Good morning everyone, and welcome to Corebridge Financial's earnings update for the Q4 and full year 2025. Joining me on the call are Marc Costantini, President and Chief Executive Officer, and Elias Habayeb, Chief Financial Officer. We will begin with prepared remarks by Mark and Elias, and then we will take your questions. Today's comments may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations and assumptions. Corebridge's filings with the SEC provide details on important factors that may cause actual results or events to differ materially from those expressed or implied by such forward-looking statements.
Except as required by the applicable securities laws, Corebridge is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change, and you are cautioned to not place undue reliance on any forward-looking statements. Additionally, today's remarks may refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement, and earnings presentation, all of which are available at our website at investors.corebridgefinancial.com. With that, I would now like to turn the call over to Mark and Elias for their prepared remarks. Mark?
Good morning, and thanks for joining us. I want to begin by recognizing Kevin Hogan, who led this business for more than a decade, executed Corebridge's successful launch as a standalone company, and established a solid foundation for future growth. His help through the transition was invaluable and demonstrated a hallmark of his leadership style, his unwavering commitment to the success of his colleagues and company. For me, it's a tremendous honor to lead this great franchise with its noble purpose. Customer needs have never been greater for financial protection, wealth accumulation, and retirements with dignity and confidence. And that means our opportunity to create value for customers and shareholders alike has never been greater. In my remarks this morning, I'd like to recap the company's 2025 performance through a strategic lens and share my early impressions of the company's strengths and opportunities.
I'll turn it over to Elias for additional color on both our Q4 results and the company's 2026 outlook. Corebridge had a strong year in 2025. Earnings per share were up 4% year-over-year, return on average equity was up 20 basis points, and capital return to shareholders was up 13%. To create long-term value for shareholders in our industry, we must demonstrate an ability to grow profitably and generate consistent and growing cash flows from the insurance companies while preserving balance sheet strength. Corebridge did all three. Our growth in 2025 was strong, with sales up 4% to a record $42 billion. We launched our RILA product, MarketLock, in a crowded field and quickly joined the top 10 providers. In fact, we are the only company to have a top 10 position across every major annuity product category.
MarketLock is now available to more than 200 distribution partners across the United States, and we expect continued growth in 2026. Our diverse businesses at Corebridge give us flexibility to adjust our capital allocation between our different offerings based on where risk-adjusted returns are the highest and customer demand is the strongest. An example of that is the higher allocation to our Institutional Markets business in 2025. We grew Institutional Markets sales by 24% overall, led by pension risk transfers and guaranteed investment contracts, to drive both current and future earnings growth. Proactively managing our balance sheet and maintaining financial flexibility are foundational to Corebridge. In 2025, Corebridge executed the industry's largest variable annuity reinsurance transaction to date, the final portions of which closed last month. The transaction de-risked the company's most complex liabilities, and going forward, our legacy liabilities comprise approximately 1% of the balance sheet.
In addition, we finished the year with a Life Fleet RBC ratio above 430% and holding company liquidity of $2.3 billion, both exceeding our targets. Finally, we continue to expand our Bermuda strategy, where we have ceded approximately $20 billion of reserves to date, providing critical financial optionality that helped Corebridge deliver on its financial and strategic goals. Disciplined execution of these levers is essential to driving shareholder value and ensuring resilient cash flows. As promised, the company is returning the substantial majority of the proceeds from the VA reinsurance transaction to shareholders in the form of share repurchases, which helped lift our 2025 payout ratio to 110%. Excluding the VA reinsurance transaction proceeds, we grew our insurance company dividends to the parent by 6% year-over-year, in line with our guidance.
Reflecting our continued confidence in our financial flexibility, we are pleased to report that our board of directors has approved a 4% increase in our Corebridge common stock dividend to $0.25 per share, above the pace of inflation. As Elias will discuss further, we've also taken action to reduce our sensitivity to short-term interest rate movements down nearly 75% since mid-2024. At the 10-week mark in my tenure as CEO, I want to provide some initial thoughts on the business. The four strategic pillars that have guided Corebridge for the past few years remain a useful lens to view the company's prospects, although I am adding a fifth called win with customers. As I've told the team, my focus on delivering a superior customer value proposition cannot be stronger: everything from ongoing product innovation to industry-leading service to a seamless end-to-end digital experience.
As I look at our key strengths and opportunities, I'll begin with the powerful demographic tailwinds that are driving strong customer demand for retirement solutions. Corebridge is well-positioned to meet these needs. I believe our vast distribution network provides us with a clear competitive advantage. The average relationship with our top 25 partners is a quarter-century long, and more than 40% of the annuity sales came from products that have bespoke features tailored for each specific distributor. With many partners, not only are they one of our top distributors, but we are one of their top manufacturers, commanding significant shelf space. I've competed against this distribution powerhouse in the past, and I can tell you how hard it is to replicate. Furthermore, our diversified business model is a proven source of strength.
Our breadth of product and service offerings helps provide more stability to our financial results, allowing us to allocate capital to where returns are the most attractive and demand is the strongest. I also believe Corebridge has an underappreciated critical differentiator that supports growth. Some companies in our space are liability-driven, designing products and then searching for assets to support them. Others are asset-driven, originating attractive opportunities and then finding suitable liabilities. Corebridge excels at both. Another strength is our Bermuda strategy. It is an important lever for growth, profitability, and capital efficiency, and we will continue to take full advantage of it. One area of opportunity is fee-based earnings. We plan to grow them faster to achieve better balance across our sources of earnings. In Group Retirement, for example, there is a tremendous potential to grow wealth management by capturing more IRA rollovers and consolidating household assets.
We have a captive opportunity within and out of planned clients to further expand and deepen our relationship. We believe this alone represents a $30 billion opportunity. But we have some work to do. We are actively investing to significantly enhance customer experience, adding more advisors, and upgrading our digital wealth management capabilities. Collectively, we believe these investments will improve retention levels and grow our wealth management business. I also believe we are striking the right balance between returning capital to shareholders and investing for growth. Our 60%-65% payout ratio rewards shareholders with cash today, while our reinvestment in the business rewards shareholders with cash in the future. Both are important. Since the IPO, the company has successfully reduced expenses with the Corebridge Forward Program, which is a testament to the work the team has done to get ready to compete as a standalone entity.
Going forward, I believe Corebridge must do two things at once: deliver continuous improvement in our operating leverage while also making strategic investments to drive faster growth. We need to invest more to accelerate the pace of digitization, which is essential to improving our productivity as well as our distribution partners' and customers' experience. The easier we are to do business with, the greater the share market we can capture from the demographic surge fueling growth in our industry, all of which adds up to my most important early impression: the significant opportunity Corebridge has to grow faster and more profitably. As we further differentiate our customer value proposition and more fully capitalize on our world-class distribution, we will continue to create sustained shareholder value. In closing, I joined Corebridge because I believe in this franchise and believe we are capable of more than we've ever achieved before.
We have a huge opportunity in front of us. We have hard-to-replicate competitive advantages, and we have a world-class team ready to show what they can do. Finally, as this is his last earnings call, I want to express my heartfelt thanks to Elias. He is an excellent CFO who helped me get under the hood and quickly understand all the moving parts at Corebridge. I wish him all the best in his next chapter. Elias?
Thank you, Mark. Turning to slide 5. Corebridge delivered another quarter with strong financial performance driven by the strategic pillars we have consistently executed on since the IPO. We reported adjusted pre-tax operating income of $760 million, or operating EPS of $1.22, representing a 15% year-over-year increase. This quarter's operating EPS included $0.10 of notable items and $0.07 from alternative investment returns driven by underperformance in real estate equity. Adjusting for these two items, our run-rate operating EPS was $1.19, which represents a 7% year-over-year increase. Finally, our adjusted ROE was 12.5%, an increase of 140 basis points from the Q4 of 2024 and consistent with our goal of 12%-14%. Turning to slide 6. Our core sources of income, excluding notable items, were up 1% year-over-year driven by improved spread and fee income, partially offset by lower underwriting margins.
Fee income, which makes up approximately 20% of our core income sources, improved by 9% driven by increased product fees and growth in assets under management and administration, benefiting primarily from favorable market conditions. Base spread income grew 4% driven by strong sales and general accounts net flows, robust asset origination, and effective portfolio management capabilities. Lastly, underwriting margin, excluding VII and notable items, decreased 10% year-over-year due to lower mortality gains. Our broad suite of retirement and protection offerings allow for the generation of resilient and growing distributable cash flows across a variety of market conditions, which would not have been possible had we been dependent on a single product or channel. Turning to slide 7. Full year 2025 capital return totaled $2.6 billion, including $1.2 billion in the Q4 alone. This brings our annual payout ratio to 110%, or 75% when excluding the VA reinsurance proceeds.
We concluded the year with holding company liquidity exceeding $2.3 billion, supported by $1.3 billion in distributions from our U.S. insurance subsidiaries in the Q4. Next, I'll briefly review a few highlights from each of our businesses, the details of which can be found in the appendix to our earnings presentation. As a reminder, results exclude the impact of VII and notable items where applicable. In Individual Retirement, APTOI increased 3% year-over-year. This was driven by an increase in both spread and fee income, partially offset by higher DAC and non-deferrable commissions due to continued growth in the business. The Fed rate cuts in 2025 contributed to the 6 basis points compression in base spread. Excluding the impact of the rate cuts, the base spread compression in the quarter was marginal.
More importantly, base spread income increased both year-over-year and sequentially, even with the earning of the Fed rate cuts, thanks to continued strong demand for our products. Q4 sales were $4.3 billion. While this reflects some softening due to our pricing discipline and typical year-end seasonality, our full year sales remained strong at $20.6 billion. Net flows for the quarter remained positive at over $600 million, supported by our successful RILA launch, which generated full year sales of $1.9 billion. Surrender activity in the quarter was in line with expectations. Turning to Group Retirement, we continue to see a natural evolution of the business as we adapt to our customers nearing peak retirement age. This key demographic change is driving a purposeful mix shift from spread to fee income, which requires less capital. Accordingly, APTOI decreased 1% year-over-year, reflecting lower base spread income from this demographic evolution.
This is partially offset by growth in fee income, which increased 2% year-over-year. Sales were up 13% year-over-year due to the growth of our RILA product and our out-of-plan offering. Finally, expenses were slightly elevated this quarter due to a modest litigation reserve. In Life Insurance, APTOI declined 30% year-over-year, primarily due to lower underwriting margins. While mortality experience was favorable this quarter, it was less pronounced than the meaningfully more favorable results we saw last year. On a run-rate basis, this quarter results were consistent with our prior guidance of approximately $110-$120 million per quarter, other than the Q1 of each year where mortality experience is the highest. Turning to Institutional Markets, total APTOI was up 8% year-over-year, with full year earnings up 19% from 2024 levels.
There's been significant growth across the business, where reserves grew by 23% year-over-year, driven by attractive opportunities in pension risk transfer transactions and GICs. This demonstrates the strength of our business model as we opportunistically allocated capital to where we saw the highest relative risk-adjusted returns. Lastly, I want to provide additional details regarding our outlook as we enter 2026. We remain committed to delivering on our financial targets, and this reflects our confidence in the strength of the business and its financial performance for the year ahead. We expect to grow our total sources of income for the year on the strengths of our favorable demographic trends, a competitive and diverse product suite, and industry-leading distribution. While our retirement businesses' base spread income will face some pressure from additional Fed rate cuts, that sensitivity is dramatically reduced, as Mark noted.
Specifically, an additional 25 basis points reduction in SOFR will impact operating earnings by $20-$25 million on a go-forward basis. The impact would have been $45 million as of last September. Consistent with prior guidance, we estimate that the base spread compression in Individual Retirement should level off by the end of 2026 based on the latest market outlook, assuming two Fed rate cuts in 2026, our current net flows projection, and investment plans. We also estimate that overall base spread income for the Individual Retirement business will be in the ZIP code of $2.55 billion for 2026. In addition, we expect alternative investment returns to be more in line with our long-term expectations, though we do see some softness in the Q1 from lower real estate equity returns. Next, as Mark mentioned earlier, we see the opportunity to make strategic investments to drive faster growth.
Specifically, investing in digitization and broadening our internal capabilities to improve customer and distribution partner experience. Accordingly, in 2026, we expect the ratio of our operating expenses to normalized run-rate revenues to remain consistent with 2025. This reflects modest growth in our operating expenses in the near term, approximately 4%-5%, or $60 million in operating GOE before the full benefits of these strategic investments begin to be realized. Lastly, our disciplined and proactive balance sheet management has enabled Corebridge to pursue profitable growth while delivering on financial and capital management goals. We've been very disciplined in our buyback program, accelerating our share repurchases to take advantage of dislocations in the market. In the first half of 2026, we expect approximately $900 million worth of share repurchases associated with the VA reinsurance transaction, an amount that's above our normal 60%-65% payout ratio.
As a reminder, our 2026 EPS growth rate will be impacted as we have yet to fully deploy these proceeds. Accounting for all these varying drivers, I want to reiterate that we expect to meet our key financial targets for adjusted ROE, capital return, and run-rate EPS growth, though at the lower end of our targeted range of 10%-15%. We believe the underlying fundamentals of our business remain not only strong but compelling. Looking forward, as we further differentiate our customer value proposition and more fully capitalize on our world-class distribution, we believe we will continue to create, sustain shareholder value, and deliver on our key financial targets. Finally, as this is my final call as Corebridge's CFO, I want to thank my colleagues who've been great partners in this amazing journey that began for me in 2021.
I'm very proud of everything that we have accomplished, and I'm equally excited for what the future holds for Corebridge under Mark's leadership as the company embarks on the next chapter of its story. With that, I will turn the call back to Işıl.
Thank you, Elias. As a reminder, please limit yourselves to one question and one follow-up. Operator, we are now ready to begin the Q&A portion of the call.