Q1 2022 Equitable Holdings Inc Earnings Call
Yes.
Good morning, My name is shantou and I'll be your conference operator today at this time I would like to welcome everyone to the equitable Holdings first quarter 2022 results conference call.
A reminder, today's conference call is being recorded all lines have been placed on mute to prevent any background noise. After the stakes remarks, there'll be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad to allow time for everyone to ask a question. Please limit yourself to one question and one fall.
Blow up.
If you would like to withdraw your question. Please press star one again, thank you Michele <unk> head of Investor Relations you May begin your conference.
Thank you good morning, and welcome to equitable Holdings first quarter 2022 earnings call.
Curious for today's call can be found on our website at IR Dot equitable holdings Dot com.
Before we begin I would like to note that some of the information. We present today is forward looking and subject to certain SEC 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, Robin Rajiv <unk>, our Chief Financial Officer.
Nick Lane, President of equitable financial and Bell Seamers Alliance Bernstein interim Chief Financial Officer Controller, and Chief Accounting 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 reconciliation 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 slide presentation and financial supplement I would now like to turn the call over.
To Mark and Robin for their prepared remarks.
Thank you Sean and good morning, everyone. Thank you for joining our call today.
First quarter results highlight the resiliency of our broad range of retirement asset management and advisory businesses.
Against the backdrop of turbulent financial markets inflationary pressures and rising interest rates.
<unk> continues to post positive net inflows and strong free cash flow generation.
On slide three I will provide a high level overview of the results.
Before handing over to Bob for a detailed look at the quarter.
Equitable holdings generated $548 million in non-GAAP operating earnings.
$1 36 per share up 1% year over year.
Yes.
<unk>, 4% increase in assets under management.
As a reminder.
We reinsured nearly a third of our legacy blocks available last June .
Our earnings still increased year over year, even though the first quarter of 2021 reflected earnings from those reinsured policies.
Adjusting for one time items in the quarter, principally excess death claims relating to the ongoing pandemic non.
non-GAAP operating earnings were $1 53 per share up 13% year over year on a comparable per share basis.
We added $12 billion of net flows in the quarter with positive net flows in both retirement and asset management and this was our highest quarter of retirement net flows since our IPO.
With our diverse businesses.
Well positioned to advise and address the growing demand to protect the financial future of Americans, who are confronting greater economic uncertainty.
<unk> had another exceptional quarter.
Seven straight quarters of positive net flows.
<unk>, a 1% year over year fee rate increase.
Tables, a b to post an adjusted margin of 31, 5%.
An impressive showing by Seth S T.
With the dramatic style shift we have seen in recent quarters. It is encouraging to see 75% of our value products outperforming their benchmarks in the quarter.
And versus Morningstar peers.
1% of our equity assets outperformed over the five year period.
Our capital management strategy remains the same.
The applied fair market values to our balance sheet.
Invest in our market leading businesses.
Pay a competitive dividend and return excess capital to shareholders through stock buybacks.
Cash generated is on track for one 6 billion in 2022 up approximately 30% since our IPO in 2018.
Based on today's market capitalization, we are generating a free cash flow yield of approximately 12%.
For the mill, we've shown through this COVID-19 period and ability to generate free cash flows across a variety of economic scenarios.
We also have an update to the <unk> accounting changes.
In February we gave guidance that 2021 year end market levels, the adjustment to book value would be within our $2 billion.
Balanced with no impact to our cash flows.
At first quarter end interest rate levels are LDH Ti book value adjustment was neutral and as of the end of April we would in fact estimate a positive LD ti transition impact.
That is book value would increase.
This reflects the actual interest rates have risen in the quarter and are higher and the 2% to 5% long term assumption, we've been using in our GAAP reserves.
Equitable continues to create long term value for all stakeholders.
Our long term guidance of 8% to 10% EPS CAGR.
Border by growth and a leading retirement asset management and affiliated distribution businesses.
This diverse range of businesses is unique to <unk>.
In addition, we have productivity initiatives and incremental general account income to shifting the investment portfolio to higher quality longer duration and more illiquid investments.
In the quarter, we expanded our private asset origination capabilities with Alliance Bernstein reached an agreement to acquire call Val investors.
Which will add expertise in distressed credit renewable.
Renewable energy, especially <unk> finance and transportation.
Combined with Caldwell.
I will now have an approximate $50 billion private markets platform, and we will be well placed to meet the growing demand for alternative investment strategies.
I'm also pleased to report that MSCI has recognized our progress in our sustainability efforts and upgraded our rating from Triple B.
Turning to slide four.
A retirement asset management and affiliated distribution businesses.
<unk> and drive our strategy to pivot to capital light products, which accounted for more than 85% of premiums in the quarter.
The acquisition of Cabell.
It is a good example of synergies between the two operating companies.
<unk> financial has committed $10 billion from its general account.
Aep's private markets platform.
Of this.
$750 million will be allocated across carve out strategies.
Proving risk adjusted returns and strengthening our efforts to grow higher multiple higher margin businesses.
We are benefiting from our early moves into <unk> in.
In the secure income market.
<unk> closed a $10 billion custom target date fund and.
And resulted in a group of timing business, receiving a $530 million allocation.
This is a perfect example of how we participate in the full value chain, having both asset management and retirement businesses.
We are proud to be an early innovator delivering implant guaranteed income solutions.
<unk> has been offering secure income solutions for 10 years now.
Obviously, we are meeting an important social need.
Riding participants with personalized target date funds during their work in years.
And a guaranteed income stream in their retirement years.
Two AAV and equitable synergies.
Our partnership with Blackrock, we are well positioned to grow as lifetime income gains traction post the secure act, which allows sponsors the ability to incorporate annuities into therefore, one case.
Turning to our businesses.
Our retirement business continues to be our most significant contributor.
Bouncing to 80% of earnings and approximately two thirds of free cash flow generated in the year.
Following the Venerable transaction in the second quarter of last year, which unlocked $1 $2 billion of value.
Current values today stand at $152 billion.
As a result of this reinsurance and a decade long de risking program.
Coupled with the change in sales mix and expected legacy outflows.
The time it was just today is less than 18% of account value in legacy VA products.
We had a strong quarter in both individual and group retirement with new sales up 35% over the prior year's first quarter and positive net inflows.
With new capital light sales more than offsetting our expected legacy outflows.
While our product structured capital strategies continues to be the market leader in its category and we saw our strongest month of sales on record in March.
In protection solutions, we continued to see demand for our light products first.
First year premiums are up 23% year over year and total gross premiums are up nearly 36% over the same period to $1 billion.
This quarter has seen net excess mortality on our in force of $61 million on a post tax basis and is within our cobot guide of a $30 million to $60 million operating earnings impact per 100000.
Yes.
While still preliminary early indications of a realized excess mortality in the month of April remain within our guidance.
Despite turbulent markets.
<unk> continues its standout performance record.
Active equities grew for the ninth quarter in a row.
And municipals grew for the seventh.
Both banking industry wide outflow trends.
Offsetting these results was taxable fixed income, which saw higher outflows in the face of the worst quarterly fixed income returns in 40 years.
Overall annualized organic AUM growth was up 6% year over year and the average fee rate grew 1%.
Investment performance remains strong.
And as of quarter end, 69% of U S assets and 63% of Luxembourg assets were rated four and five star by Morningstar.
<unk> 200, plus private wealth managers with a focus on high net worth clients deliver.
<unk> delivered $2 billion of net inflows in the quarter end and is responsible for 117 billion.
Or 16% of Abb's total AUM.
<unk>.
Equitable advisers continues to show positive momentum in broker dealer investment products with.
With gross sales of $3 billion in the quarter.
Strong net flows and favorable markets over the last year.
We continue to drive AUR growth.
Closing the quarter at 17 9 billion.
Up 13% year over year as.
As we continue to see our affiliated distribution, becoming a more significant components of the equitable holdings story.
We continue to see an increasing focus on a holistic life planning throughout 4300 strong advisor force.
As of quarter end, we have over 500 advisers, who have completed the initial phase of our holistic life planning training program.
We also recently launched a coaching certification program in partnership with Columbia University, and expect strong advisor engagement in this program positioning us for increased demand for holistic planning.
On page five.
We show the growth in earnings and cash flow generation since our IPO.
Throughout this period with record low and volatile interest rates a global pandemic.
Now rising inflation I'll fair value economic management policy has protected earnings cash flows and enables consistent capital return to shareholders.
We are growing earnings over 30% from $1 9 billion at the time of the IPO to approximately $2 5 billion today.
Cash generated by our businesses is on track for one 6 billion in.
In 2022.
Also up 30% since our IPO in 2018.
And based on quarter end market cap, we are generating a free cash flow yield of 12%.
Importantly, we expect to generate this cash flow absent the earnings from the legacy block, we reinsured, the venerable last year, which monetized $1 $2 billion of value leading to an additional $500 million of capital return last year with the remainder to be returned over time.
We've also increased our nonregulated cash flow to approximately 50% of the total.
Thereby increasing our financial flexibility.
While we recognize that markets are impacted by macroeconomics, and we are not immune from equity and credit markets, we focus on long term value.
The condition of our balance sheet is not dependent on interest rates protecting the promises we make to our clients and uncertainty about cash flows further.
Our business is positioned to benefit from rising equity markets and higher new money yields as credit spreads widened.
These turbulent markets remind consumers of the value of guarantees that only firms of equitable Ken manufacturer.
And paired with our growing financial planning orientation.
The rise in interest rates, enabling stronger retirement guarantees we remain optimistic about the big go about commercial businesses and our ability to generate fair value process.
We continue to believe that the ability to generate cash flows is the best way to value equitable holdings and indeed our industry.
I will now turn the call to Robyn for further details on our results.
Thanks Mark.
Before highlighting our results for the quarter I would like to spend a moment discussing our estimated L. DTI transition adjustment on slide six.
Last quarter, we disclosed our estimated book value adjustment would be with Dana OCI down at year end, which was approximately $2 billion.
As Mark mentioned interest rates increased significantly in the quarter with the 10 year up 80 basis points and the forward curve, increasing from two 5% to nearly 3% as of quarter end.
As a result, the benefit of increasing our year industry low <unk>, 5% GAAP interest rate assumption hit a forward curve minimizes the impact of fair valuing our GMI b SLP rates areas under al DTI.
Leading to a neutral al DTI book value adjustment as of quarter end.
I'm also pleased to report that as of April month end market conditions are estimated L. DTI book value adjustment is positive.
Our positive book value adjustment highlights an important aspect that <unk> trying to resolve.
Today companies have discretion and can choose to interest rate date incorporate into their reserves.
The assumption is higher than the forward curves the adoption reflects a bet that interest rates will increase.
Beyond current market expectations.
Companies with higher interest rate assumptions hold less reserves, which in turn may put shareholder cash flows at risk.
Equitable's belief in a fair value approach means we can appropriately reserved and deliver capital returns without making bets on interest rates.
The forward curve represents the market view of interest rates and currently assumes the fed will continue to increase interest rates approximately seven more times over the next two years.
Within our economic model, we manage our import and hedging program based on the forward curves as we believe managing to App show market rates is more appropriate and making our OLED substrate on future interest rate levels. We.
We remain well positioned for it out cutting al DTI transition in 2023, and expect our GAAP balance sheet to be more stable due to better alignment between our GAAP reserves and our fair value economic reserves.
As a result shareholders should expect to see consistently positive net income, reflecting a more economic match between our assets and liabilities.
Turning to slide seven I will review our consolidated results for the first quarter before providing more detail on segment results and our capital management program.
Adjusting for notable items in the period non-GAAP operating earnings were $615 million this quarter or $1 53 per share up 13% year over year on a per share basis.
We called out $67 million of notable items in the quarter.
Barely attributable to elevated mortality and DAC updates to our in force, which were partially offset by higher alternative income.
Adjusting for notable as our increase in earnings year over year was primarily driven by higher fee income on higher average AUM.
Turning to GAAP results, we reported net income of $573 million this quarter and our hedge program performed as expected with a hedge effectiveness of approximately 95%.
AUM increased to $856 billion over prior year quarter supported by favorable equity markets and continued positive net flows reflecting the strength of our retirement and asset management businesses.
Our general count is benefiting from increasing rates and widening credit spreads with new money yields approximately 50 basis points higher than assets rolling off the portfolio as of quarter end.
This creates a natural tailwind for our business and should benefit our rebalancing program.
We expect to reach our yield enhancement target earlier than anticipated with $118 million of our $180 million 2023, rod rate target already achieved.
We've also continued to make progress on our expense initiatives.
Realizing 35 billion of our $85 billion debt target.
Looking ahead, we expect to realize meaningful savings over the next two years as we optimize our real estate broker and reap the benefits from it agile workforce.
Moving to the business segments I will begin with individual retirement on slide eight.
As a reminder, debatable transaction closed in June of last year, unlocking one 2 billion in value, while reducing over two thirds of our legacy VA risk, resulting in an adjustment of 180 billion to operating earnings per annum.
Adjusting for notable items operating earnings were $307 million for the quarter lower year over year, primarily due to the impact associated with the <unk> transaction.
We continue to see strong demand for our individual retirement, all weather products will.
We're protected equity guaranteed income and tax efficient investment offerings resonated with clients during a period of volatility and rising interest rates.
We reported positive net flows in the quarter as we continue to benefit from our product suite had differentiated distribution with 655 billion of inflows in our capital life product offerings, partially offset by the runoff of our legacy VA business.
In the quarter. We also maintained our number one position in the protected equity raila market reporting $2 billion in structured capital strategies sales.
<unk> from prior year and record sales in the month of March.
Total individual retirement first year premiums were $2 8 billion, a 17% increase year over year.
We continue to see rational pricing in the <unk> market and our continued success is a testament to our distribution model, which pairs. Our 40 301 affiliated advisors with targeted third party salad partnerships.
Importantly, our strong new business activity is focused on creating value not only volume.
We build and price our products to maximize the value of new business, which measures the present value of risk adjusted cash flows as interest rates have increased in the quarter our value of new business continued to be at record levels, which will improve future shareholder returns overtime.
Turning to group retirement on slide nine.
We reported operating earnings less notable items of 149 billion up 7% versus the prior year quarter.
Given by lower expenses and higher fee revenues.
Positive net flows of $523 million in the quarter were primarily driven by inflows from a b the lifetime income strategies.
This is another proof point of the synergies between our subsidiaries.
<unk> lifetime income provides a significant distribution channel for our retirement business.
Providing access to large foreign K plans, which is a market our retirement business did not serve today.
Furthermore, given our unique business model <unk> benefits for margins on both retirement and asset management manufacturing.
Our tax exempt market is driven by our industry, leading affiliated distribution in the quarter. We reported positive net inflows with first year premiums up 7% year over year, which return to pre pandemic levels outpacing first quarter 2019 sales.
Our continued leadership in the K 12 educators market is a testament to our 1100 dedicated equitable advisers specializing in their retirement needs of over 800000 educators <unk>.
Now turning to alliance bird stayed on slide 10.
Operating earnings were 136 billion up 12% year over year.
Barely traded by a decrease in base fees on higher average AUM.
Performance fees in the quarter.
While interest rates move significantly higher in the quarter.
We maintain strong fixed income performance with 64% of fixed income assets outperformed basis over the one year period.
And stronger long term performance with 72% at 71% of fixed income asset outperforming over a three and five year periods respectively.
Equity performance remains strong relative to peers with 68% of equity assets outperforming on a one year basis and 81% of outperformance over five years.
The strong investments outperform it is leading to strong flows across their retail institutional and private wealth channels.
Total gross sales of $41 billion were up 23% year over year, including $21 billion of retail sales, which is the fifth consecutive quarter retail sales over $20 billion.
Our institutional channel reported $14 billion in gross sales, including a $9 6 billion retirement mandate supporting record net inflows of $10 billion and the seventh consecutive quarter of organic growth.
The private wealth channel, which represents approximately one third of Abb's fee based revenues reported gross sales of $6 billion up 12% year over year with $2 billion of net inflows and 7% annualized organic growth year over year.
Total assets under management at the end of the quarter were 735 billion up 5% from the prior year quarter attributable to positive net inflows for the last 12 months, including $11 billion this quarter and favorable markets importantly over this period.
Annualized organic AUM growth of 6% was supplemented by a 1% fee rate growth.
Moving to protection solutions on slide 11.
We reported operating <unk> of the diabetics valued up over prior year, primarily driven by higher net investment income at higher fee revenue at a higher account values.
Gross written premiums were $1 billion in the quarter up 36% over prior year quarter as we continue to make strides shifting towards less interest sensitive accumulation view all products with.
With first year premiums up 65% year over year.
We were excited to see over 150000 U S deaths in the first quarter.
It's hard to believe that we bid at this pad that back for over two years gap with so many lives impacted across the world.
<unk> products serve an important need during these difficult times and we will continue to be there for our clients and their times indeed.
Through the end of March access program vitality with 61 billion, which were made with data our guidance of 30% to 60 billion operating earnings per 100000 U S deaths.
We maintain our current COVID-19 guidance, but expect better mortality with the U S that estimate in the second quarter decreasing significantly.
And are encouraged by preliminary death claims we are seeing in April .
We remain confident in our 75 billion quarterly earnings guidance going forward, but do you expect some potential volatility due to mortality.
Turning to slide 12, our fair value management of the business continues to support our capital management program.
We have made significant progress towards our 2022 capital bad is good targets to date.
Return at $461 billion to shareholders, including $279 billion up first quarter repurchases, Ed additional $112 billion of 2022 share repurchases that were accelerated into the fourth quarter of 2021.
To further support our capital returns.
We intend to increase our quarterly dividend to <unk> 20 per share.
<unk> per share increase we have consistently increased our dividend since our IPO up 15% demonstrating the financial strength of our balance sheet and business model.
We also continue to deliver on our 50% to 60% payout ratio.
As mentioned earlier shareholders continue to benefit from our diverse businesses wherever retirement asset management at affiliated distribution, which resulted our expected $1 6 billion of annual cash flow generation.
$1 2 billion at our IPO.
We closed the quarter with $1 5 billion cash at the Holdco, which aligns with our capital management strategy.
<unk> financial flexibility to support consistent capital return at various market cycles.
Lastly, we continue to make progress at the redundant reserves associated with breakthrough 13.
We expect your doubts mitigated actions for the Rebating <unk> areas in the second half of 2022.
I'll now pass it back to Mark.
Thank you Robyn before we turn to your questions I would like to reiterate some highlights from the quarter.
First our business model benefits from a complementary.
<unk> management and retirement businesses with strong net inflows in the quarter.
And then increasing contribution from our affiliated distribution.
Second.
Fair value economic approach.
Which is the result of management actions over the last decade.
Is more toward today than it has ever been protecting our balance sheet.
Preparing as well for alignment to LD Ti with no impact on our hedging program or cash flows.
And lastly, our unique business model pairing asset management and retirement continues to drive long term accretive growth for our shareholders.
Going forward we.
We remain committed to acting as a force for good to <unk> profits and purpose as we execute against our investment and expense initiatives to deliver on our 8% to 10% EPS growth.
With that I'd.
To open the line for your questions.
Okay.
At this time I would like to remind everyone in order to ask a question press star one to allow time for everyone to ask a question. Please limit yourself to one question and one follow up.
Our first question comes from Ryan Krueger with <unk>. Your line is open.
Hi, Thanks, good morning.
I guess I'll ask probably the obvious one first Robin is there can you expand at all on the on the potential actions that you would take in the second half of the year to mitigate the <unk> impact.
Good morning, Ryan Thanks for the question.
As we've mentioned in the past we continue to work in parallel to address the remaining redundant reserves to write 213, we've taken action last year to address 50% of it the remaining actions will be resolved either through external internal reinsurance and we've continued to make progress in the first quarter and we're confident that our ability to mitigate it.
In the second half of the year.
Yes.
Okay got it and then.
Can you give any more color on I know you don't give the RBC ratio quarterly, but can you give any more color on the performance on a statutory basis, given the volatile market environment.
Sure as you mentioned, we don't disclose quarterly and we haven't completed our control process.
But what I could tell you is just a reminder, that we do have two hedging programs in place that worked well during these volatile times. Their first one helps us fully hedged the economic risks associated with liabilities on the guarantees that's where we hedge fully equity and interest rates to the forward curve and the second one is where we have the statutory.
Hedge program designed to protect Cte 98, both put formed well and exceeded the 95% efficiencies and these programs are it gives us comfort in the $1 6 billion guidance that we've given to the market today under 2022 cash flow generation and allows us to continue to invest into strong new business profitability that we.
Coming out of our insurance and asset management companies.
Thank you.
Our next question comes from Tom Gallagher Your line is open.
Hey, Good morning. My first question is from slide five it looks like $100 million of your $1 6 billion of cash flows is expected to come from Europe .
Your distribution business can you comment on whether or not that.
Some capital release, there or is that actually a normalized free cash flow result from that patients that you would expect to have sustained.
Sure. Tom You had said that's right out of the $1 6 billion you can expect approximately $100 million coming from the distribution business that is.
Normal cash flow generation, we would expect on a run rate business from the business and we expect that to continue to grow as our affiliated distribution continues to sell profitable products and help advise our clients during these volatile times.
Got you and then and Rob and just on the $2 billion impact from rate $2 13.
Is that does that should we think about that as being sort of permanently locked in or is that a sliding scale that might change and in particular, just given how weak the markets had been lately.
Would that $2 billion number potentially change if we were to mark that to market.
Sure.
Just for context for everyone to $2 billion of redundant reserves of which we addressed the $1 billion already through the actions. We took in 2021. The remaining billion would have some market movement, Tom but I think it's still a good number because we look at it in relation to <unk> 98, and Thats. The number we anticipate in mitigating in the second half of the year.
Yes.
Okay, Thanks, and if I could just slip one more in.
On the rig.
2013 initiative on bringing up that extra $1 billion of capital should we assume that that's kind of where.
Youre going to stop here with.
Strategic actions or would you be looking to do more including the legacy VA block or other things from a risk transfer standpoint.
Sure all deals that we look at need to be accretive on an economic basis. That's how we look at if a deal is good or not and when we should do it.
We do like the position we are right now with our retirement business only 18% of <unk> AUM is in that legacy business, we had about $3 billion run off on an annual basis over time, if we can accelerate that again being economically accretive we'd certainly take a look.
Our next question comes from Andrew <unk> with Credit Suisse. Your line is open.
Okay. Thank you and good morning.
Robert maybe on the coal retirement segment, you had $307 million.
Of earnings ex notables and.
The number seems off and obviously the equity markets are playing a big role in that but.
Barring the decline in equity markets now.
Just assume it didn't happen could you give us a sense of.
Where our run rate might be on that earnings number.
I know you've got some expense savings to come I know theres, some seasonality, but I'd like to comment.
If you could get a sense of where the kind of.
<unk> that.
Individual retirement.
Sure.
Sure it's difficult for me to ignore equity markets. During this time as you can imagine right, Andrew but I'm sorry to.
Tried to back the 307 million keep in mind that excludes venerable Venerable on lost $1 2 billion of value reduce the risk of that segment by two thirds, but adjusted earnings by $180 million per annum on a run rate perspective, you should expect seasonality for the fees charged on benefits the benefits either.
Large to annually.
Q2, and Q3 are generally to highest quarters windows fees are charged based on historical sales.
More importantly, the risk profile and the cash generation on the 106 billion of AUM in the retirement business remained strong and as you can see the new business returns are at record levels and so we're really excited about the trajectory of that business.
And with that Rob and the seasonality I mean should I be thinking about it and the magnitude of a few tens of millions in seasonality or something much smaller.
Any.
Kind of just framing there.
Yes, that's probably about as much detail that I would provide at this time.
Especially given the equity market volatility that we see is as it is.
Is something that I can't ignore but the seasonality Q2 Q3 expected to be higher that's probably what I can provide at this time.
Okay. Thanks for that and then just the second question would be on group retirement and that.
Lifetime income slowed that appears to have been more than $500 million into.
Through Alliance Bernstein relationship.
What's the pipeline like for that and could we see more of these $5 billion type inflows.
Hello, Hello, Andrew It's it's Mark Thanks for the question Mark I think as Robin said in the script. This is a perfect example of the benefits we have form our business model.
If you like getting getting.
Margins from the full value chain, they're having both retirement.
And in and also asset management, you should expect that this type of business is lumpy.
When it comes it will be.
It will be large.
And one thing I'd like I'd like to say on the.
Is a b has been.
Working in this area for 10 years now way before the secure act.
So it's something.
And equitable have a deserved market reputation for and it's something we're excited about in the future, but it will be lumpy that's for sure.
Got it thanks, so much.
Our next question comes from Nicole Delek hover with Morgan Stanley . Your line is open.
Yeah.
Okay.
Okay.
Hey, it's not necessarily I think.
I think that maybe for SMA I just wanted to follow up on rig <unk> when our solutions in place would that be a catalyst for you to be more aggressive on capital management.
Excess capital on balance sheet is still very high or are we in a market environment, where you would prefer to hold onto it.
Capital buffer at this point.
Sure.
<unk> the way, we see it doesn't necessarily dictate how we distribute cash flows it's based on our internal economic model, which continues to remain strong.
At healthy levels overall, the cash flow that we've generated the $1 billion.
Within the business is $1 6 billion in 2022, that's up from the $1 2 billion or 30% since IPO after taking into account the venerable transaction. So we feel really good about the cash flow generation of the business. We will continue with our 50% to 60% payout and we've proven that since IPO that we continue to pay.
Out regardless of market cycles.
Great. Thanks, and then just another one on cash flow.
The acquisition that ABB does that change your expectation as to how much cash you would likely be getting from from desktop this year.
It does not.
One let me just talk about the acquisition first we are excited to bring on carve out investors. The acquisition scheduled to close early in Q3. It helps bring alliance Bernstein's platform up to $50 billion for private markets makes it meaningful on top of that equitable in the general account will support with 750.
Dollars of investment so it's a win win because the general account will benefit from better risk adjusted return for our policyholders and then we'll go out and raise third party money with this new platform as well. So it supports us building a higher multiple business at a b over the short term from an <unk> perspective.
The business the deal is neutral from an accretion perspective, so no impact on cash flows but over the long term. We're excited about the prospects that that bid franchise brings database.
That's great. Thanks Robyn.
Our next question comes from Puneet <unk> with Jefferies. Your line is open.
Hi, Thanks.
So I wanted to go back to the cash flows and a 6% from the affiliated distribution.
That you addressed earlier.
If that's the cash flow numbers is there a way that we can think about the earnings that business generates or is there some sort of disconnect between the cash flows and the earnings that that business produces.
We're excited to talk to you today about that business number one it's a great. It's been a growing platform for $79 billion.
$3 billion of gross sales than today, we can give you guidance that we expect $100 million of cash flow generation. It is a fee based oriented business. They don't expect much differentiation between that business.
Andy underlying cash flow generation.
Nick anything you want to add on that from a yes.
Yes perspective, I would just clarify through equitable advisers, we sell insurance products as well as investment fee based products, we see the growth in the investment base.
As supporting the overall growth of managing its portfolio, but creating a new revenue and cash flow stream going forward.
Okay, and then I guess in terms of the cash generation of one six.
I think thats, just a touch higher than what you said last quarter, which I believe was one five.
Obviously, it is going up despite the fact that markets are lower so just maybe I wanted to understand what's going on there is this.
The lack of the market impact is that really because.
The statutory component of that is driven off of last year's results or what explains kind of the resilience and increase in that number despite the weaker markets.
Yes, you need to I think over the long term I think the way we look at it is the mix of the business that we shifted to be more capital light.
The legacy VA transaction are reducing.
The risk orientated business gives us confidence in the cash flow generation of $1 6 billion up 30% from IPO as you mentioned and we will continue to drive cash flows thats, our focus drive free cash flows for shareholders for best use.
Okay. Thanks.
Again, if he would like to ask a question press Star One. Our next question comes from Tracy <unk> with Barclays. Your line is open.
Good morning in your prepared remarks, you mentioned that your free cash flow yield at 12%.
Bring a market cap of today that would imply a $1 $3 billion of free cash flow do you actually reach their guide to one 6 billion from your prior five so.
Just wondering what I'm missing.
I think if you looked at the free cash flow yield at 12%. The number in this script is as of quarter end, we thought that that was probably the best number to get.
So we took a spot as of quarter end, Yes, you are right at one six in more volatile markets to free cash flow yield is higher today, making accurate a blow more attractive proposition for investors.
Okay got it and Kale and also to start to write 213, just reviewing your disclosures it looks like under your permitted practice you received a $1 5 billion hedge credit.
<unk> D C. DFS is recognition and your hedge effectiveness.
And that amount is reflected in your special surplus fine. So I guess my question is is your recent hedge effectiveness.
That hedge credit.
No impact Tracy what that was if you recall when we first announced right 2014, we risk.
See the permitted practice.
The DFS, which allowed us to defer to $2 billion in total redundant reserves, we've taken 50% of that action and we expect to resolve this in the second half of the year.
Okay. So that is more static not offset.
That's yes, that's part of the deferrals that we add and then $2 billion.
Okay hedge effectiveness and have no impact on expected, yes. The hedge if you can just maybe hedge effectiveness that we quote to the market. That's how we perform economically versus our economic target eliminating the volatility.
It's not related to <unk>, which is an economic reserve.
Okay.
And then on your distributable earnings and you mentioned, 50% coming from Nonregulated sources I should I think about your.
$865 million of ordinary dividend capacity from alcohol financial in 2022.
That you may fully draw that down, whereas last year, you had no capacity.
That's correct the dividend Formula allows us to upstream dividends and we plan to do so in the.
Within the second quarter.
To support the $1 6 billion.
Thank you Kent.
Yeah.
Our next question comes from Mark Hughes with Chris Your line is open.
Yeah. Thanks, good morning.
On the SCS product you described a lot of strength in March how much of that was just volatility in equity markets rising interest rates.
Has that momentum continued into <unk> or is this a good product for this kind of a.
Market backdrop.
Yes. This is a product that was built for this time upside potential with downside protection to create more resilient portfolios as a pioneer in the industry of creating this product in this segment over 10 years ago, we continue to benefit both through our affiliated distribution and our third.
Party networks.
Structurally we view the pie is continuing to grow based on the demographic shifts of baby boomers looking for protected equity stories amplified by the current market conditions as Robin highlighted we continue to manage this on an economic basis for sustainable profitability.
And remain confident going forward that we will be able to help Americans create more resilient portfolios. During this period of dislocation.
Yes.
And then on the rig to <unk>, Robert you talked about external or internal reinsurance.
Any.
Car numbers associated with that I assume it's contemplated in the 8% to 10% EPS guidance.
Yeah.
That's right Mark anything that we take would be minimal.
But it is everything's cause everything we speak about is compensated in our 8% to 10% EPS guidance and we will look to resolve in the most economically accretive.
<unk> option that we have here at <unk>.
Half.
Thank you.
Yeah.
We have reached the end of the question and answer session. This concludes today's conference call you may now disconnect.
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