financial Summary | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Total Adjusted Revenues | $1,307 | $1,567 | $3,975 | $4,550 | | Total Benefits and Expenses | $1,108 | $1,310 | $3,188 | $3,159 | | Adjusted Pre-Tax Operating Income | $199 | $257 | $787 | $1,391 | - APTOI decreased by $58 million for the three months and $604 million for the nine months ended September 30, 2022, primarily due to lower spread income and lower fee income[424] Individual Retirement AUMA | Product | Sep 30, 2022 (AUMA in billions) | Dec 31, 2021 (AUMA in billions) | |:---|:---|:---| | Fixed annuities | $51.0 | $57.8 | | Fixed index annuities | $29.6 | $31.8 | | Variable annuities | $53.9 | $70.6 | | Total Individual Retirement AUMA | $134.5 | $160.2 | - AUMA decreased by $25.7 billion from December 31, 2021, driven by lower variable annuities separate account assets and general account assets due to equity market declines and higher interest rates[426] Group Retirement The segment's APTOI declined due to lower spread income from alternative investments and reduced fee income from lower assets Group Retirement Financial Summary | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Total Adjusted Revenues | $677 | $837 | $2,101 | $2,462 | | Total Benefits and Expenses | $497 | $520 | $1,532 | $1,504 | | Adjusted Pre-Tax Operating Income | $180 | $317 | $569 | $958 | - APTOI decreased by $137 million for the three months and $389 million for the nine months ended September 30, 2022, primarily due to lower spread income and lower fee income[438] Group Retirement AUMA | Product | Sep 30, 2022 (AUMA in billions) | Dec 31, 2021 (AUMA in billions) | |:---|:---|:---| | In-plan assets | $71.4 | $92.8 | | Out-of-plan proprietary annuity assets | $26.3 | $33.2 | | Advisory and brokerage assets | $11.5 | $13.8 | | Total Group Retirement AUMA | $109.2 | $139.8 | - Net flows remained negative, but improved by $226 million for the three months ended September 30, 2022, due to increased deposits and decreased surrenders[448] Life Insurance The segment's nine-month APTOI increased, driven by favorable mortality and lower expenses, despite a lower impact from assumption updates Life Insurance Financial Summary | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Total Adjusted Revenues | $1,128 | $1,104 | $3,500 | $3,515 | | Total Benefits and Expenses | $1,025 | $983 | $3,349 | $3,425 | | Adjusted Pre-Tax Operating Income | $103 | $121 | $151 | $90 | - APTOI decreased by $18 million for the three months but increased by $61 million for the nine months ended September 30, 2022[455] Life Insurance AUMA | Metric | Sep 30, 2022 (AUMA in billions) | Dec 31, 2021 (AUMA in billions) | |:---|:---|:---| | Total AUMA | $26.7 | $34.4 | - AUMA decreased by $7.7 billion from December 31, 2021, due to net unrealized losses from fixed maturity securities driven by higher rates and widening credit spreads[458] Institutional Markets The segment's APTOI decreased, driven by lower spread income from private equity returns and lower underwriting margin Institutional Markets Financial Summary | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Total Adjusted Revenues | $1,110 | $848 | $2,444 | $2,627 | | Total Benefits and Expenses | $1,027 | $706 | $2,159 | $2,209 | | Adjusted Pre-Tax Operating Income | $83 | $142 | $285 | $418 | - APTOI decreased by $59 million for the three months and $133 million for the nine months ended September 30, 2022, primarily due to lower spread income and lower underwriting margin[466][468] Institutional Markets AUMA | Product | Sep 30, 2022 (AUMA in billions) | Dec 31, 2021 (AUMA in billions) | |:---|:---|:---| | SVW (AUA) | $45.8 | $43.8 | | GIC, PRT and Structured settlements (AUM) | $21.4 | $23.9 | | All other (AUM) | $7.6 | $8.8 | | Total AUMA | $74.8 | $76.5 | - AUMA decreased by $1.7 billion from December 31, 2021, due to the impact of interest rates on asset valuations and benefit payments, partially offset by premiums and deposits[470] Corporate and Other The segment reported an adjusted pre-tax operating loss, driven by higher interest expense on financial debt Corporate and Other Financial Summary | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | Total Adjusted Revenues | $222 | $321 | $667 | $670 | | Total Benefits and Expenses | $242 | $139 | $648 | $508 | | Adjusted Pre-Tax Operating Loss | $(142) | $35 | $(248) | $(98) | - The adjusted pre-tax operating loss was $142 million for the three months and $248 million for the nine months ended September 30, 2022, an unfavorable change of $177 million and $150 million, respectively[479][480] - This unfavorable change was primarily due to higher interest expense on financial debt from new debt issuances and lower income from consolidated investment entities[479][480] - The nine-month period also saw a favorable change of $31 million from other sources, including a $56 million gain related to the minority investment in Fortitude Re[480] Investments This section provides an overview of Corebridge's investment strategies, portfolio composition, and credit ratings - Investment strategies are tailored to business needs, focusing on income generation, capital preservation, and matching asset characteristics to insurance liabilities[482][484] Investment Portfolio Summary | Category | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | |:---|:---|:---| | Total Bonds available for sale | $151,039 | $198,568 | | Total Fixed Maturities | $155,814 | $200,650 | | Total Mortgage and other loans receivable | $42,539 | $39,388 | | Total Investments | $213,806 | $256,318 | - As of September 30, 2022, 90% of the total fixed maturity portfolio was investment grade[491] - Net unrealized losses on fixed maturity securities were $10.0 billion for the three months and $42.3 billion for the nine months ended September 30, 2022, primarily due to significant increases in interest rates[519] Insurance Businesses This section discusses significant reinsurance agreements, variable annuity guaranteed benefits, and actuarial assumption updates - Corebridge has significant reinsurance agreements with Fortitude Re, ceding approximately $28.0 billion of reserves from run-off lines as of September 30, 2022[539] - Variable annuity products offer GMWB riders, accounted for as embedded derivatives measured at fair value, with an economic hedging program to manage market risk[539] GMWB Embedded Derivative and Hedge Target | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | |:---|:---|:---| | Embedded derivative liability | $698 | $2,472 | | Economic hedge target liability | $912 | $2,808 | Deferred Policy Acquisition Costs (DAC) Rollforward | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---|:---|:---| | DAC, beginning of period | $12,130 | $7,884 | $7,949 | $7,241 | | Capitalizations | $247 | $254 | $735 | $782 | | Amortization expense (total) | $(334) | $(385) | $(1,302) | $(867) | | DAC, end of period | $13,229 | $7,842 | $13,229 | $7,842 | - The annual update of actuarial assumptions resulted in a net unfavorable impact to APTOI of $57 million for the nine months ended September 30, 2022[554] Liquidity and Capital Resources This section discusses Corebridge's liquidity and capital management, highlighting sufficient resources to meet obligations - Corebridge believes it has sufficient liquidity and capital resources to satisfy future requirements and meet obligations, managed through a defined risk management framework[559] Holding Company Liquidity Sources | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | |:---|:---|:---| | Cash and short-term investments (Corebridge Hold Cos.) | $2,014 | $1,016 | | Available capacity under committed, revolving credit facility | $2,500 | $0 | | Total Corebridge Hold Cos. liquidity sources | $4,514 | $2,041 | Consolidated Cash Flow Summary | Metric | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | |:---|:---|:---| | Net cash provided by operating activities | $2,202 | $2,032 | | Net cash used in investing activities | $(3,330) | $(3,044) | | Net cash provided by financing activities | $980 | $1,097 | | Net increase (decrease) in cash and cash equivalents | $(157) | $84 | Credit Ratings | Rating Agency | Hybrid Junior-Subordinated Debt | Senior Unsecured Long-Term Debt | |:---|:---|:---| | Moody's | Baa3 (Stable) | Baa2 (Stable) | | S&P | BBB- (Stable) | BBB+ (Stable) | | Fitch | BBB- (Stable) | BBB+ (Stable) | Critical Accounting Estimates This section highlights accounting policies most dependent on significant judgment and estimates - Critical accounting estimates involve significant judgment and assumptions, including fair value measurements, valuation of guaranteed benefit features, and estimated gross profits for DAC and URR[592] - Other critical estimates include the valuation of future policy benefit liabilities, reinsurance assets, goodwill impairment, legal contingencies, and income tax assets and liabilities[592] - Actual experience differing from assumptions could materially affect the company's financial condition, results of operations, and liquidity[593] Glossary This section provides definitions for key terms used throughout the Management's Discussion and Analysis - Key terms defined include Adjusted Book Value, APTOI, AUM, AUA, AUMA, DAC, GMWB, GMDB, Reinsurance, Risk-based capital, and Underwriting margin[596][597][600] Certain Important Terms This section lists and defines specific capitalized terms used in the report to refer to Corebridge and related entities - Important terms defined include AGC, AGL, AIG, BlackRock, Blackstone, Corebridge Parent, Fortitude Re, and VALIC[603][605] Acronyms This section provides a list of acronyms used in the report, along with their full definitions - Common acronyms defined include AATOI, ABS, APTOI, AUMA, CMBS, DAC, GAAP, GIC, GMDB, GMWB, PRT, RMBS, SEC, and VIE[608] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the quantitative and qualitative disclosures about market risk since the company's Prospectus - No material changes to quantitative and qualitative disclosures about market risk have occurred since the Prospectus filing[611] ITEM 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022 - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022[612] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022[613] Part II – Other Information ITEM 1. Legal Proceedings This section refers to Note 12 of the Condensed Consolidated Financial Statements for information regarding legal proceedings - Information on legal proceedings is detailed in Note 12 of the Condensed Consolidated Financial Statements[616] ITEM 1A. Risk Factors This section directs readers to the 'Risk Factors' discussion in the company's Prospectus for a comprehensive understanding of risks - Readers should carefully consider the risk factors discussed in the 'Risk Factors' section of the company's Prospectus[617] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds There is no information to report regarding unregistered sales of equity securities and use of proceeds for the period - No information is available for unregistered sales of equity securities and use of proceeds[618] ITEM 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[619] ITEM 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q - Exhibits include interactive data files (iXBRL) for financial statements and various agreements such as the Employee Matters Agreement, Separation Agreement, and Tax Matters Agreement with AIG[621][622] Signatures Signatures This section contains the required signatures for the Quarterly Report on Form 10-Q, dated November 9, 2022 - The report is signed by Elias Habayeb, Executive Vice President and Chief Financial Officer, and Christopher Filiaggi, Senior Vice President and Controller, on behalf of Corebridge Financial, Inc[625] - The signing date for the report is November 9, 2022[626]