Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing bar and welcome to Equitable Holdings fourth quarter 2019 earnings Conference call. At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question.
During the session that you need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to handle the conference over to your speaker today, just like a bear head of Investor Relations. Thank you. Please go ahead.
Thank you.
Good morning, and welcome to equitable holdings full year and fourth quarter 2019 earnings call.
Materials for today's call can be found in our website at <unk> IR equitable holdings Dot com.
Before we begin I would like to note that some of the information we present today its forward looking and subject to certain FCC rules and regulations regarding disclosure.
Our results may materially differ from those expressed in or indicated by such forward looking statements.
So I'd like to point out the Safe Harbor language on slide two of our presentation.
You can also find our safe Harbor language in our 10-K.
Joining me on today's call is Mark Pearson, President and Chief Executive Officer, Equitable Holdings, and Andres and Armstrong, our Chief Financial Officer.
Also on the line is John Weisenseel Alliance Bernstein's Chief Financial Officer.
During this call we'll be discussing certain financial measures that are not be said generally accepted accounting principles.
Also known as non-GAAP measures.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and related definitions maybe found on the Investor Relations portion of our web site in our earnings release slide presentation and financial supplement.
I would now like the turn the call over to Mark in orders for their prepared remarks.
Thank you Jessica and good morning to all who are joining our call today.
This morning, we are pleased to present, a full year and fourth quarter 2019, earning results will also provide an update on how we're performing against our key financial targets and strategic priorities.
Before turning to our results I would like to show an update of some recent highlights.
Entering 2020, we again find ourselves an exciting and historic new territory.
Today, we are delighted to once again be equitable having returned to the iconic American business name and brand that is integral to identity since aging 59.
As a series of secondary market transactions in 29, chine effectively reduced axis economic interest to zero.
We will hard at work building our capabilities to ensure we will continue to succeed in slide as an independent listed company.
In addition to create your own frameworks policy structures and systems. We now have a governance body comprised of talented and others leaders, which accurately reflects who equitable is today.
Achieving independence was a pivotal moment folk in Ization and while this transaction bought an array of opportunities and challenges I'm proud that our teams kept it focus firmly on serving our clients as reflected in the strong results. We are sharing with you today.
We're looking at 2019 in total we delivered strong operating performance across the business driven by net inflows of $25 billion and are you in gross over $116 billion.
Oh robust cash flow enabled us to continue returning significant capital to shareholders to the tune up $1.6 billion in dividends and share repurchases throughout the year.
And the consistency of outperformance and strength of our balance sheet continue to give us confidence in our ability to consistently returning capital to shareholders over time.
This is evidenced by the 600 million dollar share repurchase program, we announced just yesterday.
And amount incremental to the 400 million dollar buyback authorization that was accelerated into 29 team.
Together with our quarterly dividend, which we intend to increase next quarter.
We remain well positioned to continue delivering on our 50% to 60% payout target ratio.
As an update to our discussion from last quarter.
I'm pleased to report that we've successfully early adopted DNA I see VA before at the you and.
We believe this framework well not fully market based move statutory accounting closer to an economic basis, which is how we manage our business.
And onto this framework.
Free cash flows will be better aligns with economics, and our hedging program will be fully reflected in statutory reserves.
As of yearend, Oh, new RBC ratio under the new Formula was approximately 500% well in excess of a new minimum target RBC of 375% to 400%.
Under the old and I see capital and reserving standards. This minimum translates to see T. 98 foot via days and 352, 400% for non VA business lines.
And finally.
Rounding out our balance sheet and capitalization story.
We opportunistically raised $800 million in preferred stock during the fourth quarter.
Further optimizing our capital structure and providing the holding company with additional liquidity and flexibility going forward.
Turning now to slide four and a summary of our strong financial performance in 29 team.
On a full year basis non-GAAP operating earnings were $2.2 billion. Excluding notable items all $4.40 on a per share basis.
This growth was driven by continued execution against our strategic priorities.
Significant growth in assets under management and the impact of our capital management program.
Supporting these results were sustained momentum across each of our business segments.
In individual retirement, we grew sales by 12% year over year.
Led by 31% growth in our buffered annuity SCS product and supported by the strength of our distribution.
Where we deepened existing relationships throughout the year and maintain leading positions across our focus distribution channels.
In group retirement, 2019 marks the seventh consecutive year a positive net flows as we continue to leverage our worksite advice model and leadership position in the K through 12 market to help teaches achieve their financial goals and secure their retirement.
At Alliance Bernstein assets under management grew by $107 billion supported by strong markets I know the $25 billion aboard based net inflows, reflecting strength across asset classes distribution channels and geographies.
Lastly, our protection solutions business delivered strong earnings upside throughout the year and is generating encouraging topline momentum in our nascent employee benefits business.
Overall.
Of course these businesses, we continue to drive success by focusing on markets, where we have scale and competitive advantages and can get attractive return on capital invested.
On this point, we generated a non-GAAP operating although we have 16.4% excluding notable items.
And as of December 31st.
Total company assets under management stood at $735 billion, an increase of $116 billion in the trailing 12 months.
In conclusion. It was another strong year for equitable holdings, we are delivering on our commitments and into Twentytwenty bullet position of strength and confidence in our ability to continue to create value for our clients communities partners and shareholders over the long term.
I'll now turn the call I would to end is to go to a fourth quarter results in more detail and this.
Thank you Mark and good morning, everyone on slide five I will review our consolidated results for the fourth quarter before providing more details on our segment results capped the management program and financial outlook.
This quarter, you reported non-GAAP operating earnings of 652 million up from 504 million into prior year quarter.
Driving this result was higher net investment income as well as an increase in feed type revenue due to higher separate account balances and significant at U.M. growth.
Also contributing to this quarter's results lets the continued execution of our strategic priorities.
Through year end, we've achieved a net savings run rate of $53 million, placing us on track to do they brought in over 75 million target by the end of 22 any Additionally, as we announced last quarter. We've completed the execution of our Richie a rebalance one year ahead of schedule and this quarter's results reflected.
Cumulative benefit of hundred $52 million through 2019.
Finally impacting earnings this quarter was net favorable notable items of $54 million, including favorable mortality and the reserve release in our protection solution segment I will provide additional details on the segment pages.
Normalizing for these items non-GAAP operating earnings was 598 million into fourth quarter or dollar and 26 cents per share.
Moving to GAAP results, we reported a net loss for the quarter of $937 million as with prior quarters. This result was driven by non economic impacts from nonperformance risk and hedging results, which again performed inline with expectations.
On that point and in light of recent rate movements and equity market volatility I'd like to reiterate that under our economic framework. Our hedging program continues to protect our balance sheet and performed as expected with a 96% <unk> effectiveness.
To protect our balance sheet from further interest rate declines we have significant interest rate hedges in place now fully duration matched and the reprice our products on the regular basis to stay economic with current conditions.
Moving to the segment.
Slides I would begin with individually retirement on slide six.
Operating earnings increased from 348 million to $391 million, primarily driven by higher net investment income on how you're checking account balances and how are you feed type revenue on separate account balances.
Also impacting results was $11 million of notable items related to higher net investment income into current quarter.
Overall, we continue to drive sales momentum throughout the quarter with first year premiums up 12% year over year.
Supporting this growth was another quarter of record SCS says, which improved 31% from the prior year quarter as we continued to deepen our relationships with existing distributors.
Account values over the trailing 12 months grew by over $14 billion driven by positive market performance.
And finally, I will flows improved year over year as consistent outflows from our pre 2011 block were partially offset by $842 million of net inflows on our current product offering.
Turning to group retirement on slide seven.
We reported operating earnings of $110 million up from hundreds and 2 million into prior year quarter, primarily due to higher fee type revenue on the highest separate that confidence is.
The results also benefited from $10 million of notable items related to higher net investment income in the quarter.
Account values increase by approximately $5.5 billion year over year.
Due to market depreciation and to seven straight calendar year of positive net flows.
Net flows into fourth quarter also improved by 75 million versus the prior year period, driven by gross premium growth in both tax exempt and corporate markets.
In total gross premiums improved 10% year over year, including 20% growth in first year premiums.
Now turning to investment management in research for Airlines Bernstein on slide eight.
Operating earnings increased 22% $231 billion from hundred 7 million into probably a quarter.
Primarily driven by higher performance fees and base fees on how you're a U M and fairly stable fee rates.
$6.5 billion of inflows marks to six straight quarter of positive net flows and were led by active inflows of 8.1 billion.
For the full year active net inflows were 29.7 billion translating to 6.5% organic growth and reflecting broad strength across global fixed income equity and alternative platforms.
Hey be has continued to generate consistent results across asset classes and distribution channels.
In retail.
Records grocers of $75 billion for the full year drove active net inflows of 27 billion translating to 20% organic growth.
Over 33, Avi phones across asset classes, each had more than $100 million in net inflows during 2019.
In institutional active equity gross sales of 9.2 billion reached its highest level since 2008 net inflows of 2.9 billion drove 9% organic growth.
Finally babies adjusted operating margin for the full year was 27.5%.
Down from 2018, due to onetime 2018 performance fees and Nash with relocation expenses.
Looking ahead, we remain confident that the 30% margin target is achievable long term, particularly as a b continues to execute and strategic initiatives such as the relocation to Nashville and to further scaling of its offering.
Moving to protection solutions on slide nine when we reported operating earnings of $128 million up from 37 million in the prior year quarter.
As with the prior two quarters, we had favorable notable items this quarter, which pushed results above prior guidance.
Specifically operating earnings included notable items of approximately 58 million primarily related to favorable mortality and the reserve release.
Normalizing for these items operating earnings would have been approximately $70 million in the quarter, which is on a full year basis translates to a 8.8% non-GAAP operating RBC.
From a taste perspective, gross written premiums increased 3% year over year, primarily driven growth in renewal premiums.
Further analyze premiums increased 5% year over year, driven by continued growth in our employee benefit business.
I wouldn't I like to highlight our capital management program and capital position outlined on slide 10.
And 2019, we returned over $1.6 billion to shareholders in the form of quarterly dividend and share repurchases.
During the fourth quarter, we returned 633 million, which included 523 million of repurchases from Axa.
As part of it sell down in November.
This completed our 2019 capital management program as well as 400 million over with 22 any program, which was accelerated into 2019 prior to the November secondary offering.
Looking ahead, our board of directors has authorized in use 600 million dollar share repurchase program supported by strong sustainable upstream distributions from our operating entities.
In addition, we intend to increase our quarterly dividend by two cents to 17 cents per share payable into second quarter subject to board approval.
We believe these actions further demonstrates the company's earnings power and financial strength and enabled us to continue delivering on our target 50% to 60% payout ratio.
As an update to our discussion last quarter, yes, and I was successfully early adopted the new any IC standards, which we believe better aligns with economics and fully reflect our economic hedging instead to reserves.
As Mark mentioned under the new NFC Formula you have established a new minimum capitalization target of 375% to 400% RBC.
And as of yearend, a renew combined RBC ratio was approximately 500%.
And finally, we continue to enhance our capital structure in the fourth quarter Opportunistically racing $800 million of preferred stock.
The proceeds have been used to retire I will terminal.
Provide additional financial flexibility as we aim to further optimize our capital position going forward.
We ended the year with a debt to cap it to the ratio of 24.5%.
Before turning to call it back to Mark for his closing comments.
I would like to provide an update on our strategic priorities and French and financial targets on slide 11.
As you know fast be target improvements standards are set to be implemented into any 22.
And therefore, we plan to host in Investor Day, midyear 2021, with more detail around our longer term financial targets and strategy going forward.
For 2021, you should expect us to carry forward with the existing plan.
Growing as 8% to 10% returning 50% to 60% of operating earnings to shareholders generating and mid teens or E and targeting 30% plus operating margin for a beep.
As a reminder, our new minimum target RBC of 375% to 400% translates to see T. 98 movies and 352, 400% Fernanda yeas under the old FDIC copper then reserving standards.
As always I wrote risk culture permeates everything we do and is at the core of all decisions that govern how we manage the business. We believe this is a key differentiator for equitable and it provides us with confidence into strength and stability of our balance sheet and our ability to enhance improved.
<unk> economic value for shareholders.
With that I will turn to call it back to Mark for closing remarks.
Thanks, Dennis before opening up to questions I'd like to close by reiterating a few key messages.
As you can see 29 chine was another remarkable year for our company.
We generated strong performance and growth across the business, while successfully and consistently executing on our strategic priorities.
As a result, we all returning meaningful levels of capital to shareholders with $1.6 billion in dividends and share repurchases in 29 team.
Further supported by the strength of our balance sheet and robust cash flows.
Overall equitable holdings continues to deliver on the shareholders shareholder commitments articulated at the time of the IPO.
And we maintain high conviction in our ability to continue generating value for shareholders.
Looking ahead, we are operating from a position of strength as we again find ourselves an exciting and historic new territory.
I look forward to the progress we will continue to make as equitable.
With that I'd like to open the line for questions.
At this time I would like to remind everyone in order to ask your question. Please press Star then the number one on your telephone keypad, well pause for just a woman chicken barbecue whatever roster.
Your first question comes from the line of always Greenspan from Wells Fargo. Your line is open.
Hi, Thanks, Good morning, My first question.
Last year, you guys it entered into.
A small transaction with your coal block and I guess, if you can just kind of provide a little bit of the thought around the transaction that you announced late last year and then also just thinking forward.
I heard a lot about interest within blocks on within the life insurance. They can you just provided that I'll update on other transactions that you might consider and if that there, but you might want to go down we are.
A good amount more capital potentially for incremental share repurchase.
Yeah. Good morning. Thanks for your question look I think we announced.
End of last year the transaction about use the fell in America, I think I see that more as a as the cleanup transaction for noncore businesses that we have no I think they're small day around off but I think they actually had to protection solution segment to improve its its performance. So really you should see that as I said cleanup transaction that that helps.
That's just simplified structure and then.
And going forward, yes, your question about them.
Everything as you can expect us to continue to do this kind of small transaction.
There are helping us.
And our operational performance, but we also always look at them and you all the waste tool to optimize the shareholder value.
Okay, Great and then my second question, so 8% to 10% on earnings CAGR for 2020 wine.
No that's a little bit higher right, then kind of the the five to seven that you guys had been pointing to on September 2020.
So is it just kind of more of the same or do you think about getting to 2021 should we think about incremental expenses that you are looking to pull out or is it more about your core business growth and continued capital returns you drive you kind of an 8% to 10% fiasco.
Yeah, maybe just just to clarify that I think when we came out on the IPO.
We actually had earnings growth and now we translate to we'll just market practice EPS growth. So you should see that's a continuation of our strategy going forward.
Oh sure.
Thank you.
Your next question comes from a line of Jimmy Brewer from JP Morgan Your line is open.
Hi, good morning.
Couple of questions first just on the retirement business Youre logs improved sequentially and versus last year, but if you look over the past few years.
They've been fairly modest I think less than 1% of your assets. So just wanted to get an idea on what your outlook and do you feel that this is a level.
Dan or can you get a little bit higher than that because many years of actually.
And before one key markets.
[noise] only Jimmy it's Mark Pearson, if you look at the flows on the individual retirement side, it's made up of.
Two sources really flows in the new business.
Simply today to SCS product, which is going very very well so on those.
On on the new coal business net flows in the quarter of 842 million.
And that's a being offset by outflows on the old legacy GM Xb ER business, so not a surprise to us feel very good about the sales performance of the individual retirement business I think coming right fifth consecutive quarter of record sales on the assay is side so you've got.
The new business coming and offset by some of the a legacy legacy outflows, that's going to help us on Anoro, we basis as you as you know and then on the group retirement side, which is the.
The other part of a retirement business seven so you have a net positive flows to 67 million in the year nicer earnings quarter I'm. So overall, we were doing well on our top lines and feel very good about it.
And are you seeing any fee pressure and the teachers market and then do you expect any changes in practices business practices in the and the teachers market just given the regulatory inquiries.
Yes look we're very proud of where we all on the teachers market, we have more than a million educators that would make us number one in the U.S. on the K through 12, a ti teaches market and and yes, we have been contacted by the regulators. They are doing a sweep of practices and obviously as the number one.
Yes, we would be included in that in terms of the fee pressure no no signs are hitting our business there, but I would point out to two analysts that the fees, we collect the through the product Oh really.
Rewarding us for the great advice, we give the teachers up a very complex.
The timing situation or the need to understand social security they define benefit schemes and.
Our teams come in and advise them on the supplementary retirement side as well as of course.
I spent an asset allocation so no push you on the fees and we feel very good in terms of the service we give them in the average teach who is is paying about 25 to $35 a month pool for that for the advice the asset allocation and the and the product service that we get.
Thank you.
Your next question comes from a line of Ryan Krueger from KBW. Your line is open.
Hi, good morning.
You had previously indicated that you were conducting a strategic review of the licensing stake and it can you give an update on your thinking as well as.
When you made close to us what you conclude on.
Hey, Good morning, Ryan I think as we talked before you know the particularly your question about the lines Bernstein is de de ownership and I think we told you before the ownership percentage of 65 present is by history.
Having said that I think we feel very comfortable having a b as part of the group I think we feel very comfortable from a from a cash flow standpoint, but we were still evaluating their if this is something we should change at this is something we should keep and we'd be to come back and later in the year to you.
Okay. Thanks, and then I guess this on the on the RV the of 500 relative to the 375 to 400 target I mean do you get that should we think about this is something you may consider looking to drive down or is it more of a function though.
You are kind of managing.
Cushion above above CB, United D.A., Yeah, Yeah the target.
We should really just expect ongoing.
Cash flow to come out of the stuff, but not the RBC ratio actually be worked out towards the target.
Yes look I think one thing thats very important overall, we managed to total company relate to our economic model to make sure that we are.
Here too to basically payout or would you just two to two policyholders and to shareholders.
That's where we feel very confident for the insurance entity, you really laid out the RBC targets. The 375 to 400 as a minimum target, making sure that we are whether it's all been solvent above that and I actually able to pay out the annual dividend from the operating entity up to the to the holding company.
I think the and to answer your question. This is a minimum target you never want to be at the minimum. So you want to have enough cushion to pay out the dividend and to paid in a sustainable way. So I think that's I.
I think thats, where we feel very comp and I'm very comfortable.
Yes.
Understood. Thank you.
Your next question comes from a line of Suneet Kamath from Citi. Your line is open.
Thanks, Good morning, first question on the 8% to 10%.
2021, I guess I'm struggling with what's the underlying base that we should be using terms that grow because obviously, we just finished 2019, but we don't have a sense of where you're going for 2020, and obviously, there's a normalization factor as well. So can you just help us bridge from kind of where we are today.
And what we should expect for this year and then I would get 10 for next year.
Yes, so look I think he's been here at the IPO I mean, we laid out the plan.
So [noise].
Basic gave you guidance that if everything works was markets perform as expected to be going to be somewhere between 2.2 $2.3 billion in operating earnings that's an underlying growth CAGR from five to seven present. This included the rebalancing of the general account, which Jim had an impact of about $160 million in totality us.
I told you. This program has concluded so its footing effectively you have to full impact by 22 any on the expense side I think we also on track to get the full impact of $75 million by 22 any so this these are two initiatives that kind of.
Amplified the underlying growth of the of the business, we're going to continue to Brooklyn efficiency, we're going to continue to work on the general account I think that's that's how would you don't expect it at the same pace, but still expect that to have a meaningful impact. In addition, we obviously work on the on the underlying basin as you've just heard from Mark I mean, we see constant inflow.
So when the group retirement business, which helps the underlying business and I think also do all the businesses. So poorer performing alone along that path. So I think you should continue to see good solid growth.
Supported by and initiatives that just mentioned.
Okay, and I guess my second question for Mark on that you'd be speaking no question that we get quite often.
With all the consolidation in asset management.
How are you thinking about participating in that.
Yeah.
Are you sort of.
Actively managing that are having conversations or do you sort of let me be operate on its own and if something comes up and they compete.
Yeah, that's something we'll think about just just wondering how we should think about.
Yes, I think as Anders said, we were very happy with our investment in a b, it's a low capital intensive the business is performing.
Extremely well and six consecutive quarters of funds grows 25 billion net flows in the year.
And I'd be of course is has a unique franchise with a its strong Asian operations and.
Really growing ultimates business or the business is performing well.
We're aware of the other big transactions I mean, I think it it's to be seen where the scale is the answer but we don't feel in any desperate situation too to do anything like that business is performing well, we're very happy with it Seth and the team Oh are outperforming the their competitors.
We feel very very good about it as Anders said, we look at it from time to time, 65% is a it is an odd number to number we used to.
And we will consider you know going forward, but don't expect anything eminent from us.
That's something we'll consider.
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Your next question comes from a lot on.
Thomas Gallagher from Evercore Your line is open.
Good morning, just a few more detailed questions about capital to Anders. The do you have an estimate for total adjusted statutory capital at year end.
That you could share with us I think using.
The tax from three Q I was solving for for about a billion eight of capital above your minimum target I want to know is that that approximate is that a good ballpark number to start with and then.
Related Lee can you share how much.
Cash and liquid assets you have at the holding company used to it just says about 500 million.
Oh can you quantify that.
Yes, so I think.
Two very good question. So I think just let's start with the excess capital in the insurance company.
We laid out to 500% RBC, we have under the new framework.
That's meaningfully above our minimum target and this translates into a 1.5 to 2 billion dollar number so that's pretty much of him.
As you as you expected I think the Holdco cash I think you can I get that number and this morning, when we file the k. So no surprises there later on today, but right now I can't give it a number but expected to be at the at the good level.
Yes, I think that data we are very solid.
Okay and then.
My follow up is.
<unk> billion of quarterly outflows on the pre 2011 variable annuity business can you quantify how much of those would be partial withdrawals, which are utilizing or at least preserving the underlying I'll living benefit or death benefit guarantees and how much you would put.
In the category of more economically favorable weather, that's full withdrawals or you know not like efficiently utilizing the under underlying guarantees.
Yes, so we don't give displayed stuff that you can imagine did that this both components in it in the outflows I think there's natural outflows that people utilize it because they retire and they want to.
Take them on intend as people because they need the money and they want to they wanted us to place, but we don't give the split here.
Okay, that's something you'd consider disclosing because I think that is pretty important from a risk reduction standpoint.
Yeah, I think look I think what is important for you to know just it's really in line with all right and assumptions that we have you don't annual basis, we updated assumptions, but what we see here is really in line with the and the assumption we put in our reserves.
Okay. Thanks.
Your next question comes from a line of Alex Scott from Goldman Sachs. Your line is open.
Hi, good morning sort of follow up question on the holding company cash in and just the preferred.
Equity that.
But you did.
And you mentioned.
Paying down the term loan I mean should we think about that is there is maybe some need to reduce leverage.
I guess to another where are you comfortable around like the 25% debt to cap you're out right now.
Yes, I think I think the question is you know we had the preferred that we and raised them at the end of Q4, we use some of the proceeds to pay back the term loan that was that would have mature I think in 2021.
I think the leverage ratio, we have we're very comfortable with it. So you know I think we really take that as an opportunity to optimize our capital structure because right now it's very attractive to go out with with preferred so we used ADESA ADESA, yeah, really opportunistically to optimize a restructure but always have an island on the leverage ratio of this is something that.
You want to keep them and into mid Twentys.
Got it and.
Maybe one follow up on sort of the excess capital I guess.
Yeah, I wanted to a confirm if the 600 million dollar repurchase.
Assumes any drawdown of access at all and then.
Secondly, I just wanted to get an update on high level. How you think about it you know if you do have some access whether it's the opco or holdco to use.
It's sort of the.
Priority checklists for you in terms of how your book to use it.
Yes. So the you know the 600 million and repurchase that we did we just announced assumes that we got another dividend out of the operating entity and later in the years can be made that always very clear that's also.
You're going to use well, let's say exercise to most of the buybacks in the later half of the year. Once we have seen the cash from the from the Opco.
Look I think what I can tell you really from a guidance and particular now 2021, I think we cannot continue to pay out between 50, and 60% I think thats a really good ratio really good payout ratio.
Obviously, managing the cup and accordingly.
Before.
It's really the economic model that drive stuff, but we feel very comfortable that we can continue to pay out them that range in a very consistent basis.
And and I guess, just no maybe one quick follow up on that.
Paying out 50 to 60 in a normal market environment would you would you think that actually is drawing down access or is that just kind of keeping the access study state.
Yes, I think the way I look at it it takes some of the axis down and then you generate new new access both by just having having the business I know one thing. It is important I mean, we talk about this the normal.
Market environment here I think from Oh.
Obviously, it's it's the equity markets that drives the fees interest rates I think we totally immunized right now we really hedged so interested impact in.
The changes to be seen the last few weeks and they have no impact on it is clearly on the equities, where obviously the fees are dependent on on how much you get that we feel we feel very comfortable there.
Got it okay. Thanks.
Again, if you would like to ask questions. Please press Star then the number one on your telephone keypad. Your next question comes from the line of and remove it from Bank of America. Your line is open.
Hey, Good morning. My first question was just on the 8% to 10% EPS growth target I may have missed it but what are you assuming for interest rates and if interest rates stay kind of where they are right now the 1.3% on the tenure treasury, what happens to that growth rate or we call it towards the bottom.
I know that range.
Yeah.
Thank you.
Excellent question I think as I said before we are very <unk> fate basically even ice on interest rates, we have hedged we ala matched on interest rates are we not sensitive to interest rates on our balance sheet for the new business. It's only 15% of the new business that actually has an interest rate component and the reprice that on the regulatory.
Basis.
So I think the interest rate impact is.
Basically not their equity markets as I said before his overlay something that drives the fees of the underlying funds. That's that's where we basically right the marketing up and down that interest rates we are hedged.
Economically on on the.
Great and then just a question on the S. Yes. So most of the products have been sold in a generally rising equity market and brick equity markets have been choppy at least in the last week or two.
I know that's not much of a time period, but how do you think Phil philosophically distributors will think about this product.
If it only absorb some of the products only absorbed the first 10% loss of principal when we get kind of choppy markets. Like this are they having different conversation with their clients just just kinda Wanna get some understanding behind that.
Hi, and that smog, obviously as you know a SCS as a sort of maybe.
Medium term generation, we're looking at a five years six years 10 years out. So that's the first thing that conversation as.
When the markets all choppy in a bit nervous or actually consumers value the downside protection and all prepared to give up some of the upside for four precisely that.
For that reason.
The other thing we're looking at a at the moment is design concepts around the two to two to adjust to the market. So.
As I mentioned earlier in a it's a fifth.
Consecutive quarter of record sales and this is thing was up 30, 30% or something.
So the product is really meeting a need out there.
And with the choppy markets you know consumers will continue to be drawn towards some downside protection, yes, we'll need to keep looking at the design.
And as mentioned, we like the fact that this is not an interest sensitive product. We can match match on duration, which is what we do.
So it's a very good product for shareholders and four and for our policyholders and selling very very well, yes, maybe just to to chime in you know I mean, there's the interesting piece is actually when you have a higher volatility in the market. It makes the product more attractive.
So the caps actually go up because of the in the way the way attached so his product becomes more attractive foot policyholders.
In choppy market and we actually in addition to the 10% downside yourself, a 20% to 30% them buffer if consumers like that.
Great. Thank you.
We would like to take this time to thank everyone for joining equitable holdings fourth quarter 2019 earnings Conference call. This ends today's conference call you may now disconnect.
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