Corebridge Financial - Earnings Call - Q1 2025
May 6, 2025
Transcript
Operator (participant)
Ladies and gentlemen, the Corebridge Financial First Quarter 2025 earnings call will begin shortly with your host, Isil Muderrisoglu. We appreciate your patience as we prepare your session today. During the call, we encourage participants to raise any questions they may have. You can do so by pressing star followed by one on your telephone keypad. To move this up and down the questioning, we'll be star followed by tTwo. As a reminder to raise a question, be star followed by one. We will begin shortly. Good morning, everyone. Thank you for joining us for the Corebridge Financial First Quarter 2025 earnings call. My name is Carly. I'll be coordinating the call today.
If you'd like to register a question during the call, you can do so by pressing star followed by one on your telephone keypad, and to move this up and down the questioning, be star followed by two. I'd like to hand over to our host, Isil Muderrisoglu. The floor is yours.
Isil Muderrisoglu (Head of Investor Relations)
Good morning, everyone, and welcome to Corebridge Financial's earnings update for the first quarter of 2025. Joining me on the call are Kevin Hogan, President and Chief Executive Officer, and Elias Habayeb, Chief Financial Officer. We will begin with prepared remarks by Kevin and Elias, and then we will take your questions. Today's comments may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations and assumptions. Corebridge's filings with the SEC provide details on important factors that may cause actual results or events to differ materially from those expressed or implied by such forward-looking statements.
Except as required by the applicable securities laws, Corebridge is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change, and you are cautioned to not place undue reliance on any forward-looking statements. Additionally, today's remarks may refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement, and earnings presentation, all of which are available on our website at investors.corebridgefinancial.com. With that, I would like to now turn the call over to Kevin and Elias for their prepared remarks. Kevin?
Kevin Hogan (President and CEO)
Good morning, everyone, and thank you for joining. The macroeconomic uncertainty and heightened volatility of these past few months remind us that we live in a complex, ever-changing world. At times like this, when conditions are uncertain, the mission of Corebridge, to proudly partner with individuals, financial professionals, and institutions to make it possible for more people to take action in their financial lives, becomes more relevant than ever. Over 11,000 Americans are turning 65 every day, and the long-term impact of a market downturn can be significant for retirees and those nearing retirement. Our company stands ready to support our customers in times like these, and our strength and stability have enabled us to serve through many periods of volatility and uncertainty.
Turning to first quarter results on slide 3, we are pleased to report another strong quarter that reflects the continued benefits of our diversified business model, strong balance sheet, and disciplined execution. Corebridge reported operating earnings per share of $1.16 and ROE of 11.8%. We also returned $454 million to shareholders, delivering a payout ratio of 70%. Our balance sheet remains resilient, with holding company liquidity of $2.4 billion and a high-quality general account investment portfolio conservatively positioned with an average rating of single A. Central to our success are four strategic pillars that drive EPS growth and long-term value creation: organic growth, balance sheet optimization, expense efficiencies, and active capital management. I will review the results of the quarter in the context of each. First, organic growth, where the breadth and diversity of our product portfolio and distribution platform are meaningful differentiators.
Corebridge had a very good start to the year, delivering robust premiums and deposits of $9.3 billion, although lower in total than last year's exceptionally strong level. We are seeing sustained customer demand driven by an aging U.S. population and an advisor community that recognizes the value of annuities. In support of our growth, we are investing in digital capabilities, expanding our product offerings, and deepening relationships with our distribution partners while also developing new channels. In Individual Retirement, we continue to benefit from favorable market and demographic conditions, producing premiums and deposits of $4.7 billion. We have consistently maintained a top-tier market position over the last 10 years as our broad product suite serves a wide range of retirement needs. We are also building momentum following the successful introduction of our RILA product in October 2024, delivering over $260 million of sales in the first quarter.
We are now actively selling through our largest distribution partners and, after launching in California last month, are admitted in all but two states. Looking forward, we are well positioned in the fast-growing RILA market, given our strong product, broad reach, and long-tenured relationships. Group retirement continues to deliver steady periodic in-plan deposits driven by increased advisor focus and sustained client demand. Our employee advisor force is growing, and the investments we are making in advisor productivity are beginning to yield results, with in-plan average enrollments up 9% and in-plan average deposits up 10%. Additionally, I am pleased to note that we added our RILA product to the out-of-plan offering, delivering approximately $50 million of sales in the first quarter. We also continue to grow our advisory and brokerage business with 5% AUMA growth year-over-year, even with lower equity market performance in 2025.
Life insurance delivered another quarter of attractive performance, including both strong sales and mortality results better than expectations. This business continues to perform well supported by our strong product positioning, digital and automated underwriting capabilities, and expanding distribution. With nearly $1 trillion of gross in force, this business remains a mainstay for Corebridge, providing stability during periods of market volatility. Institutional markets have continued to focus on growing our GIC program with discipline, and I am pleased to say that we have been successful, with GIC reserves increasing 48% year-over-year. We also continue to capture attractive opportunities in pension risk transfer, with a promising pipeline of transactions developing over the rest of the year. Across Corebridge, we are proud of the new business we are generating, the discipline we have maintained, and the momentum we are building.
We remain focused on targeting profitable business with double-digit IRRs, even as conditions evolve sometimes rapidly. We have consistently demonstrated the ability to pivot across product and channel, dialing up or down, to focus our efforts where risk-adjusted returns are the most attractive and customer needs the greatest. Turning to the second strategic pillar, optimizing our balance sheet, we have also made meaningful progress. Through proactive asset liability management and disciplined risk oversight, we are enhancing our financial strength while positioning Corebridge for long-term success. Bermuda continues to be an important part of our capital management strategy, and in the first quarter, we seeded approximately $2 billion in reserves to our affiliated reinsurer. We also remain active in exploring opportunities across our company to enhance capital efficiency and increase shareholder value. Moving to the third strategic pillar, we continue to drive operating efficiency and improve operating leverage.
These efforts help support disciplined growth and financial flexibility. As we continue to transform Corebridge, we recently conducted a voluntary early retirement program for eligible colleagues in the U.S. Through this program, we expect to further reduce our expense base and, at the same time, create capacity to invest in new skills and capabilities and reshape our workforce. We are also pursuing opportunities to enhance efficiency as we further digitize end-to-end processes that support our insurance operations. Additionally, we continue to make investments to further modernize our finance and actuarial capabilities. Turning to the fourth strategic pillar, we are committed to providing an attractive and growing return to our shareholders in a thoughtful and balanced manner while maintaining the flexibility to pursue growth and innovation. Over the last 12 months, through our share repurchase program, we have reduced share count by over 10%.
Together, these four strategic pillars are helping us build a stronger, more agile company, and we are well positioned to generate sustainable growth and create long-term value for shareholders. Moving to our financial targets, I am pleased to note that Corebridge continues to deliver. Our expectation is for annual run rate EPS to increase, on average, in the range of 10%-15% over the long term. Elias will provide more perspective on our outlook, as well as an update on our market sensitivities. Corebridge achieved a run rate ROE of 12.3% in the first quarter, and we remain committed to our 12%-14% annual target. The life fleet RBC ratio remains above target, even with recent market volatility. We also delivered a 70% payout ratio and are maintaining our target of 60%-65%. Moving to slide 5.
Since 2017, regardless of market cycle, Corebridge has been able to significantly grow our business while maintaining a strong balance sheet and consistent cash generation. To put that in numbers, over the last eight years, we have increased sales by over 50%. At the same time, our life fleet RBC ratio has consistently exceeded target, and our insurance companies have generated, on average, over $2.1 billion in cash annually. These outcomes collectively demonstrate the Corebridge value proposition. We are well positioned across a range of macro environments to continue creating shareholder value and to continue delivering for our customers. I will hand the call over to Elias.
Elias Habayeb (CFO)
Thank you, Kevin. I will begin my comments today on slide 6. Corebridge reported first quarter adjusted pre-tax operating income of $810 million, or operating earnings per share of $1.16, a 5% increase year-over-year on a per share basis. Our operating EPS included two notable items this quarter, resulting in a favorable impact of $0.01. Details can be found in our earnings presentation. Annualized alternative investment returns were $0.06 short of our long-term expectations, largely due to real estate equity returns. Adjusting for notable items and alternative investment returns, we delivered run rate operating EPS of $1.21 and adjusted ROE of 12.3%. Moving to slide 7. Core sources of income, excluding notable items and the sale of our international life business, grew by 1% year-over-year, driven by higher fee income and improved underwriting margin. Base spread income declined by 3% over the same period.
This was driven by profitable growth offset by the earning of Fed rate actions from the second half of 2024 and dynamics in Group Retirement as its earnings transitioned from spread to fee income. Sequentially, base spread income increased by 3%. This change was mainly driven by profitable growth that outweighed the earning of Fed rate actions, which was in line with our prior guidance. In total, the underlying fundamentals behind base spread income continued to be bolstered by 8% growth in the general account and attractive new money yields, which exceeded roll-off yields in the portfolio by approximately 100 basis points. Additionally, fee income improved by 1% year-over-year, largely as a result of higher account values along with our growing advisory and brokerage business. Underwriting margin improved by 12% year-over-year, driven by more favorable mortality experience.
Pivoting to expenses, first quarter general operating expenses for our insurance businesses and parent company were 5% higher year-over-year after excluding the sale of our international life business. This largely reflects savings from corporate forward offset by costs attributable to business growth, as well as higher compensation and benefit expenses. Our first quarter results reflect both planned investments in talent to support growth and timing of our annual performance-related equity grants. Adding to Kevin's earlier comments about the voluntary early retirement program, we currently estimate this will have a one-time cost of $85 million. As this program demonstrates, Corebridge remains disciplined in our approach to expense management and is committed to managing costs thoughtfully while supporting key strategic initiatives and business priorities. Next, I will briefly review a few highlights from each of our businesses. Details on the four segments can be found in our earnings presentation.
As a reminder, results exclude the impact of notable items, variable investment income, and the sale of our international life business. While adjusted pre-tax operating income for individual retirement declined by 10% year-over-year, the fundamentals for this business remain strong and the market conditions attractive. As I previously shared, spread income was impacted by two factors we see as short-term in nature: Fed rate actions and our hedging activities to maintain alignment between assets and liabilities. Consistent with prior guidance, these items collectively reduced base spread income by approximately $50 million for the quarter. In addition, results were impacted by higher DAC and commissions related to business growth, also consistent with our prior guidance. For the general account, individual retirement generated net inflows of $1.1 billion, demonstrating the strength of our asset origination capabilities, product portfolio, and distribution network, supported by ongoing strong customer demand.
Group Retirement delivered another steady quarter with core earnings of $167 million. Of note, this quarter's base spread income benefited from opportunistic asset repositioning efforts. Given the ongoing shift in our customer base and resulting net outflows, we expect to see continuation of the transition from spread to fee-based income over time. As a result, net outflows were $1.8 billion, which is consistent with our prior guidance and in line with levels observed in the first half of 2024. We continue to be excited about the opportunities in this space, especially as customers seek solutions to position their portfolios for retirement. As such, we remain focused on efforts to grow the advisory and brokerage business. Life Insurance continues to be a strong performer. Adjusted pre-tax operating income increased by 23% year-over-year, primarily driven by more favorable mortality experience.
In institutional markets, adjusted pre-tax operating income was virtually flat year-over-year. That said, total sources of income grew by 33%, supported by robust reserve growth of 17% over the same period. As a reminder, earnings from this segment may reflect some quarterly volatility, but we expect earnings to increase over time as reserves grow. Overall, Corebridge continues to benefit from our diversified and complementary portfolio of market-leading businesses, which remains a key component of our shareholder value proposition. Moving to slide eight, where I will focus on three key areas of Corebridge: capital, liquidity, and the balance sheet. Excluding $1 billion to cover the April 2025 debt maturity, Corebridge ended the quarter with $1.4 billion of cash on hand at the holding company, supported by $600 million of distributions from our U.S. insurance companies in this quarter.
This level exceeds the holding company's needs for the next 12 months, and I will note that we have no material debt maturities until 2027. Our insurance companies have a strong liquidity profile driven by positive operating cash flows, liquid invested assets, and contingent liquidity sources, all of which help provide ample flexibility to respond to a range of macro environments. Our insurance companies also remain well capitalized with their respective capital ratios exceeding target. Corebridge continues to actively manage capital in a disciplined and forward-looking manner, maintaining a sufficient buffer to withstand market volatility and capture attractive growth opportunities. This active management includes our hedging programs, which continue to perform as expected. These programs help safeguard statutory capital, support our ability to deliver consistent cash flows, and protect long-term value for shareholders.
Further, they're important to our balance sheet management strategy and are designed to help protect it against market movements, including during periods of volatility like we're currently experiencing. Given the uncertain economic landscape and growing concerns about a recession, we understand there's heightened focus on insurers' investment portfolios. Let me pause here and offer a few highlights on our $223 billion investment portfolio. First and foremost, our portfolio is diversified across asset class, sector, geography, and issuer, making it less vulnerable to systemic risk, and it's proven to be resilient across past credit cycles. Approximately 97% is invested in fixed income and short-term investments, the bulk of which consists of liquid, high-quality bonds. 95% of our fixed maturities are rated investment grade. This portfolio reflects actions taken over the past few years to improve credit quality and return on capital.
As our investment strategy is liability-driven, our credit portfolio is a mix of public, private, and structured products put together with the goal of maximizing risk-adjusted returns while maintaining tight alignment between our assets and liabilities. For public credit, we maintain a high-quality bias with significant exposure to investment-grade corporate bonds that provide liquidity and regulatory capital efficiency. Private credit allocations, the vast majority of which are traditional investment-grade corporate private placements, benefit from illiquidity premiums and contain negotiated protective financial covenants. Corebridge believes this asset class will generally perform better during a downturn due to the protections built into the transactions. Structured products provide us with exposures to diversified collateral. Approximately 95% is comprised of the more senior tranches with significant credit enhancements. Lastly, commercial mortgage loans are performing as expected, and we have maintained our conservative reserving approach. I will now wrap up with our latest sensitivities.
We previously commented on the fourth quarter 2024 earnings call that 2025 EPS growth would be below our long-term expectations of 10%-15% due to the drag from the earning of Fed rate actions. At that time, we anticipated EPS in 2025 would grow by mid-single digits from the 2024 base of $4.99. These projections assumed annual equity market returns of 8%, alternatives improving over the course of the year to achieve our 8%-9% target return by the end of 2025, and 50 basis points of Fed rate cuts in 2025. Given recent increased volatility, we are providing updated sensitivities to equity markets and interest rates. The net impact from an immediate 10% change in the S&P 500 index on the combination of fee income and advisory fee expense is approximately $85 million over the first 12 months.
Further, each 25 basis points move in SOFR impacts base portfolio income by approximately 2 basis points. This SOFR rate sensitivity is lower than our prior guidance due to a reduction in net floating rate exposures over the past two quarters. Lastly, given the lack of deal activity because of current market uncertainty, we expect alternative investments' returns to fall short of our long-term return expectations of 8%-9% in 2025. For the second quarter, we expect alternative investment returns will be approximately half the level in the first quarter based on the information available to us at this time. In conclusion, our proactive balance sheet management, supported by strong reserving practices and risk controls, has enabled Corebridge to pursue profitable growth across multiple cycles while delivering on financial and capital management goals.
Corebridge will remain disciplined in managing our financial flexibility, balancing prudence with the agility to invest in the future. Now I will turn the call back to Işıl.
Isil Muderrisoglu (Head of Investor Relations)
Thank you, Elias. As a reminder, please limit yourselves to one question and one follow-up. Operator, we are now ready to begin the Q&A portion of the call.
Operator (participant)
Thank you. We are now at the open line for Q&A. If you would like to ask a question, please press star followed by one on your telephone keypad. To move yourself out of the line of questioning, it will be star followed by two. Our first question comes from Dan Bergman of Cowen. Dan, your line is now open.
Dan Bergman (Director of Equity Research)
Hey, thanks. Good morning. Your base yield took a nice step up quarter over quarter, particularly in the Group Retirement segment. I know you mentioned some actions you took to reposition the portfolio this quarter.
I wanted to see if you could just give a little more detail around those actions. Given you previously talked about some opportunities to optimize the asset portfolio, I guess what ending are you in for that process? As we look ahead, how should we think about the ability for you to take further steps to improve yields in the coming quarters?
Kevin Hogan (President and CEO)
Yeah, thanks, Dan. Appreciate the question. Look, I'll start, then I'll pass over to Elias. As you noted, the sequential increase in the group retirement-based spreads and spread income, kind of as in the case of individual retirement, reflects some opportunistic asset repositioning, which is really part of our regular active portfolio management strategy that Elias will touch on in a bit. I think what's important to take away is that we don't expect a change in the trend over time.
We see this business transitioning from spread to a fee-based business. Fee income is already the predominant source of revenues for that business. There are going to be some variances quarter to quarter driven by sort of one-time items and some seasonality related to where we credit interest. We think this is a positive trend over time from spread to fee income. Now, in terms of the yield questions, I'll pass that over to Elias.
Elias Habayeb (CFO)
Hey, thanks, Kevin. And hey, Dan, if you look at our track record, we've taken advantage opportunistically from time to time where we had opportunities to reposition assets and pick up yield and improve return on capital. When looking at the first quarter what we did in group retirement, we saw a similar opportunity. We did, to some extent, also on the individual retirement space, take advantage of it.
We'll continue to do that whenever the opportunity arises and within our risk parameters. If you look at what we did in 2022, 2023, 2024, also against the in-force in individual retirement, this is kind of no different than the stuff we've done previously.
Dan Bergman (Director of Equity Research)
Got it. That's really helpful. Thank you. Maybe just a little bit of a broad one, but given the recent market volatility, I just wanted to see if you could provide an update on what you're seeing in the market for your various individual retirement products. I guess, how is industry demand holding up amidst the volatility, and how are you finding the competitive environment across your different product areas?
Kevin Hogan (President and CEO)
Yeah, sure. Thanks. Look, the demand for annuities remains robust. The belly of the yield curve remains supportive. Credit spreads, I think, are also relevant there.
Above all, the long-term macro drivers are really very powerful trends: the aging of the population, the need for people to look after their own retirements, and a supportive advisor community. Based on our experience, market uncertainty actually further increases the demand for our products, sometimes in the income benefits and sometimes in the accumulation areas. Of our various products, fixed annuities are the most sort of immediately sensitive. In the fourth quarter and the first quarter, there were a few periods of lower sales in the face of some of the market changes and while we maintained our usual pricing discipline. I would not read too much into that. We see very strong demands continuing for the index product in particular. Fixed annuity conditions remain very attractive. We are off to a great start with our RILA product.
We continue to see the way I define the rationality of pricing and competition is whether or not we're able to meet our margins on new business. We continue to see attractive new business margins. Now, I would point out the second quarter of last year was kind of an exceptional period where everything came together. I wouldn't expect that type of quarter to necessarily repeat. Overall, the conditions are very attractive, and we're confident in growing our individual retirement, overall general accounts, and spread income over time.
Dan Bergman (Director of Equity Research)
Got it. That's super helpful. Thank you.
Operator (participant)
Thank you very much. Our next question comes from Elyse Greenspan of Wells Fargo. Elyse, your line is now open.
Elyse Greenspan (Managing Director)
Hi, thanks. You guys said this quarter, which I know you typically say in calls, just that you guys are continuing to explore opportunities across the company to enhance capital efficiency.
Can you just expand on, I guess, what's top of mind on that list today?
Kevin Hogan (President and CEO)
Yeah. So, Elise, thanks for the question. Look, we're always looking for opportunities to increase our efficiency, increase shareholder value, and optimize our portfolio. We continue to expand our Bermuda strategy, which is an important part of our capital management toolkit. We added an additional $2 billion of reserves this quarter. We have seeded $14 billion with the new strategy to date. We are early in the stages of our Bermuda strategy. We see further opportunities for both enforce and new business sessions. In addition to that, obviously, external reinsurance transactions are something that we evaluate from time to time. Any transaction we have consistently said must be accretive on a risk-adjusted basis. We continue to explore those opportunities. We're always open to considering ways to increase shareholder value.
We will be happy to share anything new at an appropriate time.
Elyse Greenspan (Managing Director)
Thanks. My second question, you guys in the opening commentary are pointing to, I think you said, a promising pipeline of PRT deals over the rest of the year. I know some peers have just pointed to volatility perhaps impacting deal flow in that business this year. Can you just kind of talk to what you are seeing and how you expect things to transpire over the rest of the year? Thank you.
Kevin Hogan (President and CEO)
Yeah, thanks, Elyse. Look, we continue to see very robust opportunities for pension risk transfer. For quite some time, we have been focused on full plan terminations, which are transactions generally in the region of $500 million to $1.5 billion. We carefully underwrite these. They are essentially like mini M&A transactions where we have to carefully evaluate both liabilities and asset strategies.
Pension plans continue to be well-funded. Generally, these transactions result from committed corporate risk management strategies. They, like M&A transactions, are not predictable. We do not necessarily expect them to land regularly quarter by quarter. The pipeline, both in the U.S. and also in the U.K., continues to be as strong as we have seen it. We do not necessarily see any indications that volatility is going to have a significant impact on timing or pursuit of these transactions.
Operator (participant)
Thank you very much. Next question comes from Joel Hurwitz of Dowling & Partners. Joel, your line is now open.
Joel Hurwitz (Lead Analyst)
Hey, good morning. First, a couple on expenses. Expenses in individual retirement and corporate were up from where you have been running. How much would you attribute that to seasonality? On the voluntary separation, any expectation for expense savings running through operating earnings?
Elias Habayeb (CFO)
\Yeah. Hey, Joel, it is Elias.
With this component of what you're seeing in Individual Retirement and the parent and in total across the board is seasonality. Typically, the first quarter is higher tied to the rule of 65, which is people based on age and years of service. If they meet the rule of 65, equity grants are expensed upfront versus over 3 years. This year, we had a higher dollar amount of equity grants meeting the rule of 65. That is a component of it. The second component is our payroll taxes. 401(k) matches are kind of front-loaded, and as you progress in the year, those will come down. There is definitely seasonality there. I would say about 50% of the increase in IR is tied to that on that spot.
With respect to early retirement program, that's kind of one of the initiatives we are undertaking to continue to modernize our organization and improve our operating leverage. The expectation is a portion of the savings out of the early retirement program will drop to the bottom line, and a portion we're going to use to fund investments and new capabilities for the next leg of our journey. We do expect that to benefit our expense run rate. Given the timing of when people depart, it will not fully earn into the run rate till the beginning of 2026.
Joel Hurwitz (Lead Analyst)
Okay. Very helpful. And then just a second one. In group, you've been talking about growing your out-of-plan business and the advisory and brokerage business. Can you just provide an update on the organic growth that you're seeing there and what sort of traction your advisors are gaining?
Kevin Hogan (President and CEO)
Yeah. Thanks.
Appreciate the question, Joel. I mean, group retirement, as you pointed out, and as I mentioned, is not solely a spread business. We are seeing very attractive opportunities in the out-of-plan and the advisory and brokerage space. Overall, our advisor force is growing. The advisors support both the in-plan and the out-of-plan strategies with in-plan having advisory options as well. Our advisory and brokerage assets are now $16 billion. They are up 5% year-over-year. If you look at the combination of the out-of-plan plus the advisory and brokerage assets, it is a significant earnings base at $99 billion. We have been investing in advisor productivity. As my prepared remarks, we are seeing some improvements in the productivity in terms of enrollments and deposits. Maybe the most important numbers of all is of our 1.9 million customers in this business, 1.6 million of them are still in-plan only customers.
Our advisors are building relationships with them in order to prepare for that important moment of household asset consolidation. We are in the early stages of a change in the trend from a spread to a fee-based business. The signs are very positive across the board.
Joel Hurwitz (Lead Analyst)
Thank you.
Operator (participant)
Thank you very much. As a reminder, if you would like to raise a question, please press star followed by one on your telephone keypad. Our next question comes from Suneet Kamath of Jefferies. Suneet, your line is now open.
Suneet Kamath (Senior Research Analyst)
Great. Thank you. You had guided to elevated surrenders in individual retirement, I think, in 1Q and then 3Q and 4Q. It did not seem like we saw a big change here in 1Q. Is that because the surrenders will roll off more in the latter half of the year?
Do you have a sense of what rolled off? What were you able to retain through other products?
Kevin Hogan (President and CEO)
Yeah. Thanks, Suneet. Good morning. Yeah. What we said last quarter, we do expect higher levels of fixed annuity and index annuity volumes to be exiting their surrender charge period. That is in particular in the second half of this year. We see this as kind of natural given the significant growth in the whole portfolio over the last few years, but in particular since 2022 when the rate environment really started to change. This increase in volumes exiting surrender charge periods is not going to be consistent quarter to quarter. It really reflects where large volumes of product were sold in the past. On the other hand, in our experience, surrender rates reflect really where yields and credit spreads are at a given time.
Over the last few cycles, we haven't seen anything that's outside of our expectations along those lines. We've seen generally that when surrender rates are higher, usually the conditions for new business are also very attractive, which is important as really what we're focused on is the long-term growth of our general account net of any surrenders. It's not necessarily, I mean, we look at options as to how we may preserve surrenders. More importantly, we look at new business pricing. New business pricing is very attractive. Irrespective of the surrender behaviors and activity, we expect that the general account and spread income will continue to grow over time. The environment continues to be very robust for our entire range of individual retirement products, index annuities, fixed annuities, and most recently our RILA, which is off to a great start.
Suneet Kamath (Senior Research Analyst)
Got it.
That's helpful. Thanks. Then on slide 5, I thought that picture of cash generation over time was pretty impressive. If I look at the data, it looks like it's been relatively flattish at that kind of $2 billion-ish level. I think on the last call, you talked about increasing it by 10%. I just want to understand what's different now that allows you to grow it. Should we think about that 10% as really just a bump up, or is that more of a on an annual basis, you want to increase that by 10%? Thanks.
Elias Habayeb (CFO)
Hey, Suneet. It's Elias. If you look back historically, there was a different kind of strategy at the time. The historical numbers are a bit normalized. You could find that in the S1 in our public filings.
Let's talk now about the strategy since we've gone public. Our strategy has been to grow earnings and increase cash generation to deliver on the 60%-65% payout ratio. Our target for this year is to grow the insurance company dividends by 5%-10%. We believe we're on track to delivering it. Sitting here today, despite the market volatility, we remain confident in our expectation to deliver the increased 5%-10% in dividends from the insurance companies and deliver on our payout ratio. We'd expect that to continue to grow over time as we grow the profitability of the business.
Suneet Kamath (Senior Research Analyst)
Okay. That's helpful. Thanks.
Operator (participant)
Thank you very much. Our next question comes from Cave Montazeri of Deutsche Bank. Cave, your line is now open.
Cave Montazeri (Research Analyst)
Good morning. My first question is on your guidance for base spread income.
You have reduced your sensitivity to a short-term interest rate. I think in your prepared remarks, you mentioned that it was mainly due to reducing your exposure to floating rates. I guess I am wondering, A, is that the right answer? Then two, how are you thinking about your hedging philosophy and how maybe that could impact your sensitivity going forward?
Kevin Hogan (President and CEO)
Yeah. Thanks, Cave. Good morning. Look, maybe I will unpack the IR spread income story a little bit for you. As we just talked about, the first quarter spreads and spread income, as in the case of group retirement, did benefit from some asset repositioning, which helped to offset the impact that we had guided to relative to the fourth quarter Fed rate actions and how they affected particular SOFR.
Looking ahead, we actually continue to expect that base spread income will grow over time, even if there is a little bit of marginal spread compression. We provided the SOFR cut sensitivity. Just remind you that those are generally short-term in impact. We have lowered our sensitivity since the fourth quarter from three basis points to two basis points. Really, the overriding driver of spread income is ultimately business operations. There are very powerful drivers on the macro side that I'm not going to necessarily repeat. Current new business pricing is at or above our medium-term return expectations. The investment environment is good. Our new money rates are still 100 basis points over the rolloff. It is not going to be a straight line. There will be a little variability quarter to quarter.
The fundamental trend is that the general account, we're growing the general account reserves over time. Base spread income will grow over time irrespective of underlying spread dynamics, which will be an important contributor to our growth targets. I'll hand it over to Elias to talk a little bit about the hedging question.
Elias Habayeb (CFO)
Yeah. Listen, from the hedging question, we've talked in the past, one of the aspects of how we manage the balance sheet is the ALM profile of the balance sheet. Our investment strategy is liability-driven. We adjust the asset side to what we see on the liability side. What we have done is reduce our net floating rate exposure. We've held floaters in the portfolio for two reasons. One, we find them as an attractive asset class.
On a relative value basis, at times, they've offered better returns than fixed-rate bonds. Separately, we've used them as a tool to manage the ALM profile of the balance sheet. When rates increased in 2022 and liability durations came in significantly, in addition to derivatives, we used an increased allocation to floaters to shorten the duration of the assets. We will continue to manage it within that discipline. As a result of what's played out in our portfolio, we've reduced the floating rate exposure. If you recall, at the end of September, when we first talked about it, we said about 8% of the investment portfolio was in a net floating rate position. That's down to about 5% as of the end of March. That's been the driver behind why the sensitivity has improved since then.
That is also kind of consistent to what we hinted at back at the third quarter earnings call when we gave the initial sensitivity that we expected that sensitivity to decline over time. It is playing out kind of consistent with what we expected. Just to echo Kevin's comments, our guidance on spread income in individual retirement is we expect it to grow over time. The business dynamics is great. If you look at the new money yields relative to what is rolling off, and I quoted it in my script, this quarter, we had a 100 basis point differential. That is kind of accretive.
If you look at what happened to spread income in the quarter, while the earning of the 100 basis points was consistent with the prior guidance we gave you, we were able to mitigate it with growth in the business side as well as some asset repositioning to take advantage of opportunities to improve returns in the investment portfolio within our risk and capital parameters.
Cave Montazeri (Research Analyst)
Thank you. That is very helpful. If I can pivot to technology, just want to know if we can get an update on SimpliNow and some of the other new tech initiatives you have going on. I think in the past, you mentioned, at least for life insurance, that 80% of new policies were other decisions.
Just wondering if you can expand that, maybe what you're seeing in other segments and how you're using digital capabilities to further improve your process, not just on the cost side, but also to drive top-line growth.
Kevin Hogan (President and CEO)
Yeah. Thanks, Cave. Look, we're really proud of our life insurance business. And we have been investing in that business over a number of years, starting with our data strategy and then ultimately building into our digital capabilities and automated underwriting, which is ultimately what's driving, I think, a lot of the success there. The work we've done also in repositioning our product strategy was kind of hand in glove with that and focusing on products that are less interest rate sensitive and also maybe a little bit less pricing sensitive. We're pleased with the strong position that we have there.
Elias talked about the fact that after our voluntary early retirement program, I mean, part of those savings will drop to the bottom line, but part of those are being reinvested in the business. Important investments that we're making include further investments in our data and digital and automation strategies. We're starting to see some of the benefits of those in our retirement services business. You'll see some of that in the advisor efficiency numbers that I quoted in my prepared remarks. We are also adopting a strategy of enhancing our capabilities in our finance and actuarial and our other sort of administrative support activities. The benefits of the data digital and automation strategies, we're in the early stages of exploring tools like advanced practices and artificial intelligence, but that's something that is on our path.
We do see it as an important opportunity to increase our scalability and our operating efficiency and operating leverage over time.
Cave Montazeri (Research Analyst)
Thank you.
Operator (participant)
Thank you very much. Our next question comes from Alex Scott of Barclays. Alex, your line is now open.
Alex Scott (Equity Research Analyst)
Hey, good morning. The first one I had for you is on the relationship with Nippon. I think the last time you were asked on one of these calls about the relationship, you had not gotten through some of the regulatory approvals and so forth, so it was hard to talk more about it. I was interested if you had any more color on just the ways that your two firms may work together in partnership.
Kevin Hogan (President and CEO)
Yeah. Thanks, Alex. Appreciate the question. Look, we are very excited about our relationship with Nippon Life. They have joined the board. They are already contributing there.
We're both large, diverse companies that we operate in very different markets, and we have a lot that we can learn from each other. We're taking a structured approach to looking at what are the various areas in which we may be able to generate some mutually beneficial commercial activities. We're working our way through evaluating those opportunities. I'm sure that both companies will be excited to come forward when we have something significant that we've identified and that we're in a position to announce.
Alex Scott (Equity Research Analyst)
Got it. That's helpful. The second one I have for you is just going to the asset portfolio. I know you mentioned some in your opening remarks.
I just wanted to ask about if there's anything you could provide that would help frame for us how you'd expect the portfolio to perform in different types of scenarios if we were to get some kind of credit event. The reason I ask is just there is a little bit more invested asset leverage just given you're more of a fixed annuity company. Between now and the next time you have an earnings call, the environment could potentially change more significantly. I just wanted to see if we could get a feel for how you'd expect that to perform.
Kevin Hogan (President and CEO)
Yeah. Thanks, Alex. Look, I'll hand over to Elias in a minute here. I'll just start off with, look, we're very comfortable with our overall asset portfolio and our credit exposure.
It reflects both years of actions to improve the quality, but also the fact that we very much focus on an asset strategy to support our liability portfolio. I'll let Elias go through the characteristics of the portfolio that put us in this position where we're comfortable with the exposure.
Elias Habayeb (CFO)
Hey, Alex. From a credit perspective, credit risk is one of the top risks we proactively manage in our portfolio. Part of our strategy, in addition to being liability-driven, is to maintain diversification so we do not have concentration risk and maintain a high-quality portfolio. Right now, 95% of the book is investment grade. We have migrated the average credit rating of the fixed maturities to a single A over the last couple of years. We have a high allocation to liquid assets.
We do subject the portfolio to various forms of sensitivities and stress testing. That kind of helps inform us on decisions we take. We feel comfortable from a credit loss perspective on the portfolio. Our biggest allocation is to public credits. On the private side, the largest allocation is to traditional investment-grade private placements, which is not a new asset class for insurance companies and not for us. Those come with strong financial covenants that give us protections if there is stress. In addition, on structured products, we tend to be at the top end or the higher end of the capital structure, which gives us significant enhancements. We are proactive. If we start seeing things that are going sideways, we will take action, exit positions to cut our losses before things play out. We do carry a pretty meaningful allowance for loan losses on the loan side.
We feel comfortable with it. From the loss perspective, we feel comfortable. There's always risk on rating downgrades. Again, we've got tools available to us to mitigate that impact. Finally, remember, we have a strong balance sheet. Our RBC at the end of the year was 426. You combine the balance sheet with the high credit quality portfolio with diversification and conservative reserving on the portfolio. We feel comfortable with where we are right now.
Alex Scott (Equity Research Analyst)
That's really helpful. Thank you.
Operator (participant)
Thank you very much. Our next question comes from Jimmy Bhullar of JPMorgan. Jimmy, your line is now open. Jimmy, can we start to check your lines? Locally muted.
Jimmy Bhullar (Equity Research Analyst)
Hi. My questions were actually answered, and I pressed our one, but I guess it did not go through. Maybe I'll ask one on just your RBC ratio.
It's still above 400%, but I wanted to see if you saw some decline in the directionality at least in the quarter given the moves in the market and just moves in interest rates as well.
Elias Habayeb (CFO)
Hey, Jimmy, it's Elias. I'm happy to answer. There is some sensitivity to rates in equity markets from an RBC perspective. It's different than the sensitivities on GAAP operating income because on an RBC basis, you've got to think through the impact available as well as required capital. Given the diversification in our balance sheet as well as the hedging programs we have in place, that impact is limited. You've got the proof points with slide five if you go back because some of those were during periods of volatility in the market, and RBC was maintained above 400%.
The other thing I would say around market volatility and the impact of RBC, that's kind of temporary and short-term. As markets reverse, the impact reverses as well with it. To us, we look at that more as a temporary impact for us. The impact is limited given the hedging and the diversification. Credit to us is more meaningful from an RBC perspective, and that's what we try to proactively manage too.
Jimmy Bhullar (Equity Research Analyst)
Okay. I think Kevin in his remarks and you as well had given out some numbers on sensitivity to the weak market and potentially weak alternative investment income. You were referring to adjusted earnings. Should we assume that the impact on cash flows is similar, or is it higher or lower for some reason?
Elias Habayeb (CFO)
The impact, if you think about it in terms of fee income, that will be mirrored on the cash flow side. If you think about it in terms of alternatives, that's more mark-to-market impact in earnings versus distributions. That being said, we remain confident in the cash flows in our business. We have demonstrated over time stability in the cash generation given the diversification in the business model. Sitting here today, we remain confident in being able to deliver on our payout ratio target for the year.
Jimmy Bhullar (Equity Research Analyst)
Thank you.
Operator (participant)
Thank you very much. Our next question comes from Tom Gallagher of Evercore ISI. Tom, your line is now open.
Tom Gallagher (Senior Managing Director)
Morning. First question just on the portfolio repositioning, and then I had a follow-up on risk transfer. On the portfolio repositioning, I guess, two-part question.
One, how involved are you on the reallocation considering you're outsourcing most of the portfolio individual fixed income decisions to Blackstone and BlackRock? Are you actually involved in the bond-by-bond trades between them, or is it more of a broader overall portfolio allocation type of responsibility you now have? Can you provide a little more color for if you're selling down your floaters, what are you repositioning that into? Is it private credit? Is it something else? A little bit of more elaboration on what's going on beneath the surface here. Thanks.
Kevin Hogan (President and CEO)
Yeah. Thanks, Tom. Look, I'll start. We control our investment strategy. We have very powerful origination partners, and they're an extension of what our capabilities are. The strategy is ours. The risk appetite is ours. We provide very clear guidelines and allocations and instructions and are actively managing the portfolio through our partners.
I'll hand it over to Elias to address some of your other questions.
Elias Habayeb (CFO)
Yeah, Tom, it's Elias. To Kevin's point, we drive the decisions around repositioning as well as the decisions around where money gets invested. The different managers, BlackRock, Blackstone, but there's also our own internal team is still sourcing assets for us. It's based on what they get allocations based on what they think they could source for us and how that fits within the liabilities we offer. With respect to the repositioning we did in the first quarter, it got reinvested in combination. Some of it was public credit. Some of it was private credit. We sold down some lower-yielding bonds and reinvested the money.
Tom Gallagher (Senior Managing Director)
Gotcha. Thank you for that. Just on risk transfer, I guess we've had two recent deals in the market. One VA, another pretty big life deal.
I would describe them as the pricing on VA was low. The pricing on high was pretty robust. Yeah. How important is the pricing versus the view of tail risk? Because I guess when I look at your VA block, I do not really think about it as being high risk. It seems like pretty low risk, even though it is a high-risk category, I guess you could call it. I am just curious how you are approaching those two different businesses when you consider risk transfer. Is it really about optimizing shareholder value or reducing tail risk?
Elias Habayeb (CFO)
Any transaction that we would pursue has to be accretive on a risk-adjusted basis, just repeating what I said before. That means both in terms of price and structure. Credit protection is important. Price is important. We are constantly looking at what is the value-add opportunity for the company. Yeah.
Tom, we do look at what the company would look like after that transaction. It is really looking at you factor in the tail risk and improving the risk profile of the balance sheet along with what you are getting for it in exchange. It needs to be a fair price in exchange.
Tom Gallagher (Senior Managing Director)
Gotcha. Thank you.
Operator (participant)
Thank you very much. I would now like to hand back to Kevin Hogan for any further remarks.
Kevin Hogan (President and CEO)
Yeah. Thanks. Look, I just want to take a moment here to thank our people and our partners for being a source of strength for our customers, supporting them in both good times and bad. What we do matters. Moments of uncertainty highlight the importance of how we help people take action in their financial lives. Thanks for your questions. Thanks for joining us today, and have a good day.
Operator (participant)
As we conclude today's call, we'd like to thank everyone for joining. You may disconnect your lines.