Q2 2020 Equitable Holdings Inc Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Equitable Holdings second quarter earnings call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer session. If he would like to ask a question at that time. Please press star one on your Touchtone phone.

That's fair. Please go ahead.

Thank you.

Good morning, and welcome to Equitable Holdings second quarter 2020 earnings call.

Materials for today's call can be found in our website at <unk>, our dot equitable holdings dotcom.

Before we begin I would like to note that somebody information, we presented 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 refer you to the Safe Harbor language on slide two of our presentation for additional information.

Joining me on today's call, it's Mark Pearson, President and Chief Executive Officer of Apple Holdings, and honors Malmstrom, our Chief Financial Officer.

Also on the line, it's Nick Lane, President of Affordable financial and John Weisenseel Alliance Bernstein's Chief Financial Officer.

During this call we will be discussing certain financial measures that are not based on 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 to turn the call over to Mark in Ontario for their prepared remarks.

Good morning, and thank you all for joining us today.

I recognize that this is still a very difficult time for many.

So I'd just like to start by saying that on behalf of all of US It equitable I hope you and your loved ones cycling wells.

I'm extremely proud of how our employees and advisors have responded to these most challenging times.

It is pleasing to report today's earnings.

And growth in assets under management, a testament to the commitment and agility about people.

And robustness about business model.

I was <unk> balance sheet means we are well prepared for any future turbulent.

Unequivocal remains well positioned to help our clients protect their families and secure their financial well being.

Turning to page three.

We came into this crisis from a position of strength.

With strong capital ratios set of management values that underpin how we manage this institution.

We have a strong emphasis on prudent financial wish management.

And we always put the wellbeing can safety about people at the forefront everything we do.

I'm also extremely proud of how my colleagues have responded.

To the cool school or more just society.

Equitable will continue to be a force were good in developing programs and solutions that make a difference.

And create opportunities for those who have been disadvantaged before too long.

Overall, I'm very pleased with the Q2 results.

Non-GAAP operating earnings amounted to 459 million one dollar per share.

I believe this could be a very credible performance considering the headwinds facing the business.

And compares well to the $1.14 cents earnings per share we saw in Q2 2019.

Assets under management up 10% since the first quarter to $711 billion.

Supported by the strong persistency about enforce and good net flows in both retirement and that aligns Bernstein.

That's a result strong expense focus unless travel operating expenses down 9% year over year, and we remain well on track for $75 million net savings target.

The impacts today to the cobot health crisis, or manageable and below previous guidance provided.

Excess claims during the cobot period.

Net told reinsurance and reserves amounted to $60 million post tax impact to operating earnings in the quarter.

New business activity remains around 70% of normal level and we're very pleased with the significant step change in our digital capabilities and adoption.

Over the past 10 years, we've developed a mismanagement framework, which fully hey, just to an economic liabilities and protects the balance sheet and record low interest rates.

Equitable is not living life on interest rates rising.

We all executing on hedging program with over 95% effectiveness.

Oh statutory ratios remain strong with a combined RBC ratio of approximately 415%.

Off to a 1.2 billion distribution equable potential in my.

Later on in the presentation.

And this will explain how we all responding to market volatility with speed and discipline.

Improve I wish adjusted outcomes on our general account.

Please turn to slide four.

I'd like to provide some detail to support why we are confident in our ability to adapt.

To an uncertain environment.

You may recall from a Q1 release decline presented the three pillars that differentiate equitable.

Firstly.

The ability to design and market economically sound products.

The affiliated distribution strength, we have.

And the scale benefits of being a trusted leader in resilient sectors, such as the teachers Mark.

These trends are evidenced by strong net flows in the second quarter.

With combined with time and net close $163 million.

And a be delivering a particularly strong quarter with net flows a $4.6 billion, excluding luxury exit redemption.

The demand to advice remains high.

Experienced equitable advisors.

Who comprise 65% of our sales force and 91% who put option.

Have successfully maintained the 2019 productivity levels.

Electing the deep client relationships they have built over many years.

We also remotely on boarded over 100, new advisors in the quarter.

Well magnifying our outreach to help clients navigate through these uncertain times.

That's all I just have increased virtual client meetings by seven times too quiet periods.

And client engagement activities were up 9% you up yet.

In response to the current environment, we obviously trenching purchases to meet fine.

We have modified to under writing policies to also fluid less touchless pushes.

To help more clients access the protection they need.

With schools closed with work force to develop digital and remote engagement with our teacher clients.

That's a result, we've seen contribution increases reached record highs up over 25%.

Yes.

Our ability to innovate that is developed economically sound products that go into bond.

It's best represented by a flagship product.

Structured capital strategies.

This is the protected equity strategy that effectively balances client value with responsible pricing and continues to be one of the top selling products in the variable annuity market.

Client demand remains strong with S.U.S. sales up 7% in the retail channel you at the yet.

We continue to introduce new features such as Jewel collection.

Oh, developing new solutions to meet evolving needs well that's fine.

While the outlook remains so uncertain, we must manage the variables within our control, especially expenses.

Productivity initiatives are ahead of plan, we are on track to achieve our 75 million net savings and expect additional uplift come cobot relate to savings such as would use travel.

Good well using the separation from actually group.

As an opportunity to seek to reduce our run rate expenses and upgrade our technology capabilities.

For example, we are migrating 80% of applications to the cloud, which provides us with new tools improve security and love expense.

Additionally, we now have an enterprise data lake robust reporting tools and enhance modeling capabilities, which will further drive insights for business growth and productivity gains.

Once all the lining of the Cobot 19 pandemic has been the acceleration of digital adoption programs.

We are seeing projects that would take many years to deliver.

Achieved in a matter of weeks.

Today over 90% of retail applications or submitted electronically.

Including 100% individual retirement.

Leading to improved outcomes and generating productivity gains compliance advisors and the company.

Throughout these past months.

We really see the reinforcement of our mission and where we help clients protect their families and secure their financial well being.

I'll now pass it to land is to give some more detailed including I was policy.

Segment results and capital management program.

It does.

Thank you Mark now turning to slide five.

Yeah economic environment through the first half of the year has enabled us to demonstrate the strength and resiliency of our balance sheet.

And this quarter has again exemplified by managing to an economic framework is so critical.

This slide illustrates the effectiveness of our prudent risk management practices.

Specifically the positive impact over Gxp hedging strategy.

Because he had trouble economic liabilities.

Our balance sheet continues to be immunized from interest rate.

Despite the sustained low rate environment.

This means we have nobody line when they reversing to meet assumption to make no predictions about future interest rates.

Oh I can only hedging program continues to work exactly I was designed with over 95% effectiveness in the quarter.

Transacting goods to U.S. GAAP, we reported see below the line impact related to interest rate hedge gain.

$1.9 billion into first half almost a year.

This more than offset the impact the realignment of our long term GAAP interest rate assumption last quarter.

But industry practice is very tightly with respect to GAAP interest rate assumptions.

It's selling relying on a reverse in two minutes hindsight person.

We believe I will remind assumption <unk> two in the quarter person, it's more consistent with two days economic realities.

As expected we also saw a rigorous <unk> of the GAAP equity hedge gains.

The first quarter driven by the market recovery.

Offset reflects the effectiveness of our hedging strategy across one of her markets.

In addition, my credit spreads narrowed in the second quarter. They remain elevated resulting in a net 1 billion dollar positive impact, including NPR Philadelphia basis.

Importantly seems to be fully implemented economic model.

Fish and GAAP liabilities has increased their by magnifying our GAAP net income sensitivity.

As such for modeling purposes, we would know guides too long.

$1.3 billion can be no denying adjustments to be a product features.

Assuming your base case scenario, six and 12% equity markets.

An interest rate, increasing 10 basis points.

This is all from our prior to any 18 guidance of $700 million.

Sure other following adoption of via reform.

Statutory sensitivities increase.

Resulting in new guidance from options budget.

200 250 million.

I'll now versus a 120 $50 million previously consistent with over 29, TV a cash flow disclosure.

To summarize how resolved through the first half of the year continue to demonstrate the resiliency of our balance sheet.

Prudence or waste management practices.

I mean, what <unk> equity markets and record low interest rate alright, economic hedging program has been extremely effective translating to net positive GAAP impacts.

Collusive Husky impact realigning, our interest rate assumptions to the most conservative the industry.

On slide six I review, our consolidated results for the second quarter before providing more detail on our segment performance capital management program and investment portfolio.

Overall, we're pleased with how the business performed particularly in light of turbulent markets higher death claims and an uncertain economic outlook.

This quarter, you reported non-GAAP operating earnings of $459 million translate into won't dollar per common share.

The results reflected twice per cent decrease versus the second quarter of 29 team.

Primarily driven by no fee type revenue from an overall average becomes bad.

No one net investment income, resulting from losses, when they were alternative investment portfolio.

And then impactful for approximately $60 million from excess claims related to call we'd 19.

Losses on our alternative portfolio, but primarily driven by weakness in private equity, which is reported on day, one core come back during the first quarter of the year.

Go before it right, we expect a partial recovery Q3.

Given market performance in the second quarter.

I wouldn't know that much of to rebound has been driven by the technology sector.

Yeah, Rob the rest of the market is still significant did though.

Okay, you have excess net claims of approximately $60 million post tax in the quarter driven by Cobiz related mortality experience.

He's came in below our prior guidance, primarily due to insured population is being significantly less impacted and the general population.

More than offsetting our geographic concentrations in the northeast.

He also benefited from positive reinsurance results this quarter.

Taking these factors and our experience into consideration we are revising our guidance to a $30 million to $60 million earnings impact 200000 excess U.S. that.

You had GAAP net loss was approximately $4 billion in the quarter, primarily driven by non economic impact from nonperformance risk.

And the reversal of hedge gain inline with expectations as I mentioned on the previous slide.

And as Mark noted, we reported assets under management of 710 $11 billion, it's 3% improvement from the second quarter of 2019.

Driven by market performance net inflows over the prior 12 months.

Moving onto the business segments I will begin with individual retirement on slide seven.

Operating earnings declined by 3% year over year, primarily driven by lower fee type revenue on November average account values.

No one net investment income although turned to performance.

I was I mentioned on the price night.

Net flows improved into quarter lower first your premiums were offset by greater retention.

Overall, we continue to favorably chips mix that's out flows from a mature fixed rate loans were partially offset by inflows whomever current product offering.

Well this point, we continue to drive sales responsibly and launch new features to structured capital strategies, an attractive and sold off the products, particularly in volatile markets.

Equally saying, it's yes by 7% year over year in the retention and people who continue to innovate to me to growing demand for protected equity strategies.

Turning to group retirement on slightly.

We reported operating earnings $19 million down from 95 movement in the prior year quarter, primarily due to lower net investment income on alternatives performed.

Net flows increased by 52 million into $260 million.

32% improvement versus the prior year period.

This was primarily driven by strong and do it contributions across our enforced an improved retention.

Well you wouldn't growth was driven by 7% growth in tax exempt markets, which is a testament to deep client relationships, we have calculated over decades.

And our ability to drive client engagement merchandise.

Now turning to investment management than research wetlands Bernstein on slide nine.

Overall, if you delivered solid results with operating earnings of $92 million up 15% year over year.

Primarily driven by lower operating expenses and higher Bernstein research revenues.

The second quarter Baby generated 4.6 billion.

Mm Hmm snows, excluding expected no.

Axa redemption.

Oh 7.9 billion.

Representing 3% on a nice organic growth.

Further the institutional pipeline grew to a record of $17.5 billion and saves remains robust across both retail and institutional China.

Process for 31.8 billion represented the second strongest korchman over a decade and was led by retail drops is 19.6 billion in the quarter deserved highs in recent history.

Finally babies adjusted operating margin expanded by 280 basis points to 27.9%.

Driven by lower operating expenses, resulting from focused cost reduction initiatives such as the not should relocation.

Moving to protection solutions on slide 10.

There will be reported an operating loss of $20 million, driven primarily by excess Colby related claims and lower net investment income on alternatives performance.

As I mentioned earlier results include access net claims related to cool.

60 million post tax, which is below our prior guidance and continues to be manager but.

As a reminder, we expect ongoing earnings volatility protection solution is due to the nice business, we entering most recognition.

Following the realignment of our remote from GAAP interest rate assumption last quarter.

Gross written premiums for the quarter declined year over year, driven by lower premiums in the nice business. However, this was partially offset by continued strong momentum into employee benefits business.

Which benefited from strong persistency and generated significant year over year growth in gross premiums.

I wouldn't I liked to highlight the strength of our topic and liquidity position outlined on slide 11.

This quarter, we returned honored and $2 million to shareholders.

I would think 77 million on quarterly cash dividend and 25 million on share repurchases.

In the context, if I were 2020 traffic management program, we have not returned 376, mainly to shareholders here today.

Were 776 million total, including the 400 million of repurchases, we accelerated into 2090.

Our balance sheet remains robust evidenced by our combined RBC ratio of approximately 450%.

Which reflect early adoption of your before on the $1.2 billion distribution from equity listen and shoot in May.

The dividend upstream, which is above our 29 to dividend and not the upper end of our historic range.

Provides additional financial flexibility and further demonstrates the ongoing strength and stability.

Capital position.

Further we have read diversified sources of liquidity, which gave us strong conviction in our ability to rather a wide range for economic scenarios.

At the end up to second quarter cash and liquid assets were $2.1 billion at the holding company went above 500 million minimum target.

An equitable and I'm sure you have $3.6 billion of cash and liquid assets, primarily supporting over hedging program.

The park at Bell financial strength and stable cash flow generation, we continue to deliver another 50% to 60% payout ratio.

Finally, we ended the quarter with it there to coverage ratio of 23.1%.

Somebody will continue to optimize our capital structure and financial flexibility over time.

Moving to our investment portfolio on page 20.

Throughout the first half will see you're asking proactively managing the investment portfolio and opportunistically, taking advantage of market dislocation I reducing risk.

He responded with both speed and restricted copy Tonight and widening credit spreads.

Improves the quality ROFO portfolio without sacrificing income.

This is evidenced by 2.5 seasons on the refinancing program from U.S. treasuries to corporates and those are high quality investments.

Indeed began executing at the end of March.

It's basically the initiated the recent program to acquire attractive using that's it that's historically high spreads.

You can opt in addition, or hundred 20 basis point, when compared to current spread levels.

Hi, acting quickly and Opportunistically, you were able to partially offset the impact of loan rates for no book, you and stabilized the portfolio income despite market volatility.

Importantly, we executed to rebalance, while maintaining a high quality fixed income portfolio.

That is consistent with the overall strategy, because new purchases I Ritchie and rating with a too.

On the defense your side, we actually think anticipation of deleverage rating migration individual names related to economic pressure.

That's part of this program, we have identified frequency bonds with high potential downgrade and execute on a plan to proactively reduced this exposure by selectively pruning for names expected to have no probability of Stifel.

He's airports.

That's it the strategic say the over $500 million potentially for the nature, resulting in the net realized capital gains or half a million dollars.

Further by sending Underdrawn spot price deterioration you were able to reinvest the proceeds at how your book yields without incurring net realized losses.

Well the economic outlook remains largely unknown.

We are continuously reassessing our fundamental views.

On our individual exposures and a productively executing on additional opportunities.

Yes already identified incremental de risking opportunities to further improves the quality of our portfolio with the trucks is corporate spreads.

In addition.

Reduced risk based negotiating and executing forbearance agreement on 19 of our corporate mortgage loans.

Supporting borrowers.

Despite the Colby crisis.

Enabled us to keep two loans in good standing hundreds of resolved, we anticipate food recovery of principal fund these loans I.

Well, that's going back to highlight the launch of equity. This first if they'd be in core funding agreement back notes program in the second quarter, which we strategically launch during attractive new issue market.

Taking advantage of the residual dislocations in structured credit.

Due to a receptive market endeavor strong position with the existing portfolio you were able to successfully execute at $650 million are offering yielding a net spread hundred 40 basis points above Oh funding costs.

Overall.

Intentional auction throughout the quarter have resulted in improved portfolio quality to this one of her markets, but see meticulously improving income.

We continue to respond to speed agility and discipline to maintain our strong position.

With that I'd like to pass the call it back to Mark for fun comment.

Thanks Andas in closing.

I mean main inspired by the dedication and agility, allowing employees and advisors.

And the manner in which they have responded to the most challenging circumstances.

Despite these challenges this quarter's results continued to demonstrate the sell into that business and our ability to create value across a broad range of scenarios.

We've acted with purpose to manage headwinds, while permitting processes magnifying, our outreach accelerating our digital capabilities and capitalizing on expense and investment opportunities.

Meanwhile, our balance sheet remains robust fortified by a mismanagement practices and economic hedging program.

Supported by these factors and the exceptional people of equitable.

Operating from a position of strength.

And we remain well positioned to help our clients protect their families and secure their financial wellbeing.

With that.

Ill hand, the call back to the operator to open the line for questions.

At this time, if you would like to asking on your question. Please press star one on your Touchtone phone once again that you start once you ask an audio question.

Your first question comes from the line up and these greenspan with Wells Fargo.

Hi, Thanks. Good morning on my first question was on the capital side no given the upstream capital in the quarter you guys have around 2.1 billion at the Holdco, which no as you like that is you know good amount that bought that 500 million minimum target. So do you think about you know I guess maintain.

[laughter] buffer right now, but also counterbalancing again that again, you know wanting to buy back one of your shares could you just help us think do that a little bit more in Europe.

Share repurchase outlook on the second half here.

Yes. So maybe this is longer speaking I take that question. So as you as you know she said I mean degrade the to upstream $1.2 billion during.

The last quarter up to the holding company. This is slightly more than we usually do on a regular basis just keep in mind, you usually get to David and once a year. So let me get the dividend from deal to the Hosie basically has to last for four transmode. Okay. We can expect an ex dividend, but that's you said I think we're in good position here and we confirmed that we will mean.

Hey, number 50 to 60 patients guidance.

50% to 60% of operating earnings for the full year, So actually we we reconfirmed Beth.

So with you as fast as we think about the fast.

A little bit.

Second quarter.

It's hard to say Youre back.

Okay.

Kind of pick off.

Oh.

Yes, so I think as he said during during.

In Q1 and during the last few monkeys, we always expected to do the maturities in the second half of Thier. Once we have to dividend and so you can expect us to be in the market for.

Q3 into four.

Okay, Great and then my second question.

Thank you bye coal bed.

Good.

Yeah.

But a mouse although I.

And you did provide and your sensitivity. So do you think about you know modeling from here on you know where are you fall within that 30 to 60 million dollar range.

Is that depending upon on I guess geographic location in the state that get hardest hit relative to your footprint was there anything else that we should think about I'm, just when thinking about losses over the balance of the here.

He said look I think in the absolutely right I mean, the guidance we gave.

And then he made was really based on the information behind that that time and I think what we clearly saw in the meantime is that and weakness in ways that got them to inch Repopulation actually has a significantly lower mortality done doable U.S. book They should we.

The people in the U.S. that died from Cobiz actually burn.

Insured I'm now going forward, we expect that to to continue but to your point I mean geographic and we don't really know from a geographic perspective, we expect it because the and have more exposure in the northeast we actually expected that.

In <unk> ritual estimation to be bigger it wasn't that big is proving to have that range 30 to 60, because we really don't know exactly how could we get them demand looks over the next few months.

Okay. Thank you appreciate the color.

Okay.

Your next question comes from the line up Nigel Dally with Morgan Stanley.

Great. Thanks, and good morning, you mentioned some potential upside in the expense reduction potential as it relates to the cold winter related expenses and the like just wanted to get some additional detail as to what was driving that and whether you've had any video you'd be I'll tell you place any dimensions around that at this point.

Hi.

Hi, Nigel Thanks to the question, it's good small obviously ur.

Cobot has.

Hey travel and.

And some of our incentive programs, we typically have for advisors. So that has come off.

As you would as you would expect and the other thing were doing particularly in these in these times is.

Having a closer look at our expense base I think we've got a couple of points to make to their firstly, we're confident we will hit the 75 million dollar a expense target we have and we're looking for more Ah. We can't give you a number yet, but we were looking for more and secondly, the separation we took from access has been.

Very well handle bye bye bye I T people, we have really moved.

To try and leak forgot capability with a luxel capability now that he's on the.

In the cloud, which gives us both more tools, but also a more variable and a low expense base. So we feel good about that and just did we give out the impact on the a one off slow at a lower travel expenses ever given that number.

Yes, so they typically traveling but I mean BB called out that we had a come for long time Banda freedom for about $25 million gypsum Corbett and we expect to a portion of that will be sustainable definitely people don't have gotten just travel is a good example.

I'm trying to move resumed the question is how much but we really expect that a portion of that 25 million basis, we had become permanent but of course me, though it's a reverse back.

Very helpful. Thank you.

Your next question comes on line of Andrew Lieberman with Credit Suisse.

Hi, good morning, and.

Oh.

First question.

I understand it.

Fourth quarter.

Hello.

[laughter] the purchase of $100 million that five to.

Thanks.

[music].

So if I kinda eyeballing numbers and buybacks.

Okay.

And then you plan to do but im going into the back half that would probably be.

Two.

Yeah.

Oh for share repurchases to get to that 50% to 60%.

Rated number.

Like we just think about it.

So [noise]. So good morning, Andrew So look I think in as I said before I think we are very confident and he can hit the to 50 to 60.

Pay back to two to shareholders based on operating earnings and all the Jackie.

The calculations you made a base to your estimations every going into the year, we'd be north gifts and gives guidance, there, but who go and what I can tell you. It's what I said before it can be going it maybe in the market.

In Q3, M. Q4, and we feel very confident about them paying back 50% to 60%.

Right and then 50, 60% is where it stops correct.

Yeah, I think that's it that's the range does that the woman going to pay back on the sustainable basis correct.

Okay, Yeah, I'm not just back to the.

The second quarter and this interesting that you came in at.

61 million dollar wise, where your guidance.

[laughter] either $400 million year end of lease you cited a load of the crediting rates and lower policy.

Yeah, I don't know block, so I shouldn't be interesting greatly.

Mainly so that's.

Then the.

No the policyholder benefits into very tough environment.

No it's things like that.

So it's nice guidance.

Yes.

Yeah.

Maybe a little color on what the lower policyholder benefits for yeah.

So look I think overall than you're absolutely right I mean, corporate even though there is he's going to go taste. So many also ronald blocks and discipline blokes can be volatile. That's also the reason why we don't give any any guidance for the quarter, we really get the guidance for the full year the guidance really around the three on the.

$50 million for food and that's also why we gave you the in the off your number here that's much more in line with the guidance Q2 was lighter than than what you could expect and then it's really coming from the volatility of Israel notebooks.

Any color around the policyholder benefits.

What was so low.

Yes, I don't think or something specific here that I can pull it out I think it's really just the volatility and how these oh this looks Renault I'm in this environment side.

Okay. Thanks, a lot Anders.

Right.

Once again in order to asking question. Please press star one on you were Touchtone phone.

Your next question comes from Suneet come up with Citi.

Thanks, Good morning.

So in your prepared remarks, you talked about new business activity at around 70% of normal levels.

Is your sense that that's kind of where we stay for the next couple of quarters or are there things that you can do whether its virtual et cetera that can push that number back up to where normally is.

Good morning, Sunny Thanks for joining the call I look I'll just give an overview then I'll have had to Nick Lane to.

Talk about some of some of the things we're doing its just too uncertain to give any any guidance at the moment, but let me tell you what we ought doing.

I think firstly.

We've built the new business engine, if you like around economically sound products. We you know we have great innovation there as you see it obviously is product.

The second thing I think we really have going flashes distribution, we have a wide reach a in third party, but most important in these times online distribution is a is really really an asset and that's coming soon for US and then thirdly, the leadership position, we've got in sort of the resilience segments like.

Like like the teachers places us well, but maybe nickel bring you into the cool to talk about what we're doing on on the digital side innovation.

Exactly.

Great. Thanks, Mark Yeah, we remain steadfast in guiding our clients through this period and I would say the demand for advice.

Is increasing so magnifying our our outreach as mark alluded to in the prepared remarks, we've seen a age sevenx increase and I would say remote meetings and to provide a little color. Our best advisors. So I think digital and remote is making them battles and work.

Also seeing consumers, especially at the older age more comfortable now to engage with advisors shipped through zoo meetings Microsoft's teams.

So it's continuing to go digital and magnified arc age meant to as we focus on meeting the needs that exists out there.

Okay got it and then I guess for for Mark.

We are seeing more third party capital enter the life insurance space. So just wondering if they are you spending any time thinking through potential transactions ever run off blocks be it the stuff in corporate or the GM XP or is that just not a priority right now given covert 19.

I I think the priority as you indicate suneet has been on ensuring a resilient balance sheet and robust business model, but yes. We do we are aware you hope you're quite right. There is a lot more money in the market and we keep close eye on what their transactions on what the opportunities all for us I can't say.

Anymore than that but we watch it very very closely.

Okay. Thanks. Thanks.

Once again in order to ask a question. Please press star one on your Touchtunes Islands.

Your next question comes my line of Tom Gala her with Evercore.

Good morning.

First question is just on that I guess, the new statutory variable annuity framework.

To me, it's kind of interesting how that choosing a three in a quarter mean reversion interest rate assumption yet now you've moved your GAAP assumption chair to win a quarter show you're sitting in a much more conservative place and the new statutory framework.

And I guess my question on that is.

Does that create any challenges for how you deal with the economic upside if you're trying to hedge the economics and would you expect.

And any change on the part and regulators just given where interest rates are now.

Yeah I told my thinking this is understood morning, how are you. So I think this is a this is a good question you know we talked about the reversion to the meeting Q1, where we really show and sold and Narci in interest rates coming down I mean, as you know from an economic position and we don't.

Take an interest rate position, which means we fully edge hedge interest and that was also one of the reason that'd be very clearly overhedged in in Q1, and so this is large hedge gains relative took up it also and to some extent relative to statutory now when rates stay where they are.

I see nothing nothing materially happened in our case, because we already perfect fit I think the only statutory.

And it seemed that would have to these rates would go back up obviously that would.

It would reverse some of that but that's not our expectation I don't think that's.

What we want to be seen the near future. Now your question is about the regulators they actually part and working on them.

On the on the interest rate assumption I didn't know exactly where they are but I think they were.

We're just caution at least got them they going to accelerate the yen brcm produces extend our reach into rates are dead right. Now produces these RCM because it is.

Anyway, and unrealistic that right now all the scenario that we actually have to use or above the current forward rate, which means it's not very realistic and when you see that their rates all right. So I know the real regulate this overcoming if you have a strong position here and I think we feel bad protected and whatever happens when interest rates.

It's interesting thanks, and then I guess just.

And.

Product question your Dfc asked product.

The bought for annuity I know you said, that's that's growing year over year, just curious if you've seen competitors entered that space or are they still mainly focused on on five days and not that buffer annuity.

[noise] Terminix Mark I'll, just give an overview and Nick can give a lot more carla.

Yeah, we're very proud of what.

What we've done where they see yes, we've got at about 20 billion of assets to that we let the market. We created a whole new segment. If you like calls of the buffered annuity space.

For sure there's more competition.

Competition coming in you know, we continue to innovate and we have very good distribution Beach, Nick would you add anything to that.

Sure.

Just pointed out we're continuously in the more good working with our partners in clients developed new solutions to meet their evolving needs I think mark referenced a.

Tool direction dual direction. It is a unique index since you have the same AOL matching and downside protection.

But it needs to do need it provides the ability for clients.

To enhance Eric their account value if the market goes down up to a limit.

So we see the demand for those products continuing to grow and our ability to continue to innovate in their products.

Going forward.

Okay. Thanks, and just one more if I could sneak it in the 650 million funding agreement issuance are you guys playing on wrong in that portfolio or is that is out a one off.

Here. So I'm told you are absolutely planning to growing that them over the next in five years, so that should become meaningful contributor to earnings.

Okay. Thanks.

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Your last question comes from the line of Ryan Krueger with KBW.

Hi, Good morning, I had a follow on Toms question on and they are the.

Interest rate generator can you just help us think about the extent that the generator is revised and the interest rate is lowered that would also impact.

The with the statutory liability that equitable is holding her variable there basically I guess can you help us think about the offset that you would benefit from given your your economic interest rate hedging that would would offset that within the staff framework.

Yes look I think there I think away I think about it.

Right now, we've basically overhead shoulder to south Korean Dr. Benjamin they changed in interest rate generator, we basically fully hedged onto the onto the new framework that that's how I look about it.

If it gets if it gets fixed right.

And then I think last quarter you disclose it.

Can you just give us an update on I think there was a fairly material amount of treasury.

Gains that are that you have better not included in your RBC ratio I think that would be a part of the offset can you give us an update on that.

Yeah, correct I mean, maybe we could shows law school whenever you had about $2 billion in unrealized gains in treasuries and because rates didn't materially move. Since then this is Steve This is still there.

Got it alright, thank you.

Well it sounds engine.

Ladies and gentlemen that does concludes today's conference call. We thank you for your participation in <unk> that you. Please disconnect your lines.