COREBRIDGE FINANCIAL, INC. – 10-K – | Management's Discussion and Analysis of Financial Condition and Results of Operations
Glossary and Acronyms of Selected Insurance Terms and References
Throughout this Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A"), we use certain terms and abbreviations, which
are summarized in the Glossary and Acronyms.
Corebridge has incorporated into this discussion a number of cross-references to
additional information included throughout this Annual Report on Form 10-K to
assist readers seeking additional information related to a particular subject.
In this Annual Report on Form 10-K, unless otherwise mentioned or unless the
context indicates otherwise, we use the terms "Corebridge," "we," "us" and "our"
to refer to Corebridge Financial, Inc. , a Delaware corporation, and its
consolidated subsidiaries. We use the term "Corebridge Parent" to refer solely
to Corebridge Financial, Inc. , and not to any of its consolidated subsidiaries.
This MD&A addresses the consolidated financial condition of Corebridge as of
December 31, 2022 , compared with December 31, 2021 , and its consolidated results
of operations for the years ended December 31, 2022 , 2021 and 2020. In addition
to historical data, this discussion contains forward-looking statements about
our business operations and financial performance based on current expectations
that involve risks, uncertainties and assumptions. Actual results may differ
materially from those discussed in the forward-looking statements as a result of
various factors. You should read the following analysis of our consolidated
financial condition and results of operations in conjunction with the "Risk
Factors," the audited annual consolidated financial statements and the
statements under "Forward-Looking Statements," included elsewhere in this Annual
Report on Form 10-K.
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TABLE OF CONTENTS
Index to Item 7
Page
Executive Summary 106
Overview 106
Revenues 106
Benefits and Expenses 106
Significant Factors Impacting our Results 107
Corebridge's Outlook - Macroeconomic, Industry and Regulatory Trends
114 Use of Non-GAAP Measures 117 Key Operating Metrics 125 Consolidated Results of Operations 128 Business Segment Operations 131 Individual Retirement 132 Group Retirement 136 Life Insurance 140 Institutional Markets 143 Corporate and Other 145 Investments 147 Overview 147 Key Investment Strategies 147 Credit Ratings 150
Future Policy Benefits, Policyholder Contract Deposits, DAC and VOBA
166 Liquidity and Capital Resources 172 Overview 172
Liquidity and Capital Resources of Corebridge Parent and Intermediate Holding
Companies
172
Liquidity and Capital Resources of Corebridge insurance subsidiaries
173
Contractual Obligations 176
Short-Term and Long-Term Debt 177
Credit Ratings 179
Off-Balance Sheet Arrangements and Commercial Commitments 179
Accounting Policies and Pronouncements 180
Critical Accounting Estimates 180
Adoption of Accounting Pronouncements 187
Glossary 188
Certain Important Terms 190
Acronyms 192
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TABLE OF CONTENTS
ITEM 7 | Executive Summary
Executive Summary
OVERVIEW
We are one of the largest providers of retirement solutions and insurance
products in the United States , committed to helping individuals plan, save for
and achieve secure financial futures. We offer a broad set of products and
services through our market leading Individual Retirement, Group Retirement,
Life Insurance and Institutional Markets businesses, each of which features
capabilities and industry experience we believe are difficult to replicate.
These four businesses collectively seek to enhance stockholder returns while
maintaining our attractive risk profile, which has historically resulted in
consistent and strong cash flow generation.
REVENUES
Our revenues come from five principal sources:
•Premiums are principally derived from our traditional life insurance and
certain annuity products including PRT transactions and structured settlements
with life contingencies. Our premium income is driven by growth in new policies
and contracts written and persistency of our in-force policies, both of which
are influenced by a combination of factors including our efforts to attract and
retain customers and market conditions that influence demand for our products;
•Policy fees are principally derived from our individual retirement, group
retirement, universal life insurance, COLI-BOLI and stable value wrap ("SVW")
products. Our policy fees typically vary directly with the underlying account
value or benefit base of our annuities. Account value and benefit base are
influenced by changes in economic conditions, including changes in levels of
equity prices, and changes in levels of interest rates and credit spreads, as
well as net flows;
•Net investment income from our investment portfolio varies as a result of the
yield, allocation and size of our investment portfolio, which are, in turn, a
function of capital market conditions and net flows into our total investments,
as well as the expenses associated with managing our investment portfolio;
•Net realized gains (losses), include changes in the Fortitude Re funds withheld
embedded derivative, risk management related derivative activities, changes in
the fair value of embedded derivatives in certain of our insurance products and
trading activity within our investment portfolio, including trading activity
related to the Fortitude Re modco arrangement. Net realized gains (losses) vary
due to the timing of sales of investments as well as changes in the fair value
of embedded derivatives in certain of our insurance products and derivatives
utilized to hedge certain insurance liabilities; and
•Advisory fee income and other income includes fees from registered investment
advisory services, 12b-1 fees (marketing and distribution fees paid by mutual
funds), other asset management fee income, and commission-based broker dealer
services.
BENEFITS AND EXPENSES
Our benefits and expenses come from five principal sources:
•Policyholder benefits are driven primarily by customer withdrawals and
surrenders which change in response to changes in capital market conditions and
changes in policy reserves as well as updates to assumptions related to future
policyholder behavior, mortality and longevity;
•Interest credited to policyholder account balances varies in relation to the
amount of the underlying account value or benefit base and also includes changes
in the fair value of certain embedded derivatives related to our insurance
products;
•Amortization of DAC and value of business acquired DAC and value of business
acquired ("VOBA") for traditional life insurance products are amortized, with
interest, over the premium paying period. DAC and VOBA related to
investment-oriented contracts, such as universal life insurance, and fixed,
fixed index and variable annuities, are amortized, with interest, in relation to
the estimated gross profits to be realized over the estimated lives of the
contracts;
•General operating and other expenses include expenses associated with
conducting our business, including salaries, other employee-related compensation
and other operating expenses such as professional services or travel; and
•Interest expense represents the charges associated with our external debt
obligations, including debt of consolidated investment entities. This expense
varies based on the amount of debt on our balance sheet, as well as the rates of
interest associated with those obligations. Interest expense related to
consolidated investment entities principally relates to variable interest
entities ("VIEs") for which we are the primary beneficiary; however, creditors
or beneficial interest holders of VIEs generally only have recourse to the
assets and cash flows of the VIEs and do not have recourse to us except in
limited circumstances when we have provided a guarantee to the VIE's interest
holders.
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SIGNIFICANT FACTORS IMPACTING OUR RESULTS
The following significant factors have impacted, and may in the future impact,
our business, results of operations, financial condition and liquidity.
Impact of Fortitude Re
In 2018, AIG established Fortitude Re, a wholly owned subsidiary ofFortitude Group Holdings, LLC ("Fortitude Holdings "), in a series of reinsurance transactions related to certain of AIG's legacy operations. InFebruary 2018 , AGL, VALIC and USL entered into modco agreements with Fortitude Re, a registered Class 4 and Class E reinsurer inBermuda . Additionally, AIG Bermuda novated its assumption of certain long-duration contracts from an affiliated entity to Fortitude Re. In the modco arrangement, the investments supporting the reinsurance agreements, which reflect the majority of the consideration that would be paid to the reinsurer for entering into the transaction, are withheld by, and therefore continue to reside on the balance sheet of, the ceding company (i.e., AGL, VALIC and USL) thereby creating an obligation for the ceding company to pay the reinsurer (i.e., Fortitude Re) at a later date. Additionally, since we maintain ownership of these investments, we reflect our existing accounting for these assets, which consist mostly of available-for-sale securities (e.g., the changes in fair value of available-for-sale securities will be recognized within OCI) on our balance sheet. We have established a funds withheld payable to Fortitude Re while simultaneously establishing a reinsurance asset representing reserves for the insurance coverage that Fortitude Re has assumed. The funds withheld payable contains an embedded derivative and changes in fair value of this derivative are recognized in Net realized gains (losses) on Fortitude Re funds withheld embedded derivative. This embedded derivative is considered a total return swap with contractual returns that are attributable to various assets, primarily available-for-sale securities, associated with these reinsurance agreements. As the majority of the invested assets supporting the modco are fixed income securities that are available-for-sale, there is a mismatch between the accounting for the embedded derivative as its changes in fair value are recorded through net income while changes in the fair value of the fixed maturity securities available for sale are recorded through OCI. OnJuly 1, 2020 , AGL and USL amended the modco agreements. Under the terms of the amendment, certain business ceded to Fortitude Re was recaptured by the Company, and certain additional business was ceded by the Company to Fortitude Re. We recorded an additional non-recurring$91 million loss related entirely to the amendments to the modco agreements.
We do not expect to incur any future loss recognition events related to business
ceded to Fortitude Re, absent any decisions by the Company to recapture the
business. Our accounting policy is to include reinsurance balances when
performing loss recognition testing, and as there will be no future profits
recognized on this business there will be no future loss recognition.
OnJune 2, 2020 , AIG completed the Majority Interest Fortitude Sale. Following closing of the Majority Interest Fortitude Sale, AIG contributed$135 million of its proceeds from the Majority Interest Fortitude Sale to USL. OnOctober 1, 2021 , AIG contributed its remaining 3.5% interest in Fortitude Re Bermuda to us and we are entitled to a seat on the board of Fortitude Re Bermuda. AtMarch 31, 2022 , our ownership interest in Fortitude Re Bermuda was reduced from 3.5% to 2.46% due to a round of equity financing, by third-party investors, in which we did not participate, that closed onMarch 31, 2022 . As ofDecember 31, 2022 ,$32.2 billion of reserves related to business written by multiple wholly owned AIG subsidiaries, including$27.8 billion of reserves related to Corebridge, had been ceded to Fortitude Re. As of closing of the Majority Interest Fortitude Sale onJune 2, 2020 , these reinsurance transactions were no longer considered affiliated transactions. In addition to the loss incurred from the amendments of the Fortitude Re reinsurance agreements, our net income experiences ongoing volatility as a result of the reinsurance agreements, which, as described above, give rise to a funds withheld payable that contains an embedded derivative. However, this net income volatility is almost entirely offset with a corresponding change in OCI, which reflects the fair value change from the investment portfolio supporting the funds withheld payable, which is primarily available- for-sale securities, resulting in minimal impact to our comprehensive income (loss) and equity attributable to Corebridge. Beginning in the fourth quarter of 2021, the Company has begun to elect the fair value option on the acquisition of certain new fixed maturity securities, which will help reduce this mismatch over time. Corebridge | 2022 Form 10-K 107
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Fortitude Re funds withheld impact:
Years Ended December 31,
(in millions) 2022 2021 2020
Net investment income - Fortitude Re funds withheld
assets
$ 891 $ 1,775 $ 1,427 Net realized gains (losses) on Fortitude Re funds withheld assets: Net realized gains (losses)on Fortitude Re funds withheld assets (397) 924 1,002 Net realized gains (losses) on Fortitude Re funds withheld embedded derivatives 6,347 (687) (3,978) Net realized gains (losses) on Fortitude Re funds withheld assets 5,950 237 (2,976) Income (loss) before income tax benefit (expense) 6,841 2,012 (1,549) Income tax benefit (expense)* (1,437) (423) 325 Net income (loss) 5,404 1,589 (1,224)
Change in unrealized appreciation (depreciation) of the
invested assets supporting the Fortitude Re modco
arrangement classified as available for sale*
(5,064) (1,488) 1,165 Comprehensive income (loss)$ 340 $ 101 $ (59)
* The income tax expense (benefit) and the tax impact on OCI were computed
using Corebridge Parent's
Various assets supporting the Fortitude Re funds withheld arrangements are reported at amortized cost, and as such, changes in the fair value of these assets are not reflected in the financial statements. However, changes in the fair value of these assets are included in the embedded derivative in the Fortitude Re funds withheld arrangement and the appreciation (depreciation) of the assets is the primary driver of the comprehensive income (loss) reflected above.
For further details on this transaction, see Note 7 to our audited annual
consolidated financial statements.
Impact of Variable Annuity GMWB Riders and Hedging
Our Individual Retirement and Group Retirement businesses offer variable annuity products with GMWB riders that provide guaranteed living benefit features. The liabilities for GMWBs are accounted for as embedded derivatives and measured at fair value. The fair value of the embedded derivatives may fluctuate significantly based on market interest rates, equity prices, credit spreads, market volatility, policyholder behavior and other factors. In addition to risk-mitigating features in our variable annuity product design, we have an economic hedging program designed to manage market risk from GMWB, including exposures to changes in interest rates, equity prices, credit spreads and volatility. The hedging program utilizes derivative instruments, including, but not limited to, equity options, futures contracts and interest rate swap and option contracts, as well as fixed maturity securities.
Differences in Valuation of Embedded Derivatives and Economic Hedge Target
Our variable annuity hedging program utilizes an economic hedge target, which represents an estimate of the underlying economic risks in our GMWB riders. The economic hedge target differs from the GAAP valuation of the GMWB embedded derivatives, creating volatility in our net income (loss) primarily due to the following:
•the economic hedge target includes 100% of rider fees in present value
calculations; the GAAP valuation reflects only those fees attributed to the
embedded derivative such that the initial value at contract issue equals zero;
•the economic hedge target uses best estimate actuarial assumptions and excludes explicit risk margins used for GAAP valuation, such as margins for policyholder behavior, mortality and volatility; and •the economic hedge target excludes the non-performance, or "own credit" risk adjustment used in the GAAP valuation, which reflects a market participant's view of our claims-paying ability by incorporating a different spread (the "NPA spread") to the curve used to discount projected benefit cash flows. Because the GAAP valuation includes the NPA spread and other explicit risk margins, it has different sensitivities to movements in interest rates and other market factors, and to changes from actuarial assumption updates, than the economic hedge target.
For more information on our valuation methodology for embedded derivatives
within policyholder contract deposits, see Note 4 to our audited annual
consolidated financial statements.
The market value of the hedge portfolio compared to the economic hedge target at any point in time may be different and is not expected to be fully offsetting. In addition to the derivatives held in conjunction with the variable annuity hedging program, we generally have cash and invested assets available to cover future claims payable under these guarantees. The primary sources of difference between the change in the fair value of the hedging portfolio and the economic hedge target include:
•basis risk due to the variance between expected and actual fund returns, which
may be either positive or negative;
•realized volatility versus implied volatility;
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•actual versus expected changes in the hedge target driven by assumptions not
subject to hedging, particularly policyholder behavior; and
•risk exposures that we have elected not to explicitly or fully hedge.
The following table presents the net increase (decrease) to consolidated pre-tax
income (loss) from changes in the fair value of the GMWB embedded derivatives
and related hedges, excluding related DAC amortization:
Years Ended December 31,
(in millions) 2022 2021 2020
Change in fair value of embedded derivatives,
excluding the update of actuarial assumptions and
NPA(a) $ 2,671 $ 2,422 $ (1,152)
Change in fair value of variable annuity hedging
portfolio:
Fixed maturity securities(b) 30 56 44
Interest rate derivative contracts (2,188) (600) 1,342
Equity derivative contracts 805 (1,217) (679)
Change in fair value of variable annuity hedging
portfolio (1,353) (1,761) 707
Change in fair value of embedded derivatives excluding
the update of actuarial assumptions and NPA, net of
hedging portfolio
1,318 661 (445)
Change in fair value of embedded derivatives due to
NPA spread
915 (68) 50
Change in fair value of embedded derivatives due to
change in NPA volume
(1,061) (383) 404
Change in fair value of embedded derivatives due to
the update of actuarial assumptions
79 (60) 194 Total change due to the update of actuarial assumptions and NPA (67) (511) 648 Net impact on pre-tax income 1,251 150 203 Impact to Consolidated Income Statement line Net investment income, net of related interest credited to policyholder account balances 30 56 44 Net realized gains 1,221 94 159 Net impact on pre-tax income 1,251 150 203 Net change in value of economic hedge target and related hedges Net impact on economic gains$ 714 $ 109 $ 295
(a)The non-performance risk adjustment ("NPA") adjusts the valuation of
derivatives to account for our own non-performance risk in the fair value
measurement of
all derivative net liability positions.
(b)The impact to OCI were gains (losses) of$(527) million and$(122) million , and a gain of$217 million for the years endedDecember 31, 2022 , 2021 and 2020, respectively. The losses in the year endedDecember 31, 2022 were due to higher interest rates and widening spreads. The losses in the year endedDecember 31, 2021 were due to higher interest rates, partially offset by gains due to tightening spreads. The gain in 2020 reflected the impact of decreases in interest rates and tightening credit spreads.
Year Ended
Net impact on pre-tax income of
•$1.3 billion gain in the fair value of embedded derivatives excluding NPA, net of the hedging portfolio was driven by increases in interest rates, partially offset by lower equity markets; and •$67 million loss due to the update of actuarial assumptions and NPA was driven by the impact of higher interest rates that resulted in NPA volume losses from lower expected GMWB payments, partially offset by a widening of the NPA credit spread. On an economic basis, the changes in the fair value of the hedge portfolio were partially offset by the changes in the economic hedge target. In the year endedDecember 31, 2022 , we had a net mark-to-market gain of approximately$714 million from our hedging activities related to our economic hedge target primarily driven by widening credit spreads and update of actuarial assumptions.
Year Ended
Net impact on pre-tax income of
•$661 million gain in the fair value of embedded derivatives excluding update of
actuarial assumptions and NPA, net of the hedging portfolio was driven by
increases in interest rates and higher equity markets; and
•$511 million loss due to the update of actuarial assumptions and NPA was driven by a tightening of the NPA credit spread, and the impact of higher interest rates and equity that resulted in NPA volume losses from lower expected GMWB payments. On an economic basis, the changes in the fair value of the hedge portfolio were partially offset by the changes in the economic hedge target. In 2021, we had a net mark-to-market gain of approximately$109 million from our hedging activities related to our economic hedge target primarily driven by higher equity markets, partially offset by losses from the review and update of actuarial assumptions. Corebridge | 2022 Form 10-K 109
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Year Ended December 31, 2020
Net impact on pre-tax income of
•$445 million loss in the fair value of embedded derivatives excluding update of actuarial assumptions and NPA, net of the hedging portfolio was driven by lower interest rates, partially offset by higher equity markets; and •$648 million gain due to the update of actuarial assumptions and NPA was driven by a widening of the NPA credit spread, the impact of lower interest rates that resulted in NPA volume gains from higher expected GMWB payments and gains from the review and update of actuarial assumptions. On an economic basis, the changes in the fair value of the hedge portfolio were partially offset by the changes in the economic hedge target. In 2020, we had a net mark-to-market gain of approximately$295 million from our hedging activities related to our economic hedge target primarily driven by gains from higher equity markets and gains from the review and update of actuarial assumptions.
Embedded Derivatives for Variable Annuity, Fixed Index Annuity and Index
Universal Life Products
Certain of our variable annuity contracts contain GMWBs and are accounted for as embedded derivatives. Additionally, certain fixed index annuity contracts contain GMWBs or indexed interest credits which are accounted for as embedded derivatives and our index universal life insurance products also contain embedded derivatives. Policyholders may elect to rebalance among the various accounts within the product at specified renewal dates. At the end of each index term, we generally have the opportunity to re-price the index component by establishing different participation rates or caps on equity index credited rates. The index crediting feature of these products results in the recognition of an embedded derivative that is required to be bifurcated from the host contract and carried at fair value with changes in the fair value of the liabilities recorded in Net realized gains (losses). Option pricing models are used to estimate fair value, taking into account assumptions for future equity index growth rates, volatility of the equity index, future interest rates and our ability to adjust the participation rate and the cap on equity indexed credited rates in light of market conditions and policyholder behavior assumptions.
The following table summarizes the fair values of the embedded derivatives for
variable annuities, fixed index annuity and index universal life products:
December 31 ,
(in millions) 2022
2021
Variable annuities GMWBs$ 677 $ 2,472 Fixed index annuities, including certain GMWBs$ 5,718 $ 6,445 Index Life$ 710 $ 765 Actuarial Assumption Changes Most of the fixed annuities, fixed index annuities, variable annuity products and universal life insurance products we offer maintain policyholder deposits that are reported as liabilities and classified within either separate account liabilities or policyholder contract deposits. Our products and riders also impact liabilities for future policyholder benefits and unearned revenues and assets for DAC and deferred sales inducements ("DSI"). The valuation of these assets and liabilities (other than deposits) is based on differing accounting methods depending on the product, each of which requires numerous assumptions and considerable judgment. The accounting guidance applied in the valuation of these assets and liabilities includes, but is not limited to, the following: (i) traditional life insurance products for which assumptions are locked in at inception; (ii) universal life insurance secondary guarantees for which benefit liabilities are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the accumulation period based on total expected assessments; (iii) certain product guarantees for which benefit liabilities are accrued over the life of the contract in proportion to actual and future expected policy assessments; (iv) certain product guarantees reported as embedded derivatives which are carried at fair value; and (v) unearned revenue and assets for DAC, VOBA and DSI related to investment-oriented contracts, such as universal life insurance, and fixed, fixed index and variable annuities, which are amortized in relation to the estimated gross profits. At least annually, typically in the third quarter, we conduct a comprehensive review of the underlying assumptions within our actuarially determined assets and liabilities. These assumptions include, but are not limited to, policyholder behavior, mortality, expenses, investment returns and policy crediting rates. Changes in assumptions can result in a significant change to the carrying value of product liabilities and assets and, consequently, the impact could be material to earnings in the period of the change. For further details of our accounting policies and related judgments pertaining to assumption updates, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Accounting Policies and Pronouncements-Critical Accounting Estimates-Estimated Gross Profits to Value Deferred Acquisition Costs and Unearned Revenue for Investment-Oriented Products" and "Management's Discussion and Analysis of Financial Condition and Results of Operations-Accounting Policies and Pronouncements-Critical Accounting Estimates-Future Policy Benefits for Life andAccident and Health Insurance Contracts." Corebridge | 2022 Form 10-K 110
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The following table presents the increase (decrease) in pre-tax income resulting
from the annual update of actuarial assumptions, which occurs in the third
quarter of each year, by financial statement line item as reported in the
Consolidated Statements of Income (Loss):
Years Ended December 31,
(in millions) 2022 2021 2020
Premiums $ - $ (41) $ -
Policy fees (3) (74) (106)
Interest credited to policyholder account balances (15) (54) (6)
Amortization of deferred policy acquisition costs (56) (143) 225
Policyholder benefits 17 86 (246)
Increase (decrease) in adjusted pre-tax operating
income (57) (226) (133)
Change in DAC related to net realized gains (losses) (19) 32 (44)
Net realized gains 70 50 142
Increase (decrease) in pre-tax income $
(6)
The following table presents the increase (decrease) in adjusted pre-tax
operating income resulting from the annual update in actuarial assumptions,
which occurs in the third quarter of each year, by segment and product line:
Years Ended December 31,
(in millions) 2022 2021 2020
Individual Retirement:
Fixed annuities $ (83) $ (267) $ (77)
Variable annuities - 7 13
Fixed index annuities (3) (60) (30)
Total Individual Retirement (86) (320) (94)
Group Retirement 2 (5) 68
Life Insurance 24 99 (108)
Institutional Markets 3 - 1
Total increase (decrease) in adjusted pre-tax
operating income from update of assumptions* $
(57)
* Liabilities ceded to Fortitude Re are reported in Corporate and Other. There was no impact to adjusted pre-tax operating income due to the annual update of actuarial assumptions as these liabilities are 100% ceded. As discussed in more detail below, upon adoption of long-duration targeted improvements in 2023, we intend to review and if necessary, update the future policy benefit assumptions at least annually for traditional and limited pay long duration contracts, with the recognition and separate presentation of any resulting re-measurement gain or loss (except for discount rate changes) in the income statement. This is anticipated to lead to additional volatility as these future policy benefits have ''locked-in'' assumptions under current GAAP. However, it is expected that there will be less volatility related to DAC as long duration targeted improvements simplify the amortization of DAC to a constant level basis over the expected term of the related contracts with adjustments for unexpected terminations. The adoption of the targeted improvements to the accounting for long-duration contracts will have no impact on our insurance companies' statutory results.
Targeted Improvements to the Accounting for Long-Duration Contracts
InAugust 2018 , the FASB issued an accounting standard update with the objective of making targeted improvements to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The Company adopted targeted improvements to the accounting for long-duration contracts (the "standard" or "LDTI") onJanuary 1, 2023 , with a transition date ofJanuary 1, 2021 (as described in the additional detail below). The adoption of this standard will impact our financial condition, results of operations, statement of cash flows and disclosures, as well as systems, processes and controls. The Company adopted the standard using the modified retrospective transition method relating to liabilities for traditional and limited payment contracts and deferred policy acquisition costs associated therewith, while the Company adopted the standard in relation to market risk benefits ("MRBs") on a retrospective basis. Based upon this transition method, as of theJanuary 1, 2021 transition date ("Transition Date") the impact from adoption is expected to result in a decrease of the Company's after-tax equity between approximately$1.0 billion and$1.5 billion ; consisting of a decrease in AOCI between approximately$1.8 billion and$2.3 billion , offset by an increase in Retained earnings between approximately$800 million and$1.3 billion . The net increase in Retained Earnings resulted from (1) the reclassification of the cumulative effect of non-performance adjustments related to our products in our Individual Retirement and Group Retirement segments that are currently measured at fair value (e.g., living benefit guarantees associated with variable annuities), partially offset by (2) a reduction from the difference between the fair value and carrying value of benefits not currently measured at fair value (e.g., death benefit guarantees associated with variable annuities). The net decrease in AOCI Corebridge | 2022 Form 10-K 111
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resulted from (1) the reclassification of the cumulative effect of
non-performance adjustments discussed above and (2) changes to the discount rate
which will most significantly impact our Life Insurance and Institutional
Markets segments, partially offset by (3) the removal of balances recorded in
AOCI related to changes in unrealized appreciation (depreciation) on
investments.
The Company estimates that the after-tax impact to equity from the adoption of
LDTI as of September 30, 2022 is expected to result in an increase between
approximately $800 million and $1.3 billion ; consisting of an increase to
Retained earnings between approximately $1.2 billion and $1.7 billion , and a
decrease in AOCI between approximately $400 million and $900 million . This
increase in the estimate since January 1, 2021 has been predominately driven by
market movements.
Market risk benefits: The standard requires the measurement of all MRBs (e.g.,
living benefit and death benefit guarantees) associated with deposit (or account
balance) contracts at fair value at each reporting period. Changes in fair value
compared to prior periods will be recorded and presented separately within the
income statement, except that instrument-specific credit risk changes
(non-performance adjustments) will be recognized in other comprehensive income.
MRBs will impact both retained earnings and AOCI upon transition. The transition
adjustment for MRBs will primarily impact our Individual Retirement and Group
Retirement segments.
Discount rate assumption: The standard requires the discount rate assumption for
the liability for future policy benefits to be updated at the end of each
reporting period using an upper-medium grade (low credit risk) fixed income
instrument yield that maximizes the use of observable market inputs. Upon
transition, the Company currently estimates an adjustment to AOCI due to the
fact that the market upper-medium grade (low credit risk) interest rates as of
the Transition Date differ from reserve interest accretion rates. Lower interest
rates result in a higher liability for future policy benefits and are
anticipated to more significantly impact our Life Insurance segment, in
particular non-universal life contracts and Institutional Markets segments. The
standard does not impact the discount rate assumption for universal life
contracts.
Removal of balances related to changes in unrealized appreciation (depreciation)
on investments: Currently, DAC and reserves for universal life insurance and
investment-oriented products are adjusted at each balance sheet date to reflect
the change in DAC, unearned revenue and benefit reserves with an offset to Other
comprehensive income (loss) as if securities available for sale had been sold at
their stated aggregate fair value and the proceeds reinvested at current yields
(changes related to unrealized appreciation (depreciation) of investments).
Under the standard, the majority of balances recorded in AOCI related to changes
in unrealized appreciation (depreciation) on investments will be eliminated.
In addition to the above, the standard also:
•Requires the review and, if necessary, update of future policy benefit
assumptions at least annually for traditional and limited pay long duration
contracts, with the recognition and separate presentation of any resulting
re-measurement gain or loss (except for discount rate changes as noted above) in
the income statement. The Company still anticipates completing its annual
assumption update in the third quarter.
•Simplifies the amortization of DAC to a constant level basis over the expected term of the related contracts with adjustments for unexpected terminations, but no longer requires an impairment test. Accordingly, we expect less variability in our DAC amortization as the DAC related to universal life insurance and investment-type products, for example variable, fixed and fixed index annuities will no longer be required to be amortized in relation to the incidence of estimated gross profits to be realized over the expected lives of the contract. As DAC will be amortized on a constant level basis, DAC amortization related to universal life insurance and investment-type products will be less impacted by the annual actuarial assumption update or changing economic conditions. •Increases disclosures of disaggregated roll forwards of several balances, including: liabilities for future policy benefits, deferred acquisition costs, account balances, market risk benefits, separate account liabilities and information about significant inputs, judgments and methods used in measurement and changes thereto and impact of those changes. We expect that the accounting for Fortitude Re will continue to remain largely unchanged. With respect to Fortitude Re, the reinsurance assets, including the discount rates, will continue to be calculated using the same methodology and assumptions as the direct policies. Accounting for modco remains unchanged. We have created a governance framework and a plan to support implementation of the updated standard. As part of our implementation plan, we have also advanced the modernization of our actuarial technology platform to enhance our modeling, data management, experience study and analytical capabilities, increase the end-to-end automation of key reporting and analytical processes and optimize our control framework. We have designed and implemented internal controls related to the new processes created as part of implementing the updated standard and are substantially complete with our testing of these internal controls.
Our
We believe that our strategic partnership withBlackstone has the potential to yield significant economic and strategic benefits over time. We believe thatBlackstone's ability to originate attractive and privately sourced, fixed-income oriented assets, will be accretive to our businesses and provide us with an enhanced competitive advantage. Corebridge | 2022 Form 10-K 112
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Pursuant to the partnership, we initially transferred management of $50 billion
of our existing investment portfolio. Beginning in the fourth quarter of 2022,
we transferred an additional $2.1 billion to Blackstone . The amount managed by
Blackstone will increase to $92.5 billion by the third quarter of 2027.
As of December 31, 2022 , the book value of the assets transferred to Blackstone
was $48.9 billion . We expect Blackstone to invest these assets primarily in
Blackstone -originated investments across a range of asset classes, including
private and structured credit, and commercial and residential real estate
securitized and whole loans. Blackstone's preferred credit and lending strategy
is to seek to control all significant components of the underwriting and pricing
processes with the goal of facilitating bespoke opportunities with historically
strong credit protection and attractive risk-adjusted returns. Blackstone seeks
to capture enhanced economics to those available in the traditional fixed income
markets by going directly to the lending source.
As described above, Blackstone currently manages a portfolio of private and
structured credit assets, commercial and residential real estate securitized and
whole loans for Corebridge. We believe Blackstone is well-positioned to add
value and drive new originations across credit and real estate asset classes. We
continue to manage asset allocation and portfolio-level risk management
decisions with respect to any assets managed by Blackstone , ensuring that we
maintain a consistent level of oversight across our entire investment portfolio
considering our asset-liability matching needs, risk appetite and capital
positions.
Beginning in 2022, Blackstone started investing for us primarily in
Blackstone -originated investments. The investments underlying the original $50
billion mandate with Blackstone are expected to run-off and be reinvested over
time. While over time the benefits of the partnership with Blackstone are
expected to become accretive to our businesses, we do not expect the partnership
to be immediately accretive to earnings. We expect Blackstone's enhanced asset
origination capabilities will enhance the competitiveness and profitability of
our products, particularly in spread products such as fixed annuities. As part
of our partnership, Blackstone acquired a 9.9% position in our common stock,
aligning its economic interests with our stockholders.
Our Investment Management Agreements with BlackRock
Under the BlackRock Agreements, we have completed the transfer of the management of approximately$82.4 billion in book value of liquid fixed income and certain private placement assets in the aggregate to BlackRock as ofDecember 31, 2022 . In addition, liquid fixed income assets associated with Fortitude Re portfolio were separately transferred to BlackRock. The BlackRock Agreements provide us with access to market-leading capabilities, including portfolio management, research and tactical strategies in addition to a larger pool of investment professionals. We believe BlackRock's scale and fee structure make BlackRock an excellent outsourcing partner for certain asset classes and will allow us to further optimize our investment management operating model while improving overall performance.
See "Business-Investment Management-Our Investment Management Agreements with
BlackRock."
Affordable Housing Sale OnDecember 15, 2021 ,Corebridge and Blackstone Real Estate Income Trust ("BREIT"), a long-term, perpetual capital vehicle affiliated withBlackstone , completed the acquisition by BREIT of Corebridge's interests in aU.S. affordable housing portfolio for$4.9 billion , in an all cash transaction, resulting in a pre-tax gain of$3.0 billion . We recognized$186 million of APTOI related to theU.S. affordable housing portfolio, primarily consisting of net investment income of$309 million offset by interest expense of$107 million for the year endedDecember 31, 2021 .
We elect the fair value option on certain bond securities. When the fair value
option is elected, the realized and unrealized gains and losses on these
securities are reported in net investment income.
The following table shows the net investment income reported on fair value
option bond securities.
Years Ended December 31,
(in millions) 2022 2021 2020
Net investment income - excluding Fortitude Re funds
withheld assets
$ (30) $ 17 $ 66 Net investment income - Fortitude Re funds withheld assets (378) 9 6 Total$ (408) $ 26 $ 72
Tax Impact from Separation
Following the IPO, AIG owns a less than 80% interest in Corebridge, resulting in tax deconsolidation of Corebridge Parent and its subsidiaries from theAIG Consolidated Tax Group . In addition, under applicable law, theAGC Group will not be permitted to join in the filing of aU.S. consolidated federal income tax return with our other subsidiaries (collectively, the "Non-Life Group ") for the five-year waiting period. Instead, theAGC Group is expected to file separately as members of the AGC consolidatedU.S. federal income tax return during the five-year waiting period. Upon the tax deconsolidation from theAIG Consolidated Tax Group , absent any prudent Corebridge | 2022 Form 10-K 113
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and feasible tax planning strategies, our net operating losses and foreign tax
credit carryforwards generated by the non-life insurance companies will more
likely than not expire unutilized. Additionally, after assessing the relative
weight of all positive and negative evidence, we concluded that at the time of
tax deconsolidation a valuation allowance of $145 million related to the tax
attribute carryforwards and other deferred tax assets for the Non-Life Group was
necessary. As a result of prior year tax return adjustments, we released $9
million of valuation allowance recorded due to tax deconsolidation.
Subsequently, we established an additional valuation allowance of $15 million
for the Non-Life Group based on post separation results. Accordingly, an
additional valuation allowance of $133 million was established in 2022 with
respect to our deferred tax assets. Following the five-year waiting period, the
AGC Group is expected to join our U.S. consolidated federal income tax return.
Principles similar to the foregoing may apply to state and local income tax
liabilities in jurisdictions that conform to federal rules.
Sale of Certain Assets of Our Retail Mutual Funds Business
OnFebruary 8, 2021 , we announced the execution of a definitive agreement withTouchstone Investments, Inc. ("Touchstone"), an indirect wholly owned subsidiary ofWestern & Southern Financial Group , to sell certain assets of our retail mutual funds business. This sale consisted of the reorganization of twelve of the retail mutual funds managed by our subsidiarySunAmerica Asset Management LLC ("SAAMCo") into certain Touchstone funds and was subject to certain conditions, including approval of the fund reorganizations by the retail mutual fund boards of directors/trustees and fund shareholders. The transaction closed onJuly 16, 2021 , at which time we received initial proceeds and recognized a gain on the sale of$103 million . Concurrently, the twelve retail mutual funds managed by SAAMCo, with$6.8 billion in assets, were reorganized into Touchstone funds. Additional consideration has been and may be earned over a three-year period based on asset levels in certain reorganized funds. Six retail mutual funds managed by SAAMCo and not included in the transaction were liquidated. We continue to retain our fund management platform and capabilities dedicated to our variable annuity insurance products.
Separation Costs
In connection with our separation from AIG, we have incurred and expect to continue to incur one-time and recurring expenses. We estimate that our one-time expenses will be between approximately$350 million and$450 million on a pre-tax basis fromJanuary 1, 2022 . As ofDecember 31, 2022 we have incurred approximately$180 million of one-time expenses. These expenses primarily relate to replicating and replacing functions, systems and infrastructure provided by AIG; rebranding; and accounting advisory, consulting and actuarial fees. In addition to these separation costs, we expect to incur costs related to the evolution of our investments organization to reflect our strategic partnerships with key external managers, our implementation of BlackRock's "Aladdin" investment management technology platform and our expected reduction in fees for asset management services. We expect to incur the majority of these costs byDecember 31, 2023 . In addition, as part of Corebridge Forward, we aim to achieve an annual run rate expense reduction of approximately$400 million on a pre-tax basis within two to three years of the IPO and have acted upon or contracted approximately$232 million of exit run rate savings for the year endedDecember 31, 2022 , and expect the majority of the reduction to be achieved within 24 months of the IPO. To achieve this goal, Corebridge Forward is expected to have a one-time expense of approximately$300 million on a pre-tax basis and as ofDecember 31, 2022 the cost to achieve has been approximately$84 million .
COREBRIDGE'S MACROECONOMIC, INDUSTRY AND REGULATORY TRENDS
Our business is affected by industry and economic factors such as interest rates; geopolitical stability (including the armed conflict betweenUkraine andRussia and corresponding sanctions imposed bythe United States and other countries); credit and equity market conditions; currency exchange rates; regulation; tax policy; competition; and general economic, market and political conditions. We continued to operate under challenging market conditions in 2022 and 2021 characterized by factors such as the impact of COVID-19 and the related governmental and societal responses, interest rate volatility, inflationary pressures, an uneven global economic recovery and global trade tensions. Responses by central banks and monetary authorities with respect to inflation, growth concerns and other macroeconomic factors have also affected global exchange rates and volatility.
Below is a discussion of certain industry and economic factors impacting our
business:
Impact of COVID-19 We are continually assessing the impact on our business, operations and investments of COVID-19 and the resulting ongoing economic and societal disruption. These impacts initially included a global economic contraction, disruptions in financial markets, increased market volatility and declines in certain equity and other asset prices that had negative effects on our investments, our access to liquidity, our ability to generate new sales and the costs associated with claims. Further, significant legislative and regulatory activity has occurred at both theU.S. federal and state levels, as well as globally. We cannot predict what form future legal and regulatory responses to concerns about COVID-19 and related public health issues will take, or how such responses will impact our business. Corebridge | 2022 Form 10-K 114
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The most significant impacts relating to COVID-19 have been the impact of
interest rate, credit spreads and equity market levels on spread and fee income,
deferred acquisition cost amortization and increased mortality. We are actively
monitoring the mortality rates and the potential direct and indirect impacts
that COVID-19 may have across our businesses. The impact on the results for the
year ended December 31, 2022 with respect to COVID-19 is primarily, but not
limited to, COVID-19-related mortality. Our estimated reduction in pre-tax
income and APTOI impact in the United States and UK from COVID-19 was $199
million , $408 million and $259 million for the years ended December 31, 2022 ,
2021 and 2020, respectively. The last two quarters saw the fewest national
fatalities since the start of the pandemic. Actual data related to cause of
death is not always available for all claims paid, and such cause of death data
does not always capture the existence of comorbid conditions. As a result,
COVID-19 pre-tax income and APTOI impacts are estimates of the total impact of
COVID-19 related claim activity based on available data. The regulatory approach
to the pandemic and impact on the insurance industry is continuing to evolve and
its ultimate impact remains uncertain. Prospectively in the United States , we
estimate a reduction in pre-tax income and APTOI of $65 million to $75 million
for every 100,000 population deaths.
We have a diverse investment portfolio with material exposures to various forms
of credit risk. To date, there has been minimal impact on the value of the
portfolio. At this point in time, uncertainty surrounding the duration and
severity of the COVID-19 pandemic makes the long-term financial impact difficult
to quantify.
COVID-19 continued to have an impact in 2022. Circumstances resulting from the
COVID-19 pandemic, in addition to an increase in claims, may also impact
utilization of benefits, lapses or surrenders of policies and payments of
insurance premiums, all of which have impacted and could further impact the
revenues and expenses associated with our products.
See "Risk Factors-Risks Relating to Market Conditions-We are exposed to risk
from the COVID-19 pandemic."
Demographics We expect our target market of individuals planning for retirement to continue to grow with the size of theU.S. population age 65 and over that is expected to increase by approximately 30% by 2030 from 2020. In addition, we believe that reduced employer-paid retirement benefits will drive an increasing need for our individual retirement solutions. Further, consumers inthe United States continue to prefer purchasing life insurance and retirement products through an agent or advisor, which positions us favorably given our broad distribution platform and in-house advisory capabilities. We continue to seek opportunities to develop new products and adapt our existing products to the growing needs of individuals to plan, save for and achieve secure financial futures.
Equity Markets
Our financial results are impacted by the performance of equity markets, which impacts the performance of our alternative investment portfolio, fee income, net amount at risk, policyholder benefits and DAC. For instance, in our variable annuity separate accounts, mutual fund assets and brokerage and advisory assets, we generally earn fee income based on the account value, which fluctuates with the equity markets as a significant amount of these assets are invested in equity funds. The impact of equity market returns, both increases and decreases, is reflected in our results due to the impact on the account value and the fair values of equity-exposed securities in our investment portfolio. Our hedging costs could also be significantly impacted by changes in the level of equity markets as rebalancing and option costs are tied to the equity market volatility, and we may be required to post additional collateral when equity markets are higher. These hedging costs are mostly offset by our rider fees that are tied to the level of the VIX. As rebalancing and option costs increase or decrease, the rider fees will increase or decrease partially offsetting the hedging costs incurred.
See "Risk Factors-Risks Relating to Market Conditions-We are exposed to risk
from equity market declines or volatility."
Market and other economic factors may result in increased credit impairments, downgrades and losses across single or numerous asset classes due to lower collateral values or deteriorating cash flow and profitability by borrowers could lead to higher defaults on our investment portfolio, especially in geographic, industry or investment sectors where we have higher concentrations of exposure, such as real estate related borrowings. These factors can also cause widening of credit spreads which could reduce investment asset valuations, decrease fee income and increase statutory capital requirements, as well as reduce the availability of investments that are attractive from a risk-adjusted perspective.
See "Risk Factors-Our business is highly dependent on economic and capital
market conditions."
Alternative investments include private equity funds which are generally
reported on a one-quarter lag. Accordingly, changes in valuations driven by
equity market conditions during the fourth quarter of 2022 may impact the
private equity investments in the alternative investments portfolio in the first
quarter of 2023.
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Impact of Changes in the Interest Rate Environment
KeyU.S. benchmark rates continued to rise during 2022 as markets react to inflation measures, geopolitical risk and theBoard of Governors of theFederal Reserve System raising short-term interest rates for the first time since 2018. A rising interest rate environment benefits our spread income as we reinvest cash flows from existing business at higher rates and should have a positive impact on sales of spread-based products resulting in an increase in our base net investment spreads. As ofDecember 31, 2022 , increases in key rates have improved yields on new investments, which are now closer to the yield on maturities and redemptions ("run-off yield") that we are experiencing on our existing portfolios and in some instances are higher than the run-off yield. Furthermore, the impact of interest rate increases is further reflected in our results as these rate increases have also reduced the value of fixed income assets that are held in the variable annuity separate accounts and brokerage and advisory assets, and accordingly, have adversely impacted the fees that are charged on these accounts. We actively manage our exposure to the interest rate environment through portfolio selection and asset-liability management, including spread management strategies for our investment-oriented products and economic hedging of interest rate risk from guarantee features in our variable and fixed index annuities, but we may not be able to fully mitigate our interest rate risk by matching exposure of our assets relative to our liabilities. Fluctuations in interest rates may result in changes to certain statutory reserve or capital requirements that are based on formulas or models that consider interest rates or prescribed interest rates, such as cash flow testing. Rising interest rates can have a mixed impact on statutory financials due to higher surrender activity, particularly for fixed annuities, offset by potentially lower reserves for other products under various statutory reserving frameworks. Regulatory Environment The insurance and financial services industries are generally subject to close regulatory scrutiny and supervision. Our operations are subject to regulation by a number of different types of domestic and international regulatory authorities, including securities, derivatives and investment advisory regulators. Our insurance subsidiaries are subject to regulation and supervision by the states and jurisdictions in which they do business.
We expect that the domestic and international regulations applicable to us and
our regulated entities will continue to evolve for the foreseeable future.
For information regarding our regulation and supervision by different regulatory
authorities in
Annuity Sales and Surrenders
The rising rate environment and our partnership withBlackstone have provided a strong tailwind for fixed annuity sales with sales in the three- to five-year products significantly increasing, however, higher rates has also resulted in an increase in surrenders. Continued rising interest rates could create the potential for increased sales but may also drive higher surrenders relative to what we have already experienced. Fixed annuities have surrender charge periods, generally in the three-to-seven-year range. Fixed index annuities have surrender charge periods, generally in the five-to-ten-year range, and within our Group Retirement segment, certain of our fixed investment options are subject to other withdrawal restrictions, which may help mitigate increased early surrenders in a rising rate environment. In addition, older contracts that have higher minimum interest rates and continue to be attractive to contract holders have driven better than expected persistency in fixed annuities, although the reserves for such contracts have continued to decrease over time in amount and as a percentage of the total annuity portfolio. We closely monitor surrenders of fixed annuities as contracts with lower minimum interest rates come out of the surrender charge period.
Reinvestment and Spread Management
We actively monitor fixed income markets, including the level of interest rates, credit spreads and the shape of the yield curve. We also frequently review our interest rate assumptions and actively manage the crediting rates used for new and in-force business. Business strategies continue to evolve and we attempt to maintain profitability of the overall business in light of the interest rate environment. A rising interest rate environment results in improved yields on new investments and improves margins for our business while also making certain products, such as fixed annuities, more attractive to potential customers. However, the rising rate environment has resulted in lower values on general and separate account assets, mutual fund assets and brokerage and advisory assets that hold investments in fixed income assets.
For additional information on our investment and asset-liability management
strategies, see "Investments."
For investment-oriented products, including universal life insurance, and
variable, fixed and fixed index annuities, in each of our operating and
reportable segments, our spread management strategies include disciplined
pricing and product design for new business, modifying or limiting the sale of
products that do not achieve targeted spreads, using asset-liability management
to match assets to liabilities to the extent practicable and actively managing
crediting rates to help mitigate some of the pressure on investment spreads.
Renewal crediting rate management is done under contractual provisions that were
designed to allow crediting rates to be reset at pre-established intervals in
accordance with state and federal laws and subject to minimum crediting rate
guarantees. We
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expect to continue to adjust crediting rates on in-force business, as
appropriate, to be responsive to a rising rate environment. As interest rates
rise, we may need to raise crediting rates on in-force business for competitive
and other reasons, potentially offsetting a portion of the additional investment
income resulting from investing in a higher interest rate environment.
Of the aggregate fixed account values of our Individual Retirement and Group
Retirement annuity products, 64% and 68% were crediting at the contractual
minimum guaranteed interest rate at December 31, 2022 and December 31, 2021 ,
respectively. The percentages of fixed account values of our annuity products
that are currently crediting at rates above 1% were 55% and 58% at December 31,
2022 and December 31, 2021 , respectively. In the universal life insurance
products in our Life Insurance business, 62% and 67% of the account values were
crediting at the contractual minimum guaranteed interest rate at December 31,
2022 and December 31, 2021 , respectively. These businesses continue to focus on
pricing discipline and strategies to manage the minimum guaranteed interest
crediting rates offered on new sales in the context of regulatory requirements
and competitive positioning.
For additional information on our investment and asset-liability management
strategies, see Note 5 to our audited annual consolidated financial statements.
Impact of Currency Volatility
In our life insurance business, we have international locations in theUK andIreland , whose local currency is the British pound and Euro, respectively. Trends in revenue and expense reported inU.S. dollars can differ significantly from those measured in original currencies. While currency volatility affects financial statement line item components of income and expenses, since our international businesses transact in local currencies, the impact is significantly mitigated.
These currencies may continue to fluctuate, in either direction, and such
fluctuations may affect premiums, fees and expenses reported in
well as financial statement line item comparability.
Use of Non-GAAP Financial Measures and Key Operating Metrics
NON-GAAP FINANCIAL MEASURES
Throughout this MD&A, we present our financial condition and results of operations in the way we believe will be most meaningful and representative of our business results. Some of the measurements we use are "non-GAAP financial measures" underSEC rules and regulations. We believe presentation of these non-GAAP financial measures allows for a deeper understanding of the profitability drivers of our business, results of operations, financial condition and liquidity. These measures should be considered supplementary to our results of operations and financial condition that are presented in accordance with GAAP and should not be viewed as a substitute for GAAP measures. The non-GAAP financial measures we present may not be comparable to similarly named measures reported by other companies. Reconciliations of non-GAAP financial measures for future periods are not provided as we do not currently have sufficient data to accurately estimate the variables and individual adjustments for such reconciliations. Adjusted revenues exclude Net realized gains (losses) except for gains (losses) related to the disposition of real estate investments, income from non-operating litigation settlements (included in Other income for GAAP purposes) and changes in fair value of securities used to hedge guaranteed living benefits (included in Net investment income for GAAP purposes). The following table presents a reconciliation of Total revenues to Adjusted revenues: Years Ended December 31, (in millions) 2022 2021 2020 Total revenues
Fortitude Re related items:
Net investment income on Fortitude Re funds withheld
assets
(891) (1,775) (1,427) Net realized (gains) losses on Fortitude Re funds withheld assets 397 (924) (1,002) Net realized (gains) losses on Fortitude Re funds withheld embedded derivatives (6,347) 687 3,978 Subtotal - Fortitude Re related items (6,841) (2,012) 1,549 Other non-Fortitude Re reconciling items: Changes in fair value of securities used to hedge guaranteed living benefits (56) (60) (56) Non-operating litigation reserves and settlements (25) - (12) Other (income) - net (51) (37) (53) Net realized (gains) losses* (1,691) (791) 916 Subtotal - Other non-Fortitude Re reconciling items (1,823) (888) 795 Total adjustments (8,664) (2,900) 2,344 Adjusted revenues$ 18,015 $ 20,490 $ 17,406 Corebridge | 2022 Form 10-K 117
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* Represents all net realized gains and losses except gains (losses) related to
the disposition of real estate investments and earned income (periodic
settlements and changes in settlement accruals) on derivative instruments used
for non-qualifying (economic) hedging or for asset replication. Earned income
for non-qualifying (economic) hedging or for asset replication is reclassified
from net realized gains and losses to specific APTOI line items (e.g., net
investment income and interest credited to policyholder account balances) based
on the economic risk being hedged.
Adjusted pre-tax operating income ("APTOI") is derived by excluding the items
set forth below from income from operations before income tax. These items
generally fall into one or more of the following broad categories: legacy
matters having no relevance to our current businesses or operating performance;
adjustments to enhance transparency to the underlying economics of transactions;
and recording adjustments to APTOI that we believe to be common in our industry.
We believe the adjustments to pre-tax income are useful for gaining an
understanding of our overall results of operations.
APTOI excludes the impact of the following items:
FORTITUDE RELATED ADJUSTMENTS:
The modco reinsurance agreements with Fortitude Re transfer the economics of the invested assets supporting the reinsurance agreements to Fortitude Re. Accordingly, the net investment income on Fortitude Re funds withheld assets and the net realized gains (losses) on Fortitude Re funds withheld assets are excluded from APTOI. Similarly, changes in the Fortitude Re funds withheld embedded derivative are also excluded from APTOI. As a result of entering into the reinsurance agreements with Fortitude Re we recorded a loss which was primarily attributed to the write-off of DAC, VOBA and deferred cost of reinsurance assets. The total loss and the ongoing results associated with the reinsurance agreement with Fortitude Re have been excluded from APTOI as these are not indicative of our ongoing business operations.
INVESTMENT RELATED ADJUSTMENTS:
APTOI excludes "Net realized gains (losses)," including changes in the allowance for credit losses on available-for-sale securities and loans, as well as gains or losses from sales of securities, except for gains (losses) related to the disposition of real estate investments. Net realized gains (losses), except for gains (losses) related to the disposition of real estate investments, are excluded as the timing of sales on invested assets or changes in allowances depend largely on market credit cycles and can vary considerably across periods. In addition, changes in interest rates may create opportunistic scenarios to buy or sell invested assets. Our derivative results, including those used to economically hedge insurance liabilities, also included in Net realized gains (losses) are similarly excluded from APTOI except earned income (periodic settlements and changes in settlement accruals) on derivative instruments used for non-qualifying (economic) hedges or for asset replication. Earned income on such economic hedges is reclassified from Net realized gains and losses to specific APTOI line items based on the economic risk being hedged (e.g., Net investment income and Interest credited to policyholder account balances).
Our investment-oriented contracts, such as universal life insurance, and fixed,
fixed index and variable annuities, are also impacted by net realized gains
(losses), and these secondary impacts are also excluded from APTOI.
Specifically, the changes in benefit reserves and DAC, VOBA and DSI assets
related to net realized gains (losses) are excluded from APTOI.
VARIABLE, FIXED INDEX ANNUITIES AND INDEX UNIVERSAL LIFE INSURANCE PRODUCTS
ADJUSTMENTS:
Certain of our variable annuity contracts contain GMWBs and are accounted for as embedded derivatives. Additionally, certain fixed index annuity contracts contain GMWB or indexed interest credits which are accounted for as embedded derivatives, and our index universal life insurance products also contain embedded derivatives. Changes in the fair value of these embedded derivatives, including rider fees attributed to the embedded derivatives, are recorded through "Net realized gains (losses)" and are excluded from APTOI.
Changes in the fair value of securities used to hedge guaranteed living benefits
are excluded from APTOI.
OTHER ADJUSTMENTS: Other adjustments represent all other adjustments that are excluded from APTOI and includes the net pre-tax operating income (losses) from noncontrolling interests related to consolidated investment entities. The excluded adjustments include, as applicable:
•restructuring and other costs related to initiatives designed to reduce
operating expenses, improve efficiency and simplify our organization;
•non-recurring costs associated with the implementation of non-ordinary course
legal or regulatory changes or changes to accounting principles;
•separation costs;
•non-operating litigation reserves and settlements;
•loss (gain) on extinguishment of debt;
•losses from the impairment of goodwill; and
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•income and loss from divested or run-off business.
Adjusted after-tax operating income attributable to our common shareholders
("Adjusted After-tax Operating Income" or "AATOI") is derived by excluding the
tax effected APTOI adjustments described above, as well as the following tax
items from net income attributable to us:
•changes in uncertain tax positions and other tax items related to legacy
matters having no relevance to our current businesses or operating performance;
and
•deferred income tax valuation allowance releases and charges.
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The following tables present a reconciliation of pre-tax income (loss)/net
income (loss) attributable to Corebridge to adjusted pre-tax operating income
(loss)/adjusted after-tax operating income (loss) attributable to Corebridge:
Years Ended December 31, 2022 2021 2020
Total Tax Non- Total Tax Non- Total Tax Non-
(Benefit) controlling (Benefit) controlling (Benefit) controlling
(in millions) Pre-tax Charge Interests After Tax Pre-tax Charge Interests After Tax Pre-tax Charge Interests After Tax
Pre-tax income/net income, including
noncontrolling
interests $ 10,460 $ 1,991 $ - $ 8,469 $ 10,127 $ 1,843 $ - $ 8,284 $ 851 $ (15) $ - $ 866
Noncontrolling interests - - (320) (320) - - (929) (929) - - (224) (224)
Pre-tax income/net income attributable to
Corebridge 10,460 1,991 (320) 8,149 10,127 1,843 (929) 7,355 851 (15) (224) 642
Fortitude Re related items
Net investment income on Fortitude Re funds
withheld assets (891) (187) - (704) (1,775) (373) - (1,402) (1,427) (300) - (1,127)
Net realized (gains) losses on Fortitude Re
funds withheld assets 397 83 - 314 (924) (194) - (730) (1,002) (210) - (792)
Net realized losses on Fortitude Re funds
withheld embedded derivative (6,347) (1,370) - (4,977) 687 144 - 543 3,978 835 - 3,143
Net realized losses on Fortitude transactions - - - - (26) (5) - (21) 91 19 72
Subtotal Fortitude Re related items (6,841) (1,474) - (5,367) (2,038) (428) - (1,610) 1,640 344 - 1,296
Other Reconciling Items:
Changes in uncertain tax positions and other
tax adjustments - 95 - (95) - 174 - (174) - 119 - (119)
Deferred income tax valuation allowance
(releases) charges - (157) - 157 - (26) - 26 - - - -
Changes in fair value of securities used to
hedge guaranteed living benefits (30) (6) - (24) (56) (12) - (44) (44) (9) - (35)
Changes in benefit reserves and DAC, VOBA and
DSI related to net realized gains (losses) 308 65 - 243 101 21 - 80 (60) (13) - (47)
Loss on extinguishment of debt - - - - 219 46 - 173 10 2 - 8
Net realized (gains) losses* (1,710) (359) - (1,351) (813) (171) 68 (574) 895 190 30 735
Non-operating litigation reserves and
settlements (25) (5) - (20) - - - - (12) (3) - (9)
Separation costs 180 142 - 38 - - - - - - - -
Restructuring and other costs 147 31 - 116 44 9 - 35 63 13 - 50
Non-recurring costs related to regulatory or
accounting changes 12 3 - 9 31 7 - 24 45 10 - 35
Net (gain) loss on divestiture 1 - - 1 (3,081) (710) - (2,371) - - - -
Pension expense - non operating 1 - - 1 12 3 - 9 - - - -
Noncontrolling interests (320) - 320 - (861) - 861 - (194) - 194 -
Subtotal: Other non-Fortitude Re reconciling
items (1,436) (191) 320 (925) (4,404) (659) 929 (2,816) 703 309 224 618
Total adjustments (8,277) (1,665) 320 (6,292) (6,442) (1,087) 929 (4,426) 2,343 653 224 1,914
Adjusted pre-tax income(loss)/Adjusted
after-tax income (loss) attributable to
Corebridge common shareholders $ 2,183 $ 326 $ - $ 1,857 $ 3,685 $ 756 $ - $ 2,929 $ 3,194 $ 638 $ - $ 2,556
* Includes all net realized gains and losses except earned income (periodic
settlements and changes in settlement accruals) on derivative instruments used
for non-qualifying (economic) hedging or for asset replication. Additionally,
gains (losses) related to the disposition of real estate investments are also
excluded from this adjustment.
Corebridge | 2022 Form 10-K 120
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ITEM 7 | Use of Non-GAAP Financial Measures and Key Operating Metrics
The following table presents a reconciliation of the GAAP tax rate to the
adjusted tax rate:
Non-GAAP
Years Ended December 31, GAAP Adjustments Adjusted
Pre-tax Pre-tax
(in millions) Income Tax Rate Adjustments Tax APTOI Tax Rate
2022
U.S. federal income tax at
statutory rate $ 10,460 $ 2,197 21.0 % $ (8,277) $ (1,738) $ 2,183 $ 459 21.0 %
Rate Adjustments
Uncertain Tax Positions - 2 0.0 - - - 2 0.1
Reclassifications from
accumulated other comprehensive
income - (84) (0.8) - 84 - - 0.0
Noncontrolling Interest - (67) (0.6) - 67 - - 0.0
Dividends received deduction (36) (0.3) - - - (36) (1.6)
Tax deconsolidation and
separation costs (104) (1.0) - 104 - - 0.0
State and local income taxes - 9 0.1 - (37) - (28) (1.3)
Other - (29) (0.3) - 12 - (17) (0.8)
Adjustments to prior year tax
returns - (48) (0.5) - - - (48) (2.2)
Share based compensation payments
excess tax deduction - (6) (0.1) - - - (6) (0.3)
Valuation allowance - 157 1.5 - (157) - - 0.0
Amount Attributable to Corebridge $ 10,460 $ 1,991 19.0 % $ (8,277) $ (1,665) $ 2,183 $ 326 14.9 %
2021
U.S. federal income tax at
statutory rate $ 10,127 $ 2,127 21.0 % $ (6,442) $ (1,353) $ 3,685 $ 774 21.0 %
Rate Adjustments
Uncertain Tax Positions - (69) (0.7) - 66 - (3) (0.1)
Reclassifications from
accumulated other comprehensive
income - (108) (1.1) - 108 - - 0.0
Noncontrolling Interest - (197) (1.9) - 181 - (16) (0.4)
Dividends received deduction - (37) (0.4) - - - (37) (1.0)
State and local income taxes - 105 1.0 - (55) - 50 1.4
Other - (5) 0.0 - (12) - (17) (0.5)
Adjustments to prior year tax
returns - (3) 0.0 - 4 - 1 0.0
Share based compensation payments
excess tax deduction - 4 0.0 - - - 4 0.1
Valuation allowance - 26 0.3 - (26) - - -
Amount Attributable to Corebridge $ 10,127 $ 1,843 18.2 % $ (6,442) $ (1,087) $ 3,685 $ 756 20.5 %
2020
U.S. federal income tax at
statutory rate $ 851 $ 178 21.0 % $ 2,343 $ 493 $ 3,194 $ 671 21.0 %
Rate Adjustments:
Uncertain Tax Positions - 17 2.0 - 4 - 21 0.7
Reclassifications from
accumulated other comprehensive
income - (100) (11.8) - 100 - - 0.0
Noncontrolling Interest - (47) (5.5) - 41 - (6) (0.2)
Dividends received deduction - (39) (4.6) - - - (39) (1.2)
State and local income taxes - (4) (0.5) - - - (4) (0.1)
Other - 1 0.1 - (3) - (2) (0.1)
Adjustments to prior year tax
returns - (27) (3.2) - 14 - (13) (0.4)
Share based compensation payments
excess tax deduction - 10 1.2 - - - 10 0.3
Valuation allowance - (4) (0.5) - 4 - - -
Amount Attributable to Corebridge $ 851 $ (15) (1.8) % $ 2,343 $ 653 $ 3,194 $ 638 20.0 %
Corebridge | 2022 Form 10-K 121
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TABLE OF CONTENTS
ITEM 7 | Use of Non-GAAP Financial Measures and Key Operating Metrics
Book value, excluding AOCI, adjusted for the cumulative unrealized gains and
losses related to Fortitude Re's funds withheld assets ("Adjusted Book Value")
is used to eliminate the asymmetrical impact resulting from changes in fair
value of our available-for-sale securities portfolio where there is largely no
offsetting impact for certain related insurance liabilities that are not
recorded at fair value. In addition, we adjust for the cumulative unrealized
gains and losses related to Fortitude Re's funds withheld assets since these
fair value movements are economically transferred to Fortitude Re.
The following table presents the reconciliation of Book value per common share
to Adjusted book value per common share:
December 31,
(in millions, except per common share data) 2022 2021 2020
Total Corebridge shareholders' equity (a) $ 8,210 $ 27,086 $ 37,232
Less: Accumulated other comprehensive income (15,947) 10,167 14,653
Add: Cumulative unrealized gains and losses related to
Fortitude Re funds withheld assets
(2,806) 2,629 4,225 Adjusted Book Value (b)$ 21,351
Total common shares outstanding (c) 645.0 645.0 645.0 Book value per common share (a/c)$ 12.73 $ 41.99 $ 57.72 Adjusted book value per common share (b/c)$ 33.10
Adjusted Return on Average Equity ("Adjusted ROAE") is derived by dividing AATOI
by average Adjusted Book Value and is used by management to evaluate our
recurring profitability and evaluate trends in our business. We believe this
measure is useful to investors because it eliminates items that can fluctuate
significantly from period to period, including changes in fair value of our
available-for-sale securities portfolio and foreign currency translation
adjustments. This measure also eliminates the asymmetrical impact resulting from
changes in fair value of our available-for-sale securities portfolio for which
there is largely no offsetting impact for certain related insurance liabilities.
In addition, we adjust for the cumulative unrealized gains and losses related to
Fortitude Re funds withheld assets since these fair value movements are
economically transferred to Fortitude Re.
The following table presents the reconciliation of Adjusted ROAE:
December 31,
(in millions, unless otherwise noted) 2022 2021 2020
Actual or annualized net income (loss) attributable to
Corebridge shareholders (a)
$ 8,149 $ 7,355 $ 642 Actual or annualized adjusted after-tax operating income attributable to Corebridge shareholders (b) 1,857 2,929 2,556 Average Corebridge shareholders' equity (c) 17,648 32,159 34,519 Less: Average AOCI (2,890) 12,410 11,991
Add: Average cumulative unrealized gains and losses
related to Fortitude Re funds withheld assets
(89) 3,427 3,598 Average Adjusted Book Value (d)$ 20,449 $ 23,176 $ 26,126 Return on Average Equity (a/c) 46.2 % 22.9 % 1.9 % Adjusted ROAE (b/d) 9.1 % 12.6 % 9.8 % Corebridge | 2022 Form 10-K 122
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ITEM 7 | Use of Non-GAAP Financial Measures and Key Operating Metrics
Premiums and deposits is a non-GAAP financial measure that includes direct and
assumed premiums received and earned on traditional life insurance policies,
group benefit policies and life-contingent payout annuities, as well as deposits
received on universal life insurance, investment-type annuity contracts and
GICs. We believe the measure of premiums and deposits is useful in understanding
customer demand for our products, evolving product trends and our sales
performance period over period.
The following table presents the premiums and deposits:
Years Ended December 31,
(in millions) 2022 2021 2020
Individual Retirement
Premiums $ 230 $ 191 $ 151
Deposits(a) 14,900 13,473 9,492
Other(b) (10) (7) (9)
Premiums and deposits 15,120 13,657 9,634
Group Retirement
Premiums 19 22 19
Deposits 7,923 7,744 7,477
Premiums and deposits(c)(d) 7,942 7,766 7,496
Life Insurance
Premiums 1,871 1,573 1,526
Deposits 1,601 1,635 1,648
Other(b) 764 1,020 873
Premiums and deposits 4,236 4,228 4,047
Institutional Markets
Premiums 2,913 3,774 2,564
Deposits 1,382 1,158 2,284
Other(b) 30 25 25
Premiums and deposits 4,325 4,957 4,873
Total
Premiums 5,033 5,560 4,260
Deposits 25,806 24,010 20,901
Other(b) 784 1,038 889
Premiums and deposits $ 31,623 $ 30,608 $ 26,050
(a)Excludes deposits from the assets of our retail mutual funds business that
were sold to Touchstone on July 16, 2021 , or otherwise liquidated in connection
with the sale. Deposits from these retail mutual funds were $259 million and
$736 million for the years ended December 31, 2021 and 2020, respectively.
(b)Other principally consists of ceded premiums, in order to reflect gross
premiums and deposits.
(c)Excludes client deposits into advisory and brokerage accounts of
billion
2021 and 2020, respectively.
(d)Includes premiums and deposits related to in-plan mutual funds of
billion
2021 and 2020, respectively.
Normalized distributions - are defined as dividends paid by the Life Fleet
subsidiaries as well as the international insurance subsidiaries, less
non-recurring dividends, plus dividend capacity that would have been available
to Corebridge absent strategies that resulted in utilization of tax attributes.
We believe that presenting normalized distributions is useful in understanding a
significant component of our liquidity as a stand-alone company.
The following table presents a reconciliation of Dividends to Normalized
distributions:
Years Ended December 31,
(in millions) 2022 2021 2020
Subsidiary dividends paid $ 1,821 $ 1,564 $ 540
Less: Non-recurring dividends - (295) 600
Tax sharing payments related to utilization of tax
attributes 401 902 1,026
Normalized distributions $ 2,222 $ 2,171 $ 2,166
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TABLE OF CONTENTS
ITEM 7 | Use of Non-GAAP Financial Measures and Key Operating Metrics
Net investment income (APTOI basis) is the sum of base portfolio income and
variable investment income.
The following table presents a reconciliation of net investment income (net
income basis) to net investment income (APTOI) basis:
Years Ended December 31,
(in millions) 2022 2021 2020
Net investment income (net income basis) $
9,576
Net investment (income) on Fortitude Re funds withheld
assets
(891) (1,775) (1,427) Change in fair value of securities used to hedge guaranteed living benefits (56) (60) (56) Other adjustments (50) (30) (55)
Derivative income recorded in net realized investment
gains (losses)
179 110 106 Total adjustments (818) (1,755) (1,432) Net investment income (APTOI basis) * $
8,758
*Includes net investment income (loss) from Corporate and Other of$473 million ,$443 million and$346 million for the years endedDecember 31, 2022 , 2021 and 2020, respectively. ULSG Net Liability - represents the gross liability for universal life policies with secondary guarantees ("ULSG") and for universal life policies with similar expected benefit patterns liability adjusted to include the impacts of DAC, unearned revenue reserve ("URR"), and other guaranteed benefits less unrealized gains (losses). We believe that presenting ULSG Net Liability is useful as it provides supplemental information regarding the totality of our exposure to universal life policies with secondary guarantees.
The following table presents a reconciliation of the liability for ULSG and
similar features to the ULSG Net Liability:
December
31,
(in millions) 2022
2021
Liability for ULSG and similar features$ 2,825 $ 4,505 Deferred Acquisition Costs (2,859) (2,822) Unearned Revenue Reserves 1,957 1,848 Impact of Unrealized Gains (Losses) from Investments 697
(1,135)
Other Guaranteed Benefits 404
419
Other Ceded Guaranteed Benefits (245) (256) ULSG Net Liability$ 2,779 $ 2,559 Net insurance liabilities - represents the gross liabilities for our insurance businesses, including the future policy benefits, policyholder contract deposits, other policyholder fund and the separate account liabilities, less reinsurance assets. We believe that presenting net insurance liabilities is useful as it provides supplemental information regarding the totality of our insurance liabilities and customer demand for our products as product trends evolve.
The following table presents a reconciliation of the gross liabilities to the
net insurance liabilities:
December 31,
(in billions) 2022 2021
Future policy benefits for life and accident and health
contracts
$ 57.3 $ 57.8 Policyholder contract deposits 159.0 156.8 Other policyholder funds 3.3 2.9 Separate account liabilities 84.9 109.1
Less: Direct liabilities related to the Corporate and Other
segment and other balances (a)
(29.5) (29.7) Less: Reinsurance assets (b) (2.0) (2.0) Net insurance liabilities $ 273.0 $ 294.9
(a)Direct liabilities related to the Corporate and Other segment consist of
includes unearned revenue reserves which are recorded in other policyholder
funds.
(b)Reinsurance assets includes recoverables related to future policy benefits
and policyholder contract deposits. Recoverables related to paid claims are
excluded.
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ITEM 7 | Use of Non-GAAP Financial Measures and Key Operating Metrics
KEY OPERATING METRICS
Assets Under Management and Administration
Assets Under Management ("AUM") include assets in the general and separate
accounts of our subsidiaries that support liabilities and surplus related to our
life and annuity insurance products.
Assets Under Administration ("AUA") include Group Retirement mutual fund assets and other third-party assets that we sell or administer and the notional value of SVW contracts.
Assets Under Management and Administration ("AUMA") is the cumulative amount of
AUM and AUA.
The following table presents a summary of our AUMA:
December 31,
(in millions) 2022 2021 2020
Individual Retirement
AUM $ 136,696 $ 160,244 $ 157,349
AUA - - -
Total Individual Retirement AUMA 136,696 160,244 157,349
Group Retirement
AUM 78,474 97,232 94,460
AUA 36,458 42,610 35,594
Total Group Retirement AUMA 114,932 139,842 130,054
Life Insurance
AUM 27,760 34,355 34,781
AUA - - -
Total Life Insurance AUMA 27,760 34,355 34,781
Institutional Markets
AUM 30,686 32,673 30,367
AUA 47,078 43,830 43,310
Total Institutional Markets AUMA 77,764 76,503 73,677
Total AUMA $ 357,152 $ 410,944 $ 395,861
Fee and Spread income and Underwriting Margin
Fee income is defined as policy fees plus advisory fees plus other fee income.
Spread income is defined as net investment income less interest credited to
policyholder account balances, exclusive of amortization of deferred sales
inducement assets. Spread income is comprised of both base spread income and
variable investment income.
Underwriting margin for our Life Insurance segment includes premiums, policy fees, advisory fee income, net investment income, less interest credited to policyholder account balances and policyholder benefits and excludes the annual assumption update. For our Institutional Markets segment, select products utilize underwriting margin, which includes premiums, net investment income, non-SVW fee and advisory fee income, less interest credited and policyholder benefits and excludes the annual assumption update.
Base portfolio income includes interest, dividends and foreclosed real estate
income, net of investment expenses and non-qualifying (economic) hedges.
Variable investment income includes call and tender income, commercial mortgage loan prepayments, changes in market value of investments accounted for under the fair value option, interest received on defaulted investments (other than foreclosed real estate), income from alternative investments, affordable housing investments and other miscellaneous investment income, including income of certain partnership entities that are required to be consolidated. Alternative investments include private equity funds which are generally reported on a one-quarter lag.
Base spread income means base portfolio income less interest credited to
policyholder account balances, excluding the amortization of deferred sales
inducements assets.
Base net investment spread means base yield less cost of funds, excluding the
amortization of deferred sales inducements.
Base yield means the returns from base portfolio income including accretion and
impacts from holding cash and short-term investments.
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ITEM 7 | Use of Non-GAAP Financial Measures and Key Operating Metrics
The following table presents a summary of our spread income, fee income and
underwriting margin:
Years Ended December 31,
(in millions) 2022 2021 2020
Individual Retirement
Spread income $ 2,085 $ 2,650 $ 2,430
Fee income(a) 1,287 1,500 1,321
Total Individual Retirement(a) 3,372 4,150 3,751
Group Retirement
Spread income 871 1,275 1,088
Fee income 756 859 715
Total Group Retirement 1,627 2,134 1,803
Life Insurance
Underwriting margin 1,284 1,067 1,261
Total Life Insurance 1,284 1,067 1,261
Institutional Markets(b)
Spread income 295 478 290
Fee income 63 61 62
Underwriting margin 77 102 75
Total Institutional Markets 435 641 427
Total
Spread income 3,251 4,403 3,808
Fee income 2,106 2,420 2,098
Underwriting margin 1,361 1,169 1,336
Total $ 6,718 $ 7,992 $ 7,242
(a) Excludes fee income of
mutual funds business that were sold to Touchstone on
otherwise liquidated in connection with the sale.
(b) Fee income for Institutional Markets includes only SVW fee income, while
underwriting margin includes fee and advisory income on products other than SVW.
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ITEM 7 | Use of Non-GAAP Financial Measures and Key Operating Metrics
Net Investment Income (APTOI Basis)
The following table presents a summary of our four insurance operating
businesses' net investment income on an APTOI basis:
Years Ended December 31,
(in millions) 2022 2021 2020
Individual Retirement
Base portfolio income $ 3,725 $ 3,478 $ 3,573
Variable investment income, excluding affordable
housing 163 711 403
Affordable housing* - 145 129
Net investment income 3,888 4,334 4,105
Group Retirement
Base portfolio income 1,882 1,905 1,924
Variable investment income, excluding affordable
housing 118 424 215
Affordable housing* - 84 74
Net investment income 2,000 2,413 2,213
Life Insurance
Base portfolio income 1,282 1,246 1,290
Variable investment income, excluding affordable
housing 107 316 190
Affordable housing* - 59 52
Net investment income 1,389 1,621 1,532
Institutional Markets
Base portfolio income 995 865 827
Variable investment income, excluding affordable
housing 54 269 85
Affordable housing* - 21 19
Net investment income 1,049 1,155 931
Total
Base portfolio income 7,884 7,494 7,614
Variable investment income, excluding affordable
housing 442 1,720 893
Affordable housing* - 309 274
Net investment income (APTOI basis) - Insurance
operations
$ 8,326 $ 9,523 $ 8,781
*Affordable housing is a component of variable investment income.
Net Flows
Net flows for annuity products in Individual Retirement and Group Retirement represent premiums and deposits less death, surrender and other withdrawal benefits. Net flows for mutual funds represent deposits less withdrawals. For Group Retirement, client deposits into advisory and brokerage accounts less total client withdrawals from advisory and brokerage accounts are not included in net flows.
The following table presents a summary of our Net Flows:
Years Ended December 31,
(in millions) 2022 2021 2020
Individual Retirement
Fixed Annuities $ (441) $ (2,396) $ (2,504)
Fixed Index Annuities 4,521 4,072 2,991
Variable Annuities (1,672) (864) (1,554)
Total Individual Retirement 2,408 812 (1,067)
Group Retirement (3,111) (3,208) (1,940)
Total Net Flows* $ (703) $ (2,396) $ (3,007)
*Excludes net flows of $(1.4) billion and $(3.7) billion for the years ended
December 31, 2021 and 2020, respectively, related to the retail mutual funds
business that was sold to Touchstone on July 16, 2021 , or otherwise liquidated
in connection with the sale.
Corebridge | 2022 Form 10-K 127
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TABLE OF CONTENTS
ITEM 7 | Consolidated Results of Operations
Consolidated Results of Operations
The following section provides a comparative discussion of our consolidated results of operations on a reported basis for the years endedDecember 31, 2022 , 2021 and 2020. For factors that relate primarily to a specific business, see "-Segment Operations." Years Ended December 31, (in millions) 2022 2021 2020 Revenues: Premiums$ 5,093 $ 5,637 $ 4,341 Policy fees 2,972 3,051 2,874 Net investment income 9,576 11,672 10,516 Net realized gains (losses) 8,013 1,855 (3,741) Advisory fee and other income 1,025 1,175 1,072 Total revenues 26,679 23,390 15,062 Benefits and expenses: Policyholder benefits 7,332 8,050 6,602 Interest credited to policyholder account balances 3,696 3,549 3,528
Amortization of deferred policy acquisition costs and
value of business acquired
1,431 1,057 543 Non-deferrable insurance commissions 636 680 604 Advisory fee expenses 266 322 316 General operating expenses 2,323 2,104 2,027 Interest expense 534 389 490 (Gain) loss on extinguishment of debt - 219 10 Net (gain) loss on divestitures 1 (3,081) - Net (gains) losses on Fortitude Re transactions - (26) 91 Total benefits and expenses 16,219 13,263 14,211 Income (loss) before income tax expense (benefit) 10,460 10,127 851 Income tax expense (benefit) 1,991 1,843 (15) Net income (loss) 8,469 8,284 866 Less: Net income attributable to noncontrolling interests 320 929 224 Net income (loss) attributable to Corebridge $
8,149
The following table presents certain balance sheet data:
December 31, December 31,
(in millions, except per common share data) 2022 2021
Balance sheet data:
Total assets $ 364,217 $ 416,212
Long-term debt $ 7,868 $ 427
Debt of consolidated investment entities $ 5,958 $ 6,936
Total Corebridge shareholders' equity $ 8,210 $ 27,086
Book value per common share $ 12.73 $ 41.99
Adjusted book value per common share $ 33.10 $ 30.31
Financial Highlights
2022 to 2021 Net Income Comparison
Income (loss) before income tax expense (benefit)
We recorded pre-tax income of$10.5 billion in the year endedDecember 31, 2022 compared to pre-tax income of$10.1 billion in the year endedDecember 31, 2021 . The change in pre-tax income was primarily due to: •higher realized gains of$6.2 billion primarily driven by higher gains on Fortitude Re funds withheld embedded derivative and higher net realized gains excluding Fortitude Re funds withheld assets; and •the year endedDecember 31, 2021 reflected a loss on extinguishment of debt of$219 million . Corebridge | 2022 Form 10-K 128
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ITEM 7 | Consolidated Results of Operations
Partially offset by:
•the recognition of a $3.1 billion gain on the closing of the affordable housing
sale to Blackstone in 2021 and the sale of certain assets of the retail mutual
funds business to Touchstone in 2021;
•lower net investment income of $2.1 billion primarily driven by lower income
related to the Fortitude Re funds withheld assets and lower variable investment
income. Net investment income in 2021 includes $309 million of investment income
from affordable housing investments; and
•higher amortization of DAC of $374 million , primarily due to the impact of
market conditions partially offset by a lower net unfavorable impact from the
review and update of actuarial assumptions.
Income tax expense (benefit)
For the year endedDecember 31, 2022 , there was a tax expense of$2.0 billion on income from operations, resulting in an effective tax rate on income from operations of 19.0%.Refer to the reconciliation of the GAAP tax rate to the adjusted tax rate presented in "-- Use of Non-GAAP Financial Measures and Key Operating Metrics" presented herein.
2021 to 2020 Net Income Comparison
Income (loss) before income tax expense (benefit)
We recorded pre-tax income of
compared to pre-tax income of
2020.The change in pre-tax income was primarily due to:
•higher realized gains of$5.6 billion primarily driven by a lower decrease in the fair value of our embedded derivatives related to the Fortitude Re funds withheld assets and higher realized gains on sales of real estate investments and available for sale securities; •the recognition of a$3.1 billion gain on the closing of the affordable housing sale toBlackstone in 2021 and the sale of certain assets of the retail mutual funds business to Touchstone in 2021; •increase in net investment income of$1.2 billion primarily driven by higher returns on the alternative investment portfolio due to gains on private equity investments; and
•higher policy fees of
annuity separate account assets driven by equity market performance.
Partially offset by:
•higher amortization of DAC of$514 million principally driven by the impact of the review and update of actuarial assumptions and equity market performance; and
•higher loss on extinguishment of debt of
extinguishment of debt of certain consolidated investment entities and the
partial extinguishment of AIGLH debt.
Income tax expense (benefit)
For the year endedDecember 31, 2021 , there was a tax expense on income from operations of$1.8 billion , resulting in an effective tax rate on income from operations of 18.2%. Refer to the reconciliation of the GAAP tax rate to the adjusted tax rate presented in "-- Use of Non-GAAP Financial Measures and Key Operating Metrics" presented herein. Corebridge | 2022 Form 10-K 129
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TABLE OF CONTENTS
ITEM 7 | Consolidated Results of Operations
Adjusted pre-tax operating income
The following table presents a reconciliation of pre-tax income (loss)
attributable to Corebridge to APTOI:
Years Ended December 31,
(in millions) 2022 2021 2020
Pre-tax income (loss) attributable to Corebridge $ 10,460 $ 10,127 $ 851
Reconciling items to APTOI:
Fortitude Re related items (6,841) (2,038) 1,640
Non-Fortitude Re related items (1,436) (4,404) 703
Adjusted pre-tax operating income $
2,183
The following table presents total Corebridge's adjusted pre-tax operating
income:
Years Ended December 31,
(in millions) 2022 2021 2020
Premiums $ 5,115 $ 5,646 $ 4,334
Policy fees 2,972 3,051 2,874
Net investment income 8,758 9,917 9,084
Net realized gains* 170 701 54
Advisory fee and other income 1,000 1,175 1,060
Total adjusted revenues 18,015 20,490 17,406
Policyholder benefits 7,333 8,028 6,590
Interest credited to policyholder account balances 3,681 3,569 3,552
Amortization of deferred policy acquisition costs 1,128 975 601
Non-deferrable insurance commissions 636 680 604
Advisory fee expenses 266 322 316
General operating expenses 1,984 2,016 1,920
Interest expense 484 354 435
Total benefits and expenses 15,512 15,944 14,018
Noncontrolling interests (320) (861) (194)
Adjusted pre-tax operating income $
2,183
*Net realized gains (losses) includes the gains (losses) related to the
disposition of real estate investments.
2022 to 2021 APTOI Comparison
APTOI decreased
•lower net investment income of$1.2 billion primarily driven by lower variable investment income reflecting lower alternative investment income and lower yield enhancement income partially offset by higher base portfolio income. Net investment income in 2021 includes$309 million of investment income from affordable housing investments; •higher DAC amortization of$153 million primarily due to higher amortization due to market conditions, partially offset by a lower net unfavorable impact of$87 million from the review and update of actuarial assumptions; and •lower policy fees, net advisory fee and other income, net of advisory fee expenses of$198 million driven by a$51 million decrease from the sale of our retail mutual fund business in 2021, lower average separate accounts balances driven by negative equity market performance, higher interest rates and wider credit spreads. 2021 to 2020 APTOI Comparison
APTOI increased
•higher net investment income of
variable investment income reflecting higher private equity income and higher
income on call and tender activity; and
•higher policy fees, advisory fee and other income of
driven by higher average separate account assets.
Partially offset by:
•higher DAC amortization of
update of actuarial assumptions and equity market performance; and
•higher non-deferrable insurance commissions of
growth in variable annuity separate account assets and higher advisory fee
expenses driven by increased sales.
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TABLE OF CONTENTS
ITEM 7 | Business Segment Operations
Business Segment Operations
Our business operations consist of five reportable segments:
•Individual Retirement - consists of fixed annuities, fixed index annuities, variable annuities and retail mutual funds. OnFebruary 8, 2021 , we announced the execution of a definitive agreement with Touchstone to sell certain assets of our retail mutual funds business. This Touchstone transaction closed onJuly 16, 2021 . For further information on this sale, see Note 1 to our audited annual consolidated financial statements.
•Group Retirement - consists of record-keeping, plan administrative and
compliance services, financial planning and advisory solutions offered in-plan,
along with proprietary and limited non-proprietary annuities, advisory and
brokerage products offered out-of-plan.
•Life Insurance - primary products inthe United States include term life and universal life insurance. The International Life business issues individual life, whole life and group life insurance in theUnited Kingdom , and distributes private medical insurance inIreland . •Institutional Markets - consists of SVW products, structured settlement and PRT annuities, Corporate Markets products that include COLI-BOLI, private placement variable universal life and private placement variable annuities products and GICs.
•Corporate and Other - consists primarily of:
-corporate expenses not attributable to our other segments;
-interest expense on financial debt;
-results of our consolidated investment entities;
-institutional asset management business, which includes managing assets for
non-consolidated affiliates; and
-results of our legacy insurance lines ceded to Fortitude Re.
The following tables summarize adjusted pre-tax operating income (loss) from our
segments. See Note 3 to our audited annual consolidated financial statements.
Years Ended December 31,
(in millions) 2022 2021 2020
Individual Retirement $ 1,223 $ 1,895 $ 1,942
Group Retirement 746 1,273 975
Life Insurance 248 96 146
Institutional Markets 349 584 367
Corporate and Other (395) (161) (234)
Consolidation and elimination 12 (2) (2)
Adjusted pre-tax operating income $ 2,183 $ 3,685 $ 3,194
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TABLE OF CONTENTS
ITEM 7 | Business Segment Operations
DISCUSSION OF SEGMENT RESULTS
Individual Retirement
Individual Retirement Results
Years Ended December 31,
(in millions) 2022 2021 2020
Revenues:
Premiums $ 230 $ 191 $ 151
Policy fees 836 962 861
Net investment income:
Base portfolio income 3,725 3,478 3,573
Variable investment income(a) 163 856 532
Net investment income 3,888 4,334 4,105
Advisory fee and other income(b)(c) 451 592 571
Total adjusted revenues 5,405 6,079 5,688
Benefits and expenses:
Policyholder benefits 626 580 411
Interest credited to policyholder account balances 1,877 1,791 1,751
Amortization of deferred policy acquisition costs 761 744 556
Non-deferrable insurance commissions 351 397 334
Advisory fee expenses 141 189 205
General operating expenses 426 437 427
Interest expense - 46 62
Total benefits and expenses
Adjusted pre-tax operating income
(a) Includes income from affordable housing of
for the years ended
(b) Includes advisory fee income from registered investment services, 12b-1 fees (i.e., marketing and distribution fee income), and other asset management fee income. (c) Includes fee income of$54 million and$111 million for the years endedDecember 31, 2021 and 2020, respectively, related to assets of the retail mutual funds business that were sold to Touchstone onJuly 16, 2021 , or otherwise liquidated, in connection with the sale.
Individual Retirement Sources of Earnings
The following table presents the sources of earnings of the Individual
Retirement segment. We believe providing APTOI using this view is useful for
gaining an understanding of our overall results of operations and the
significant drivers of our earnings.
Years Ended December 31,
(in millions) 2022 2021 2020
Spread income(a) $ 2,085 $ 2,650 $ 2,430
Fee income(b) 1,287 1,500 1,321
Policyholder benefits, net of premiums (396) (389) (260)
Non-deferrable insurance commissions (351) (397) (334)
Amortization of DAC and DSI (835) (851) (632)
General operating expenses (426) (437) (427)
Other(c) (141) (181) (156)
Adjusted pre-tax operating income $ 1,223 $ 1,895 $ 1,942
(a) Spread income represents net investment income less interest credited to
policyholder account balances, exclusive of amortization of DSI of $74 million ,
$107 million and $76 million for the years ended December 31, 2022 , 2021 and
2020, respectively.
(b) Fee income represents policy fees plus advisory fee and other income. Fee
income excludes fee income of $54 million and $111 million for the years ended
December 31, 2021 and 2020, respectively, related to assets of the retail mutual
funds business that were sold to Touchstone on July 16, 2021 , or otherwise
liquidated, in connection with the sale.
(c) Other primarily represents interest expense and advisory fee expenses. The
years ended December 31, 2021 and 2020 include fee income related to assets of
the retail mutual funds business that were sold to Touchstone on July 16, 2021 ,
or otherwise liquidated, in connection with the sale.
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TABLE OF CONTENTS
ITEM 7 | Business Segment Operations
Financial Highlights
2022 to 2021 APTOI Comparison
APTOI decreased
•lower spread income of
investment income of
income of
partially offset by higher base spread income of
•increase in DAC and DSI amortization and policyholder benefits, net of premiums and excluding the review and update of actuarial assumptions of$225 million , primarily due to a decrease in the variable annuity separate account value; and •lower fee income of$213 million , primarily due to a decrease in mortality and expense fees of$105 million and other fee income of$87 million due to lower variable annuity separate account assets driven by a decline in equity markets, higher interest rates and wider credit spreads.
partially offset by
•lower net unfavorable impact from the review and update of actuarial
assumptions of
2021 to 2020 APTOI Comparison
APTOI decreased
•unfavorable impact from the review and update of actuarial assumptions of
million
•increase in DAC amortization and policyholder benefits net of premiums,
excluding the actuarial assumption updates of
higher growth in fixed index annuities, coupled with the impact of lower
portfolio yields on policyholder benefits; and
•an increase in non-deferrable insurance commissions of
due to growth in variable annuity separate account assets.
partially offset by
•higher spread income of$220 million primarily driven by higher variable investment income of$324 million reflecting higher private equity income of$257 million , higher commercial mortgage loan prepayment income, and higher call and tender income partially offset by lower base portfolio income, net of interest credited to policyholder account balances of$104 million driven by low interest rates resulting in spread compression; and
•higher policy and advisory fee income, net of advisory fee expenses of
million
assets driven by robust equity market performance.
AUMA
The following table presents Individual Retirement AUMA by product:
December 31,
(in millions) 2022 2021 2020
Fixed annuities $ 51,806 $ 57,823 $ 60,538
Fixed index annuities 30,403 31,809 27,893
Variable annuities:
Variable annuities - General Account 9,443 12,862 15,613
Variable annuities - Separate Accounts 45,044 57,750 53,305
Variable annuities 54,487 70,612 68,918
Total* $ 136,696 $ 160,244 $ 157,349
*Excludes assets of the retail mutual funds business, that were sold to
Touchstone on July 16, 2021 , or were otherwise liquidated in connection with the
sale. AUA related to these retail mutual funds was $7.8 billion at December 31,
2020 .
2022 to 2021 AUMA Comparison
AUMA decreased $23.5 billion driven by lower variable annuities separate account
assets of $12.7 billion , due to declines in the equity markets, higher interest
rates and wider credit spreads, as well as outflows from the separate account. A
decrease of $10.8 billion in the general account was driven by higher interest
rates and wider credit spreads resulting in unrealized losses from fixed
maturities securities, partially offset by positive net flows into the general
account.
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TABLE OF CONTENTS
ITEM 7 | Business Segment Operations
2021 to 2020 AUMA Comparison
AUMA increased $2.9 billion driven by higher variable annuities separate account
assets of $4.4 billion , due to equity market growth. A decrease of $1.5 billion
in the general account was driven by higher interest rates resulting in
unrealized losses from fixed maturity securities, partially offset by positive
net flows into the general account.
Spread and Fee Income
The following table presents Individual Retirement spread and fee income:
Years Ended December 31,
(in millions) 2022 2021 2020
Spread income:
Total spread income
Base portfolio income
Interest credited to policyholder account balances
(1,803) (1,684) (1,675) Base spread income 1,922 1,794 1,898 Variable investment income, excluding affordable housing 163 711 403 Affordable housing - 145 129 Total spread income(a)$ 2,085 $ 2,650 $ 2,430 Fee income: Policy fees
Advisory fees and other income(b)
451 538 460 Total fee income$ 1,287 $ 1,500 $ 1,321
(a) Excludes amortization of DSI assets of
(b) Excludes fee income of
funds business that were sold to Touchstone on
liquidated, in connection with the sale.
The following table presents Individual Retirement net investment spread:
Years Ended
2022 2021 2020
Fixed annuities base net investment spread:
Base yield* 4.03 % 3.94 % 4.16 %
Cost of funds 2.60 2.58 2.63
Fixed annuities base net investment spread 1.43 1.36 1.53
Fixed index annuities base net investment spread:
Base yield* 3.90 3.78 3.97
Cost of funds 1.46 1.30 1.28
Fixed index annuities base net investment spread 2.44 2.48 2.69
Variable annuities base net investment spread:
Base yield* 3.85 3.96 3.86
Cost of funds 1.42 1.42 1.42
Variable annuities base net investment spread 2.43 2.54 2.44
Total Individual Retirement base net investment
spread:
Base yield* 3.98 3.89 4.07
Cost of funds 2.11 2.08 2.15
Total Individual Retirement base net investment
spread 1.87 % 1.81 % 1.92 %
*Includes returns from base portfolio including accretion and income (loss) from
certain other invested assets.
2022 to 2021 Comparison
See "-Financial Highlights"
2021 to 2020 Comparison
See "-Financial Highlights"
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TABLE OF CONTENTS
ITEM 7 | Business Segment Operations
Premiums and Deposits and Net Flows
For Individual Retirement, premiums primarily represent amounts received on
life-contingent payout annuities, while deposits represent sales on
investment-oriented products.
Net flows for annuity products in Individual Retirement represent premiums and
deposits less death, surrender and other withdrawal benefits.
Premiums and Deposits Years Ended December 31, (in millions) 2022 2021 2020 Fixed annuities$ 5,695 $ 3,011 $ 2,535 Fixed index annuities 6,316 5,621 4,096 Variable annuities 3,109 5,025 3,003 Total*$ 15,120 $ 13,657 $ 9,634 *Excludes deposits of the retail mutual funds business that were sold to Touchstone onJuly 16, 2021 , or otherwise liquidated, in connection with the sale. Deposits from retail mutual funds were$259 million and$736 million for the years endedDecember 31, 2021 and 2020, respectively. Net Flows Years Ended December 31, (in millions) 2022 2021 2020 Fixed annuities$ (441) $ (2,396) $ (2,504) Fixed index annuities 4,521 4,072 2,991 Variable annuities (1,672) (864) (1,554) Total*$ 2,408
* Excludes net flows related to the assets of the retail mutual funds business that were sold to Touchstone onJuly 16, 2021 , or otherwise liquidated, in connection with the sale. Net flows from retail mutual funds were$(1.4) billion and$(3.7) billion for the years endedDecember 31, 2021 and 2020, respectively. Net flows for retail mutual funds represent deposits less withdrawals.
2022 to 2021 Comparison
Fixed Annuities Net outflows decreased by
primarily due to higher premiums and deposits of
pricing, higher interest rates and lower death benefits of
partially offset by higher surrenders and withdrawals of
Fixed Index Annuities Net inflows increased by$449 million primarily due to higher premiums and deposits of$695 million due to competitive pricing and higher interest rates, partially offset by higher surrenders and withdrawals of$194 million and higher death benefits of$51 million . Variable Annuities Net outflows increased$808 million primarily due to lower premium and deposits of$1.9 billion , due to market volatility, partially offset by lower surrenders and withdrawals of$993 million and lower death benefits of$116 million . 2021 to 2020 Comparison Fixed Annuities Net flows remained negative but improved by$108 million due to higher premiums and deposits of$476 million , and lower death benefits of$222 million , offset by higher surrenders and withdrawals of$589 million due to higher interest rates. The premium and deposit growth was driven in part due to the prior year impact from distribution channel disruptions related to COVID-19. Fixed Index Annuities Net flows increased by$1.1 billion primarily due to higher premiums and deposits of$1.5 billion offset by higher surrenders and withdrawals of$365 million and death benefits of$79 million . The premium and deposit growth was driven in part due to fewer disruptions related to COVID-19. The increase in surrenders and withdrawals was due to increased competition and aging of the policies. Variable Annuities Net flows improved by$690 million primarily due to higher premium and deposits of$2.0 billion offset by higher surrenders and withdrawals of$1.1 billion and higher death benefits of$208 million . The premium and deposit growth was driven in part due to the prior year impact from distribution channel disruptions related to COVID-19. The increase in surrenders and withdrawals was due to an increase in the number of policies coming out of surrender charge, and increase in lapses of policies with guaranteed minimum withdrawal benefits that are out of the money. Retail Mutual Funds Net flows remained negative but improved by$2.3 billion due to lower surrenders and withdrawals of$2.7 billion partially offset by lower premiums and deposits of$477 million due to investors' continued preference for passive, low fee investment vehicles, and the distribution channel disruptions related to COVID-19. Retail mutual funds net flows reflect customer activity and in 2021, it excludes$7.0 billion of funds (i) transferred as part of the Touchstone sale or (ii) liquidated. For further information regarding theJuly 2021 sale of certain assets of our retail mutual funds businesses to Touchstone, see Note 1 to our audited annual consolidated financial statements. Corebridge | 2022 Form 10-K 135
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TABLE OF CONTENTS
ITEM 7 | Business Segment Operations
Surrenders
The following table presents surrenders as a percentage of average reserves:
Years Ended December 31,
2022 2021 2020
Fixed annuities 9.2 % 7.2 % 5.9 %
Fixed index annuities 4.7 4.6 4.0
Variable annuities 6.6 7.3 6.2
The following table presents reserves for fixed annuities, fixed index annuities
and variable annuities by surrender charge category:
December 31,
2022 2021 2020
Fixed Fixed Index Variable Fixed Fixed Index Variable Fixed Fixed Index Variable
(in millions) Annuities Annuities Annuities Annuities Annuities Annuities Annuities Annuities Annuities
No surrender charge $ 24,937 $ 2,274 $ 28,314 $ 26,419 $ 2,009 $ 34,030 $ 27,103 $ 1,423 $ 29,594
Greater than 0% - 2% 1,786 1,355 7,272 2,091 1,681 10,925 2,297 1,129 10,542
Greater than 2% - 4% 2,260 4,539 5,268 2,424 4,195 9,884 2,757 3,427 11,966
Greater than 4% 18,941 25,238 12,624 16,443 22,489 13,219 16,159 19,685 12,647
Non-surrenderable 2,454 - - 2,373 - - 2,214 - -
Total reserves $ 50,378 $ 33,406 $ 53,478 $ 49,750 $ 30,374 $ 68,058 $ 50,530 $ 25,664 $ 64,749
Individual Retirement annuities are typically subject to a three- to seven-year
surrender charge period, depending on the product. For fixed annuities, the
proportion of reserves subject to surrender charge at December 31, 2022
increased compared to December 31, 2021 primarily due to growth in business,
while the proportion of fixed index annuities was slightly lower mostly due to
the aging of the business. The increase in the proportion of reserves with no
surrender charge for variable annuities as of December 31, 2022 compared to
December 31, 2021 was principally due to normal aging of business.
For fixed annuities, the proportion of reserves subject to surrender charge at
December 31, 2021 increased compared to December 31, 2020 . The increase in
reserves with no surrender charge for variable and fixed index annuities at
December 31, 2021 compared to December 31, 2020 was principally due to normal
aging of business.
Group Retirement
Group Retirement Results
Years Ended December 31,
(in millions) 2022 2021 2020
Revenues:
Premiums $ 19 $ 22 $ 19
Policy fees 451 522 443
Net investment income:
Base portfolio income 1,882 1,905 1,924
Variable investment income(a) 118 508 289
Net investment income 2,000 2,413 2,213
Advisory fee and other income(b) 305 337 272
Total adjusted revenues 2,775 3,294 2,947
Benefits and expenses:
Policyholder benefits 97 76 74
Interest credited to policyholder account balances 1,142 1,150 1,125
Amortization of deferred policy acquisition costs 96 61 15
Non-deferrable insurance commissions 123 121 117
Advisory fee expenses 124 133 111
General operating expenses 447 445 488
Interest expense - 35 42
Total benefits and expenses 2,029 2,021 1,972
Adjusted pre-tax operating income $
746
(a)Includes income from affordable housing of
the years ended
(b)Includes advisory fee income from registered investment services, 12b-1 fees
(i.e., marketing and distribution fee income), other asset management fee
income, and commission-based broker-dealer services.
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TABLE OF CONTENTS
ITEM 7 | Business Segment Operations
Group Retirement Sources of Earnings
The following table presents the sources of earnings of the Group Retirement
segment. We believe providing APTOI using this view is useful for gaining an
understanding of our overall results of operations and the significant drivers
of our earnings.
Years Ended December 31,
(in millions) 2022 2021 2020
Spread income(a) $ 871 $ 1,275 $ 1,088
Fee income(b) 756 859 715
Policyholder benefits, net of premiums (78) (54) (55)
Non-deferrable insurance commissions (123) (121) (117)
Amortization of DAC and DSI (109) (73) (15)
General operating expenses (447) (445) (488)
Other(c) (124) (168) (153)
Adjusted pre-tax operating income $ 746
(a) Spread income represents net investment income less interest credited to policyholder account balances, exclusive of amortization of DSI of$13 million ,$12 million and$0 million for the years endedDecember 31, 2022 , 2021 and 2020, respectively.
(b) Fee income represents policy fee and advisory fee and other income.
(c) Other consists of advisory fee expenses and interest expense.
Financial Highlights
2022 to 2021 APTOI Comparison
APTOI decreased
•lower spread income of$404 million primarily driven by a decrease in variable investment income of$390 million due to lower income from alternative investments and yield enhancements. In addition, there was lower base spread income of$14 million ; •lower fee income, net of advisory fee expenses of$94 million primarily due to lower fee based assets driven by lower equity markets, higher interest rates and wider credit spreads; and
•higher DAC and DSI amortization and policyholder benefits, net of premiums, of
Partially offset by:
•decrease in interest expense on external debt borrowings of
compared to 2021 due to sale of
2021 to 2020 APTOI Comparison
APTOI increased
•spread income was$187 million higher due to higher variable investment income of$219 million primarily driven by higher gains on private equity income and higher call and tender income, partially offset by lower base portfolio income, net of interest credited to policyholder account balances of$32 million driven by decreased reinvestment yields;
•$122 million of higher policy and advisory fee income, net of advisory fee
expenses due to an increase in separate account mutual fund, and advisory
average assets; and
•lower general operating expenses of
regulatory expenses.
Partially offset by:
•unfavorable impact from the review and update of actuarial assumptions of
million
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TABLE OF CONTENTS
ITEM 7 | Business Segment Operations
AUMA
The following table presents Group Retirement AUMA by product:
December 31,
(in millions) 2022 2021 2020
AUMA by asset type:
In-plan spread based $ 27,473 $ 32,549 $ 33,406
In-plan fee based 47,838 60,300 53,897
Total in-plan AUMA(a) 75,311 92,849 87,303
Out-of-plan proprietary - general account 16,769 19,697
19,862
Out-of-plan proprietary - separate accounts 10,429 13,466
12,269
Total out-of-plan proprietary annuities(b) 27,198 33,163
32,131
Advisory and brokerage assets 12,423 13,830 10,620 Total out-of-plan AUMA 39,621 46,993 42,751 Total AUMA$ 114,932 $ 139,842 $ 130,054
(a) Includes
at
associated with our in-plan investment advisory service that we offer to
participants at an additional fee.
(b) Includes$4.0 billion of AUMA atDecember 31, 2022 ,$4.9 billion of AUMA atDecember 31, 2021 and$4.3 billion of AUMA atDecember 31, 2020 in our proprietary advisory variable annuity. Together with our out-of-plan advisory and brokerage assets shown in the table above, we had a total of$16.4 billion of out-of-plan advisory assets atDecember 31, 2022 ,$18.7 billion of out-of-plan advisory assets atDecember 31, 2021 and$14.9 billion of out-of-plan advisory assets atDecember 31, 2020 .
2022 to 2021 AUMA Comparison
In-plan assets decreased by$17.5 billion primarily driven by equity market declines, wider credit spreads and higher interest rates resulting in lower unrealized gains from fixed maturity securities. Out-of-plan proprietary annuity assets decreased by$6.0 billion , declining as a result of the same drivers as described for in-plan assets. The decrease in advisory and brokerage assets of$1.4 billion was driven by equity market declines partially offset by net new client deposit growth. 2021 to 2020 AUMA Comparison In-plan assets increased by$5.5 billion primarily driven by equity market growth, contributing to an increase in fee based AUMA. Out-of-plan proprietary annuity assets increased by$1.0 billion primarily driven by equity market growth in the period. Increase in advisory and brokerage assets of$3.2 billion , or 30%, was driven by strong net new client deposits, along with favorable equity markets.
Spread and Fee Income
The following table presents Group Retirement spread and fee income:
Years Ended December 31,
(in millions) 2022 2021 2020
Spread income:
Base portfolio income $ 1,882 $ 1,905 $ 1,924
Interest credited to policyholder account balances (1,129) (1,138) (1,125)
Base spread income 753 767 799
Variable investment income, excluding affordable
housing 118 424 215
Affordable housing - 84 74
Total spread income* $ 871 $ 1,275 $ 1,088
Fee income:
Policy fees $ 451 $ 522 $ 443
Advisory fees and other income 305 337 272
Total fee income $ 756 $ 859 $ 715
* Excludes amortization of DSI assets of
for the years ended
Years Ended December 31,
2022 2021 2020
Base net investment spread:
Base yield* 4.04 % 4.11 % 4.26 %
Cost of funds 2.59 2.61 2.65
Base net investment spread 1.45 % 1.50 % 1.61 %
* Includes returns from base portfolio, including accretion and income (loss)
from certain other invested assets.
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TABLE OF CONTENTS
ITEM 7 | Business Segment Operations
2022 to 2021 Comparison
See "-Financial Highlights"
2021 to 2020 Comparison
See "-Financial Highlights"
Premiums and Deposits and Net Flows
For Group Retirement, premiums primarily represent amounts received on
life-contingent payout annuities while deposits represent sales on
investment-oriented products.
Net flows for annuity products included in Group Retirement represent premiums and deposits less death, surrender and other withdrawal benefits. Net flows for mutual funds represent deposits less withdrawals. For Group Retirement, client deposits into advisory and brokerage accounts less total client withdrawals from advisory and brokerage accounts are not included in net flows. Net new assets into these products contribute to growth in AUA rather than AUM. Premiums and Deposits and Net Flows Years Ended December 31, (in millions) 2022 2021 2020 In-plan(a)(b)$ 5,818 $ 5,911 $ 5,412 Out-of-plan proprietary variable annuity 975 1,288 1,420 Out-of-plan proprietary fixed and index annuities 1,149 567 664 Premiums and deposits(c)$ 7,942 $ 7,766 $ 7,496 Net Flows$ (3,111) $ (3,208) $ (1,940)
(a) In-plan premium and deposits include sales of variable and fixed annuities
as well as mutual funds for 403(b), 401(a), 457(b) and 401(k) plans.
(b) Includes inflows related to in-plan mutual funds of
billion
respectively.
(c) Excludes client deposits into advisory and brokerage accounts of
billion
2021 and 2020, respectively.
2022 to 2021 Comparison
Net flows remained negative but improved by
•increase in deposits of
annuity due to higher interest rates, partially offset by lower out-of-plan
variable annuity due to market volatility.
Partially offset by:
•increase in surrenders and withdrawals of
expected surrenders and partial withdrawals within the fixed and variable
annuity segments; and
•increase in death and payout benefit annuity benefits of
2021 to 2020 Comparison
Net flows remained negative and declined by
•higher individual surrenders, withdrawals and death benefits driven mainly by
higher customer account values of
Partially offset by:
•large group activity which contributed net negative flows of$0.1 billion compared to$0.4 billion of net negative flows in the same period in the prior year. Corebridge | 2022 Form 10-K 139
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TABLE OF CONTENTS
ITEM 7 | Business Segment Operations
Surrenders
The following table presents Group Retirement surrenders as a percentage of
average reserves and mutual funds under administration:
Years Ended
2022 2021 2020
Surrenders as a percentage of average reserves and
mutual funds
9.5 % 8.8 % 8.6 %
The following table presents reserves for Group Retirement annuities by
surrender charge category:
December 31,
(in millions) 2022 (a) 2021 (a) 2020 (a)
No surrender charge(b) $ 70,111 $ 81,132 $ 77,507
Greater than 0% - 2% 456 716 565
Greater than 2% - 4% 436 857 829
Greater than 4% 6,316 6,197 6,119
Non-surrenderable 739 810 616
Total reserves $ 78,058 $ 89,712 $ 85,636
(a)Excludes mutual fund assets under administration of
billion
31, 2020
(b)Certain general account reserves in this category are subject to either
participant level or plan level withdrawal restrictions, where withdrawals are
limited to 20% per year.
Group Retirement annuity deposits are typically subject to a five- to seven-year surrender charge period, depending on the product. In addition, for annuity assets held within an employer defined contribution plan, participants can only withdraw funds in certain circumstances without incurring tax penalties (for example, separation from service), regardless of surrender charges. AtDecember 31, 2022 , Group Retirement annuity reserves with no surrender charge decreased compared toDecember 31, 2021 primarily due to a decline in assets under management from lower equity markets. Life Insurance Life Insurance Results Years Ended December 31, (in millions) 2022 2021 2020 Revenues: Premiums$ 1,871 $ 1,573 $ 1,526 Policy fees 1,491 1,380 1,384 Net investment income: Base portfolio income 1,282 1,246 1,290 Variable investment income* 107 375 242 Net investment income 1,389 1,621 1,532 Other income 121 110 94 Total adjusted revenues 4,872 4,684 4,536 Benefits and expenses: Policyholder benefits 3,229 3,231 3,219 Interest credited to policyholder account balances 342 354 373 Amortization of deferred policy acquisition costs 265 164 25 Non-deferrable insurance commissions 131 132 119 Advisory fee expenses 1 - - General operating expenses 656 682 624 Interest expense - 25 30 Total benefits and expenses 4,624 4,588 4,390 Adjusted pre-tax operating income $
248
*Includes income from affordable housing of
years ended
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TABLE OF CONTENTS
ITEM 7 | Business Segment Operations
Life Insurance Sources of Earnings
The following table presents the sources of earnings of the Life Insurance
segment. We believe providing APTOI using this view is useful for gaining an
understanding of our overall results of operations and the significant drivers
of our earnings.
Years Ended December 31,
(in millions) 2022 2021 2020
Underwriting margin(a) $ 1,284 $ 1,067 $ 1,261
General operating expenses (656) (682) (624)
Non-deferrable insurance commissions (131) (132) (119)
Amortization of DAC (272) (231) (234)
Impact of annual actuarial assumption update 24 99 (108)
Other(b) (1) (25) (30)
Adjusted pre-tax operating income (loss) $
248
(a) Underwriting margin represents premiums, policy fees, net investment income
and other income, less policyholder benefits and interest credited to
policyholder account balances. Underwriting margin is also exclusive of the
impacts from the annual assumption update.
(b) Other primarily represents interest expense and advisory fee expenses.
Financial Highlights
2022 to 2021 APTOI Comparison
APTOI increased
•higher underwriting margin of
-higher premiums and fees, net of policyholder benefits, excluding actuarial
assumption updates, of
partially offset by:
-lower net investment income, net of interest credited of$220 million driven by$268 million lower variable investment income reflecting lower gains on call and tender income and reduced alternatives performance partially offset by$48 million higher base portfolio income, net of interest credited, driven by lower yields; and
•lower in general operating expenses of
Partially offset by:
•lower favorable impact from the review and update of actuarial assumptions of
2021 to 2020 APTOI Comparison
APTOI decreased
•$194 million unfavorable underwriting margin driven by higher mortality, partially offset by$89 million in higher net investment income primarily driven by$133 million higher variable investment income reflecting higher gains on calls and alternative investments partially offset by$44 million lower base portfolio income driven by reduced bond yields.
Partially offset by:
•favorable impact from the review and update of actuarial assumptions of
million
AUMA
The following table presents Life Insurance AUMA:
December 31,
(in millions) 2022 2021 2020
Total AUMA $ 27,760 $ 34,355 $ 34,781
2022 to 2021 AUMA Comparison
AUMA decreased
prior year-end due to net unrealized losses from fixed maturity securities
driven by higher rates and a widening of credit spreads.
2021 to 2020 AUMA Comparison
AUMA decreased$0.4 billion in the year endedDecember 31, 2021 compared to the prior year as net unrealized losses from fixed maturity securities driven by higher rates, were only partially offset by growth in the Life Insurance businesses. Corebridge | 2022 Form 10-K 141
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TABLE OF CONTENTS
ITEM 7 | Business Segment Operations
Underwriting Margin
The following table presents Life Insurance underwriting margin:
Years Ended December 31,
(in millions) 2022 2021 2020
Premiums $ 1,871 $ 1,573 $ 1,526
Policy fees 1,491 1,380 1,384
Net investment income 1,389 1,621 1,532
Other income 121 110 94
Policyholder benefits (3,229) (3,231) (3,219)
Interest credited to policyholder account balances (342) (354) (373)
Less: Impact of annual actuarial assumption update (17) (32) 317
Underwriting margin $ 1,284 $ 1,067 $ 1,261
2022 to 2021 Comparison
See "-Financial Highlights"
2021 to 2020 Comparison
See "-Financial Highlights"
Premiums and Deposits
Premiums and Deposits for Life Insurance represent amounts received on life and
health policies. Premiums generally represent amounts received on traditional
life products, while deposits represent amounts received on universal life
products.
Years Ended December 31,
(in millions) 2022 2021 2020
Traditional Life $ 1,766 $ 1,737 $ 1,696
Universal Life 1,600 1,635 1,649
Other* 54 67 76
Total U.S. 3,420 3,439 3,421
International 816 789 626
Premiums and deposits $ 4,236 $ 4,228 $ 4,047
*Other includes Accident and Health business as well as Group benefits.
2022 to 2021 Comparison
Premiums and deposits, excluding the effect of foreign exchange, increased
million
international life premiums.
2021 to 2020 Comparison
Premiums and deposits, excluding the effect of foreign exchange, increased
million
international life premiums.
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ITEM 7 | Business Segment Operations
Institutional Markets
Institutional Markets Results
Years Ended December 31,
(in millions) 2022 2021 2020
Revenues:
Premiums $ 2,913 $ 3,774 $ 2,564
Policy fees 194 187 186
Net investment income:
Base portfolio income 995 865 827
Variable investment income* 54 290 104
Net investment income 1,049 1,155 931
Other income 2 2 1
Total adjusted revenues 4,158 5,118 3,682
Benefits and expenses:
Policyholder benefits 3,381 4,141 2,886
Interest credited to policyholder account balances 320 274 303
Amortization of deferred policy acquisition costs 6 6 5
Non-deferrable insurance commissions 29 27 31
General operating expenses 73 77 79
Interest expense - 9 11
Total benefits and expenses 3,809 4,534 3,315
Adjusted pre-tax operating income $
349
*Includes income from affordable housing of
years ended
Institutional Markets Sources of Earnings
The following table presents the sources of earnings of the Institutional
Markets segment. We believe providing APTOI using this view is useful for
gaining an understanding of our overall results of operations and the
significant drivers of our earnings.
Years Ended December 31,
(in millions) 2022 2021 2020
Spread income(a) $ 295 $ 478 $ 290
Fee income(b) 63 61 62
Underwriting margin(c) 77 102 75
Non-deferrable insurance commissions (29) (27) (31)
General operating expenses (73) (77) (79)
Other(d) 16 47 50
Adjusted pre-tax operating income $ 349
(a) Represents spread income on GIC, PRT and structured settlement products.
(b) Represents fee income on SVW products.
(c) Represents underwriting margin from Corporate Markets products, including
COLI-BOLI, private placement variable universal life insurance and private
placement variable annuity products.
(d) Includes net investment income on SVW products of
and
respectively.
Financial Highlights 2022 to 2021 APTOI Comparison
APTOI decreased
•lower spread income of
investment income, primarily private equity and call and tender income,
partially offset by
•lower underwriting margin of
income primarily call and tender income; and
•lower other activities of
benefits on PRT business.
2021 to 2020 APTOI Comparison
APTOI increased
•higher spread income of
investment income, including both private equity and call and tender income, and
assets; and
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ITEM 7 | Business Segment Operations
•$27 million higher underwriting margin primarily due to higher variable
investment income.
AUMA
The following table presents Institutional Markets AUMA:
December 31,
(in millions) 2022 2021 2020
SVW (AUA) $ 47,078 $ 43,830 $ 43,310
GIC, PRT and Structured settlements (AUM) 23,096 23,863 21,910
All other (AUM) 7,590 8,810 8,457
Total AUMA $ 77,764 $ 76,503 $ 73,677
2022 to 2021 AUMA Comparison
AUMA increased $1.3 billion , primarily due to premiums and deposits of PRT and
GIC products of $4.3 billion and net inflows of $2.4 billion into SVW products,
partially offset by the impact of the recent interest rate environment on asset
valuations across the Institutional Markets businesses of $3.7 billion and
benefit payments on the PRT, GIC and structured settlement products of $1.7
billion .
2021 to 2020 AUMA Comparison
AUMA increased$2.8 billion , primarily due to premiums and deposits of PRT and GIC products of$5.0 billion and higher SVW notional driven by growth in underlying assets of$0.8 billion , partially offset by benefit payments, contract maturities and other outflows of$2.7 billion and net outflows from plan sponsors and plan participants of$0.3 billion .
Spread Income, Fee Income and Underwriting Margin
The following table presents Institutional Markets spread income, fee income and
underwriting margin:
Years Ended December 31,
(in millions) 2022 2021 2020
Net investment income $ 901 $ 969 $ 777
Interest credited to policyholder account balances (213) (166) (195)
Policyholder benefits (393) (325) (292)
Total spread income(a) $ 295 $ 478 $ 290
SVW fees 63 61 62
Total fee income $ 63 $ 61 $ 62
Premiums (37) (35) (36)
Policy fees (excluding SVW) 131 126 124
Net investment income 143 175 147
Other income 2 1 1
Policyholder benefits (52) (57) (53)
Interest credited to policyholder account balances (107) (108) (108)
Less: Impact of annual actuarial assumption update (3) - -
Total underwriting margin(b) $ 77 $ 102 $ 75
(a)Represents spread income from GIC, PRT and structured settlement products.
(b)Represents underwriting margin from Corporate Markets products, including
COLI-BOLI, private placement variable universal life insurance and private
placement variable annuity products.
2022 to 2021 Comparison
See "-Financial Highlights"
2021 to 2020 Comparison
See "-Financial Highlights"
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ITEM 7 | Business Segment Operations
Premiums and Deposits
The following table presents the Institutional Markets premiums and deposits:
Years Ended December 31,
(in millions) 2022 2021 2020
PRT $ 2,749 $ 3,667 $ 2,344
GICs 1,000 1,000 2,124
Other* 576 290 405
Premiums and deposits $ 4,325 $ 4,957 $ 4,873
*Other principally consists of structured settlements, Corporate Markets and SVW
product.
2022 to 2021 Comparison Premiums and deposits decreased compared to the prior year period by$632 million , primarily due to lower premiums on new PRT business of$918 million partially offset by higher premiums on sales of structured settlement annuities of$294 million . 2021 to 2020 Comparison Premiums and deposits increased in 2021 compared to the prior year by$84 million , primarily due to higher sales of PRT of$1.3 billion , partially offset by lower issuance of GICs of$1.1 billion and lower structured settlements of$116 million . Corporate and Other
Corporate and Other primarily consists of interest expense on financial debt,
parent expenses not attributable to other segments, institutional asset
management business, which includes managing assets for non-consolidated
affiliates, results of our consolidated investment entities, results of our
legacy insurance lines ceded to Fortitude Re and intercompany eliminations.
Corporate and Other Results
Years Ended December 31,
(in millions) 2022 2021 2020
Revenues:
Premiums(a) $ 82 $ 86 $ 74
Net investment income 473 443 346
Net realized gains on real estate investments 170 701 54
Other income 121 134 122
Total adjusted revenues 846 1,364 596
Benefits and expenses:
Non-deferrable insurance commissions 2 3 3
General operating expenses:
Corporate and other(a)(b) 241 220 179
Asset management(c) 143 155 130
Total general operating expenses 384 375 309
Interest expense:
Corporate 299 57 50
Asset Management and other(d) 236 229 274
Total interest expense 535 286 324
Total benefits and expenses 921 664 636
Noncontrolling interest(e) (320) (861) (194)
Adjusted pre-tax operating loss before consolidation
and eliminations
(395) (161) (234) Consolidations and eliminations 12 (2) (2) Adjusted pre-tax operating loss$ (383) $ (163) $ (236)
(a)Premiums include an expense allowance associated with Fortitude Re which is
entirely offset in general and operating expenses - Corporate and other.
(b)General and operating expenses - Corporate and other include expenses incurred by AIG which were not billed to Corebridge. These amounts were$143 million and$103 million for the years endedDecember 31, 2021 and 2020, respectively. As part of separation in 2022, these expenses are now directly incurred by Corebridge. (c)General operating expenses - Asset management primarily represent the costs to manage the investment portfolio for affiliates that are not included in the consolidated financial statements of Corebridge. (d)Interest expense - Asset Management relates to consolidated investment entities, the VIEs, for which we are the primary beneficiary; however, creditors or beneficial interest holders of VIEs generally only have recourse to the assets and cash flows of the VIEs and do not have recourse to us except in limited circumstances when we have provided a guarantee to the VIE's interest holders. As ofDecember 31, 2021 , the VIEs for which Corebridge previously provided guarantees have been terminated. Interest expense on consolidated investment entities was$216 million and$257 million for the years endedDecember 31, 2021 and 2020, respectively. (e)Noncontrolling interests represent the third party or Corebridge affiliated interest in internally managed consolidated investment vehicles and are almost entirely offset within net investment income, net realized gains (losses) and interest expense. Corebridge | 2022 Form 10-K 145
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ITEM 7 | Business Segment Operations
Corporate and Other Sources of Earnings
The following table presents the sources of earnings of the Corporate and Other
segment. We believe providing APTOI using this view is useful for gaining an
understanding of our overall results of operations and the significant drivers
of our earnings.
Years Ended December 31,
(in millions) 2022 2021 2020
Corporate expenses $ (160) $ (143) $ (103)
Interest expense on financial debt (299) (57) (50)
Asset Management 38 30 (15)
Consolidated investment entities(a) 24 19 (62)
Other(b)(c) 14 (12) (6)
Adjusted pre-tax operating income (loss) $
(383)
(a) Includes$(25) million and$(88) million for the years endedDecember 31, 2021 and 2020, respectively of APTOI attributable to six transactions AIG entered into between 2012 and 2014 which securitized portfolios of certain debt securities, the majority of which were previously owned by Corebridge. During the year endedDecember 31, 2021 , all six transactions were terminated. See Note 9 to our audited annual consolidated financial statements. (b) Includes$56 million for the year endedDecember 31, 2022 related to Corebridge's ownership interest in Fortitude Re Bermuda, which is recorded using the measurement alternative for equity securities. Our investment in Fortitude Re Bermuda totaled$156 million and$100 million atDecember 31, 2022 andDecember 31, 2021 , respectively.
(c) Includes
non-recurring losses associated with the unwind of internal securitizations with
AIG as part of separation
Financial Highlights 2022 to 2021 APTOI Comparison Adjusted pre-tax operating loss of$383 million in 2022 compared to an adjusted pre-tax operating loss of$163 million in 2021, an unfavorable change of$220 million , was primarily due to: •higher interest expense on financial debt of$242 million primarily due to the issuance of senior unsecured notes, hybrid junior subordinated notes and borrowing under our Three-Year DDTL Facility in 2022 totaling$9.0 billion and the interest expense from the$8.3 billion affiliated promissory note to AIG. We used a portion of the proceeds from the debt issuances to repay the$8.3 billion affiliated promissory note to AIG. For more information on these transactions, see Note 13 to our audited annual consolidated financial statements.
Partially offset by:
•favorable change from other sources of earnings of$26 million primarily due to a$56 million gain related to a change in value of our minority investment in Fortitude Re partially offset by net investment losses from certain legacy investments.
2021 to 2020 APTOI Comparison
Adjusted pre-tax operating loss of$163 million in 2021 compared to an adjusted pre-tax operating loss of$236 million in 2020; this favorable change of$73 million was primarily due to: •higher income from consolidated investment entities of$81 million primarily from lower interest expense on certain consolidated investment entities which were terminated during 2021 as well as gains in certain consolidated real estate investment funds; and
•higher income from legacy investments held outside of the investment insurance
companies.
Partially offset by:
•higher parent expenses of
related to AIG which were not billed to Corebridge.
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ITEM 7 | Investments
Investments
OVERVIEW
Our investment strategies are tailored to the specific business needs of each
operating unit by targeting an asset allocation mix that supports estimated cash
flows of our outstanding liabilities and provides diversification from asset
class, sector, issuer and geographic perspectives. The primary objectives are
generation of investment income, preservation of capital, liquidity management
and growth of surplus. The majority of assets backing our insurance liabilities
consist of fixed maturity securities, RMBS, CMBS, CLOs, other ABS and fixed
maturity securities issued by government-sponsored entities and corporate
entities. At December 31, 2022 , for $186.5 billion of invested assets supporting
our insurance operating companies, approximately 48% are in corporate debt
securities with no one industry representing more than 26%. Mortgage- backed
securities ("MBS"), ABS and CLOs represent 29% of our fixed income securities
and 99% are investment grade. Approximately 27% is rated BBB, BBB+ or BBB-, of
which, 83% is rated BBB or BBB+. At December 31, 2021 , for $212.5 billion of
invested assets supporting our insurance operating companies, approximately 54%
are in corporate debt securities with no one industry representing more than
25%. MBS, ABS and CLOs represent 24% of our fixed income securities and 98% are
investment grade.
See "Business-Investment Management" for further information, including current
and future management of our investment portfolio.
Key Investment Strategies
Investment strategies are assessed at the segment level and involve considerations that include local and general market conditions, duration and cash flow management, risk appetite and volatility constraints, rating agency and regulatory capital considerations, and tax and legal investment limitations. InNovember 2021 , we entered into a strategic partnership withBlackstone that we believe has the potential to yield significant economic and strategic benefits over time. We believe thatBlackstone's ability to originate attractive and privately sourced, fixed-income oriented assets, will be accretive to our businesses and provide us with an enhanced competitive advantage. Pursuant to the partnership, we initially transferred management of$50 billion of our existing investment portfolio. Beginning in the fourth quarter of 2022, we transferred an additional$2.1 billion toBlackstone . The amount managed byBlackstone will increase to$92.5 billion by the third quarter of 2027. As ofDecember 31, 2022 , the book value of the assets transferred toBlackstone was$48.9 billion . We expectBlackstone to invest these assets primarily inBlackstone -originated investments across a range of asset classes, including private and structured credit, and commercial and residential real estate securitized and whole loans.Blackstone's preferred credit and lending strategy is to seek to control all significant components of the underwriting and pricing processes with the goal of facilitating bespoke opportunities with historically strong credit protection and attractive risk-adjusted returns.Blackstone seeks to capture enhanced economics to those available in the traditional fixed income markets by going directly to the lending source. As described above,Blackstone currently manages a portfolio of private and structured credit assets, commercial and residential real estate securitized and whole loans for Corebridge. We believeBlackstone is well-positioned to add value and drive new originations across credit and real estate asset classes. We continue to manage asset allocation and portfolio-level risk management decisions with respect to any assets managed byBlackstone , ensuring that we maintain a consistent level of oversight across our entire investment portfolio considering our asset-liability matching needs, risk appetite and capital positions. Under the investment management agreements with BlackRock, we have completed the transfer of the management of approximately$82.4 billion in book value of liquid fixed income and certain private placement assets in the aggregate to BlackRock as ofDecember 31, 2022 . In addition, liquid fixed income assets associated with Fortitude Re portfolio were separately transferred to BlackRock. The investment management agreements contain detailed investment guidelines and reporting requirements. These agreements also contain reasonable and customary representations and warranties, standard of care, expense reimbursement, liability, indemnity and other provisions.
Some of our key investment strategies are as follows:
•our fundamental strategy across the portfolios is to seek investments with
characteristics similar to the associated insurance liabilities to the extent
practicable;
•we seek to purchase investments that offer enhanced yield through illiquidity
premiums, such as private placements and commercial mortgage loans, which also
add portfolio diversification. These assets typically afford stronger credit
protections through financial covenants, ability to customize structures that
meet our insurance liability needs and deeper due diligence;
•we seek investments that provide diversification from local markets. To the
extent we purchase these investments, we generally hedge any currency risk using
derivatives, which could provide opportunities to earn higher risk-adjusted
returns compared to investments in the functional currency;
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ITEM 7 | Investments
•we actively manage our assets and liabilities, counterparties and duration. Our
liquidity sources are held primarily in the form of cash, short-term investments
and publicly traded, investment-grade rated fixed maturity securities that can
be readily monetized through sales or repurchase agreements. Certain of our
subsidiaries are members of the Federal Home Loan Banks in their respective
districts, and we borrow from the FHLB utilizing its funding agreement program.
Borrowings from FHLBs are used to supplement liquidity or for other uses deemed
appropriate by management. This strategy allows us to both diversify our sources
of liquidity and reduce the cost of maintaining sufficient liquidity;
•within
reserve-backing and surplus portfolios; and
-insurance reserves are backed mainly by investment-grade fixed maturity securities that meet our duration, risk-return, tax liquidity, credit quality and diversification objectives. We assess asset classes based on their fundamental underlying risk factors, including credit (public and private), commercial real estate and residential real estate, regardless of whether such investments are bonds, loans or structured products. -surplus investments seek to enhance portfolio returns and generally comprise a mix of fixed maturity investment grade and below-investment-grade securities and various alternative asset classes, including private equity, real estate equity and hedge funds. Over the past few years, hedge fund investments have been reduced with more emphasis given to private equity, real estate and below-investment-grade credit. •outside ofthe United States , fixed maturity securities held by our insurance companies consist primarily of investment-grade securities generally denominated in the currencies of the countries in which we operate.
Asset Liability Management
Our investment strategy is to provide net investment income to back policyholder benefit and deposit liabilities that result in stable distributable earnings and enhance portfolio value, subject to asset-liability management, capital, liquidity and regulatory constraints. We use asset-liability management as a primary tool to monitor and manage interest and duration risk in our businesses. We maintain a diversified, high to medium quality portfolio of fixed maturity securities issued by corporations, municipalities and other governmental agencies; structured securities collateralized by, among other assets, residential and commercial real estate; and commercial mortgage loans that, to the extent practicable, match the duration characteristics of the liabilities. We seek to diversify the portfolio across asset classes, sectors and issuers to mitigate idiosyncratic portfolio risks. The investment portfolio of each product line is tailored to the specific characteristics of its insurance liabilities, and as a result, duration varies between distinct portfolios. The interest rate environment has a direct impact on the asset liability management profile of the businesses, and changes in the interest rate environment may result in the need to lengthen or shorten the duration of the portfolio. In a rising rate environment, we may shorten the duration of the investment portfolio.
Fixed maturity securities of our domestic operations have an average duration of
7.2 years as of
In addition, we seek to enhance surplus portfolio returns through investments in
a diversified portfolio of alternative investments. Although these alternative
investments are subject to earnings fluctuations, they have historically
achieved accumulative returns over time in excess of the fixed maturity
portfolio returns.
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ITEM 7 | Investments
Investment Portfolio
The following table presents carrying amounts of our total investments:
Excluding Fortitude
Re Funds Withheld Fortitude Re Funds
(in millions) Assets Withheld Assets Total
December 31, 2022
Bonds available for sale:
U.S. government and government-sponsored entities $ 925 $ 273 $ 1,198
Obligations of states, municipalities and political
subdivisions 5,195 731 5,926
Non-U.S. governments(a) 3,977 415 4,392
Corporate debt(a) 91,939 12,753 104,692
Mortgage-backed, asset-backed and collateralized:
RMBS 11,122 822 11,944
CMBS 9,528 540 10,068
CLO 7,994 192 8,186
ABS 9,774 613 10,387
Total mortgage-backed, asset-backed and
collateralized 38,418 2,167 40,585
Total bonds available for sale 140,454 16,339 156,793
Other bond securities 284 3,485 3,769
Total fixed maturities 140,738 19,824 160,562
Equity securities 170 - 170
Mortgage and other loans receivable:
Residential mortgages 5,851 - 5,851
Commercial mortgages 29,190 3,272 32,462
Life insurance policy loans 1,395 355 1,750
Commercial loans, other loans and notes receivable 4,285 218 4,503
Total mortgage and other loans receivable(b) 40,721 3,845 44,566
Other invested assets(c) 8,392 2,026 10,418
Short-term investments 4,331 69 4,400
Total(d) $ 194,352 $ 25,764 $ 220,116
December 31, 2021
Bonds available for sale:
U.S. government and government-sponsored entities $ 1,255 $ 457 $ 1,712
Obligations of states, municipalities and political
subdivisions 7,240 1,436 8,676
Non-U.S. governments(a) 5,579 818 6,397
Corporate debt(a) 118,715 21,348 140,063
Mortgage-backed, asset-backed and collateralized:
RMBS 13,850 1,108 14,958
CMBS 10,311 989 11,300
CLO 7,163 239 7,402
ABS 7,275 785 8,060
Total mortgage-backed, asset-backed and
collateralized 38,599 3,121 41,720
Total bonds available for sale 171,388 27,180 198,568
Other bond securities 489 1,593 2,082
Total fixed maturities 171,877 28,773 200,650
Equity securities 241 1 242
Mortgage and other loans receivable:
Residential mortgages 4,671 - 4,671
Commercial mortgages 27,176 2,929 30,105
Life insurance policy loans 1,452 380 1,832
Commercial loans, other loans and notes receivable 2,530 250 2,780
Total mortgage and other loans receivable(b) 35,829 3,559 39,388
Other invested assets(c) 8,760 1,807 10,567
Short-term investments 5,421 50 5,471
Total(d) $ 222,128 $ 34,190 $ 256,318
(a) Our credit exposure to the Russian Federation and Ukraine through our fixed
maturity securities portfolio, excluding Fortitude Re funds withheld assets, was
$29 million and $201 million at December 31, 2022 and December 31, 2021 ,
respectively. The credit exposure to the Russian Federation and Ukraine of our
Fortitude Re funds withheld assets fixed maturity securities portfolio was $7
million and $92 million at December 31, 2022 and December 31, 2021 ,
respectively. Exposure to the Russian Federation and Ukraine represents an
immaterial percentage of our aggregate credit exposures on our fixed maturity
securities.
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ITEM 7 | Investments
(b) Net of total allowance for credit losses for
at
(c) Other invested assets, excluding Fortitude Re funds withheld assets, include$5.3 billion and$5.1 billion of private equity funds as ofDecember 31, 2022 andDecember 31, 2021 , respectively, which are generally reported on a one-quarter lag. (d) Includes the consolidation of approximately$9.7 billion and$11.4 billion of consolidated investment entities atDecember 31, 2022 andDecember 31, 2021 , respectively.
The following table presents carrying amounts of our total investments for our
insurance operating subsidiaries excluding the Fortitude Re funds withheld
assets:
(in millions) December 31, 2022 December 31, 2021 Bonds available for sale: U.S. government and government-sponsored entities $ 928 $ 1,260 Obligations of states, municipalities and political subdivisions 5,194 7,240 Non-U.S. governments 3,978 5,578 Corporate Debt 88,876 115,351 Mortgage-backed, asset-backed and collateralized: RMBS 11,546 14,427 CMBS 9,527 10,312 CLO 8,292 7,521 ABS 9,775 7,274 Total mortgage-backed, asset-backed and collateralized 39,140 39,534 Total bonds available for sale 138,116 168,963 Other bond securities 357 561 Total fixed maturities 138,473 169,524 Equity securities 119 19 Mortgage and other loans receivable: Residential mortgages 4,181 2,727 Commercial mortgages 29,632 27,552 Commercial loans, other loans and notes receivable 4,465 2,659 Total mortgage and other loans receivable(a)(b) 38,278 32,938 Other invested assets(d) 5,845 5,657 Short-term investments 3,781 4,329 Total(c) $ 186,496 $ 212,467
(a) Does not reflect allowance for credit loss on mortgage loans of
and
(b) Does not reflect policy loans of
31, 2022
(c) Excludes approximately
investment entities as well as
primarily between the consolidated investment entities and the insurance
operating companies at
(d) Alternatives include private equity funds, which are generally reported on a
one-quarter lag.
Credit Ratings AtDecember 31, 2022 , nearly all our fixed maturity securities were held by ourU.S. entities. 89% of these securities were rated investment grade by one or more of the principal rating agencies. Moody's, S&P, Fitch or similar foreign rating services rate a significant portion of our foreign entities' fixed maturity securities portfolio. Rating services are not available for some foreign-issued securities. Our Investments team, with oversight from credit risk management, closely reviews the credit quality of the foreign portfolio's non-rated fixed maturity securities.
NAIC Designations of
The Securities Valuation Office ("SVO") of the NAIC evaluates the investments of
U.S. insurers for statutory reporting purposes and assigns fixed maturity
securities to one of six categories called 'NAIC Designations.' In general, NAIC
Designations of '1,' highest quality, or '2,' high quality, include fixed
maturity securities considered investment grade, while NAIC Designations of '3'
through '6' generally include fixed maturity securities referred to as below
investment grade. NAIC Designations for non-agency RMBS and CMBS are calculated
using third-party modeling results provided through the NAIC. These
methodologies result in an improved NAIC Designation for such securities
compared to the rating typically assigned by the three major rating agencies.
The following tables summarize the ratings distribution of our subsidiaries'
fixed maturity security portfolio by NAIC Designation, and the distribution by
composite our credit rating, which is generally based on ratings of the three
major rating agencies. As of December 31, 2022 and December 31, 2021 , 91% and
92%, respectively, of our fixed maturity security portfolio, excluding Fortitude
Re funds withheld assets, were investment grade. The fixed maturity security
portfolio of our insurance operating subsidiaries, excluding the Fortitude Re
funds withheld assets, was 94% and 94% investment grade as of December 31, 2022
and December 31, 2021 , respectively. The remaining
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ITEM 7 | Investments
below-investment-grade securities that are not included in consolidated
investment entities relate to middle market and high yield bank loans
securities.
The following tables present the fixed maturity security portfolio categorized
by NAIC Designation, at fair value:
NAIC Designation Excluding Fortitude Re Funds Withheld Assets Total InvestmentTotal Below Investment (in millions) 1 2 Grade 3 4(a) 5(a) 6 Grade TotalDecember 31, 2022 Other fixed maturity securities$ 44,981 $ 45,166 $ 90,147$ 5,058 $ 5,915 $ 655$ 268 $ 11,896 $ 102,043 Mortgage-backed, asset-backed and collateralized 33,031 5,330 38,361 227 73 3 10 313 38,674 Total(b)$ 78,012 $ 50,496 $ 128,508$ 5,285 $ 5,988 $ 658$ 278 $ 12,209 $ 140,717 Fortitude Re funds withheld assets $ 19,824 Total fixed maturities $ 160,541 December 31, 2021 Other fixed maturity securities$ 59,367 $ 60,131 $ 119,498$ 5,743 $ 6,698 $ 803$ 58 $ 13,302 $ 132,800 Mortgage-backed, asset-backed and collateralized 35,241 3,402 38,643 146 88 20 180 434 39,077 Total$ 94,608 $ 63,533 $ 158,141$ 5,889 $ 6,786 $ 823$ 238 $ 13,736 $ 171,877 Fortitude Re funds withheld assets $ 28,773 Total fixed maturities $ 200,650 (a)Includes$2.8 billion and$142 million of consolidated CLOs that are rated NAIC 4 and 5, respectively, as ofDecember 31, 2022 and$3.4 billion and$50 million of NAIC 4 and 5 securities, respectively, as ofDecember 31, 2021 . These are assets of consolidated investment entities and do not represent direct investment of Corebridge's insurance subsidiaries.
(b)Excludes
Designation is available at
The following table presents the fixed maturity security portfolio categorized by NAIC Designation, at fair value, for our insurance operating subsidiaries excluding the Fortitude Re funds withheld assets: (in millions) December 31, 2022 December 31, 2021 NAIC 1 $ 78,518 $ 95,321 NAIC 2 50,946 63,937 NAIC 3 4,860 5,683 NAIC 4 3,224 3,433 NAIC 5 and 6 904 1,150 Total(a)(b) $ 138,452 $ 169,524
(a) Excludes approximately
investment entities and
related to the consolidated investment entities and the insurance operating
subsidiaries at
(b) Excludes
Designation is available at
Composite Corebridge Credit Ratings
With respect to our fixed maturity securities, the credit ratings in the table
below and in subsequent tables reflect: (i) a composite of the ratings of the
three major rating agencies, or when agency ratings are not available, the
rating assigned by the NAIC SVO (100% of total fixed maturity securities), or
(ii) our equivalent internal ratings when these investments have not been rated
by any of the major rating agencies or the NAIC. The "Non-rated" category in
those tables consists of fixed maturity securities that have not been rated by
any of the major rating agencies, the NAIC or us.
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ITEM 7 | Investments
The following tables present the fixed maturity security portfolio categorized
by composite Corebridge credit rating (as described below), at fair value:
Composite Corebridge Credit Rating Excluding Fortitude Re Funds Withheld Total Below Assets Total Investment Investment Grade (in millions)AAA /AA/A BBB Grade BB B CCC and Lower (a)(b) Total December 31, 2022 Other fixed maturity securities $ 46,059 $ 44,068 $ 90,127 $ 5,081 $ 5,910 $ 925 $ 11,916 $ 102,043 Mortgage-backed, asset-backed and collateralized 29,367 5,768 35,135 336 273 2,930 3,539 38,674 Total(c) $ 75,426 $ 49,836 $ 125,262 $ 5,417 $ 6,183 $ 3,855 $ 15,455 $ 140,717 Fortitude Re funds withheld assets $ 19,824 Total fixed maturities $ 160,541 December 31, 2021 Other fixed maturity securities $ 61,496 $ 58,049 $ 119,545 $ 5,767 $ 5,014 $ 2,474 $ 13,255 $ 132,800 Mortgage-backed, asset-backed and collateralized 30,363 3,876 34,239 375 359 4,104 4,838 39,077 Total $ 91,859 $ 61,925 $ 153,784 $ 6,142 $ 5,373 $ 6,578 $ 18,093 $ 171,877 Fortitude Re funds withheld assets $ 28,773 Total fixed maturities $ 200,650 (a) Includes $3.0 billion and $4.1 billion at December 31, 2022 and December 31, 2021, respectively, of certain RMBS that had experienced deterioration in credit quality since its origination but prior to Corebridge's acquisition. These securities are currently rated as investment grade under the NAIC SVO framework. For additional discussion on Purchased Credit Impaired Securities, see Note 5 to our audited annual consolidated financial statements. (b) Includes $3.4 billion of consolidated CLOs as of December 31, 2022 and $3.7 billion as of December 31, 2021. These are assets of consolidated investment entities and do not represent direct investment of Corebridge's insurance subsidiaries.
(c) Excludes $21 million of fixed maturity securities for which no NAIC
Designation is available at December 31, 2022.
The following table presents the fixed maturity security portfolio categorized by composite Corebridge credit rating (as described below), at fair value for our insurance operating subsidiaries: Composite Corebridge Credit Rating For Our Insurance Total Operating Subsidiaries Investment CCC and Total Below (in millions) AAA/AA/A BBB Grade BB B Lower Investment Grade Total December 31, 2022 Other fixed maturity securities $ 46,060 $ 44,410 $ 90,470 $ 4,577 $ 3,236 $ 700 $ 8,513 $ 98,983 Mortgage-backed, asset-backed and collateralized 29,869 5,886 35,755 401 276 3,037 3,714 39,469 Total fixed maturities* $ 75,929 $ 50,296 $ 126,225 $ 4,978 $ 3,512 $ 3,737 $ 12,227 $ 138,452 December 31, 2021 Other fixed maturity securities $ 61,502 $ 58,375 $ 119,877 $ 5,410 $ 3,300 $ 853 $ 9,563 $ 129,440 Mortgage-backed, asset-backed and collateralized 31,056 3,962 35,018 455 365 4,246 5,066 40,084 Total fixed maturities $ 92,558 $ 62,337 $ 154,895 $ 5,865 $ 3,665 $ 5,099 $ 14,629 $ 169,524
* Excludes $21 million of fixed maturity securities for which no NAIC
Designation is available at December 31, 2022.
For a discussion of credit risks associated with Investments, see
"Business-Investment Management-Credit Risk."
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TABLE OF CONTENTS
ITEM 7 | Investments
The following tables present the composite Corebridge credit ratings of our
fixed maturity securities calculated based on their fair value:
Available for Sale Other Fixed Maturity Securities, at Fair Value Total
Excluding Fortitude Funds
Withheld Assets
(in millions) December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021
Rating:
Other fixed maturity securities*
AAA $ 2,493 $ 3,516 $ - $ - $ 2,493 $ 3,516
AA 17,600 23,214 16 - 17,616 23,214
A 25,950 34,766 - - 25,950 34,766
BBB 44,065 58,045 3 4 44,068 58,049
Below investment grade 11,855 11,677 7 7 11,862 11,684
Non-rated 73 1,571 2 - 75 1,571
Total $ 102,036 $ 132,789 $ 28 $ 11 $ 102,064 $ 132,800
Mortgage-backed, asset-
backed and collateralized
AAA $ 11,418 $ 13,002 $ 22 $ 26 $ 11,440 $ 13,028
AA 11,737 12,173 90 83 11,827 12,256
A 6,009 4,957 91 122 6,100 5,079
BBB 5,736 3,820 32 56 5,768 3,876
Below investment grade 3,391 4,634 21 151 3,412 4,785
Non-rated 127 13 - 40 127 53
Total $ 38,418 $ 38,599 $ 256 $ 478 $ 38,674 $ 39,077
Total
AAA $ 13,911 $ 16,518 $ 22 $ 26 $ 13,933 $ 16,544
AA 29,337 35,387 106 83 29,443 35,470
A 31,959 39,723 91 122 32,050 39,845
BBB 49,801 61,865 35 60 49,836 61,925
Below investment grade 15,246 16,311 28 158 15,274 16,469
Non-rated 200 1,584 2 40 202 1,624
Total $ 140,454 $ 171,388 $ 284 $ 489 $ 140,738 $ 171,877
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TABLE OF CONTENTS
ITEM 7 | Investments
Available for Sale Other Fixed Maturity Securities, at Fair Value Total
Fortitude Re Funds
Withheld Assets (in millions) December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021
Rating:
Other fixed maturity securities*
AAA $ 439 $ 720 $ 22 $ 31 $ 461 $ 751
AA 3,272 5,444 706 227 3,978 5,671
A 4,022 6,359 168 109 4,190 6,468
BBB 5,734 9,873 935 384 6,669 10,257
Below investment grade 705 1,663 420 305 1,125 1,968
Non-rated - - 2 - 2 -
Total $ 14,172 $ 24,059 $ 2,253 $ 1,056 $ 16,425 $ 25,115
Mortgage-backed, asset-
backed and collateralized
AAA $ 222 $ 517 $ 88 $ 31 $ 310 $ 548
AA 727 945 478 314 1,205 1,259
A 289 367 146 59 435 426
BBB 348 447 459 60 807 507
Below investment grade 581 838 60 72 641 910
Non-rated - 7 1 1 1 8
Total $ 2,167 $ 3,121 $ 1,232 $ 537 $ 3,399 $ 3,658
Total
AAA $ 661 $ 1,237 $ 110 $ 62 $ 771 $ 1,299
AA 3,999 6,389 1,184 541 5,183 6,930
A 4,311 6,726 314 168 4,625 6,894
BBB 6,082 10,320 1,394 444 7,476 10,764
Below investment grade 1,286 2,501 480 377 1,766 2,878
Non-rated - 7 3 1 3 8
Total $ 16,339 $ 27,180 $ 3,485 $ 1,593 $ 19,824 $ 28,773
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TABLE OF CONTENTS
ITEM 7 | Investments
Other Fixed Maturity Securities, at Fair
Available for Sale Value Total
Total December 31,
(in millions) December 31, 2022 December 31, 2021 2022 December 31, 2021 December 31, 2022 December 31, 2021
Rating:
Other fixed maturity
securities*
AAA $ 2,932 $ 4,236 $ 22 $ 31 $ 2,954 $ 4,267
AA 20,872 28,658 722 227 21,594 28,885
A 29,972 41,125 168 109 30,140 41,234
BBB 49,799 67,918 938 388 50,737 68,306
Below investment grade 12,560 13,340 427 312 12,987 13,652
Non-rated 73 1,571 4 - 77 1,571
Total $ 116,208 $ 156,848 $ 2,281 $ 1,067 $ 118,489 $ 157,915
Mortgage-backed, asset-backed
and collateralized
AAA $ 11,640 $ 13,519 $ 110 $ 57 $ 11,750 $ 13,576
AA 12,464 13,118 568 397 13,032 13,515
A 6,298 5,324 237 181 6,535 5,505
BBB 6,084 4,267 491 116 6,575 4,383
Below investment grade 3,972 5,472 81 223 4,053 5,695
Non-rated 127 20 1 41 128 61
Total $ 40,585 $ 41,720 $ 1,488 $ 1,015 $ 42,073 $ 42,735
Total
AAA $ 14,572 $ 17,755 $ 132 $ 88 $ 14,704 $ 17,843
AA 33,336 41,776 1,290 624 34,626 42,400
A 36,270 46,449 405 290 36,675 46,739
BBB 55,883 72,185 1,429 504 57,312 72,689
Below investment grade 16,532 18,812 508 535 17,040 19,347
Non-rated 200 1,591 5 41 205 1,632
Total $ 156,793 $ 198,568 $ 3,769 $ 2,082 $ 160,562 $ 200,650
* Consists of assets including
entities, obligations of states, municipalities and political subdivisions,
non-
The following table presents the fair value of our aggregate credit exposures to
non-
December 31, 2022 December 31, 2021
Excluding Excluding
Fortitude Re Fortitude Re
Funds Funds
Withheld Fortitude Re Funds Withheld Fortitude Re Funds
(in millions) Assets Withheld Assets Total Assets Withheld Assets Total
Indonesia $ 381 $ 34 $ 415 $ 472 $ 50 $ 522
Chile 343 19 362 443 28 471
United Arab Emirates 298 12 310 372 19 391
Qatar 218 87 305 276 113 389
Mexico 239 27 266 299 74 373
Saudi Arabia 200 22 222 258 29 287
Panama 150 29 179 206 34 240
France 149 17 166 225 36 261
Israel 159 7 166 199 8 207
China 149 13 162 177 30 207
Other 1,691 170 1,861 2,652 414 3,066
Total* $ 3,977 $ 437 $ 4,414 $ 5,579 $ 835 $ 6,414
* Includes bonds available for sale and other bond securities.
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TABLE OF CONTENTS
ITEM 7 | Investments
Investments in Corporate Debt Securities
The following table presents the industry categories of our available-for-sale
corporate debt securities:
December 31, 2022 December 31, 2021
Fair Value Fair Value
Excluding Excluding
Fortitude Re Fortitude Re
Funds Withheld Fortitude Re Funds Funds Withheld Fortitude Re Funds
(in millions) Assets Withheld Assets Total Assets Withheld Assets Total
Industry Category:
Financial institutions $ 23,751 $ 2,699 $ 26,450 $ 29,317 $ 4,231 $ 33,548
Utilities 13,579 2,708 16,287 17,194 4,161 21,355
Communications 5,718 767 6,485 7,653 1,555 9,208
Consumer noncyclical 12,466 1,525 13,991 16,870 2,906 19,776
Capital goods 4,491 462 4,953 5,869 884 6,753
Energy 7,361 1,126 8,487 9,626 1,797 11,423
Consumer cyclical 6,820 581 7,401 8,605 946 9,551
Basic materials 3,285 467 3,752 4,210 820 5,030
Other 14,468 2,418 16,886 19,371 4,048 23,419
Total* $ 91,939 $ 12,753 $ 104,692 $ 118,715 $ 21,348 $ 140,063
* 89% and 90% of investments were rated investment grade at December 31, 2022
and December 31, 2021, respectively.
Our investments in the energy category, as a percentage of total investments in
available-for-sale fixed maturities, were 8% and 8% at December 31, 2022 and
December 31, 2021, respectively. While the energy investments are primarily
investment grade and are actively managed, the category continues to experience
volatility that could adversely affect credit quality and fair value.
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TABLE OF CONTENTS
ITEM 7 | Investments
Investments in RMBS
The following table presents our RMBS available-for-sale securities:
December 31, 2022 December 31, 2021
(in millions) Fair Value Percent of Total Fair Value Percent of Total
Agency RMBS $ 4,478 40% $ 5,909 43%
AAA 4,345 5,736
AA 133 173
A - -
BBB - -
Below investment grade - -
Non-rated - -
Alt-A RMBS 2,641 24% 3,523 25%
AAA 24 4
AA 689 828
A 35 40
BBB 41 63
Below investment grade 1,852 2,588
Non-rated - -
Subprime RMBS 1,217 11% 1,522 11%
AAA - -
AA 68 37
A 65 99
BBB 51 61
Below investment grade 1,033 1,325
Non-rated - -
Prime non-agency 1,471 13% 1,851 13%
AAA 331 290
AA 803 838
A 136 207
BBB 57 191
Below investment grade 144 325
Non-rated - -
Other housing related 1,315 12% 1,045 8%
AAA 795 319
AA 230 497
A 206 196
BBB 77 23
Below investment grade 6 8
Non-rated 1 2
Total RMBS excluding Fortitude Re funds
withheld assets 11,122 100 % 13,850 100%
Total RMBS Fortitude Re funds withheld
assets 822 1,108
Total RMBS(a)(b) $ 11,944 $ 14,958
(a) Includes $3.0 billion and $4.1 billion at December 31, 2022 and December 31,
2021, respectively, of certain RMBS that had experienced deterioration in credit
quality since their origination but prior to Corebridge's acquisition. These
securities are currently rated as investment grade under the NAIC SVO framework.
For additional discussion on Purchased Credit Impaired Securities, see Note 5 to
our audited annual consolidated financial statements.
(b) The weighted average expected life was 6 years at December 31, 2022 and 5
years at December 31, 2021.
Our underwriting principles for investing in RMBS, other ABS and CLOs take into
consideration the quality of the originator, the manager, the servicer, security
credit ratings, underlying characteristics of the mortgages, borrower
characteristics and the level of credit enhancement in the transaction.
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TABLE OF CONTENTS
ITEM 7 | Investments
Investments in CMBS
The following table presents our CMBS available for sale securities:
December 31, 2022 December 31, 2021
(in millions) Fair Value Percent of Total Fair Value Percent of Total
CMBS (traditional) $ 8,085 85 % $ 8,333 81 %
AAA 3,875 4,447
AA 2,642 2,675
A 732 446
BBB 564 408
Below investment grade 272 357
Non-rated - -
Agency 1,017 11 % 1,309 13 %
AAA 484 619
AA 525 676
A - -
BBB 8 14
Below investment grade - -
Non-rated - -
Other 426 4 % 669 6 %
AAA 105 91
AA 131 143
A 97 309
BBB 93 116
Below investment grade - 1
Non-rated - 9
Total excluding Fortitude Re funds withheld
assets 9,528 100 % 10,311 100 %
Total Fortitude Re funds withheld assets 540 989
Total $ 10,068 $ 11,300
The fair value of CMBS holdings decreased slightly during the year ended
December 31, 2022. The majority of our investments in CMBS are in tranches that
contain substantial protection features through collateral subordination. The
majority of CMBS holdings are traditional conduit transactions, broadly
diversified across property types and geographical areas.
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TABLE OF CONTENTS
ITEM 7 | Investments
Investments in ABS/CLOs
The following table presents our ABS/CLO available for sale securities by
collateral type:
December 31, 2022 December 31, 2021
(in millions) Fair Value Percent of Total Fair Value Percent of Total
CDO - bank loan (CLO) $ 7,893 44 % $ 6,318 44 %
AAA 1,056 1,078
AA 4,049 3,599
A 2,384 1,494
BBB 400 142
Below investment grade 4 5
Non-rated - -
CDO - other 100 1 % 845 6 %
AAA - -
AA 100 824
A - -
BBB - -
Below investment grade - 21
Non-rated - -
ABS 9,775 55 % 7,275 50 %
AAA 403 418
AA 2,367 1,883
A 2,354 2,166
BBB 4,445 2,802
Below investment grade 80 4
Non-rated 126 2
Total excluding Fortitude Re funds withheld
assets 17,768 100 % 14,438 100 %
Total Fortitude Re funds withheld assets 805 1,024
Total $ 18,573 $ 15,462
Unrealized Losses of Fixed Maturity Securities
The following tables show the aging of the unrealized losses on
available-for-sale fixed maturity securities, the extent to which the fair value
is less than amortized cost or cost, and the number of respective items in each
category:
Less Than or Equal to Greater Than 20% to Greater Than
December 31, 2022 20% of Cost(b) 50% of Cost(b) 50% of Cost(b) Total
Aging(a) Unrealized
(dollars in millions) Cost(c) Unrealized Loss Items(e) Cost(c) Unrealized Loss Items(e) Cost(c) Unrealized Loss Items(e) Cost(c) Loss(d) Items(e)
Investment-grade bonds
0-6 months $ 58,919 $ 5,036 6,736 $ 30,974 $ 9,161 2,999 $ 447 $ 238 25 $ 90,340 $ 14,435 9,760
7-11 months 22,018 2,112 2,197 3,126 836 159 21 13 1 25,165 2,961 2,357
12 months or more 7,759 942 716 9,398 2,667 690 20 11 3 17,177 3,620 1,409
Total 88,696 8,090 9,649 43,498 12,664 3,848 488 262 29 132,682 21,016 13,526
Below-investment-grade bonds
0-6 months 5,310 354 1,492 823 235 222 39 28 17 6,172 617 1,731
7-11 months 3,544 182 1,201 95 24 51 7 5 7 3,646 211 1,259
12 months or more 3,395 225 1,017 321 87 73 9 8 9 3,725 320 1,099
Total 12,249 761 3,710 1,239 346 346 55 41 33 13,543 1,148 4,089
Total bonds
0-6 months 64,229 5,390 8,228 31,797 9,396 3,221 486 266 42 96,512 15,052 11,491
7-11 months 25,562 2,294 3,398 3,221 860 210 28 18 8 28,811 3,172 3,616
12 months or more 11,154 1,167 1,733 9,719 2,754 763 29 19 12 20,902 3,940 2,508
Total excluding Fortitude Re funds
withheld assets $ 100,945 $ 8,851 13,359 $ 44,737 $ 13,010 4,194 $ 543 $ 303 62 $ 146,225 $ 22,164 17,615
Total Fortitude Re funds withheld
assets $ 18,296 $ 3,593 1,057
Total $ 164,521 $ 25,757 18,672
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ITEM 7 | Investments
Less Than or Equal to Greater than 20% to Greater than
December 31, 2021 20% of cost(b) 50% of cost(b) 50% of cost(b) Total
Aging(a) Unrealized
(dollars in millions) Cost(c) Unrealized loss Items(e) Cost(c) Unrealized loss Items(e) Cost(c) Unrealized loss Items(e)
Cost(c) loss(d) Items(e) Investment-grade bonds 0-6 months $ 22,675 $ 476 2,549 $ 14 $ 5 3 $ 1 $ 1 1 $ 22,690 $ 482 2,553 7-11 months 1,398 69 196 4 1 2 1 1 1 1,403 71 199 12 months or more 4,932 276 684 28 8 9 - - - 4,960 284 693 Total 29,005 821 3,429 46 14 14 2 2 2 29,053 837 3,445 Below-investment-grade bonds 0-6 months 3,902 76 1,385 11 4 12 4 3 7 3,917 83 1,404 7-11 months 972 23 440 20 5 6 1 1 1 993 29 447 12 months or more 1,624 66 417 202 51 26 51 35 18 1,877 152 461 Total 6,498 165 2,242 233 60 44 56 39 26 6,787 264 2,312 Total bonds 0-6 months 26,577 552 3,934 25 9 15 5 4 8 26,607 565 3,957 7-11 months 2,370 92 636 24 6 8 2 2 2 2,396 100 646 12 months or more 6,556 342 1,101 230 59 35 51 35 18 6,837 436 1,154 Total excluding Fortitude Re funds withheld assets $ 35,503 $ 986 5,671 $ 279 $ 74 58 $ 58 $ 41 28 $ 35,840 $ 1,101 5,757 Total Fortitude Re funds withheld assets $ 4,856 $ 174 556 Total $ 40,696 $ 1,275 6,313
(a)Represents the number of consecutive months that fair value has been less
than amortized cost or cost by any amount.
(b)Represents the percentage by which fair value is less than amortized cost or
cost at December 31, 2022 and December 31, 2021.
(c)For bonds, represents amortized cost net of allowance.
(d)The effect on net income of unrealized losses after taxes may be mitigated upon realization because certain realized losses may result in current decreases in the amortization of certain DAC.
(e)Item count is by CUSIP by subsidiary.
The allowance for credit losses was $7 million and $5 million for investment grade bonds, and $141 million and $73 million for below-investment-grade bonds as of December 31, 2022 and December 31, 2021, respectively.
Change in Unrealized Gains and Losses on Investments
The change in net unrealized gains and losses on investments in 2022 was
primarily attributable to a decrease in the fair value of fixed maturity
securities. For 2022, net unrealized losses related to fixed maturity securities
were $40.4 billion due to an increase in interest rates.
The change in net unrealized gains and losses on investments in 2021 was primarily attributable to movements in interest rates and spreads. For 2021, net unrealized losses related to fixed maturity securities were $7.5 billion due primarily to an increase in interest rates.
For further discussion of our investment portfolio, see Notes 4 and 5 to the
audited annual consolidated financial statements.
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TABLE OF CONTENTS
ITEM 7 | Investments
Commercial Mortgage Loans
At December 31, 2022 and December 31, 2021, we had direct commercial mortgage
loan exposure of $33.0 billion and $30.5 billion, respectively. At December 31,
2022 and December 31, 2021, we had an allowance for credit losses of $531
million and $423 million, respectively.
The following tables present the commercial mortgage loan exposure by location
and class of loan based on amortized cost:
Class
Excluding Fortitude Re Funds
Withheld Assets (dollars in
millions) Number of Loans Apartments Offices Retail Industrial Hotel Others Total Percent of Total
December 31, 2022
State:
New York 50 $ 1,355 $ 3,820 $ 282 $ 357 $ 71 $ - $ 5,885 20 %
California 45 507 653 112 1,129 611 13 3,025 10 %
New Jersey 47 1,829 143 322 436 7 22 2,759 9 %
Texas 34 692 687 137 155 143 - 1,814 6 %
Florida 44 343 119 212 151 355 - 1,180 4 %
Massachusetts 11 466 328 471 15 - - 1,280 4 %
Illinois 13 488 353 3 41 - 20 905 3 %
Ohio 16 80 7 83 408 - - 578 2 %
Pennsylvania 14 77 94 189 190 24 - 574 2 %
District of Columbia 5 369 - - - 11 - 380 1 %
Other States 92 1,718 333 549 652 255 19 3,526 12 %
Foreign 55 4,212 1,423 327 1,264 284 216 7,726 27 %
Total* 426 $ 12,136 $ 7,960 $ 2,687 $ 4,798 $ 1,761 $ 290 $ 29,632 100 %
Fortitude Re funds
withheld assets $ 3,361
Total Commercial Mortgages $ 32,993
December 31, 2021
State:
New York 66 $ 1,857 $ 3,645 $ 254 $ 359 $ 71 $ - $ 6,186 23 %
California 45 363 813 172 449 633 13 2,443 9
New Jersey 35 1,782 22 344 201 8 22 2,379 9
Texas 38 458 811 150 158 143 - 1,720 6
Florida 48 271 152 217 165 261 - 1,066 4
Massachusetts 11 425 203 485 16 - - 1,129 4
Illinois 15 468 348 9 45 - 21 891 3
Ohio 18 83 7 88 160 - - 338 1
Pennsylvania 19 78 105 337 66 25 - 611 2
District of Columbia 7 344 53 - - 12 - 409 1
Other States 113 1,323 433 656 394 305 - 3,111 11
Foreign 56 3,925 1,228 714 845 315 245 7,272 27
Total* 471 $ 11,377 $ 7,820 $ 3,426 $ 2,858 $ 1,773 $ 301 $ 27,555 100 %
Fortitude Re funds
withheld assets $ 2,973
Total Commercial Mortgages $ 30,528
*Does not reflect allowance for credit losses.
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TABLE OF CONTENTS
ITEM 7 | Investments
The following tables present debt service coverage ratios and loan-to-value
ratios for commercial mortgages:
Debt Service Coverage Ratios(a)
(in millions) >1.20X 1.00X - 1.20X <1.00X Total
December 31, 2022
Loan-to-value ratios(b)
Less than 65% $ 18,524 $ 2,817 $ 628 $ 21,969
65% to 75% 4,497 429 435 5,361
76% to 80% 314 - 46 360
Greater than 80% 1,338 154 450 1,942
Total commercial mortgages excluding Fortitude
Re(c) $ 24,673 $ 3,400 $ 1,559 $ 29,632
Total commercial mortgages including Fortitude
Re $ 3,361
Total commercial mortgages $ 32,993
December 31, 2021
Loan-to-value ratios(b)
Less than 65% $ 15,526 $ 3,081 $ 1,736 $ 20,343
65% to 75% 4,629 1,044 341 6,014
76% to 80% 237 - 52 289
Greater than 80% 758 45 106 909
Total commercial mortgages excluding Fortitude
Re(c) $ 21,150 $ 4,170 $ 2,235 $ 27,555
Total commercial mortgages including Fortitude
Re $ 2,973
Total commercial mortgages $ 30,528
(a)The debt service coverage ratio compares a property's net operating income to
its debt service payments, including principal and interest. Our weighted
average debt service coverage ratio was 1.9X and 1.9X at December 31, 2022 and
December 31, 2021, respectively. The debt service coverage ratios have been
updated within the last three months.
(b)The loan-to-value ratio compares the current unpaid principal balance of the
loan to the estimated fair value of the underlying property collateralizing the
loan. Our weighted average loan-to-value ratio was 59% and 57% at December 31,
2022 and December 31, 2021, respectively. The loan-to-value ratios have been
updated within the last three to nine months.
(c)Does not reflect allowance for credit losses.
Residential Mortgage Loans
At December 31, 2022 and December 31, 2021, we had direct residential mortgage
loan exposure of $5.9 billion and $4.7 billion, respectively.
The following tables present credit quality performance indicators for
residential mortgages by year of vintage:
December 31, 2022
(in millions) 2022 2021 2020 2019 2018 Prior Total
FICO:(a)
780 and greater $ 294 $ 2,141 $ 652 $ 229 $ 76 $ 437 $ 3,829
720 - 779 536 711 167 75 32 134 1,655
660 - 719 163 79 28 16 9 47 342
600 - 659 2 4 2 1 2 13 24
Less than 600 - - - 1 - 5 6
Total residential
mortgages(b)(c) $ 995 $ 2,935 $ 849 $ 322 $ 119 $ 636 $ 5,856
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ITEM 7 | Investments
December 31, 2021
(in millions) 2021 2020 2019 2018 2017 Prior Total
FICO:(a)
780 and greater $ 1,398 $ 678 $ 284 $ 100 $ 107 $ 325 $ 2,892
720 - 779 1,118 225 83 41 36 94 1,597
660 - 719 44 39 20 11 13 33 160
600 - 659 1 1 2 3 2 6 15
Less than 600 - - - 1 1 6 8
Total residential
mortgages(b)(c) $ 2,561 $ 943 $ 389 $ 156 $ 159 $ 464 $ 4,672
(a)Fair Isaac Corporation ("FICO") is the credit quality indicator used to
evaluate consumer credit risk for residential mortgage loan borrowers and have
been updated within the last three months.
(b)There are no residential mortgage loans under Fortitude Re funds withheld
assets.
(c)Does not include allowance for credit losses.
For additional discussion on commercial mortgage loans, see Note 6 of the Notes
to the audited annual consolidated financial statements.
For additional discussion on credit losses, see Note 5 of the Notes to the
audited annual consolidated financial statements.
Net Realized Gains and Losses
Years Ended December 31, 2022 2021 2020
Excluding Excluding Excluding
Fortitude Fortitude Fortitude Fortitude Fortitude Fortitude
Re Funds Re Funds Re Funds Re Funds Re Funds Re Funds
Withheld Withheld Withheld Withheld Withheld Withheld
(in millions) Assets Assets Total Assets Assets Total Assets Assets Total
Sales of fixed maturity
securities $ (325) $ (232) $ (557) $ 103 $ 647 $ 750 $ (78) $ 660 $ 582
Change in allowance for credit
losses on fixed maturity
securities (115) (31) (146) 8 3 11 (186) 17 (169)
Change in allowance for credit
losses on loans (76) (44) (120) 133 8 141 (61) 3 (58)
Foreign exchange transactions,
net of related hedges 695 61 756 305 20 325 89 (5) 84
Variable annuity embedded
derivatives, net of related
hedges 1,221 - 1,221 94 - 94 159 - 159
Fixed index annuity and indexed
life embedded derivatives, net
of related hedges 584 - 584 11 - 11 (766) - (766)
All other derivatives and hedge
accounting (43) (181) (224) (6) 9 3 (94) 423 329
Sales of alternative
investments and real estate
investments 179 43 222 794 237 1,031 158 (96) 62
Other (57) (13) (70) 176 - 176 14 - 14
Net realized gains (losses) -
excluding Fortitude Re funds
withheld embedded derivative 2,063 (397) 1,666 1,618 924 2,542 (765) 1,002 237
Net realized gains (losses) on
Fortitude Re funds withheld
embedded derivative - 6,347 6,347 - (687) (687) - (3,978) (3,978)
Net realized gains (losses) $ 2,063 $ 5,950
$ 8,013 $ 1,618 $ 237 $ 1,855
$ (765) $ (2,976) $ (3,741)
Higher Net realized gains excluding Fortitude Re funds withheld assets in 2022 compared to the prior year were due primarily to higher derivative gains, which were partially offset by losses in sales of securities versus lower gains in the prior periods. Variable annuity embedded derivatives, net of related hedges, reflected higher gains in 2022 compared to the prior year. Fair value gains or losses in the hedging portfolio are typically not fully offset by increases or decreases in liabilities due to the non-performance or ''own credit'' risk adjustment used in the valuation of the variable annuities with GMWB embedded derivative, which are not hedged as part of our economic hedging program.
Net realized gains (losses) on Fortitude Re funds withheld assets primarily
reflect increases in the valuation of the modified coinsurance and funds
withheld assets. Increases in the valuation of these assets result in losses to
Corebridge as the appreciation on the assets must under those reinsurance
arrangements be transferred to Fortitude Re.
For further discussion of our investment portfolio, see Note 5 to our audited
annual consolidated financial statements.
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ITEM 7 | Investments
Other Invested Assets
We seek to enhance returns through investment in a diversified portfolio of
alternative asset classes, including private equity, real estate equity and
hedge funds.
The following table presents the carrying value of our other invested assets by
type:
December 31, 2022 December 31, 2021
Excluding Excluding
Fortitude Re Fortitude Re
Funds Withheld Fortitude Re Funds Funds Withheld Fortitude Re Funds
(in millions) Assets Withheld Assets Total Assets Withheld Assets Total
Alternative investments(a)(b) $ 6,121 $ 1,893 $ 8,014 $ 5,921 $ 1,606 $ 7,527
Investment real estate(c) 1,698 133 1,831 2,148 201 2,349
All other investments(d) 573 - 573 691 - 691
Total $ 8,392 $ 2,026 $ 10,418 $ 8,760 $ 1,807 $ 10,567
(a)At December 31, 2022, included hedge funds of $884 million and private equity
funds of $7.1 billion. At December 31, 2021, included hedge funds of
$1.0 billion and private equity funds of $6.5 billion. Amounts include Fortitude
Re funds withheld assets. Private equity funds are generally reported on a
one-quarter lag.
(b)At December 31, 2022, 77% of our hedge fund portfolio is available for
redemption in 2022. The remaining 23% will be available for redemption between
2023 and 2028. At December 31, 2021, approximately 73% of our hedge fund
portfolio is available for redemption in 2022. The remaining 27% will be
available for redemption between 2023 and 2028.
(c)Net of accumulated depreciation of $616 million and $493 million at December 31, 2022 and December 31, 2021, respectively. The accumulated depreciation related to the investment real estate held by affordable housing partnerships is $124 million and $123 million at December 31, 2022 and December 31, 2021, respectively. (d)Includes Corebridge's ownership interest in Fortitude Holdings, which is recorded using the measurement alternative for equity securities. Our investment in Fortitude Holdings totaled $156 million and $100 million at December 31, 2022 and December 31, 2021, respectively.
Derivatives and Hedge Accounting
We use derivatives and other financial instruments as part of our financial risk management programs and as part of our investment operations. Interest rate derivatives (such as interest rate swaps) are used to manage interest rate risk associated with embedded derivatives contained in insurance contract liabilities and fixed maturity securities as well as other interest rate sensitive assets and liabilities. Foreign exchange derivatives (principally foreign exchange forwards and swaps) are used to economically mitigate risk associated with foreign denominated investments, net capital exposures and foreign currency transactions. Equity derivatives are used to mitigate financial risk embedded in certain insurance liabilities and economically hedge certain investments. We use credit derivatives to manage our credit exposures. The derivatives are effective economic hedges of the exposures that they are meant to offset. In addition to hedging activities, we also enter into derivative instruments with respect to investment operations, which may include, among other things, CDSs and purchases of investments with embedded derivatives, such as equity linked notes and convertible bonds. We designated certain derivatives entered into with related parties as fair value hedges of available-for-sale investment securities held by our insurance subsidiaries. The fair value hedges include foreign currency forwards and cross-currency swaps designated as hedges of the change in fair value of foreign currency denominated available-for-sale securities attributable to changes in foreign exchange rates. We also designated certain interest rate swaps entered into with related parties as fair value hedges of fixed rate GICs and commercial mortgage loans attributable to changes in benchmark interest rates. Credit risk associated with derivative counterparties exists for a derivative contract when that contract has a positive fair value to us. The maximum potential exposure may increase or decrease during the life of the derivative commitments as a function of maturity and market conditions. All derivative transactions must be transacted within counterparty limits. We utilize various credit enhancements, including letters of credit, guarantees, collateral, credit triggers, credit derivatives, margin agreements and subordination, to reduce the credit risk related to outstanding financial derivative transactions. We require credit enhancements in connection with specific transactions based on, among other things, the creditworthiness of the counterparties and the transaction size and maturity. Furthermore, we enter into certain agreements that have the benefit of set-off and close-out netting provisions, such as ISDA Master Agreements. These provisions provide that, in the case of an early termination of a transaction, we can set off receivables from a counterparty against payables to the same counterparty arising out of all covered transactions. As a result, where a legally enforceable netting agreement exists, the fair value of the transaction with the counterparty represents the net sum of estimated fair values.
For additional information on embedded derivatives, see Notes 4 and 10 of the
Notes to the audited annual consolidated financial statements.
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ITEM 7 | Investments
The following table presents the notional amounts of our derivatives and the
fair value of derivative assets and liabilities in the Consolidated Balance
Sheets:
December 31, 2022 December 31, 2021
Gross Derivative Gross Derivative
Gross Derivative Assets Liabilities Gross Derivative Assets Liabilities
Notional Notional
(in millions) Notional Amount Fair Value Amount Fair Value Notional Amount Fair Value Amount Fair Value
Derivatives designated as
hedging instruments(a)
Interest rate contracts $ 155 $ 202 $ 1,798 $ 77 $ 352 $ 274 $ 980 $ 14
Foreign exchange contracts 3,166 523 3,095 162 3,705 244 2,518 49
Derivatives not designated as
hedging instruments(a)
Interest rate contracts 23,916 481 16,263 1,859 21,811 1,078 21,129 1,377
Foreign exchange contracts 4,357 643 6,126 428 3,883 405 5,112 307
Equity contracts 26,041 417 9,962 27 60,192 4,670 38,734 4,071
Credit contracts - - - - - 1 - -
Other contracts(b) 47,128 15 48 - 43,839 13 133 -
Total derivatives, excluding
Fortitude Re funds withheld $ 104,763 $ 2,281 $ 37,292 $ 2,553 $ 133,782 $ 6,685 $ 68,606 $ 5,818
Total derivatives, Fortitude Re
fund withheld $ 4,382 $ 971 $ 6,096 $ 782 $ 8,602 $ 582 $ 2,932 $ 195
Total derivatives, gross 109,145 3,252 43,388 3,335 142,384 7,267 71,538 6,013
Counterparty netting(c) (2,547) (2,547) (5,785) (5,785)
Cash collateral(d) (406) (691) (798) (37)
Total derivatives on
Consolidated Balance Sheets(e) $ 299 $ 97 $ 684 $ 191
(a)Fair value amounts are shown before the effects of counterparty netting
adjustments and offsetting cash collateral.
(b)Consists primarily of SVWs and contracts with multiple underlying exposures.
(c)Represents netting of derivative exposures covered by a qualifying master
netting agreement.
(d)Represents cash collateral posted and received that is eligible for netting.
(e)Freestanding derivatives only, excludes embedded derivatives. Derivative instrument assets and liabilities are recorded in Other assets and Other liabilities, respectively. Fair value of assets related to bifurcated embedded derivatives was $9 million at December 31, 2022 and zero at December 31, 2021. Fair value of liabilities related to bifurcated embedded derivatives was $8.4 billion and $17.7 billion, respectively, at December 31, 2022 and December 31, 2021. A bifurcated embedded derivative is generally presented with the host contract in the Consolidated Balance Sheets. Embedded derivatives are primarily related to guarantee features in variable annuity products, which include equity and interest rate components, and the funds withheld arrangement with Fortitude Re.
For additional information, see Note 10 of the Notes to the audited annual
consolidated financial statements.
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ITEM 7 | Future Policy Benefits, Policyholder Contract Deposits, DAC and VOBA
Future Policy Benefits, Policyholder Contract Deposits, DAC and VOBA
SIGNIFICANT REINSURANCE AGREEMENTS, VARIABLE ANNUITY GUARANTEED BENEFITS AND
HEDGING RESULTS, DAC AND VOBA, AND ACTUARIAL UPDATES
The following section provides discussion of our significant reinsurance
agreements, variable annuity guaranteed benefits, DACs, VOBAs and actuarial
updates regarding our business segments.
Significant Reinsurance Agreements
In the first quarter of 2018, AIG entered into a series of reinsurance transactions with Fortitude Re related to certain run-off operations (i.e., non-core insurance lines for which policies are still in force until they lapse or otherwise terminate but new policies are no longer issued). As of December 31, 2022 and December 31, 2021, approximately $27.8 billion and $28.5 billion, respectively, of reserves from our run-off lines (i.e., certain annuities written prior to April 2012, along with exposures to whole life, LTC and exited accident and health product lines) related to business written by multiple wholly owned AIG subsidiaries had been ceded to Fortitude Re under these reinsurance transactions. We currently own a less than 3% indirect interest in Fortitude Re.
Refer to "Significant Factors Impacting Our Results" for additional information
on the Fortitude Re reinsurance agreements.
Effective July 1, 2016, AGL entered into an agreement to cede approximately
$5 billion of statutory reserves for certain whole life policies to an
unaffiliated reinsurer. Effective December 31, 2016, AGL recaptured term and
universal life reserves of $16 billion from AGC, subject to the NAIC's Model
Regulation "Valuation of Life Insurance Policies" ("Regulation XXX") and NAIC
Actuarial Guideline 38 ("Guideline AXXX") and ceded approximately $14 billion of
such statutory reserves to the same unaffiliated reinsurer under an amendment to
the July 1, 2016 agreement.
For a summary of significant reinsurers, see "Accounting Policies and
Pronouncements-Critical Accounting Estimates-Reinsurance Recoverable."
For a summary of statutory permitted practices, see "Notes to Consolidated
Financial Statements-Statutory Financial Data and Restrictions-Statutory
Permitted Accounting Practice."
Variable Annuity Guaranteed Benefits and Hedging Results
Our Individual Retirement and Group Retirement businesses offer variable annuity products with GMWB riders that provide guaranteed living benefit features. The liabilities for GMWB are accounted for as embedded derivatives measured at fair value. The fair value of the embedded derivatives may fluctuate significantly based on market interest rates, equity prices, credit spreads, market volatility, policyholder behavior and other factors. In addition to risk-mitigating features in our variable annuity product design, we have an economic hedging program designed to manage market risk from GMWB, including exposures to changes in interest rates, equity prices, credit spreads and volatility. The hedging program utilizes derivative instruments, including but not limited to equity options, futures contracts and interest rate swap and swaption contracts, as well as fixed maturity securities with a fair value election.
For additional discussion of market risk management related to these product
features, see "-Quantitative and Qualitative Disclosures about Market Risk."
Differences in Valuation of Embedded Derivatives and Economic Hedge Target
Our variable annuity hedging program utilizes an economic hedge target, which represents an estimate of the underlying economic risks in our GMWB riders. The economic hedge target differs from the GAAP valuation of the GMWB embedded derivatives, creating volatility in our net income (loss) primarily due to the following:
•the economic hedge target includes 100% of rider fees in present value
calculations; the GAAP valuation reflects only those fees attributed to the
embedded derivative such that the initial value at contract issue equals zero;
•the economic hedge target uses best estimate actuarial assumptions and excludes
explicit risk margins used for GAAP valuation, such as margins for policyholder
behavior, mortality and volatility; and
•the economic hedge target excludes the non-performance, or "own credit" risk
adjustment used in the GAAP valuation, with reflects a market participant's view
of our claims-paying ability by incorporating the NPA spread to the curve used
to discount projected benefit cash flows. Because the GAAP valuation includes
the NPA spread and other explicit risk margins, it has different sensitivities
to movements in interest rates and other market factors, and to changes from
actuarial assumption updates, than the economic hedge target.
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ITEM 7 | Future Policy Benefits, Policyholder Contract Deposits, DAC and VOBA
For more information on our valuation methodology for embedded derivatives
within policyholder contract deposits, see Note 4 to our audited annual
consolidated financial statements.
The market value of the hedge portfolio compared to the economic hedge target at any point in time may be different and is not expected to be fully offsetting. The economic hedge target differs from the GAAP valuation of the GMWB embedded derivatives, creating volatility in our net income (loss). In addition to the derivatives held in conjunction with the variable annuity hedging program, we have cash and invested assets available to cover future claims payable under these guarantees. The primary sources of difference between the change in the fair value of the hedging portfolio and the economic hedge target include:
•basis risk due to the variance between expected and actual fund returns, which
may be either positive or negative;
•realized volatility versus implied volatility;
•actual versus expected changes in the hedge target driven by assumptions not
subject to hedging, particularly policyholder behavior; and
•risk exposures that we have elected not to explicitly or fully hedge.
The following table presents a reconciliation between the fair value of the GAAP
embedded derivatives and the value of our economic hedge target:
December 31,
(in millions) 2022 2021 2020
Reconciliation of embedded derivatives and economic hedge
target:
Embedded derivative liability
$ 677 $ 2,472 $ 3,702 Exclude non-performance risk adjustment (2,362) (2,508) (2,958) Embedded derivative liability, excluding NPA 3,039 4,980 6,660
Adjustments for risk margins and differences in valuation (2,142)
(2,172) (2,632) Economic hedge target liability $ 897
$ 2,808 $ 4,028
Impact on Pre-tax Income (Loss)
The impact on our pre-tax income (loss) of variable annuity guaranteed living benefits and related hedging results includes changes in the fair value of the GMWB embedded derivatives and changes in the fair value of related derivative hedging instruments, both of which are recorded in Net realized gains (losses). Net realized gains (losses), as well as net investment income from changes in the fair value of fixed maturity securities used in the hedging program, are excluded from APTOI of Individual Retirement and Group Retirement. The change in the fair value of the embedded derivatives and the change in the value of the hedging portfolio are not expected to be fully offsetting, primarily due to the differences in valuation between the economic hedge target, the GAAP embedded derivatives and the fair value of the hedging portfolio, as discussed above. When corporate credit spreads widen, the change in the NPA spread generally reduces the fair value of the embedded derivative liabilities, resulting in a gain, and when corporate credit spreads narrow or tighten, the change in the NPA spread generally increases the fair value of the embedded derivative liabilities, resulting in a loss. In addition to changes driven by credit market-related movements in the NPA spread, the NPA balance also reflects changes in business activity and in the net amount at risk from the underlying guaranteed living benefits.
Change in Economic Hedge Target
The decrease in the economic hedge target liability in 2022 was primarily driven by higher interest rates and widening credit spreads, offset by lower equity markets. The decrease in the economic hedge target liability in 2021 was primarily driven by higher interest rates and higher equity markets, partially offset by losses from the review and update of assumptions. The increase in the economic hedge target liability in 2020 was primarily due to lower interest rates and tighter credit spreads, offset by gains from the review and update of actuarial assumptions and higher equity markets.
Change in Fair Value of the Hedging Portfolio
The changes in the fair value of the economic hedge target and, to a lesser
extent, the embedded derivative valuation under GAAP, were offset, in part, by
the following changes in the fair value of the variable annuity hedging
portfolio:
•changes in the fair value of interest rate derivative contracts, which included
swaps, swaptions and futures, resulted in losses driven by higher interest rates
in the years ended December 31, 2022 and 2021 compared to gains driven by lower
interest rates in 2020;
•changes in the fair value of equity derivative contracts, which included
futures, swaps and options, resulted in gains in the year ended December 31,
2022 driven by the decline in the equity market compared to losses in the years
ended December 31, 2021 and 2020 due to gains in the equity market; and
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ITEM 7 | Future Policy Benefits, Policyholder Contract Deposits, DAC and VOBA
•changes in the fair value of fixed maturity securities, primarily corporate bonds, are used as a capital-efficient way to economically hedge interest rate and credit spread-related risk. The change in the fair value of the corporate bond hedging program in the year ended December 31, 2022 reflected losses due to higher interest rates and widening credit spreads. The change in the fair value of the corporate bond hedging program in 2021 reflected losses due to higher interest rates. The change in the fair value of the corporate hedging program in 2020 reflected gains due to decreases in interest rates and tightening credit spreads. DAC and VOBA
The following table summarizes the major components of the changes in DAC:
Years Ended December 31,
(in millions) 2022 2021 2020
Balance, beginning of period
$ 7,949 $ 7,241 $ 7,939
Initial allowance upon CECL adoption
- - 15 Capitalizations 991 1,000 889
Amortization expense:
Update of assumptions included in adjusted pre-tax
operating income
(56) (143) 224 Related to realized (gains) losses (303) (82) 58 All other operating amortization (1,061) (821) (814) Increase (decrease) in DAC due to foreign exchange (64) (6) 17 Change related to unrealized depreciation (appreciation) of investments 5,631 760 (1,085) Other - - (2) Balance, end of period* $ 13,087 $ 7,949 $ 7,241
* DAC balance excluding the amount related to unrealized depreciation
(appreciation) of investments was $9.8 billion, $10.3 billion and $10.4 billion
at December 31, 2022, 2021 and 2020, respectively.
The following table summarizes the major components of the changes in VOBA:
Years Ended December 31,
(in millions) 2022 2021 2020
Balance, beginning of period $ 109 $ 122 $ 130
Amortization expense:
Update of assumptions included in adjusted pre-tax
income
- - 1 Related to realized (gains) losses - - - All other operating amortization (11) (11) (12) Increase (decrease) in VOBA due to foreign exchange (10) (1) 3 Change related to unrealized depreciation (appreciation) of investments 4 (1) 2 Other - - (2) Balance, end of period* $ 92 $ 109 $ 122
* VOBA balance excluding the amount related to unrealized depreciation
(appreciation) of investments was $90 million, $111 million and $147 million at
December 31, 2022, 2021 and 2020, respectively.
Reversion to the Mean
The projected separate account returns on variable annuities use a
reversion-to-the-mean ("RTM") approach, under which we consider historical
returns and adjust projected returns over an initial future period of five years
so that returns converge to the long-term expected rate of return. As of
December 31, 2022 and 2021, we assumed a 7% long-term expected rate of return.
The criterion to review the five-year RTM anchor date is for the current RTM
rate to be less than zero or more than double the long-term growth rate
assumption for three consecutive months. When the anchor date is reset, the RTM
rate is determined to be approximately one-half of the long-term rate. Should
market returns be significantly out of line with our expectations, there are
caps and floors that if breached would trigger a reassessment of the long-term
rate and the RTM rate.
For additional discussion of assumptions related to our reversion to the mean
methodology, see "Update of Actuarial Assumptions and Models" and "-Accounting
Policies and Pronouncements-Critical Accounting Estimates-Estimated Gross
Profits to Value Deferred Acquisition Costs and Unearned Revenue for
Investment-Oriented Products."
DAC and Reserves Related to Unrealized Appreciation or Depreciation of
Investments
DAC, DSI, VOBA and reserves for universal life insurance and investment-oriented
products, including reserves for contracts in loss recognition, are adjusted at
each balance sheet date to reflect the change in DAC, DSI and VOBA, unearned
revenue and benefit reserves with an offset to OCI as if securities available
for sale had been sold at their stated aggregate fair value and the proceeds
reinvested at current yields ("reserve changes related to unrealized
appreciation (depreciation) of investments"). Similarly, for long-
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ITEM 7 | Future Policy Benefits, Policyholder Contract Deposits, DAC and VOBA
duration traditional products, significant unrealized appreciation of
investments in a sustained low interest rate environment may cause additional
future policy benefit liabilities with an offset to OCI to be recorded.
Changes related to unrealized appreciation or depreciation of investments related to DAC, VOBA and unearned revenue generally move in the opposite direction of the change in unrealized appreciation of the available-for-sale securities portfolio, reducing the reported DAC and unearned revenue balance when market interest rates decline. Conversely, changes related to unrealized appreciation or depreciation of investments related to benefit reserves generally move in the same direction as the change in unrealized appreciation of the available-for-sale securities portfolio, increasing reported future policy benefit liability balance when market interest rates decline. Market conditions in the year ended December 31, 2022 drove a $40.4 billion decrease in the unrealized appreciation of the available-for-sale fixed maturity securities portfolio held to support our insurance liabilities at December 31, 2022 compared to December 31, 2021. At December 31, 2022, the changes related to unrealized appreciation (depreciation) of investments reflected increases in amortized balances, including DAC of $5.6 billion and unearned revenue reserves of $0.4 billion, while accrued liabilities such as policyholder benefit liabilities decreased $3.0 billion from December 31, 2021. Market conditions in the year ended December 31, 2021 drove a $7.4 billion decrease in the unrealized appreciation of available-for-sale fixed maturity securities portfolios held to support our insurance liabilities at December 31, 2021 compared to December 31, 2020. At December 31, 2021, the changes related to unrealized appreciation (depreciation) of investments reflected increases in amortized balances including DAC and unearned revenue reserves, while accrued liabilities such as policyholder benefit liabilities decreased $0.9 billion from December 31, 2020.
Update of Actuarial Assumptions and Models
Our life insurance companies review and update actuarial assumptions at least
annually, generally in the third quarter.
Investment-oriented products
We review and update estimated gross profit assumptions used to amortize DAC and related items (which may include VOBA, DSI and unearned revenue reserves) and assessments used to accrue guaranteed benefit reserves at least annually. Estimated gross profit projections include assumptions for investment-related returns and spreads (including investment expenses), product-related fees and expenses, mortality gains and losses, policyholder behavior and other factors. In estimating future gross profits, lapse assumptions require judgment and can have a material impact on DAC amortization. If the assumptions used for estimated gross profits change significantly, DAC and related reserves are recalculated using the new projections, and any resulting adjustment is included in income. Updating such projections may result in acceleration of amortization in some products and deceleration of amortization in other products. We also review assumptions related to their respective GMWB living benefits that are accounted for as embedded derivatives and measured at fair value. The fair value of these embedded derivatives is based on actuarial assumptions, including policyholder behavior, as well as capital market assumptions. Various assumptions were updated, including the following, effective September 30, 2022, which continued to be our best estimate assumptions as of December 31, 2022:
•expected lapses increased primarily due to the impact of higher interest rates
for fixed annuities in Individual Retirement; and
•interest rates and equity correlation used to generate risk neutral path for
variable annuities in Individual Retirement and Group Retirement decreased
resulting in a reduction of GMWB embedded derivatives.
Traditional long-duration products
For traditional long-duration products discussed below, which includes whole
life insurance, term life insurance, accident and health insurance, PRT group
annuities, and life-contingent single premium immediate annuities and structured
settlements, a "lock-in" principle applies. The assumptions used to calculate
the benefit liabilities and DAC are set when a policy is issued and do not
change with changes in actual experience unless a loss recognition event occurs.
A loss recognition event occurs when current liabilities together with expected
future premiums are not sufficient to provide for all future benefits, expenses
and DAC amortization, net of reinsurance. A loss recognition event is driven by
observed changes in actual experience or estimates differing significantly from
"locked-in" assumptions. Underlying assumptions, including interest rates, are
reviewed periodically and updated as appropriate for loss recognition testing
purposes. Reserves for contracts in loss recognition have primarily been
reinsured to Fortitude Re.
The net increases (decreases) to pre-tax income and APTOI because of the update
of actuarial assumptions for the years ended December 31, 2022, 2021 and 2020
are shown in the following tables.
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ITEM 7 | Future Policy Benefits, Policyholder Contract Deposits, DAC and VOBA
The following table presents the increase (decrease) in pre-tax income resulting
from the annual update of actuarial assumptions, by line item as reported in
Results of Operations:
Years Ended December 31,
(in millions) 2022 2021 2020
Premiums $ - $ (41) $ -
Policy fees (3) (74) (106)
Interest credited to policyholder account balances (15) (54) (6)
Amortization of deferred policy acquisition costs (56) (143) 225
Policyholder benefits 17 86 (246)
Decrease in adjusted pre-tax operating income (57) (226) (133)
Change in DAC related to net realized gains (losses) (19) 32 (44)
Net realized gains 70 50 142
Decrease in pre-tax income $ (6) $ (144) $ (35)
The following table presents the increase (decrease) in adjusted pre-tax
operating income resulting from the annual update of actuarial assumptions, by
segment and product line:
Years Ended December 31,
(in millions) 2022 2021 2020
Individual Retirement
Fixed Annuities $ (83) $ (267) $ (77)
Variable Annuities - 7 13
Fixed Index Annuities (3) (60) (30)
Total Individual Retirement (86) (320) (94)
Group Retirement 2 (5) 68
Life Insurance 24 99 (108)
Institutional Markets 3 - 1
Total decrease in adjusted pre-tax operating income
from the update of assumptions*
$
(57) $ (226) $ (133)
*Liabilities ceded to Fortitude Re are reported in Corporate and Other. There was no impact to adjusted pre-tax operating income due to the annual update of actuarial assumptions as these liabilities are 100% ceded. For the period ended December 31, 2022, APTOI included a net unfavorable update of $(57) million, primarily in fixed annuities driven by the impact of higher interest rates on expected lapses. For the period ended December 31, 2021, APTOI included a net unfavorable adjustment of $(226) million, primarily in fixed annuities driven by changes to earned rates causing spread compression partially offset by updates to the Life Insurance reserves for universal life with secondary guarantees and similar features (excluding base policy liabilities and embedded derivatives) model. For the period ended December 31, 2020, APTOI included a net unfavorable adjustment of $(133) million, primarily in fixed annuities, driven by changes to earned rates causing spread compression, partially offset by favorable updates to full surrender assumptions, and in Life Insurance primarily due to mortality modeling enhancements.
The impacts related to the update of actuarial assumptions in each period are
discussed by business segment below.
Update of Actuarial Assumptions by Business Segment Impact to APTOI
Individual Retirement
The annual update of actuarial assumptions resulted in net unfavorable impacts
to APTOI of Individual Retirement of $86 million, $320 million and $94 million
for the years ended December 31, 2022, 2021 and 2020, respectively.
For the year ended December 31, 2022, in fixed annuities, the impact of higher
interest rates on expected lapses resulted in a net unfavorable impact of
$83 million. In the year ended December 31, 2021, the update of estimated gross
profit assumptions resulted in a net unfavorable impact of $267 million, which
reflected lower projected investment earnings. In the year ended December 31,
2020, the update of estimated gross profit assumptions resulted in a net
unfavorable adjustment of $77 million, which reflected lower projected
investment earnings, partially offset by lower assumed lapses.
In variable annuities, there were no updates of actuarial assumptions for the
year ended December 31, 2022. In the year ended December 31, 2021, the update of
estimated gross profit assumptions resulted in a net favorable impact of
$7 million for 2021, driven by lower assumed lapses. In the year ended December
31, 2020, the update of estimated gross profit assumptions resulted in a net
favorable adjustment of $13 million driven by guarantee withdrawal benefit
utilization and updated death benefit reserving estimate, partially offset by
lower projected investment earnings.
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ITEM 7 | Future Policy Benefits, Policyholder Contract Deposits, DAC and VOBA
In fixed index annuities, the update of estimated gross profit assumptions resulted in a $3 million unfavorable impact for the year ended December 31, 2022. In fixed index annuities, the update of estimated gross profit assumptions resulted in a $60 million unfavorable impact for the year ended December 31, 2021, primarily driven from lower projected investment earnings. In the year ended December 31, 2020, the update of estimated gross profit assumptions resulted in a net unfavorable adjustment of $30 million driven by lower projected investment earnings.
Group Retirement
The update of assumptions resulted in a net favorable impact of $2 million for the year ended December 31, 2022. In the year ended December 31, 2021, the update of estimated gross profit assumptions resulted in a net unfavorable impact of $(5) million, driven primarily in the variable annuities line by lower projected investment earnings, largely offset by resetting the RTM rate. In the year ended December 31, 2020, the update of estimated gross profit assumptions resulted in a favorable adjustment of $68 million, primarily in the variable annuities line from extending the DAC amortization projection period, partially offset by updates to expense and lapse assumptions. The DAC amortization projection period was extended to reflect business still in-force at the end of the previous projection period resulting in an increase in modeled future profits and an increase in the current DAC balance.
Life Insurance
The update of actuarial assumptions resulted in a net favorable impact of $24 million for the year ended December 31, 2022, primarily driven by modeling refinements to reflect actual versus expected asset data related to calls and capital gains. For the year ended December 31, 2021, the update of actuarial assumptions resulted in a net favorable impact of $99 million, primarily driven by updates to the modeling of certain policy fees for universal life with secondary guarantees and similar features (excluding base policy liabilities and embedded derivatives), which was partially offset by lower projected investment earnings and model updates involving reinsurance. In the year ended December 31, 2020, the annual update of actuarial assumptions resulted in a net unfavorable adjustment of $108 million, primarily driven by updates to Universal Life mortality assumptions. The mortality updates better align the assumptions with experience and reduce future profits which increases the reserves for affected products. The unfavorable impacts were partially offset by refinements to reserve modeling.
Institutional Markets
For the year ended December 31, 2022, the update of actuarial assumptions
resulted in a net favorable impact of $3 million, primarily driven by updates to
our corporate- and bank-owned life insurance products.
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ITEM 7 | Liquidity and Capital Resources
Liquidity and Capital Resources
OVERVIEW
Liquidity is defined as cash and unencumbered assets that can be monetized in a
short period of time at a reasonable cost. In addition to the on-balance-sheet
liquid assets, liquidity resources include availability under committed bank
credit facilities.
Capital refers to the long-term financial resources available to support the
operation of our businesses, fund business growth, and cover financial and
operational needs that arise from adverse circumstances.
We aim to manage our liquidity and capital resources prudently through a
well-defined risk management framework that involves various target operating
thresholds as well as minimum requirements during periods of stress.
We believe that we have sufficient liquidity and capital resources to satisfy future requirements and meet our obligations to policyholders, customers, creditors and debtholders, including those arising from reasonably foreseeable contingencies or events.
For a discussion regarding risks associated with liquidity and capital, see
"Risk Factors-Risks Relating to Our Investment Portfolio, Liquidity, Capital and
Credit."
LIQUIDITY AND CAPITAL RESOURCES OF COREBRIDGE PARENT AND INTERMEDIATE HOLDING
COMPANIES
As of December 31, 2022 and December 31, 2021, Corebridge Parent and its
non-regulated intermediate holding companies ("Corebridge Hold Cos.") had $4.0
billion and $2.0 billion, respectively, in liquidity sources. These liquidity
sources were primarily held in the form of cash and short-term investments and
included a $2.5 billion committed revolving credit facility as of December 31,
2022. Corebridge Hold Cos.' primary sources of liquidity are dividends,
distributions, loans and other payments from subsidiaries and credit facilities.
Corebridge Hold Cos.' primary uses of liquidity are for debt service, capital
and liability management, and operating expenses.
Corebridge Parent expects to maintain liquidity that is sufficient to cover one
year of its expenses. We expect the Corebridge Hold Cos. may access the debt and
preferred equity markets from time to time to meet funding requirements as
needed.
We utilize our capital resources to support our businesses, with the majority of
capital held by our insurance businesses. Corebridge Hold Cos. intend to manage
capital between Corebridge Hold Cos. and our insurance companies through
internal, Board-approved policies as well as management standards. In addition,
AIG has an unconditional capital maintenance agreement in place with AGC.
Nevertheless, regulatory and other legal restrictions could limit our ability to
transfer capital freely, either to or from our subsidiaries.
As of December 31, 2022, Corebridge Parent and certain of our subsidiaries were
parties to several letter of credit agreements with various financial
institutions which issue letters of credit from time to time in support of our
insurance companies. Letters of credit issued in support of our subsidiaries
(primarily, insurance companies) totaled $272 million and $361 million at
December 31, 2022 and 2021, respectively.
The following table presents Corebridge Hold Cos.' liquidity sources:
Years Ended December 31,
(in millions) 2022 2021 2020
Cash and short-term investments $ 1,495 $ 1,016 $ 1,699
Total Corebridge Hold Cos. liquidity 1,495 1,016 1,699
Available capacity under uncommitted borrowing
facilities with AIG* - 1,025 1,075
Available capacity under committed, revolving credit
facility
2,500 - - Total Corebridge Hold Cos. liquidity sources $ 3,995
$ 2,041 $ 2,774
* The uncommitted borrowing facilities with AIG were terminated on September 19,
2022, for further information, see Note 13.
HOLD COS. LIQUIDITY AND CAPITAL RESOURCES HIGHLIGHTS
SOURCES
During the year ended December 31, 2022, Corebridge Hold Cos. received $1.8 billion in dividends from subsidiaries. During 2021, Corebridge Parent received $1.6 billion in dividends from subsidiaries of which $295 million were non-cash transactions. During 2020, Corebridge Parent received $540 million in dividends from subsidiaries.
On April 5, 2022, Corebridge Parent issued $6.5 billion of senior unsecured
notes.
On August 23, 2022, Corebridge Parent issued $1.0 billion of fixed-to-fixed
reset rate junior subordinated notes.
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ITEM 7 | Liquidity and Capital Resources
On September 15, 2022, Corebridge Parent borrowed an aggregate principal amount
of $1.5 billion under the Three-Year DDTL Facility.
For further information, see "Short-term and Long-term debt" below.
USES
Debt Reduction
In 2022, we repaid the $8.3 billion promissory note issued in November 2021 to AIG. During the year 2021, $216 million aggregate principal amount of AIGLH notes and junior subordinated debentures categorized as general borrowings and guaranteed by AIG were repurchased through cash tender offers for an aggregate purchase price of $312 million. AIG Global Real Estate repaid a $253 million affiliated note and AIGLH repaid $249 million under the unsecured borrowing facilities from AIG during the year ended December 31, 2021. In 2021, AIG Property Company Limited repaid the loan and interest of $9 million toAIG Europe S.A. In 2020, AIGLH repaid $108 million under the unsecured borrowing facilities. We made interest payments on our debt instruments totaling $264 million, $55 million and $50 million during the years ended December 31, 2022, 2021 and 2020, respectively. Dividends Year Ended December 31, 2022 During the year ended December 31, 2022, Corebridge paid cash dividends of $876 million, including two quarterly cash dividends payments of $0.23 per share on Corebridge Common Stock totaling $296 million since the IPO.
Year Ended December 31, 2021
During 2021, Corebridge paid cash dividends of $1.0 billion to AIG.
During 2021, Corebridge made non-cash distributions of $12.2 billion to AIG
consisting of:
•$8.3 billion for which Corebridge issued a promissory note to AIG in the amount of $8.3 billion in November 2021. In 2022 we repaid the principal balance of this promissory note to AIG. For additional information on the $8.3 billion note repayment, see "Short-term and Long-term debt" below;
•$3.8 billion in connection with the sale of Corebridge's affordable housing
assets; and
•$38 million in AIG common stock.
During 2021, Corebridge paid dividends of $34 million in cash to its Class B
shareholder.
During 2021, Cap Corp made a return of capital payment of $536 million to AIG
from excess funds and sale of four subsidiaries.
Year Ended December 31, 2020
During 2020, Corebridge paid dividends of $472 million in cash to AIG.
Tax Sharing Payments
We paid a net amount of $10 million, $31 million and $34 million during the years ended December 31, 2022, 2021 and 2020, respectively, in tax sharing payments in cash to AIG. In addition, in December 2021, Corebridge Hold Cos. made tax sharing payments of $373 million to AIG in connection with the sale of Corebridge's affordable housing assets. The tax sharing payments relating to tax years where we were part of the AIG Consolidated Tax Group may be subject to further adjustment in future periods. In anticipation of future tax sharing payments from AIG, Corebridge Parent made net tax sharing payments to ourU.S. insurance companies of $120 million during the year ended December 31, 2022.
LIQUIDITY AND CAPITAL RESOURCES OF COREBRIDGE INSURANCE SUBSIDIARIES
Insurance Companies
We believe that our insurance companies have sufficient liquidity and capital
resources to satisfy reasonably foreseeable future liquidity requirements and
meet their obligations, including those arising from reasonably foreseeable
contingencies or events; through cash from operations; and, to the extent
necessary, monetization of invested assets. Our insurance companies' liquidity
resources are primarily held in the form of cash; short-term investments; and
publicly traded, investment grade-rated fixed maturity securities.
The liquidity of each of our material insurance companies is monitored through
various internal liquidity risk measures. The primary sources of liquidity are
premiums, deposits, fees, reinsurance recoverables, investment income and
maturities. The primary uses of
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ITEM 7 | Liquidity and Capital Resources
liquidity are paid losses, reinsurance payments, benefit claims, surrenders,
withdrawals, interest payments, dividends, expenses, investment purchases and
collateral requirements.
Certain of our U.S. insurance companies are members of the FHLBs in their
respective districts. Our borrowings from FHLBs are non-puttable and are used to
supplement liquidity or for other uses deemed appropriate by management. Our
U.S. insurance companies had $4.6 billion, $3.6 billion and $3.6 billion which
were due to FHLBs in their respective districts at December 31, 2022, 2021 and
2020, respectively, under funding agreements which were reported in policyholder
contract deposits. These investment contracts do not have mortality or morbidity
risk. Proceeds from funding agreements are generally invested in investments
intended to generate spread income. In addition, our U.S. insurance companies
had no outstanding borrowings in the form of cash advances from FHLBs at
December 31, 2022.
Certain of our U.S. insurance companies have securities lending programs that
lend securities from their investment portfolios to supplement liquidity or for
other uses deemed appropriate by management. Under these programs, these U.S.
insurance companies lend securities to financial institutions and receive cash
as collateral equal to 102% of the fair value of the loaned securities. Cash
collateral received is kept in cash or invested in short-term investments or
used for short-term liquidity purposes.
The aggregate amount of securities that a U.S. insurance company can lend under
its program at any time is limited to 5% of its general account statutory-basis
admitted assets. Our U.S. insurance companies had $3.3 billion of securities
subject to these agreements at December 31, 2021 and $3.4 billion of liabilities
to borrowers for collateral received at December 31, 2021. As of December 31,
2022 we had no loans outstanding under these programs.
In December 2021, our U.S. insurance companies distributed dividends of $295
million to Corebridge in connection with the sale of Corebridge's affordable
housing assets.
Our U.S. insurance companies distributed tax sharing payments of $1.0 billion,
$1.5 billion and $1.7 billion to AIG, Inc. in the years ended December 31, 2022,
2021 and 2020, respectively. In addition, in December 2021, subsidiaries of our
U.S. insurance companies distributed tax sharing payments of $130 million, in
connection with the sale of Corebridge's affordable housing assets. In
anticipation of future tax sharing payments from AIG, Corebridge Parent made net
tax sharing payments to our U.S. insurance companies of $120 million during the
year ended December 31, 2022. After the tax deconsolidation, which occurred at
the IPO, we made additional tax sharing payments to AIG and the IRS for
approximately $151 million primarily due to the realization of previously
deferred gains from intercompany transactions as well as an acceleration of
payments due under the Tax Cut and Jobs Act, which would have been paid over an
eight year period. These tax sharing payments do not impact total tax or our
equity, as deferred tax liabilities have been established for these items.
We manage our combined insurance subsidiary capital to a minimum target Life
Fleet RBC of 400%. AGC serves as an affiliate reinsurance company for the Life
Fleet covering (i) AGL's life insurance policies issued between January 1, 2017
and December 31, 2019 subject to Regulation XXX and AXXX and (ii) life insurance
policies issued between January 1, 2020 and December 31, 2021 subject to
Principle Based Reserving requirements. AGC's RBC ratio includes the full
statutory reserves associated with the above regulations which are in excess of
economic reserves. The surplus of AGC is composed predominantly of holding
company stock. Given that AGC has no primary operations outside of this internal
reinsurance, we believe that excluding AGC from the Life Fleet RBC calculation
presents a more accurate view of the overall capital position of our U.S.
operating entities. We manage the capital for our Life Fleet RBC targeting above
400%. Although not yet filed, our Life Fleet RBC is expected to be above our
minimum target Life Fleet RBC of 400% as of December 31, 2022.
The following table presents normalized distributions:
Years Ended December 31, (in millions) 2022 2021 2020 Subsidiary dividends paid $ 1,821 $ 1,564 $ 540 Less: Non-recurring dividends - (295) 600 Tax sharing payments related to utilization of tax attributes 401 902 1,026 Normalized distributions $ 2,222 $ 2,171 $ 2,166
Corebridge Parent used $876 million from these dividends to pay shareholder
dividends. The remaining dividend proceeds were kept at Corebridge Parent.
In 2020, dividends paid were reduced by $615 million, which together with a contribution of $135 million from AIG in June 2020, were used to fund a special investment account that is used to mitigate the adverse impact to surplus in the event of a recapture of the reinsurance treaties with Fortitude Re. Excluding the requirement to fund the special investment account, in 2020 dividends paid to Corebridge would have been $1.2 billion.
Dividend Restrictions
Payments of dividends to us by ourU.S. insurance subsidiaries are subject to certain restrictions imposed by laws and regulations of their respective states. With respect to our domestic insurance subsidiaries, the payment of a dividend may require formal notice to Corebridge | 2022 Form 10-K 174
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ITEM 7 | Liquidity and Capital Resources
the insurance department of the state in which the particular insurance
subsidiary is domiciled, and prior approval of such insurance regulator is
required when the amount of the dividend is above certain regulatory thresholds.
See "Business - U.S. Regulation - State Insurance Regulation." Other foreign
jurisdictions may restrict the ability of our foreign insurance subsidiaries to
pay dividends.
To our knowledge, no Corebridge insurance company is currently on any regulatory
or similar "watch list" with regard to solvency.
Analysis of Sources and Uses of Cash
Our primary sources and uses of liquidity are summarized as follows:
Years Ended December 31,
(in millions) 2022 2021 2020
Sources:
Operating activities, net $ 2,695 $ 2,461 $ 3,327
Net changes in policyholder account balances 5,786 2,906 4,593
Issuance of long-term debt 7,451 - -
Issuance of debt of consolidated investment entities 946 4,683 2,314
Contributions from noncontrolling interests 146 296 317
Financing other, net 299 81 184
Issuance of short-term debt 1,512 345 -
Net change in securities lending and repurchase
-
agreements 9 646 Effect of exchange rate changes on cash and restricted - cash - 7 Total Sources 18,835 10,781 11,388 Uses: Investing activities, net (7,253) (1,967) (7,909) Repayments of debt of consolidated investment entities (1,228) (5,125) (2,451) Repayments of long-term debt - (568) (11) Repayments of short-term debt (8,312) (248) - Distributions to AIG - (1,543) (472) Distributions to noncontrolling interests (477) (1,611) (454) Dividends paid on common stock (876) - - Net change in securities lending and repurchase
(647)
agreements - - Distributions to Class B shareholder - (34) - Effect of exchange rate changes on cash and restricted (10) cash (2) - Total Uses (18,803) (11,098) (11,297) Net increase (decrease) in cash and cash equivalents $ 32 $ (317) $ 91 Operating Activities Cash inflows from operating activities primarily include insurance premiums, fees and investment income. Cash outflows from operating activities primarily include benefit payments and general operating expenses. Operating cash flow will fluctuate based on the timing of premiums received and benefit payments to policyholders, as well as other core business activities.
Investing Activities
Cash inflows from investing activities primarily include sales and maturities of
underlying assets, mainly fixed maturities available for sale and principal
payments on mortgage and other loans. The primary cash outflows for investing
activities relate to the purchases of new securities, mainly fixed maturities
available for sale.
Financing Activities
Cash inflows from financing activities primarily include policyholder deposits
on investment-type contracts, issuances of debt and inflows from the settlement
of securities lending and repurchase agreements. Cash outflows primarily relate
to policyholder withdrawal activity on investment-type contracts, repayments of
debt of consolidated investment entities, repayments of short and long-term debt
cash distributions to AIG, Inc. and noncontrolling interests and outflows for
the settlement of securities lending and repurchase agreements.
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ITEM 7 | Liquidity and Capital Resources
CONTRACTUAL OBLIGATIONS
The following tables summarize contractual obligations in total, and by
remaining maturity:
December 31, 2022 Payments due by Period (in millions) Total Payments 2023 2024 - 2025 Thereafter Hybrid junior subordinated notes $ 1,000
$ - $ - $ 1,000
Three-Year DDTL Facility*
1,500 1,500 - - Interest payments on short-term debt 45 45 - - Insurance and investment contract liabilities 294,416 25,101 44,953 224,362 Senior unsecured notes 6,500 - 1,000 5,500 Long-term debt issued by Corebridge subsidiaries 427 - 101 326 Interest payments on long-term debt 5,646 356 694 4,596 Total $ 309,534 $ 27,002 $ 46,748 $ 235,784 * On September 15, 2022, Corebridge Parent borrowed an aggregate principal amount of $1.5 billion under the Three-Year DDTL Facility through October 20, 2022. We continued this borrowing through June 21, 2023. We have the ability to further continue this borrowing through February 25, 2025.
Insurance and Investment Contract Liabilities
We expect liquidity needs related to insurance and investment contract liabilities to be funded through cash flows generated from maturities and sales of invested assets, including various investment-type products with contractually scheduled maturities, including periodic payments. These liabilities also include benefit and claim liabilities, of which a significant portion represents policies and contracts that do not have stated contractual maturity dates and may not result in any future payment obligations. For these policies and contracts (i) we are not currently making payments until the occurrence of an insurable event, such as death or disability, (ii) payments are conditional on survivorship or (iii) payment may occur due to a surrender or other non-scheduled event beyond our control. We have made significant assumptions to determine the estimated undiscounted cash flows of these contractual policy benefits. These assumptions include mortality, morbidity, future lapse rates, expenses, investment returns and interest crediting rates, offset by expected future deposits and premiums on in-force policies. Due to the significance of the assumptions, the periodic amounts presented could be materially different from actual required payments. The amounts presented in the table above are undiscounted and exceed the future policy benefits and policyholder contract deposits included in the audited annual Consolidated Balance Sheets. We believe that our insurance companies have adequate financial resources to meet the payments required under these obligations. These subsidiaries have substantial liquidity in the form of cash and short-term investments. In addition, our insurance companies maintain significant levels of investment grade-rated fixed maturity securities, including substantial holdings in government and corporate bonds, and could seek to monetize those holdings in the event operating cash flows are insufficient.
Indemnification Arrangements
We are subject to indemnity arrangements which may be triggered by declines in
asset values; specified business contingencies; the realization of contingent
liabilities; litigation developments; or breaches of representations, warranties
or covenants provided by us. These arrangements are typically subject to time
limitations, defined by contract or by operation of law, such as by prevailing
statutes of limitations. Depending on the specific terms of the arrangements,
the maximum potential obligation may or may not be subject to contractual
limitations. We have recorded liabilities for certain of these arrangements
where it is possible to estimate them. These liabilities are not material in the
aggregate. We are unable to develop a reasonable estimate of the maximum
potential payout under some of these arrangements. Overall, we believe the
likelihood that we will have to make any material payments under these
arrangements is remote.
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ITEM 7 | Liquidity and Capital Resources
SHORT-TERM AND LONG-TERM DEBT
We expect to repay the short-term and long-term debt maturities and interest
accrued on these borrowings through cash flows generated from invested assets,
future cash flows from operations, and future debt and other financing
arrangements.
The following tables provide the roll forward of our total debt outstanding:
Balance at Balance at
Maturity December 31, Maturities December 31,
(in millions) Date(s) 2021 Issuances and Repayments Other Changes 2022
Short-term debt issued by
Corebridge:
Affiliated senior promissory note
with AIG 2022 $ 8,317 $ - $ (8,300) $ (17) * $ -
Affiliated note with AIG Life
(United Kingdom) 2022 - 12 (12) - -
Three-Year DDTL Facility 2023 - 1,500 - - 1,500
Total short-term debt 8,317 1,512 (8,312) (17) 1,500
Long-term debt issued by
Corebridge:
Senior unsecured notes 2025-2052 - 6,500 - - 6,500
Hybrid junior subordinated notes 2052 - 1,000 - - 1,000
Long-term debt issued by
Corebridge subsidiaries:
AIGLH notes 2025-2029 200 - - - 200
AIGLH junior subordinated
debentures 2030-2046 227 - - - 227
Total long-term debt 427 7,500 - - 7,927
Debt issuance costs - (59) - - (59)
Total long-term debt, net of debt
issuance costs 427 7,441 - -
7,868
Total debt, net of issuance costs $ 8,744
$ 8,953 $ (8,312) $ (17) $
9,368
* Represents accrued interest which has been paid-in-kind and thus added to the
total outstanding balance.
SENIOR UNSECURED NOTES AND DELAYED DRAW TERM LOAN
On February 25, 2022, Corebridge Parent entered into an 18-Month Delayed Draw Term Loan Agreement (the "18-Month DDTL Facility") among Corebridge Parent, as borrower, the lenders party thereto and the administrative agent thereto, and a Three-Year DDTL Facility among Corebridge Parent, as borrower, the lenders party thereto and the administrative agent thereto. The 18-Month DDTL Facility and Three-Year DDTL Facility provided us with committed delayed draw term loan facilities in the aggregate principal amount of $6.0 billion and $3.0 billion, respectively. On April 5, 2022, Corebridge Parent issued $6.5 billion of senior unsecured notes consisting of: $1.0 billion aggregate principal amount of its 3.50% Senior Notes due 2025, $1.25 billion aggregate principal amount of its 3.65% Senior Notes due 2027, $1.0 billion aggregate principal amount of its 3.85% Senior Notes due 2029, $1.5 billion aggregate principal amount of its 3.90% Senior Notes due 2032, $500 million aggregate principal amount of its 4.35% Senior Notes due 2042 and $1.25 billion aggregate principal amount of its 4.40% Senior Notes due 2052. On April 6, 2022, in connection with the issuance of the senior unsecured notes of Corebridge Parent, (i) the commitments under the 18-Month DDTL Facility were terminated in full and (ii) the commitments under the Three-Year DDTL Facility were reduced from $3.0 billion to $2.5 billion. On August 25, 2022, in connection with the issuance of the hybrid junior subordinated notes, the commitments under the Three-Year DDTL Facility were further reduced from $2.5 billion to $1.5 billion On September 15, 2022, Corebridge Parent borrowed an aggregate principal amount of $1.5 billion under the Three-Year DDTL Facility. For the current interest period, the Three-Year DDTL Facility will end on June 21, 2023, unless prior to that date Corebridge Parent elects to continue the loan, or a portion of it, for an additional interest period. For the current interest period, the Three-Year DDTL Facility bears interest at a rate per annum equal to the Adjusted Term SOFR Rate (as defined in the Three-Year DDTL Agreement) plus the Applicable Rate (as defined in the Three-Year DDTL Agreement) of 1.000%, which is based on the then-applicable credit ratings of our senior unsecured long-term indebtedness. The Three-Year DDTL Facility matures on February 25, 2025.
HYBRID JUNIOR SUBORDINATED NOTES
On August 23, 2022, Corebridge Parent issued $1.0 billion of 6.875% fixed-to-fixed reset rate hybrid junior subordinated notes due 2052. Subject to certain redemption provisions and other terms of the hybrid junior subordinated notes, the interest rate and interest payment date reset every five years based on the average of the yields on five-yearU.S. Treasury securities, as of the most recent interest rate determination on a reset plus a spread, payable semi-annually. Corebridge | 2022 Form 10-K 177
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ITEM 7 | Liquidity and Capital Resources
AFFILIATED NOTE
In November 2021, Corebridge issued an $8.3 billion senior promissory note to
AIG. We used the net proceeds from the senior unsecured notes, the net proceeds
from the hybrid junior subordinated notes and a portion of the borrowing of the
Three-Year DDTL Facility, discussed above, to repay the principal balance and
accrued interest of this note to AIG. The interest rate per annum was equal to
LIBOR plus 100 basis points and accrued semi-annually in arrears on March 1 and
September 1 of each year, beginning on March 1, 2022.
REVOLVING CREDIT AGREEMENT
On May 12, 2022, Corebridge Parent entered into the Revolving Credit Agreement
(the "Credit Agreement").
The Credit Agreement provides for a five-year total commitment of $2.5 billion, consisting of standby letters of credit and/or revolving credit borrowings without any limits on the type of borrowings. Under circumstances described in the Credit Agreement, the aggregate commitments may be increased by up to $500 million, for a total commitment under the Credit Agreement of $3.0 billion. Loans under the Credit Agreement will mature on May 12, 2027. Under the Credit Agreement, the applicable rate, commitment fee and letter of credit fee are determined by reference to the credit ratings of Corebridge Parent's senior, unsecured, long-term indebtedness. Borrowings bear interest at a rate per annum equal to (i) in the case ofU.S. dollar borrowings, Term SOFR plus an applicable credit spread adjustment plus an applicable rate or an alternative base rate plus an applicable rate; (ii) in the case of Sterling borrowings, SONIA plus an applicable credit spread adjustment plus an applicable rate; (iii) in the case of Euro borrowings,European Union interbankOffer Rate plus an applicable rate; and (iv) in the case of Japanese Yen, Tokyo Interbank Offered Rate plus an applicable rate. The alternative base rate is equal to the highest of (a) the New York Federal ReserveBank Rate plus 0.50%, (b) the rate of interest in effect as quoted by The Wall Street Journal as the "Prime Rate" inthe United States and (c) Term SOFR plus a credit spread adjustment of 0.100% plus an additional 1.00%. The Credit Agreement requires Corebridge Parent to maintain a specified minimum consolidated net worth and subjects Corebridge to a specified limit on consolidated total debt to consolidated total capitalization, subject to certain limitations and exceptions. In addition, the Credit Agreement contains certain customary affirmative and negative covenants, including limitations with respect to the incurrence of certain types of liens and certain fundamental changes. Amounts due under the Credit Agreement may be accelerated upon an "event of default," as defined in the Credit Agreement, such as failure to pay amounts owed thereunder when due, breach of a covenant, material inaccuracy of a representation, or occurrence of bankruptcy or insolvency, subject in some cases to cure periods.
For additional information on debt outstanding and revolving credit facilities,
see Note 13 to the audited annual Consolidated Financial Statements.
DEBT OF CONSOLIDATED INVESTMENT ENTITIES
Our non-financial debt includes debt of consolidated investment entities and
such debt does not represent our contractual obligation and is non-recourse to
Corebridge. This non-financial debt includes notes and bonds payables supported
by cash and investments held by us and certain of our non-insurance subsidiaries
for the repayment of those obligations.
Balance at Balance at
December 31, Maturities Effect of December 31,
(in millions) 2021 Issuances and Repayments Foreign Exchange Other Changes(c) 2022
Debt of consolidated investment
entities - $ 6,936 $ 946 $ (1,228) $ (66) $ (630) $ 5,958
not guaranteed by Corebridge(a)(b)
(a)At December 31, 2022, includes debt of consolidated investment entities
related to real estate investments of $1.4 billion and other securitization
vehicles of $4.6 billion.
(b)In relation to the debt of consolidated investment entities ("VIEs") not
guaranteed by Corebridge, creditors or beneficial interest holders of VIEs
generally only have recourse to the assets and cash flows of the VIEs and do not
have recourse to us.
(c)Other changes reflects the deconsolidation of two consolidated investment
entities.
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ITEM 7 | Liquidity and Capital Resources
CREDIT RATINGS
Credit ratings estimate a company's ability to meet its obligations and may
directly affect the cost and availability of financing to that company.
The following table presents the credit ratings of Corebridge Parent as of the
date of this filing:
Hybrid Junior Subordinated Long-Term Debt Senior Unsecured Long-Term Debt
Moody's(a) S&P(b) Fitch(c) Moody's(a) S&P(b) Fitch(c)
Baa3 (Stable) BBB- (Stable) BBB- (Stable) Baa2 (Stable) BBB+ (Stable) BBB+ (Stable)
(a)Moody's appends numerical modifiers 1, 2 and 3 to the generic rating
categories to show relative position within the rating categories.
(b)S&P ratings may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
(c)Fitch ratings may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
These credit ratings are current opinions of the rating agencies. They may be changed, suspended or withdrawn at any time by the rating agencies because of changes in, or unavailability of, information or based on other circumstances. Ratings may also be withdrawn at our request.
We are party to some agreements that contain "ratings triggers." Depending on
the ratings maintained by one or more rating agencies, these triggers could
result in (i) the termination or limitation of credit availability or a
requirement for accelerated repayment, (ii) the termination of business
contracts or (iii) a requirement to post collateral for the benefit of
counterparties.
In the event of a downgrade of our long-term debt ratings or our insurance subsidiaries' IFS ratings, we or certain of our subsidiaries would be required to post additional collateral under some derivative and other transactions, or certain of the counterparties of such other of our subsidiaries would be permitted to terminate such transactions early. The actual amount of collateral that we or certain of our subsidiaries would be required to post to counterparties in the event of such downgrades, or the aggregate amount of payments that we could be required to make, depends on market conditions, the fair value of outstanding affected transactions and other factors prevailing at the time of the downgrade.
INSURER FINANCIAL STRENGTH RATINGS
IFS ratings estimate an insurance company's ability to pay its obligations under
an insurance policy.
The following table presents the ratings of our primary insurance subsidiaries
as of the date of this filing:
A.M. Best S&P Fitch Moody's
American General Life Insurance Company A A+ A+ A2
The Variable Annuity Life Insurance Company A A+ A+ A2
The United States Life Insurance Company in the
City of New York A A+ A+ A2
These IFS ratings are current opinions of the rating agencies. They may be
changed, suspended or withdrawn at any time by the rating agencies as a result
of changes in, or unavailability of, information or based on other
circumstances.
OFF-BALANCE SHEET ARRANGEMENTS AND COMMERCIAL COMMITMENTS
The following tables summarize Off-Balance Sheet Arrangements and Commercial
Commitments in total, and by remaining maturity:
December 31, 2022 Amount of Commitment Expiring
Total Amounts
(in millions) Committed 2023 2024 -2025 Thereafter
Commitments:
Investment commitments(a) $ 4,440 $ 1,794 $ 2,042 $ 604
Commitments to extend credit 6,108 2,036 2,986 1,086
Total(b) $ 10,548 $ 3,830 $ 5,028 $ 1,690
(a)Includes commitments to invest in private equity funds, hedge funds and other
funds and commitments to purchase and develop real estate in the United States
and abroad. The commitments to invest in private equity funds, hedge funds and
other funds are called at the discretion of each fund, as needed for funding new
investments or expenses of the fund. The expiration of these commitments is
estimated in the table above based on the expected life cycle of the related
fund, consistent with past trends of requirements for funding. Investors under
these commitments are primarily insurance and real estate subsidiaries.
(b)We have no guarantees related to liquid facilities or indebtedness.
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ITEM 7 | Accounting Policies and Pronouncements
Accounting Policies and Pronouncements
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment. On a regular basis, we review estimates and assumptions used in the preparation of financial statements. Actual results may differ from these estimates under different assumptions or conditions. For a detailed discussion of our significant accounting policies and accounting pronouncements, see Note 2 to our audited annual consolidated financial statements. The accounting policies that we believe are most dependent on the application of estimates and assumptions, which are critical accounting estimates, are related to the determination of: •fair value measurements of certain financial assets and liabilities; •valuation of liabilities for guaranteed benefit features of variable annuity products, fixed annuity and fixed index annuity products, including the valuation of embedded derivatives; •estimated gross profits to value DAC and URR for investment-oriented products, such as universal life insurance, variable and fixed annuities, and fixed index annuities; •valuation of future policy benefit liabilities and timing and extent of loss recognition; •valuation of embedded derivatives for fixed index annuity and life products; •reinsurance assets, including the allowance for credit losses; •allowances for credit losses primarily on loans and available-for-sale fixed maturity securities, •goodwill impairment; and •income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of future tax. operating profitability of the character necessary to realize the net deferred tax asset.
These accounting estimates require the use of assumptions about matters, some of
which are highly uncertain at the time of estimation. To the extent actual
experience differs from the assumptions used, our business, results of
operations, financial condition and liquidity could be materially affected.
FAIR VALUE MEASUREMENTS OF CERTAIN FINANCIAL ASSETS AND FINANCIAL LIABILITIES
We carry certain of our financial instruments at fair value. We define the fair value of a financial instrument as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
For additional information about the measurement of fair value of financial
assets and financial liabilities and our accounting policy regarding the
incorporation of credit risk in fair value measurements, see Note 4 to our
audited annual consolidated financial statements.
The following table presents the fair value of fixed maturity and equity
securities by source of value determination:
December 31, 2022 December 31, 2021
(in millions) Fair Value Percent of Total Fair Value Percent of Total
Fair value based on external sources(a) $ 142,853 88.9% $ 180,841 90.0%
Fair value based on internal sources 17,848 11.1% 20,039 10.0%
Total fixed maturity and equity
securities(b) $ 160,701 100.0% $ 200,880 100.0%
(a)Includes $14.9 billion and $18.8 billion as of December 31, 2022 and December
31, 2021, respectively, for which the primary source is broker quotes.
(b)Includes available for sale and other securities.
Level 3 Assets and Liabilities
Assets and liabilities recorded at fair value in the Consolidated Balance Sheets
are measured and classified in a hierarchy for disclosure purposes consisting of
three levels based on the observability of inputs available in the marketplace
used to measure the fair value.
For additional information, see Note 4 to our audited annual consolidated
financial statements.
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ITEM 7 | Accounting Policies and Pronouncements
The following table presents the amount of assets and liabilities measured at
fair value on a recurring basis and classified as Level 3:
December 31, 2022 December 31, 2021
(in millions) Amount Percent of Total Amount Percent of Total
Assets $ 24,187 6.6% $ 25,420 6.1%
Liabilities $ 8,402 2.4% $ 17,695 4.6%
Level 3 fair value measurements are based on valuation techniques that use at
least one significant input that is unobservable. We consider unobservable
inputs to be those for which market data is not available and that are developed
using the best information available about the assumptions that market
participants would use when valuing the asset or liability. Our assessment of
the significance of a particular input to the fair value measurement in its
entirety requires judgment.
We classify fair value measurements for certain assets and liabilities as Level
3 when they require significant unobservable inputs in their valuation,
including contractual terms, prices and rates, yield curves, credit curves,
measures of volatility, prepayment rates, default rates, mortality rates,
policyholder behavior, and correlations of such inputs.
For a discussion of the valuation methodologies for assets and liabilities
measured at fair value, and a discussion of transfers of Level 3 assets and
liabilities, see Note 4 to our audited annual consolidated financial statements.
GUARANTEED BENEFIT FEATURES OF VARIABLE ANNUITY, FIXED ANNUITY AND FIXED INDEX
ANNUITY PRODUCTS
Variable annuity products offered by our Individual Retirement and Group Retirement segments offer guaranteed benefit features. These guaranteed features include GMDB that are payable in the event of death and living benefits that guarantee lifetime withdrawals regardless of fixed account and separate account value performance. Living benefit features primarily include GMWB.
For additional information on these features, see Note 12 to our audited annual
consolidated financial statements.
The liability for GMDB, which is recorded in future policy benefits, represents the expected value of benefits in excess of the projected account value, with the excess recognized ratably through Policyholder benefits over the accumulation period based on total expected assessments. The liabilities for variable annuity GMWB, which are recorded in Policyholder contract deposits, are accounted for as embedded derivatives measured at fair value, with changes in the fair value of the liabilities recorded in net realized gains (losses). Certain of our fixed annuity and fixed index annuity contracts, which are not offered through separate accounts, contain optional GMWB benefits. Different versions of these GMWB riders contain different guarantee provisions. The liability for GMWB benefits in fixed annuity and fixed index annuity contracts for which the rider guarantee is considered to be clearly and closely related to the host contract are recorded in future policy benefits. This GMWB liability represents the expected value of benefits in excess of the projected account value, with the excess recognized ratably over the accumulation period based on total expected assessments, through Policyholder benefits. For rider guarantees in certain fixed index annuity contracts that are linked to equity indices that are considered to be embedded derivatives that are not clearly and closely related to the host contract, the GMWB liability is recorded in Policyholder contract deposits and measured at fair value, with changes in the fair value of the liabilities recorded in net realized gains (losses). Our exposure to the guaranteed amounts is equal to the amount by which the contract holder's account balance is below the amount provided by the guaranteed feature. A deferred annuity contract may include more than one type of guaranteed benefit feature; for example, it may have both a GMDB and a GMWB. However, a policyholder can generally only receive payout from one guaranteed feature on a contract containing a death benefit and a living benefit, i.e., the features are generally mutually exclusive (except a surviving spouse who has a rider to potentially collect both a GMDB upon their spouse's death and a GMWB during his or her lifetime). A policyholder cannot purchase more than one living benefit on one contract. Declines in the equity markets, increased volatility and a low interest rate environment increase our exposure to potential benefits under the guaranteed features, leading to an increase in the liabilities for those benefits. For sensitivity analysis which includes the sensitivity of reserves for guaranteed benefit features to changes in the assumptions for interest rates, equity returns, volatility, and mortality, see "-Estimated Gross Profits to Value Deferred Acquisition Costs and Unearned Revenue for Investment-Oriented Products."
For additional discussion of market risk management related to these product
features, see "Quantitative and Qualitative Disclosures about Market Risk."
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ITEM 7 | Accounting Policies and Pronouncements
The reserving methodology and assumptions used to measure the liabilities of our
two largest guaranteed benefit features are presented in the following table:
Guaranteed Benefit Reserving Methodology and Key
Feature Assumptions
GMDB and Fixed We determine the GMDB liability at each balance sheet date by estimating the
Annuity and Certain expected value of death benefits in excess of the projected account balance and
Fixed Index Annuity recognizing the excess ratably over the accumulation period based on total
GMWB expected assessments. For certain fixed and fixed
index annuity products, we
determine the GMWB liability at each balance sheet
date by estimating the expected
withdrawal benefits once the projected account balance
has been exhausted ratably
over the accumulation period based on total expected
assessments. These GMWB
features are deemed to not be embedded derivatives as the GMWB feature is
determined to be clearly and closely related to the host contract.
The present value of the total expected excess
payments (e.g., payments in excess
of account value) over the life of contract divided by
the present value of total
expected assessments is referred to as the benefit
ratio. The magnitude and
direction of the change in reserves may vary over time
based on the emergence of
the benefit ratio and the level of assessments.
For additional information on how we reserve for
variable and fixed index annuity
products with guaranteed benefit features, see Note 12
to our audited annual
consolidated financial statements.
Key assumptions and projections include:
•interest credited that varies by year of issuance and products;
•actuarial determined assumptions for mortality
rates that are based upon industry
and our historical experience modified to allow for
variations in policy features
and experience anomalies;
•actuarially determined assumptions for lapse rates
that are based upon industry
and our historical experience modified to allow for
variations in policy features
and experience anomalies;
•investment returns, based on stochastically
generated scenarios; and
•asset returns that include a reversion to the mean
methodology, similar to that
applied for DAC
In applying separate account asset growth assumptions
for the Variable Annuity
GMDB liability, we use a reversion to the mean
methodology, the same as that
applied to DAC. For the fixed index annuity GMWB
liability, policyholder funds are
projected assuming growth equal to current Option
Values for the current crediting
period followed by Option Budgets for all subsequent
crediting periods. For the
fixed annuity GMWB liability, policyholder fund growth
projected assuming credited
rates are expected to be maintained at a target
pricing spread, subject to
guaranteed minimums.
For a description of this methodology, see "-Estimated
Gross Profits to Value
deferred Acquisition Costs and Unearned Revenue For Investment-Oriented Products."
Variable Annuity and GMWB living benefits on variable annuities and GMWB living benefits linked to
Certain Fixed Index equity indices on fixed index annuities are embedded derivatives that are required
Annuity GMWB to be bifurcated from the host contract and carried at fair value with changes in
the fair value of the liabilities recorded in realized
gains (losses). The fair
value of these embedded derivatives is based on
assumptions that a market
participant would use in valuing these embedded
derivatives.
For additional information on how we reserve for
variable and fixed index annuity
products with guaranteed benefit features, see Note 12
to our audited annual
consolidated financial statements, and for information
on fair value measurement
of these embedded derivatives, including how we
incorporate our own
non-performance risk, see Note 4 to our audited annual
consolidated financial
statements.
The fair value of the embedded derivatives, which are
Level 3 liabilities, is
based on a risk-neutral framework and incorporates
actuarial and capital market
assumptions related to projected cash flows over the
expected lives of the
contracts.
Key assumptions include:
•interest rates;
•equity market returns;
•market volatility;
•credit spreads;
•equity / interest rate correlation;
•policyholder behavior, including mortality, lapses,
withdrawals and benefit
utilization. Estimates of future policyholder behavior
are subjective and based
primarily on our historical experience;
•in applying asset growth assumptions for the
valuation of GMWBs, we use
market-consistent assumptions calibrated to observable
interest rate and equity
option prices; and
•allocation of fees between the embedded derivative and host contract.
ESTIMATED GROSS PROFITS TO VALUE DEFERRED ACQUISITION COSTS AND UNEARNED REVENUE
FOR INVESTMENT-ORIENTED PRODUCTS
Policy acquisition costs and policy issuance costs that are incremental and
directly related to the successful acquisition of new or renewal of existing
insurance contracts related to universal life insurance and investment-type
products, for example, variable, fixed, and fixed index annuities (collectively,
investment-oriented products) are generally deferred and amortized, with
interest, in relation to the incidence of estimated gross profits to be realized
over the expected lives of the contracts, except in instances where significant
negative gross profits are expected in one or more periods. Investment oriented
products have a long duration and a disclosed
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ITEM 7 | Accounting Policies and Pronouncements
crediting interest rate. Total gross profits include both actual gross profits
and estimates of gross profits for future periods. Estimated gross profits
include current and projected interest rates, net investment income and spreads,
net realized gains and losses, fees, surrender rates, mortality experience and
equity market returns and volatility. In estimating future gross profits, lapse
assumptions require judgment and can have a material impact on DAC amortization.
For fixed index annuity contracts, the future spread between investment income
and interest credited to policyholders is a significant judgment, particularly
in a low interest rate environment.
We regularly evaluate our assumptions used for estimated gross profits. If the
assumptions used for estimated gross profits change, DAC and related reserves,
including VOBA, DSI, guaranteed benefit reserves and unearned revenue reserve
("URR"), are recalculated using the new assumptions, and any resulting
adjustment is included in income. Updating such assumptions may result in
acceleration of amortization in some products and deceleration of amortization
in other products.
In estimating future gross profits for variable annuity products as of December
31, 2022 and December 31, 2021, a long-term annual asset growth assumption of 7%
(before expenses that reduce the asset base from which future fees are
projected) was applied to estimate the future growth in assets and related
asset-based fees. In determining the asset growth rate, the effect of short-term
fluctuations in the equity markets is partially mitigated through the use of a
reversion to the mean methodology, whereby short-term asset growth above or
below the long-term annual rate assumption impacts the growth assumption applied
to the five-year period subsequent to the current balance sheet date. The
reversion to the mean methodology allows us to maintain our long-term growth
assumptions, while also giving consideration to the effect of actual investment
performance. When actual performance significantly deviates from the annual
long-term growth assumption, as evidenced by growth assumptions for the
five-year reversion to the mean period falling below a certain rate (floor) or
above a certain rate (cap) for a sustained period, judgment may be applied to
revise or "unlock" the growth rate assumptions to be used for both the five-year
reversion to the mean period as well as the long-term annual growth assumption
applied to subsequent periods.
For additional discussion, see "-Future Policy Benefits, Policyholder Contract
Deposits, DAC and VOBA-Significant Reinsurance Agreements, Variable Annuity
Guaranteed Benefits, DAC and VOBA, and Actuarial Updates-DAC and VOBA-Reversion
to the Mean."
The following table summarizes the sensitivity of changes in certain assumptions
for DAC and DSI, embedded derivatives and other reserves related to guaranteed
benefits and URR, measured as the related hypothetical impact on December 31,
2022 balances and the resulting hypothetical impact on pre-tax income, before
hedging.
Increase (Decrease) in
Other Embedded
Reserves Derivatives Adjusted
Related to Related to Pre-Tax
Guaranteed Unearned Guaranteed Operating
December 31, 2022 DAC/DSI Asset Benefits Revenue Reserve Benefits Pre-Tax Income Income
(in millions)
Assumptions:
Net Investment Spread
Effect of an increase by 10 basis
points $ 142 $ (54) $ (4) $ (98) $ 298 $ 200
Effect of a decrease by 10 basis
points (151) 54 2 101 (308) (207)
Equity Return(a)
Effect of an increase by 1% 98 (53) - (21) 172 151
Effect of a decrease by 1% (96) 62 - 30 (188) (158)
Volatility(b)
Effect of an increase by 1% (3) 24 - (51) 24 (27)
Effect of a decrease by 1% 3 (23) - 55 (29) 26
Interest Rate(c)
Effect of an increase by 1% - - - (1,590) 1,590 -
Effect of a decrease by 1% - - - 2,070 (2,070) -
Mortality
Effect of an increase by 1% (6) 43 - (34) (15) (49)
Effect of a decrease by 1% 7 (43) - 34 16 50
Lapse
Effect of an increase by 10% (113) (116) (27) (80) 110 30
Effect of a decrease by 10% 117 120 27 73 (103) (30)
(a)Represents the net impact of a 1% increase or decrease in long-term equity
returns for GMDB reserves and net impact of a 1% increase or decrease in the
S&P 500 index on the value of the GMWB embedded derivative.
(b)Represents the net impact of a 1% increase or decrease in equity volatility.
(c)Represents the net impact of 1% parallel shift in the yield curve on the
value of the GMWB embedded derivative. Does not represent interest rate spread
compression on investment-oriented products.
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The sensitivity ranges of 10 basis points, 1% and 10% are included for
illustrative purposes only and do not reflect the changes in net investment
spreads, equity return, volatility, interest rate, mortality or lapse used by us
in our fair value analyses or estimates of future gross profits to value DAC and
related reserves. Changes different from those illustrated may occur in any
period and by different products.
The analysis of DAC, embedded derivatives and other reserves related to
guaranteed benefits, and unearned revenue reserve is a dynamic process that
considers all relevant factors and assumptions described above. We estimate each
of the above factors individually, without the effect of any correlation among
the key assumptions. An assessment of sensitivity associated with changes in any
single assumption would not necessarily be an indicator of future results. The
effects on pre-tax income in the sensitivity analysis table above do not reflect
the related effects from our economic hedging program, which utilizes derivative
and other financial instruments and is designed so that changes in value of
those instruments move in the opposite direction of changes in the guaranteed
benefit embedded derivative liabilities.
For a further discussion on guaranteed benefit features of our variable
annuities and the related hedging program, see "-Quantitative and Qualitative
Disclosures about Market Risk" and Notes 4, 10 and 12 to our audited annual
consolidated financial statements.
FUTURE POLICY BENEFITS FOR LIFE AND ACCIDENT AND HEALTH INSURANCE CONTRACTS
Long-duration traditional products primarily include whole life insurance, term life insurance, and certain payout annuities for which the payment period is life-contingent, which include certain of our single premium immediate annuities, including PRT business and structured settlements. In addition, these products also include accident and health, and LTC insurance. The LTC block is in run-off and has been fully reinsured with Fortitude Re. For long-duration traditional business, a "lock-in" principle applies. Generally, future policy benefits are payable over an extended period of time and related liabilities are calculated as the present value of future benefits less the present value of future net premiums (portion of the gross premium required to provide for all benefits and expenses). The assumptions used to calculate the benefit liabilities and DAC are set when a policy is issued and do not change with changes in actual experience unless a loss recognition event occurs. The assumptions include mortality, morbidity, persistency, maintenance expenses and investment returns. These assumptions are typically consistent with pricing inputs. The assumptions also include margins for adverse deviation, principally for key assumptions such as mortality and interest rates used to discount cash flows, to reflect uncertainty given that actual experience might deviate from these assumptions. Establishing margins at contract inception requires management judgment. The extent of the margin for adverse deviation may vary depending on the uncertainty of the cash flows, which is affected by the volatility of the business and the extent of our experience with the product. Loss recognition occurs if observed changes in actual experience or estimates result in projected future losses under loss recognition testing. To determine whether loss recognition exists, we determine whether a future loss is expected based on updated current best estimate assumptions. If loss recognition exists, the assumptions as of the loss recognition test date are locked-in and used in subsequent valuations and the net reserves continue to be subject to loss recognition testing. Because of the long-term nature of many of our liabilities subject to the "lock-in" principle, small changes in certain assumptions may cause large changes in the degree of reserve balances. In particular, changes in estimates of future invested asset returns have a large effect on the degree of reserve balances. Groupings for loss recognition testing are consistent with our manner of acquiring, servicing and measuring the profitability of the business and are applied by product groupings that span across issuance years, including traditional life, payout annuities and LTC insurance. Once loss recognition has been recorded for a block of business, the old assumption set is replaced, and the assumption set used for the loss recognition would then be subject to the lock-in principle. Our policy is to perform loss recognition testing net of reinsurance. The business ceded to Fortitude Re is grouped separately. Since 100% of the risk has been ceded, no additional loss recognition events are expected to occur unless this business is recaptured.
Key judgments made in loss recognition testing include the following:
•to determine investment returns used in loss recognition tests, we project
future cash flows on the assets supporting the liabilities. The duration of
these assets is generally comparable to the duration of the liabilities and such
assets are primarily comprised of a diversified portfolio of high to medium
quality fixed maturity securities, and may also include, to a lesser extent,
alternative investments. Our projections include a reasonable allowance for
investment expenses and expected credit losses over the projection horizon. A
critical assumption in the projection of expected investment income is the
assumed net rate of investment return at which excess cash flows are to be
reinvested;
•for mortality assumptions, base future assumptions take into account industry
and our historical experience, as well as expected mortality changes in the
future. The latter judgment is based on a combination of historical mortality
trends and industry observations, public health and demography specialists that
were consulted by our actuaries and published industry information; and
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ITEM 7 | Accounting Policies and Pronouncements
•for surrender rates, key judgments involve the correlation between expected
increases/decreases in interest rates and increases/decreases in surrender
rates. To support this judgment, we compare crediting rates on our products to
expected rates on competing products under different interest rate scenarios.
Significant unrealized appreciation on investments in a low interest rate
environment may cause DAC to be adjusted and additional future policy benefit
liabilities to be recorded through a charge directly to AOCI income ("changes
related to unrealized appreciation of investments"). These charges are included,
net of tax, with the change in net unrealized appreciation or depreciation of
investments. In applying changes related to unrealized appreciation of
investments, the Company overlays unrealized gains and other changes related to
unrealized appreciation of investments onto loss recognition tests.
For additional information on shadow loss recognition, see Note 8 to our audited
annual consolidated financial statements.
For universal life policies with secondary guarantees, we recognize certain liabilities in addition to policyholder account balances. For universal life policies with secondary guarantees, as well as other universal life policies for which profits followed by losses are expected at contract inception, a liability is recognized based on a benefit ratio of (a) the present value of total expected payments, in excess of the account value, over the life of the contract, divided by (b) the present value of total expected assessments over the life of the contract. Universal life account balances are reported in policyholder contract deposits, while these additional liabilities related to universal life products are reported within Future Policy Benefits in the Consolidated Balance Sheets. These additional liabilities are also adjusted to reflect the effect of unrealized gains or losses on fixed maturity securities available for sale on accumulated assessments, with related changes recognized through Other comprehensive income (loss). The primary policyholder behavior assumptions for these liabilities include mortality, lapses and premium persistency. The primary capital market assumptions used for the liability for universal life secondary guarantees include discount rates and net earned rates.
VALUATION OF EMBEDDED DERIVATIVES FOR FIXED INDEX ANNUITY AND LIFE PRODUCTS
Fixed index annuity and life products provide growth potential based in part on the performance of a market index. Certain fixed index annuity products offer optional guaranteed benefit features similar to those offered on variable annuity products. Policyholders may elect to rebalance among the various accounts within the product at specified renewal dates. At the end of each index term, we generally have the opportunity to re-price the indexed component by establishing different participation rates or caps on equity indexed credited rates. The index crediting feature of these products results in the recognition of an embedded derivative that is required to be bifurcated from the host contract and carried at fair value with changes in the fair value of the liabilities recorded in Net realized gains (losses). Option pricing models are used to estimate fair value, taking into account assumptions for future equity index growth rates, volatility of the equity index, future interest rates, and our ability to adjust the participation rate and the cap on equity-indexed credited rates in light of market conditions and policyholder behavior assumptions.
For additional discussion of market risk management related to these product
features, see "Quantitative and Qualitative Disclosures about Market Risk."
REINSURANCE RECOVERABLE
The estimation of reinsurance recoverable involves a significant amount of judgment. Reinsurance assets include reinsurance recoverables on future policy benefits and policyholder contract deposits that are estimated as part of our insurance liability valuation process and, consequently, are subject to significant judgments and uncertainties. We assess the collectability of reinsurance recoverable balances on a regular basis, through either historical trends of disputes and credit events or financial analysis of the credit quality of the reinsurer. We record adjustments to reflect the results of these assessments through an allowance for credit losses and disputes on uncollectable reinsurance that reduces the carrying amount of reinsurance. This estimate requires significant judgment for which key considerations include:
•paid and unpaid amounts recoverable;
•whether the balance is in dispute or subject to legal collection;
•the relative financial health of the reinsurer as determined by the Obligor
Risk Ratings ("ORRs") we assign to each reinsurer based upon our financial
reviews; reinsurers that are financially troubled (i.e., in run-off, have
voluntarily or involuntarily been placed in receivership, are insolvent, are in
the process of liquidation or otherwise subject to formal or informal regulatory
restriction) are assigned ORRs that are expected to generate significant
allowance; and
•whether collateral and collateral arrangements exist.
An estimate of the reinsurance recoverables' lifetime expected credit losses is established utilizing a probability of default and loss given default method, which reflects the reinsurer's ORR rating. The allowance for credit losses excludes disputed amounts. An allowance for disputes is established for a reinsurance recoverable using the losses incurred model for contingencies.
At December 31, 2022 and December 31, 2021, the allowance for credit losses and
disputes on reinsurance recoverable was $84 million and $101 million,
respectively or less than 1% of the reinsurance recoverable.
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Fortitude Re
In February 2018, AGL, VALIC and USL entered into modco reinsurance agreements
with Fortitude Re a registered Class 4 and Class E reinsurer in
These reinsurance transactions between us and Fortitude Re were structured as modco. In modco reinsurance agreements, the investments supporting the reinsurance agreements and which reflect the majority of the consideration that would be paid to the reinsurer for entering into the transaction, are withheld by, and therefore continue to reside on the balance sheet of, the ceding company (i.e., AGL, VALIC, USL) thereby creating an obligation for the ceding company to pay the reinsurer (i.e., Fortitude Re) at a later date. Additionally, as we maintain ownership of these investments, we intend to maintain our existing accounting for these assets (e.g., the changes in fair value of available for sale securities will be recognized within OCI). We have established a funds withheld payable to Fortitude Re while simultaneously establishing a reinsurance asset representing reserves for the insurance coverage that Fortitude Re has assumed. The funds withheld payable contains an embedded derivative and changes in fair value of the embedded derivative related to the funds withheld payable are recognized in earnings through gains (losses). This embedded derivative is considered a total return swap with contractual returns that are attributable to various assets and liabilities associated with these reinsurance agreements.
For additional information on reinsurance, see Notes 2 and 7 to our audited
annual consolidated financial statements.
ALLOWANCE FOR CREDIT LOSSES AND GOODWILL IMPAIRMENT
Allowance for Credit Losses
Available for sale securities
If we intend to sell a fixed maturity security, or it is more likely than not that we will be required to sell a fixed maturity security, before recovery of its amortized cost basis and the fair value of the security is below amortized cost, an impairment has occurred and the amortized cost is written down to current fair value, with a corresponding charge to realized losses. No allowance is established in these situations and any previously recorded allowance is reversed. When assessing our intent to sell a fixed maturity security, or whether it is more likely than not that we will be required to sell a fixed maturity security before recovery of its amortized cost basis, management evaluates relevant facts and circumstances including, but not limited to, decisions to reposition our investment portfolio, sales of securities to meet cash flow needs and sales of securities to take advantage of favorable pricing. For fixed maturity securities for which a decline in the fair value below the amortized cost is due to credit related factors, an allowance is established for the difference between the estimated recoverable value and amortized cost with a corresponding charge to realized losses. The allowance for credit losses is limited to the difference between amortized cost and fair value. The estimated recoverable value is the present value of cash flows expected to be collected, as determined by management. The difference between fair value and amortized cost that is not associated with credit related factors is presented in unrealized appreciation (depreciation) of fixed maturity securities on which an allowance for credit losses was previously recognized (a separate component of AOCI). Accrued interest is excluded from the measurement of the allowance for credit losses.
Commercial and residential mortgage loans
At the time of origination or purchase, an allowance for credit losses is
established for mortgage and other loan receivables and is updated each
reporting period. Changes in the allowance for credit losses are recorded in
realized gains (losses).
This allowance reflects the risk of loss, even when that risk is remote, and reflects losses expected over the remaining contractual life of the loan. The allowance for credit losses considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts of future economic conditions. We revert to historical information when we determine that we can no longer reliably forecast future economic assumptions. The allowances for the commercial mortgage loans and residential mortgage loans in our portfolio are estimated utilizing a probability of default and loss given default model. Loss rate factors are determined based on historical data and adjusted for current and forecasted information. The loss rates are applied based on individual loan attributes and considering such data points as loan-to-value ratios, FICO scores, and debt service coverage. The estimate of credit losses also reflects management's assumptions on certain macroeconomic factors that include, but are not limited to, gross domestic product growth, employment, inflation, housing price index, interest rates and credit spreads.
For additional information on the methodology and significant inputs, by
investment type, that we use to determine the amount of impairment and
allowances for loan losses, see Notes 5 and 6 to our audited annual consolidated
financial statements.
GOODWILL IMPAIRMENT
In 2022, 2021 and 2020 we elected to bypass the qualitative assessment of
whether goodwill impairment may exist in our reporting units with the largest
goodwill balances and, instead performed quantitative assessments that supported
a conclusion that the fair
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value of the reporting units tested exceeded their book value. To determine fair
value, we primarily use a discounted expected future cash flow analysis that
estimates and discounts projected future distributable earnings. Such analysis
is principally based on our business projections that inherently include
judgments regarding business trends.
For a discussion of goodwill impairment, see "Risk Factors-Risks Relating to
Estimates and Assumptions" and Note 11 to our audited annual consolidated
financial statements.
INCOME TAXES
Deferred income taxes represent the tax effect of differences between the amounts recorded in our Consolidated Financial Statements and the tax basis of assets and liabilities. Our assessment of net deferred income taxes represents management's best estimate of the tax consequences of various events and transactions, which can themselves be based on other accounting estimates, resulting in incremental uncertainty in the estimation process.
Recoverability of Net Deferred Tax Asset
The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed. We consider a number of factors to reliably estimate future taxable income so we can determine the extent of our ability to realize net operating losses, foreign tax credits, realized capital loss and other carryforwards. These factors include forecasts of future income for each of our businesses, which incorporate forecasts of future statutory income for our insurance companies, and actual and planned business and operational changes, both of which include assumptions about future macroeconomic and our specific conditions and events. Recent events, including the IPO, multiple changes in target interest rates by the Board of Governors of the Federal Reserve System and significant market volatility, continued to impact actual and projected results of our business operations as well as our views on potential effectiveness of certain prudent and feasible tax planning strategies. In order to demonstrate the predictability and sufficiency of future taxable income necessary to support the realizability of the net operating losses and foreign tax credit carryforwards, we have considered forecasts of future income for each of our businesses, including assumptions about future macro-economic and our specific conditions and events, and any impact these conditions and events may have on our prudent and feasible tax planning strategies.
For a discussion of our framework for assessing the recoverability of our
deferred tax asset, see Note 20 to our audited annual consolidated financial
statements.
Uncertain Tax Positions Our accounting for income taxes, including uncertain tax positions, represents management's best estimate of various events and transactions, and requires judgment. FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" now incorporated into Accounting Standards Codification, 740, "Income Taxes" prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. The standard also provides guidance on derecognition, classification, interest and penalties and additional disclosures. We determine whether it is more likely than not that a tax position will be sustained, based on technical merits, upon examination by the relevant taxing authorities before any part of the benefit can be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likely to be realized upon settlement.
We classify interest expense and penalties recognized on income taxes as a
component of income taxes.
For an additional discussion, see Note 20 to our audited annual consolidated
financial statements.
ADOPTION OF ACCOUNTING PRONOUNCEMENTS
See Note 2 to our audited annual consolidated financial statements for a
complete discussion of adoption of accounting pronouncements.
Corebridge | 2022 Form 10-K 187
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ITEM 7 | Glossary
Glossary
AIG Consolidated Tax Group - the
the common parent.
Credit support annex - a legal document generally associated with an ISDA Master Agreement that provides for collateral postings which could vary depending on ratings and threshold levels. DAC and Reserves Related to Unrealized Appreciation of Investments - an adjustment to DAC and Reserves for investment-oriented products, equal to the change in DAC and unearned revenue amortization that would have been recorded if fixed maturity securities were available for sale. An adjustment to benefit reserves for investment-oriented products is also recognized to reflect the application of the benefit ratio to the accumulated assessments that would have been recorded if fixed maturity securities were available for sale.
Deferred policy acquisition costs - deferred costs that are incremental and
directly related to the successful acquisition of new business or renewal of
existing business.
Deferred sales inducement - represents enhanced crediting rates or bonus
payments to contract holders on certain annuity and investment contract products
that meet the criteria to be deferred and amortized over the life of the
contract.
Fee income - policy fees plus advisory fees plus other fee income.
Financial debt - represents the sum of short-term debt and long-term debt, net of debt issuance costs, not including (x) Debt of consolidated investment entities-not guaranteed by Corebridge; (y) debt supported by assets and issued for purposes of earning spread income, such as GICs and FABNs; and (z) operating debt utilized to fund daily operations, i.e., self-liquidating forms of financing such as securities lending, reverse repurchase and captive reinsurance reserve financing arrangements.
Financial leverage ratio - the ratio of financial debt to the sum of financial
debt plus Adjusted Book Value plus non-redeemable noncontrolling interests.
Guaranteed investment contract - a contract whereby the issuer provides a
guaranteed repayment of principal and a fixed or floating interest rate for a
predetermined period of time.
Guaranteed minimum death benefit - a benefit that guarantees the annuity beneficiary will receive a certain value upon death of the annuitant. The GMDB feature may provide a death benefit of either (a) total deposits made to the contract, less any partial withdrawals plus a minimum return (and in rare instances, no minimum return); (b) return of premium whereby the benefit is the greater of the current account value or premiums paid less any partial withdrawals; (c) rollups whereby the benefit is the greater of current account value or premiums paid (adjusted for withdrawals) accumulated at contractually specified rates up to specified ages; or (d) the highest contract value attained, typically on any anniversary date less any subsequent withdrawals following the contract anniversary. Guaranteed minimum withdrawal benefit - a type of living benefit that guarantees that withdrawals from the contract may be taken up to a contractually guaranteed amount, even if the account value subsequently falls to zero, provided that during each contract year total withdrawals do not exceed an annual withdrawal amount specified in the contract. Once the account value is depleted under the conditions of the GMWB, the policy continues to provide a protected income payment. ISDA Master Agreement - an agreement between two counterparties, which may have multiple derivative transactions with each other governed by such agreement, that generally provides for the net settlement of all or a specified group of these derivative transactions, as well as pledged collateral, through a single payment, in a single currency, in the event of a default on, or affecting any, one derivative transaction or a termination event affecting all, or a specified group of, derivative transactions.
Loan-to-value ratio - principal amount of loan amount divided by appraised value
of collateral securing the loan.
Master netting agreement - an agreement between two counterparties who have
multiple derivative contracts with each other that provides for the net
settlement of all contracts covered by such agreement, as well as pledged
collateral, through a single payment, in a single currency, in the event of
default on or upon termination of any one such contract.
Non-performance Risk Adjustment - adjusts the valuation of derivatives to
account for non-performance risk in the fair value measurement of all derivative
net liability positions.
Noncontrolling interests - the portion of equity ownership in a consolidated
subsidiary not attributable to the controlling parent company.
Policy fees - an amount added to a policy premium, or deducted from a policy
cash value or contract holder account, to reflect the cost of issuing a policy,
establishing the required records and sending premium notices and other related
expenses.
Corebridge | 2022 Form 10-K 188
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TABLE OF CONTENTS
ITEM 7 | Glossary
Reinsurance - the practice whereby one insurer, the reinsurer, in consideration
of a premium paid to that insurer, agrees to indemnify another insurer, the
ceding company, for part or all of the liability of the ceding company under one
or more policies or contracts of insurance which it has issued.
Risk-based capital - a formula designed to measure the adequacy of an insurer's
statutory surplus compared to the risks inherent in its business.
Spread income - is defined as net investment income less interest credited to policyholder account balances, exclusive of amortization of deferred sales inducement assets. Spread income is comprised of both base spread income and variable investment income. Surrender charge - a charge levied against an investor for the early withdrawal of funds from a life insurance or annuity contract, or for the cancellation of the agreement.
Surrender rate - represents annualized surrenders and withdrawals as a
percentage of average reserves and Group Retirement mutual fund assets under
administration.
Underwriting margin - for our Life Insurance segment includes premiums, policy fees, advisory fee income, net investment income, less interest credited to policyholder account balances and policyholder benefits and excludes the annual assumption update. For our Institutional Markets segment, select products utilize underwriting margin, which includes premiums, net investment income, non-SVW fee and advisory fee income, less interest credited and policyholder benefits and excludes the annual assumption update.
Value of business acquired - present value of projected future gross profits
from in-force policies of acquired businesses.
Corebridge | 2022 Form 10-K 189
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ITEM 7 | Certain Important Terms
Certain Important Terms
We use the following capitalized terms in this report
"AGC" means
"AGC Group" means AGC and its directly owned life insurance subsidiaries;
"AGL" means
"AGREIC" means
"AHAC" means
"AIG" means AIG, Inc. and its subsidiaries, other than Corebridge and
Corebridge's subsidiaries, unless the context refers to AIG, Inc. only;
"AIG Bermuda" means
"AIG Group" means American International Group, Inc. and its subsidiaries,
including Corebridge and Corebridge's subsidiaries;
"AIG, Inc." means American International Group, Inc., a
"AIGLH" means AIG Life Holdings, Inc., a
"
its subsidiary;
"AIGM" means AIG Markets, Inc., a consolidated subsidiary of AIG;
"AIGT" means
"AIRCO" means American International Reinsurance Company, LTD., a consolidated
subsidiary of AIG;
"AMG" means
"Argon" means Argon Holdco LLC, a wholly owned subsidiary of Blackstone Inc.;
"BlackRock" means
"Blackstone" means Blackstone Inc. and its subsidiaries;
"Blackstone IM" means Blackstone ISG-1 Advisors L.L.C.;
"Cap Corp" means
"Corebridge", "we," "us," "our" or the "Company" means Corebridge and its
subsidiaries after giving effect to the transactions described under "The
Reorganization Transactions," unless the context refers to Corebridge Parent.
"Corebridge FD" means Corebridge Financial Distributors;
"Corebridge Parent" means
Retirement Services, Inc.
"Eastgreen" means Eastgreen Inc.;
"Fortitude Re" meansFortitude Reinsurance Company Ltd. , aBermuda insurance company. AIG formed Fortitude Re in 2018 and sold substantially all of its ownership interest in Fortitude Re's parent company in two transactions in 2018 and 2020 so that we currently own a less than a 3% indirect interest in Fortitude Re. In February 2018, AGL, VALIC and USL entered into modco reinsurance agreements with Fortitude Re and AIG Bermuda novated its assumption of certain long-duration contracts from an affiliated entity to Fortitude Re. In the modco agreements, the investments supporting the reinsurance agreements, which reflect the majority of the consideration that would be paid to the reinsurer for entering into the transaction, are withheld by, and therefore continue to reside on the balance sheet of, the ceding company (i.e., AGL, VALIC and USL), thereby creating an obligation for the ceding company to pay the reinsurer (i.e., Fortitude Re) at a later date;
"Fortitude Re Bermuda" means FGH Parent, L.P., a
partnership and the indirect parent of Fortitude Re;
"Laya" means
subsidiary;
"Lexington" means
Corebridge | 2022 Form 10-K 190
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TABLE OF CONTENTS
ITEM 7 | Certain Important Terms
"Majority Interest Fortitude Sale" means the sale by AIG of substantially all of
its interests in Fortitude Re's parent company to Carlyle FRL, L.P., an
investment fund advised by an affiliate of The Carlyle Group Inc., and T&D
United Capital Co., Ltd., a subsidiary of T&D Holdings, Inc., under the terms of
a membership interest purchase agreement entered into on November 25, 2019 by
and among AIG; Fortitude Group Holdings, LLC; Carlyle FRL, L.P.; The Carlyle
Group Inc.; T&D United Capital Co., Ltd.; and T&D Holdings, Inc. We currently
own less than a 3% indirect interest in Fortitude Re;
"NUFIC" means
consolidated subsidiary of AIG;
"NYDFS" means
"NYSE" means the New York Stock Exchange;
"Reorganization" means the transactions described under "The Reorganization
Transactions";
"USL" means The United States Life Insurance Company in the
"VALIC" means The Variable Annuity Life Insurance Company, a
company; and
"VALIC Financial Advisors" means VALIC Financial Advisors, Inc., aTexas corporation; Corebridge | 2022 Form 10-K 191
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TABLE OF CONTENTS
ITEM 7 | Acronyms
`1
Acronyms
•"AATOI" - adjusted after-tax operating income attributable to our common
stockholders;
•"ABS" - asset-backed securities;
•"APTOI" - adjusted pre-tax operating income;
•"AUA" - assets under administration;
•"AUM" - assets under management;
•"AUMA" - assets under management and administration;
•"BMA" -
•"CDO" - collateralized debt obligations;
•"CDS" - credit default swap;
•"CMBS" - commercial mortgage-backed securities;
•"DAC" - deferred policy acquisition costs;
•"DSI" - deferred sales inducement;
•"FABN"- funding-agreement back notes;
•"FASB" - the
•"GAAP" - accounting principles generally accepted in
America
•"GIC" - guaranteed investment contract;
•"GMDB" - guaranteed minimum death benefits;
•"GMWB" - guaranteed minimum withdrawal benefits;
•"ISDA" - the International Swaps and Derivatives Association, Inc.;
•"MBS" - mortgage-backed securities;
•"NAIC" -
•"NPA" - Non-performance Risk Adjustment
•"PRT" - pension risk transfer;
•"RBC" - Risk-Based Capital;
•"RMBS" - residential mortgage-backed securities;
•"S&P" -
•"SEC" - the
•"SVW" - stable value wrap;
•"URR" - unearned revenue reserve;
•"VIE" - variable interest entity;
•"VIX" - volatility index; and
•"VOBA" - value of business acquired.
Corebridge | 2022 Form 10-K 192
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TABLE OF
CONTENTS
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