Q4 2020 Equitable Holdings Inc Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the Equitable Holdings, Inc. First quarter 'twenty 'twenty earnings conference call at this time of.
The mines are on the please.
Please be advised that today's conference is being recorded after the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need to press the star one on your telephone if you require any further assistance. Please press star zero.
I'd now like to turn the call over to speak of today, Jessica Baehr head of Investor Relations. Please go ahead.
Thank you and good morning, and welcome to equitable holdings full year and fourth quarter 2020 earnings call.
Materials for today's call can be found on our website at IR Dot equitable holdings dotcom.
Before we begin I would like to note. The some of the information. We present today is 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 is Mark Pearson, President and Chief Executive Officer of Equitable Holdings.
On the Malmstrom, our Chief Financial Officer.
And Nick Lane President of equitable financial.
Also on the line as I lead the Baas Alliance Bernstein, Chief Financial Officer, and head of strategy.
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 may be found on the Investor relations portion of our website in our earnings release and slide presentation and financial supplement.
I would now like to turn the call over to Mark and honors for their prepare to Mark.
Thank you Jessica and good morning to all joining our call today.
And important part of the Ceos role in any year is to present, the financial results and talk about the momentum of the company.
I shall of course do that today.
But the year 2020 for the global pandemic and the demands for more of just society was unlike any other year debt. We have worked for lip Bu.
And equitable this caused us to look in which to really understand the value we add to our clients net debt.
Same time of course.
And I, just conversations and start our journey to advance ratio of equity.
So I wanted to take this opportunity to think of the people of the equitable and alliance Bernstein.
And who have shown remarkable agility and commitment over the past year.
Not one day was lost and so the not 5 million clients and incredible achievement and the mix of the social isolation.
I've been fortunate to be the CEO for a number of years now and I.
Never felt proud of all of our teams.
We had a strong finish to the year.
Given the turbulence of 2020.
<unk> shareholder capital and maintaining a strong balance sheet. So that we can honor our commitments was paramount.
Equitable is managed on a sales value basis. This means we take no bets on interest rates.
And as such our balance sheet remained resilient throughout.
I'm very pleased to report that despite the tough macro environment. We have delivered on all of the three year commitments given at the time of the IPO.
All financial targets have been the cheap and we have delivered on the strategic priorities, we laid out in 2018.
Full year non-GAAP operating earnings per share of $4 99 is up 5% from 2019.
Assets under management were up 10% year over year for a record high of $809 billion.
Supported by robust worldwide net flows of approximately $8 billion.
And the recovery and the equity markets the.
The strength of our balance sheet as evidenced by cash and liquid assets of $2 $9 billion on a holding company and our combined life subsidiary of risk based capital ratio is approximately 410%.
This has allowed us to return $1 1 billion to shareholders in the year.
And last week, we announced our board had approved the new share repurchase program for the third $1 billion.
Looking forward the VA reinsurance transaction, we announced and the third quarter remains on target for completion.
And positions us with a significantly derisk, the balance sheet and future better risk weighted returns.
And that's been a remarkable year for equitable and one which reinforces the purpose of our organization.
Every day, we hear from our clients heightened demand for advice and protection and we remain very committed and energized and helping Americans and secure the financial well being.
And they can live long and fulfilling lives.
Turning now to slide four.
I would like to show what's behind the successful achievement of the goals, we set at the time of our IPO.
This was largely driven by professional and management actions over the last decade, and pivoting the company to of fair value basis.
Firstly, we have built upon our leadership positions and the retirement market where.
And where we have distinguished ourselves through product innovation.
And the K through 12, supplementary retirement market, where we proudly serve 800000 educators.
On a broad distribution reach and most importantly to our affiliated equitable advisers has enabled us to change the mix of business from guaranteed products towards accumulation of solutions for our clients and resulting in better risk weighted returns for our shareholders.
We have benefited enormously from our investments and the alliance Bernstein, which generates over 30% of about cash flow.
And ABS relative performance against its peers has been strong with positive net flows of $9 2 billion and the year, excluding axa redemptions buoyed by record gross sales and retail and the highest institutional active equity sales since 2008.
These competitive strengths and the approach we take for managing the business as led us to meet or exceed each of the IPO targets.
Operating earnings have been growing at 7% CAGR since the IPO at the top end of the range we provided.
Fueled by the completion of our $160 million General account, we balance target and net productivity saves of $75 million.
We have met our payout target ratio and have returned $3 1 billion to shareholders to date.
And as a result.
Yes has been growing at 14% CAGR over that period.
The balance sheet strength is evident with the RBC ratio of approximately 410% and surplus cash and holdings.
On non-GAAP operating ROE of 17, 3% is ahead of target.
The highest of a strong final quarter, the adjusted operating margin and IP picked up to 31% for the year ahead of the guidance we gave.
All in oil and very proud of what the management team has achieved over this period and this provides confidence for the future.
Now turning to slide five.
And looking to the future we have distinct capabilities and the number of drivers that give us confidence and our ability to grow.
Firstly, our risk management capability.
Still facing uncertainty with the ongoing pandemic sort of maintaining a fortress balance sheet and improving our risk profile obviously critical.
We will continue to manage the business on the fair value basis, recognizing shareholders do not reward us for our ability to forecast future interest rates.
We remain on track for the closing of the VA reinsurance transaction and the for.
First half of 2021.
This transaction will reduce the Cte 98 kilowatts from our legacy VA portfolio by approximately 64%.
And the positive seat and commission, we will receive from vulnerable backed by Apollo validates the economic soundness of average tubing and asset liability management.
Going forward. This transaction will provide more certainty as to the future cash flows of the business with the limited impact to earnings.
Furthermore, and our life business, we will improve the risk profile of our portfolio by moving away from the UL protection space and focusing on the <unk> accumulation market through our affiliated advisors and third parties.
This is the continuation of a 10 year journey.
Today over 85% of and new business is not interest sensitive, whereas the decade ago. The overwhelming majority of our new business was interest sensitive with which guarantees.
Moving to productivity over the past year, we have been focusing on integrating and enterprise agile framework across the organization.
To our knowledge the first financial services company to attempt to do so remotely.
Our goal is to create the more efficient and impactful organization to do.
Drive innovation and attract the best talent for the future.
On the technology, we have benefits from the separation from Axa as.
Is it gave us the opportunity to upgrade our capabilities such as enhanced modeling to drive the insights for growth and productivity.
And as an ongoing results of the pandemic there will be a structural shift and companies operate going forward of course. This means go ahead of digitization of processes like electronic applications and reduction and certain corporate expenses like travel.
We are also assessing the opportunities of of hybrid workforce and how we can optimize offices and the future.
We are of good track record of improving risk profile and delivering on productivity.
This will continue to be of focus of ours going forward.
It is upon this foundation of improved risk profile and productivity that we look to the future towards accelerating G&A optimization and business growth.
Firstly on the optimization of our general account the combination of equitable and AB investment teams for <unk>.
And I'd us and attractive opportunity to improve the yield.
The equitable is 95 billion dollar general sales.
Remains predominantly invested and investment grade corporates and is conservatively positioned.
Our investment teams of creating the opportunity to reallocate significant AUM to high quality.
Quality of illiquid assets to further improve risk adjusted returns.
We have a virtuous circle here and managing our general account.
The ability to deliver additional yields and and at the same time see do alternative strategies for AEP.
And create high multiple business the scope.
Okay.
<unk> has a good track record here and integrating high quality teams and building out our alternative investment business.
On the business growth side, new business has largely recovered to pre COVID-19 levels.
This is driven by our distribution reach and product innovation and code and economic realities.
Today, we have built out our individual the Tommy business, excluding legacy to.
The $73 billion of assets, which is fully LMS and low capital intensive.
And newly launched Youll direction Buffered annuity has helped to fuel record sales of the CES of $1 5 billion in the fourth quarter and what is the increasingly competitive market.
We also continued to see gross and a group retirement business proudly, providing 1 million clients with the secure income for retirement.
Which has grown to over 42 billion.
And that's where.
We continue to grow our alternatives business with approximately $20 billion of assets today.
Amplify and the success, we've had and developing new alternative businesses. We are encouraged by our ESG efforts designed to meet the growing demand for these products and positions us as the responsible company.
<unk> has been the leader in responsible investing within the <unk>.
Bit of partnerships, such as Columbia University's Earth Institute.
Today.
Build strategies, which amounts to $16 5 billion and portfolios with purpose, which has grown 60% over the past year.
Approximately 80% of <unk>.
AUM users ESG factors integrated into the investment process.
On the equitable side, 80% about general account investment grade corporates, all aligned to the UN sustainable development goals.
We see ESG continuing to grow in importance and value for us.
With respect to our nascent businesses and employee benefits is now grown two of 485000, the both the lease and over the next few years will grow in significance.
Our wealth management business managing through our broker dealer platform has grown to $62 billion of assets under administration.
And we continue to evaluate opportunities to expand both businesses organically and inorganically.
Our focus on these elements will put the business and the strong position for the future, allowing us to deliver on our long term financial targets and ensuring the equitable will be of stable value generating company for decades to come.
Overall, the demand for retirement products and the advice remains strong and we intend to maintain our reputation for distributing innovative products that are economically sound.
I will now pass it to and is to provide more detail on our financial results for the full year and fourth quarter and this.
Thank you Mark turning to slide six on the full year basis, non-GAAP operating earnings were $2 $3 billion of <unk>.
And 99 cents per share.
5% for the year on the per share basis.
Excluding notable items of $37 million and the year non-GAAP operating earnings per share most of $4 91 of 14% year over year on the normalized basis.
Moving to GAAP results, we reported a net loss of $648 million a year.
And which was primarily driven by non economic impact from hedging and nonperformance risk and.
And in line with expectations.
As Mark mentioned assets under management increased 10% to $890 million supported by total company net flows of $8 billion and favorable markets.
We also benefited from solid performance excellence each of our business segments.
And indeed, the retirement operating earnings for a one $5 billion vs.
And the strong demand for buffered annuity product evidenced by record structured capital strategies sales and the <unk>.
Fourth quarter and retain full year sales up 19% year over year.
We're of retirement to reported operating earnings of 491 million up 26% year over year.
Our ability to ship two of digital engagement model contributed to net flows of $296 million of.
The 11% year over year.
Marking the eighth consecutive year of positive loans.
And then Bernstein's operating earnings.
<unk> hundred $32 million up 13% year over year with 10% growth in AUM supported.
Supported by $14 9 billion and aggregate net loans, excluding expected low fee Axa redemptions.
And lastly, our protection solutions segment reported of $146 million of operating earnings with continued growth and employee benefits and.
And the pivot to net interest entities accumulation product.
Overall across the businesses, we continued to drive strong results by leveraging our competitive strength.
Realize attractive returns.
Turning to slide seven.
And review our consolidated results for the fourth quarter and.
And for providing more detail on our segment results and capital management program.
Non-GAAP operating earnings for $748 million for the fourth quarter up from 653 million and the prior year quarter.
Non-GAAP operating earnings per share increased by 20%.
To the dollar and 65 per share primarily driven by strong net investment income.
Attributable to alternatives and.
The fee type revenue on higher separate account balances and share repurchases.
The outperformance of our return on pace to reflect strong private equity performance and the third quarter.
The report on a one quarter lag.
Notable items net impact on the earnings for the quarter was the $110 million for you.
Riverbend adjustments.
For 25 cents per share.
Normalizing for these items non-GAAP operating earnings was $638 million and the fourth quarter on.
Solar and <unk> 40 per share.
Moving to GAAP results, we reported the net loss of $1 2 billion and the quarter, which was primarily driven by non economic impact from hedging of nonperformance risk in line with expectations.
Our economic framework and prudent risk management underpin these results and we re price our product on the regular basis to align with economic reality.
As a reminder, we hedged to our full economic liabilities of <unk>.
I think the balance sheet to interest rates.
Our hedging program performed as expected with 96% effectiveness for the quarter.
Moving on to the business segments I will begin with individual retirement on slide eight.
Operating earnings of $442 million were up 13% versus the prior year quarter.
Primarily driven by higher alternative income and growth and FCS account value.
Results also included $73 million of notable items in the quarter.
The two positive equity markets.
Reducing debt and how you make investment income.
First the of premiums and current product offering net flows improved 19% and 52% respectively versus prior quarter driven by record sales and <unk>.
Structured capital strategies, and reflecting the breadth and depth of our distribution.
Net inflows on our current product offering and lower surrenders were partially offset by expected outflows.
Our capex of intense at fixed rate block of $863 million and the quarter.
The three 3 billion.
And the year.
Finally, our VA reinsurance transaction with Venerable remains on track for a second quarter close significantly derisking, our balance sheet and validating our reserves.
Turning to group retirement on slide nine.
The reported operating earnings of $166 million up 52% versus the prior year quarter, driven by higher alternative income and fee revenue on the higher account values.
The strong results include notable items of $23 million, primarily driven by higher net investment income and the quarter.
Net flows improved by $26 million year over year with strong renewals and lower surrender rates largely attributable to our digital engagement initiatives.
The current values increased by approximately $4 $6 billion per year over year due to market appreciation and continued net inflows over the trailing 12 months.
Now turning to investment management and research for AB on Slide 10.
Overall <unk> delivered strong results with operating earnings of $141 million up 8% year over year, primarily driven by higher base fees and how are you.
<unk> AUM and lower operating expenses.
AEP experienced $20 million of level of Covid related expenses in the quarter, which is accounted for and notable items for 9 million for equitable holdings.
And the fourth quarter <unk> generated $3 9 billion of net inflows excluding expected low fee.
The redemptions of.
700 million attributable to strong performance and the institutional channel.
Further <unk> reported gross sales of $31 billion up for 3 billion or 16% from a year ago net by the retail channel.
Moving to protection solutions on slide 11 <unk>.
We reported operating earnings of $68 million down from $129 million in the prior year quarter, primarily due to mortality experience and the PSP and reserve for <unk>, including $7 million included and notable items in the quarter.
While we are encouraged by progress being made on COVID-19 vaccine distribution, we are very mindful that the negative impact on the people and communities we serve remains.
In the quarter, we had higher mortality experience relative to your expectations.
And by COVID-19.
And the negative impact of what's more than offset by FDA and reserve release.
While we expect some volatility to continue we maintain our guidance of 30% to 60 million earnings impact on them.
And was in excess of U S tax claims.
Gross written premiums decreased 5% versus the prior year quarter.
And as mentioned previously we continued to see strong momentum and the employee benefits business with 36% increase and annualized premiums versus the prior year quarter.
Turning to slide 12 I want.
I'd like to highlight our strong capital and liquidity position, demonstrating our financial strength and.
And the resiliency of our balance sheet.
We remain committed to our capital management program, returning $1 $1 billion to shareholders, including $400 million of share repurchases accelerated into 2019.
And the fourth quarter of 2020.
And we returned $175 million to shareholders through <unk>.
$75 million of cash dividends and one of them.
And as mailing of share repurchases.
The has also initiated our 2021 capital management program executing of 170 million and accelerated share repurchase early this quarter.
Our financial strength is evidenced by combined RBC ratio of approximately 410%. This includes can accelerate the $949 million dividend upstream and December of last year.
Securing our ability to deliver on our commitments in 2021.
And we remain well positioned at the holding company EBIT cash and liquid assets of $2 $9 billion, well above our $500 million minimum target and ended the quarter with our debt to cap and the ratio of 26% in line with our targets.
And January of this year.
Domestically right and another $300 million and preferred stock.
Taking advantage of record low rates to further optimize our capital structure.
As a reminder, we plan to execute the an incremental $500 million of share repurchases in 2021. Following the close of the legacy via reinsurance transaction. In addition to our 50% to 60% payout ratio target.
With that I will now turn the call back to Mark for closing remarks.
Thank you Anders.
As you can see 2020 was another very strong year for our company. Despite the headwinds we face.
This is evidenced by the successful achievement of all of our IPO of targets and strategic priorities.
This past year also provided us with the opportunity to demonstrate just how resilient our business model and balance sheet.
The resulting in solid earnings and the continued execution of our capital management program.
Looking ahead I.
Can say with confidence that we are continuing to operate from a position of strength.
And with a clear focus on positioning the business for the future.
We look forward to the progress we will continue to make as we ensure the fortitude of equitable for decades to come.
With that I'd like to open the line for questions.
Thank you at this time, we will be conducting a question and answer session.
Now for as many questions as possible. We ask that you. Please limit your questions to one question with one related follow up and.
In order to ask a question. Please press star and the number one on your telephone keypad.
First question comes from the line of Nigel Dally with Morgan Stanley Nigel Your line is open.
Great. Thanks, and good morning, everyone. So I had a question on buybacks you have a substantial amount of cash $2 9 billion at the whole K well above your target.
And again said it would seem that you'd be more aggressive and buybacks and what you're currently authorized so what's the rationale behind and what seems to be and excess amount of liquidity at this point the pandemic related economic concerns. Despite let me say some portion of it that you used for incremental buybacks or has that been aimed for somebody else.
Good morning, Nigel and thank you very much for joining the call. Yes, we look we're very pleased to come through this.
This pandemic with such a strong capital position I think it's really a reflection of all of that out.
Fair value approach and capital management so.
It's something we intend to take forward just to remind that we have returned sleep 1 billion since the IPO.
And we maintain committed to returning that 50% to 60% payout ratio. We also announced as the results of the Venerable transaction, we would increase that bias for the for the 500000 our focus now.
Nigel is really maintaining the financial flexibility on the balance sheet strength. We think is critical at this time it is still very uncertain and.
And the markets, but we repeat our commitment to the 50% to 60% payout ratio plus an additional 500 million relate to once the venerable transaction closes.
Great. Thanks, and then just on the individual what time of between a lot of your competitors and to the buffet and duty space in your prepared remarks, you said that the resulting in a more competitive environment as it gets more competitive and training or some of those new entrants being a more aggressive on pricing and just trying to understand where the.
The increased competition was without and some erosion of returns going forward.
Okay.
Nick do you want to share.
Yes, I'll take that first.
And I believe it's a positive to see competitors and the market it validated and the growing need for buffered annuities.
The upside potential with downside protections are right for this current dynamic environment and I also think speak to the needs of consumers as they approach and lived and retirement.
While and enhanced competition and we think both expand supply would agree that debt, we expect enhanced competition.
With that said book as the pioneer and launch in this category over the last 10 years, we built the privilege distribution networks and believe we've got a track record on innovation, not just copy and that gives us and edge.
As both Mark and Anders referenced.
We had a record SCS quarter, particularly and the equitable advisers, so innovating resilient products anchored and economic realities is still at our core as the leader in the fastest growing annuity segment, we think we'd start and a position of strength and remain focused on continuing.
And to build solutions that create consumer and shareholder value.
That's great. Thanks, a lot.
Your next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open.
Hey, Thanks, Good morning on my first question.
And on M&A.
Also on using some of your excess capital on just in terms of M&A from here on.
And now in the past you guys have spoken about wealth management and employee benefits potential uses of capital for M&A on.
Adjusted to Nellix sales are still kind of of the target business is and then could you give us a sense of how much excess capital and you kind of intend to use for M&A and any kind of timeline on.
Associated.
With M&A from here.
Hi, Elyse, it's mark Thank you very much for for joining yes, you'll go to the.
Tom of the IPO, we sit.
For the first three years, we're going to try and build credibility ability and execute on those financial targets. We just talked about and we did tell you and not to expect any large M&A transactions at that time. So that's really what we've been doing but yes. We are open to now, particularly with the strength of the balance sheet.
And I'll open to some bolt on M&A is the way to accelerate growth.
We'd be very interested consistent with our strategy of capital light businesses, yes that pushes us towards looking at TEP and <unk>.
Health management.
But I can assure you we will always do so if they make economic sense. So we will maintain that.
We don't have to go into M&A, but if the right opportunity as debt.
We have the ability to actively look at it very very seriously first priority now.
The remains on closing that legacy VA reinsurance deal.
That's very important for us at 64% of the Cte.
Cte titled List to get that off the balance sheet. So that's our first priority and that sort of the on.
On track for close in first half of 2021.
Okay. Thanks, and then my follow up with the.
And then group retiring debt.
Can you just give us a little bit of and update on the competitive environment and.
How are you seeing at your ability to grow within on the school plans just given on.
All of the ongoing impact of the pandemic.
Great I'll take that this is Nick first.
The teachers are working harder than ever and we're proud to serve them, the especially for myself with three kids at home.
And I've never had more respect for.
Distance learning of what teachers do every day.
That segment, we believe continues to be resilient and teachers are employees are working hard as you've seen we had record net flows.
And record renewals, which I think speaks to the trust and the relationships that we built over the last 30 years as well as our unique model.
So we continue to see growth in that segment and we continue to see the opportunity to serve teachers, the two and important part and helping the future of the American public.
Okay. Thanks for the color.
Your next question comes from the line of Jimmy <unk> with Jpmorgan, Jamie Your line is open.
Hi, Good morning, So first I just had a question on.
Your stake and the Alliance Bernstein and I think in the past there has been discussion.
The open potentially considering the sale of that stake or maybe buying and the whole company I just wanted to see their debt stands currently.
Hi, Jimmy.
It's mark.
All lines of question has been enormously beneficial for equitable holdings.
And if you look at.
Cash flow today, it's 30% of cash flows and.
And the total shareholder return and since the IPO is 80% 24% per annum.
We have said and the policy that we do the responsible thing and look at all options, but the best option. We have at the moment is the holdings that we have and continuing to work closely.
And with with Alliance Bernstein to get the synergies and when does a couple of things, which.
And as and I referenced in the presentation.
One is the stability to the left which the general account.
To help alliance Bernstein.
The build out its <unk> business, it's really a nice virtuous circle, Jimmy we get additional yield for our policyholders, which is good makes us more competitive and we are able to build.
Hi, and multiple business for shareholders and the also the AB has been remarkably successful in debt.
Nick and value on the line as well and also spearheading for us.
Much more commercial.
The synergies between the two organizations using the insurance as an asset class for example, so.
And we're very happy with the investment and we're of course always look at options you would expect us to do so.
For for our shareholders.
But the holding so far has been enormously beneficial to the equitable holdings.
Okay, and then just on the.
Tax rate was very low end of the fourth quarter and I think there was the favorable settlement on the IRS audit.
And what's your expectation of the tax rate going forward and as some of the.
Or are you expecting of lower tax rate and.
And the next few years.
So for you to quantify it.
Absolutely so.
And as you said I think it's true we had a tax audit settlement, which is kind of normal course of business and.
And we just allows us to take on.
On the foreign tax credits into account, which lowers the effective tax rate by about one one percentage points going forward. So you can expect of.
Effective tax rate to be between 17, and 18% going forward Theyre always assuming that everything stays equal.
Okay. Thank you.
Your next question comes from the line of Brian Kruger with VW Ryan Your line is open.
Hi, Thanks, good morning, and the <unk>.
10-K, you put out this morning. There is there is some discussion around Reg <unk> and New York and.
And it seems to be cited as the.
I guess the material risk factor.
New York does it doesn't revise it in terms of your dividend capacity going forward. So I guess I was hoping to get a little bit more color on.
I guess, how Reg to 13 of the differing from the NII the VA regime and.
I guess what options do you have to.
Mitigating this risk.
Yes look I think Brian you talked about that before but I mean first of all of it we are and the very strong capital position and you.
So on that I mean, we have $2 $9 billion at the holding company. So that allows us to maintain our capital management program going forward the.
And the directory 13 Knudsen.
And as a wound at the New York put out that is just not as the market sensitive as the VA.
<unk> you on who it is which is much more economic so we pointed out many times.
And the way, it's almost like counterintuitive because we're at two <unk> becomes.
I'd say more prominent and good market environment, and less and the bad market environment.
It is not binding for us at year end 2000, and its not binding right now, but it's something that that could become binding and particularly if you remember we had very strong markets of theirs.
Non economic impact actually becomes more of an issue and additional so this gets amplified with the VA transaction.
Which makes it even less kind of reasonable and Thats why we strongly believe and we are in discussions with DFS and you're going to find the good solution with them.
And that really makes and economic economic sense and Thats why we put it out if it doesn't change going to become the program at some point, but we strongly believe we are going to find the good solution with the DFS, because they will and prudent risk management of evil and prudent risk management and and so our interest are aligned.
Got it I appreciate that and then just separately.
On your commentary around productivity and expense.
Boeing initiatives can you give us any sense of the potential magnitude that could have I guess when you. Initially did the IPO you talked about $75 million expense save plan that you've now achieved.
Something that could be.
And as significant as that $75 million going forward.
Yes, so look I think at the at the IPO. We were very specific I think this is obviously and <unk>.
<unk> management efficiency program and something that is always top of mind for management and it continues to be for US I think what we always said is that we clearly see benefits from the low.
Let's say that the change in the environment through the pandemic. We saw some one time benefits, but big piece of debt I would say, 30% to 50% will remain just as mark pointed out in his remarks the north.
I think that's going to be less travel.
That's going to be net real estate costs going forward and maybe the can.
To do and.
And efficiency programs and make sure that the most efficient, but it's not just about cost. It's also about reinvestment back into the business.
Become a more efficient company. This is the continuous path.
Got it thank you.
Your next question comes from the line of your line Qunar with Goldman Sachs. Your line is open.
Good morning, and thanks for taking my questions.
My first question goes to the potential to grow the wealth management business I guess, if if you go after that strategy, Doug I guess can you at the same time continue to consider a potential decrease and the stake of alliance Bernstein, where does the line spread and seen them becomes and even crucial greater.
Crucial portion of the organization.
Let me.
Touch on that and then I'll pass the Nick about the wealth management, obviously, having an asset manager as a subsidiary.
Extremely helpful and keeping as much of the margin as we can and Nols for management business. So thats.
And you would you would understand the.
The economics of debt and aligns both of these also closely involved with the equitable team and building out model wealth portfolios as well which is for us.
Good service to our clients, but also a way for us to capture as much of the value chain as we particularly cat and so yes, you like those two law. Those two are pretty much fully let me pass the Nic now on our wealth management.
Our book itself and the trajectory of we've been seeing the the last few years.
Thanks, Mark Yes look we're encouraged by the growth that we see and wealth management.
Positive three five and net flows that you can see for the numbers I think the speaks to the strength of our affiliated distribution.
The advisors equitable advisers and their ability to the holistically serve clients.
So positioning us as the primary relationship it helps navigate them through different life stages.
We continue to see opportunities in that space.
Got it thank you.
And then my second question, probably more of a follow up to Ryans last question on the expense saves.
I think and the prepared remarks, you talked about digitalization as well. So can you maybe talk about kind of.
Finding the balance between the expense saves and investment and the platform and what the priorities.
Or as you think about both sides of of that equation.
Yes, it's mark again and then.
Let me have ago debt, obviously, digitization Kane, particularly to the full for the last year and our group retirement business and schools shut down and.
You've heard of <unk> heard a number of firms talk about the decades of progress made in weeks and that was certainly the case the equitable way we have to.
Pivot of face to face model to a digital model and the teams did and <unk>.
Credible job on that so of both clients and advisors now of getting much used to working in the digital way and that is accelerating the progress on that particular area. So thats the.
And perhaps not unique to equitable, but we've seen we've certainly accelerated the progress that the other point, which might be lost on some people we've gone through a major technology.
Separation from Axa, if you remember.
At the time of the IPO, we had one time separation cost of $700 million below the line that was to cover the brand establishment and the separation of.
Of the.
Architecture for them.
And that's all from Axa.
Our it teams have done a superb job not just and separating from axa, but and using this onetime opportunity to upgrade the technology, So that's giving us.
Opportunities and confidence about the productivity saves because we had the big step change as a result of the separation.
And then the third.
Our two equivalent if you like is this agile working we have bought in the new way of working into equitable way, we are applying design thinking much more adapted leadership too.
Optima Cabalism of the company if you like so those of the three things I would point to that give us confidence that we can.
On.
The continued to see productivity sales and as Anders said reinvest back in the business for sure.
For full productivity annual revenue gains going forward.
Thank you.
Your next question comes from the line of Mark Hughes from Trust Mark Your line is open.
Yes, Thank you and good morning.
The general account optimization effort.
Build out of the Alts portfolio can you talk about.
One of the prospects for more movement and the direction say over the next 12 months and then.
On the second.
Second question the B the old so it sounds like they performed well and the fourth quarter.
Was that above the expectations you might have for how those perform on a run rate basis, and what should we assume kind of on a go forward.
Go forward basis.
And maybe I'll start with the curve.
First on the first.
Thanks.
And sorry for that.
Can you hear me now okay.
The arguments.
And about the the.
And the kind of optimization I mean this is this is the journey, we started and with the IPO.
Obviously, the move from most lot of treasury moved into into corporates and to public corporates and the journey. We are doing now which is a continuation of this as we said and the remarks is really going more into into progress into illiquid asset classes and you can expect that to continue just to give you some numbers.
At the IPO, we talked about the $160 million uplift from the JV achieves debt by the end of and of 19. Since then and we continue with debt and the accelerated that and you did another $80 million and during 2020 and obviously.
And there was opportunity early in the year, which helped us but this is the continued past debt that we go and I think as Mark said and it's really to improve the and David.
And the risk adjusted return of the of the channel accounts. So that's continued and your second question on the and alternatives alternatives performance.
Generally forward for the fourth quarter, you know alternatives always get reported during the quarter lag. So and Q4, we really saw the strong market performance in Q3, but overall as the year with state of the behind what we would expect.
And normally run rate Q4 was above the full year will still behind on the on the normal run rate.
I would say going forward alternatives and we'll go back to what we will do you expect you might see a little bit and uplift in Q1, just because Q4, where the work that strong within the expect to go back to normal normal normal run rate.
Thank you.
Your next question comes from the line of Tom Gallagher with Evercore. Your line is open.
Thanks for.
First question is on.
Would you consider doing further risk transfer deals after this one with venerable closes.
And I ask it for a few different reasons, but.
Just curious if you're more and if you would considered or are you more inclined to do and the rest of your legacy VA business or would you consider other lines like life insurance and I guess my final point on that is.
But this whole Reg <unk> sensitivity issue Anders I presume if you got rid of all of your legacy VA business that would maybe not eliminate it but it was certainly less and that as a concern.
Yes, So look I think thanks for the question Tom So first of all I think the focus is really as Mark said its now on closing the current deal I think we are well on track to do so, but we still want to want to do that and that.
And remember I mean this deal the multiple things it actually.
And it reduced the balance sheet significantly, but it also validated our reserves and it really showed us that our reserves are appropriate because the consolidated by a third party. So we don't need to do further on.
The risks risk transfers going forward, we would obviously always look at it could makes and makes sense and you just pointed out 2013 could.
We don't find the good solution with the DFS, which is which is clearly our base case, because we strongly believe in the butt.
But look I think we always try to optimize the capital position, but the big the big push was really just first one because it took off so much risk for 64% that Mark mentioned on it.
It validated our reserve so that's really the focus right now.
Debt that makes sense and just my follow up just.
And I guess I just wanted to get a handle on on these smaller businesses, where you would consider inorganic opportunities employee benefits and wealth management are the.
These businesses are profitable on a standalone basis currently and can you share and if so how much like what did those two businesses the churn on a standalone basis and for Q.
Yes, we don't we don't disclose the detailed numbers.
You can basically the seat.
The oil marginally profitable clearly and in order to make them relevant and Thats why the has to grow them and thats really the focus right now, but right now they are not relevant from a from a P&L perspective, and Thats why really the as mark talked about we need to make and relevant but the only marginally profitable.
Okay. Thanks.
Your next question comes from the lineup to meet Kamath with Citi. Your line is open.
Thank you.
So I wanted to start with EPS I guess on last year's fourth quarter call you guys had given a target of <unk>.
8% to 10% EPS growth and 2021, I think 2020, probably came in better than maybe you thought so is that 8% to 10% range still a good target for you guys and I'm, assuming you'd be putting that against the 491 normalized EPS results for 2020.
And so look I think as we said in the past and we don't give and short term targets of short term.
Guidance, but I think long term day to 10% is the right target I think clearly that's what we aspire to get to towards the 10% and.
You're absolutely right.
Right I mean, you gave the specific target for 2021 on that call and that's why I was asking the question I know you don't give yes, but the thickness.
Louis and say this.
This is really the long term long term view, we want to grow the business sustainably and I think that's why the eight to 10 I think it's the right target long term.
Okay and my second question.
As we think about the stock and the company it would seem to us that one of the biggest sources of potential upside is in the value of that describe to the legacy VA block it seems to us that the market's not giving full credit for that piece of the business, especially considering the value that you got for the block.
But youre re insuring. So have you thought about maybe additional disclosures that you could provide to help the market understand kind of of the quality of the business maybe how much of the earnings comes from the SCS product I mean, I think that's in my mind, a real opportunity for the stock and I.
To the extent that you guys could provide some additional information I think it would be very constructive. So just curious about your thoughts on that.
Yes look I think it's a good question I, usually don't comment our stock debt much I think thats.
And that's your job I think what we would.
We strongly believe as I think we have the right basically the mix now we we continue to grow in the areas we want to grow.
I think we validated that the reserving is absolutely appropriate and I think we saw.
The benefits from the Venerable transaction and the stock price and I'm convinced that if we just continue that path it will come through.
We are in here for the long term and I think that's why we've just continued to do that path and <unk> and.
And improve the business.
Are you able to tell us what percentage of the earnings comes from the SCS product.
And we don't disclose that.
And we can talk that through with you and detail.
Okay. Thanks.
Your final question comes from the line of Andrew clergyman with Credit Suisse. Andrew Your line is open.
Hey, good morning, everyone I guess first on the group retirement business.
I'm kind of curious as to and again all of us stay with longer term, what's kind of of sustainable longer term earnings growth rate you grew in the quarter of about 20%, 25%. So just kind of curious long term and then with that you had clear.
Clearly some.
Some COVID-19 disruptions and the schools and in a big way and first year premiums were down 29% and I'm curious as to how you see that recovering this year.
Maybe I take the gross the growth rate and the first and then Nick can talk about the business. So just from the growth rate I think I mean.
And you talked about that before and look this business is.
Yes.
The steady business that we thought we like the drove the assets under management and so we have net.
The positive net flows of them now for eight years, so from a growth rate and what you can expect it in a way and wage growth that comes from the.
The wages of the <unk>.
Disciplined and then the market growth that's really the the underlying growth and then you get some leverage through the channel account rebalancing and the expense expense. If that's basically how I look at the growth of it but this is a fantastic business and showed positive momentum and I think Nick and how you can talk about the with the details that we sold during the year.
Yes, Thanks Anders.
Yes, clearly obviously access the schools remains dynamic.
And as Mark alluded to I think one of the silver linings. During this period is that our use of remote digital tools and that's allowed us to extend and <unk>.
Deep and the relationships, we have with consumers. So we expect.
As schools start to reopen and we start to see of reentry.
And American Society the.
That will actually amplify our impacts going forward.
Got it and.
And then with regard to the protection solutions unit and I was just kind of interested in a of detail.
Around profit followed by losses that reserve accrual.
And I'm curious as to why and.
How much of an offset debt PSP L item.
Was two unfavorable mortality in the quarter and then also curious would results have been materially different if the <unk>.
<unk> was already reporting under <unk>.
Yeah. Good question. So first of all look I think crop protection solutions vs.
So some headwind on the mortality decided and Q4 and then the PFD of reserves did offset some of that but not all of that it's just it's kind of smoothed out a little bit out overtime.
After <unk> you won't see that term debt volatility coming from the reserve for them.
And the increase of decrease anymore, because the way the wage works it takes out the back and so it becomes much less of a volatile item.
And so the mortality of appropriate and impact impact.
The impact more.
Debt.
Bottom line results.
Cash and no said no no specific number you can provide on the <unk>.
I don't think no we don't provide but think about the mortality was.
I think we had the excess mortality north of $40 million, which is we would say that mostly attributable to COVID-19.
No. It is not always the 100% clear because people don't declare all the time, but we attribute that mostly to COVID-19, which was really very much in line with what we had them on.
And guided you for them.
True but.
The <unk> and it offset some of the.
Got it thanks a lot.
Ladies and gentlemen, this concludes today's conference call on behalf of Equitable Holdings for me. Thank you for participating you may now disconnect.
And then.
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