Equitable Holdings, Inc. Q1 FY2025 earnings call

• Mark Pearson noted non-GAAP operating earnings were $421 million or $1.30 per share, down 7% YOY. Protection Solutions loss due to high mortality claims led to reinsuring 75% of individual life block to RGA. Retirement and Wealth Management had solid growth: AB operating earnings up 19%, Retirement net inflows $1.6B, Wealth Management advisory net inflows $2B. $335M returned to shareholders in Q1, AB ownership increased to 69%. Strong balance sheet with 425% combined NAIC RBC ratio and $1.1B holding company liquidity.
• Robin Raju discussed non-GAAP operating earnings $421M, adjusted for notable items $1.35 per share. Mortality claims in individual life were 80M above expectations. Retirement earnings pressured by expenses and commission pay-outs but expected to normalize. AB had positive net flows, alternative investments had 6% annualized return. Capital management: $335M returned to shareholders, plan to increase dividend, life reinsurance transaction to free $2B capital.

Protection Solutions segment reported a loss of $17 million due to high individual life mortality claims. Retirement and Wealth Management businesses: AB operating earnings rose 19% year-over-year driven by higher average AUM and improved margins; Retirement businesses had $1.6 billion of net inflows in Q1, driven by momentum in WILA franchise and institutional offering; Wealth Management had $2 billion of advisory net inflows with 8% advisor productivity increase; AB had total active net inflows of $2.7 billion, with private markets AUM up 20% year-over-year to $75 billion. Protection Solutions: loss of $17 million (revenue contribution not specified as it was a loss); Retirement and Wealth Management: collectively contributed positively with AB's 19% earnings growth, Retirement's $1.6B net inflows, and Wealth Management's $2B advisory net inflows.

• Expect to close RGA reinsurance transaction mid-year, freeing over $2B of capital. Plan to execute $500M incremental share repurchases post-close. Full-year cash flow guidance 1.6 to 1.7, confident in achieving despite lower equity markets YTD.

• High mortality claims in individual life insurance block leading to loss. Market volatility impacting fee income. Equity market declines affecting certain product segments. Uncertainty in global market environment affecting flows and margins.

Q: First for Robin on the $2 billion of proceeds. Can you size the extraordinary dividend that you plan to take up to the holding company?

A: Good morning, Suneet. So as we - as you mentioned, we expect a $2 billion in our benefit or capital release from the life insurance company post the transaction with RGA and that hasn’t changed. To-date, as you know, we redeployed about $760 million with investment in AB that brings our ownership to 69%. That leaves us about $1.5 billion left from the transaction. We remain committed to deploying the $500 million on top of the $760 million that we invested already and that leaves us about $1 billion of proceeds, which we’d expect to take at an extraordinary dividend later in this year. So, assuming that we achieve our 1.6 to 1.7 guidance that’s what we’re still working towards and then we have $1 billion of extraordinary dividend that we’re looking to take as well on top of that. Now given the pullback, we’ve been getting a lot of questions on the use of it - now given the pullback of our share price since in the month of April, that certainly buybacks will be certainly something that we look like that we’ll look at but we need to accompany that with debt repayment given the leverage ratio. But we’re also going to be watchful with the broader market environment as I mentioned on the call the transaction gives us tons of financial flexibility and resources to deploy. And given the volatility, we’re not in a bad - it’s not a bad position to sit on a bunch of cash right now as we wait the transaction to close, as well.

Q: First for Suneet Kamath on the $2 billion of proceeds. Can you size the extraordinary dividend that you plan to take up to the holding company?

A: Good morning, Suneet. So as we - as you mentioned, we expect a $2 billion in our benefit or capital release from the life insurance company post the transaction with RGA and that hasn’t changed. To-date, as you know, we redeployed about $760 million with investment in AB that brings our ownership to 69%. That leaves us about $1.5 billion left from the transaction. We remain committed to deploying the $500 million on top of the $760 million that we invested already and that leaves us about $1 billion of proceeds, which we’d expect to take at an extraordinary dividend later in this year. So, assuming that we achieve our 1.6 to 1.7 guidance that’s what we’re still working towards and then we have $1 billion of extraordinary dividend that we’re looking to take as well on top of that. Now given the pullback, we’ve been getting a lot of questions on the use of it - now given the pullback of our share price since in the month of April, that certainly buybacks will be certainly something that we look like that we’ll look at but we need to accompany that with debt repayment given the leverage ratio. But we’re also going to be watchful with the broader market environment as I mentioned on the call the transaction gives us tons of financial flexibility and resources to deploy. And given the volatility, we’re not in a bad - it’s not a bad position to sit on a bunch of cash right now as we wait the transaction to close, as well.

Q: Suneet Kamath asks about sizing the extraordinary dividend from the $2 billion proceeds.

A: Robin Raju responds about $2B capital release from life insurance transaction, $760M redeployed into AB, leaving ~$1.5B, with $500M planned for repurchases and ~$1B for extraordinary dividend later, noting buybacks may require debt repayment due to leverage.

Q: Ryan Krueger asks about leverage ratio and incremental buybacks.

A: Robin Raju says leverage ratio considered with rating agencies, GAAP leverage ratios don't reflect AB at market value, incremental buybacks may require debt repayment to align with rating agency requirements.

Q: Michael Ward asks about momentum in IR and AB heading into April volatility.

A: Nick Lane talks about strong structural drivers, AB's institutional pipeline increased, private assets growing, Onur Erzan discusses April flow challenges but positive long-term prospects with institutional pipeline, private assets, and fixed income rebalancing benefits.

Q: Michael Ward asks about capital deployment timeline for buybacks.

A: Robin Raju says will evaluate share buybacks post-life reinsurance transaction close, with financial flexibility, considering market dislocation and debt repayment to manage leverage.

Q: Tom Gallagher asks about RILA sales in April and RILA product profit margin.

A: Nick Lane says April sales were robust but doesn't disclose exact size; Robin Raju explains RILA is spread-based earnings, segment is 50% fee-based with sensitivity to equity markets, but RILA's spread income grew 9% YOY.

Q: Jimmy Bhullar asks about competition in annuity business and LifePath sight.

A: Nick Lane says Retirement segment up 6% YOY, RILAs up 3% YOY, competitive churns temporary, LifePath expects ~$250M inflows in Q2 with lumpy visibility but well-positioned in growing market.

Q: Joel Hurwitz asks about spreads in Individual Retirement and future spread yield.

A: Robin Raju says quarterly noise in spread income, but year-over-year growth expected, with floating rate assets managed to match liabilities, expecting spread income growth with general account book value.

Q: Joel Hurwitz asks about Bermuda entity update.

A: Robin Raju says Bermuda is operational, provides cash flow optionality, no further update at this time.

Q: Jack Madden asks about risk to full-year cash flow guidance and AB ownership impact.

A: Robin Raju says 1.6 to 1.7 guidance assumes 8% equity return, 50% cash flow from insurance businesses, comfortable with guidance despite lower equity markets; Mark Pearson says no plans to increase AB ownership further currently.

Q: Nick Anido asks about confidence in $2B cash flow by 2027 and AB ownership impact on Investor Day guidance.

A: Robin Raju says confident in $2B 2027 number, Investor Day guidance didn't contemplate AB ownership increase or life transaction, but life transaction swaps to higher multiple earnings, maintaining confidence in cash flow outlook.

Q: Maxwell Fritscher asks about mortality carryover into 2Q and AB outflows outside US.

A: Robin Raju says can't update April mortality yet, but life reinsurance to reduce exposure; Onur Erzan says outflows in outside US taxable fixed income due to rate outlook uncertainty, but diversified with multi-asset solutions in Asia and strong Japanese equity business.

Q: Wilma Burdis asks about how the protection services deal reduces credit risk.

A: Robin Raju explains life reinsurance transaction frees $2B capital, improving RBC ratio by 75-100 points, reducing credit risk exposure post-transaction.

Q: Wilma Burdis asks about reinvestment opportunity post-protection deal.

A: Robin Raju says focused on relative value with RILA product growth and private credit capabilities from AllianceBernstein partnership, with $6B remaining of $20B commitment.