Good morning, everyone, and welcome to Corebridge Financial's earnings update for the 1st quarter of 2026. Joining me on the call are Marc Costantini, President and Chief Executive Officer, Christopher Filiaggi, our Interim Chief Financial Officer and Chief Accounting Officer, and Lisa Longino, our Chief Investment Officer. We will begin with prepared remarks by Marc and Chris, 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. You are cautioned to not place undue reliance on any forward-looking statements. Additionally, today's remarks may refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement, and earnings presentation, all of which are available on our website at investors.corebridgefinancial.com. With that, I would now like to turn the call over to Marc and Chris for their prepared remarks. Marc.
Good morning, and thanks for joining us. I'd like to formally welcome our CFO, Christopher Filiaggi, to the call, as well as our Chief Investment Officer, Lisa Longino. I'll begin this morning with a recap on the strategic rationale of our transformative merger with Equitable and an update on progress we've made to date, followed by some observations on the current market environment and on how Corebridge's business model performed in the first quarter. I'll also spotlight some of the actions we're taking to win with customers. Turning to slide three, we are bringing together three outstanding franchises to create a diversified financial services company with leading positions in retirement, life, wealth, and asset management. Together, we will have more than 12 million customers and 1.5 trillion in assets under management and administration. Our combined distribution capabilities will be formidable.
We will have a large multi-channel distribution ecosystem to reach the broadest possible customer base. Our enhanced scale will drive significant synergies, $500 million in expense synergies plus meaningful upside opportunities from additional revenue, tax, and capital synergies. Our greater scale should reduce our cost of capital, help us provide better customer solutions at lower cost, allow for greater investment, and strengthen our ability to attract top talent. The transaction will allow us to further diversify our source of income, which helps provide resilient earnings across market cycles. Our growth prospects will be considerable across the combined company's businesses with our integrated model allowing us to capture the full value chain. The balance sheet of the combined company will be robust. By 2027, we expect earnings to exceed $5 billion per year. Cash generation will be strong and consistent, topping $4 billion per year.
The merger will be immediately accretive to both earnings per share and cash generation, both of which should increase to 10+% by year-end 2028. Turning to slide four, the upside potential for all our businesses will be strengthened with the merger. In Individual Retirement and Life, we will have meaningful revenue synergies. For example, our fixed and fixed-indexed annuities will complement Equitable's annuity offerings, and their variable universal life product will complement our life offerings. Together, we will be a leader in the 403(b) Group Retirement space with a large workplace distribution force. We will have more capabilities and balance sheet capacity to support our growth in Institutional Markets. In the combined company's asset management and wealth management businesses, AllianceBernstein will have nearly $1 trillion in AUM, and we'll have over 5,000 advisors to drive growth.
We are making good progress on steps required to close this transformative transaction. We already have completed a vast majority of our regulatory filings. Our Form S-4, including the shareholder proxy statement, will be filed with the U.S. Securities and Exchange Commission shortly. We believe the shareholders of both companies will approve the transaction given its compelling rationale. The executive team of the combined company has been determined and will be communicated soon. I'm confident we have the right leadership to execute on all our strategic objectives. Both companies have established integration management offices that are hard at work planning a seamless integration that captures the full value of the synergies. Finally, an important update on the timing of share repurchases.
As we indicated in the eight-K filed earlier this month, we are exploring undertaking share repurchases prior to the closing of the merger, including during the period from filing the preliminary proxy with the SEC until we mail the final proxy to shareholders. We also continue to expect another opportunity when we can repurchase shares after the shareholder vote this summer, subject to normal blackout periods. Any remaining capital we plan to deploy will be facilitated post-close, likely through an accelerated share repurchase. Turning to slide five, Corebridge's demonstrated strong performance driven by favorable industry demographics and sustained customer demand in the first quarter. Despite facing heightened market volatility and competition, our disciplined approach continues to deliver solid results.
Our wide array of product and service offerings enable us to meet a wide variety of customer needs, enhance the stability of our financial results, and allow us to allocate capital where returns are the highest. Our powerful balance sheet continues to give us financial flexibility, and our disciplined execution shows up in everything we do. Our overall performance in the quarter was strong. Excluding variable investment income and notable items, year-over-year operating earnings per share were up 13% and adjusted return on equity was up 120 basis points. The foundation of our success is winning with customers, and I include our distribution partners and plan sponsors in that category. We were proud to be ranked number one by J.D. Power for partner satisfaction in annuity distribution.
This validates our strategic focus on the advisor experience and our goal of being the easiest firm in the industry to do business with. We also continue to see strong momentum in our Group Retirement NPS, with plan sponsor satisfaction rising year-over-year. I'll have more to say about how we're investing in customer experience in a minute. In Individual Retirement, we delivered strong sales of $4.3 billion while maintaining pricing discipline and consistently positive net flows. The market outlook remains positive. The Peak 65 surge is continuing, with another four million Americans hitting that retirement milestone this year. In Group Retirement, we continue to see the transition from a spread to fee-based business. Fee-based earnings are approximately 60% of the total, with advisory and brokerage assets rising to all-time new highs, growing 14% year-over-year, benefiting from record levels of net inflows.
In Life Insurance, excluding VII and seasonally higher mortality, we continue to deliver earnings within our guided range, reinforcing a stable earnings for the company. In Institutional Markets, the underlying business continues to grow with an 18% increase in reserves. We issued $1 billion of guaranteed investment contracts in January, including our first-ever Canadian dollar-denominated GIC. The pension risk transfer pipeline remains healthy, with greater activity expected in the second half of the year. I believe the key to our success will be a relentless focus on putting the customer at the center of everything we do. Our roadmap is simple, deliver a differentiated customer value proposition, be the easiest company to do business with, and maintain a world-class distribution. That is how we generate more value for customers and investors alike.
As I said on my first earnings call three months ago, we're going to make the investments needed to improve the customer experience. Those efforts are well underway at Corebridge in 2026. A few highlights. We've launched a customer council steered by the executive leadership group and comprised of cross-functional senior leaders from across the company. They are showcasing key initiatives, sharing best practices, identifying quick wins, and above all, ensuring we maintain a customer-first mindset. Across our retail operations, we're modernizing how new business is onboarded by further enhancing digital submissions, strengthening upfront suitability checks, and improving real-time application status, all of which helps remove uncertainty, delay, and friction from the process. We've launched a new wealth management digital experience last month that allows clients to seamlessly navigate their product and service relationship with us and stay connected with their financial advisor.
We're moving permanent life products onto our digital submission platform, and we're launching a new payroll platform that makes it easier for Group Retirement plan sponsors to integrate their payroll data with us. In closing, we're excited about the future of our business. Externally, powerful demographic tailwinds are creating a large market opportunity. Internally, our customer-first mindset and emphasis on operating at speed will enable us to capture a significant share of that opportunity. The result will be a company that delivers significant growth in earnings per share, cash generation, and shareholder value. This is true of Corebridge today and will continue into the future as a combined company. With that, I'm pleased to turn the call over to Chris.
Thank you, Marc. I'm excited to join today's call and will provide further color on our performance for the first quarter. Starting with slide 6, our results this quarter underscore the strength of the Corebridge model, consistent growth and active capital deployment balanced by expense control and portfolio optimization. Performance was largely in line with our guidance from the fourth quarter, highlighting our diverse, stable earnings patterns and agility in capital management. We reported adjusted pretax operating income of $629 million and earnings per share of $1.05. First quarter results were impacted by underperformance of our variable investment income. Excluding the impact of VII and notables, EPS increased by 13% year-over-year, demonstrating the underlying strength of our core businesses.
VII returns were impacted by several components, including positive alternative investment returns, offset by unrealized mark-to-market losses on investments accounted for at fair value, with changes in fair value reported in adjusted pre-tax operating income. Adjusting for long-term alternative investment returns and notable items, we delivered a run rate operating EPS of $1.17, representing a 9% increase year-over-year. Finally, adjusted ROE was 10.6% or approximately 12% on a run rate basis. Excluding VII and notables, this reflects a 120 basis point increase year-over-year, underscoring our commitment to consistent profitable growth. Turning to slide 7, our businesses continue to evolve, delivering highly diversified sources of earnings and strong, stable cash generation regardless of the market environment.
Our core sources of income, excluding alternatives and notable items, increased 1% year-over-year with some variation in the underlying components. Fee income increased by 9%, driven by growth in assets under management and advisory alongside favorable market tailwinds. Spread income increased by 1%, which is in line with our guidance around the earning of the majority of the 2025 Fed rate cuts. To put that in perspective, had those rate cuts not occurred, base spread income would have been approximately $20 million-$25 million higher. Underwriting margin decreased 2% year-over-year due to exceptionally favorable mortality in the first quarter of 2025. Lastly, general operating expenses were in line with our expectations. This reflects ongoing investments we are making in our platform, as Marc highlighted earlier, as well as typical first quarter seasonality.
Looking ahead, we remain fully committed to disciplined expense management and improving our operating leverage over time. Turning to slide eight and looking at our capital position, our balance sheet continues to be healthy and strong. We ended the quarter with over $1.7 billion in holding company liquidity, supported by our U.S. insurance companies distributing $925 million in dividends in the quarter. Our level of liquidity exceeds the holding company's needs for the next 12 months. Capital return to shareholders reached $1.4 billion in the quarter. This included the completion of our planned capital returns related to the VA reinsurance transaction, totaling $1.8 billion. Excluding those VA reinsurance proceeds, we maintained our payout target with a payout ratio of 88%. Lastly, our insurance companies remain well-capitalized with capital ratios exceeding our targets.
Next, I'll review a few highlights from each of our businesses, the details of which can be found in the appendix to our earnings presentation. These results exclude the impact of notable items and variable investment income. Starting with Individual Retirement, we continue to be very positive about this business. The outlook is backed by strong fundamentals and demographic tailwinds that continue to drive demand for our retirement solutions. Premiums and deposits were $4.3 billion, demonstrating growth both sequentially and on a year-over-year basis. Leveraging LIMRA's first quarter industry projections, we maintained our market share of total annuity sales year-over-year. This includes our newer RILA products, highlighting our success with key distribution partners. Net flows into the general account remained positive at approximately half a billion dollars, contributing to continued growth in the underlying business. We saw surrender activity in line with our expectations.
This reflects fixed and indexed annuities reaching the end of their surrender charge periods. As we look at the full year, we reaffirm our estimate for base spread income to be approximately $2.55 billion. While we continue to see some spread compression, we still expect it to level off by the end of 2026, assuming the current market outlook and two additional Fed rate cuts. Lastly, APTOI increased 1% year-over-year, supported by growth in spread and fee income, highlighting the growth in the underlying business. Turning to Group Retirement, we are seeing this business evolve as a growing percentage of the American workforce is reaching retirement age. This demographic shift and the steps we are taking because of it are fundamentally changing how we generate value, moving us toward a more diversified and resilient earnings profile.
Continued momentum in our advisory and brokerage initiatives resulted in record level AUMA and net flows of over $300 million in the first quarter. This strong performance is directly related to our efforts focused on the advisor experience and operational ease of doing business, which is delivering early measurable wins as we continue to invest in the platform. APTOI decreased 17% year-over-year. This reflects lower spread income, partially offset by growth in fee income. This transition is intentional. As our clients move into the decumulation phase, we are seeing a natural mix shift away from the spread-based products and towards fee-based income. This aligns with our broader strategy to emphasize capital-light earnings, which now account for nearly 60% of Group Retirement earnings.
Our Life Insurance business delivered another strong quarter in line with the guidance we provided back in the fourth quarter, reflecting higher seasonal mortality in the range of $15 million-$20 million. This performance is consistent with both our historical experience and seasonal expectations for the start of the year. We generated $850 million in sales this quarter in line with first quarter expectations. APTOI declined 5% year-over-year. While mortality trends were favorable and aligned with first quarter expectations, they were below the exceptional mortality experience in the prior year quarter. Going forward, we remain confident in the steady cash flow and stability this segment provides for the broader portfolio. Institutional Markets continues to be a consistent growth engine with both underlying reserves and total earnings trending upward.
First quarter sales included over $1 billion in GICs, maintaining the consistent momentum we've seen highlighting our ongoing commitment to the GIC and FABN market. APTOI increased 15% year-over-year. This growth was underpinned by an 18% expansion in our reserves and a 13% increase in assets under management and administration. Lastly, a comment on pension risk transfer. Sales in this space are inherently episodic. While we expect volume variability from quarter to quarter, our pipeline remains strong. We anticipate an uptick in activity we move into the second half of 2026. Next, I'd like to take a moment to address recent headlines regarding the life insurance industry and its investment portfolios. Corebridge has a long-standing history in private placements, recognizing that the vast majority of companies today are privately held rather than public.
We are able to utilize this asset class to achieve diversification across our portfolio that isn't available through public issuance alone. These assets are a natural fit for our liabilities and allow us to not only capture an illiquidity premium, but to do so with the protection of financial covenants while maintaining a high-quality investment grade profile. Corebridge maintains control over all aspects of our asset portfolio and risk profile. Whether our private debt is originated internally or externally, we maintain rigorous ongoing processes to underwrite, re-underwrite, rate, and model our private assets. Out of the $284 billion statutory investment portfolio, $49 billion is in private debt, which is a high-quality diversified book where 91% of the assets are rated investment grade.
To provide further context on our private debt, I'll address a couple of recent areas of focus, beginning with private credit or what we categorize as middle market lending. Our allocation here stands at $3.3 billion, representing only 1% of our total portfolio. These investments have attractive risk-adjusted returns, and we continue to expect any losses in the middle market lending will be yield adjustments and not credit events. Further, within the middle market allocation, our debt exposure to the software sector is less than $300 million, and all of it is currently performing. Another area of focus in the financial press has been BDCs. Like middle market lending, this represents a small part of our portfolio where we hold $1.7 billion of debt issued by BDCs. Our entire exposure consists of debt instruments with no equity holdings in these originations.
Generally, we are a senior lender in these investments, the average asset coverage ratio is approaching 2x, meaning significant asset impairment would be necessary to impact our position in the capital stack. Given our current exposure, robust management processes, and the alignment of our liabilities, we remain very comfortable with our positioning. Our rating migration has been net positive over the last four years, we routinely perform sensitivity testing to ensure we remain well-capitalized across all market cycles. In closing, we remain focused on maintaining a strong balance sheet while generating growing returns to shareholders. Our guidance laid out in the fourth quarter remains largely in place, we continue to believe 8%-9% is the appropriate expectation for alternative investment returns over the long term. We do anticipate continued market-driven headwinds based on the current environment.
Thank you, Chris. 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.