Participants

Elias Farid Habayeb; Executive VP & CFO; Corebridge Financial, Inc.

Isil Muderrisoglu; Head of Investor & Rating Agency Relations; Corebridge Financial, Inc.

Kevin Timothy Hogan; President, CEO & Director; Corebridge Financial, Inc.

Elyse Beth Greenspan; Director & Senior Analyst; Wells Fargo Securities, LLC, Research Division

Joel Robert Hurwitz; Analyst; Dowling & Partners Securities, LLC

John Bakewell Barnidge; MD & Senior Research Analyst; Piper Sandler & Co., Research Division

Ryan Joel Krueger; MD of Equity Research; Keefe, Bruyette, & Woods, Inc., Research Division

Suneet Laxman L. Kamath; Equity Analyst; Jefferies LLC, Research Division

Thomas George Gallagher; Senior MD; Evercore ISI Institutional Equities, Research Division

Wesley Collin Carmichael; Senior Analyst; Autonomous Research US LP

Presentation

Operator

Hello, everyone, and welcome to the Corebridge Financial Inc. First Quarter 2024 Earnings Call. My name is Emily, and I'll be facilitating your call today.
(Operator Instructions)
After the presentation, you will have the opportunity to ask any questions, which you can do so by pressing star
I will now turn the call over to our host, Isil Muderrisoglu, Head of Investor and Rating Agency Relations. Please go ahead.

Isil Muderrisoglu

Good morning, everyone, and welcome to Corebridge Financial's earnings update for the first quarter of 2024. Joining me on the call are Kevin Hogan, President and Chief Executive Officer; and Elias Habayeb, Chief Financial Officer. We will begin with prepared remarks by Kevin 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 law, 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 on our website at investor.corebridgefinancial.com.
With that, I would like to now turn the call over to Kevin and Elias for their prepared remarks. Kevin?

Kevin Timothy Hogan

Good morning, everyone. Our team continues to execute with focus, and we are delivering on our commitments to customers and shareholders. During today's call, I will discuss what has been a strong start to the year for Corebridge. In addition to reviewing high-level results for our first quarter I will share trends we are seeing across our company and how well we are positioned for the future. Elias will then follow with more detail on our performance.
This morning, we reported adjusted after-tax operating income of $688 million or operating earnings per share of $1.10, a 13% increase year-over-year. We also reported adjusted return on average equity of 11.9%, a 110 basis point improvement over the prior year quarter. Our run rate return on equity, which is adjusted for alternative investment returns that are below our long-term expectations and notable items, was 13.1%. That is solidly within our target range of 12% to 14%. This first quarter run rate represents a 140 basis point improvement year-over-year and 250 basis point increase since our IPO.
Looking at the quarter, we see 4 key factors contributing to the growth of our franchise value, our diversified business model, continuing strong sales, attractive margins, and significant expense savings. I will address each in turn and then comment on our business. The first factor is our diversified business model, which includes our broad product and distribution platform and generates multiple sources of income that enables strong cash flows. The wide range of products and channels across our 4 businesses is a competitive advantage for Corebridge, positioning us to perform across different market conditions and prudently generate new business.
In any given market, we can capitalize on prevailing dynamics to focus on growth opportunities where the risk-adjusted returns are the most attractive, optimizing our mix of spread fee and underwriting margin. For base spread income, which grew 14% year-over-year, we leverage our portfolio of general account products to meet the evolving needs of our customers and partners. At the same time, we are seeing favorable dynamics for fee income, which increased 9% year-over-year. With equity markets moving higher, fee income is on the rise, rebounding from prior year lows.
Our assets under management and administration have grown to $393 billion, a 7% improvement year-over-year. This large asset base will be an earnings driver for our spread-based and fee-based businesses. Underwriting margin this quarter was impacted by onetime reinsurance-related items as well as seasonal mortality. Our overall mortality remains within expectations.
Our diversified sources of income create financial flexibility, which enables our insurance operations to generate consistent and strong cash flows of over $2 billion annually. These cash flows position the company to deliver on our commitments to shareholders and provide an attractive capital return across market cycles.
The second factor is our robust sales volume. Corebridge delivered $10.6 billion of premiums and deposits in the first quarter and $50 billion over the last 5 quarters. We expect demand for our products and services to remain strong, as we are well positioned in the large and growing markets where we compete.
Further, these markets are favorably supported by prevailing demographics and macroeconomic trends. The third factor is that we continue to produce attractive margins. We actively manage our business portfolios to ensure we maintain strong profitability levels with double-digit IRRs.
And the fourth factor, in addition to growing our aggregate core sources of income and actively managing our capital, we have also been reducing our expenses. We successfully completed our modernization program, Corebridge Forward, having acted on or contracted for the full $400 million of run rate savings. While we are pleased to have completed this initiative, we are building off our momentum to adopt the philosophy of continuous improvement, as we are committed to increasing our efficiency over time.
Turning to our segments, an Individual Retirement, we continue to deliver strong sales. We remain well positioned to meet the needs of an aging U.S. population and to partner with a new generation of advisers who are recognizing the value of annuities as part of a long-term investment plan. Our sales volume for fixed and fixed index annuities was $4.5 billion for the quarter, remaining near historic highs. General account net inflows were over $600 million for the first quarter despite a higher volume of fixed annuities exiting their surrender charge protection.
Turning to Group Retirement. It delivered premiums and deposits of $2 billion this quarter. There are 3 parts to this business: In-plan, out-of-plan and advisory and brokerage, all distributed by our own field force of financial professionals. The in-plan business represents defined contribution plan serving tax exempt and public sector organization. Whereas in the out-of-plan business, we extend our relationship to provide services beyond employer-sponsored retirement plans. Our advisory and brokerage platform supports both businesses where we provide customers access to a range of third-party products or services.
Group Retirement is a consistent contributor to our results with a balanced mix of spread and fee income driven by a $126 billion asset base, which grew 7% year-over-year. This business is well positioned to serve the need for financial planning advice, as we focus on plan sponsors that value the role of our advisers. We differentiate ourselves with our field force of experienced financial professionals and proprietary tools that support financial planning capabilities for both in-plan and out-of-plan customers. In life insurance, we continue to generate attractive growth in our U.S. business.
Recently, we have been outpacing the market. And in the first quarter, we increased U.S. sales 9% over the prior year. Our distribution partners and customers continue to see value in our select range of products, including simple protection products designed for the middle market and Corebridge remains well positioned to meet demand. With our digital end-to-end platform and our automated underwriting tools, we make it quicker and easier for our customers to purchase life insurance.
In early April, we announced that we closed the sale of our U.K. life insurance business to Aviva. With this transaction now closed, we are fully focused on life and retirement products and solutions in the world's largest life insurance market, the U.S. This sale was highly accretive. And together with last year's sale of Laya Healthcare in Ireland, we have unlocked approximately $1.3 billion of value for shareholders with a negligible impact on future earnings.
In institutional markets, we closed $1.8 billion of pension risk transfers during the quarter at attractive margins. Corebridge is well positioned to support the growing demand for pension risk transfers including full plan terminations, which we have focused on for years, investing to develop what we believe is a competitive advantage, serving employers looking to holistically exit their pension obligations. We expect to continue to see a robust pipeline in 2024, as more plans are fully funded and many companies are highly motivated to act. We also issued $600 million of GICs in the first quarter having become a more regular FABN issuer, and we expect to incrementally grow this book, building on our 2023 volumes.
The new business volume we have generated across the company is robust, and we are investing in attractive assets to support these levels. Our asset origination platform put over $9 billion to work in the first quarter, investing at an average of single A+, incrementally improving the credit quality of our portfolio. New money yields remained strong in the first quarter, approximately 160 basis points above the average yield on assets rolling out of the portfolio.
Our investment portfolio remains well diversified and high quality, with over 95% of our fixed income assets rated investment grade, and we remain committed to achieving strong risk-adjusted returns while matching the duration and liquidity needs of our liabilities.
Turning to our financial position, our balance sheet remains strong. We maintain a comprehensive risk management framework and are selective and the liabilities we originate, putting us in a position where we can continue to invest in our business while also returning attractive levels of capital to shareholders. We are also continuing our work to expand the capabilities of our Bermuda entity to support further business development activities. The regulatory process remains on track, and when we receive the required approvals, we anticipate leveraging this structure in 2024.
When complete, these capabilities will give us the opportunity to expand our financial flexibility and provide additional capacity to support growth and optimize our capital. This week, our Board of Directors approved an increase of $2 billion to our existing share repurchase authorization. This increase reflects the board's ongoing confidence in our financial strength. And with this enhanced capacity, we expect to have the financial flexibility to continue our capital management objectives into 2025. Looking ahead, Corebridge remains committed to growing our business, serving our customers and creating long-term value for our shareholders.
We are executing all of the strategies necessary to deliver on our commitment to achieve a 12% to 14% ROE, 60% to 65% payout ratio and maintain our strong financial position. Thanks to the energy and hard work of our team and with gratitude for the support of our partners and AIG, we remain well positioned to help more people in this country take action in their financial lives. I will now turn the call over to Elias, who will go into more detail on Corebridge's results for the quarter.

Elias Farid Habayeb

Thank you, Kevin. I will address our consolidated and segment results and provide an update on our capital and liquidity positions. In the quarter, Corebridge delivered strong business results and maintained a robust balance sheet. We continue to create value for shareholders. Corebridge reported first quarter adjusted pretax operating income of $837 million or earnings per share of $1.10 and an increase of 13% year-over-year on a per share basis.
Our operating EPS benefited from a $0.06 net impact from notable items in our investment portfolio related to a prior period true-up on certain investments, partially offset by onetime reinsurance-related items in our life insurance business. This was further offset by a $0.17 impact from alternative returns below our long-term expectations. After adjusting for notable items and alternative investments, our run rate operating EPS would have been $1.21.
This was a 15% increase year-over-year on a comparative basis. Corebridge increased earnings by pursuing profitable growth, optimizing investment portfolio returns, and reducing operating expenses. We grew our core businesses and enhanced our financial flexibility while returning capital to shareholders. And we are on track to deliver on the financial goals we established at the time of the IPO, including delivering an ROE of 12% to 14% and a 60% to 65% payout ratio.
Net investment income for our insurance companies on an APTOI basis improved 16% year-over-year, while base portfolio income grew 18% over the same period. Reported base yield increased 50 basis points to 4.92%. Excluding the impact from notable items, base yields increased 35 basis points year-over-year. After adjusting for notable items, we expect base portfolio income and base yield will continue to grow, albeit at a slower pace.
Variable investment income declined year-over-year, driven by alternative investments, which delivered a $23 million net loss in the quarter. Positive returns in traditional private equity were more than offset by mark-to-market losses in real estate equity.
Our real estate equity investment portfolio is largely held in funds that are largely subject to mark-to-market accounting. At this time, we expect that overall variable investment returns in the second quarter will likely remain depressed due to continued negative real estate equity returns resulting from higher cap rates. That said, we see a potential path for overall returns to improve in the second half of the year.
General operating expenses for our insurance businesses and parent company were $411 million, better by 10% on a year-over-year basis. This was driven by expense discipline and the benefits of the Corebridge Forward program initiatives earning in. As a reminder, our first quarter expenses reflect seasonality arising from higher compensation and benefits. To date, more than $200 million of savings from the Corebridge Forward program initiatives have earned into results. And we expect the vast majority of these savings to have earned into our run rate earnings by the end of 2024.
Corebridge continues to maintain a healthy and strong balance sheet, and our consistent cash flow generation drives shareholder value. We ended the quarter with $1.7 billion of holding company liquidity. Distributions from our insurance companies were $600 million. Corebridge has made significant progress toward achieving a payout ratio of 60% to 65% of adjusted after-tax operating income. We delivered a payout ratio of 56% in the first quarter, returning $386 million of capital, comprised of $243 million of share repurchases, and $143 million of regular quarterly dividends.
As of May 2, our year-to-date share repurchases were approximately $370 million. Looking forward, we will remain disciplined with our capital management and expect to deploy proceeds from the sale of our U.K. business with our share repurchases beginning in May 2024, pivoting to the business segments now, which continued their strong performance and disciplined execution during the first quarter. Individual Retirement reported adjusted pretax operating income of $622 million, an 8% increase year-over-year after excluding variable investment income and notable items.
This improvement was primarily driven by higher base spread income resulting from strong general account growth. Excluding notable items, we grew base spread income by 7% year-over-year, driven by attractive margins and new business and active management of the in-force block. Fee income also grew by 11%, driven by an improvement in underlying asset valuations.
I want to spend a little time unpacking how our base net investment spread has trended over time. Since the beginning of 2022, we have grown base spread income by approximately 70% to earn approximately $700 million a quarter. At the same time, we've expanded base net investment spread by approximately 85 basis points, largely driven by higher new money yields on investment-grade assets. These are very attractive historical spread levels.
As we mentioned during our February 2024 earnings call, we expect base net investment spread expansion has likely peaked, and there could be some marginal compression. For example, reported base net investment spread for Individual Retirement expanded 13 basis points year-over-year, but compressed 4 basis points after adjusting for notable items. There are 2 primary drivers behind the marginal compression. First, the new business we're writing is attractively priced at double-digit IRRs. However, the base spread on the new business is tighter relative to the base spread on the portfolio.
Second, surrenders have been concentrated in blocks with lower crediting rates, putting upward pressure on the portfolio's cost of funds. That said, it's important to put these dynamics in perspective. The important takeaway here is that base net investment spreads on the overall portfolio remain near historic high and are at very attractive levels. Furthermore, we expect base spread income will continue to grow over the coming years.
Moving on, this business delivered positive general account net flows of over $600 million in the quarter, even with an elevated fixed annuity surrender rate arising from a large block of exiting its surrender charge period. Our surrender peaked at the beginning of the quarter but trended lower continuing into April. At the same time, we saw monthly sales of fixed annuity steadily increased from January and that trend continued into April.
Group Retirement reported adjusted pretax operating income of $200 million, an 8% increase year-over-year after excluding variable investment income and notable items. This growth was primarily driven by higher fee income and lower expenses. The increase in fee income, which comprises approximately 50% of group retirement overall sources of income reflects that both the improvement in underlying asset valuations and the growth of our advisory and brokerage business.
On the whole, this segment continues to deliver balanced sources of income with a near-even split between spread and fee income. Consistent with industry experience and broader demographic trends, many of our in-plan participants have been entering retirement and are transitioning from asset accumulation to asset distribution. As a result, net outflows are typically driven by in-plan participants aged 59.5 or older, and tend to have higher guaranteed minimum interest rates and higher account balances.
Concurrently, net inflows are dominated by our in-plan younger age cohorts with lower guaranteed minimum interest rates as well as out-of-plan fixed and fixed index annuity sales and advisory and brokerage deposits.
We saw 35% deposit growth in our advisory and brokerage business, which is not included in our reported net flows. Reported base net investment spreads for group retirement expanded 1 basis points year-over-year, but compressed 6 basis points after adjusting for notable items. Life Insurance reported adjusted pretax operating income of $54 million, a 6% decrease year-over-year after excluding variable investment income and notable items. Notable items included approximately $30 million related to a onetime reinsurance related items, partially offset by $8 million of a onetime item in net investment income.
The year-over-year comparison of underwriting margin was impacted by the sale of Laya Healthcare, which closed in October 2023. Excluding Laya and variable investment income, underwriting margin declined 9% year-over-year due to notable items and to a lesser extent, universal life seasonal mortality which included higher claims from COVID and other respiratory diseases.
Our traditional mortality experience, which is primarily comprised of term, was favorable this quarter. Overall mortality experience, inclusive of reserve impact was consistent with our expectations. While our underwriting margin was and will continue to be impacted by the divestiture of the international businesses, the overall impact of the divestitures on our earnings is negligible.
Institutional Markets reported adjusted pretax operating income of $112 million, a 37% increase year-over-year after excluding variable investment income and notable items. The improvement was primarily driven by higher spread income arising from the portfolio growth. Our reserves have grown $7 billion or 22% year-over-year, with the expansion of our pension risk transfer business and higher volume of GIC issuances.
Looking forward, we continue to expect meaningful opportunities to further expand both businesses at attractive margins, which should lead to ongoing growth of base spread income and distributable cash flows.
In conclusion, the continuing improvement in our financial results reflects our achievements, growing the business while exercising discipline with our expenses. Corebridge continues to generate strong results growing our franchise value, and highlighting the increasing value proposition we provide to investors. I will now turn the call back to Isil.

Isil Muderrisoglu

Thank you, Elias. As a reminder, please limit yourself to one question and one follow-up. Operator, we are ready to begin the Q&A portion of the call.

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Suneet Kamath with Jefferies.

Suneet Laxman L. Kamath

I wanted to start, Kevin, with the comment that you made about adviser awareness of annuities. Can you just unpack that a little bit and talk about where the growth is coming from in terms of channel? And are we sort of seeing this resurgence of annuities over the past couple of years, do we expect that, that will continue ahead?

Kevin Timothy Hogan

Yes. Thanks, Suneet. Appreciate the question. The reality is, if you look back over -- up until maybe 2 years ago when the interest rate cycle started to change, an investment portfolio and the role that a fixed income return type vehicles, such as a fixed or fixed index annuity can provide for kind of a low-risk way was not something that was seriously considered because of the very low returns that were available.
And what's been happening in the last couple of years with the change in interest rates is that there is now perceived to be great value in fixed income asset allocation as part of a long-term investment strategy. And an annuity is a very attractive option as part of that asset allocation. And so for financial advisers that have been in the business, let's say, 10 years or 12 years, this is the first time they've actually had a chance to see interest rates at a point where the returns available in the fixed allocation product are attractive.
And so that's a new generation of advisers that are understanding that asset allocation strategy and embracing it, and also customers enjoying the same thing. So we do see it as a secular trend. It raises the boats for the industry. That's something that is driving new business volumes. Our largest, fastest-growing distribution channels are still professional distribution in broker-dealers, financial advisers and banks. And so it is within those adviser communities that we're seeing this trend, and we expect that it will continue.

Suneet Laxman L. Kamath

Got it. Makes sense. And then I guess for Elias, just on Individual Retirement, I just want to make sure I understand the comments. So I think you said base spread investment income is expected to increase, but that the spread itself might contract a little bit. And so if I put the 2 together, basically talking about volume growth driving that increase in investment income?

Kevin Timothy Hogan

Yes, thanks. I'll jump in, Suneet. We have seen some modest spread compression, and we may incrementally see a little bit more of that in the near term. I think it's important to understand why. So from the beginning -- and this was in the last prepared remarks, right? We executed well at the beginning of the change in the interest rate cycle with our strong distribution presence and our broad product platform. And as Elias pointed out, we very rapidly grew both our base spreads and our spread income.
And the reality is that the in-force margins right now have benefited from the reinvestment opportunity with almost no impact on the underlying cost of funds. And at the same time, the new business margins are also very attractive, and the new business sales are robust. So the effect that you're seeing is that the new business, the cost of funds are higher because of where interest rates are now and that's incrementally increasing the cost of funds in the overall portfolio. But the reality is that the in-force is profitable. The new business is profitable, and we do expect the spread income to grow because the general account is growing and the overall earnings base is growing.
And the conditions remain good. We continue to be in a strong distribution position. The macro environment is very supportive. The market need is there. And so we remain very optimistic about the business, although base spreads themselves may have peaked, and that's more of a reflection of the fact that we executed well and executed early. And we feel confident we're on a clear path to achieve our 12% to 14% ROE in all of our other targets.

Operator

The next question comes from John Barnidge with Piper Sandler.

John Bakewell Barnidge

Good morning. Thank you for the opportunity. In your comments about flows and the dynamic of the outflows being generally older and the inflows being younger. What's the average age for customer and group and individual retirement? Within that, how has that average trended over 5, 10 years?

Kevin Timothy Hogan

Yes. Thanks, John. So we track it a little more carefully in group retirement and in-plan business. And what I can say is that our in-plan business in Group Retirement exceeded an average age of 59.5 about 10 years ago. I don't have the exact date in front of me. And in fact, if you look at the entire defined contribution industry, that kind of tracks with the aging of the in-plan business across the industry, not just in the 403(b) and the not-for-profits that we participate in, but even in the 401(k) kind of part of the market. And since then, we've seen an incremental increase in the average age. I think now it's in the low 60s for the in-plan business.
The out-of-plan business is a slightly different age profile. And then in the Individual Retirement business, it really depends on the product. The fixed annuity customers tend to be a little bit older. The variable annuity customers kind of in the middle and then the index annuity customers maybe a little bit younger. So between 50 and 70 is, I think, where we'd see the average ages across the Individual Retirement portfolio, but we can get back with some more specific numbers.

John Bakewell Barnidge

That's been really helpful. And my follow-up, there was a final DOL rule, do you have any initial thoughts on how that may impact your business?

Kevin Timothy Hogan

Yes. So the final guidance has now been released. It is effective in September of 2024. And then there's like 12 months for the advisers to be able to implement the new prohibited transaction exemptions. I guess what I'd say is, look, we're in a highly regulated business. We are -- we understand our obligations. We'll be prepared to implement what is necessary. The industry has essentially implemented something like this before, and we did as well, and we're prepared to do so again.
What I would say is that for individual retirement, our business really grew up in the registered world. And as I mentioned earlier, most of our largest distribution channels are professional distribution like representatives of broker-dealers or banks. And so 90% of our Individual Retirement distribution and 100% of our Group Retirement distribution through DFA, they are familiar already with the fundamentals of the SEC's Reg BI or NAIC's version of that best interest parameter and so are largely already adhering to many of those principles.
In the Individual Retirement business, we have a small participation in the IMO channel. But it is an important channel because it reaches a different demographic, and it's something that strategically we're trying to develop. So we're still studying the final rule. We'll be prepared to implement it. We think it's important to have a common standard of care that everyone understands and that there will be accessed for financial education. But most of our distribution are familiar with the requirements of our best interest type standard.

Operator

The next question comes from Wes Carmichael with Autonomous Research.

Wesley Collin Carmichael

I really just wanted to kind of dig in more on the notable item around investments. It was material in this quarter, and it was pretty big last time, too. So can you share some more detail because, I mean, especially like an Individual Retirement, making that adjustment, I think kind of has a pretty significant impact on the cadence of base spreads there ex-NII. So can you just give us a little more detail? I know you said it was a prior period adjustment, but any additional color would be helpful?

Elias Farid Habayeb

Happy to, and it's Elias. So what I'd say is both items are somewhat related. They identified as part of our work to convert into a new system. And they relate to true-up on historical net investment income where we under reported historically over several years. And they are onetime of nature and that's why we're calling them out from there.

Wesley Collin Carmichael

Okay. And maybe just, Kevin, can you give us any updated thoughts on risk transfer strategic actions with the portfolio? I know you said that you were kind of looking at everything and private equity interest has been somewhat elevated. So if you could give us an update there, that would be great.

Kevin Timothy Hogan

Yes, sure. Thanks, Wes. Nice to hear from you. So as I've said, we regularly review opportunities to increase the value and optimize our portfolio. We're very familiar with the process. We demonstrated our ability to execute when we created Fortitude Re. We did prioritize the sale of our international operations, and we feel great about the $1.3 billion in value we created there.
As we mentioned recently, we are working to expand the capability of our Bermuda entity, and we're making good progress there. And that's something that is an opportunity that we can leverage relative to both our new business in terms of supporting growth or capital efficiency. But we're also evaluating external transaction potential, and we understand the opportunities there. So we're evaluating all the options, any transaction that we do will be attractive to the company and to our shareholders. And we will provide an update at the time that we have any news.

Operator

The next question comes from Elyse Greenspan with Wells Fargo.

Elyse Beth Greenspan

My first question is on share buyback. You guys said that you're going to start buying back the proceeds from the U.K. Life transaction starting in May. So should we just think about an elevated run rate relative to normal, maybe in the Q2 and the Q3 as you buyback that 550 million? Or just can you give us a base case on buyback expectations?

Kevin Timothy Hogan

Yes. So look, Elyse, I'll start with just some general comments about our capital management philosophy and then I'll hand it over to Elias with respect to the options in front of us. But we have a very clear capital management strategy, and we are committed to executing it with discipline that starts with, frankly, building a company that has a strong balance sheet, consistent cash flows and a nimble business model. And we are committed to delivering that 60% to 65% payout ratio on an ongoing basis without necessarily the need for specific transactions.
But when we do have transactions that generate excess capital, we look at the options in front of us in terms of the best way to distribute that, largely focusing now on kind of open market repurchases. We have stated that the U.K. Life proceeds will be targeted for repurchases. And there are a number of options in front of us. And I'll ask Elias to comment on that.

Elias Farid Habayeb

Yes. Elyse, it's Elias. So as Kevin said, our base case will be to use the proceeds for open market repurchases. Our philosophy around that is we want to be consistent in the market, and we're mindful of where the trading volumes are. So that's going to inform how much we will do at any point in time.

Elyse Beth Greenspan

And then my second question, you guys seem pretty positive in your prepared remarks about the opportunity for PRT transactions and the pipeline there. Can you just give us a sense of how deal activity could trend over the remainder of the year.

Kevin Timothy Hogan

Yes. Thanks, Elyse. The marketplace for pension risk transfer is very well positioned right now with where interest rates -- with interest rates are, a lot of plans are fully funded and companies that have been thinking about this for some time are prepared to ask and -- so companies are prepared to ask. And then for those companies that may be surprised a little bit by the fact that they are fully funded are also moving very, very quickly to not miss the opportunity.
We focus on full plan terminations. We focused on that market for some time, which are a little bit more complex. We focus on medium to larger-sized transactions.
And we've built the capabilities necessary to support all the optionality in full plan terminations. And the reality is, is that the pipeline, both in the U.S. and the U.K., where we act as a reinsurer for full plan terminations is as strong as we've seen it. Think the market volumes this year are expected to be at or above where they were last year.
But what I'll say is that it's hard to project the run rate because these transactions are highly complex and episodic. We underwrite that each one of them is if they were an M&A transaction. You're buying a sort of mini balance sheet. You have to understand both the liability and the asset side.
So we have a very large pipeline of medium to large transactions. And ultimately, we'll be most focused on the economics of any given transaction and ensuring that we're delivering accretive outcomes for our portfolio.

Operator

Our next question comes from Ryan Krueger with KBW.

Ryan Joel Krueger

Good morning. I had a follow-up on the trajectory of base spread. So it sounds like you expect some further compression near term. Was that comment specifically about individual retirement? Or is that something you'd also expect in group retirement and institutional as well?

Elias Farid Habayeb

Ryan, it's Elias. So from here, there could be some more marginal compression. It's not going to be a lot in individual retirement. But the key thing for us is we're going to be growing earnings in that business. It's part sales, but it's partly higher reinvestments on the business. So you go back to Kevin's earlier comments, we expect growth in spread products given the current outlook.
We're reinvesting money at much higher levels than where assets are rolling out of the portfolio. But there's a bit of a headwind on the cost of funds for the reasons Kevin articulated, but earnings is going to grow big spreads. Will be flattish to maybe marginally down.
And on group, kind of similar, dynamics are a little different, but similar, flat to maybe slightly down from here.

Ryan Joel Krueger

Got it...

Kevin Timothy Hogan

Yes. Sorry -- Ryan, sorry. I just wanted to add on. Like we are talking incremental marginal spread compression, not significant spread compression as the cost of funds increase. So -- and that's the reason that what we're really focused on, is the fact that the spread income is in the base that generates the spread income. We expect to continue to grow, in particular, in individual retirement.

Ryan Joel Krueger

Got it. And then in institutional, it looks like if we adjust for the normalizing items, the earnings run rate has been -- has stepped up to about $140 million to $145 million in the last couple of quarters. Is that a reasonable kind of baseline to grow off of going forward?

Elias Farid Habayeb

You're normalizing, Ryan, to the run rate kind of on alternatives in that estimate, correct?

Ryan Joel Krueger

Correct, yes.

Elias Farid Habayeb

Yes. So the earnings of the business, as we've said before, if you normalize our long-term expectations, an alternative is trending in the direction we expect it to go, given the growth of the business. We've given you the growth in the reserves, which kind of is a function of the new business we're doing. And the big drivers there is the growth in the PRT business as well as we've become more of a regular issuer of FABNs in it. And so we'd expect that trend to continue. The one thing is that there will always be volatility, alternatives and that we can't control.

Operator

Our next question comes from Tom Gallagher with Evercore.

Thomas George Gallagher

How much readily deployable excess capital, would you say that you have now? And would you be interested in buying back stock directly from AIG? It's pretty clear they're going to be bringing something relatively soon. Is that something that you're contemplating?

Elias Farid Habayeb

So Tom, it's Elias. So I'm going to answer the second one first, then I'll go back to the first. So as I said, our base case is that we will be buying shares back in the open market. If there is an opportunity to buy back shares from AIG, that's something we'd consider. But right now, our base case are open market purchases. On your first question, it's like, listen, we've given you the path kind of where we are from a parent liquidity perspective as well as where our risk-based capital levels in the insurance companies are.
Our balance sheet continues to be strong, as you've seen in the past. And we ended the quarter with $1.7 billion in cash. And in April, we got another $550 million out of the U.K. sales. So I think we stand in a strong position from a balance sheet perspective.

Thomas George Gallagher

Got you. And Elias, by the way, the $1.7 billion of holdco cash, I think, there was kind of a near-term target of $1.5 billion and then eventually, that was going to drop after the initial separation spend. Are you at that level where you've lowered the target of holdco cash?

Elias Farid Habayeb

So our holdco cash, the target is a function of our debt service cost as a function. We take into consideration next 12 months of regular dividends and any expenses. It is what our next 12-month needs is trending down. We were in a strong position as of the end of the quarter from there, but we would expect it to trend down, but it's a function of the formula I laid out.

Thomas George Gallagher

Okay. And just a quick one on investments, just on commercial mortgage loans, a lot -- sorry, what's that?

Isil Muderrisoglu

Tom, we're limiting it to one question, one follow-up.

Thomas George Gallagher

No problem. I'll requeue.

Operator

Our next question comes from Joel Hurwitz with Dowling & Partners.

Joel Robert Hurwitz

In group, how much of the withdrawals from the in-plan participants that are retiring? Are you able to capture in your out-of-plan or advisory business?

Kevin Timothy Hogan

Yes. Thanks, Joel. We do not report that number. Our valid financial advisers, our 1,100 financial professionals are in a great position to continue to work with the participants throughout their careers so that when it comes time for retirement, they're in the conversation around the aggregation of household assets -- the consolidation of assets at the time of retirement. A lot of times both members of a working family will retire at the same time.
But what I can say is that if you look at the 1.9 million customers that we have in Group Retirement, about 200,000 of those are in the sort of post retirement period. And while that represents only around 14%, 15% of the total employee population, it does represent around 34%, 35% of the asset base of Group Retirement. So clearly, our strategy of working with people and then aggregating household assets after retirement is an important opportunity for this business.
So we don't talk about the individual sort of recapture rate, but it's been a successful element of our strategy, and we expect it to continue to be so.

Joel Robert Hurwitz

Okay. Helpful. And then following up on Elyse's question on PRT. Can you just talk about the competitive environment there and other PRT player (inaudible) returns on some of this new business are not as attractive as they've historically been? Are you seeing that or maybe it's different in the full plan termination space?

Kevin Timothy Hogan

Yes. We focused on the full plan termination space because it is different. And the characteristics of the full plan terminations is a lot of times, you have multiple plans with multiple options, and there are active employees who have deferred those options. So you need to take -- keep track of those to be able to offer them the choices they have at the appropriate time. Plus, it requires a little bit more underwriting sort of focus.
And so starting almost 10 years ago, we built those administrative capabilities, and we built the underwriting resources, aggregating the data, doing the research necessary. And so we feel in a very good position in full plan terminations. Plus, you have to be able to be quite flexible in working with the plan sponsor in creating the transaction because each one is fairly bespoke. There's no standardized approach, and we're well known, I think, as a problem solver. So what we find is that the number of participants in full plan terminations is lower.
We have been able to secure very attractive economics on the transactions that we've underwritten and we have the confidence to sort of move away if we don't find that the economics are attractive. We priced the business based on lens looking at economic profitability as well as the GAAP and the stat implications. Sometimes, we consider the GAAP aspect. And the business that we're writing is at returns that are consistent with our sort of medium-term margin expectations.
So actually, the pipeline is very strong. The transactions are attractive. They take some time to negotiate, but that's one of the reasons that we believe that the economic profile is more attractive, and we will continue to focus on full plan terminations.

Operator

Our final question today comes from Tom Gallagher with Evercore.

Thomas George Gallagher

Thanks for letting me back in. Just the question on the investment side. Elias, I know you've talked about the strength in your reserves for your commercial mortgage loans, which I would concur with. But just curious, would you expect much restructuring and foreclosure activity over the next few years? Meaning, do you expect to use those reserves, or are you not seeing much activity and -- or the [waters comp] on that front?

Elias Farid Habayeb

So Tom, if we look at our track record to date, we've been successful in kind of either getting paid off or extending the loans that have come due from that perspective. We have not foreclosed on anyone at this stage. But this is an evolving situation and our team is very proactive in engaging with our borrowers to kind of find the best solutions for people. And as part of trying to agree on an extension, we try to get a restructuring of the capital structure to make sure the property is sustainable.
That being said, I can't tell you it's not going to happen. But should it happen, we feel comfortable that we're in a good position, not only do we have a strong reserve, but we also -- we have a real estate equity team where we have our own funds. So if we think foreclosure is the right answer for us, we're ready for it between our commercial mortgage loan team and our real estate equity team. We know what to do. But at this point, we have no foreclosures in our portfolio.

Kevin Timothy Hogan

Okay. Thank you, everybody, for joining us this morning. Thanks for your questions. Hope everyone has a nice day.

Operator

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.