- Non-GAAP Operating Earnings: $494 million or $1.43 per share, up 23% year-over-year.
- Adjusted Non-GAAP Operating EPS: $1.52, up 20% year-over-year.
- Assets Under Management and Administration: Increased 11% year-over-year to $986 billion.
- Capital Returned to Shareholders: $325 million, equating to a 65% payout ratio.
- Cash at Holding Company: $1.6 billion.
- NAIC RBC Ratio: Approximately 425% to 450%, above the 375% to 400% target.
- Cash Generation Target for 2024: $1.4 billion to $1.5 billion.
- Retirement Business Net Inflows: $2.3 billion, translating to a 7% annualized organic growth rate.
- Wealth Management Advisory Net Inflows: $1.5 billion.
- Asset Management Net Inflows: $0.9 billion, with active net inflows of $1.3 billion.
- AB Adjusted Operating Margin: Improved 380 basis points year-over-year.
- BlackRock LifePath Paycheck Inflows: Over $500 million.
- Annual Cash Generation Target by 2027: $2 billion.
- Share Reduction: Reduced shares outstanding by 12% over the past six quarters.
- Investment Income Increase: Over $160 million year-over-year.
- New Money Investment Rate: 5.6%, about 120 basis points above the portfolio yield.
- Annualized Return on Alternative Investment Portfolio: Approximately 5% during the second quarter.
- Consolidated Tax Rate: 19% in the second quarter.
- Individual Retirement Spread Income: Rose 17% year-over-year.
- Group Retirement Spread Income: Rose 4% year-over-year.
- Wealth Management Assets Under Administration: $94 billion, up 17% over prior year.
- AB Private Markets AUM: $64 billion, grown 5% year-over-year.
- Equitable Holdings GAAP Net Income: $428 million in the quarter.
Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Equitable Holdings Inc (EQH, Financial) reported non-GAAP operating earnings of $494 million or $1.43 per share, up 23% year-over-year.
- Assets under management and administration increased 11% year-over-year to $986 billion, supported by favorable markets and positive net inflows.
- The company returned $325 million to shareholders during the quarter, maintaining a 65% payout ratio within their target range of 60% to 70%.
- Equitable Holdings Inc (EQH) received inflows from the first four BlackRock LifePath Paycheck clients, totaling over $500 million, marking a significant milestone.
- The company is on track to generate $1.4 billion to $1.5 billion of cash in 2024, with approximately 50% of this coming from non-insurance businesses.
Negative Points
- Individual Retirement spreads have likely peaked, with less tailwind expected from higher interest rates.
- Group Retirement business showed negative flows when excluding the LifePath inflows, indicating challenges in certain market segments.
- The company faces quarterly volatility in its Protection segment due to large face amounts and retention.
- There is uncertainty regarding the timing and size of future inflows from the BlackRock LifePath Paycheck product.
- The company is exploring multiple solutions to reduce mortality volatility in its Protection segment, but no material updates are expected until early 2025.
Q & A Highlights
Q: I wanted to start on Individual Retirement sales. Are they still being funded by 401(k) rollovers? How sensitive are these sales to potential Fed rate cuts?
A: (Nicholas Lane, Head of Retirement, Wealth Management, Protection Solutions) We see robust growth for buffered annuities driven by demographic changes and macro instability. RILA sales are up 20% year-over-year. The sensitivity to rates impacts fixed annuity sales more than RILA sales, which offer protected equity exposure. Our distribution network positions us well to capture market value.
Q: You've been writing a lot of individual retirement products and now group products with LPT. Does capital strain become an issue?
A: (Robin Raju, Chief Financial Officer) We've focused on capital-light products like RILA, allowing us to fund growth efficiently without choosing between growth and returning capital to shareholders. We remain committed to our targets and are prepared to source third-party capital if needed.
Q: Are you still planning on a solution to reduce mortality volatility for protection despite improved results?
A: (Robin Raju, Chief Financial Officer) Yes, we continue to explore solutions to improve return on capital and reduce volatility. We are looking at various options, including expense management, excess reinsurance, sidecars, and third-party solutions. Expect updates by early 2025.
Q: Can you comment on competition in the RILA market? Are new entrants being disciplined?
A: (Nicholas Lane, Head of Retirement, Wealth Management, Protection Solutions) We haven't seen any material change in competitive dynamics recently. We focus on profitable growth and achieving mid-teen IRRs. Our established distribution networks and track record of innovation position us well against competition.
Q: On Group Retirement, excluding LifePath, flows have been negative. What's driving this?
A: (Nicholas Lane, Head of Retirement, Wealth Management, Protection Solutions) Our Group Retirement business includes tax-exempt, corporate, and institutional lines. Positive net flows in tax-exempt and corporate markets are offset by outflows in non-core 401(k) channels and older products. Higher interest rates and account balances have impacted flows, but we retain a significant portion through Equitable advisers.
Q: On Individual Retirement spreads, do you expect them to be stable or could there be some downside?
A: (Robin Raju, Chief Financial Officer) Spreads have likely peaked with less tailwind from higher interest rates. Going forward, we expect net investment margin spreads to stabilize and grow in line with the general account book value.
Q: Can you provide perspective on the capital strain from growth in the LifePath Paycheck product?
A: (Robin Raju, Chief Financial Officer) The LifePath Paycheck product has a slightly higher capital requirement than our SCS capital-light product but is priced to achieve 15%+ IRR. It has less acquisition expense and is more like a fixed annuity in terms of capital requirements.
Q: Has there been any shift in thinking on the Legacy block?
A: (Robin Raju, Chief Financial Officer) No change from our Investor Day strategy. The Legacy block will run off, becoming 5% of earnings by 2027 and releasing capital. We focus on growth opportunities in the retirement market and AllianceBernstein.
Q: Can you talk about the opportunity to add additional relationships like the BlackRock partnership?
A: (Mark Pearson, President, Chief Executive Officer, Director) We're excited about the opportunity for in-plan annuities within 401(k) plans. We have partnerships with AB and BlackRock and are in discussions with other fund managers. Expect flows to be lumpy due to long lead times.
Q: On the LifePath Paycheck product, should we expect similar inflows in future quarters?
A: (Mark Pearson, President, Chief Executive Officer, Director) We can't provide specific numbers but expect low inflows in the third quarter with more in the fourth quarter and first half of 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
