Corebridge Financial

Spun off from AIG in 2022. Trades at 0.88x adjusted book value and 8.7x trailing earnings per share. Major share repurchases. Harris Associates, Pzena, Hotchis & Wiley, and Arbiter all own shares.

A couple of weeks ago, investing legend Bill Nygren of Harris Associates hopped on the set of CNBC and talked about a few stocks. Corebridge was the first he mentioned. To paraphrase, Nygren said CRGB operates in a competitive space (selling life insurance and annuity products) and has a flat top line.

Yet the stock is trading at 5x earnings, and they’re putting most of their capital into buybacks. He added that Corebridge doesn’t need a 20x multiple to do well, and that if the stock doesn’t move for five to seven years, they will be taking out the entire market cap of the company.

Of course, this is exhilarating news, especially when considering that Harris Associates owns 3.74% of the business, deep value fund Pzena Investment Management owns 3.48%, and Hotchkis & Wiley owns 1.43%. CRGB also makes up 5.9% of Arbiter Partners’ portfolio, excluding any international holdings. Arbiter is run by Paul Isaac, an elite value investor who is the nephew of Walter Schloss. Safe to say CRGB is in good company.

Corebridge Financial was spun out of AIG in 2022 and is one of the largest providers of life insurance and retirement solutions in the United States. CRGB has four business lines – individual retirement, group retirement, life insurance, and institutional markets – which accounted for 68.7%, 20.6%, 12.8%, and 13.7% of their $3.6 billion operating income last year, respectively.

CRGB sells promises of wealth creation, future income streams, and death benefits through broker-dealers, banks, and financial advisors in exchange for deposits and premiums. Virtually all of these dollars are thrown into fixed-income securities to satisfy future obligations as well as pocket a nice spread. In 2024, they produced $12.2 billion of net investment income off a roughly $400 billion balance sheet, good for about a three percent spread.

Premiums tallied $4.6 billion, and policy and advisor fees accrued to $3.0 billion. Their most significant expenses were policy benefits of $6.6 billion, interest credited to accounts of $5.2 billion, and overhead of $2.1 billion. Net income totaled $2.2 billion. Using CRGB’s adjusted book value of $22.2 billion, which adjusts for the fluctuations of liabilities they have reinsurance agreements on, the business produced a 10% return on equity.

In fact, double-digit returns on equity have occurred every year since CRGB’s spin. What’s more, management has gone full tilt on buybacks, repurchasing $1.7 billion worth of stock last year, or roughly ten percent of today’s $17.5 billion market cap. Still, the stock trades at 8x trailing earnings and 0.88x adjusted book value.

This discount could largely be attributed to AIG’s overhang, as they’ve dumped hundreds of millions of shares since the spin. Their largest sale came in Q4 of last year when they sold a 20% stake of CRGB to Nippon Life for $3.8 billion (120 million shares at $31.47), and as part of the agreement, AIG must retain at least 9.9% ownership until Q1 of 2027. After another $39.9 million sale a month ago, AIG’s stake has dwindled to 15.35%. Selling pressure could remain a headwind.

All of this bodes well for CRGB’s $2 billion share repurchase program, though, which was authorized in June and should be completed by the second half of 2026. Management is confident that their capital allocation policy, plus an aging population, will allow for CRGB to grow earnings per share by 10-15% over the long haul. It’s unfortunate when companies guide to double-digit growth of any metric, but it’s not the end-all be-all.

However, CRGB has transferred $23.8 billion of liabilities to an offshore reinsurance company in Bermuda called “Fortitude”, which is a deal killer. Doing so frees up a good amount of capital for dividends and buybacks, and they’re able to do it because Bermuda has softer balance sheet requirements than the NAIC. The transaction works something like this: CRGB transfers liabilities to Fortitude Re, who takes responsibility for paying claims.

CRGB keeps the assets, though, recording them as a “reinsurance recoverable” or “funds withheld payable” and gives the majority to sophisticated asset managers, who, in turn, throw them into high-yield alternatives such as private credit, private equity, hedge funds, etc. As of last quarter, CRGB’s investments totaled $254.0 billion, with Blackstone and BlackRock managing $70.2 billion and $89.7 billion, respectively.

Filling up the book is $179.7 billion of bonds available-for-sale, which consists of $113.8 billion of corporate debt, $20.9 billion of ABS, $16.0 billion of RMBS, $10.1 billion of government debt, $9.6 billion of CMBS, and $9.3 billion of CLO. Owned as well are $54.3 billion of mortgages and other loans receivable, $10.0 billion of “other” invested assets ($5.9 billion is private equity), $5.4 billion of “other” bond securities ($3.0 billion is corporate debt), $3.8 billion of short-term investments, and $0.9 billion of equity securities.

At the moment, CRGB has $22.1 billion of private credit on its balance sheet, making up 19.4% of corporate debt and 5.5% of total assets. That’s a solid chunk, and CRGB is already pretty levered with an assets to adjusted equity ratio of 19.6x. Now, I understand that nothing looks too crazy at present, but my primary concern stems from the fact that CRGB plans to have Blackstone manage $92.5 billion of assets by the third quarter of 2027.

In effect, private credit, with all of its opacity and PIK, will nudge upward as a percentage of assets. Defaults will probably be higher than most expect, and counterparty risks could arise, too. Because who really knows what Fortitude Re is doing on that island? Beware of Bermuda!