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As filed with the Securities and Exchange Commission on June 13, 2022
Registration No. 333-263898
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 3
to
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
Corebridge Financial, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
6311
95-4715639
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
2919 Allen Parkway, Woodson Tower
Houston, Texas 77019
1-877-375-2422
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Christine Nixon, Esq.
General Counsel
Corebridge Financial, Inc.
21650 Oxnard Street, Suite 750
Woodland Hills, California 91367
1-877-375-2422
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Eric T. Juergens, Esq.
Paul M. Rodel, Esq.
Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
(212) 909-6000
Edward D. Herlihy, Esq.
David K. Lam, Esq.
Mark A. Stagliano, Esq.
Wachtell, Lipton, Rosen & Katz LLP
51 West 52nd Street
New York, New York 10019
(212) 403-1000
Craig B. Brod, Esq.
Jeffrey D. Karpf, Esq.
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York 10006
(212) 225-2000
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the U.S. Securities and Exchange Commission declares our registration statement effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state or jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED     , 2022
    Shares

Corebridge Financial, Inc.

Common Stock

This is the initial public offering of shares of common stock of Corebridge Financial, Inc. The selling stockholder, American International Group, Inc., is offering     shares of our common stock. We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholder in this offering. We anticipate that the initial public offering price will be between $    and $    per share.
Prior to this offering, there has been no public market for our common stock. Upon the completion of this offering, we intend to apply to list our common stock on the New York Stock Exchange (the “NYSE”) under the symbol “CRBG.”
After the completion of this offering, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE.

Investing in our common stock involves risks. See “Risk Factors” beginning on page 23 of this prospectus to read about factors you should consider before buying shares of our common stock.
 
Per Share
Total
Initial public offering price
$  
$  
Underwriting discounts and commissions
$
$
Proceeds to the selling stockholder, before expenses
$
$
The underwriters also may purchase up to     additional shares from the selling stockholder at the initial offering price less the underwriting discounts and commissions, within 30 days from the date of this prospectus.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved the securities described herein or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares to purchasers on or about    , 2022.

J.P. Morgan
Morgan Stanley
Piper Sandler
Prospectus dated   , 2022


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You should rely only on the information contained in this prospectus and any free writing prospectus we may authorize to be delivered to you. We have not, and the selling stockholder and the underwriters have not, authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus and any related free writing prospectus. We, the selling stockholder and the underwriters, take no responsibility for, and can provide no assurances as to the reliability of, any information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is only accurate as of the date of this prospectus, regardless of the time of delivery of this prospectus and any sale of shares of our common stock. Our business, results of operations, financial condition, liquidity and prospects may have changed since that date.
For investors outside of the United States: neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.
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INTRODUCTORY INFORMATION
Certain Important Terms
We use the following capitalized terms in this prospectus:
“1844 Market” means 1844 Market Street, LLC;
“AGAMHC” means AIG Global Asset Management Holding Corporation;
“AGC” means AGC Life Insurance Company, a Missouri insurance company;
“AGL” means American General Life Insurance Company, a Texas insurance company;
“AGREIC” means AIG Global Real Estate Investment Corporation;
“AHAC” means American Home Assurance Company, a consolidated subsidiary of AIG;
“AIG” means American International Group, Inc. and its subsidiaries, other than Corebridge and Corebridge’s subsidiaries;
“AIG 200” means AIG’s multi-year effort to support underwriting excellence, modernize its operating infrastructure, enhance user and customer experiences and become a more unified company. Under this program, Corebridge and its subsidiaries have a targeted savings of $125 million on an annual run rate basis by the end of 2022, of which $25 million has been earned to date (both amounts are on a pre-tax basis);
“AIG Bermuda” means AIG Life of Bermuda, Ltd, a Bermuda insurance company;
“AIG FP” means AIG Financial Products Corporation, a consolidated subsidiary of AIG;
“AIG Group” means American International Group, Inc. and its subsidiaries, including Corebridge and Corebridge’s subsidiaries;
“AIG Inc.” means American International Group, Inc., a Delaware corporation;
“AIGLH” means AIG Life Holdings, Inc., a Texas corporation;
“AIG Life UK” means AIG Life Ltd, a UK insurance company, and its subsidiary;
“AIGM” means AIG Markets, Inc., a consolidated subsidiary of AIG;
“AIGT” means AIG Technologies, Inc., a New Hampshire corporation;
“AIRCO” means American International Reinsurance Company, Ltd., a consolidated subsidiary of AIG;
“AMG” means AIG Asset Management (U.S.), LLC;
“Argon” means Argon Holdco LLC, a wholly owned subsidiary of Blackstone Inc.;
“BlackRock” means BlackRock Financial Management, Inc.;
“Blackstone” means Blackstone Inc. and its subsidiaries;
“Blackstone IM” means Blackstone ISG-1 Advisors L.L.C.;
“Cap Corp” means AIG Capital Corporation, a Delaware corporation;
“Corebridge” means Corebridge Financial, Inc. (formerly known as SAFG Retirement Services, Inc.), a Delaware corporation;
“Eastgreen” means Eastgreen Inc.;
“Fortitude Re” means Fortitude Reinsurance Company Ltd., a Bermuda 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 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
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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 Bermuda exempted limited partnership;
“Laya” means Laya Healthcare Limited, an Irish insurance intermediary, and its subsidiary;
“Lexington” means Lexington Insurance Company, an AIG subsidiary;
“Life Fleet” means AGL, USL and VALIC;
“Life Fleet RBC” means the RBC ratio for the Life Fleet, comprising AGL, USL and VALIC, our primary risk-bearing entities. AGL, USL and VALIC are domestic insurance entities with a statutory surplus greater than $500 million on an individual basis. The Life Fleet does not include AGC, as it has no operations outside of internal reinsurance. Specifically, 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;
“LIMRA” means the Life Insurance Marketing and Research Association International, Inc.;
“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 National Union Fire Insurance Company of Pittsburgh, PA, a consolidated subsidiary of AIG;
“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 City of New York, a New York insurance company;
“VALIC” means The Variable Annuity Life Insurance Company, a Texas insurance company;
“VALIC Financial Advisors” means VALIC Financial Advisors, Inc., a Texas corporation; and
“we,” “us,” “our” or the “Company” means Corebridge and its subsidiaries after giving effect to the transactions described under “The Reorganization Transactions.”
Market and Industry Data
This prospectus includes estimates regarding market and industry data and forecasts, which are based on publicly available information, industry publications and surveys, reports from government agencies, reports by market research firms and our own estimates based on our management’s knowledge of, and experience in, the insurance industry and market segments in which we compete. Third-party industry publications and forecasts generally state that the information contained therein has been obtained from sources generally believed to be reliable. Information sourced from LIMRA regarding total annuity sales rankings includes the annuities we offer across our Individual Retirement and Group Retirement segments. Todd Solash, our Executive Vice President and President of Individual Retirement and Life Insurance, serves as a director of LL Global, the parent company of LIMRA and as a director of the Secure Retirement Institute, a division of LIMRA. Unless otherwise noted, all market data refers to the U.S. market. We have obtained certain information related to Blackstone and its investment funds from Blackstone’s publicly available information, which we believe to be reliable. Although we have no reason to believe the foregoing information is not reliable, we have not independently verified this information and cannot guarantee its accuracy or completeness. This information is subject to a number of assumptions and limitations, and you are cautioned not to give undue weight to it. Our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed in “Risk
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Factors,” “Special Note Regarding Forward-Looking Statements and Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Service Marks, Trademarks and Trade Names
We use various service marks, trademarks and trade names, such as VALIC and American General, our logo design and Corebridge, that we deem particularly important to the advertising activities conducted by each of our businesses, some of which are owned by AIG. After the completion of this offering, such service marks, trademarks and trade names will be the property of our Company or licensed by our Company from AIG. This prospectus also contains trademarks, service marks and trade names of other companies which are the property of their respective holders. We do not intend our use or display of such names or marks to imply relationships with, or endorsements of us by, any other company.
Basis of Presentation
The financial statements in this prospectus were prepared in connection with the proposed separation of AIG’s Life and Retirement business. The financial statements present the consolidated and combined results of operations, financial condition and cash flows of Corebridge and its controlled subsidiaries. The financial statements presented for periods on or after December 31, 2021, the date on which the Reorganization was substantially completed, are presented on a consolidated basis, and include the financial position, results of operations and cash flows of the Company. The financial statements for the periods prior to December 31, 2021 are presented on a combined basis, and reflect the historical combined financial position, results of operations and cash flows of Corebridge, Cap Corp, AIG Life UK and Laya, as the operations were under common control of AIG and reflect the historical combined financial position, results of operations and cash flows of those legal entities. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). All material intercompany accounts and transactions between consolidated or combined entities have been eliminated. The amounts presented in the consolidated financial statements are not comparable to AIG Inc.’s financial statements. The consolidated financial statements reflect customary adjustments for financial statements prepared for, and included in, prospectuses. The consolidated balance sheets include the attribution of certain assets and liabilities that have historically been held at AIG Inc. or certain of its subsidiaries not included in the historically consolidated Corebridge financial statements. Similarly, certain assets attributable to shared services managed at AIG Inc. have been excluded from the combined balance sheets. The consolidated statements of income reflect certain corporate expenses allocated to Corebridge by AIG Inc. for certain corporate functions and for shared services provided by AIG Inc. These expenses have been allocated to Corebridge based on direct usage or benefit where specifically identifiable, with the remainder allocated based upon other reasonable allocation measures. We consider the expense methodology and results to be reasonable for all periods presented. See “Risk Factors—Following the completion of this offering, we may fail to replicate or replace functions, systems and infrastructure provided by AIG or certain of its affiliates (including through shared service contracts) or lose benefits from AIG’s global contracts, and AIG may fail to perform the services provided for in the transition services agreement with AIG (the “Transition Services Agreement”). We also expect to incur incremental costs as a stand-alone public company.”
Our historical financial results included in the consolidated financial statements do not necessarily reflect the business, results of operations, financial condition or liquidity we would have achieved as a stand-alone company during the periods presented or those we will achieve in the future. The consolidated financial statements reflect all adjustments necessary in the opinion of management for a fair presentation of the consolidated financial position of Corebridge and its combined results of operations and cash flows for the periods presented.
We have recorded affiliated transactions with certain AIG subsidiaries that are not included within Corebridge. As these affiliated transactions are with AIG subsidiaries that are not included within Corebridge, they are not eliminated in the combined financial statements of Corebridge. See “Certain Relationships and Related Party Transactions—Historical Related Party Transactions” and Note 21 to our audited financial statements.
Currency amounts in this prospectus are stated in United States dollars unless otherwise indicated. Certain amounts in this prospectus may not sum due to rounding. Unless otherwise indicated, all amounts and percentages, including those set forth under “Prospectus Summary—Financial Goals,” “Business—Financial Goals” and “Business—Our Segments—Individual Retirement—Products—Variable Annuities” are approximate.
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State Insurance Regulation
We are subject to regulation under the insurance holding company laws of various jurisdictions. See “Business—Regulation.” Insurance holding company laws generally provide that no person, corporation or other entity may acquire control of an insurance company, or a controlling interest in any direct or indirect parent company of an insurance company, without the prior approval of such insurance company’s domiciliary state insurance regulator. Under the laws of each of the domiciliary states of our U.S. insurance subsidiaries, Missouri, New York and Texas, any person acquiring, directly or indirectly, 10% or more of the voting securities of an insurance company is presumed to have acquired “control” of the company, which may consider voting securities held at both the parent company and subsidiary collectively for these purposes. This statutory presumption of control may be rebutted by a showing that control does not exist in fact. State insurance regulators, however, may find that “control” exists in circumstances in which a person owns or controls less than 10% of the voting securities. We are a subsidiary of AIG, our parent company. See “Prospectus Summary—Organizational Structure.” AIG's common stock (its voting securities) trades on the NYSE. Consequently, persons considering an investment in our common stock (our voting securities) should take into consideration their ownership of AIG voting securities and consult their own legal advisors regarding such insurance holding company laws relating to the purchase and ownership of our common stock in light of their particular circumstances.
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PROSPECTUS SUMMARY
The following summary highlights selected information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information you should consider before investing in our common stock. You should carefully read the entire prospectus, including “Risk Factors,” “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Special Note Regarding Forward-Looking Statements and Information,” as well as our financial statements included elsewhere in this prospectus, before making an investment decision. For the definitions of certain capitalized terms, financial terms and acronyms used in this prospectus, please refer to “Certain Important Terms,” “Glossary” and “Acronyms,” respectively.
Our Company
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. Our addressable markets are large, with powerful, long-term secular trends given an aging U.S. population and a growing need for retirement solutions. 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.
Our strong competitive position is supported by:
our scaled platform and position as a leading life and annuity company across a broad range of products, managing or administering $388.0 billion in client assets as of March 31, 2022;
our four businesses, which provide a diversified and attractive mix of fee income, spread income and underwriting margin;
our broad distribution platform, which gives us access to end customers, employers, retirement plan sponsors, banks, broker-dealers, general agencies, independent marketing organizations and independent insurance agents;
our proven expertise in product design, which positions us to optimize risk-adjusted returns as we grow our business;
our strategic partnership with Blackstone, which we believe will allow us to further grow both our retail and institutional product lines, and enhance risk-adjusted returns;
our high-quality liability profile, supported by our strong balance sheet and disciplined approach to risk management, which has limited our exposure to product features and portfolios with less attractive risk-adjusted returns;
our ability to deliver consistent cash flows and an attractive return for our stockholders; and
our strong and experienced senior management team.
Operating four established, at-scale businesses positions us to optimize risk-adjusted returns when writing new business across our broad suite of market-leading products. According to LIMRA, we are the only company to rank in the top two in U.S. annuity sales in each of the last nine years, with leading positions across each of the fixed, fixed index and variable annuity categories. Our Group Retirement business is recognized as a pioneer and has long held a leading position in the attractive 403(b) retirement plan market through our AIG Retirement Services brand. We ranked in the top 10 in total term life insurance sales in 2021.
We believe we have an attractive business mix that balances fee and spread-based income sources and is diversified across our broad product suite. For the twelve months ended March 31, 2022, our businesses generated spread income of $4.2 billion, fee income of $2.4 billion and underwriting margin of $1.2 billion, resulting in a balanced mix of 54%, 31% and 15%, respectively, among these income sources. We are
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well-diversified across our operating businesses, with our Individual Retirement, Group Retirement, Life Insurance and Institutional Markets businesses representing 29%, 16%, 23% and 26% of total adjusted revenue, respectively, for the twelve months ended March 31, 2022.

Our diversified business model is enabled by our long-standing distribution relationships that are distinguished through both their breadth and depth. We have a large distribution platform in the U.S. life and retirement market, with a wide range of relationships with financial advisors, insurance agents and plan sponsors, as well as our own career financial advisors and direct-to-consumer platform. AIG Financial Distributors (“AIG FD”), our sales platform, serves as a valuable partner to our third-party distributors, including banks, broker-dealers, general agencies, independent marketing organizations and independent insurance agents. Many of our partners have sold our products for multiple decades, and as of December 31, 2021, our top 25 partners generated approximately 13% of their total sales volume through our products. We also provide customized products and services to help meet consumer needs. In our Group Retirement business, our approximately 1,300 career financial advisors as of March 31, 2022 provide us with the opportunity, as permitted by employer guidelines, to work with approximately 1.7 million individuals, as of March 31, 2022, in employer-defined contribution plans (“in-plan”) and over 300,000 individuals outside of the traditional employer-sponsored pension plans (“out-of-plan”). Our financial advisors are positioned to guide individuals as they invest through employer programs, and to build relationships resulting in the continued provision of advice and guidance over the course of their savings and retirement journey. The strength of these relationships is illustrated by our strong client retention rate of over 90% for the twelve months ended March 31, 2022.
A disciplined approach to investment management is at the core of our business. We believe our recently announced strategic partnership with Blackstone will allow us to leverage Blackstone’s ability to originate, and significantly enhance our ability to invest in, attractive and privately sourced fixed-income oriented assets that we believe are well suited for liability-driven investing within an insurance company framework. Additionally, 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.
We believe we have a strong balance sheet that has resulted from decades of focus on effective and prudent risk management practices. We have employed a consistent, disciplined approach to product design and risk selection, resulting in a high-quality liability profile. For example, our broad retail and institutional product suite allows us to be selective in liability origination, and our ability to quickly refine our offerings in response to market dynamics allows us to be opportunistic when we identify areas of attractive risk-adjusted returns. We have a well-managed annuity liability portfolio, with product structures and hedging strategies designed to manage our exposure to living and death benefits. For example, our individual fixed and fixed index annuities represent approximately 56% of our Individual Retirement AUMA as of March 31, 2022, and the vast majority of our AUMA in these products has no exposure to any optional living or death benefits. Our individual variable annuities with living benefits, which represent only 33% of our Individual Retirement AUMA as of March 31, 2022, were predominantly originated after the 2008 financial crisis, and as of March 31, 2022, 96% of our Group Retirement variable annuities have no living benefits. We have also fully reinsured our limited exposure to long-term care (“LTC”) policies. Our risk management approach includes an efficient hedging program designed
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to manage risk exposure to our balance sheet, the careful management of our asset-liability matching and the use of reinsurance. We believe our strong risk management framework will continue to help us manage market volatility, optimize our capital and produce attractive stockholder returns.
We believe that our strong competitive position and our enhanced focus on growth as a stand-alone company position us well to capitalize on compelling structural changes in the life and retirement market. We expect our target market of individuals planning for retirement to continue to grow, with the size of the U.S. population age 65 and over 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 in the 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 advice capabilities. We continue to see 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. In addition, the domestic pension risk transfer (“PRT”) market has grown from $3.8 billion in premiums in 2013 to $38.1 billion in 2021, and our presence in this market provides us with opportunities to assist employers that choose to close and transfer obligations under their defined benefit plans.
Our Businesses
Our businesses share common commitments to customer value and disciplined pricing, and each business benefits from enterprise-wide risk management infrastructure, investment management capabilities, hedging strategies and administrative platforms. We have four operating businesses:
Individual Retirement — We are a leading provider in the $255 billion individual annuity market across a range of product types, including fixed, fixed index and variable annuities, with $14.3 billion in premiums and deposits for the twelve months ended March 31, 2022. We offer a variety of optional benefits within these products, including lifetime income guarantees and death benefits. Our broad and scaled product offerings and operating platform have allowed our company to rank in the top two in total individual annuity sales in each of the last nine years, and we are the only top 10 annuity provider with a balanced mix of products across all major annuity categories according to LIMRA. Our strong distribution relationships and broad multi-product offerings allow us to quickly adapt to respond to shifting customer needs and economic and competitive dynamics, targeting areas where we see the greatest opportunity for risk-adjusted returns. We are well-positioned for growth due to demographic trends in the U.S. retirement market, supported by our strong platform. Our Individual Retirement business is the largest contributor to our earnings, historically generating consistent spread and fee income.
Group Retirement — We are a leading provider of retirement plans and services to employees of tax-exempt and public sector organizations within the K-12, higher education, healthcare, government and other tax-exempt markets, having ranked third in K-12 schools, fourth in higher education institutions and fifth in healthcare institutions by total assets as of September 30, 2021. According to Cerulli Associates Inc. (“Cerulli Associates”), the size of the not-for-profit defined contribution retirement plan market, excluding the Federal Thrift Savings Plan, was $1.9 trillion in 2020. We work with approximately 1.7 million individuals as of March 31, 2022 through our in-plan products and services and over 300,000 individuals through our out-of-plan products and services. Our out-of-plan capabilities include proprietary and non-proprietary annuities, financial planning, brokerage and advisory services. We offer financial planning advice to employees participating in retirement plans through our career financial advisors. These advisors allow us to develop long-term relationships with our customers by engaging with them early in their careers and providing customized solutions and support. Approximately 27% of our individual customers have been customers of our Group Retirement business for more than 20 years, and the average length of our relationships with plan sponsors is nearly 29 years. Our strong customer relationships have led to growth in our AUMA, evidenced by stable in-plan spread-based assets, growing in-plan fee-based assets and growing out-of-plan assets. Our Group Retirement business generates a combination of spread and fee income. While the revenue mix remains balanced, we have grown our advisory and brokerage fee revenue over the last several years, which provides a less capital intensive stream of cash flows.
Life Insurance — We offer a range of life insurance and protection solutions in the approximately $206 billion U.S. life insurance market (based on direct premium) as of March 31, 2022, according to
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the S&P Global Inc., with a growing international presence in the UK and Ireland. We are a key player in the term, indexed universal life and smaller face whole life markets; ranking as a top 15 seller of term, universal and whole life products as of December 31, 2021. Our competitive and flexible product suite is designed to meet the needs of our customers, and we actively participate in product lines that we believe have attractive growth and margin prospects. Further, we have strong third-party distribution relationships and a long history in the direct-to-consumer market, providing us with access to a broad range of customers from the middle market to high net worth. We have also been working to automate certain underwriting reviews so as to make decisions on applications without human intervention, and we reached a decision on approximately 45% of all underwriting applications in 2021 on an automated basis. As of March 31, 2022, we had approximately 4.3 million in-force life insurance policies in the United States, net of those ceded to Fortitude Re. Our Life Insurance product portfolio generates returns through underwriting margin.
Institutional Markets — We serve the institutional life and retirement insurance market with an array of products that include PRT, institutional life insurance sold through the bank-owned life insurance and corporate-owned life insurance markets, stable value wraps and structured settlements. We are also active in the capital markets through our funding agreement-backed note (“FABN”) program. We provide sophisticated, bespoke risk management solutions to both financial and non-financial institutions. Historically, a small number of incremental transactions have enabled us to generate significant new business volumes, providing a meaningful contribution to earnings while maintaining a small and efficient operational footprint. We believe that market trends will contribute to growth in our stable value wrap product. Our Institutional Markets products generate earnings primarily through net investment spread, with a smaller portion of fee-based income and underwriting margin.
Our Distribution Platform
We have built a leading distribution platform through a range of partnerships. Our distribution platform includes banks, broker-dealers, general agencies, independent marketing organizations and independent insurance agents, as well as our career financial advisors, plan consultants, employers, specialized agents and a direct-to-consumer platform. We believe our distribution relationships are difficult to replicate and are strengthened by the breadth of our product offerings and long history of partnership. This platform includes:
AIG FD — We have a specialized team of approximately 500 sales professionals who partner with and grow our non-affiliated distribution on our broad platform, which includes banks, broker-dealers, general agencies, independent marketing organizations and independent insurance agents. Our direct-to-consumer platform, AIG Direct, primarily markets to middle market consumers through a variety of direct channels, including several types of digital channels, such as search advertising, display advertising and email, as well as direct mail.
Group Retirement — We have a broad team of relationship managers, consultant relationship professionals, business acquisition professionals and distribution leaders that focus on acquiring, serving and retaining retirement plans. Our affiliated platform, VALIC Financial Advisors, which includes approximately 1,300 career financial advisors as of March 31, 2022, focuses on our Group Retirement business, guiding individuals in both in-plan and out-of-plan investing.
Institutional Relationships — We have strong relationships with insurance brokers, bankers, asset managers, pension consultants and specialized agents who serve as intermediaries in our institutional business.
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The following chart presents our sales by distribution channel for the twelve months ended March 31, 2022, including premiums, deposits and other consideration for Individual Retirement and Group Retirement and sales on a periodic basis for Life Insurance(1), excluding Institutional Markets and $29.9 million and $1.1 million from AIG Direct and AIG Financial Network, respectively.


(1)
Life Insurance sales, excluding contributions from AIG Direct and AIG Financial Network on a periodic basis, totaled $273 million through the Independent Agents channel for the twelve months ended March 31, 2022.
Our Strategic Partnership with Blackstone
We recently entered into a strategic partnership with Blackstone that we believe has the potential to yield significant economic and strategic benefits over time. We believe that Blackstone’s ability to originate, and our enhanced ability to invest in, 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, Blackstone manages $50 billion of assets in our investment portfolio, with that amount increasing by $8.5 billion in each of the next five years beginning in the fourth quarter of 2022 for an aggregate of $92.5 billion by the third quarter of 2027. We expect Blackstone to invest these assets primarily in Blackstone-originated investments across a range of asset classes, including private and structured credit. Blackstone’s typical 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.
With a market capitalization in excess of $152 billion and $915 billion of AUM as of March 31, 2022, Blackstone is one of the most recognized firms in asset management. Blackstone operates across asset categories, including real estate (both equity and debt), corporate private equity, credit, hedge fund management, infrastructure and secondaries. In addition to its role as the world’s largest real estate investor, with $298 billion of investor capital under management as of March 31, 2022, Blackstone owns and operates one of the world’s largest private real estate debt businesses, Blackstone Real Estate Debt Strategies, which has generated over $103 billion of gross loan commitments over its 13-year operating history. Separately, Blackstone Liquid Credit is one of the world’s largest originators of private credit, with $266 billion in total AUM as of March 31, 2022 and is one of the longest-tenured investors in the U.S. direct lending market with a 16-year performance history and approximately $68 billion invested from 2006 to March 31, 2022.
Blackstone will manage a portfolio of private and structured credit assets as described above, where we believe Blackstone is well-positioned to add value and drive new originations. 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.
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As part of our partnership, Blackstone acquired a 9.9% position in our common stock, aligning its economic interests with our stockholders. See “Certain Relationships and Related Party Transactions—Partnership with Blackstone.” This $2.2 billion investment, subject to post-closing adjustments, represented the largest corporate investment in Blackstone’s firm history.
Our Investment Management Arrangement with BlackRock
Certain of our insurance company subsidiaries recently entered into separate investment management agreements with BlackRock (the “BlackRock Arrangement”). We expect to transfer the management of up to $90 billion of liquid fixed income and certain private placement assets in the aggregate to BlackRock over a period of 12 months in connection with the BlackRock Arrangement. We expect the BlackRock Arrangement will 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—Our Segments—Investment Management—Our Investment Management Arrangement with BlackRock.”
Our Historical Results and Capital Management
We have a history of consistent and strong results. Our well-diversified, attractive risk-adjusted return profile results from a combination of fee and spread-based income and has historically provided stability through market cycles. Our statutory capital position has been strengthened by our consistent capital generation, and our Life Fleet RBC ratio was 447% as of December 31, 2021 and is estimated to be in the range of 430% to 440% as of March 31, 2022, each of which is consistent with our target Life Fleet RBC ratio of above 400%. We intend to allocate excess capital opportunistically to invest in our business and return capital to stockholders while maintaining a strong ratings profile.
Market Opportunities
We believe that several market dynamics will drive significant demand for our products and services. These dynamics include the aging of the U.S. population and the resulting generational wealth transfer, the strong consumer preference for financial planning advice, the continued reduction of corporate defined benefit plans and the significant life insurance protection gap for consumers. We believe our businesses are well-positioned to capitalize on the opportunities presented by these long-term trends.
Large and growing retirement-aged population in the U.S.
According to the U.S. Census Bureau, there were approximately 56 million Americans age 65 and older in 2020, representing 17% of the U.S. population. By 2030, this segment of the population is expected to increase by 17 million, or 30%, to approximately 73 million Americans, representing 21% of the U.S. population. Technological advances and improvements in healthcare are projected (notwithstanding near-term COVID-19 impacts) to continue to contribute to increasing average life expectancy. Accordingly, aging individuals must be prepared to fund retirement periods that will last longer than those of previous generations. We believe these longer retirement periods will result in increased demand for our retirement products. Further, Cerulli Associates estimates that by the end of 2042, $70 trillion will change hands from aging households passing on their wealth, providing a significant opportunity for our annuities, life insurance and investment products.
Strong consumer preference for financial planning advice
According to LIMRA, U.S. consumers continue to favor purchasing life insurance in person through an agent or advisor compared to another channel, with 93% of annuities being purchased through financial professionals for the year ended December 31, 2020, despite the impact of the COVID-19 pandemic. According to Cerulli Associates, 31% of U.S. retirees prefer to seek retirement advice from financial professionals, the most popular avenue for retirement advice in this demographic, and 20% of U.S. active workers prefer to engage financial professionals for retirement planning. Also according to Cerulli Associates, financial professionals are also the most popular option for retirement planning services for U.S. active workers with $100,000 or more in assets, and nearly half of U.S. active workers with $500,000 or more in assets prefer to receive retirement advice
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from a financial professional. Due to the complexity of financial planning, we believe that many consumers will continue to seek advice in connection with the purchase of these products, providing a competitive advantage to our broad distribution platforms and in-house advice capabilities.
Reduced corporate safety net
According to the Employee Benefits Research Institute, the percentage of private-sector wage and salary workers participating in only a defined benefit pension plan decreased from 28% in 1979 to just 1% in 2019. By contrast, the percentage participating in only defined contribution pension plans jumped from 7% to 41%. These statistics demonstrate the increasing need for individuals to seek private solutions to retirement planning and lifetime income. We believe that the dramatic and continuous shift of private-sector worker plan coverage will drive continued demand for our products and expertise. In addition, as more employers close defined benefit plans and look to transfer some or all of their obligations to pay retirement benefits, the domestic PRT market has grown from $3.8 billion in premiums in 2013 to $38.1 billion in 2021, a trend that we expect to continue.
Growing life insurance protection gap and increased awareness of life insurance need due to COVID-19 pandemic
According to LIMRA, almost half (48%) of American adults in 2021 did not own any form of life insurance, an increase of two percentage points from 2020 and eight percentage points from 2016. Against this trend, the COVID-19 pandemic is expected to increase consumer demand for life insurance, with almost one-third of Americans (31%) saying they are more likely to purchase coverage because of the pandemic, according to LIMRA. We believe the COVID-19 pandemic has highlighted the importance of our protection products and will have a lasting effect on consumers’ attitudes toward purchasing life insurance.
Our Competitive Strengths
Scaled platform with leading positions across a broad suite of products. Our scaled businesses collectively manage $388.0 billion of AUMA as of March 31, 2022, and we generated $31.6 billion of premiums and deposits and $2.4 billion in fee income for the twelve months ended March 31, 2022. We have approximately $12.5 billion of statutory capital and surplus as of December 31, 2021, which makes us the eighth largest life and annuity company in the United States. We have $20.3 billion of Adjusted Book Value as of March 31, 2022. We believe our scale provides us with significant operating and competitive advantages, including our importance to our distribution partners and our ability to utilize investments in technological and operational efficiencies to benefit customers.
We maintain leading positions across multiple products and we have in many cases held these leading positions for decades. According to LIMRA, in 2021 we ranked second in total annuity sales while ranking fourth, third and fifth across fixed, fixed index and variable annuities, respectively. We hold top five market positions in K-12 education, higher education and healthcare institutions group retirement assets as of September 30, 2021, while ranking in the top 10 in government group retirement assets as of September 30, 2021, and in the top 10 in term life sales as of December 31, 2021. In recent years, we have also experienced significant growth in advisory-based assets across both in-plan and out-of-plan products.
Our breadth of products allows us to manage our businesses to prioritize value over volume. We have the flexibility to allocate resources towards areas that we believe present the highest available risk-adjusted returns across our portfolio. We manage sales of our portfolio of products and services based on consumer demand and our view of profitability and risk across the markets in which we compete. We believe that this approach allows us to deliver consistent performance over time through a wide range of economic conditions and market environments.
Diversified and attractive business mix. Our business mix is well-balanced by both product type and revenue source. For the twelve months ended March 31 2022, our four operating businesses collectively generated $5.9 billion in premiums, $3.0 billion in policy fees and $9.7 billion in net investment income excluding Fortitude Re funds withheld assets, contributing to a total of $24.2 billion in total revenue, including Fortitude Re. Our adjusted revenue is spread across our four operating businesses with Individual Retirement, Group Retirement, Life Insurance and Institutional Markets accounting for 31%, 17%, 24% and 28%, respectively, excluding Corporate and Other, for the twelve months ended March 31, 2022.
Our diversified financial model generates earnings through a combination of spread income, fee income and underwriting margin. For the twelve months ended March 31, 2022, our spread-based income totaled $4.2 billion, our fee-based income totaled $2.4 billion and our underwriting margin was $1.2 billion, providing a balanced
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mix of 54% spread-based income, 31% fee-based income, and 15% underwriting margin, in each case as a percentage of the total of these income sources. For further discussion regarding our earnings, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Financial Measures and Key Operating Metrics—Key Operating Metrics—Fee and Spread Income and Underwriting Margin.”
Broad distribution platform giving us access to customers and financial intermediaries. We have a leading distribution platform with a range of partnerships and capabilities across the value chain and a culture of focus on the customer. We believe our distribution relationships are strengthened by the breadth of our product offerings and our high-touch client services. Our distribution capabilities include:
AIG FD has approximately 500 specialized sales professionals that leverage our strategic account relationships and other partnerships to address multiple client needs. This platform is primarily focused on our non-affiliated distribution through banks, broker-dealers and independent marketing organizations, and specializes in aligning our robust product offering of over 160 life and annuity products with individual partner preferences, reaching independent advisors, agencies and other firms. AIG FD primarily facilitates distribution for our Individual Retirement and Life Insurance businesses, including providing certain partners a unified coverage model that allows for distribution of both our life insurance and annuity products.
Individual Retirement maintains a growing multi-channel distribution footprint built on long-term relationships. As of March 31, 2022, our footprint included over 24,000 advisors and agents actively selling our annuities in the prior twelve months, accessed through long-term relationships with over 600 firms distributing our annuity products. These advisors and agents included approximately 11,500 new producers who sold our annuity products for the first time in twelve months.
Life Insurance has a well-balanced distribution footprint that reaches approximately 35,000 independent agents as of March 31, 2022, who actively sell our life insurance solutions, through diverse independent channels as well as a direct-to-consumer model. We had access to over 800 managing general agents (“MGAs”) and brokerage general agents (“BGAs”) as of March 31, 2022. In addition to our non-affiliated distribution, our life insurance policies are sold through AIG Direct, our direct-to-consumer brand with more than 130 active agents as of March 31, 2022, which represented 12% of our life insurance sales for the twelve months ended March 31, 2022.
Group Retirement is supported by a broad team of relationship managers, consultant relationship professionals and business acquisition professionals that focus on acquiring, serving and retaining retirement plans with approximately 22,000 plan sponsor relationships as of March 31, 2022. Also, VALIC Financial Advisors helps build relationships with employees through our holistic and vertically-integrated offering. Our field force of approximately 1,300 career financial advisors, as of March 31, 2022, comprises experienced field and phone-based financial advisors, retirement plan consultants and experienced financial planners with an average of nearly 10 years of tenure with VALIC Financial Advisors. These professionals provide education, financial planning and retirement advice to individuals participating in their employer-sponsored plan. Due to the relationships built with individuals and employers, our financial professionals can, as permitted by employer guidelines, build broad relationships to provide financial planning, advisory and retirement solutions to approximately 1.7 million individuals through our in-plan products and services and over 300,000 individuals through our out-of-plan products and services, as of March 31, 2022.
Institutional Markets largely writes bespoke transactions and works with a broad range of consultants and brokers, maintaining relationships with insurance brokers, bankers, asset managers and specialized agents who serve as intermediaries.
We focus on maintaining strong and longstanding relationships with our partners and seek to grow our volumes with intermediaries. As of December 31, 2021, we represented approximately 13% on average of the total sales volume of our top 25 third-party distribution partners for our annuities. These partners have been with our platform for an average of approximately 25 years, with nine of them for 30 years or more as of December 31, 2021. Each of our distribution platforms has a different strategy. For example, our wholesale
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operations, through AIG FD, provide high-touch customer service to our intermediaries and seek to help them grow in tandem with our business, while our VALIC Financial Advisors allows us to develop deep and trust-centered relationships directly with individuals to support their broader retirement and insurance needs.
Proven ability to design innovative products and services. Our ability to innovate has contributed to our ability to maintain leading market positions and capitalize on profitable growth opportunities while carefully managing risk, including interest rate and equity risk within our products. The culture of innovation is deeply ingrained in our business and goes back decades. For example, our business issued the first 403(b) annuity contract in a K-12 school system over 50 years ago, to a client that continues to be one of our largest in the Group Retirement business. More recently, we accelerated the growth of our fixed index annuity platform, growing from negligible operations in 2012 to the third-largest player by sales in 2021. This growth was supported by regular product innovation, including exclusive products provided to select distributors with innovative living benefits and customized indices. Fixed index annuities are now our largest Individual Retirement product category by premiums and deposits. We also launched the first fixed index annuity with a living benefit for sale in New York State. We introduced novel risk management features in our variable annuity products with living benefits, including VIX-indexed fee structures and a required fixed account allocation, each of which are now present in 90% of our in-force variable annuity products with living benefits as of March 31, 2022 and present in all of our new variable annuity sales for the twelve months ended March 31, 2022. Within our PRT business, we have developed new product offerings and solutions to participate in complex plan terminations, and are developing longevity swap products to enhance our deal execution capabilities.
Our strategic partnership with Blackstone. Blackstone is expected to originate, and significantly enhance our ability to invest in, attractive and privately sourced, fixed-income oriented assets that are well-suited for liability-driven investing within an insurance company framework. We believe these expanded investment capabilities will improve our investment returns, accelerate our product innovation and enhance the competitiveness of our products. When scaled across our businesses, we believe these expanded capabilities can provide a significant catalyst for future growth.
High-quality liability profile supported by a strong balance sheet and disciplined approach to risk management. We believe our diverse product portfolio and history of disciplined execution have produced a strong balance sheet that is expected to generate significant cash flows over time. First, our disciplined risk selection has resulted in a high-quality liability profile with limited-to-no exposure to “challenged” product portfolios. We have minimal gross exposure, and no net exposure, to LTC policies, which we have fully reinsured to Fortitude Re. Additionally, we have well-managed and limited exposure to optional guarantees within our individual annuity portfolio. As of March 31, 2022, individual annuities with living benefits represented less than 17% of total AUMA, with 4% of these related to guarantees on fixed and fixed index annuities. Our historically profitable variable annuity portfolio has benefited from disciplined risk selection and product design with, as of March 31, 2022, approximately 61% of the portfolio having no guaranteed living benefits and 6% of variable annuity reserves attributable to living benefit business written prior to 2009. In our Institutional Markets business, we offer certain products, such as stable value wraps (“SVWs”), without significant mortality or longevity exposure. Furthermore, the breadth of our Institutional Markets offering allows us to be selective in our liability generation and allocate capital towards the areas where we see the greatest risk-adjusted returns.
Our balance sheet is supported by our strong capital position and high-quality investment portfolio. As of March 31, 2022, we estimate that we had a Life Fleet RBC ratio in the range of 430% to 440%, and as of December 31, 2021, we had a Life Fleet RBC ratio of 447%, each of which is consistent with our target Life Fleet RBC ratio of above 400%. We intend to manage our financial leverage appropriately with a target financial leverage ratio of 25% to 30%. See “Glossary” for the definition of financial leverage ratio. Our insurance operating company investment portfolio is primarily invested in fixed income securities, 94% of which are designated investment grade by the NAIC as of March 31, 2022.
We also have an active hedging program for our living benefit guarantees, which is informed by our view of the economic liability of the business and is intended to provide protection against adverse market scenarios that could cause the value of the associated liability to increase. In addition, we have an active asset-liability management (“ALM”) program that seeks to closely match the characteristics of our asset portfolio with the characteristics of our liabilities.
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Ability to deliver consistent cash flows and attractive returns for stockholders. Through our scaled and diverse businesses, underpinned by our strong balance sheet and disciplined approach to risk management, we have delivered consistent earnings and cash flows to our parent company. We have also delivered an attractive return on equity, despite the challenging macroeconomic environment with low interest rates and the impact of the COVID-19 pandemic.
Experienced management team. We have a strong and experienced senior management team with a range of backgrounds across insurance, financial services and other areas of expertise. Our senior management team has an average of over 25 years of experience in the financial services industry.
Our Strategy
Leverage our platform to deliver increased earnings. There are significant trends supporting the growth of each of our four businesses, and we believe that we are positioned to take advantage of these trends to achieve targeted growth opportunities.
We believe we can leverage our broad platform to benefit from changing Individual Retirement market dynamics. We intend to maintain and expand our products to provide income and accumulation benefits to our customers. For example, we recently broadened our product portfolio to include a fee-based fixed index annuity to meet the needs of our investment advisor distribution partners. Through our customized wholesaling model, we plan to capitalize on this opportunity by leveraging both external and proprietary data to identify the highest value opportunities at both the distribution partner and financial professional level.
We believe our high-touch model is well-tailored for many employers in the not-for-profit retirement plan market and enables us to help middle market and mass affluent individuals achieve retirement security. Specifically, our career financial advisors provide education and advice to plan participants while accumulating assets in-plan and can seek to serve more of the participant’s financial needs during their lifetime beyond the in-plan relationship, as permitted by employer guidelines. As of March 31, 2022, we have a large extended customer base of approximately 1.7 million plan participants to whom we have access through our in-plan Group Retirement offerings and 300,000 individuals we serve through our out-of-plan Group Retirement offerings. With in-plan income solutions beginning to emerge, we are well-positioned to benefit from market needs. Moreover, by continuing to offer investment advisory services and third-party annuity products, we expect to capture additional fee-based revenue while providing our clients attractive financial solutions outside of the scope of our own product suite.
Our Life Insurance business has an opportunity to help close the current protection gap in the United States and offer value to our customers internationally. For example, we have begun to offer simplified and less expensive insurance options to middle-market pre-retirees looking for final expense protection through the launch of our new Simplified Issue Whole Life (“SIWL”) product in the fourth quarter of 2021. Additionally, we expect our strong performance in the term life insurance market to accelerate through enhanced consumer awareness of life insurance coupled with an improved new business process. Our long history in the direct-to-consumer market through a variety of direct-to-consumer channels provides valuable insights and experience for these opportunities.
Our Institutional Markets business has developed relationships with brokers, consultants and other distribution partners to drive increased earnings for its products. We expect to continue to achieve attractive risk-adjusted returns through PRT deals by focusing on the larger end of the full plan termination market where we can leverage our differentiated capabilities around managing market risks, asset-in-kind portfolios and deferred participant longevity. Additionally, we plan to grow our guaranteed investment contract (“GIC”) portfolio by expanding our FABN program. We believe that our Blackstone partnership will differentiate our competitive position by providing assets with a duration, liquidity and return profile that are well-suited to our Institutional Markets offerings, allowing us to grow our transaction volume.
Leverage our strategic partnership with Blackstone to create differentiated pricing and liability sourcing. Blackstone is a market-leading alternative investment manager with significant direct asset origination capabilities, representing additional opportunities for us to source the fixed-income oriented assets needed to back
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our liabilities and enhance risk-adjusted returns. We intend to use our collective asset origination and investment management capabilities to help drive value and growth for all of our businesses.
Drive further cost reduction and productivity improvement across the organization.
We have identified opportunities to improve profitability across our businesses through operating expense reductions, without impacting our ability to serve our existing clients, and in many cases enhancing our service capabilities, to enable growth in our businesses. We aim to achieve an annual run rate expense reduction of $200 million to $300 million on a pre-tax basis within two to three years of this offering. To achieve this goal, we have created a productivity improvement program with a one-time expense of $200 million and intend to complete our “AIG 200” savings of $125 million on an annual run rate basis by the end of 2022, of which $25 million has been earned as of December 31, 2021 (all such amounts presented on a pre-tax basis). In particular, we plan to:
simplify our customer service model and modernize our technology infrastructure with more efficient, up-to-date alternatives, including cloud migration and cloud-based solutions;
further optimize our functional operating model;
build on existing partnership arrangements to further improve scale and drive spend efficiency through technology deployment and process optimization;
rationalize our real estate footprint to align with our business strategy, future operating model and organizational structure; and;
optimize our vendor relationships to drive additional savings.
To achieve this plan, we have reached agreements with our existing partners to realize further cost efficiencies by transforming additional operational and back office processes. Apart from this plan, we intend to evolve our investments organization, which we expect will create additional efficiencies, to reflect our relationships with key external partners, our expected implementation of BlackRock’s “Aladdin” investment management technology platform and our expected reduction in fees from AIG for asset management services.
For additional information about our cost reduction and productivity improvements across the organization, see “Risk Factors—Our productivity improvement initiatives may not yield our expected expense reductions and improvements in operational and organizational efficiency.”
Closely manage capital to continue to provide strong cash flow for stockholders. We have historically provided strong cash flows from our existing businesses to our parent company, and we intend to continue to manage our businesses to produce meaningful returns to stockholders through potential dividends and share repurchases. We also intend to closely manage our in-force portfolio, seek to ensure that new business is profitable and proactively manage our businesses to optimize returns within and across portfolios.
Financial Goals
We have designed our financial goals to maintain a strong balance sheet while delivering disciplined profitable growth. We have established the following financial goals, based on the assumptions below, which we believe best measure the execution of our business strategy and align with our stockholders’ interests.
Life Fleet RBC of at least 400%;
Return of capital to stockholders equal to 60 to 65% of adjusted after-tax operating income attributable to our common stockholders (“AATOI”) consisting of common stockholder dividends of $600 million each year and share repurchases, subject to approval by our board of directors (the “Board”) (see “Dividend Policy”); and
Adjusted ROAE in the range of 12% to 14% based on current accounting rules in effect on the date hereof and without giving effect to any changes resulting from the adoption of the new accounting standard for long duration contracts.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Financial Measures and Key Operating Measures—Non-GAAP Financial Measures” for a discussion of AATOI and Adjusted ROAE.
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These financial goals are based on certain assumptions, including assumptions regarding interest rates, geopolitical stability and market performance.
While these goals are presented with numerical specificity, and we believe such goals to be reasonable as of the date of this prospectus, given the uncertainties surrounding such assumptions, there are significant risks that these assumptions may not be realized and as a result, the financial goals may not be achieved in whole or in part. We caution you that these goals are not guarantees of future performance or outcomes and that actual performance and outcomes, including our actual results of operations, may differ materially from those suggested by these goals, particularly if actual events adversely differ from one or more of our key assumptions. The financial goals and their underlying assumptions are forward-looking statements and other risks, uncertainties and factors, including those discussed in “Risk Factors,” could cause our actual results to differ materially from those projected in any forward-looking statements we make. You should read carefully the factors described in “Risk Factors,” “Special Note Regarding Forward-Looking Statements and Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements, including with respect to these financial goals. These goals are made only as of the date of this prospectus, and we do not undertake any obligation to update or revise any goals to reflect the occurrence of events, changes in assumptions or adjustments in such financial goals, unanticipated or otherwise, other than as may be required by law. In addition, we expect our financial goals to evolve over time to reflect changes in our business strategies and our balance sheet mix.
For additional information about our financial goals, including a non-exclusive list of the underlying assumptions and certain risks, see “Business—Financial Goals” and “Risk Factors—Our business strategy may not be effective in accomplishing our objectives, including as a result of events that can cause our fundamental business model to change and assumptions that may prove not to be accurate.”
Our History and Development
Corebridge is currently a direct, majority-owned subsidiary of AIG Inc., a leading global insurance organization. AIG Inc. provides a wide range of property casualty insurance, life insurance, retirement solutions, and other financial services to customers in approximately 80 countries and jurisdictions. Our life insurance subsidiaries have a long track record of serving the financial needs of policyholders and distributors in the United States and trace their corporate history back to 1850 with the formation of The United States Life Insurance Company in the City of New York. We further expanded with the acquisition of SunAmerica Inc., a leading retirement and financial services company in 1999, and American General Corporation, a leading life insurer in 2001. Through our various life insurance subsidiaries, we are licensed to conduct life insurance and annuity business in all 50 states in the United States and the District of Columbia and in the UK and Bermuda. Neither AIG nor any affiliate of AIG will have any obligation to provide additional capital or credit support to us following closing of this offering.
On November 2, 2021, Blackstone invested $2.2 billion, subject to post-closing adjustments, in the Company for approximately 9.9% of our outstanding common stock. In addition, we entered into various asset management agreements with Blackstone pursuant to which Blackstone manages $50 billion of assets in our investment portfolio as of March 31, 2022, with that amount increasing by $8.5 billion in each of the next five years beginning in the fourth quarter of 2022 for an aggregate of $92.5 billion by the third quarter of 2027. See “Certain Relationships and Related Party Transactions—Partnership with Blackstone.”
Organizational Structure
We are currently in the process of an internal reorganization (the “Reorganization”). The Reorganization’s primary goals are to ensure that we will hold all of AIG Group’s life and retirement business and substantially all of AIG Group’s investment management operations prior to the consummation of this offering. See “The Reorganization Transactions.”
AIG will hold approximately    % of our common stock (or    % if the underwriters exercise their option to purchase additional shares from the selling stockholder) and Blackstone will hold approximately 9.9% of our common stock after the consummation of the Reorganization and this offering. As a result, we will continue to be a “controlled company” within the meaning of the NYSE corporate governance standards following the consummation of the offering. This status will allow us to rely on exemptions from certain corporate governance requirements otherwise applicable to NYSE-listed companies. See “Management—Corporate Governance.”
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The following chart illustrates our organizational structure (including the jurisdiction of incorporation of each respective entity) after giving effect to the Reorganization and this offering, assuming the underwriters do not exercise their option to purchase additional shares from the selling stockholder. The chart reflects only certain of our subsidiaries and has been simplified for illustrative purposes. All ownership percentages shown below are 100% unless otherwise noted.


Following this offering, AIG will continue to hold a majority of our outstanding common stock, and as a result AIG will continue to have control of our business, including pursuant to the agreements described in “Certain Relationships and Related Party Transactions—Relationship with AIG Following this Offering.” In addition, Blackstone will have corporate governance, consent and information rights with respect to us under the Blackstone Stockholders' Agreement as described in “Certain Relationships and Related Party Transactions—Partnership with Blackstone.”
Capital Structure
We have historically operated with a capital structure that reflected our status as a subsidiary of AIG. To prepare for this offering and operation as a stand-alone public company, we will undertake a number of recapitalization and financing initiatives designed to provide an efficient and flexible capital structure, similar to those of our U.S. public company peers (the “Recapitalization”). Specifically, we have entered into a revolving credit facility, delayed draw term loan facilities and letters of credit. Further, on April 5, 2022, we completed an issuance of $6.5 billion of senior notes and used the proceeds from the sale to repay outstanding indebtedness owed by us to AIG. See “Recapitalization” and “Capitalization.”
Corporate Information
Corebridge Financial, Inc., the issuer in this offering, is a Delaware corporation. Our principal executive offices are located at 2919 Allen Parkway, Woodson Tower, Houston, Texas 77019, and our telephone number is 1-877-375-2422. Our website is www.           .com. None of the information contained on, or that may be accessed through, our website or any other website identified herein is part of, or incorporated into, this prospectus, and you should not rely on any such information in connection with your decision to invest in our common stock. Reference to our website is made as an inactive textual reference.
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SUMMARY RISK FACTORS
Our business is subject to a number of risks, including risks that could prevent us from achieving our business objectives or financial goals or that otherwise could adversely affect our business, results of operations, financial condition and liquidity, that you should carefully consider before making a decision to invest in our common stock. These risks are discussed more fully in “Risk Factors.” These risks include the following:
sustained low, declining or negative interest rates, rapidly increasing interest rates or changes to credit spreads;
the deterioration of economic conditions, changes in market conditions, weakening in capital markets, the rise of inflation or geopolitical tensions, including the armed conflict between Ukraine and Russia;
the impact of COVID-19, which will depend on future developments, including with respect to new variants, that are uncertain and cannot be predicted;
unavailable, uneconomical or inadequate reinsurance;
a failure by Fortitude Re to perform its obligations under its reinsurance agreements;
the inaccuracy of the methodologies, estimations and assumptions underlying our valuation of investments and derivatives;
our potential inability to refinance all or a portion of our indebtedness to obtain additional financing;
our limited ability to access funds from our subsidiaries;
a downgrade in the Insurer Financial Strength (“IFS”) ratings of our insurance companies and a downgrade in our credit ratings;
our exposure to liquidity and other risks due to participation in a securities lending program and a repurchase program;
exposure to credit risk due to non-performance or defaults by our counterparties;
the inadequate and unanticipated performance of third parties that we rely upon to provide certain business and administrative services on our behalf;
our inability to maintain the availability of our critical technology systems and data and safeguard the confidentiality and integrity of our data;
the ineffectiveness of our risk management policies and procedures;
significant legal, governmental or regulatory proceedings;
the ineffectiveness of new elements of our business strategy in accomplishing our objectives;
the intense competition we face in each of our business lines and the technological changes that may present new and intensified challenges to our business;
catastrophes, including those associated with climate change and pandemics;
material changes to, or termination of, our significant investment advisory contracts with other parties, including Fortitude Re;
business or asset acquisitions and dispositions that may expose us to certain risks;
changes in laws and regulations that may affect our operations, increase our insurance subsidiary capital requirements or reduce our profitability;
a determination that we are an “investment company” under the Investment Company Act and subject to applicable restrictions;
new laws and regulations, or new interpretations of current laws and regulations, both domestically and internationally;
differences between actual experience and the estimates used in the preparation of financial statements and modeled results used in various areas of our business;
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differences in actual experience and the assumptions and estimates used in preparing projections for our financial goals, reserves and cash flows;
the ineffectiveness of our productivity improvement initiatives in yielding our expected expense reductions and improvements in operational and organizational efficiency;
recognition of an impairment of our goodwill or the establishment of an additional valuation allowance against our deferred income tax assets as a result of our business lines underperforming or their estimated fair values declining;
our inability to attract and retain the key employees and highly skilled people we need to support our business, including in light of current competition for talent;
the termination by Blackstone IM of the separately managed account agreements (“SMAs”), or our commitment letter with it to manage portions of our investment portfolio, or risks related to limitations on our ability to terminate the Blackstone IM arrangements;
our limited ability to pursue certain investment opportunities and retain well-performing investment managers due to our exclusive investment management arrangements with Blackstone IM in relation to certain asset classes;
the historical performance of AMG, Blackstone IM and BlackRock not being indicative of the future results of our investment portfolio, our future results or any returns expected on our common shares;
ineffective management of our investment portfolio or harm to our business reputation due to increased regulation or scrutiny of alternative investment advisers and investment activities;
our failure to replicate or replace functions, systems and infrastructure provided by AIG or certain of its affiliates (including through shared service contracts) or our loss of benefits from AIG’s global contracts, and AIG’s failure to perform the services provided for in the Transition Services Agreement, as well as incremental costs we expect to incur as a stand-alone public company;
costs associated with rebranding;
additional expenses requiring us to implement future operational and organizational efficiencies due to our restructuring initiatives in connection with our separation from AIG;
the significant influence that AIG has over us;
actual or potential conflicts of interest with certain of our directors because of their AIG equity ownership or their current or former AIG positions;
the interpretation of insurance holding company laws which may deem that investors in AIG “control” us following their investment in our common stock;
potentially higher U.S. federal income taxes due to our inability to file a single U.S. consolidated federal income tax return following our separation from AIG;
our potential liability for U.S. income taxes of the entire AIG Consolidated Tax Group for all taxable years or portions thereof in which we (or our subsidiaries) were members of such group; and
other potential adverse tax consequences to us from our separation from AIG.
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THE OFFERING
Common stock offered by the selling
stockholder
    shares
Total common stock to be outstanding after this offering
    shares
Option to purchase additional shares
The underwriters have a 30-day option to purchase up to     additional shares of common stock from the selling stockholder at the initial public offering price, less underwriting discounts and commissions.
Use of proceeds
We will not receive any proceeds from the sale of common stock in this offering; the selling stockholder will receive all of the proceeds from the sale of shares of our common stock.
Dividend policy
We intend to pay quarterly cash dividends on our common stock at an initial amount of approximately $     per share beginning     , although any declaration of dividends will be at the discretion of our Board and will depend on our financial condition, earnings, liquidity and capital requirements, regulatory constraints, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by Delaware law, general business conditions and any other factors that our Board deems relevant in making such a determination. Therefore, there can be no assurance that we will pay any dividends to holders of our common stock, or as to the amount of any such dividends. See “Dividend Policy.”
Proposed NYSE symbol
“CRBG”.
The number of shares of our common stock to be outstanding immediately following this offering is based on shares outstanding as of    , 2022.
Such number of shares of our common stock outstanding excludes     shares of common stock reserved for future issuance following this offering under our equity plans, including     shares of common stock issuable upon settlement of Restricted Stock Units (“RSUs”) expected to be outstanding as of the closing of this offering.
The share amount in the above paragraph related to RSUs expected to be outstanding as of the closing of this offering is equal to (i) the number of shares of AIG common stock subject to AIG RSU awards on    , 2022, multiplied by (ii) $   , the closing share price of AIG common stock on    , 2022, divided by an assumed initial public offering price of $    per share, which is the midpoint of the price range set forth on the cover page of this prospectus. For more information about the share amount in the above paragraph related to RSUs expected to be outstanding as of the closing of this offering, see “Executive Compensation—Compensation Discussion and Analysis—AIG’s 2021 Compensation Decisions and Outcomes—AIG’s 2021 Long-Term Incentive Awards—2021 RSUs.”
Unless otherwise indicated, all information in this prospectus:
gives effect to a     -for-     stock split on our common stock effected on    , 2022;
assumes no exercise by the underwriters of their option to purchase additional shares of common stock from the selling stockholder;
assumes that the initial public offering price of our common stock will be $    per share (which is the midpoint of the price range set forth on the cover page of this prospectus); and
gives effect to amendments to our amended and restated certificate of incorporation and amended and restated by-laws adopted prior to the settlement of this offering.
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SUMMARY HISTORICAL FINANCIAL DATA
The following tables set forth our summary historical financial data derived from our financial statements as of the dates and for each of the periods indicated. The summary historical financial data as of December 31, 2021 and 2020 and for each of the three years ended December 31, 2021, 2020 and 2019 have been derived from our audited financial statements included elsewhere in this prospectus. The summary historical data as of December 31, 2019 are based on our audited financial statements not included in this prospectus. Our historical results are not necessarily indicative of the results to be expected for any future period.
You should read this summary historical financial data in conjunction with the section entitled “Unaudited Pro Forma Condensed Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements included elsewhere in this prospectus.
 
Three Months Ended
March 31,
Years Ended
December 31,
 
2022
2021
2021
2020
2019
 
(in millions)
Statement of Income (Loss)
 
 
 
 
 
Revenues:
 
 
 
 
 
Premiums
$726
$487
$5,637
$4,341
$3,501
Policy fees
764
784
3,051
2,874
2,930
Net investment income:
 
 
 
 
 
Net investment income – excluding Fortitude Re funds withheld assets
2,303
2,460
9,897
9,089
9,176
Net investment income – Fortitude Re funds withheld assets
278
436
1,775
1,427
1,598
Total net investment income
2,581
2,896
11,672
10,516
10,774
Net realized gains (losses):
 
 
 
 
 
Net realized gains (losses) – excluding Fortitude Re funds withheld assets and embedded derivative
1,012
712
1,618
(765)
(159)
Net realized gains (losses) on Fortitude Re funds withheld assets
(123)
155
924
1,002
262
Net realized gains (losses) on Fortitude Re funds withheld embedded derivative
2,837
2,007
(687)
(3,978)
(5,167)
Total net realized gains (losses)
3,726
2,874
1,855
(3,741)
(5,064)
Advisory fee income
131
153
597
553
572
Other income
176
149
578
519
497
Total revenue
$8,104
$7,343
23,390
15,062
13,210
Benefits and Expenses:
 
 
 
 
 
Policyholder benefits
1,366
1,166
8,050
6,602
5,335
Interest credited to policyholder account balances
875
860
3,549
3,528
3,614
Amortization of deferred policy acquisition costs and value of business acquired
543
440
1,057
543
674
Non-deferrable insurance commissions
161
156
680
604
564
Advisory fee expenses
71
84
322
316
322
General operating expenses
586
538
2,104
2,027
1,975
Interest expense
81
114
389
490
555
Loss on extinguishment of debt
15
219
10
32
Net (gain) loss on divestitures
2
(3,081)
Net (gain) loss on Fortitude Re transactions
(26)
91
Total benefits and expenses
$3,685
$3,373
13,263
14,211
13,071
Income (loss) before income tax (benefit)
4,419
3,970
10,127
851
139
Income tax (benefit)
$883
$759
1,843
(15)
(168)
Net income (loss)
3,536
3,211
8,284
866
307
Net income attributable to non-controlling interests
75
95
929
224
257
Net income (loss) attributable to Corebridge
$3,461
$3,116
7,355
642
50
Earnings Per Share
 
 
 
 
 
Non-GAAP Financial Measures:(1)
 
 
 
 
 
Adjusted revenues
4,113
4,072
20,490
17,406
16,798
Adjusted pre-tax operating income (loss)
697
877
3,685
3,194
3,584
Adjusted after-tax operating income (loss)
576
696
2,929
2,556
2,892
(1)
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of Non-GAAP Financial Measures and Key Operating Metrics—Non-GAAP Financial Measures” for a discussion of these measures and a reconciliation of each to the most directly comparable GAAP measure.
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Three Months Ended
March 31,
Years Ended
December 31,
 
2022
2021
2021
2020
2019
 
(in millions)
Adjusted Pre-Tax Operating Income by Segment:
 
 
 
 
 
Individual Retirement
387
540
1,895
1,942
2,010
Group Retirement
226
309
1,273
975
958
Life Insurance
(41)
(49)
96
146
522
Institutional Markets
125
143
584
367
322
 
As of March 31,
As of December 31,
 
2022
2021
2020
2019
 
(in millions)
Balance Sheet
 
 
 
 
Assets:
 
 
 
 
Total investments
$239,783
$256,318
$260,274
$238,888
Reinsurance assets — Fortitude Re, net of allowance for credit losses and disputes
28,289
28,472
29,158
29,497
Separate account assets, at fair value
100,850
109,111
100,290
93,272
Total assets
394,667
416,212
410,155
382,476
Liabilities:
 
 
 
 
Future policy benefits for life and accident and health insurance contracts
56,491
57,751
54,660
50,490
Policyholder contract deposits
156,608
156,846
154,892
147,731
Fortitude Re funds withheld payable
31,497
35,144
36,789
34,433
Long-term debt
427
427
905
912
Debt of consolidated investment entities
6,886
6,936
10,341
10,166
Separate account liabilities
100,850
109,111
100,290
93,272
Total liabilities
373,539
387,284
370,323
348,797
Equity:
 
 
 
 
Corebridge Shareholders’ equity:
 
 
 
 
Common stock class A, $1.00 par value;      shares authorized;      shares issued
Common stock class B, $1.00 par value;      shares authorized;      shares issued
Additional paid-in capital
8,040
8,060
Retained earnings
12,030
8,859
Shareholder’s net investment
22,579
22,476
Accumulated other comprehensive income
(589)
10,167
14,653
9,329
Total Corebridge Shareholders’ equity
19,481
27,086
37,232
31,805
Non-redeemable noncontrolling interests
1,565
1,759
2,549
1,874
Total equity
21,046
28,845
39,781
33,679
The following table summarizes our normalized distributions:
 
Three
Months Ended
March 31,
Years Ended December 31,
(in millions)
2022
2021
2021
2020
2019
2018
2017
Subsidiary dividends paid
700
300
$1,564
$540
$1,535
$2,488
$2,409
Less: Non-recurring dividends
(295)
600
(400)
(1,113)
(890)
Tax sharing payments related to utilization of tax attributes
147
183
$902
$1,026
$954
$370
$782
Normalized distributions(1)
847
483
2,171
2,166
2,089
1,745
2,301
(1)
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of Non-GAAP Financial Measures and Key Operating Metrics—Non-GAAP Measures” for a discussion of this measure and a reconciliation to the most directly comparable GAAP measure.
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SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The summary unaudited pro forma financial data consists of unaudited pro forma condensed consolidated balance sheet information as of March 31, 2022 and unaudited pro forma condensed consolidated statement of income (loss) information for the three months ended March 31, 2022 and for the year ended December 31, 2021. The summary unaudited pro forma financial data should be read in conjunction with the information included under “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Recapitalization,” “The Reorganization Transactions,” “Certain Relationships and Related Party Transactions” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements included elsewhere in this prospectus. We believe the summary unaudited pro forma financial data presented below are useful to investors because it presents our historical results of operations for the periods presented giving effect to the Recapitalization, disposition of the affordable housing portfolio, tax deconsolidation, Investment Management, including our Strategic Partnership with Blackstone, and other costs expected to be incurred as part of the Separation, as if they had occurred or were incurred as of the dates indicated below.
The following summary unaudited pro forma financial data present the historical financial statements of the Company as if these transactions had been completed as of March 31, 2022 for purposes of the unaudited pro forma condensed consolidated balance sheet, and as of January 1, 2021 for purposes of the unaudited pro forma condensed consolidated statements of income (loss).
The summary unaudited pro forma financial data are presented for informational purposes only and do not purport to represent our financial condition or our results of operations had these transactions occurred on or as of the dates noted above or to project the results for any future date or period. Actual results may differ from the summary unaudited pro forma financial data.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 2022
(in millions, except for share data)
 
Assets:
 
Investments:
 
Fixed maturity securities:
 
Bonds available for sale
$180,644
Other bond securities
2,671
Equity securities
109
Mortgage and other loans receivable
40,949
Other invested assets
10,971
Short-term investments
4,439
Total Investments
239,783
Cash
1,183
Accrued investment income
1,783
Premiums and other receivables
1,103
Reinsurance assets — Fortitude Re
28,289
Reinsurance assets — other
2,985
Deferred income taxes
6,294
Deferred policy acquisition costs and value of business acquired
10,240
Other assets
2,670
Separate account assets
100,850
Total assets
$395,180
 
 
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(in millions, except for share data)
 
Liabilities:
 
Future policy benefits for life and accident and health insurance contracts
$56,491
Policyholder contract deposits
156,608
Other policyholder funds
2,994
Fortitude Re funds withheld payable
31,497
Other liabilities
9,440
Short-term debt
Long-term debt
9,373
Debt of consolidated investment entities
6,886
Separate account liabilities
100,850
Total liabilities
$374,139
Redeemable noncontrolling interest
$82
Corebridge Shareholders' equity
 
Class A Common stock, $1.00 par value, 180,000 shares authorized; 90,100 shares issued
Class B Common stock, $1.00 par value, 20,000 shares authorized; 9,900 shares issued
Additional paid-in capital
8,040
Retained earnings
11,943
Accumulated other comprehensive income (loss)
(589)
Total Corebridge Shareholders' equity
19,394
Non-redeemable noncontolling interests
1,565
Total Equity
$20,959
Total Liabilities, redeemable noncontrolling interest and equity
$395,180
Unaudited Pro Forma Condensed Consolidated Statement of Income (Loss) Data
(dollars in millions, except per common share data)
Three
Months Ended
March 31, 2022
Year Ended
December 31, 2021
Revenues:
 
 
Premiums
$726
$5,637
Policy fees
764
3,051
Net investment income:
 
 
Net investment income: excluding Fortitude Re funds withheld assets
2,303
9,441
Net investment income: Fortitude Re funds withheld assets
278
1,775
Total net investment income
$2,581
$11,216
Net Realized gains (losses):
 
 
Net realized gains (losses) excluding Fortitude Re funds withheld assets and embedded derivative
1,012
1,618
Net realized gains (losses) on Fortitude Re funds withheld assets
(123)
924
Net realized gains (losses) on Fortitude Re funds withheld embedded derivative
2,837
(687)
Total Net realized gains (losses)
3,726
1,855
Advisory fee income
131
597
Other income
176
578
Total Revenues
$8,104
$22,934
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(dollars in millions, except per common share data)
Three
Months Ended
March 31, 2022
Year Ended
December 31, 2021
Benefits and expenses:
 
 
Policyholder benefits
$1,366
$8,050
Interest credited to policyholder account balances
875
3,549
Amortization of deferred policy acquisition costs and value of business acquired
543
1,057
Non-deferrable insurance commissions
161
680
Advisory fees
71
322
General operating and other expenses
613
2,196
Interest expense
151
662
Loss on extinguishment of debt
219
Net (gain) loss on divestitures
2
(3,081)
Loss on Fortitude Re Reinsurance Contract
(26)
Total benefits and expenses
$3,782
$13,628
Income (loss) before income tax expense
4,322
9,306
Income tax expense (benefit):
$863
$1,782
Net income (loss)
$3,459
$7,524
Less:
 
Net income (loss) attributable to noncontrolling interests
$75
$861
Net income (loss) attributable to Corebridge
$3,384
$6,663
 
 
 
Income (loss) per common share attributable to Corebridge common shareholders:
 
 
Class A — Basic and diluted
$
$
Class B — Basic and diluted
$
$
 
 
 
Weighted average shares outstanding:
 
 
Class A — Basic and diluted
 
Class B — Basic and diluted
 
 
 
Other Pro forma Data(1)
 
 
Pro forma APTOI
$600
$2,864
Pro forma AATOI
$500
$2,282
Adjusted ROAE
10.5%(2)
12.2%
(1)
APTOI, AATOI and Adjusted ROAE are non-GAAP financial measures. For our definition of APTOI, AATOI and Adjusted ROAE and the uses of such non-GAAP measures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Financial Measures and Key Operating Metrics—Non-GAAP Financial Measures.”
(2)
Calculated using pro forma AATOI for the three months ended March 31, 2022 on an annualized basis.
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The following table presents a reconciliation of pro forma pre-tax income (loss) / net income (loss) attributable to Corebridge to pro forma APTOI / AATOI attributable to Corebridge. Pro forma adjustments a, c, d, e, and f all reduce APTOI and AATOI. Pro forma adjustment b is excluded from APTOI and AATOI:
 
As of
March 31, 2022
As of
December 31, 2021
 
Pre-tax
Total Tax
(Benefit)
Charge
Non-
Controlling
Interests
After
Tax
Pre-tax
Total Tax
(Benefit)
Charge
Non-
Controlling
Interests
After
Tax
Pro forma Pre-tax income (loss)/net income (loss) including NCI
$4,322
$863
$
$3,459
$9,306
$1,782
$
$7,524
Noncontrolling interests
$
$
$(75)
$(75)
$
$
$(861)
$(861)
Pro forma Pre-tax income (loss)/ net income attributable to Corebridge
$4,322
$863
$(75)
$3,384
$9,306
$1,782
$(861)
$6,663
Fortitude Re Related Items
$(2,992)
$(642)
$
$(2,350)
$(2,038)
$(428)
$
$(1,610)
Other non- Fortitude Re reconciling items(1)
$(730)
$(121)
$75
$(534)
$(4,404)
$(773)
$861
$(2,770)
Total adjustments
$(3,722)
$(763)
$75
$(2,884)
$(6,442)
$(1,201)
$861
$(4,380)
APTOI / AATOI
$600
$100
$
$500
$2,864
$582
$
$2,282
(1)
As of December 31, 2021, includes $3.1 billion of pre-tax net gain on divestitures, including disposition of the affordable housing portfolio. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Significant Factors Impacting Our Results—Affordable Housing Sale” and Note 1 to our audited consolidated financial statements.
The following table presents a reconciliation of Pro forma Adjusted ROAE.
(in millions)
March 31,
2022
December 31,
2021
Pro forma Net income (loss) attributable to Corebridge shareholders (a)
$13,536
$6,663
Annualized or actual Pro Forma AATOI (b)
$2,000
$2,282
Pro forma Average Total Corebridge Shareholders’ equity (c)(1)
$22,574
$31,867
Pro forma Average Adjusted Book Value (d)(2)
$19,139
$18,646
Pro forma ROAE (a / c)
60.0%
20.9%
Pro forma Adjusted ROAE (b / d)(3)
10.5%
12.2%
(1)
For the period as of December 31, 2021, represents the average of historical Total Corebridge Shareholders’ equity as of December 31, 2020 and 2021 less one-half of the aggregate net income impacts of the adjustments described in notes (a), (b), (c), (d) and (e) under “Unaudited Pro Forma Condensed Consolidated Financial Information.” Similar adjustments were made to the period as of March 31, 2022.
(2)
For the period as of December 31, 2021, represents the average of historical Adjusted Book Value as of December 31, 2021 and 2020, in each case adjusted to reflect the full-year impact of the $8.3 billion dividend paid to AIG which we believe more meaningfully presents our future capital structure, less one-half of the aggregate net income impact of the adjustments described in notes (a), (b), (c), (d) and (e) under “Unaudited Pro Forma Condensed Consolidated Financial Information.” Similar adjustments were made to the period as of March 31, 2022.
(3)
Reflects an approximate two percentage point benefit in 2021 due to alternative investments performing better than our long-term expectation, net of elevated mortality due to COVID-19.
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RISK FACTORS
Investing in our common stock involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as the other information contained in this prospectus, including our financial statements included elsewhere in this prospectus, before making an investment decision. The risks described below are not the only ones we face. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could cause a material adverse effect on our business, results of operations, financial condition and liquidity. In any such case, the trading price of our common stock could decline, and you could lose all or part of your investment. In addition, many of these risks are interrelated and could occur under similar business and economic conditions, and the occurrence of certain of them could in turn cause the emergence or exacerbate the effect of others. The risk factors described below are not necessarily presented in order of importance. This prospectus also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below. See “Special Note Regarding Forward-Looking Statements and Information.”
Risks Relating to Market Conditions
Sustained low, declining or negative interest rates, rapidly increasing interest rates or changes to credit spreads have materially and adversely affected, and may continue to materially and adversely affect, our profitability.
Global interest rates have been at or near historic lows in recent years, even after an increase in interest rates during 2021 and 2022.
We are exposed primarily to the following risks arising from fluctuations in interest rates:
mismatch between the expected duration of our liabilities and our assets;
impairment to our ability to earn the returns or spreads assumed in the pricing and the reserving for our products;
increases in certain statutory reserve requirements that are based on formulas or models that consider interest rates, which would reduce statutory capital;
increases in capital requirements and the amount of assets we must maintain to support statutory reserves, which would reduce surplus, due to decreases in interest rates or changes in prescribed interest rates;
increases in the costs of derivatives we use for hedging or increases in the volume of hedging we do as interest rates change;
loss related to customer withdrawals following a sharp and sustained increase in interest rates;
loss from reduced fee income, increased guaranteed benefit costs and accelerated deferred policy acquisition costs (“DAC”) amortization arising from fluctuations in the variable product separate account values associated with fixed income investment options due to increased interest rates or credit spread widening;
the reinvestment risk associated with more prepayments on mortgage-backed securities and other fixed income securities in decreasing interest rate environments and fewer prepayments in increasing interest rate environments;
an increase in policy loans, surrenders and withdrawals as interest rates rise; and
volatility in our GAAP results of operations driven by interest rate-related components of liabilities and equity related to optional guarantee benefits and the cost of associated hedges in low interest rate environments.
Sustained low interest rates have negatively affected and may in the future continue to negatively affect the performance of our investments and reduce the level of investment income earned on our investment portfolios, resulting in net investment spread compression. Sustained low interest rates also result in lower asset adequacy margins and may result in the need to hold higher statutory cash flow testing reserves. We experience lower
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investment income as well as lower sales of new products and policies when a low or declining U.S. interest rate and credit spread environment persists, and/or interest rates turn or, in certain circumstances, remain negative across various global economies. For example, the low interest rate environment has negatively affected sales of interest rate sensitive products in our industry and negatively impacted the profitability of our existing business as we reinvest cash flows from investments, including due to increased calls and prepayments of fixed-rate securities and mortgage loans, at rates below the average yield of our existing portfolios. As a result, we have de-emphasized sales of interest-sensitive products in our Life Insurance segment.
Certain of our annuity and life insurance products pay guaranteed minimum interest crediting rates. We are required to pay these guaranteed minimum rates even if yields on our investment portfolio decline, with the resulting investment margin compression negatively impacting earnings. Further, we would expect more policyholders to hold policies with comparatively high guaranteed rates longer (resulting in lower than expected surrender rates) in a low interest rate environment. A prolonged low interest rate environment may also subject us to an increase in the amount of statutory reserves that our insurance subsidiaries are required to hold for guaranteed living benefits (“GLBs”) and guaranteed minimum death benefits (“GMDBs”), lowering their statutory surplus, which could adversely affect our insurance subsidiaries’ ability to pay dividends to us. In addition, it may also increase the perceived value of GLBs to our policyholders, which in turn may lead to a higher rate of benefit utilization and lower than expected surrender rates of those products over time as compared to pricing assumptions. Finally, low interest rates may accelerate DAC amortization or reserve increase.
An increase in interest rates could also have a material adverse effect on the value of our investment portfolio, for example, by decreasing the estimated fair values of the fixed income securities that constitute a substantial portion of our investment portfolio. This in turn could increase the unrealized loss positions in our portfolio and adversely affect our ability to realize our deferred tax assets, thereby materially and adversely affecting our business, results of operations, financial condition and liquidity.
In periods of rapidly increasing interest rates, we may not be able to replace, in a timely manner, the investments in our general account with higher yielding investments needed to fund the higher crediting rates necessary to keep interest rate-sensitive products competitive. Therefore, we may need to accept a lower investment spread and, thus, lower profitability, or face a decline in sales and greater loss of existing contracts and related assets. Policy loans, surrenders and withdrawals also tend to increase as policyholders seek investments with higher perceived returns as interest rates rise. These impacts may result in significant cash outflows requiring that we sell investments at a time when the prices of those investments are adversely affected by the increase in interest rates, which could result in realized investment losses by selling assets in an unrealized loss position.
The primary source of our exposure to credit spreads is in the value of our fixed income securities. If credit spreads widen significantly, we could be exposed to higher levels of defaults and impairments. If credit spreads tighten significantly, it could result in reduced net investment income and in turn, reduced profitability, associated with new purchases of fixed maturity securities.
Widening credit spreads would also reduce the value of bonds held and that support policy investment options, decreasing the average account value of our annuity contracts and negatively impacting the fee income we earn. Tightening credit spreads would reduce the discount rates used in the principles-based statutory reserve calculation, potentially increasing statutory reserve requirements and, in turn, reducing statutory capital. Although these effects on bond fund valuation and reserve discount rates run in offsetting directions for either credit spread widening or narrowing, it is possible for one of them to outweigh the other under certain market conditions. Any of these risks could cause a material adverse effect on our business, results of operations, financial condition and liquidity.
Deterioration of economic conditions, geopolitical tensions, changes in market conditions or weakening in capital markets may materially affect our business, results of operations, financial condition, availability of capital, cost of capital and liquidity.
Our business is highly dependent on economic and capital market conditions. Weaknesses in economic conditions and capital market volatility have in the past led to, and may in the future lead to, among other consequences, a poor operating environment, erosion of consumer and investor confidence, reduced business
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volumes, deteriorating liquidity, declines in asset valuations and impacts on policyholder behavior that could influence reserve valuations. Further, if our investment managers, including AMG, Blackstone IM and BlackRock, fail to react appropriately to difficult market or economic conditions, our investment portfolio could incur material losses.
Key ways in which we have in the past been, and could in the future be, negatively affected by economic conditions include:
increases in policy withdrawals, surrenders and cancellations and other impacts from changes in policyholder behavior as compared to that assumed in pricing;
write-offs of DAC;
increases in liability for future policy benefits due to loss recognition on certain long-duration insurance and reinsurance contracts;
increases in costs associated with third-party reinsurance, or decreased ability to obtain reinsurance at acceptable terms; and
increased likelihood of, or increased magnitude of, asset impairments caused by market fluctuations.
Adverse economic conditions may result from domestic and global economic and political developments, including plateauing or decreasing economic growth and business activity, and inflationary or deflationary pressures in developed economies, including the United States, civil unrest, disruptions caused by the COVID-19 pandemic, geopolitical tensions or military action, such as the armed conflict between Ukraine and Russia and corresponding sanctions imposed by the United States and other countries, and new or evolving legal and regulatory requirements on business investment, hiring, migration, labor supply and global supply chains. These and other market, economic and political factors, including the impact of any new or prolonged government financial stimulus package, could have a material adverse effect on our business, results of operations, financial condition and liquidity in many ways, including:
lower levels of consumer demand for and ability to afford our products that decreased and may in the future continue to decrease revenues and profitability;
increased credit losses across numerous asset classes that could result in widening of credit spreads and higher than expected defaults that could reduce investment asset valuations, decrease fee income and increase statutory capital requirements;
increased market volatility and uncertainty that could decrease liquidity with respect to our assets and increase borrowing costs and limit access to capital markets;
the reduction of investment income generated by our investment portfolio;
impeding our ability to execute strategic transactions or fulfill contractual obligations, including those under ceded or assumed reinsurance contracts;
increased costs associated with third-party reinsurance, or decreased ability to obtain reinsurance on acceptable terms;
increased levels of recapturing liabilities covered by certain reinsurance contracts, including our reinsurance contracts with Fortitude Re;
increasing the potential adverse impact of optional guarantee benefits included in our annuities;
increased frequency of life insurance claims;
the reduction in the availability and effectiveness of hedging instruments;
increased likelihood of customers choosing to defer paying premiums or stop paying premiums altogether and other impacts to policyholder behavior not contemplated in our historical pricing of our products;
increased costs related to our direct and third-party support services, labor and financing as a result of inflationary pressures;
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increased policy withdrawals, surrenders and cancellations;
increased likelihood of disruptions in one market or asset class spreading to other markets or asset classes; and
limitations on business activities and increased compliance risks with respect to economic sanctions regulations relating to jurisdictions in which our businesses operate.
Furthermore, market disruptions and uncertainty as to the timing and degree of global economic conditions improvements may negatively affect our credit ratings or ratings outlook or our ability to generate or access liquidity we may need to operate our business and meet our obligations, including to pay interest on our debt, discharge or refinance our maturing debt obligations and meet the capital needs of our subsidiaries through potential capital contributions. For example, if an economic recovery is prolonged, an increased number of clients and policyholders may face difficulty paying insurance premiums, and global regulators may seek to implement new or renew existing premium deferral measures to alleviate such difficulties, which could impair our cash flows. As a holding company, we depend on dividends, distributions and other payments from our subsidiaries for our liquidity needs; these subsidiaries’ ability to pay dividends, make distributions or otherwise generate parent liquidity may be reduced to the extent they are unable to generate sufficient distributable income or in the event regulators suspend or otherwise restrict dividends or other payments from subsidiaries to parent companies.
COVID-19 has adversely affected, and is expected to continue to adversely affect, our business, results of operations, financial condition and liquidity, and its ultimate impact will depend on future developments, including with respect to new variants, that are uncertain and cannot be predicted.
The COVID-19 pandemic is still evolving, but it has caused significant societal disruption and created adverse economic impacts relevant to our business, such as a mortality increase as compared to pricing expectations, volatility in the capital markets, disruptions in the labor market, supply chain disruption, and most recently, an inflationary environment.
We cannot estimate the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and liquidity. We also cannot, at this time, estimate the full extent to which the pandemic has caused and may continue to cause certain risks to our business, including those discussed herein, to be heightened or realized.
Our insurance business has experienced, and may continue to experience, increased claim volumes in the United States, which has seen a high number of COVID-19 cases and deaths relative to other jurisdictions. Beginning in March 2020, we experienced an increase in mortality claims as compared to our pricing assumptions, which we expect to continue until the COVID-19 pandemic subsides. In addition, COVID-19 adversely affected our premiums and deposits in some of our product lines. If there are any future “surges” of COVID-19 variants, these impacts may continue into 2022 and beyond. 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.
As part of our response to the COVID-19 pandemic, we adjusted our underwriting guidelines for certain classes and ages, which have negatively impacted our sales and new business generation in our life insurance business.
The economic impacts of the COVID-19 pandemic have resulted and may continue to result in policyholders cancelling insurance policies or may result in policyholders seeking sources of liquidity, such as policy loans and withdrawals, at rates greater than expected. The ongoing impacts on the economy and labor force could also cause policyholders or institutions that we serve to utilize their policies in ways that we did not price for or reserve for, thus adversely impacting our economics, including but not limited to lapse and surrender rates, premium payments and payment patterns, benefit utilization and fund allocations.
We use reinsurance to mitigate exposure and loss in a number of ways, but our reinsurers may also be adversely impacted by the COVID-19 pandemic, potentially causing non-payment, delayed payment and reduced availability, materially different terms and/or increased cost of reinsurance going forward.
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The COVID-19 pandemic has also resulted in adverse changes and developments affecting the global economy, including the significant global economic downturn and increased volatility in financial and capital markets, and lower interest rates and tighter credit spreads, individually and in the aggregate. These impacts have had, and may continue to have, negative effects on our overall investment portfolio and our ability to competitively price our products. While, to date, the short-term economic and market-related impacts of COVID-19 have been largely offset by intervention taken by governments and monetary authorities, it remains difficult to quantify the potential long-term financial impacts on our investment portfolio.
Further, in the event of a resurgence in COVID-19 cases, particularly due to the rise in cases associated with current and any future potential variants of COVID-19, there can be no assurance that governments and monetary authorities will continue to intervene in markets or provide for economic stimulus, and if they do, whether such intervention will be successful. Within our investment portfolio, for instance, there is concentrated exposure to certain segments of the economy, including real estate and real estate-related investments, which exposes us to negative impacts from the deferral of mortgage payments, renegotiated commercial mortgage loans or outright mortgage defaults and potential acceleration of macro trends such as work from home and online shopping, as well as significant exposure to certain industries negatively impacted by the economic downturn, such as offline retail, travel and transportation.
Models utilizing historic information on correlations among macroeconomic factors, our products and our investment portfolio, may not reflect the relationship between macroeconomic factors, our products and our investment portfolio in the current environment, as a result of the unique nature of the COVID-19 pandemic and the intervention by regulators and monetary authorities to mitigate the impacts on policyholders and the broader economy.
Government officials have recommended or mandated precautions to mitigate the spread of COVID-19, including prohibitions on congregating in heavily populated areas, social distancing requirements, stay-at-home orders and similar measures. As a result, we implemented work-from-home business continuity plans for non-essential staff globally. Where permitted by local laws and regulations, our offices are open to fully vaccinated employees, with mask mandates, social distancing and office capacity limits, and we have strict quarantine and contact tracing protocols in place in the event a positive case occurs. These precautionary measures have also impacted our distribution organizations and wholesaler interactions with our clients across multiple channels where our business benefits from a high degree of customer interaction. Our results may be adversely impacted by these and other actions taken to contain or reduce the impact of COVID-19, and the extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted. Changes to our workforce as a result of COVID-19, including wage inflation, may also increase our costs and the risk of errors due to turnover, remote work and inexperience. Moreover, the extended remote work environment puts ongoing stress on our current business continuity plans and may prove them to be less effective than expected.
The social distancing requirements, stay-at-home orders and similar measures have had a significant impact on our Individual Retirement and Life Insurance distribution organizations and wholesaler interactions with our clients across multiple channels where our business benefits from a high degree of customer interaction. As a result, we have seen declines in our retail sales, new plan acquisitions and overall customer satisfaction. Should these conditions persist or worsen, we may see further declines in such retail sales, new policy origination and overall customer satisfaction. In our Group Retirement business, where a significant part of our value proposition involves the provision of in-person financial advice, our inability to interact with current and prospective clients in an in-person environment has negatively impacted the business. These requirements have also and may continue to impact decision-making by pension consultants and pension sponsors relative to new business acquisition opportunities in our Group Retirement business. Our business continuity plans, or the business continuity plans of our third-party vendors, may not be sustainable or effective.
Any future business continuity plans may not be sustainable or effective. Our business operations may also be significantly disrupted if our critical workforce, key vendors, third-party providers or other counterparties we transact business with, are unable to work effectively, including because of illness, quarantines, government and regulatory actions in response to COVID-19 or other reasons, or if the technology on which our remote business operations rely, some of which is developed and maintained by third parties, is disrupted or impaired or becomes unavailable. In addition, remote work may negatively impact our culture and employees’ morale, which could result in greater turnover, lower productivity and greater operational risks.
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Moreover, as vaccinations have become readily available, certain organizations have imposed vaccine mandates on employees returning to the office and customers or clients accessing offices, stores and other spaces, and governments have imposed vaccine mandates on certain daily activities. It is currently not possible to predict the exact impact any such mandates would have on us. If the vaccines are not as effective as expected, including against new variants of COVID-19, our business, results of operations, financial condition and liquidity could be adversely affected.
Due to the evolving and disruptive nature of the COVID-19 pandemic, we could experience other potential impacts, including, but not limited to, increased mortality and morbidity expectations from longer term consequences of COVID-19 infections, potential impairment charges to the carrying amounts of goodwill and deferred tax assets. Further, new and potentially unforeseen risks beyond those described above and in other Risk Factors herein may arise as a result of the COVID-19 pandemic and the actions taken by governmental and regulatory authorities to mitigate its impact, including the provision of governmental assistance.
Equity market declines or volatility may materially and adversely affect our business, results of operations, financial condition and liquidity.
Equity market declines, such as corrections and bear markets, or volatility could, in addition to affecting our liability hedging strategies and programs, materially and adversely affect our investment returns, business, results of operations, financial condition and liquidity. For example, equity market declines or volatility could, among other things, decrease the asset value of our annuity, variable life and advisory and brokerage contracts which, in turn, would reduce the amount of revenue we derive from fees charged on those account and asset values. While our variable annuity business is sensitive to interest rate and credit spreads, it is also highly sensitive to equity markets, and a sustained weakness or stagnation in equity markets could decrease our revenues and earnings with respect to those products and therefore our liquidity. At the same time, for annuity contracts that include GLBs, equity market declines increase the amount of our potential financial obligations related to such GLBs and could increase the cost of executing GLB-related hedges beyond what was anticipated in the pricing of the contracts being hedged. This could result in an increase in claims and reserves related to those contracts, net of any proceeds from our hedging strategies. We may not be able to effectively mitigate, including through our hedging strategies, and we may sometimes choose based on economic considerations and other factors not to fully mitigate, the equity market volatility of our portfolio.
Equity market declines and volatility may also influence policyholder behavior, which may adversely impact the levels of surrenders and withdrawals and the amounts withdrawn from our annuity, variable life and advisory and brokerage contracts or cause policyholders to reallocate a portion of their account balances to more conservative investment options (which may have lower fees), which could negatively impact our future profitability, negatively impact our liquidity or increase our benefit obligations, particularly if they were to remain in such options during an equity market increase.
Market volatility can negatively impact the value of equity securities we hold for investment, which could in turn reduce the statutory capital of certain of our insurance subsidiaries. In addition, equity market volatility could reduce demand for variable products relative to fixed products, lead to changes in estimates underlying our calculations of DAC that, in turn, could accelerate our DAC amortization and reduce our current earnings and result in changes to the fair value of our GLB liabilities, which could increase the volatility of our earnings. Lastly, periods of high market volatility or adverse conditions could decrease the availability or increase the cost of hedges, including derivatives.
Risks Relating to Insurance Risk and Related Exposures
The amount and timing of insurance liability claims are difficult to predict and may exceed the related reserves for future policy benefits, or the liabilities associated with certain guaranteed benefits and indexed features accounted for as embedded derivatives at fair value.
For our business, establishment and ongoing calculations of reserves for future policy benefits and related reinsurance assets is a complex process, with significant judgmental inputs, assumptions and modeling techniques. We make assumptions regarding mortality, longevity and policyholder behavior at various points, including at the time of issuance and in subsequent reporting periods. An increase in the valuation of the liability could result to the extent emerging and actual experience deviates from these policyholder behavior assumptions. The inputs and assumptions used in connection with calculations of reserves for future policy benefits are inherently uncertain. Experience may
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develop adversely such that additional reserves must be established or the value of embedded derivatives may increase. Adverse experience could arise out of a number of factors, including, but not limited to, a severe short-term event, such as a pandemic or changes to policyholder behavior during stressed economic periods, or due to mis-estimation of long-term assumptions such as mortality, interest rates, credit spreads, equity market levels and volatility and persistency assumptions. Certain variables, such as policyholder behavior, are difficult to estimate and can have a significant impact on future policy benefits and embedded derivatives. We review and update actuarial assumptions at least annually, typically in the third quarter for reserves and embedded derivatives. Additionally, we regularly carry out loss recognition testing for GAAP reporting and cash flow testing for statutory reporting. For a further discussion of our loss reserves, see Note 7 and Note 21 to the audited consolidated financial statements.
Reinsurance may not be available or economical and may not be adequate to protect us against losses.
We purchase third-party reinsurance and we use reinsurance as part of our overall risk management strategy. Reinsurers may attempt to increase rates with respect to our existing reinsurance arrangements, and their ability to increase rates depends upon the terms of each reinsurance contract and the market environment when we negotiate reinsurance arrangements for our in-force and new business. An increase in reinsurance rates may affect the profitability of our insurance business. Additionally, such a rate increase could result in our recapture of the business, which may result in a need for additional reserves and increase our exposure to claims. Reinsurance for new business may be more difficult or costly to obtain in the event of prolonged or severe adverse mortality or morbidity experience. We may, at certain times, be forced to incur additional costs for reinsurance or may be unable to obtain sufficient reinsurance on acceptable terms. In the latter case, we would have to accept an increase in exposure to risk and the increase in volatility of mortality experience on a going-forward basis, reduce the maximum policy size and amount of business written by our subsidiaries or seek alternatives in line with our risk limits or a combination thereof.
The insolvency of one or more of our reinsurance counterparties, or the inability or unwillingness of such reinsurers to make timely payments under the terms of our contracts or payments in an amount equal to our expected reinsurance recoverables, could have a material adverse effect on our business, results of operations, financial condition and liquidity. Additionally, we are exposed to credit risk with respect to our reinsurers to the extent the reinsurance receivable is not secured, or is inadequately secured, by collateral or does not benefit from other credit enhancements. We bear the risk that a reinsurer is, or may be, unable to pay amounts we have recorded as reinsurance receivables for any reason, including that:
the reinsurance transaction performs differently than we anticipated as compared to the original structure, terms or conditions;
the terms of the reinsurance contract do not reflect the intent of the parties to the contract or there is a disagreement between the parties as to their intent;
the terms of the contract are interpreted by a court or arbitration panel differently than expected;
a change in laws and regulations, or in the interpretation of the laws and regulations, materially impacts a reinsurance transaction; or
the terms of the contract cannot be legally enforced.
Further, we face the risk of financial responsibility for risks related to assumed reinsurance, including claims made by the ceding company.
Our subsidiaries also utilize intercompany reinsurance arrangements to provide capital benefits to their affiliated cedants. We have also begun and may continue to pursue reinsurance transactions and permitted practices to manage the capital impact of statutory reserve requirements under applicable reserving rules, including principle-based reserving (“PBR”). The application of actuarial guidelines and PBR involves numerous interpretations. If state insurance departments do not agree with our interpretations or if regulations change with respect to our ability to manage the capital impact of certain statutory reserve requirements, our statutory reserve requirements could increase, or our ability to take reserve credit for reinsurance transactions could be reduced or eliminated. Additionally, if our ratings decline, we could incur higher costs to obtain reinsurance, each of which could adversely affect sales of our products and our financial condition or results of operations.
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A failure by Fortitude Re to perform its obligations could have a material effect on our business, results of operations and liquidity and the accounting treatment of our reinsurance agreements with Fortitude Re has led, and will continue to lead, to volatility in our results of operations.
As of March 31, 2022, $28.3 billion of reserves related to business written by us had been ceded to Fortitude Re under reinsurance transactions. These reserve balances are fully collateralized pursuant to the terms of the reinsurance transactions. Our subsidiaries continue to remain primarily liable to policyholders under the business reinsured with Fortitude Re. As a result, and if Fortitude Re is unable to successfully operate, or other issues arise that affect its financial condition or ability to satisfy or perform its obligations to our subsidiaries, we could experience a material adverse effect on our results of operations, financial condition and liquidity to the extent the amount of collateral posted in respect of our reinsurance receivable is inadequate. Further, as is customary in similar reinsurance agreements, upon the occurrence of certain termination and recapture triggers on the part of Fortitude Re under the applicable reinsurance agreements, our subsidiaries may elect or may be required, to recapture the business ceded under such reinsurance agreements, which would result in a substantial increase to our insurance liabilities and capital requirements and may require us to raise capital in order to recapture such ceded business. These termination and recapture triggers include Fortitude Re becoming insolvent or being placed into liquidation, rehabilitation, conservatorship, supervision, receivership, bankruptcy or similar proceedings, certain regulatory ratios falling below certain thresholds, in the case of those reinsurance agreements made with us, Fortitude Re’s failure to perform under the reinsurance agreements or its entry into certain transactions without receiving our consent. Currently, AGAMHC, which will be our indirect subsidiary at the time of our initial public offering (“IPO”), manages a significant proportion of the funds withheld assets in connection with the reinsurance to Fortitude Re. However, beginning in June 2023, Fortitude Re will have certain rights to replace AGAMHC as investment manager with respect to such assets under certain circumstances, which would negatively impact the income that we receive from management of the funds withheld assets. Additionally, while we currently hold a less than 3% interest in, and have a seat on the board of Fortitude Re Bermuda, the indirect parent of Fortitude Re, our ability to influence Fortitude Re’s operations is limited.
As the reinsurance transactions between us and Fortitude Re are structured as modified coinsurance (“modco”), the manner in which we account for these reinsurance arrangements has led, and will continue to lead, to volatility in our results of operations. In modco arrangements, 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., us) thereby creating an obligation for the ceding company to pay the reinsurer (i.e., Fortitude Re) at a later date. Additionally, as our applicable insurance subsidiaries maintain ownership of these investments, we will maintain the existing accounting for these assets (e.g., the changes in fair value of available for sale securities will be recognized within other comprehensive income (“OCI”)). Under the modco arrangement, our applicable insurance subsidiaries 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 realized 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. As a result of changes in the fair value of the embedded derivative, we experience volatility in our GAAP net income.
Furthermore, post-separation, AIG’s separate general insurance reinsurance contracts with Fortitude Re will remain in force. To the extent there is adverse development on this business, it may impact the financial condition of Fortitude Re, which may result in diminished capital for Fortitude Re causing us to recapture the business we have ceded to Fortitude Re.
Interest rate fluctuations, increased lapses and surrenders, declining investment returns and other events may require our subsidiaries to accelerate the amortization of DAC, and record additional liabilities for future policy benefits.
We incur significant costs in connection with acquiring new and renewing our insurance business. DAC represents deferred costs that are incremental and directly related to the successful acquisition of new business or renewal of existing business. The recovery of these costs is generally dependent upon the future profitability of the related business, but DAC amortization varies based on the type of contract. For long-duration traditional
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business, DAC is generally amortized in proportion to premium revenue and varies with lapse experience. Actual lapses in excess of expectations can result in an acceleration of DAC amortization, and therefore, adversely impact our results of operations.
DAC for investment-oriented products is generally amortized in proportion to actual and estimated gross profits. Estimated gross profits are affected by a number of factors, including levels of current and expected interest rates, net investment income (which is net of investment expenses) and credit spreads, net realized gains and losses, fees, surrender rates, mortality experience, policyholder behavior experience and equity market returns and volatility. If actual and/or future estimated gross profits are less than originally expected, then the amortization of these costs would be accelerated in the period this is determined and would result in a lower-than-expected profitability, potentially impacting our ability to achieve our financial goals described in “Prospectus Summary—Financial Goals” and “Business—Financial Goals.” For example, if interest rates rise rapidly and significantly, customers with policies that have interest crediting rates below the current market may seek competing products with higher returns and we may experience an increase in surrenders and withdrawals of life and annuity contracts, and thereby a strain on cash flow. Additionally, this would also result in a decrease in expected future profitability and an acceleration of the amortization of DAC, and therefore lower than expected pre-tax income earned during the then-current period.
We also periodically review products for potential loss recognition events, principally long duration products. This review involves estimating the future profitability of in-force business and requires significant management judgment about assumptions including, but not limited to, mortality, morbidity, persistency, maintenance expenses and investment returns, including net realized gains (losses). If actual experience or revised future expectations result in projected future losses, we may be required to amortize any remaining DAC and record additional liabilities through a charge to policyholder benefit expense in the then-current period, which could negatively affect our business, results of operations, financial condition and liquidity.
Risks Relating to Our Investment Portfolio and Concentration of Investments
Gross unrealized losses on fixed maturity securities may be realized or result in future impairments, resulting in a reduction in our net earnings.
Substantially all of the fixed maturity securities we hold are classified as available-for-sale and, as a result, are reported at fair value. Unrealized gains or losses on available-for-sale securities are recognized as a component of other comprehensive income (loss) and are, therefore, excluded from net earnings. The accumulated change in estimated fair value of these available-for-sale securities is recognized in net earnings when the gain or loss is realized upon the sale of the security when it is determined that an allowance for credit losses is necessary or when all or a portion of the unrealized loss on a security is recognized. The determination of the amount of the allowance for credit losses varies by investment type and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. There can be no assurance that our management has accurately assessed the level of the allowance recorded, which is reflected in our financial statements. With respect to unrealized losses, we establish deferred tax assets for the tax benefit we may receive in the event that losses are realized. The realization of significant realized losses could result in an inability to recover the tax benefits and may result in the establishment of valuation allowances against our deferred tax assets. Realized losses or increases in our allowance for credit losses may have a material adverse impact on our results of operations in a particular quarterly or annual period.
The occurrence of a major economic downturn, acts of corporate malfeasance, widening credit spreads, or other events that adversely affect the issuers or guarantors of securities we own or the underlying collateral of structured securities we own could cause the estimated fair value of our fixed maturity securities portfolio and corresponding earnings to decline and cause the default rate of the fixed maturity securities in our investment portfolio to increase. A ratings downgrade affecting issuers or guarantors of particular securities we hold, or similar trends that could worsen the credit quality of issuers or guarantors and cause the valuation of such securities to decline. With economic uncertainty, credit quality of issuers or guarantors could be adversely affected. Similarly, a ratings downgrade affecting a security we hold could indicate the credit quality of that security has deteriorated and could increase the capital we must hold to support that security to maintain our insurance companies’ Risk-Based Capital (“RBC”) levels. Write-downs or impairments are impacted by intent to sell, or our assessment of the likelihood that we will be required to sell, fixed maturity securities and may cause
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us to raise and contribute more capital to our insurance company subsidiaries to maintain RBC levels. Realized losses or allowances for credit losses on these securities may have a material adverse effect on our business, results of operations, financial condition and liquidity in, or at the end of, any quarterly or annual period.
Our valuation of investments and derivatives involves the application of methodologies and assumptions to derive estimates, which may differ from actual experience and could result in changes to investment valuations that may materially adversely affect our business, results of operations, financial condition and liquidity or lead to volatility in our profitability.
It has been and may continue to be difficult to value certain of our investments or derivatives if trading becomes less frequent and/or market data becomes less observable. There may be cases where certain assets in normally active markets with significant observable data become inactive with insufficient observable data due to the financial environment or market conditions in effect at that time. As a result, valuations may include inputs and assumptions that are less observable or require greater estimation and judgment as well as valuation methods that are more complex. These values may not be realized in a market transaction, may not reflect the value of the asset and may change very rapidly as market conditions change and valuation assumptions are modified. Decreases in value and/or an inability to realize that value in a market transaction or other disposition may have a material adverse effect on our business, results of operations, financial condition and liquidity or lead to volatility in our profitability.
Risks Relating to Liquidity, Capital and Credit
Our ability to access funds from our subsidiaries is limited and our liquidity may be insufficient to meet our needs.
We are a holding company for all of our operations and we are a legal entity separate from our subsidiaries. We depend on dividends, distributions and other payments from our subsidiaries to fund dividends on, or repurchases of, our common stock, to pay corporate operating expenses, to make interest and principal payments due on our obligations, including outstanding debt, to pay tax or to make other investments. The majority of our assets are held by our regulated subsidiaries. The inability to receive dividends or other distributions from our subsidiaries could have a material adverse effect on our business, results of operations, financial condition and liquidity, and restrict our ability to pay dividends to our stockholders.
For our subsidiaries, the principal sources of liquidity are premiums and fees, income from our investment portfolio and other income generating assets or activities. The ability of our subsidiaries to pay dividends or other distributions to us in the future will depend on their earnings, tax considerations, covenants contained in any financing or other agreements and applicable regulatory restrictions or actions. In addition, such payments could be limited as a result of claims against our subsidiaries by their creditors, including suppliers, vendors, lessors and policyholders.
Specific to our insurance subsidiaries, the ability to pay dividends and make other distributions to us will depend on their ability to meet applicable regulatory standards and receive regulatory approvals, which are based in part on the prior year’s statutory income, capital and surplus, and unassigned funds (surplus) and require our insurance subsidiaries to hold a specific amount of minimum reserves in order to meet future obligations on their outstanding policies. Unassigned funds (surplus) represent the undistributed and unappropriated amount of statutory surplus at any balance sheet date (comparable to GAAP retained earnings). These regulations specify that the minimum reserves must be sufficient to meet future obligations, after giving consideration to future required premiums to be received, and are based on, among other things, certain specified mortality tables, interest rates and methods of valuation, which are subject to change. Our insurance subsidiaries regularly monitor their statutory reserves to ensure they hold sufficient amounts to cover actual or expected contract and claims payments. Requiring our insurance subsidiaries to hold additional reserves has the potential to constrain their ability to pay dividends to us. Changes in, or reinterpretations of, these regulatory standards could constrain the ability of our subsidiaries to pay dividends or to advance or repay funds in sufficient amounts and at times necessary to meet our debt obligations and corporate expenses. If statutory earnings or statutory surplus are not sufficient for the payment of ordinary dividends, an “extraordinary” dividend may be paid only if approved, or if a 30-day waiting period has passed during which it has not been disapproved, by the commissioner or director of the insurance department of the applicable insurance company subsidiary’s state of domicile.
Our subsidiaries have no obligation to pay amounts due on the debt obligations owed by us or to make funds available to us for such payments. In particular, our subsidiaries have no obligation to pay amounts owed
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by us under our contractual obligations under the Commitment Letter or other agreements we entered into with affiliates of Blackstone, which may result in an increase in our direct liabilities under those contracts.
Our decision to pursue strategic changes or transactions in our business and operations may also subject our subsidiaries’ dividend plans to heightened regulatory scrutiny and could make obtaining regulatory approvals for extraordinary distributions by our subsidiaries, if any are sought, more difficult. The inability of our subsidiaries to make payments, dividends or other distributions in an amount sufficient to enable us to meet our cash requirements could have an adverse effect on our operations, and on our ability to pay dividends, repurchase our common stock and debt obligations, to meet our debt service obligations, pay our operating expenses and to meet capital and liquidity needs of our subsidiaries, including to maintain regulatory capital ratios, comply with rating agency requirements, meet unexpected cash flow obligations, satisfy capital maintenance and guarantee agreements and collateralize debt with respect to certain subsidiaries.
If our liquidity is insufficient to meet our needs, at such time, we may draw on our committed revolving credit facility or seek third-party financing, including through the capital markets, or other sources of liquidity, which may not be available or could be prohibitively expensive. The availability and cost of any additional financing at any given time depends on a variety of factors, including general market conditions, the volume of trading activities, the overall availability of credit, regulatory actions and our credit ratings and credit capacity. It is also possible that, as a result of such recourse to external financing, customers, lenders or investors could develop a negative perception of our long- or short-term financial prospects. Disruptions, volatility and uncertainty in the financial markets, and downgrades in our financial strength or credit ratings, may limit our ability to access external capital markets at times and on terms favorable to us to meet our capital and liquidity needs or prevent our accessing the external capital markets or other financing sources. If we are unable to satisfy a capital need of a subsidiary, the credit rating agencies could downgrade our subsidiary’s financial strength ratings or the subsidiary could become insolvent or, in certain cases, could be seized by its regulator.
Further, we may be required to post additional collateral in respect of our reinsurance and derivatives liabilities due to regulatory changes from time to time. The need to post this additional collateral, if significant enough, may require us to sell investments at a loss in order to provide securities of suitable credit quality or otherwise secure adequate capital at an unattractive cost. This could adversely impact our business, results of operations, financial condition and liquidity.
Our indebtedness and the degree to which we are leveraged could materially and adversely affect our business, results of operations, financial condition and liquidity.
As of March 31, 2022, on a pro forma basis giving effect to the Recapitalization, we would have had $9.4 billion of indebtedness, representing a financial leverage ratio of 30.1%. We have historically relied upon AIG for financing and for other financial support functions. After the completion of the IPO, we will not be able to rely on AIG’s earnings, assets or cash flows, and we will be responsible for servicing our own indebtedness, obtaining and maintaining sufficient working capital and paying any dividends to our stockholders. In addition, despite our indebtedness levels, we may be able to incur substantially more indebtedness under the terms of our debt agreements. Any such incurrence of additional indebtedness would increase the risks created by our level of indebtedness.
Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future from operations, financing or asset sales.
Overall, our ability to generate cash is subject to general economic, financial market, competitive, legislative and regulatory factors, client behavior, our IFS rating, credit and long-term debt ratings and other factors that are beyond our control. We may not generate sufficient funds to service our debt and meet our business needs, such as funding working capital or the expansion of our operations. If we are not able to repay or refinance our debt as it becomes due, we may be subject to increased regulatory supervision, and ultimately, receivership or similar proceedings, and we could be forced to take unfavorable actions, including significant business and legal entity restructuring, limited new business investment, selling assets or dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and react to changes in our industry could be impaired. In the event we default, the lenders who hold our debt could also accelerate amounts due, which could potentially trigger a default or acceleration of the maturity of our other debt.
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In addition, the level of our indebtedness could put us at a competitive disadvantage compared to our competitors that are less leveraged than us. These competitors could have greater financial flexibility to pursue strategic acquisitions and secure additional financing for their operations. The level of our indebtedness could also impede our ability to withstand downturns in our industry or the economy in general.
On May 12, 2022, we entered into a $2.5 billion committed revolving credit facility and, on February 25, 2022, we entered into $9.0 billion delayed draw term loan facilities. We have subsequently terminated in full the certain commitments under the delayed draw term loan facilities in the aggregate principal amount of $6.0 billion and reduced certain commitments from $3.0 billion to $2.5 billion. See “Recapitalization—Delayed Draw Term Loan.” The rights to borrow funds under the committed revolving credit and delayed draw term loan facilities are subject to the fulfillment of certain conditions, including compliance with all covenants. Our failure to comply with the covenants in these facilities or fulfill the conditions to borrowings, or the failure of lenders to fund their lending commitments (whether due to insolvency, illiquidity or other reasons) in the amounts provided for under the terms of the facilities, would restrict our ability to access the facilities when needed, harm our ability to meet our obligations, restrict our ability to raise further debt and, consequently, could have a material adverse effect on our business, results of operations, financial condition and liquidity.
Our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors outside our control.
We intend to draw on the term loan facility under an unsecured Three-Year Delayed Draw Term Loan Agreement (the “Three-Year DDTL Agreement”) prior to consummation of this offering. The Three-Year DDTL Agreement matures on February 25, 2025. In addition, we have $1.0 billion of Notes (as under “Recapitalization—Senior Notes Offering”) that mature on April 4, 2025. We may be unable to refinance our indebtedness on terms acceptable to us or at all. Market disruptions, such as those experienced in 2008, 2009 and 2020 and ongoing geopolitical concerns, as well as our indebtedness level, may increase our cost of borrowing or adversely affect our ability to refinance our obligations as they become due. If we are unable to refinance our indebtedness or access additional credit, or if short-term or long-term borrowing costs dramatically increase, our ability to meet our short-term and long-term obligations could be adversely affected, which would have a material adverse effect on our business, financial condition, results or operations and cash flows.
We may not be able to generate cash to meet our needs due to the illiquidity of some of our investments.
We and our subsidiaries have a diversified investment portfolio. However, economic conditions, as well as adverse capital market conditions, including a lack of buyers, the inability of potential buyers to obtain financing on reasonable terms, volatility, credit spread changes, interest rate changes, foreign currency exchange rates and/or decline in collateral values have in the past impacted, and may in the future impact, the liquidity and value of our investments.
For example, we have made investments in certain securities that are generally considered less liquid, including certain fixed income securities and certain structured securities, privately placed securities, investments in private equity funds and hedge funds, mortgage loans, finance receivables and real estate. Collectively, investments in these assets had a carrying value of $52 billion as of March 31, 2022. The reported values of our relatively less liquid types of investments do not necessarily reflect the values achievable in a stressed market environment for those investments. If we are forced to sell certain of our assets on short notice, we could be unable to sell them for the prices at which we have recorded them, and we could be forced to sell them at significantly lower prices, which could cause a material adverse effect on our business, results of operations, financial condition and liquidity. Adverse changes in the valuation of real estate and real estate-linked assets, deterioration of capital markets and widening credit spreads have in the past, and may in the future, materially adversely affect the liquidity and the value of our investment portfolios, including our residential and commercial mortgage-related securities portfolios.
In the event additional liquidity is required by one or more of our companies, it may be difficult for us to generate additional liquidity by selling, pledging or otherwise monetizing these or other of our investments at reasonable prices and time frames.
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A downgrade in the IFS ratings of our insurance companies could limit their ability to generate new business and impair their retention of customers and in-force business, and a downgrade in our credit ratings could adversely affect our business, results of operations, financial condition and liquidity.
IFS ratings are an important factor in establishing the competitive position of insurance companies. IFS ratings measure an insurance company’s ability to meet its obligations to contract holders and policyholders.
Credit rating agencies estimate a company’s ability to meet its ongoing financial obligations and high IFS and credit ratings help maintain public confidence in a company’s products, facilitate marketing of products and enhance its competitive position. Downgrades of the IFS ratings of our insurance companies, including related to changes in rating agency methodologies, could prevent these companies from selling, or make it more difficult for them to succeed in selling, products and services, make it more difficult for them to obtain new reinsurance or obtain it on reasonable pricing terms, or result in increased policy cancellations, lapses and surrenders, termination of, or increased collateral posting obligations under, assumed reinsurance contracts, or return of premiums. Under credit rating agency policies and practices concerning the relationship between parent and subsidiary ratings, a downgrade in our credit ratings could result in a downgrade of the IFS ratings of our insurance or reinsurance subsidiaries.
Similarly, under credit rating agency policies and practices, a downgrade of the IFS ratings of our insurance and reinsurance subsidiaries could also result in a downgrade in our credit ratings.
In addition, a downgrade of our long-term debt ratings by one or more of the major rating agencies, including related to changes in rating agency methodologies, could potentially increase our financing costs and collateral requirements and limit the availability of financing, which in turn could make it more difficult to refinance maturing debt obligations such as our delayed draw term loan facility and our revolving loan facility, support business growth at our insurance subsidiaries and to maintain or improve the current IFS ratings of our principal insurance subsidiaries. Additionally, a downgrade in our IFS or credit ratings could cause counterparties to limit or reduce their exposure to us and thus reduce our ability to manage our market risk exposures effectively during times of market stress. Such a downgrade could materially and adversely affect our business, results of operations, financial condition and liquidity.
In response to the announcement by AIG in October 2020 of its intention to separate the Life and Retirement business from AIG, Fitch Ratings Inc. (“Fitch”) placed the credit ratings of AIG on “Rating Watch Negative,” Moody’s Investors Service Inc. (“Moody’s”) placed the debt ratings of AIG on review for downgrade and Standard & Poor’s Financial Services LLC, a subsidiary of S&P Global Inc. (“S&P”) placed the credit ratings of AIG and the financial strength ratings of most of the General Insurance subsidiaries on CreditWatch with negative implications. Moody’s and Fitch affirmed the financial strength ratings and outlooks on AIG’s insurance subsidiaries. In connection with the announcement by AIG in July 2021 that it reached a definitive agreement with Blackstone, through Argon, to acquire a 9.9% equity stake in AIG’s Life and Retirement business, Moody’s lowered its debt ratings of AIG to Baa2 from Baa1 and assigned a stable outlook. Moody’s also revised the outlook on the A2 financial strength ratings of AIG’s Life and Retirement subsidiaries, to be transferred to us, to negative from stable. On March 4, 2022, Fitch affirmed the credit ratings of AIG's life and retirement subsidiaries at A+. On March 31, 2022, Fitch assigned a BBB+ senior long-term debt rating to us. On March 29, 2022, S&P affirmed its A+ ratings on AGL, USL and VALIC, revising the outlook from CreditWatch developing to stable. On March 31, 2022, S&P assigned a BBB+ senior long-term debt rating to us. On March 29, 2022, Moody’s affirmed its A2 ratings on our subsidiaries and revised our outlook from negative to stable. On March 31, 2022, Moody’s assigned a Baa2 senior long-term debt rating to us. A downgrade in our credit and debt ratings or those of AIG would negatively impact our business, results of operations, financial condition and liquidity.
For information on our credit ratings, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Ratings.”
Our participation in a securities lending program and a repurchase program subjects us to liquidity and other risks.
We participate in a securities lending program whereby securities are loaned to third-party borrowers. We generally obtain cash collateral in an amount based upon the estimated fair value of the loaned securities. A return of loaned securities by a borrower requires us to return the cash collateral associated with such loaned securities. In some cases, the fair value of the securities held as collateral could be below the amount of cash
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collateral we received, and we must return some cash collateral. Additionally, we contribute the cash collateral we receive to cash management, contingent liquidity and hedging programs. In some cases, if our securities lending arrangements are terminated earlier than their maturity date, we may be required to return cash collateral earlier than anticipated, resulting in less cash available for such contributions. We also participate in a repurchase program for our investment portfolio whereby we sell fixed income securities to third-party repurchase counterparties, primarily major brokerage firms and commercial banks, with a concurrent agreement to repurchase substantially similar securities at a predetermined price and future date.
At all times during the term of the repurchase agreements, cash collateral, received and returned on a daily basis, is required to be maintained at a level that is sufficient to allow us to fund substantially all of the cost of purchasing replacement securities. In some cases, the fair value of the securities could be below the agreed repurchase price and we must provide additional cash collateral. Additionally, we invest the cash collateral we receive from the repurchase program in certain long-dated corporate bonds. If we are required to return cash collateral under the repurchase program earlier than expected, we may need to sell those bonds at a price lower than anticipated and may have less cash available for investing in long-dated corporate bonds. Further, we may be unable to roll over each arrangement under the repurchase program if the relevant counterparty refuses such rollover.
Under both programs, market conditions on the maturity date could limit our ability to enter into new agreements. Our inability to enter into new securities lending or repurchase agreements would require us to return the cash collateral proceeds associated with such transactions on the maturity date.
If we are required to return significant amounts of cash collateral and are forced to sell securities to meet the return obligation, we could have difficulty selling securities in a timely manner, be forced to sell securities in a volatile or illiquid market for less than we otherwise would have been able to realize under normal market conditions, or both. The repurchase and securities lending programs we manage are subject to technical and fundamental market risks which can broadly impact the finance markets. Under adverse capital market and economic conditions, liquidity could broadly deteriorate, which would further restrict our ability to sell securities and require us to provide additional collateral and sell securities for less than the price at which we recorded them, which could cause a material adverse effect on our business, results of operations, financial condition and liquidity.
Changes in the method for determining LIBOR and the continuing phase out of LIBOR and uncertainty related to LIBOR replacement rates may affect our business, results of operations, financial condition and liquidity.
We have significant assets, liabilities and obligations with interest rates tied to the London Interbank Offered Rate (“LIBOR”) for U.S. dollars and other currencies. Starting January 1, 2022, all LIBOR settings either ceased to be provided by any administrator, or are no longer representative for all non-U.S. dollar LIBOR settings and one-week and two-month U.S. dollar (“USD”) LIBOR settings, and immediately after June 30, 2023 will no longer be representative for the remaining USD LIBOR settings, absent subsequent action by the relevant authorities. In addition, while GBP and JPY LIBOR are currently being reported on a synthetic basis for certain tenors, there can be no assurance that such non-USD synthetic LIBOR or USD LIBOR will remain available in the future.
Significant recommendations as to alternative rates and as to protocols have been advanced, and continue to be advanced, by various regulators and market participants, including the Alternative Reference Rates Committee of the United States Federal Reserve (“ARRC”), the International Swaps and Derivatives Association (“ISDA”), the UK Financial Conduct Authority (“FCA”) and the U.S. Congress, and legislative action by the State of New York, but there can be no assurance that the various recommendations or legislative action will be effective at preventing or mitigating disruption as a result of the transition. In particular, for U.S. dollar LIBOR, the ARRC has selected the Secured Overnight Financing Rate (“SOFR”) as its preferred replacement benchmark and has formally recommended, in limited cases, a term rate based on SOFR. Additionally, on March 15, 2022, President Biden signed into law the “Adjustable Interest Rate (LIBOR) Act,” as part of the Consolidated Appropriations Act, 2022, which provides for a transition to a replacement rate selected by the Board of Governors of the Federal Reserve System in the event a contract referencing LIBOR does not have a fallback or replacement rate provision in effect when LIBOR is retired, or a replacement rate is not selected by a determining person as defined by the statute. Both ARRC and ISDA have taken significant steps toward implementing various fallback provisions and protocols; and for British pound sterling, relevant authorities have promoted use of Sterling
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Overnight Index Average (“SONIA”) as a replacement for LIBOR. However, the market transition away from LIBOR to alternative reference rates, including SOFR or SONIA, is complex and could result in disruptions, among other things, due to differences between LIBOR (an unsecured forward-looking term rate) and alternative rates that are based on historical measures of overnight secured rates; due to failure of market participants to fully accept such alternative rates; or due to difficulties in amending legacy LIBOR contracts or implementing processes for determining new alternative rates.
The consequences of LIBOR reform could adversely affect the market for LIBOR-based securities, the payment obligations under our existing LIBOR-based liabilities and our ability to issue funding agreements bearing a floating rate of interest, as well as the value of financial and insurance products tied to LIBOR, investment portfolio or the substantial amount of derivatives contracts we use to hedge our assets, insurance and other liabilities.
Our actions taken to address the transition from LIBOR for U.S. dollar and other currencies and to mitigate potential risks include, among other things, ensuring new legal contracts, existing legal contracts if necessary and our asset and debt issuances include appropriate LIBOR fallback provisions and identifying fallback provisions in existing contracts and investments which mature after the relevant LIBOR phase-out date; updating valuation and actuarial models that utilize LIBOR; determining the impact of new accounting and tax requirements; adjusting applicable technology applications to be able to support both LIBOR and new alternative rates; and executing and monitoring trades (including test transactions) for derivatives, assets and debt issuances utilizing the new alternative reference rates. We cannot, however, be certain that these measures will effectively mitigate potential risks related to the transition from LIBOR. In addition, we anticipate there may be additional risks to our current processes and information systems that will need to be identified and evaluated by us. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms could materially and adversely affect our business, results of operations, financial condition and liquidity.
Non-performance or defaults by counterparties may expose us to credit risk, which may materially and adversely affect the value of our investments, our profitability and sources of liquidity.
We are exposed to credit risk arising from exposures to various counterparties related to investments, derivatives, premiums receivable and reinsurance recoverables. These counterparties include, but are not limited to, issuers of fixed income and equity securities we hold, borrowers of loans we hold, customers, plan sponsors, trading counterparties, counterparties under swaps and other derivative instruments, reinsurers, joint venture partners, clearing agents, exchanges, clearing houses, custodians, brokers and dealers, commercial banks, investment banks, intra-group counterparties with respect to derivatives and other third parties, financial intermediaries and institutions, and guarantors. These counterparties may default on their obligations to us due to bankruptcy, insolvency, receivership, financial distress, lack of liquidity, adverse economic conditions, operational failure, fraud, government intervention and other reasons. In addition, for exchange-traded derivatives, such as futures, options as well as “cleared” over-the-counter derivatives, we are generally exposed to the credit risk of the relevant central counterparty clearing house and futures commission merchants through which we clear derivatives. For uncleared over-the-counter derivatives, we are also generally exposed to the credit risk of the third-party custodians at which margin collateral that we post, or is posted to us by our counterparties, is held as a result of regulatory requirements. With respect to transactions in which we acquire a security interest in collateral owned by the borrower, our credit risk could be exacerbated when the collateral cannot be realized or if we cannot offset our exposures through derivative transactions, reinsurance and underwriting arrangements, unsecured money market and prime funds and equity investments. In addition, we assume pension obligations from plan sponsors, including obligations in respect of current employees of the plan sponsor. If the plan sponsor experiences financial distress that results in bankruptcy or significant terminations or otherwise experiences substantial turnover of employees active under the plan, such employees may be entitled to rights under the pension plan, such as lump-sum payments. To the extent that a plan sponsor experiences a significant turnover event, we may not achieve the targeted return expected at the time the PRT transaction was priced. Further, we invest on a short-term basis the cash collateral pledged to us by our derivative instruments counterparties in unsecured money markets and prime funds, which exposes us to the credit risk of financial institutions where we invest funds received as collateral. Any resulting loss or impairments to the carrying value of these assets or defaults by these counterparties on their obligations to us could have a material adverse effect on our business, results of operations, financial condition and liquidity.
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An insolvency of, or the appointment of a receiver to rehabilitate or liquidate, a significant competitor could negatively impact our business if such appointment were to impact consumer confidence in our products and services. Additionally, if the underlying assets supporting the structured securities we invest in are expected to default or actually default on their payment obligations, our securities may incur losses.
Our exposure to credit risk may be exacerbated in periods of market or credit stress, as derivative counterparties take a more conservative view of their acceptable credit exposure to us, resulting in reduced capacity to execute derivative-based hedges when we need it most.
Risks Relating to Business and Operations
Pricing for our products is subject to our ability to adequately assess risks and estimate losses.
We seek to price our products such that premiums, policy fees, other policy charges and future net investment income earned on assets will result in an acceptable profit in excess of expected claims driven by policyholder deaths and behavior (such as exercising options and guarantees in the policy or allowing their policy to lapse), assumed expenses, taxes and the cost of capital.
Our business is dependent on our ability to price our products effectively and charge appropriate fees and other policy charges. Pricing adequacy depends on a number of factors and assumptions, including proper evaluation of insurance risks, our expense levels, expected net investment income to be realized, our response to rate actions taken by competitors, our response to actions by distributors, legal and regulatory developments and long-term assumptions regarding interest rates, credit spreads, investment returns, operating costs and the expected persistency of certain products, which is the probability that a policy will remain in force from one period to the next. For example, some of our life insurance policies and annuity contracts provide management the limited right to adjust certain non-guaranteed charges or benefits and interest crediting rates if necessary, subject to guaranteed minimums or maximums, and the exercise of these rights could result in reputational and/or litigation risk.
Management establishes target returns for each product based upon these factors, certain underwriting assumptions and capital requirements, including statutory, GAAP and economic capital models. We monitor and manage pricing and sales to achieve target returns on new business, but we may not be able to achieve those returns due to the factors discussed above. Profitability from new business emerges over a period of years, depending on the nature of the product, and is subject to variability as actual results may differ from pricing assumptions.
Our profitability depends on multiple factors, including the impact of actual mortality, longevity, morbidity and policyholder behavior experience as compared to our assumptions; the adequacy of investment margins; our management of market and credit risks associated with investments, including the cost of hedging; our ability to maintain premiums and contract charges at a level adequate to cover mortality, benefits and contract administration expenses; the adequacy of contract charges and availability of revenue from providers of investment options offered in variable contracts to cover the cost of product features and other expenses; and management of operating costs and expenses. Inadequate pricing and the difference between estimated results of the above factors compared to actual results could have a material adverse effect on our business, results of operations, financial condition and liquidity.
Guarantees within certain of our products may increase the volatility of our results.
Certain of our annuity and life insurance products include features that guarantee a certain level of benefits, including guaranteed minimum death benefits, guaranteed living benefits, including guaranteed minimum income benefits, and products with guaranteed interest crediting rates, including crediting rate guarantees tied to the performance of various market indices. Many of these features are accounted for at fair value as embedded derivatives under GAAP, and they have significant exposure to capital markets and insurance risks. An increase in valuation of liabilities associated with the guaranteed features results in a decrease in our profitability and depending on the magnitude of any such increase, could materially and adversely affect our financial condition, including our capitalization, as well as the financial strength ratings.
We employ a capital markets hedging strategy to partially offset the economic impacts of movements in equity, interest rate and credit markets, however, our hedging strategy may not effectively offset movements in our GAAP and statutory surplus and may otherwise be insufficient in relation to our obligations. Furthermore, we
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are subject to the risk that changes in policyholder behavior or actual levels of mortality/longevity as compared to assumptions in pricing and reserving, combined with adverse market events, could produce losses not addressed by the risk management techniques employed. These factors, individually or collectively, may have a material adverse effect on our business, results of operations, financial condition and liquidity including our ability to receive dividends from our operating companies.
Changes in interest rates result in changes to the fair value liability. All else being equal, higher interest rates generally decrease the fair value of our liabilities, which increases our earnings, while low interest rates generally increase the fair value of our liabilities, which decreases our earnings. A prolonged low interest rate environment may also subject us to increased hedging costs or an increase in the amount of statutory reserves that our insurance subsidiaries are required to hold for our liabilities, lowering their statutory surplus, which would adversely affect their ability to pay dividends. In addition, it may also increase the perceived value of our benefits to our policyholders, which in turn may lead to a higher than expected benefit utilization and persistency of those products over time.
Differences between the change in fair value of the GAAP embedded derivatives, as well as associated statutory and tax liabilities, and the value of the related hedging portfolio may occur and can be caused by movements in the level of equity, interest rate, and credit markets, market volatility, policyholder behavior, and mortality/longevity rates that differ from our assumptions and our inability to purchase hedging instruments at prices consistent with the desired risk and return trade-off. In addition, we may sometimes choose, based on economic considerations and other factors, not to mitigate these risks. The occurrence of one or more of these events has in the past resulted in, and could in the future result in, an increase in the fair value of liabilities associated with the guaranteed benefits without an offsetting increase in the value of our hedges, or a decline in the value of our hedges without an offsetting decline in our liabilities, thus reducing our results of operations and shareholders’ equity.
Our use of derivative instruments to hedge market risks associated with our liabilities exposes us to counterparty credit risk and could adversely affect our business, results of operations, financial condition and liquidity.
Our risk management strategy seeks to mitigate the potential adverse effects of changes in capital markets, specifically changes in equity markets, foreign exchange rates and interest rates on guarantees related to variable annuities, fixed index annuities and index universal life insurance, and liability guarantees associated with our GLBs for certain products such as variable annuities, fixed index annuities and fixed annuities. The strategy primarily relies on hedging strategies using derivatives instruments and, to a lesser extent, reinsurance.
Derivative instruments primarily composed of futures, swaps, and options on equity indices and interest rates are an essential part of our hedging strategy and are selected to provide a measure of economic protection. We utilize a combination of short-term and longer-term derivative instruments to have a laddered maturity of protection and reduce rollover risk during periods of market disruption or higher volatility. As of March 31, 2022, notional amounts on our derivative instruments totaled $213 billion. We manage the potential credit exposure for derivative instruments through utilization of financial exchanges, ongoing evaluation of the creditworthiness of counterparties, the use of ISDA and collateral agreements, and master netting agreements.
In connection with our hedging program, we may decide to seek the approval of applicable regulatory authorities to permit us to increase our limits with respect to derivatives transactions used for hedging purposes consistent with those contemplated by the program. No assurance can be given that any of our requested approvals will be obtained and whether, if obtained, any such approvals will not be subject to qualifications, limitations or conditions. If our capital is depleted in the event of persistent market downturns, we may need to replenish it by holding additional capital, which we may have allocated for other uses, or purchase additional hedging protection through the use of more expensive derivatives with strike levels at then-current market levels. Under our hedging strategy, period-to-period changes in the valuation of our hedges relative to the guaranteed liabilities may result in significant volatility to certain of our profitability measures, which in certain circumstances could be more significant than has been the case historically.
In addition, hedging instruments we enter into may not effectively offset changes in economic values of the guarantees within certain of our annuity products or may otherwise be insufficient in relation to our obligations. For example, in the event that derivatives counterparties or central clearinghouses are unable or unwilling to honor their obligations, we remain liable for the guaranteed liability benefits.
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The cost of our hedging program may be greater than anticipated because adverse market conditions can limit the availability and increase the costs of the derivatives we intend to employ, and such costs may not be recovered in the pricing of the underlying products we offer. Our transactions with financial and other institutions generally specify the circumstances under which either party is required to pledge collateral related to any change in the market value of the derivative instruments. The amount of collateral, or a total of initial and variation margins, we are required to post under these agreements could increase under certain circumstances, which could materially and adversely affect our business, results of operations, financial condition and liquidity.
The above factors, individually or in the aggregate, may have a material adverse effect on our financial condition and results of operations, our profitability measures as well as impact our capitalization, our distributable earnings, our ability to receive dividends from our operating companies and our liquidity. These impacts could then in turn impact our RBC ratios and our financial strength ratings.
We may experience difficulty in marketing and distributing our Individual Retirement and Life Insurance products through our current and future distribution channels, and the use of third parties may result in additional liabilities.
Although we distribute our products through a wide variety of distribution channels in our Individual Retirement and Life Insurance segments, we maintain relationships with certain key distributors, which results in certain distributor concentration. Distributors have in the past, and may in the future, elect to renegotiate the terms of existing relationships such that those terms may not remain attractive or acceptable to us, limit the products they sell, including the types of products offered by us, or otherwise reduce or terminate their distribution relationships with us with or without cause. This could be due to various reasons, such as uncertainty related to this offering, industry consolidation of distributors or other industry changes that increase the competition for access to distributors, developments in laws or regulations that affect our business or industry, including the marketing and sale of our products and services, adverse developments in our business, the distribution of products with features that do not meet minimum thresholds set by the distributor, strategic decisions that impact our business, adverse rating agency actions or concerns about market-related risks. An interruption or reduction in certain key relationships could materially affect our ability to market our products and could have a material adverse effect on our businesses, operating results and financial condition.
Alternatively, renegotiated terms may not be attractive or acceptable to distributors, or we may terminate one or more distribution agreements due to, for example, a loss of confidence in, or a change in control of, one of the third-party distributors. An interruption or reduction in certain key relationships could materially affect our ability to market our products and could materially and adversely affect our business, results of operations, financial condition and liquidity.
We are at risk that key distribution partners could merge, consolidate, change their business models in ways that affect how our products are sold, or terminate their distribution contracts with us, or that new distribution channels could emerge and adversely impact the effectiveness of our distribution efforts. For example, in the year ended December 31, 2021, our top 10 distribution partners in our Individual Retirement business represented 57% of our sales, and our largest distribution partner represented 10% of our sales. An increase in bank, wirehouse and broker-dealer consolidation activity could increase competition for access to distributors, result in greater distribution expenses and impair our ability to market our Individual Retirement annuity products through these channels.
Also, if we are unsuccessful in attracting, retaining and training key distribution partners, or are unable to maintain our distribution relationships, our sales could decline, which could have a material adverse effect on our business, results of operations, financial condition and liquidity. In addition, substantially all of our distributors are permitted to sell our competitors’ products. If our competitors offer products that are more attractive than ours or pay higher commission rates to the distribution partners than we do, these distribution partners could concentrate their efforts in selling our competitors’ products instead of ours.
In addition, we can, in certain circumstances, be held responsible for the actions of our third-party distributors, including broker-dealers, registered representatives, insurance agents and agencies and marketing organizations, and their respective employees, agents and representatives, in connection with the marketing and sale of our products by such parties in a manner that is deemed not compliant with applicable laws and regulations. This is particularly acute with respect to unaffiliated distributors where we may not be able to directly monitor or control the manner in which our products are sold through third-party firms despite our
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training and compliance programs. Further, misconduct by employees, agents and representatives of our broker-dealer subsidiaries in the sale of our products could also result in violations of laws by us or our subsidiaries, regulatory sanctions and serious reputational or financial harm to us. The precautions we take to prevent and detect the foregoing activities may not be effective. If our products are distributed to customers for whom they are unsuitable or distributed in a manner deemed inappropriate, we could suffer reputational and/or other financial harm to our business.
We may experience difficulty in sales and asset retention with respect to our Group Retirement segment as a result of the highly competitive nature of the business, consolidation of plan sponsors, and the potential for redirection of plan sponsor assets to other providers.
Plan sponsors, our customers in our Group Retirement segment, have in the past, and may in the future, elect to renegotiate the terms of existing relationships such that those terms may not remain attractive or acceptable to us, limit the products or services they sell or offer to their plan participants, including the types of products and advisory services offered by us, or otherwise reduce or terminate their relationships with us. This could arise as a result of the consolidation of plan sponsors (most recently in the healthcare industry) or plan sponsors redirecting their assets to other providers who may provide more favorable terms. Such renegotiation or termination with respect to plans that significantly contribute to our profitability could have a greater impact on our overall profitability. In the case of employer-sponsored plans, the impact can also vary depending on whether existing plan accounts remain with us, are transferred at the direction of the plan sponsor or are transferred at the direction of individual plan participants.
Additionally, plan sponsors, both public and private, continue to experience financial difficulty and some of these institutions reduce costs through, among other actions and strategies, headcount reductions or by rebalancing their workforce in favor of part-time employees who are ineligible for retirement benefits. The financial stress on such plan sponsors is often exacerbated by reductions in governmental funding sources. Moreover, our strategies to serve our plan sponsors’ employees may not be successful.
Given these challenges, our premiums and deposits may fail to grow, which could adversely affect our business, results of operations, financial condition and liquidity.
Third parties we rely upon to provide certain business and administrative services on our behalf may not perform as anticipated, which could have an adverse effect on our business, results of operations, financial condition and liquidity.
We rely on the use of third-party providers to deliver contracted services in a broad range of areas, including, but not limited to, the administration or servicing of certain policies and contracts, finance, actuarial services, information technology and operational functions, and investment advisory services for certain funds, plans and retail advisory programs we offer. In addition, we have reached agreements with our existing partners to realize further cost efficiencies by transforming additional operational and back office processes.
We periodically negotiate provisions and renewals of these domestic and international relationships, and there can be no assurance that such terms will remain acceptable to us, such third parties or regulators. If our third-party providers experience disruptions, fail to meet applicable licensure requirements, do not integrate with our facilities when providing services from our premises, do not perform as anticipated or in compliance with applicable laws and regulations, terminate or fail to renew our relationships, or such third-party providers in turn rely on services from another third-party provider, who experiences such disruptions, licensure failures, non-performance or noncompliance, or termination or non-renewal of its contractual relationships, we may experience operational difficulties, an inability to meet obligations (including, but not limited to, contractual, legal, regulatory or policyholder obligations), a loss of business, increased costs or reputational harm, compromises to our data integrity, or suffer other negative consequences, all of which may have a material adverse effect on our business, consolidated results of operations, liquidity and financial condition. Some of these providers are located outside the United States, which exposes us to business disruptions and political risks inherent when conducting business outside of the United States.
Third parties performing regulated activities on our behalf, such as sales, underwriting, servicing of products, claims handling, and retail and fund investment advisory services could pose a heightened risk, as we may be held accountable for third-party conduct, including conduct that is not in compliance with applicable law.
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Our significant investment managers are required to maintain information technology and other operational systems to record and process transactions with respect to the investment portfolios of our insurance company subsidiaries, which includes providing information to us to enable us to value our investment portfolio that may affect our GAAP or U.S. statutory accounting principles financial statements. Our investment managers could experience a failure of these systems, their employees or agents could fail to monitor and implement enhancements or other modifications to a system in a timely and effective manner, or their employees or agents could fail to complete all necessary data reconciliation or other conversation controls when implementing a new software system or modifications to an existing system. The maintenance and implementation of these systems by our investment managers is not within our control. Should their systems fail to accurately record information pertaining to the investment portfolios of our insurance company subsidiaries, we may inadvertently include inaccurate information in our financial statements and experience a lapse in our internal control over financial reporting, and such failure could have a material adverse effect on our business, results of operations, financial condition and liquidity.
We are exposed to certain risks if we are unable to maintain the availability of our critical technology systems and data and safeguard the confidentiality and integrity of our data, which could compromise our ability to conduct business and adversely affect our business, results of operations, financial condition and liquidity.
We use information technology systems, infrastructure and networks and other operational systems to store, retrieve, evaluate and use customer, employee, and company data and information. Our business is highly dependent on our ability to access these systems to perform necessary business functions. In the event of a natural disaster, a computer virus, unauthorized access, a terrorist attack, cyber-attack or other disruption, our systems and networks may be inaccessible to our employees, customers or business partners for an extended period of time, and we may be unable to meet our business obligations for an extended period of time if our data or systems are disabled, manipulated, destroyed or otherwise compromised. Additionally, some of our systems and networks are older, legacy-type systems that are less efficient and require an ongoing commitment of significant resources to maintain or upgrade. Supply chain disruptions or delays could prevent us from maintaining and implementing changes, updates and upgrades to our systems and networks in a timely manner or at all. System and network failures or outages could compromise our ability to perform business functions in a timely manner, which could harm our ability to conduct business, hurt our relationships with our business partners and customers and expose us to legal claims as well as regulatory investigations and sanctions, any of which could have a material adverse effect on our business, results of operations, financial condition and liquidity.
Some of these systems and networks also rely upon third-party systems, which themselves may rely on the systems of other third parties. Problems caused by, or occurring in relation to, our third-party providers and systems, including those resulting from breakdowns or other disruptions in information technology services provided by a third-party provider, failure of a third-party provider to provide current or higher volumes of required services or cyber-attacks and security breaches at a third-party provider, may in the future materially and adversely affect our business, results of operations, financial condition and liquidity.
Like other companies, the systems and networks we maintain and third-party systems and networks we use have in the past been, and will likely in the future be, subject to or targets of unauthorized or fraudulent access, including physical or electronic break-ins or unauthorized tampering, as well as attempted cyber and other security threats and other computer-related penetrations such as “denial of service” attacks, phishing, untargeted but sophisticated and automated attacks, and other disruptive software. Also, like other companies, we have an increasing challenge of attracting and retaining highly qualified security personnel to assist us in combatting these security threats. The frequency and sophistication of such threats continue to increase and often become further heightened in connection with geopolitical tensions.
We continuously monitor and develop our information technology networks and infrastructure in an effort to prevent, detect, address and mitigate the risk of threats to our data, systems and networks, including malware and computer virus attacks, ransomware, unauthorized access, business e-mail compromise, misuse, denial-of-service attacks, system failures and disruptions. There is no assurance that our security measures, including information security policies, administrative, technical and physical controls and other actions designed as preventative will provide fully effective protection from such events. We maintain insurance to cover operational risks, such as cyber risk and technology outages, but this insurance may not cover all costs associated with the consequences of personal, confidential or proprietary information being compromised. In the case of a successful ransomware
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attack in which our data and information restore control processes are not effective, our information could be held hostage until a ransom, which may be significant, is paid for retrieval of the stolen information. In some cases, such compromise may not be immediately detected, which may make it difficult to recover critical services, damage assets and compromise the integrity and security of data including our policyholder, employee, agent and other confidential information processed through our systems and networks. Additionally, since we rely heavily on information technology and systems and on the integrity and timeliness of data to run our businesses and service our customers, any such compromise or security event may impede or interrupt our business operations and our ability to service our customers, and otherwise may materially and adversely affect our business, results of operations, financial condition and liquidity.
We are continuously evaluating and enhancing systems and processes. These continued enhancements and changes, as well as changes designed to update and enhance our protective measures to address new threats, may increase the risk of a system or process failure or the creation of a gap in the associated security measures. Any such failure or gap could materially and adversely affect our business, results of operations, financial condition and liquidity.
We routinely transmit, receive and store personal, confidential and proprietary information by email and other electronic means. Although we attempt to keep such information confidential and secure, we may be unable to do so in all events, especially with clients, vendors, service providers, counterparties and other third parties who may not have or use appropriate controls to protect personal, confidential or proprietary information. The compromise of personal, confidential or proprietary information could cause a loss of data, give rise to remediation or other expenses, expose us to liability under U.S. and international laws and regulations, and subject us to litigation, investigations, sanctions, and regulatory and law enforcement action, and result in reputational harm and loss of business, which could have a material adverse effect on our business, results of operations, financial condition and liquidity.
Furthermore, certain of our business lines are subject to compliance with laws and regulations enacted by U.S. federal and state governments, the EU, UK, Bermuda or other jurisdictions or enacted by various regulatory organizations or exchanges relating to the privacy and security of the information of clients, employees or others. The variety of applicable privacy and information security laws and regulations exposes us to heightened regulatory scrutiny and requires us to incur significant technical, legal and other expenses in an effort to ensure and maintain compliance and will continue to impact our business in the future by increasing legal, operational and compliance costs. While we have taken steps to comply with privacy and information security laws, we cannot guarantee that our efforts will meet the evolving standards imposed by data protection authorities. If we are found not to be in compliance with these privacy and security laws and regulations, we may be subject to additional potential private consumer, business partner or securities litigation, regulatory inquiries and governmental investigations and proceedings, and we may incur damage to our reputation. Any such developments may subject us to material fines and other monetary penalties and damages, divert management’s time and attention and lead to enhanced regulatory oversight, any of which could have a material adverse effect on our business, results of operations, financial condition and liquidity. Additionally, we expect that developments in privacy and cybersecurity worldwide will increase the financial and reputational implications following a significant breach of our or our third-party suppliers’ information technology systems. New and currently unforeseen regulatory issues could also arise from the increased use of emerging technology, data and digital services. If we are found not to be in compliance with these laws and regulations concerning emerging technology, data and digital services, we could be subjected to significant civil and criminal liability and exposed to reputational harm.
In addition, the SEC recently released proposed rules enhancing disclosure requirements for publicly registered companies and for investment advisers and funds, covering cybersecurity risk and management, which if adopted as proposed, could result in additional compliance costs. See “Business—Regulation—U.S. Regulation—Privacy, Data Protection and Cybersecurity.”
In addition, we have been required to further rely on our technology systems as a result of the fact that all non-essential staff were transitioned to a remote work environment in response to the COVID-19 pandemic and thus, the risk of a gap in our security measures and the risk of a system or process failure is heightened.
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In connection with our separation from AIG, we will transition to separate information systems and will be responsible for our own cybersecurity. Any of the foregoing risks may be exacerbated by the separation and related transition.
Increasing scrutiny and evolving expectations from investors, customers, regulators and other stakeholders regarding environmental, social and governance matters may adversely affect our reputation or otherwise adversely impact our business and results of operations.
There is increasing scrutiny and evolving expectations from investors, customers, regulators and other stakeholders on environmental, social and governance (“ESG”) practices and disclosures, including those related to environmental stewardship, climate change, diversity, equity and inclusion, racial justice and workplace conduct. Legislators and regulators have imposed and likely will continue to impose ESG-related legislation, rules and guidance, which may conflict with one another and impose additional costs on us, impede our business opportunities or expose us to new or additional risks. In addition, the SEC has proposed new ESG reporting rules which would apply to us after this offering and which, if adopted as proposed, could result in additional compliance and reporting costs. See “Business—Regulation—U.S. Regulation—Climate Change.” Moreover, certain organizations that provide information to investors have developed ratings for evaluating companies on their approach to different ESG matters, and unfavorable ratings of our company or our industries may lead to negative investor sentiment and the diversion of investment to other companies or industries. If we are unable to meet these standards or expectations, whether established by us or third parties, it could result in adverse publicity, reputational harm, or loss of customer and/or investor confidence, which could adversely affect our business, results of operations, financial condition and liquidity.
Our risk management policies and procedures may prove to be ineffective and leave us exposed to unidentified or unanticipated risk, which could adversely affect our business, results of operations, financial condition and liquidity.
We have developed and continue to enhance enterprise-wide risk management policies and procedures to identify, monitor and mitigate risk to which we are exposed. Many of our methods of identifying, measuring, underwriting and managing risks are based upon our study and use of historical market, applicant, customer, employee and bad actor behavior or statistics based on historical models. As a result, these methods may not accurately predict future exposures from events such as a major financial market disruption as the result of a natural or manmade disaster like a climate-related event or terrorist attack, that could be significantly different than the historical measures indicate, and which could also result in a substantial change in policyholder behavior and claims levels not previously observed. We have and will continue to enhance our life insurance underwriting process, including, from time to time, considering and integrating newly available sources of data to confirm and refine our traditional underwriting methods. Our efforts at implementing these improvements may not, however, be fully successful, which may adversely affect our competitive position. We have also introduced new product features designed to limit our risk and taken actions on in-force business, which may not be fully successful in limiting or eliminating risk. We may take additional actions on our in-force business, including adjusting crediting rates and cost of insurance, which may not be fully successful in maintaining profitability and which may result in litigation. Moreover, our hedging programs and reinsurance strategies that are designed to manage market risk and mortality risk rely on assumptions regarding our assets, liabilities, general market factors and the creditworthiness of our counterparties that could prove to be incorrect or inadequate. Our hedging programs utilize various derivative instruments, including but not limited to equity options, futures contracts, interest rate swaps and swaptions, as well as other hedging instruments, which may not effectively or completely reduce our risk; and assumptions underlying models used to measure accumulations and support reinsurance purchases may be proven inaccurate and could leave us exposed to larger than expected catastrophic losses in a given year. In addition, our current business continuity and disaster recovery plans are based upon our use of historical market experiences and models, and customer, employee and bad actors’ behavior and statistics, and accordingly may not be sufficient to reduce the impact of cyber risks, including ransomware, natural catastrophic events or fraudulent attacks, such as account take-over, that are beyond the level that historical measures indicate and greater than our anticipated thresholds or risk tolerance levels. Other risk management methods depend upon the evaluation of information regarding markets, clients, or other matters that is publicly available or otherwise accessible to us, which may not always be accurate, complete, up-to-date or properly evaluated. Management of operational, legal and regulatory risks requires, among other things, policies and procedures to record and verify large numbers of transactions and events, such as new and frequently updated regulatory requirements across the
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United States and internationally, primarily from the Prudential Regulation Authority (the “PRA”), the Bermuda Monetary Authority (the “BMA”) and The Bank of Ireland, each jurisdiction mandating specified requirements with respect to artificial intelligence and environmental, social and governance legal and regulatory requirements. These policies and procedures may not be fully effective. Accordingly, our risk management policies and procedures may not adequately mitigate the risks to our business, results of operations, financial condition and liquidity.
If our risk management policies and procedures are ineffective, we may suffer unexpected losses and could be materially adversely affected. As our business changes, the markets in which we operate evolve and new risks emerge, including for example risks related to climate change or meeting stakeholder expectations relating to environmental, social or governance issues, our risk management framework may not evolve at the same pace as those changes. The effectiveness of our risk management strategies may be limited, resulting in losses to us, which could materially adversely affect our business, results of operations, financial condition and liquidity. In addition, there can be no assurance that we can effectively review and monitor all risks or that all of our employees will understand and follow (or comply with) our risk management policies and procedures.
Significant legal, governmental, or regulatory proceedings may adversely affect our business, results of operations, financial condition and liquidity.
In the normal course of business, we face significant risk from regulatory and governmental investigations and civil actions, litigation and other forms of dispute resolution in various domestic and foreign jurisdictions. In addition, we are involved in litigation and arbitration concerning our rights and obligations under insurance policies issued by us and under reinsurance contracts with third parties in the normal course of our insurance operations. Additionally, from time to time, various regulatory and governmental agencies review the transactions and practices of us and our subsidiaries and in connection with industry-wide and other inquiries into, among other matters, the business practices of current and former operating insurance subsidiaries. Such investigations, inquiries or examinations have in the past developed and could in the future develop into administrative, civil or criminal proceedings or enforcement actions, in which remedies could include fines, penalties, restitution or alterations in our business practices, and could result in additional expenses, limitations on certain business activities and reputational damage.
We, our subsidiaries and their respective officers and directors are also subject to, or may become subject to, a variety of additional types of legal disputes brought by holders of our securities, customers, employees and others, alleging, among other things, breach of contractual or fiduciary duties, bad faith, indemnification and violations of federal and state statutes and regulations. Certain of these matters may also involve potentially significant risk of loss due to the possibility of significant jury awards and settlements, punitive damages or other penalties. Many of these matters are also highly complex and seek recovery on behalf of a class or similarly large number of plaintiffs. It is therefore inherently difficult to predict the size or scope of potential future losses arising from them, and developments in these matters could have a material adverse effect on our financial condition or results of operations.
For a discussion of certain legal proceedings, see Note 15 to the audited consolidated financial statements.
Our business strategy may not be effective in accomplishing our objectives, including as a result of events that can cause our fundamental business model to change and assumptions that may prove not to be accurate.
There can be no assurance that we will successfully execute our strategy. In addition, we may not be successful in increasing our earnings meaningfully or at all. Moreover, our ability to pay dividends or repurchase shares is subject to certain restrictions and limitations, including as a result of regulatory requirements, which may prevent us from returning the expected, or any, capital to our stockholders for the indefinite future. For these reasons, no assurances can be given that we will be able to execute our strategy or that our strategy will achieve our objectives, including our financial goals.
We have established certain financial goals that we believe measure the execution of our strategy, as set forth in “Prospectus Summary—Financial Goals” and “Business—Financial Goals.” These goals are based on certain assumptions, including assumptions regarding interest rates, geopolitical stability and market performance. While these goals are presented with numerical specificity and we believe such goals to be reasonable as of the date of this prospectus, there are significant risks that these assumptions may not be realized and, as a result, we may not achieve our financial goals in whole or in part. The results sought to be achieved by our financial goals
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may vary depending on various factors, including actual capital market outcomes, changes in actuarial models or emergence of actual experience, changes in regulation as well as other risks and factors that may cause actual events to adversely differ from one or more of our key assumptions. There can be no assurance that we will achieve such financial goals, nor are these goals guarantees of future performance or outcomes.
The financial goals are made only as of the date of this prospectus, and we do not undertake any obligation to update or revise any goals to reflect the occurrence of events, changes in assumptions or adjustments in such financial goals, unanticipated or otherwise, other than as may be required by law. In addition, we expect our financial goals to evolve over time to reflect changes in our business strategies and our balance sheet mix.
We face intense competition in each of our business lines and technological changes may present new and intensified challenges to our business.
Our businesses operate in highly competitive environments. Our principal competitors are major stock and mutual life insurance companies, advisory firms, broker dealers, investment management firms, retirement plan recordkeepers, mutual fund organizations, banks, investment banks and other nonbank financial institutions. The financial services industry, including the insurance industry in particular, is highly competitive. We compete in the United States with life and retirement insurance companies and other participants in related financial services fields. Overseas, our subsidiaries compete for business with global insurance groups, local companies and the foreign insurance operations of large U.S. insurers.
Our business competes across a number of factors, which include scale, service, product features, price, investment performance and availability of originated assets, commission structures, distribution capacity, financial strength ratings, name recognition and reputation. Our ability to continue to compete across these factors depends on delivery of our business plan, competitor actions and overall environment, all of which carry inherent risks.
For further discussion regarding competition within each of our operating segments, see “Business—Individual Retirement—Markets,” “Business—Individual Retirement—Competition,” “Business— Group Retirement—Markets,” “Business—Group Retirement—Competition,” “Business—Institutional Markets—Markets” and “Business—Institutional Markets—Competition.”
Technological advancements and innovation in the insurance, asset management, wealth management and financial planning industries, including those related to evolving customer preferences, the digitization of products and services, acceleration of automated underwriting and electronic processes present competitive risks. Technological advancements and innovation are occurring in distribution, underwriting, recordkeeping, advisory, claims and operations at a rapid pace, and that pace may increase, particularly as companies increasingly use data analytics and technology as part of their business strategy. Further, our business and results of operations could be materially and adversely affected if external technological advances limit our ability to retain existing business, write new business or appropriate terms, or impact our ability to adapt or deploy current products as quickly and effectively as our competitors. Additional costs may also be incurred in order to implement changes to automate procedures critical to our distribution channels in order to increase flexibility of access to our services and products. Moreover, upon our separation from AIG, we may not retain the employees who were working on technological implementation efforts at AIG, which may make it more difficult and expensive for us to complete and maintain such implementations. If we are unsuccessful in implementing such changes, our competitive position and distribution relationships may be harmed. In recent years, there has been an increase in activity by venture capital funded “InsureTech” start-ups in the life insurance industry, which are seeking to disrupt traditional ways of doing business and we continue to monitor this emerging competitive risk.
Catastrophes, including those associated with climate change and pandemics, may adversely affect our business and financial condition.
Any catastrophic event, such as pandemic diseases, terrorist attacks, accidents, floods, severe storms or hurricanes or cyber-terrorism, could have a material adverse effect on our business and operations. In the event of a disaster, unanticipated problems with our business continuity plans could cause a material adverse effect on our business, results of operations, financial condition and liquidity. We could also experience a material adverse effect on our business, results of operations, financial condition and liquidity of our insurance business due to increased mortality and, in certain cases, morbidity rates and/or its impact on the economy and financial markets.
Additionally, catastrophic events could harm the financial condition of our reinsurers and thereby increase the probability of default on reinsurance recoveries. Accordingly, our ability to write new business could also be
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affected. Further, the impact of climate change has caused, and may continue to cause, changes in weather patterns, resulting in more severe and more frequent natural disasters such as forest fires, hurricanes, tornados, floods and storm surges, exacerbating the risks of a catastrophic event and its resulting impacts. Climate change-related risks may also adversely affect the value of the securities that we hold or lead to increased credit risk of other counterparties we transact business with, including reinsurers. There is a risk that some asset sectors could face significantly higher costs and a disorderly adjustment to asset values leading to an adverse impact on the value and future performance of investment assets as a result of climate change and regulatory or other responses. Our reputation or corporate brand could also be negatively impacted as a result of changing customer or societal perceptions of organizations that we do business with or invest in due to their actions (or lack thereof) with respect to climate change. A failure to identify and address these issues could cause a material adverse effect on the achievement of our strategies and potentially subject us to heightened regulatory scrutiny.
Material changes to, or termination of, our significant investment advisory contracts with other parties, including Fortitude Re, could have a material adverse effect on our business, results of operations, financial condition and liquidity.
We provide investment advisory services to AIG and Fortitude Re (through AMG) with respect to significant asset portfolios. Investment advisory services currently provided to AIG are primarily rendered to AIG’s General Insurance subsidiaries. There will be a reduction in asset management services that we provide to AIG, which is expected to result in a decrease in our revenues. See “Certain Relationships and Related Party Transactions—Historical Related Party Transactions—Advisory Services.” We may be unable to reduce our expenses in a timely manner, or at all, to offset such decrease in our revenues. Additionally, beginning in June 2023, Fortitude Re will have certain rights to replace AMG as asset manager with respect to the funds withheld assets in connection with the reinsurance to Fortitude Re. If, in addition to the expected changes to the investment advisory services we currently provide to AIG, Fortitude Re were to materially change or terminate the investment management agreements in place with AMG, it could further disrupt our investment advisory capabilities, including as a result of the loss of our AUMA and investment management personnel and a reduction in management fees received by AMG, which could in turn result in a material adverse effect on our business, results of operations, financial condition and liquidity.
Changes in accounting principles and financial reporting requirements will impact our consolidated results of operations and financial condition.
Our financial statements are prepared in accordance with GAAP, which are periodically revised. Accordingly, from time to time, we are required to adopt new or revised accounting standards issued by the Financial Accounting Standards Board (“FASB”).
The FASB has revised the accounting standards for certain long-duration insurance contracts. The FASB issued Accounting Standards Update (ASU) No. 2018-12 — Targeted Improvements to the Accounting for Long-Duration Contracts, which has an effective date of January 1, 2023 and will significantly change the accounting measurements and disclosures for long-duration insurance contracts under GAAP. The most significant adjustments are expected to be (i) changes related to market risk benefits in our Individual Retirement and Group Retirement segments, including the impact of non-performance adjustments, (ii) changes to the discount rate, which will most significantly impact our Life Insurance and Institutional Markets segments, and (iii) the removal of balances recorded in GAAP Corebridge shareholders’ equity, excluding accumulated other comprehensive income (“AOCI”) related to changes in unrealized appreciation (depreciation) on investments. Changes to the manner in which we account for long-duration products has and will continue to impose special demands on us in the areas of governance, employee training, internal controls and disclosure and affect how we manage our business and our overall costs, all of which will impact our consolidated results of operations, liquidity and financial condition. In addition, implementation of the changes could impact our products, in-force management and asset liability management strategies and have other implications on operations and technology. For further discussion of the impact of these changes, see “Management’s Discussion and Analysis—Executive Summary—Significant Factors Impacting Our Results—Targeted Improvements to the Accounting for Long-Duration Contracts” and Note 2 to our audited consolidated financial statements.
We continue to evaluate the implementation of ASU No. 2018-12 and expect the adoption of this standard will impact our financial condition, results of operations and statement of cash flows and disclosures, as well as our systems, processes and controls. We currently estimate that the January 1, 2021 transition date (“Transition
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Date”) impact from adoption is likely to result in a decrease in the Company’s equity between approximately $1.0 billion and $3.0 billion. In addition, we expect the newly issued standard to negatively impact the level of investor interest in our sector.
Our foreign operations expose us to risks that affect our operations.
We provide individual and group life insurance, health insurance and other financial products and services to individuals and businesses in the UK, Ireland and Bermuda.
Operations outside the United States have in the past been, and may in the future be, affected by regional economic downturns, changes in foreign currency exchange rates, availability of locally denominated assets to match locally originated liabilities, political events or upheaval, nationalization and other restrictive government or regulatory actions, which could also materially and adversely affect our business, results of operations, financial condition and liquidity.
In addition, we and our subsidiaries are subject to various extraterritorial laws and regulations, including such laws adopted by the United States that affect how we do business globally. These laws and regulations may conflict and we may incur penalties and/or reputational harm if we fail to adhere to them. For example, increased international data localization and cross-border data transfer regulatory restrictions as well as developments in economic sanctions regimes may affect how we do business globally and may cause us to incur penalties and/or suffer reputational harm.
The exact impact of market risks faced by our foreign operations is uncertain and difficult to predict and respond to, particularly in the light of the UK’s decision to withdraw its membership in the EU (“Brexit”) and potential changes to the UK regulatory regime on financial services following Brexit. Our foreign businesses could be impacted by adverse outcomes from the EU’s equivalence deliberations, legal challenge to the EU’s data adequacy decision and retaliatory action in the event of non-compliance by either party to the Trade and Co-operation Agreement, which could have a material impact on the regulatory and legal framework within which our UK and European business lines operate.
Our UK and EU subsidiaries’ business could be adversely affected as a result of Brexit and the lack of agreement on financial services between the UK and the EU.
Business or asset acquisitions and dispositions may expose us to certain risks.
We have made acquisitions in the past and may pursue further acquisitions or other strategic transactions, including reinsurance, dispositions and joint ventures, in the future. The completion of any business or asset acquisition or disposition is subject to certain risks, including those relating to the receipt of required regulatory approvals, the terms and conditions of regulatory approvals, including any financial accommodations required by regulators, our ability to satisfy such terms, conditions and accommodations, the occurrence of any event, change or other circumstances that could give rise to the termination of a transaction and the risk that parties may not be willing or able to satisfy the conditions to a transaction. As a result, there can be no assurance that any business or asset acquisition or disposition will be completed as contemplated, or at all, or regarding the expected timing of the completion of the acquisition or disposition.
Once we complete acquisitions or dispositions, there can be no assurance that we will realize the anticipated economic, strategic or other benefits of any transaction. For example, the integration of businesses we acquire may not be as successful as we anticipate, or there may be undisclosed risks present in such businesses. Acquisitions involve a number of risks, including operational, strategic, financial, accounting, legal, compliance and tax risks, including difficulties in assimilating and retaining employees and intermediaries, difficulties in retaining the existing customers of the acquired entities, unforeseen liabilities that arise in connection with the acquired businesses, unfavorable market conditions that could negatively impact our expectations for the acquired businesses, as well as difficulties in integrating and realizing the projected results of acquisitions and managing the litigation and regulatory matters to which acquired entities are party. Such difficulties in integrating an acquired business may result in the acquired business performing differently than we expected (including through the loss of customers) or in our failure to realize anticipated expense-related efficiencies. Risks resulting from future acquisitions may have a material adverse effect on our results of operations and financial condition. Similarly, dispositions of a business also involve a number of risks, including operational and technology risks of data loss, loss of talent and stranded costs, which could potentially have a negative impact on our business,
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results of operations, financial condition and liquidity. In connection with a business or asset disposition, we may also hold a concentrated position in securities of the acquirer as part of the consideration, which subjects us to risks related to the price of equity securities and our ability to monetize such securities. In addition, with respect to certain dispositions, we could be subject to restrictions on our use of proceeds. Strategies implemented to explore opportunities for acquisitions could also be materially and adversely affected by the increasingly competitive nature of the life insurance and annuity merger and acquisition market and the increased participation of non-traditional buyers in the life insurance and annuity merger and acquisition market. In addition, we have provided and may provide financial guarantees and indemnities in connection with the businesses we have sold or may sell, as described in greater detail in Note 15 to the audited consolidated financial statements. While we do not currently believe that claims under these indemnities will be material, it is possible that significant indemnity claims could be made against us. If such a claim or claims were successful, it could have a material adverse effect on our results of operations, cash flows and liquidity.
Changes in U.S. federal income or other tax laws or the interpretation of tax laws could affect sales of our products and our profitability.
Changes in tax laws could reduce demand in the United States for life insurance and annuity contracts, which could reduce our income due to lower sales of these products or changes in customer behavior, including potential increased surrenders of in-force business.
Changes in tax laws could also impact the taxation of our operations. For example, recent proposals to increase corporate taxes could adversely impact our business. It remains difficult to predict whether or when tax law changes or interpretations will be issued by U.S. or foreign taxing authorities or whether any such issuances will have a material adverse effect on our business, results of operations, financial condition and liquidity.
We may not be able to protect our intellectual property and may be subject to infringement claims.
We rely on a combination of contractual rights and copyright, trademark, patent and trade secret laws to establish and protect our intellectual property. Effective intellectual property rights protection may be unavailable, limited, or subject to change in some countries where the Company does or plans to do business. Although we use a broad range of measures to protect our intellectual property rights, third parties may infringe or misappropriate our intellectual property. We have, and may in the future, litigate to enforce and protect our intellectual property and to determine its scope, validity or enforceability, which could divert significant resources and may not prove successful. Litigation to enforce our intellectual property rights may not be successful and cost a significant amount of money. The loss of intellectual property protection or the inability to secure or enforce the protection of our intellectual property assets could harm our reputation and have a material adverse effect on our business and our ability to compete. Third parties may have, or may eventually be issued, patents or other protections that could be infringed by our products, methods, processes or services or could limit our ability to offer certain product features. Consequently, we also may be subject to costly litigation in the event that another party alleges our operations or activities infringe upon their intellectual property rights, including patent rights, or violate license usage rights. Any such intellectual property claims and any resulting litigation could result in significant expense and liability for damages, and in some circumstances we could be enjoined from providing certain products or services to our customers, or utilizing and benefiting from certain patents, copyrights, trademarks, trade secrets or licenses, or alternatively could be required to enter into costly licensing arrangements with third parties, all of which could have a material adverse effect on our business, consolidated results of operations and financial condition.
Risks Relating to Regulation
Our business is heavily regulated and changes in laws and regulations may affect our operations, increase our insurance subsidiary capital requirements or reduce our profitability.
Our operations generally, and certain of our subsidiaries in particular, are subject to extensive and potentially conflicting laws and regulations in the jurisdictions in which we operate. For example, our products are subject to a complex and extensive array of state and federal tax, securities, insurance and employee benefit plan laws and regulations, which are administered and enforced by a number of different governmental and self-regulatory authorities, including state insurance regulators, banking authorities and securities administrators, including the New York Department of Financial Services (“DFS”), the SEC, the Financial Industry Regulatory
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Authority (“FINRA”), the Department of Labor (the “DOL”) and the Internal Revenue Service (the “IRS”). Our business and financial condition are also subject to supervision and regulation by authorities in the various jurisdictions in which we do business. Federal, state and foreign regulators also periodically review and investigate our insurance business, including life-and-annuity-specific and industry-wide practices. The primary purpose of insurance regulation is the protection of our insurance policyholders and contract holders rather than our investors. The extent of domestic regulation on our insurance business varies, but generally is governed by state statutes that delegate regulatory, supervisory and administrative authority to state insurance departments. In addition, federal and state securities laws and regulations apply to certain of our products that are considered “securities” under such laws, including our variable annuity contracts, variable life insurance policies and the separate accounts that issue them, as well as our broker-dealer, investment adviser and mutual funds operations. The laws and regulations that apply to our business and operations generally grant regulatory agencies and/or self-regulatory organizations broad rule-making and enforcement powers, including the power to regulate the issuance, sale and distribution of our products, the manner in which we underwrite our policies, the delivery of our services, the nature or extent of disclosures required to be given to our customers, the compensation of our distribution partners, the manner and methods by which we handle claims on our policies and the administration of our policies and contracts, the terms of and entry into certain inter-affiliate arrangements between our insurance company subsidiaries and other affiliates, as well as the power to limit or restrict the conduct of business for failure to comply with applicable laws and regulations. We and our distributors are also subject to laws and regulations governing the standard of care applicable to sales of our products, the provision of advice to our customers and the manner in which certain conflicts of interest arising from or related to such sales or giving of advice are to be addressed. In recent years, many of these laws and regulations have been revised or reexamined while others have been newly adopted or are under consideration. These changes and/or adoptions have resulted in increased compliance obligations and costs for us and certain of our distributors or plan sponsors may require changes to existing arrangements, some or all of which could impact our business, results of operations, financial condition and liquidity. Additionally, there have been a number of investigations regarding the marketing practices of brokers and agents selling annuity and insurance and investment products and the payments they receive. Sales practices and investor protection have also increasingly become areas of focus in regulatory exams. These investigations and exams have resulted in, and may in the future result in, enforcement actions against companies in our industry and brokers and agents marketing and selling those companies’ products.
See “Business—Regulation—U.S. Regulation” for further discussion of the regulatory regimes we are subject to, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) and the standard of care-related regulations administered by the DOL.
Significant legislative and regulatory activity has occurred at both the U.S. federal and state levels, as well as globally, in response to the COVID-19 pandemic and its impact on insurance consumers. While some of these legislative and regulatory initiatives have expired, any resurgence of the COVID-19 virus may lead to a renewal of those initiatives. 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. We continue to actively monitor these developments and to cooperate fully with all government and regulatory authorities as they develop their responses.
We strive to comply with laws and regulations applicable to our business, products, operations and legal entities, including maintenance of all required licenses and approvals. The application of and compliance with such laws and regulations may be subject to interpretation, evolving industry practices and regulatory expectations that could result in increased compliance costs. The relevant authorities may not agree with our interpretation of these laws and regulations, including, for example, our implementation of new or revised requirements related to capital, accounting treatment or reserving such as those governing PBR, or with our policies and procedures adopted to underwrite or administer our policies and contracts or address evolving industry practices or meet regulatory expectations. Such authorities’ interpretation and views may also change from time to time. It is also possible that the laws, regulations and interpretations across various jurisdictions in which we do business may conflict with one another and affect how we do business in the United States and globally. If we are found not to have complied with applicable legal or regulatory requirements, these authorities could preclude or temporarily suspend us from carrying on some or all of our activities, impose substantial administrative penalties such as fines or require corrective actions to be taken, which individually or in the aggregate could interrupt our operations and materially and adversely affect our reputation, business, results of
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operations, financial condition and liquidity. Additionally, if such authorities’ interpretation of requirements related to new or changes in capital, accounting treatment and/or valuation manual or reserving (such as PBR) materially differs from ours, we may incur higher operating costs or sales of products subject to such requirement or treatment may be affected.
We also strive to maintain all required licenses and approvals. Licensing regulations differ as to products and jurisdictions. Regulatory authorities have relatively broad discretion to grant, renew or revoke licenses and approvals, and licensing regulations may be subject to interpretation as to whether certain licenses are required with respect to the manner in which we may solicit and sell some of our products in certain jurisdictions. The complexity of multiple regulatory frameworks and interpretations may be heightened in the context of products that are issued through our Institutional Markets business, including our PRT products, where one product may cover risks in multiple jurisdictions. If we do not have the required licenses and approvals, these authorities could preclude or temporarily suspend us from carrying on some or all of our activities or impose substantial fines. Further, insurance regulatory authorities have relatively broad discretion to issue orders of supervision, which permit them to apply enhanced supervision to the business and operations of an insurance company.
In the United States, the RBC formula is designed to measure the adequacy of an insurer’s statutory surplus in relation to the risks inherent in its business. Regulators in other jurisdictions in which we do business have adopted capital and liquidity standards applicable to insurers and reinsurers operating in their jurisdiction. Failure to comply with such RBC capital, liquidity and similar requirements set forth in law or regulation, or as otherwise may be agreed by us or one of our insurance company subsidiaries with an insurance regulator, would generally permit the insurance regulator to take certain regulatory actions that could materially impact the affected company’s operations. Those actions range from requiring an insurer to submit a plan describing how it would regain a specified RBC ratio to a mandatory regulatory takeover of the company. The NAIC and the International Association of Insurance Supervisors (the “IAIS”) are also developing and testing methodologies for assessing group-wide regulatory capital, which might evolve into more formal group-wide capital requirements on certain insurance companies and/or their holding companies that may augment state-law RBC standards, and similar international standards, that apply at the legal entity level, and such capital calculations may be made, in whole or in part, on bases other than the statutory statements of our insurance subsidiaries. We cannot predict the effect these initiatives may have on our business, results of operations, financial condition and liquidity.
Additionally, certain of our subsidiaries are subject to certain laws in relation to our investment management agreements. Under such laws, most notably the Investment Company Act of 1940, as amended (the “Investment Company Act”), and the Investment Advisers Act of 1940, as amended (the “Advisers Act”), certain of our subsidiaries' investment management agreements require approval or consent from clients and fund shareholders, including funds registered under the Investment Company Act, in the event of an assignment of the investment management agreements or a change in control of the relevant investment adviser. If a transaction, including future sales of our common stock by AIG, resulted in an assignment or change in control, the inability to obtain consent or approval from advisory clients or shareholders of funds registered under the Investment Company Act or other investment funds could result in a significant reduction in advisory fees earned by us or a disruption in the management of the fund clients.
The degree of regulation and supervision in foreign jurisdictions varies. Our subsidiaries operating in the UK, Bermuda and Ireland must satisfy local regulatory requirements and it is possible that local licenses may require us to meet certain conditions. Licenses issued by foreign authorities to our subsidiaries are subject to modification and revocation. Accordingly, our insurance subsidiaries could be prevented from conducting future business. Adverse actions from foreign jurisdictions in which these subsidiaries currently operate could materially and adversely affect our business, results of operations, financial condition and liquidity, depending on the magnitude of the event and our financial exposure at that time in those jurisdictions.
See “Business—Regulation—International Regulation” for further discussion of the regulatory regimes we are subject to outside the United States.
If Corebridge were deemed to be an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for Corebridge to continue its business as contemplated and could have a material adverse effect on its business, results of operations and financial condition.
Corebridge is not, and following this offering will not be, required to be registered as an “investment company” under the Investment Company Act, and Corebridge intends to conduct its operations so that it will
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not be deemed to be an investment company under the Investment Company Act. The Investment Company Act and the rules and regulations thereunder contain detailed parameters for the organization and operation of investment companies. If Corebridge were to be deemed to be an investment company under the Investment Company Act, requirements imposed by the Investment Company Act, including limitations on Corebridge’s capital structure, ability to transact business with affiliates and ability to compensate key employees, would make it impractical for Corebridge to continue its business as currently conducted, impair the agreements and arrangements between and among Corebridge and its clients, and materially and adversely affect Corebridge’s business, results of operations and financial condition.
New laws and regulations, or new interpretations of current laws and regulations, both domestically and internationally, may affect our business, results of operations, financial condition, liquidity and ability to compete effectively.
Legislators, regulators and self-regulatory organizations have in the past and may in the future periodically consider various proposals that may affect or restrict, among other things, our business practices, underwriting methods and data utilization, product designs and distribution relationships, how we market, sell or service certain products we offer, our capital, reserving and accounting requirements, price competitiveness of the products we sell and consumer demand for our products or the profitability of certain of our business lines. For example, our life insurance and annuity products provide the customer with certain federal income tax advantages. A tax law change that eliminates all or a portion of these advantages may reduce the demand from consumers for our products and change the likelihood of customers surrendering or rolling over existing contracts.
Further, new laws and regulations may even affect or significantly limit our ability to conduct certain business lines at all, including proposals relating to restrictions on the type of activities in which financial institutions, including insurance companies in particular, are permitted to engage, as well as the types of investments we hold or divest. For example, regulators have shown continued interest in how the financial services industry, including insurance companies, are managing climate risk within their business operations and investment portfolios. Resulting actions by governments, regulators and international standard setters could lead to additional reporting obligations concerning investment holdings that are exposed to climate change-related risk. They could also lead to substantial additional laws or regulations that limit or restrict investments in certain assets, such as thermal coal or other carbon-based investments, and impose additional compliance costs. As another example, rules on defined benefit pension plan funding may reduce the likelihood of, or delay corporate plan sponsors in, terminating their plans or engaging in transactions to partially or fully transfer pension obligations. This could affect the mix of our PRT and increase non-guaranteed funding products.
It is also difficult to predict the impact laws and regulations adopted in foreign jurisdictions may have on the financial markets generally or our business, results of operations or cash flows. It is possible such laws and regulations may significantly alter our business practices.
New proposals or changes in legislation or regulation could impose additional taxes on a limited subset of financial institutions and insurance companies (either based on size, activities, geography or other criteria), limit our ability to engage in capital or liability management, require us to raise additional capital, and impose burdensome requirements and additional costs. It is uncertain whether and how these and other such proposals, or changes in legislation or regulation, would apply to us, those who sell or service our products or our competitors or how they could impact our ability to compete effectively, as well as our business, results of operations, financial condition and liquidity.
The USA PATRIOT Act, the Foreign Corrupt Practices Act, the regulations administered by the U.S. Department of the Treasury, Office of Foreign Assets Control and similar laws and regulations that apply to us may expose us to significant penalties.
As a company that operates internationally, we are subject to myriad regulations which govern items such as sanctions, bribery and anti-money laundering, for which failure to comply exposes us to significant penalties. The USA PATRIOT Act of 2001 requires companies to know certain information about their clients and to monitor their transactions for suspicious activities. The Foreign Corrupt Practices Act makes it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Also, the Department of the Treasury’s Office of Foreign Assets Control administers
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regulations that restrict or prohibit dealings within U.S. jurisdiction involving certain organizations, individuals, countries, and financial products. The UK, the EU and other jurisdictions maintain similar laws and regulations. Such laws may change rapidly, as demonstrated by the significant sanctions imposed against Russia, resulting from the current conflict in Ukraine, which may pose compliance challenges and adversely impact our business and the business of our customers. The laws and regulations of other jurisdictions may sometimes conflict with those of the U.S. Despite meaningful measures to ensure lawful conduct, which include training, audits and internal control policies and procedures, we may not always be able to prevent our employees or third parties acting on our behalf from violating these laws. As a result, we could be subject to criminal and civil penalties as well as disgorgement. We could be required to make changes or enhancements to our compliance measures that could increase our costs, and we could be subject to other remedial actions. Violations of these laws or allegations of such violations could disrupt our operations, cause reputational harm, cause management distraction and result in a material adverse effect on our competitive position, results of operations, financial condition or liquidity.
Risks Relating to Estimates and Assumptions
Estimates or assumptions used in the preparation of financial statements and modeled results used in various areas of our business may differ materially from actual experience.
Our financial statements are prepared in conformity with GAAP, which requires the application of accounting policies that often involve a significant degree of judgment. The accounting policies that we consider most dependent on the application of estimates and assumptions, and therefore may be viewed as critical accounting estimates, are described in Note 2 to our audited consolidated financial statements and “Management’s Discussion and Analysis of Results of Operations and Financial Condition—Critical Accounting Estimates.” These accounting estimates require the use of assumptions, some of which are highly uncertain at the time of estimation. These estimates are based on judgment, current facts and circumstances and, when applicable, internally developed models. Therefore, actual results may differ from these estimates, possibly in the near term, and could have a material effect on our financial statements.
In addition, we employ models to price products, calculate future policy benefits and value assets and execute hedging strategies, as well as to assess risk and determine capital requirements, among other uses. These models are complex and rely on estimates and projections that are inherently uncertain, may use incomplete, outdated or incorrect data or assumptions and may not operate properly. For example, significant changes in mortality, which could be impacted by natural or man-made disasters, or which could emerge gradually over time due to changes in the natural environment, significant changes in policyholder behavior assumptions such as lapses, surrenders and withdrawal rates as well as the amount of withdrawals, fund performance, equity market returns and volatility, interest rate levels, the health habits of the insured population, technologies and treatments for disease or disability, the economic environment, or other factors could negatively impact our assumptions and estimates. To the extent that any of our modeling practices do not accurately produce, or reproduce, data that we use to conduct any or all aspects of our business, such errors may negatively impact our business, reputation, results of operations and financial condition.
This prospectus contains reserves and cash flow projections, which are based on certain assumptions and estimates, including as to market conditions, policyholder behavior, future experience, performance of our hedging program and returns on our investment portfolio. Our actual experience in the future may deviate from our assumptions and estimates and may impact our reserves, earnings, liquidity and capitalization and may increase the volatility of our results and expose us to increased counterparty risk.
Our reserves and cash flow projections set forth in this prospectus are based on certain assumptions and estimates, including as to market conditions, policyholder behavior, future experience, performance of our hedging program and returns on our investment portfolio. These forward-looking statements are estimates and are not intended to predict the future financial performance of our variable annuity hedging program or to represent an opinion of market value.
We present a sensitivity analysis of the estimated cash flows, assets and liabilities associated with our in-force variable annuity business in this prospectus. See “Business—Our Segments—Individual Retirement—Supplemental Information on Our In-Force Variable Annuity Business.” The scenarios represented in our sensitivity analysis were selected for illustrative purposes only and they do not purport to encompass all of the many factors that may bear upon a market value and are based on a series of assumptions as to the future. It
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should be recognized that actual future results may differ from those shown, on account of changes in the operating and economic environments and natural variations in experience. The results shown are presented as of June 30, 2021 and have not been updated to reflect our assets, changes in interest rates, equity market movements or certain other assumptions as of December 31, 2021 or any other more current date, and any such update could result in material changes to the amounts presented. In addition, there can be no assurance that future experience will be in line with the assumptions made.
The policyholder behavior assumptions embedded in our cash flow sensitivities represent our current best estimate for our in-force business. The following policyholder options are examples of those included in our sensitivities: lapse, partial lapse, dollar-for-dollar withdrawals and voluntary annuitizations. These assumptions are dynamic and vary depending on the net annualized return of the contract and our expectation of how a customer will utilize their embedded options across the various scenarios. A change in our cash flows could result to the extent emerging experience deviates from these policyholder assumptions.
Our productivity improvement initiatives may not yield our expected expense reductions and improvements in operational and organizational efficiency.
We see opportunities to improve profitability across our businesses through operating expense reductions. We may not be able to fully realize the anticipated expense reductions and operational and organizational efficiency improvements we expect to result from our productivity improvement program and associated initiatives to, among other things, modernize our technology infrastructure, optimize our operating model, expand existing partnership arrangements, optimize our vendor relationships or rationalize our real estate footprint. In addition, we intend to evolve our investments organization, which we expect will create additional efficiencies, to reflect our relationships with key external partners, our expected implementation of BlackRock’s “Aladdin” investment management technology platform and our expected reduction in fees from AIG for asset management services. Actual costs to implement these initiatives may exceed our estimates, or we may be unable to fully implement and execute these initiatives as planned. Further, the implementation of these initiatives may harm our relationships with customers or employees or our competitive position, thereby materially and adversely affecting our business, results of operations, financial condition and liquidity. The successful implementation of these initiatives may require us to effect technology enhancements, business process outsourcing, rationalizations, modifications to our operating model, and other actions, which depend on a number of factors, some of which are beyond our control.
If our business lines do not perform well and/or their estimated fair values decline, we may be required to recognize an impairment of our goodwill or establish an additional valuation allowance against the deferred income tax assets, which could have a material adverse effect on our results of operations and financial condition.
Goodwill represents the excess of the amounts we paid to acquire subsidiaries and other businesses over the fair value of their net assets at the date of acquisition. We test goodwill at least annually for impairment and conduct interim qualitative assessments on a periodic basis. Impairment testing is performed based upon estimates of the fair value of the “reporting unit” to which the goodwill relates. In 2021, for substantially all of the reporting units, we elected to bypass the qualitative assessment of whether goodwill impairment may exist and, therefore, performed quantitative assessments that supported a conclusion that the fair value of all of the reporting units tested exceeded their book value. The fair value of the reporting unit is impacted by the performance of the business and could be adversely impacted if new business, customer retention, profitability or other drivers of performance differ from expectations, or upon the occurrence of certain events, including a significant and adverse change in regulations, legal factors, accounting standards or business climate, or an adverse action or assessment by a regulator. Our goodwill balance was $186 million as of March 31, 2022. If it is determined that goodwill has been impaired, we must write down goodwill by the amount of the impairment, with a corresponding charge to net income (loss). These write-downs could have a material adverse effect on our consolidated results of operations, liquidity and financial condition. For further discussion regarding goodwill impairment, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition—Critical Accounting Estimates—Allowance for Credit Losses and Goodwill Impairment—Goodwill Impairment” and Note 11 to the audited consolidated financial statements.
Deferred income tax represents the tax effect of the differences between the book and tax basis of assets and liabilities. Deferred tax assets are assessed periodically by management to determine if they are realizable. As of
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March 31, 2022, we had net deferred tax assets, after valuation allowance, of $5.9 billion related to federal, foreign, and state and local jurisdictions. The performance of the business, the geographic and legal entity source of our income, tax planning strategies, and the ability to generate future taxable income from a variety of sources and planning strategies including capital gains, are factored into management’s determination. If, based on available evidence, it is more likely than not that the deferred tax asset will not be realized, then a valuation allowance must be established with a corresponding charge to profitability, which such action we have taken from time to time. Such charges could have a material adverse effect on our consolidated results of operations, liquidity and financial condition. For further discussion regarding deferred tax assets, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition—Critical Accounting Estimates—Income Taxes—Recoverability of Net Deferred Tax Asset” and Note 20 to the audited consolidated financial statements.
Risks Relating to Competition and Employees
Competition for employees in our industry is intense, and managing key employee succession is critical to our success. We may not be able to attract and retain the key employees and highly skilled people we need to support our business.
Our success depends, in large part, on our ability to attract and retain key people, which may be difficult due to the intense competition in our industry for key employees with demonstrated ability. Recruiting and retention of talent has become especially challenging in the current employment market, fueled in part by changes due to the COVID-19 pandemic. In addition, we may experience higher than expected employee turnover and difficulty attracting new employees as a result of uncertainty from strategic actions and organizational and operational changes, including our separation from AIG. Losing any of our key people, including key sales or business personnel, could also have a material adverse effect on our operations given their skills, knowledge of our business, years of industry experience and the potential difficulty of promptly finding qualified replacement employees. Additionally, we may face increased costs if, as a result of the competitive market and recent inflationary pressures, we must offer and pay a greater level of remuneration to attract or replace certain critical employees or hire contractors to fill highly skilled roles while vacant. Our business, consolidated results of operations, financial condition and liquidity could be materially adversely affected if we are unsuccessful in attracting and retaining key employees.
In addition, we could be adversely affected if we fail to adequately plan for the succession of our senior management and other key employees. While we have succession plans and long-term compensation plans designed to retain our employees, our succession plans may not operate effectively and our compensation plans cannot guarantee that the services of these employees will continue to be available to us.
Employee error and misconduct may be difficult to detect and prevent and may result in significant losses.
There have been a number of cases involving fraud or other misconduct by employees in the financial services industry in recent years and we are also exposed to the risk that employee misconduct could occur. Our human resources and compliance departments work collaboratively to monitor for fraud and conduct extensive training for employees. However, employee misconduct may still occur. Instances of fraud, illegal acts, errors, failure to document transactions properly or to obtain proper internal authorization, misuse of customer or proprietary information or failure to comply with regulatory requirements or our internal policies may result in losses and/or reputational damage.
Risks Relating to Our Investment Managers
We rely on our investment management or advisory agreements with Blackstone IM, and the related commitment letter, for the management of portions of certain of our life insurance companies’ investment portfolios. Limitations on our ability to terminate or amend such arrangements may also adversely affect our results of operations or financial condition.
On November 2, 2021, we entered into a commitment letter (the “Commitment Letter”) with Blackstone IM, and, for limited purposes, AIG, pursuant to which we delivered by December 31, 2021 $50 billion of our life insurance company subsidiaries’ existing investment portfolios for Blackstone to manage, with that amount increasing by $8.5 billion in each of the next five years beginning in the fourth quarter of 2022 for an aggregate of $92.5 billion by the third quarter of 2027. See “Certain Relationships and Related Party Transactions—Partnership with Blackstone.” Such arrangements are expected to lead to an increase in investment
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management fees payable by us, as compared to the expenses we would have historically incurred for similar services. To the extent that we fail to deliver the required assets by the requisite quarterly deadlines, we would still owe investment management fees on the full amount of the required assets.
Any of our insurance company subsidiaries may terminate any sub-manager agreement between a sub-manager and it and/or Blackstone IM (“Sub-Manager Agreement”), as applicable, or a SMA in certain specified circumstances, as described in more detail under “Certain Relationships and Related Party Transactions—Partnership with Blackstone,” without the applicable insurance company subsidiary or Corebridge being required to continue paying investment management fees. In addition to these termination provisions, either Blackstone IM, on the one hand, or the applicable insurance company subsidiary, on the other hand, may terminate any individual SMA at any time upon 30 days’ advance written notice. The insurance companies do not owe any damages upon termination of an SMA, and Blackstone IM has no remedies against the insurance companies. However, in the case of termination by the applicable insurance company subsidiary for any reason not contemplated in the specified circumstances referred to above, Corebridge may be required to continue paying investment management fees. Corebridge may not have the funds available to pay any such fees and its insurance company subsidiaries may not be able or permitted to pay dividends or make other distributions to Corebridge in an amount sufficient to pay any such fees or at all. Any requirement to pay such fees may adversely affect our business, results of operations, financial condition and liquidity.
Pursuant to agreements with our insurance regulators in Missouri, New York and Texas, we may not amend the terms of the Commitment Letter or any SMA to which any of our U.S. insurance company subsidiaries are a party, or enter into any new agreement between us or any of our U.S. insurance company subsidiaries, on the one hand, and Blackstone or its affiliates, on the other hand, affecting any U.S. insurance company subsidiary’s operations, without the prior approval of such insurance company’s domestic regulator. Accordingly, we may be limited in our ability to renegotiate terms of the SMA arrangements, which could adversely affect our business, results of operations, financial condition and liquidity.
Blackstone IM and its sub-manager affiliates depend in large part on their ability to attract and retain key people, including senior executives, finance professionals and information technology professionals. Intense competition exists for key employees with demonstrated ability, and Blackstone IM and its sub-manager affiliates may be unable to hire or retain such employees. Accordingly, the loss of services of one or more of the members of Blackstone IM’s or its sub-manager affiliates’ senior management could delay or prevent Blackstone IM from fully implementing our investment strategy and, consequently, significantly and negatively impact our business. The unexpected loss of members of Blackstone IM’s or its sub-managers affiliates’ senior management or other key employees could have a material adverse effect on Blackstone IM’s operations due to the loss of such management’s or employees’ skills and knowledge, and could adversely impact Blackstone IM’s ability to execute key operational functions and, accordingly, our investment portfolio and results of operations.
Our exclusive third-party investment management arrangements with Blackstone IM in relation to certain asset classes may limit our investment opportunity and disposition opportunities and prevent us from retaining investment managers that may achieve better investment results.
Under our Commitment Letter with Blackstone IM, Blackstone IM serves as the exclusive external investment manager for our life insurance company subsidiaries, other than The U.S. Life Insurance Company in the City of New York, for the following asset classes (subject to certain exclusions, including for assets subject to previously existing investment management relationships): non-agency residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”); collateralized loan obligations (“CLOs”), leveraged loans, commercial mortgage loans (“CMLs”) and residential mortgage loans (“RMLs”); asset-backed whole loans and direct lending; project finance; private high-grade assets; and alternatives (including equity real estate). Further, the Commitment Letter contemplates that any future insurance company subsidiaries of ours will also be subject to an SMA appointing Blackstone IM as the exclusive external investment manager for such asset classes. As a result, when pursuing acquisitions of insurers or blocks of insurance business, we will need to structure any such acquisition to comply with the exclusivity provisions in the Commitment Letter, which may include foregoing certain investments in assets controlled by competitors of Blackstone IM. These restrictions could limit our investment opportunities or reduce the expected
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benefits of pursuing such acquisitions. The Commitment Letter also provides that a change of ownership or control of a life insurance company subsidiary will not give rise to termination rights under the Commitment Letter or any SMA, which could diminish the acquisition interest of certain potential acquirers of our subsidiaries or businesses.
Blackstone IM’s ability to allocate and invest our assets across a range of suitable investment opportunities, including, where applicable, in direct investments and investments in or alongside funds managed by Blackstone or its affiliates across a range of strategies, may be limited in certain circumstances due to compliance with the SMAs (including the investment and allocation guidelines thereunder) or the Commitment Letter. There is also a risk that Blackstone IM will be unable to fully invest our assets because of such limitations.
Additionally, the exclusivity provisions in the Commitment Letter may prevent our life insurance company subsidiaries from retaining other external investment managers with respect to the subject asset classes who may produce better returns on investments than Blackstone IM. These exclusivity provisions do not, however, prevent our life insurance company subsidiaries from engaging a wholly owned subsidiary of Corebridge to act as investment manager with respect to the subject asset classes.
The historical performance of AMG, Blackstone IM, BlackRock or any other asset manager we engage should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on our common shares.
Our investment portfolio’s returns have benefited historically from investment opportunities and general market conditions that may not currently exist and may not be repeated, and there can be no assurance that AMG, Blackstone IM and BlackRock will be able to avail themselves of profitable investment opportunities in the future. In addition, Blackstone IM and BlackRock are compensated based solely on our assets which they manage, rather than by investment return targets, and as a result, Blackstone IM and BlackRock are not directly incentivized to maximize investment return targets. Accordingly, there can be no guarantee that Blackstone IM, BlackRock or AMG will be able to achieve any particular returns for our investment portfolio in the future.
Increased regulation or scrutiny of alternative investment advisers, arrangements with such investment advisers and investment activities may affect Blackstone IM’s, BlackRock’s, AMG’s or, if engaged, any other asset manager's ability to manage our investment portfolio or affect our business reputation.
The regulatory environment for investment managers is evolving, and changes in the regulation of investment managers may adversely affect the ability of Blackstone IM, BlackRock or AMG to effect transactions that utilize leverage or pursue their strategies in managing our investment portfolio. In addition, the securities and futures markets are subject to comprehensive statutes, regulations and margin requirements. The Securities and Exchange Commission (“SEC”), other regulators and self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies. Due to our reliance on these relationships in particular to manage a significant portion of our investment portfolio, any regulatory action or enforcement against Blackstone IM, BlackRock or their sub-manager affiliates could have an adverse effect on our financial condition.
Risks Relating to Our Separation from AIG
Following the completion of this offering, we may fail to replicate or replace functions, systems and infrastructure provided by AIG or certain of its affiliates (including through shared service contracts) or lose benefits from AIG’s global contracts, and AIG may fail to perform the services provided for in the Transition Services Agreement. We also expect to incur incremental costs as a stand-alone public company.
Historically, we have received services from AIG and have provided services to AIG, including information technology and information security services, services that support financial reporting and budgeting, enterprise risk management, risk and audit management, compliance services, human resources services, insurance, corporate communications and public relations and other support services, primarily through shared services contracts with various third-party service providers. AIG currently performs or supports many important corporate functions for our operations, including finance, controllership, tax, treasury, investor relations, advertising and brand management, corporate audit, certain risk management functions, corporate insurance, corporate governance and other services. Our financial statements reflect charges for these services. Under the Transition Services Agreement, AIG will agree to continue to provide us with certain services currently provided to us by or through AIG, and we will agree to continue to provide AIG with certain services currently provided
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