Corebridge Financial Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: Transformative reinsurance transaction: Closed on ~90% of the AGL VA portfolio and expect the remainder to close in Q4, monetizing an undervalued book for $2.1 billion of distributable proceeds that will reduce risk and fund share repurchases.
  • Positive Sentiment: Robust Q2 financial performance: Delivered $942 million of adjusted pretax operating income and $1.36 EPS (up 20% YoY), with run-rate EPS of $1.30 (up 8% YoY) and ROE of 13.7% (up 90 bps).
  • Positive Sentiment: Record individual retirement growth: Q2 premiums and deposits reached $6.8 billion, net inflows of $3.2 billion (ex-VA) rose 4% YoY, and cumulative sales of the new Ryla product topped $1 billion just nine months post-launch.
  • Positive Sentiment: Strong capital management: Q2 saw $600 million of insurance company dividends to the holding company and $442 million returned via dividends and buybacks, with $1.3 billion in liquidity and a $2 billion share repurchase authorization added.
  • Positive Sentiment: Expense efficiency gains: General operating expenses are down 14% since the IPO, with ongoing digitization and modernization initiatives expected to drive further cost savings and improve service.
AI Generated. May Contain Errors.
Earnings Conference Call
Corebridge Financial Q2 2025
00:00 / 00:00

There are 15 speakers on the call.

Operator

Hello, everyone, and welcome to today's Corbridge Financial Inc. Second Quarter twenty twenty five Earnings Call. My name is Seb, and I'll be the operator for your call today. I will now hand the floor to Achelle Medeirosolu to begin. Please go ahead.

Speaker 1

Good morning, everyone, and welcome to CoreBridge Financial's earnings update for the 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.

Speaker 1

ForBridge'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 applicable securities laws, Corbridge 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.corbridgefinancial.com. With that, I would now like to turn the call over to Kevin and Elias for their prepared remarks.

Speaker 1

Kevin?

Speaker 2

Good morning, everyone, and thank you for joining. I'm pleased to report that CoreBridge delivered another quarter with very strong financial results and remains focused on driving shareholder value as demonstrated by our transformative reinsurance transaction that further positions our company for the future. Starting on Slide three. First, the variable annuity reinsurance transaction we announced is the most important value creation action we have taken since the IPO. As we announced yesterday, we have closed on the AGL portion of the transaction, which represents approximately 90% of the value.

Speaker 2

We expect the remaining portions of the transaction to close in the fourth quarter subject to customary closing conditions and regulatory approvals. Second, we are positioned to drive further organic growth from an even lower risk baseline. Across our businesses, we have a broad mix of attractive products and service offerings powered by an extensive distribution network. The second quarter provided a glimpse of this opportunity as individual retirement sales exceeded last year's record second quarter and cumulative sales of our new Ryla product passed $1,000,000,000 just nine months after initial launch. Third, we remain focused on executing on our four strategic pillars.

Speaker 2

We will deliver profitable growth, ample cash generation and a strong payout ratio to create ongoing additional long term shareholder value. Turning to Slide four, our transformative reinsurance transaction changes the value creation arc of the company. I want to spend a few minutes recapping the benefits. To start, the transaction achieves a full exit from our individual retirement variable annuity financial risk. This is not a partial portfolio transfer.

Speaker 2

This transaction monetized an undervalued book of business with a decreasing financial contribution to CorBridge at an extremely attractive price. The value upside of the transaction for shareholders is significant. The transaction valuation was materially above CorBridge's earnings multiple and generating $2,100,000,000 of net distributable proceeds, the substantial majority of which we will use for share repurchases with the balance available for investment in organic growth. This transaction also helps further improve the quality of our earnings and the risk profile of our balance sheet by reducing net income volatility while mitigating other risks intrinsic to the VA book. Post transaction, approximately 99% of our net GAAP liabilities are from non legacy products.

Speaker 2

That means no exposure to long term care, no exposure to individual retirement variable annuities from before or after the financial crisis and nominal but well managed exposure to universal life with secondary guarantees. Maintaining our targets for profitability, financial strength and capital return with lower risk and volatility positions the company very well for the future. Finally, our ongoing business portfolio remains well diversified, offering a broad range of retirement and protection solutions that meet our customers' needs and attract a higher multiple than the reinsured VAs. And for our distribution partners and their customers who still value a core bridge variable annuity, our flow reinsurance agreement means they will have continued access to our offering. Turning to Slide five.

Speaker 2

Our objective is to grow earnings per share at an average of 10% to 15% per year over time. To do so, we will continue to execute on all four of our strategic pillars. We will drive organic growth by capitalizing on the huge opportunity presented by an aging society in need of guaranteed income. Private sector pensions and public sector safety nets face an uncertain future. The only other source of income you can't outlive is an annuity.

Speaker 2

With more than 4,000,000 Americans turning 65 every year, there's a massive need for both accumulation and decumulation annuity products to help people navigate retirement. CorBridge's broad annuity product suite and extensive distribution network position us well to win in this space. For example, excluding the VA ceded to Venerable, Individual Retirement's net inflows in the second quarter were over $3,000,000,000 a high watermark for the company. Each of our businesses is supported by these strong macro tailwinds. Our balance sheet is not only similar post transaction, it is better optimized for growth.

Speaker 2

In addition to our strength in product design, breadth of offering and distribution reach, our Bermuda strategy provides us financial flexibility to support future growth across our company and is an important part of our capital management strategy. Our commitment to expense efficiency is unwavering. CoreBridge Forward, which is now largely earned in, has helped reduce general operating expenses by 14% since the IPO. Through increased digitization and other modernization initiatives, we see additional opportunity to create a lean competitive cost base while improving our customer and distribution partner experience. And by executing consistently on our first three pillars, we are able to deliver on the fourth, active capital management that directly rewards our shareholders through dividends and share repurchases.

Speaker 2

We can achieve our target payout ratio without the $2,100,000,000 of proceeds from the reinsurance transaction. With the transaction, we will exceed our payout ratio target for a period of time and the additional share repurchases are expected to be EPS accretive on a pro form a basis when complete. We are confident our formula for success is proving out. As we grow profitably, use our balance sheet efficiently, manage expenses diligently and distribute cash consistently, we will continue to create long term shareholder value, all accelerated by a transformative transaction that reduces risk, improves the quality of earnings and drives higher distributions. We think it adds up to one of the most compelling value propositions in the sector and believe investors should take a fresh look at Corporidge Financial.

Speaker 2

With that, I will turn the call over to Elias to cover our second quarter results in detail.

Speaker 3

Thank you, Kevin. I'll begin my comments today on Slide six. CorBridge reported second quarter adjusted pretax operating income of $942,000,000 or operating earnings per share of $1.36 a 20% increase year over year. There were no notable items in the quarter. Annualized alternative investment returns this quarter were $06 per share better than our long term expectations, largely due to the impact of a weaker U.

Speaker 3

S. Dollar on our foreign fund investments and normal timing adjustments as year end fund audits were completed. Adjusting alternative investment returns to long term expectations, we delivered run rate operating earnings per share of $1.3 which represents an 8% year over year improvement and an adjusted run rate ROE of 13.7%, which is 90 basis points higher than the prior year. Moving to Slide seven. Total sources of income increased 6% year over year, while core sources of income declined modestly by 2% driven by improved underwriting margin in life insurance offset by decline in base spread income and fee income consistent with our prior guidance.

Speaker 3

Base spread income declined by 6% year over year driven by the combination of Fed rate actions in 2024 and net outflows in Group Retirement as the business continues to transition from spread to fee income. While reported fee income was down slightly year over year, excluding Individual Retirement's variable annuities, fee income was actually up 3% year over year. Underwriting margin, excluding VII, continues to contribute strong results, growing 9% year over year, aided by favorable mortality experience and the continuing growth in our Life business. Next, I'll briefly review a few highlights from each of our businesses, the details of which can be found in the appendix of our earnings presentation. As a reminder, results exclude the impact of variable investment income and notable items where applicable.

Speaker 3

In Individual Retirement, core sources of income were down 3% year over year, but were flat on a sequential basis. Year over year, base spread income was impacted by Fed rate actions and hedging activities to maintain alignment between our assets and liabilities, which we view as short term in nature. Had it not been for these actions, base spread income would have been approximately $50,000,000 higher. Even so, base spread income continued to grow on a sequential basis, reflecting the growth in the business. Individual Retirement had record sales this quarter with premiums and deposits at $6,800,000,000 benefiting from our broad product portfolio and deep distribution network.

Speaker 3

Notably, our new Ryla product achieved sales of $05,000,000,000 in individual retirement this quarter, less than a year after product launch. Net inflows of $3,200,000,000 excluding variable annuities were up 4% year over year and more than doubled sequentially resulting from robust organic growth. While adjusted pretax operating income excluding VII declined 8% year over year for the reasons just mentioned, the fundamentals in this business clearly remain strong and market conditions continue to be attractive. Our Group Retirement business continues to transition from a spread based to a capital light fee based revenue stream. While fee income was flat year over year, sequentially fee earning assets were up 7%, which should support fee income growth in the upcoming quarter.

Speaker 3

Base spread income decreased 18% year over year given the ongoing demographic shift in our customer base and resulting net outflows. More broadly, from time to time, we do see some large plan exits, which you can see in our net flows. These flows tend to be concentrated in assets within separate accounts and mutual funds. As a result, these exits have a limited impact on our spread income. Looking forward to the third quarter, we expect two additional plan exits, which we expect will have a modest impact on our spread earnings.

Speaker 3

Excluding net outflows from large plan exits, total flows have remained stable and in line with the levels we've seen in recent quarters. Furthermore, general accounts net outflows have slowed, improving over 25% year over year. Premiums and deposits are up 8% sequentially with out of plan deposits increasing 22%. Demand for our Ryla product remains strong, and Ryla sales in group retirement have totaled over $160,000,000 since we launched the products in this business in late January. In our advisory and brokerage business, the total assets under management and administration increased 10% year over year.

Speaker 3

We continue to be excited about the opportunities for group retirement and believe we have a unique value proposition. We differentiate ourselves with a field force of experienced financial professionals and proprietary tools that enhance financial planning capabilities, supporting growth in both our in plan and our emerging wealth management business. Our life insurance business continues to perform exceptionally well with a 12% increase year over year in underwriting margin and a 44% year over year increase in adjusted pretax operating income. The increase in underwriting margin primarily reflects ongoing pricing discipline, including the benefit of our automated underwriting platform and resulting favorable mortality experience as well as improved investment yields. New business sales were up slightly year over year, largely driven by growth in our traditional products, including both our guaranteed issue and simplified issue whole life products, as we saw increased demands from our emerging distribution partnerships that favored our newer digital application platform.

Speaker 3

In our institutional markets business, reserves increased 17% year over year, largely driven by strong GIC issuances and PRT transactions over the past year. This reserve growth has supported a 64% year over year increase in our total sources of income. We are very disciplined in sourcing assets for our new business. In the case of GICS we issued in the first and second quarters, given market volatility, some asset origination funding was deferred, but it has only a short term effect and was factored into our pricing. As a result, we did see stronger reserve growth on a relative basis versus base spread income.

Speaker 3

Overall, we expect spread earnings to increase over time as reserves grow. But as we've referenced from time to time, there will be periods of inherent quarterly volatility. Turning to new business. We continue to grow our GIC program. This was the fifth sequential quarter with issuances exceeding $1,000,000,000 As a result, our GIC reserves have grown by $4,700,000,000 or 40% year over year.

Speaker 3

The PRT pipeline in both The U. S. And UK continues to remain strong as we see ongoing appetite for de risking solutions and high pension plan funded ratios. Turning to Slide eight. CorBridge continues to drive shareholder value through consistent cash generation.

Speaker 3

The insurance company dividends to the holding company in the second quarter totaled $600,000,000 We returned four forty two million dollars to shareholders through dividends and share repurchases, contributing to a 64% year to date payout ratio. Holding company liquidity was $1,300,000,000 at June 30, an amount that exceeds our needs for the next twelve months. As a reminder, first quarter holding company liquidity was elevated as we held additional funds to cover $1,000,000,000 worth of debt that matured in April. Looking forward, we have no material debt maturities until 2027. With our live fleet RBC ratio remaining above target and our recent VA transaction generating significant distributable proceeds, the Board of Directors authorized a $2,000,000,000 increase to our share repurchase authorization in June.

Speaker 3

I would like to note that we plan to update our financial supplement to reflect the impact of the individual retirement VA transaction. This will involve recasting the historical results to be presented on a consistent basis, which we plan to release in advance of third quarter earnings. So as we move to Q and A, a few closing comments. CoreBridge continues to drive shareholder value by executing on our four strategic pillars: organic growth, balance sheet optimization, expense efficiency and capital management. With the close in the third quarter of the vast majority of our variable annuity reinsurance transaction and the expected close of the remaining portion in the fourth quarter, we have strategically repositioned the company fortifying an already diversified business mix and balance sheet, enhancing our financial flexibility and putting the company firmly on the path to deliver continued growth, profitability and shareholder value.

Speaker 3

We are immensely proud of the team and look forward to the balance of 2025 and beyond. With that, I will turn the call back to Ishael.

Speaker 1

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

Operator

Thank you. Our first question is from Wes Carmichael at Autonomous. Please go ahead.

Speaker 4

Hey, thank you. Good morning. Just my first one on capital and insurance company dividends. I think you took $600,000,000 or so of dividends to the holding company in the quarter. Just with the VA transaction, maybe Elias, do you have any view on how that quarterly dividend amount may trend once it's fully closed, I guess assuming a relatively consistent macro environment?

Speaker 3

Wes, it's Elias. So yes, listen, from an insurance company dividend, we've been growing that with the growth in earnings. And for 2025, our targets to grow it by 5% to 10%. There will be a minor impact with the VA transaction given we would lose about EUR 300,000,000 of earnings, but we expect to continue to grow the dividend with the growth in the business and we continue to expect to deliver a 60% to 65% payout ratio. And if I go back to one of the targets we've established, we shared earlier this year that our goal is to grow EPS by 10% to 15% on average over time per year.

Speaker 3

There's no change to that target. We reaffirmed it and we expect to do that by growing both earnings as well as share repurchases.

Speaker 4

Got it. Thank you. Maybe a different topic, but it sounds like wealth management and group retirement is a business that you're looking to grow. Wondering if you could offer us a little more color on the size of that business today and your ambitions over the next few years. And maybe is that an area where you'd be open to inorganic growth or multiples for assets just too rich right now?

Speaker 5

Yes. Thanks, Wes. Look, we see a very attractive opportunity in the group retirement business. It's much more than a spread business. As you pointed out, our fee income of $190,000,000 in the quarter is always already larger than the spread income.

Speaker 5

But I think what's important is look at some of the sources of that future wealth management opportunity. Our advisory and brokerage assets were already at 16,800,000,000 which is up 10% year over year. And if you look at the fee income in the auto plan and the advisory and brokerage assets, that's already a big earnings base of $104,000,000,000 It's up 3% year over year. And the reality is that of the 1,900,000 customers in this business, 1,600,000 of them are still in plan only. So we have a tremendous future opportunity for that wealth management piece as the in plan customers continue to work and as they reach their age of retirement, as we engage in household asset consolidation and have a chance to continue to serve them through the rest of their lives.

Speaker 5

We've started growing the adviser base again, supporting both the InPlan business as well as that wealth management business. And we anticipate continuing to grow the advisor force. In terms of whether inorganic makes sense to accelerate the growth in that business, that's something that we would consider at the time consistent with the rest of our strategy. But we see significant opportunities in the business, which is strategically very well positioned irrespective.

Speaker 3

Hey. And Wes, just to want to get back to your question to me, I was answering you in the context of kind of independent of the VA reinsurance transaction. As we've said before, with respect to the VA reinsurance transaction, we'd expect the substantial majority of the proceeds will be used for capital management, and we'll go through our normal process for dividends with the regulators and the insurance companies. And we'd expect the earliest that this would start being deployed will be in the fourth quarter.

Speaker 4

Thanks a lot.

Operator

Our next question comes from Ryan Krueger at KBW. Please go ahead.

Speaker 6

Thanks. Good morning. First question was on individual retirement sales. Can you talk a little bit more about what drove the strength this quarter? Was there anything particular about the environment that caused this?

Speaker 6

And I guess to what extent do you think this higher level of sales can be sustained going forward?

Speaker 5

Yes. Thanks, Ryan. First of all, what I'd say is demand for the annuities remains robust across the board and the conditions continue to be very attractive, where the belly of the yield curve is remains very supportive. And of course, the long term macro drivers are very powerful, whether that's the aging of the population, the recognition that people have to look after themselves and a very supportive adviser community. And we're very pleased with the conditions in the second quarter.

Speaker 5

We've determined the rationality of the competition based on our ability to achieve our margins on new business sales, and the second quarter conditions were attractive. Let's take a step back and kind of unpack it a little. We were very pleased with our index suite as well as our new RILE product, which has performed very well. And we continue to be disciplined in fixed annuities, which is really the most immediately sensitive of the businesses. And really in the second quarter, we did almost $500,000,000 worth of our new RILEP product.

Speaker 5

And then on top of that, we also had kind of a high watermark in index sales. So we haven't seen any signs of cannibalization. And that's a very positive trend. We've seen incremental sales growth in both RILE and index pretty consistently through the first and the second quarter. And we don't know if these favorable conditions of the second quarter will continue.

Speaker 5

Historically, the tax planning season does prompt a little extra attention in the second quarter, but the opportunities are there. The demand is there. And we have a broad capital management toolkit, including our new Bermuda strategy. And we continue to focus on allocating the capital where the risk adjusted returns are the highest and the customer demands are the greatest. And in the second quarter, we saw those opportunities in Individual Retirement and we continue to see a very robust position for that business.

Speaker 5

We were able to grow the spread income sequentially for Individual Retirement and had very attractive net flows into the general account that will further contribute to the future earnings base of this business. So we feel very well positioned in Individual Retirement. The conditions continue to be attractive. We expect to continue to grow the spread income from that business over time.

Speaker 6

Thank you. And then had question on spread income. I think base spread income was up about 5,000,000 to $10,000,000 sequentially this quarter if we normalize for the onetime item in the first quarter. Do you think that's a reasonable expectation now going forward in terms of the progression and trajectory of spreading base spread income in the individual retirement business, assuming no further rate cuts from the Fed?

Speaker 5

As we pointed out, there's a bleed in period of the resets when the Fed rate cuts occur over a couple of quarters. We're largely through that, but it did have some impact on the second quarter. Looking ahead, we continue to let the base spread income will continue to grow. Over time, as I pointed out, new business pricing is at our sort of medium term return expectations. As you saw, where our new money is coming in, it's 50 bps over the roll off.

Speaker 5

And there might be some variability quarter to quarter, but the fundamental trend is that the general account reserves will continue to grow and that will drive growth in the base spread income.

Speaker 6

Thank you.

Operator

Our next question comes from John Barnidge at Piper Sandler. Please go ahead.

Speaker 4

Good morning. Thanks for the opportunity. With the Venerable transaction being the biggest corporate event since the IPO and stock price reaction, how does that make you think about additional liability optionality?

Speaker 5

Well, look, we're always looking for the opportunity to create shareholder value, increase shareholder value and to optimize the portfolio. We focused on the variable annuity transaction significantly, but continue to evaluate other potential transactions. Any transaction needs to be accretive on a risk adjusted basis to make sense for us, which means from both the pricing and a structure perspective. And so we continue to evaluate options. And to the extent that there's anything to announce, we'll bring it forward.

Speaker 4

Thanks for that answer and my follow-up. Can you maybe talk a little bit about the institutional markets volume good earnings emergence, but I know it can be somewhat episodic and PRT volumes low. Some have cited litigation, others have cited more competitive dynamics. Thank you.

Speaker 5

Yes. Thanks, John. First of all, what I'd say is we're pleased to emerge as a more regular issuer. We've had five quarters in a row over $1,000,000,000 in issuance. And this is consistent with what we talked about, about the time of the IPO becoming a more regular GIC issuer.

Speaker 5

We're doing it our way incrementally and with discipline. And then in terms of pension risk transfer, look, the pipelines remain very strong in both The U. S. And The UK. For years, we focused on full plan terminations.

Speaker 5

They're a little bit more complex. They take a little longer to develop. And so they are maybe a little bit more episodic. But the pipelines continue to be strong. As Elias' prepared remarks pointed out, plans are fully funded and companies are prepared to transact.

Speaker 5

When there's external volatility, there is some impact on that, but we're confident in the position in the pipeline over time for both our U. S. And our UK income. And we do expect that the spread income will continue to grow relative to reserves over time. It isn't going to be linear quarter to quarter.

Speaker 5

And we feel very comfortable with both our position in the GIC business as well as what we're seeing in pension risk transfer. We haven't seen any significant impact of some of these external events.

Speaker 3

Thank you.

Operator

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

Speaker 7

Good morning. On the Apollo call this morning, they mentioned that the headwind of the roll off of low cost liability should be behind them by the 2026. And then they're implying spreads would stabilize from that point going forward approximately. Is that directionally similar what the way you think this is going to play out for CorBridge? Or do you have a different timeline for how you see the spread compression playing out?

Speaker 3

Hey, Tom, it's Elias. So listen, we're focused on growing earnings and we expect to grow our spread income over time given the current macro and demographic dynamics in the business. In terms of the base spread in of itself, like if you look at what we've been experiencing, it's been like marginal compression. If you look at second quarter versus first quarter and adjust for the notable item, it was almost flat. So there could be more marginal compression given the dynamics of how much we've widened the spread on the in force relative to where new business is.

Speaker 3

But our focus is on growing earnings. How long this marginal compression will last? There are different variables that will influence timing. But the key thing to us is where we're writing new business, it's meeting our pricing targets and we expect to continue to grow our spread income. And remember, income is just over 50% of our revenue sources.

Speaker 3

And when you think about the other ways we make money, we're kind of always also optimistic about what the future holds for that. For example, fee income, I called it out, we were up 3%. If you exclude the variable annuity portfolio, we see that the venerable on a year on year basis.

Speaker 7

That's helpful, Elias. Thanks. And my follow-up, just on the VA deal, I think the majority of that is cash proceeds not freed up capital. Do you are you now sitting on most of the $2,100,000,000 at the holding company? Or is there is that cash consideration not at the holding company right now?

Speaker 7

And why would you have to wait until 4Q to begin to deploy that into larger buybacks?

Speaker 3

So the distributable proceeds are at the insurance company. It's the insurance companies that transacted directly with Venerable. And so now since we've increased the distributable proceeds from the insurance companies, We need to go through the normal process we do every quarter with our regulators to distribute it. And we'd expect to begin distributing it the first batch by the end of the quarter, so it's available for the fourth quarter. That makes sense.

Speaker 3

Thanks.

Operator

Our next question comes from K. V. Monteseri at Deutsche Bank. Please go ahead.

Speaker 8

Thank you. First question on AI. Is Life Insurance your segment that is most advanced in terms of implementing Gen AI? And if so, what opportunities do you see in individual and group retirement?

Speaker 5

Well, look, I mean, we believe that artificial intelligence represents a significant opportunity for the industry. And we're fortunate that through separation, we've modernized our tools and our platforms, and we have a strong foundation in place to build off of. As you pointed out, we've actually been using advanced practices, in particular in the Life business for a number of years now. And our automated underwriting capability in Life is actually transacting around 80% of our new decisions and those are effectively instantaneous decisions. We feel very good about our capability there.

Speaker 5

But we see ongoing opportunities with respect to tools such as artificial intelligence and other advanced practices, including continuing to improve our operating leverage and our efficiency, enhancing the customer and the distribution partner experience, accelerating our software development life cycle. And we've worked hard to ensure that we have a sound governance process in place to ensure that we're understanding and managing the risks of the investments that we're making there. But we see significant opportunities for the technology enhancements to benefit the business in various areas. Now back to the life insurance portfolio, I think that our decision a number of years ago to narrow our product range and to move away from more of the interest sensitive products has benefited us very well. And in addition to the automated underwriting, we've invested substantially in our digital platform for certain of the traditional products, which has served us very well.

Speaker 5

So we feel very well positioned both in the Life business as well as in our use of technology. And we expect to continue to benefit from that for years to come.

Speaker 8

Thank you. And my follow-up is going to be linked to this in terms of your next phase of modernization. How far along do you think you are right now with regards to your digitizing end to end processes in your insurance operations?

Speaker 5

Well, as I pointed out, through the separation process, we've made significant progress. We've moved all of our administrative systems, our administrative platforms to one version of the cloud or another. And that gives us a great platform to build off of. And we're working with some very capable partners in the journey of digitizing our various workflows. It depends business by business.

Speaker 5

In Life Insurance, we have virtually a digital business now. Some of our other businesses are earlier in the journey. But we're confident in our ability to continue to improve our operating leverage over time.

Speaker 8

Thank you.

Operator

Our next question is from Alex Scott at Barclays. Please go ahead.

Speaker 9

Hi. First, what I have for you is on the rollout of the Ryla product. Was interested if you could just give us an update on sort of where that stands. Obviously, there's been a lot of success in the sales. I was just more wondering where you're at in terms of getting the shelf space you want and roll out to different states, etcetera.

Speaker 5

Yes. Thanks, Alex. Appreciate it. Look, really feel Ryall is off to a great start. In Individual Retirement in the second quarter, we had just shy of $500,000,000 in sales.

Speaker 5

And then if you add Group Retirement on top of that, we've got on top of $600,000,000 That brings us to over $1,000,000,000 since the launch of the product. And we're definitely seeing strong market dynamics and significant demand for Ryla as well as all the individual retirement products. We've launched with over 200 distribution partners so far, and we're in all but one of the states. And we're seeing two dynamics, right? A lot of the sales are coming from our existing distribution sources, distribution partners.

Speaker 5

One of the going back to one of the reasons we introduced Arrayla is most of our major distribution partners were asking for us to introduce our offering and to bring our historical creativity to it. And we work closely with our partners in developing the product. And so far it's resonated really well. So we're expanding our share of wallet with existing distribution partners. But if you look at the second quarter sales, more than 25% of them are from advisers and distribution sources that are new to Corbridge.

Speaker 5

So not only is it enhancing our position with existing distribution, but we're attracting new sources of distribution with it. And then on top of the great success with Rilla, as I think I mentioned a little while ago, we also had the strongest index annuity quarter that we've seen. So we're not seeing any kind of cannibalization effect. We're seeing a multiplier effect. And frankly, we expect that to continue.

Speaker 9

That's helpful. Second question I had is maybe just a broad one on new money yields, how they compare to the roll off yield or portfolio yield? And further, where are you finding good investment opportunities to fund the liabilities? Are there any shifts or allocations that you're leaning more into? I'm just trying to understand, on one hand, it's a high rate environment.

Speaker 9

On the other hand, spreads are quite tight. I just want to better understand the way that you guys are approaching the environment. Alex,

Speaker 3

it's Elias. Right now, new money versus roll off, it's a 50 basis point differentials, what we saw in the second quarter. We have not changed our investment strategy or philosophy on that front. But we did given supply in the market, we ended up with a higher allocation to public credit in the second quarter than like some of the structured credit or some of the other stuff. But we kind of view that as episodic and overall no change in our investment strategy.

Speaker 3

And remember, the other thing I would add is, listen, our investment strategy is liability driven. So it will evolve with what changes on the liability side of the house with where new business is coming from.

Speaker 9

Got it. Okay. Thanks.

Operator

Our next question is from Suneet Kamath at Jefferies. Please go ahead.

Speaker 10

Great. Thanks. Just going back to the VA transaction, it sounds like maybe there was a bit of a change in terms of the accretion guidance. I believe on the VA call, you talked about accretion in the second half of next year and now sounds like it's when the buybacks are complete. So I just wanted to make sure that I got that right.

Speaker 10

And then relatedly, over what time period would you expect to complete the needed buybacks to get to accretion?

Speaker 3

Sanneet, it's Elias. There's been no change from our end. So we expect the transaction to be EPS accretive once we fully deploy the capital that we intend to. And we expect to get there by the 2026. And that's kind of factors in we're thinking that deploying the proceeds that are going to go towards capital management over kind of a similar period.

Speaker 3

We're mindful of market conditions as well and kind of as well as about how much can we really deploy in a quarter, taking that into consideration.

Speaker 10

Okay. And then I guess for Kevin on the annuity sales, obviously, we're seeing the industry at record levels. You guys are at record levels. But what is can you just talk to what is unique about your distribution? Because as I think about competitive advantages, products can be copy pretty easily, but distribution tends to have some staying power.

Speaker 10

So can you just talk about where you're different versus the industry?

Speaker 5

Well, we're very focused on having a broad product product suite and having both an income oriented solution and accumulation oriented solution with each of our products. And we work with our key distribution partners to truly understand their strategies, not just for the short term, but for the longer term so that we can mobilize products or services to be able to support their strategies for their advisers as they evolve. And as a result, depending upon what each of their strategies are, we can support them. So we're not married to any particular product at any particular time. And we maintain sort of optionality in terms of how to be able to serve their advisers.

Speaker 5

And the largest distribution partners, obviously, their strategies are evolving and we're able to evolve with them over time. And I think that, that ultimately is one of the things that gives us an advantage. The other is, is that we work a lot to customize our products. And if you look at sort of the prior year's worth of sales, around 30% of our products have a proprietary feature that is unique to one of our major distribution partners. And so we have a broad product capability that we're able to support with respect to those various options.

Speaker 5

And then of course, we spend a lot of time building the relationships at the wholesaler and advisor level. And ultimately, those relationships are what we continue to build on and expand. So it's very strategic. It's very long term in orientation. It allows us to not necessarily have to position ourselves one way or another, but we can evolve with the market cycles and maintain a strong position with our partners.

Speaker 5

We've never focused on market share as a strategy. I think market share is a good way of determining how well we're serving our distribution partners and their customers. And we remain disciplined in pricing and they understand that part of our strategy as well.

Speaker 10

Got it. Okay. Thanks.

Operator

Our next question is from Elyse Greenspan at Wells Fargo. Please go ahead.

Speaker 11

Hi, thanks. My first question is just on life insurance. I was hoping you could just provide a little bit more color on the favorable mortality that you guys saw in the quarter. And then is there any change in your go forward quarterly guide for the business?

Speaker 3

Elyse, it's Elias. In terms of mortality in the quarter, we found favorable severity sorry, favorable frequency across the portfolio and favorable severity on our traditional life block. And from a go forward, we continue to stick with our $110,000,000 to $120,000,000 per quarter as a run rate other than the first quarter where we expect higher mortality given the winter season. But the mortality this quarter was really driven by favorable frequency and severity in the traditional book.

Speaker 11

Thanks. And then my second question was just if you could just talk to the surrender wall you guys had guided to previously and how you guys expect that to play out?

Speaker 5

Yes. Thanks, Elyse. As we said last quarter, we do expect higher levels of fixed annuity and index annuity volumes to be exiting surrender charge periods in the second half of this year. This is really kind of natural given the historical growth in the whole portfolio. And it's not going to necessarily be consistent quarter to quarter because it does reflect when earlier large volumes of product were sold.

Speaker 5

As we've discussed before, in terms of surrender rates, we believe that those will reflect where the external conditions are, where yields and credit spreads are at any point in time. And the quotient of those two things, the rates and the volumes is going to determine the level of surrenders. We're prepared for surrenders as part of managing this business. And as we've seen historically, when at times when the conditions suggest surrender rates are higher, new business is also higher. And since we're focusing on long term growth of the general account, ultimately that's what we're focused on.

Speaker 5

So we expect that irrespective of the fact that we have higher volumes exiting the surrender charge periods. It's a natural dynamic of the business and we expect that the general account and spread income will continue to grow over time.

Speaker 11

Thank you.

Operator

The next question is from Michael Ward at UBS. Please go ahead.

Speaker 12

Thanks. Good morning. I just had one on individual retirement. Appreciate the color on yield side, but I was just curious about the editing rate, the cost of funds component. Should we think about that pickup sort of persisting and just in the context of sales opportunities and maybe even suggestive of you guys just being squarely focused on spread products now?

Speaker 5

Well, first, I'll address the last comment. We're not squarely focused only on spread products. Spread products are an important part of the opportunity right now. And actually, I feel really good about our performance over the last couple of years when the interest rate cycle has been extremely supportive of the spread business. But you go back a few years before that, we were successful with our spread businesses even in a lower rate environment.

Speaker 5

And that's really a reflection of pricing discipline and also the relationships in the distribution area that allow us to participate through various market cycles. In terms of the dynamic you're talking about in the portfolio with the creep in the cost of funds, that's more of a reflection of the fact that over the last couple of years, we've widened spreads on the in force and the in force cost of funds are lower current money cost of funds because of the years over which those were acquired. And so as the new business becomes larger part of the overall in force portfolio And with some of the outflows coming in those lower cost of funds, that's where you see the marginal creep in the cost of funds. That's the difference there. The new business margins and the cost of funds on new business reflect where the current conditions are and we continue to find spreads very attractive.

Speaker 12

Okay. Thank you. And then just post VA deal close and deployment of the proceeds, I was just wondering if you could help us think about the sources of free cash flow and in terms of which businesses you expect to drive the majority, if you could quantify it at all, it would be helpful.

Speaker 3

Hey, it's Elias on this one, Mike. Mike, we've got four businesses and the four businesses kind of contributes to the cash generation from our insurance companies. They're all profitable in their own ways from that perspective. And so the VA business was one product of many that we offer. And kind of going forward, we continue to be comfortable with the cash generation in the insurance companies and our ability to increase debt over time as we are confident in our ability to deliver on the 60% to 65% payout ratio and growing our EPS by 10% to 15% per year on average.

Speaker 5

Yes, Mike. And I'd also just kind of remind you that variable annuity business has been in net outflows for eight years. And to the extent that it had a financial contribution, we would have expected that financial contribution to decline over time. So actually, after the transaction, we're positioned more attractively for long term growth.

Speaker 12

Thank you.

Operator

Our next question is from Joel Howitz at Dowling and Partners. Please go ahead.

Speaker 13

Hey, good morning. One on expenses, they look very well managed in quarter. Anything unusual or timing related that you would call it? Or is that largely the core Bridge Forward benefits? And then I guess with that mostly earned through, can you elaborate on further opportunities to manage your expense base?

Speaker 3

Hey, Joel, we're doing a good job on managing our expenses. I think that's what's playing through our numbers. But on a serious note, no, listen, we've been very focused on improving our operating leverage. Core Bridge Forward was version one point zero. We've largely gotten that done and that's earned in.

Speaker 3

We are on version two point zero right now. While we don't have a formal program like Core Bridge Forward, we're pursuing a number of initiatives that will improve our operating leverage. And you're seeing some of the benefits of that come through. We did have an early retirement program earlier in the year where some of the savings we expect to drop to the bottom line and are dropping to the bottom line. And some we will use to invest in additional capabilities for the future.

Speaker 3

But we're pursuing digitization and modernization efforts in finance and actuarial, all of it, which should contribute to improving our operating leverage as well as making our processes more efficient and improve customer service along the way.

Speaker 13

Okay. Okay, helpful. And I didn't say you guys weren't doing a good job there. So just my follow-up on group retirement. Any way you could size the two large plan outflows that you had mentioned in your prepared remarks and any corresponding earnings impact from those outflows?

Speaker 3

Joe, it's Elias again. Happy to. It's roughly about $1,000,000,000 in outflows from the plans and the impact to earnings on a run rate basis less than $5,000,000 a year.

Speaker 13

Awesome. Thank you.

Operator

Our next question is from Wilma Burdis at Raymond James. Please go ahead.

Speaker 14

Hey, good morning. How do you think about the economic trade off or possibly expansion for fees for selling variable annuities versus bringing in spread based earnings on Rilus? Thanks.

Speaker 5

Well, we're trying to grow all of our sources of income. And as I pointed out, our strategy is to deploy the capital where the risk adjusted returns are the most attractive and the customer needs are the greatest at any given point in time. And with respect to the variable annuity product, that is a product that has not been among the more popular for a number of years, as I just reminded everyone, has been in net outflows for eight years. And so we consider each of our sources of income equally valuable, and we're looking for the opportunities to grow each of them according to where the opportunities are the greatest.

Speaker 3

Yes. And Wilma, I'll add to that. The financial contribution from that VA product in Individual Retirement has been declining. So if you look at our reported fee income, it's down 1% year over year. But if you exclude the block that we ceded to Venerable, our fee income is actually growing.

Speaker 3

It's up 3%. So when we look at this transaction, in addition to what Kevin said, we're monetizing a book of business that's undervalued and has a decreasing financial contribution and it unlocks significant value for shareholders and it allows us to focus on the books of business where we see the growth opportunities. So that's kind of the math we've done from our perspective internally. And we got to sell the stream of earnings at a very attractive level to Venerable.

Speaker 14

Okay. Thank you. And then could you give us a little bit more color on all the performance was good in 2Q. We think that that was possibly driven by year end valuations coming in favorably. So should this persist in the second half of the year?

Speaker 14

Maybe you can give us a little bit more color. Thanks.

Speaker 3

No, I'm happy. And listen, when we gave the guidance on the last earnings call, it was based on the information we knew at that time. And they did come in much better. Two drivers behind what drove the better performance. One is, you know, the funds get their financial statement audits done as a on a calendar year basis and we get them in the second quarter.

Speaker 3

So we had a more favorable true up this year than prior years. And separately, we do have investments in foreign funds. And so with the weakening of the U. S. Dollar, it contributed to a favorable result on a reported basis.

Speaker 3

Now that being said, when we look at the second half of the year and we continue to believe these are great assets to invest in and they should deliver about an eight percent to 9% over the long term, we expect the second half of the year to be below the 8% to 9% for two reasons. We expect continued weakness on valuations around real estate equity in the second half of the year. And then the uncertainty we saw in the second quarter and it's somewhat continuing has slowed deal activity. So given the combination of those two drivers today, our outlook for the second half is while it might be positive, it will be below the 8% to 9%.

Speaker 11

Thank you.

Operator

Thank you. This concludes the Q and A session. And I will now turn the call back to Kevin for closing remarks.

Speaker 2

Yes, thanks. Today, I am going to end with

Speaker 5

a few closing remarks. As a result of our transformative transaction, the 2025 is the most impactful of the 12 we've had since our IPO. Going forward, CorBridge has a fundamentally different financial profile. We're a simpler company with an improved risk profile and more opportunity for organic growth and attractive businesses. I want to thank the team that worked on the transaction, and I want to thank every CoreBridge employee for executing with excellence on our strategic pillars.

Speaker 5

The value you are creating for our customers and shareholders alike is compelling. Thanks again to everyone who joined us for the call. Have a great day.

Operator

Thank you. This concludes today's conference call, and you may now disconnect.

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