Q3 2022 Equitable Holdings Inc Earnings Call
Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the equitable Holdings incorporated third quarter earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a.
Question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question Press Star One again I would now like to turn the conference over to a shield motor So Glu head of Investor Relations. Please go ahead.
Good morning, and welcome to Equitable Holdings third quarter 2022 earnings call materials 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, Robyn <unk>, Our Chief Financial Officer, Nick Lane, President of Ecuador, Financial and Kate Burke Alliance Bernstein, Chief operating Officer, and Chief Financial Officer.
During this call we will be discussing certain financial measures that are not based on generally accepted accounting principles.
<unk> known as non-GAAP measures reckon.
A 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.
Good morning, and thank you for joining today's call.
Conditions remain challenging with equities falling for a third consecutive quarter.
And at the same time bond markets, providing their worst returns in 40 years.
While our earnings are not immune to markets our capital ratios are robust.
We remain focused on what we can control.
Against this backdrop, our clients need for advice income and protection has been heightened.
Equitable is uniquely positioned to meet these demands with our integrated businesses and our conservative balance sheet.
Turning to slide three I will highlight the results from the quarter.
With global equity and bond markets down, 26% and 15% year to date, respectively.
The value of equitable holdings assets under management declined by 21% this year.
non-GAAP operating earnings were $498 million this quarter or $1 28 per share down 2% from last quarter on a per share basis.
Third quarter earnings benefited from a small positive impact from our annual assumption reviews as I wish I think it's based on actual emerging policy holder and market experience.
Adjusting for one time items.
Results were in line with expectations with higher interest rates.
Wider spreads and lower pandemic related claims.
Partially offsetting weaker fee and alternative income.
We recognize that this market requires a different playbook, we continue to have deep conviction on our strategy and we are more aggressively managing our expenses.
Offsetting the decline in fees on lower assets under management has been increased productivity saves and additional investment income growth through the optimization of our general account.
Alliance Bernstein was also not immune to industry conditions.
As net outflows were $6 6 billion.
Water, excluding anticipated Axa redemptions.
Growth in alternatives multi asset and municipals.
Outweighed by redemptions in taxable fixed income and active equities.
Pleasingly <unk>.
Overall fee rates improved by 7% growing in each channel driven by the addition of Cabell unfavorable asset mix.
Ab's financial performance reflected lower asset classes with Q3, adjusted operating earnings declining by 9% compared to Q2.
Our capital management strategy continues to protect our balance sheet, enabling us to focus on organic growth and returning excess cash to shareholders through a combination of dividends and share repurchases.
We returned $1 billion to date this year.
<unk> $275 million in the third quarter in line with our payout guidance of 50% to 60% of non-GAAP operating earnings.
As of quarter end, we held $2 billion in cash at holdings, which is above 500 million dollar target.
Supporting this financial flexibility and capital strength is our hedging philosophy.
First of all our hedging program Immunizes, our VA guarantees from the impacts of the market.
This quarter.
<unk> effectiveness reduce volatility by more than 95% within our income oriented offerings.
Turning to our general account.
New money yields in that 200 basis points above portfolio yields on our fixed income portfolio.
With 15% of the portfolio turning over each year. This will benefit net investment income and earnings over time.
Our investment portfolio is relatively conservative.
96% of our general account credit portfolio is in investment grade Securities and we have limited exposure to subordinated clo's and equity like alternatives.
We benefit from an integrated insurance investment and advisory business to.
To meet our clients' holistic needs across all market environments.
Equitable's third quarter retirement, net inflows of $1 2 billion.
Demonstrates our product innovation strong distribution and alignment with client needs.
Violet product structured capital strategies.
<unk> downside protection and upside participation and continues to lead the market in meeting client preferences in these volatile times.
We also have significant capital aggregation benefits between our businesses.
In conjunction with that product design results in greater capital efficiency across our retirement and life insurance segments.
Importantly, we manage on an economic basis.
Some use this term loosely we mean the fair value of our liabilities based on actual emerging experience and take no bits on external market factors or heroic assumptions on policyholder behavior.
This approach and our integrated businesses.
Altered in total cash flows increasing by 30% since the IPO.
Turning to slide four.
We highlight key results from the quarter and a breakdown of our growth and cash flow since our IPO, which can be seen in the waterfall at the bottom of the slide.
At the time of the IPO.
Cash flows were approximately $1 2 billion.
For 2022 is that our cash flow will be one 6 billion.
Supported by a $930 million dividend from <unk> insurance company, which we completed in July .
Back in October 2020.
We reinsured, one third of our legacy VA portfolios.
And we moved two thirds of the tail risk by entering into a reinsurance transaction with venmo.
This accelerated $100 million of cash flows and unlocked $1 billion of economic value add.
As a result, we returned an incremental $500 million.
And share repurchases in 2021.
Since our IPO.
Organic growth and equity market performance have increased cash flows by $500 million.
With the biggest contribution coming from Equitable's individual and group retirement segments.
Alliance Bernstein stellar performance over this period, that's added an additional $200 million of cash flow.
And dividends from a b to EQ H now totaled approximately $500 million in the year.
We are also seeing increased demand for advice with a wealth management business contributing an additional $50 million of cash flows.
Since the IPO, we have returned $6 billion to shareholders and reduced outstanding shares from 561 million to $317 million.
As a result in the growth and free cash flow and lower shares outstanding free.
Free cash flow per share is up approximately 120% since the IPO.
Check to preterm for long term shareholders.
Our cash flows of course sensitive to markets, which have been challenged over the last year.
However, our hedging program and fair value management have enabled us to maintain our RBC ratios and cash returns to shareholders consistent with 50% to 60% of operating earnings.
Turning to our retirement businesses.
We are also diversifying our earnings through our SCS product, which captures less equity sensitive credit spreads.
The climb in sales with $4 8 billion this quarter.
Up 6% compared to last year.
With rising interest rates this translated into another record quarter of new business value.
Managing what is within our control is even more important in these markets.
We have achieved $167 million of our $118 million incremental investment income target and remain on track to achieve our 2023 goal ahead of schedule.
We also continue to thoughtfully manage expenses, realizing a net expense savings of $43 million as of quarter end.
Turning to asset management.
As I mentioned earlier.
Is not immune to industry wide outflows in the quarter, but remains in positive territory for the year to date and continues to outperform peers.
Equitable continues to support the growth of private markets platform deploying nearly 60% about $10 billion seed capital commitment, which has helped support a 7% year over year fee rate improvement, while near term investment performance reflects a challenging environment.
Long term performance remained strong in equities and above average in fixed income.
ABS institutional pipeline remains strong doubling in the quarter to $25 billion with over 80% of the pipeline fee base attributable to private alternatives highlighting the benefit again, although the acquisition of cargo.
Within our wealth management business, we reported $2 4 billion in investment products sales of which over 85% fee based advisory accounts.
While markets weighed on assets under advice.
Closing the quarter at $69 billion down 3% compared to prior quarter.
We had benefited from net inflows as demand for advice continues.
Subject to markets, we are planning to break out our affiliated distribution channel as its own segment in the next year, providing further transparency into the sources of value generation.
I will now turn the call over to Robert to discuss the results from the quarter in more detail Robin.
Thanks, Marc turning to slide five I will highlight total company results for the quarter.
We reported non-GAAP operating earnings of $498 million.
Or $1 28 per share sequentially lower on a per share basis, primarily due to the impact from lower equity markets in the quarter, which is partially offset by a favorable assumption update.
Adjusting for the $13 million of notable items in the quarter non-GAAP operating earnings were $511 million or $1 32 per share down 18% on a comparable year over year per share basis.
Turning to GAAP results, we reported $273 million in positive net income in the quarter.
These results should be considered in light of two features of our business.
Most of our businesses are market sensitive and derived from client accounts invested in stocks and bonds.
And second that markets are down year to date with global equities down, 26% and bond markets down 15%.
Net effect of market and our hedging is that our fee based earnings and cash flows will adjust in line with the sensitivity we have given to market.
Plus or minus 10%, having 150 million post tax impact.
Our results held up relatively well due to the fact that we can control, namely the economic hedging program that protects our balance sheet.
Hedging program Immunizes, our VA guaranteed and mute the impact of severe market declines on our balance sheet.
Our first dollar hedging supplemented our statutory protection program, which had some debate.
This program worked as expected during the market decline as we continuously updated amortization two changes in equity and interest rate market levels.
Turning to expenses, our philosophy to continuously E business efficiently, while investing where we see strong new business growth opportunities.
This resulted in net savings of 43 million to date as we remain on track to achieve our $80 million net savings target by 2023.
Wait continued investment into our individual retirement and affiliated distribution, which is benefiting from sales and margin opportunity is not there in more than a decade.
Our general account rebalancing program has achieved a $167 million of the $180 million 2023 target with wider spreads we have been able to achieve the improvement without going down in credit quality.
As mentioned earlier, our annual assumption update increased our non-GAAP operating earnings by $23 million or <unk> <unk> per share. This.
It reflects our approach incorporating emerging experience into our assumption, which ensures that we avoid surprises in our reserve as a result, we held $2 3 billion more in rate dairy Diana I'd requirements for our VA business, it which should give them back their confidence and equitable approach.
Quarter end AUM was in line with the declines in equity and fixed income market that I mentioned earlier at.
That continued market volatility was partially offset by continued momentum in our business we.
We delivered another quarter of record net inflows within our individual retirement business led predominantly by our industry, leading SCS product, which is the protected equity to loosen that resonates with clients. During these uncertain times.
<unk> continues to deliver strong long term growth grew market headwinds with higher fee active equity and alternative generating organic growth on a trailing 12 month basis.
This is evident in a 7% improvement year over year.
The alternative growth is another strong example of our synergies supported by equitable 10 billion commitment.
<unk> has delivered nine straight quarters of net inflows in alternatives and multi asset solutions.
Lastly, interest rates have increased by over 200 basis points through the first nine months of the year.
Equitable economic balance sheet is immune to the impact of changing rates, both up and down.
However, we do benefit from higher interest rates in three areas.
First through new business with record margins in our retirement products and opportunity to manufacture innovative income solution. This means higher cash flow to shareholders over time.
Second our investment portfolio is now investing 200 basis points above our enforced Brian on.
This will allow us to achieve a $180 million target for year end 2023 with additional upside.
And third we increased our exposure to floating rate securities in the low interest rate environment, which has proved to translate into higher yield for investors at rates have continued to rise.
The three areas of upside in a higher interest rate environment had been evidenced by another quarter of record net inflows in individual retirement.
And increase shareholder value, we're another quarter of record new business value.
I will now turn to slide six and highlight our approach to capital management and how it drives long term shareholder value.
We have a prudent approach to risk and balance sheet management, given the ongoing macroeconomic uncertainty.
As such we are positioned equitable to be appropriately capitalized with bank credit equity or macro recession type event.
We believe our $2 billion of cash at the Holdco supported by our $930 million of ensuring dividend in July our strong RBC ratio is a testament of both our hedging program and high quality investment portfolio with 96% of fixed maturity being investment grade.
This positions us well relative to peers manage through market volatility.
In the quarter, we returned $275 million of capital to shareholders, which includes $200 million of share repurchases.
This brings the total capital return to shareholders year to date to $1 billion, which is on the higher end of our 50% to 60% payout target.
<unk> thousand 500 declining 25%.
This is also enabled us to reduce our share count by $21 million or 5% for the year to date driving our free cash flow yield.
<unk>.
This is another example of equitable strong value proposition for shareholders.
Our consistent capital return.
Wanted by our fair value hedging program in conjunction with product design that delivers narrow range of outcome has resulted in our hedging program, reducing over 95% of volatility this quarter.
Additionally, our conservative General account is well positioned for the current market environment with an average credit rating of <unk> III.
One area to highlight in our portfolio in commercial mortgages, which are well diversified and allocated to resilient subsectors like multifamily housing.
The conservative portfolio has a debt service coverage ratio of two one times and a 60% loan to value ratio, which ensures their general count remained strong across different credit cycles.
Lastly, we are on track for 100% of our individual retirement products and over 90% of our total product it would be distributed outside of our New York entity by year end.
This will drive further consistency in our ability to upstream future regulated cash flows to the holding company.
On slide seven I'll provide an update on the upcoming <unk> adoption next year and how it benefits both equitable and our industry.
One of the key aspects of Al DTI is the adoption of many fair value based principles.
As a result, equitable economic based measures and hedging program will remain unchanged.
Our GAAP metrics will reflect new measures that are closer to fair value.
It means our cash flow generation is unchanged.
And our cash flow conversion to the new GAAP earnings will be higher as the new measure for operating earnings is better aligned to cash generation.
The driver of our consistent cash flow is that the new <unk>, earning moves closer to our economic basis hedging program as most liabilities will now be mark to market, which matches the assets.
Turning to our new measures.
First there will be a new net income at better reflects market based movements and liability.
Our hedging program already target fair value.
Net income will be more consistently positive and less volatile.
This will remove a barrier for inclusion into some of the largest entity.
Consistently positive net income is a prerequisite.
We also introduced a new non-GAAP operating earnings measure that will be more closely aligned to cash and economics.
The new measure moves closer to cash generation by approximately $150 million to $250 million per year translating to a higher payout ratio post <unk> adoption.
Our legacy block is the main driver for the change in operating earnings.
Under Al DTI, the legacy block will accrue more attributed the than it does today, but we expect minimal impact to our core business as it is already priced economically product issuance.
Lastly, we expect al DTI book value transition impact to be roughly neutral or zero at quarter end market levels, primarily driven by our industry loud, 2.25% GAAP interest rate assumption.
Additionally, we continue to believe that book value assay OTI is a correct measure would be post L. DTI adoption.
While equitable is positioned well for al DTI, the overall industry and investors will also benefit from the new standard.
Providing greater transparency into an insurance accounting framework that frankly required too much explanation.
The adoption of fair value reserving will better shut a true economics of life insurer through liabilities that reflect market movements and.
And we think this is a valuable pre character.
Other changes on the horizon within the EIC model law.
Through increased disclosure and more consistent assumptions investors will be able to better understand and compare company specific risks throughout the industry.
And then we can stop talking about accounting, so much and focus more on the core business that should ultimately drive informed investment decisions and cash flows.
I will now turn it back to Mark for closing remarks Mark.
Thanks, Robyn and closing a solid quarter of performance despite continued market headwinds.
The balance sheet remains robust.
We have anticipated and prepared for challenges we see today in the markets.
We are showing the resilience we have designed for and we are spending our time focusing on what we can control.
Our integrated insurance investment and advisory model means we are uniquely placed to meet client needs in these times of great uncertainty.
We continue to lead the market in the fastest growing retirement segment the viola market.
Our subsidiary AEP continues to outperform peers and it's diversified strategies.
Asia footprint and successful growth of its alternatives platform position us well in the asset management sector.
Looking forward there remains a great deal of uncertainty.
And risk of recession, and rising credit losses.
We have a lot of tools to manage this uncertainty we shall continue to manage the business prudently and professionally.
We shall also continue to be relentlessly committed to bringing the best of equitable in order to deliver better outcomes that will benefit our clients employees and shareholders.
With that we will now open the line for questions.
At this time I'd like to ask a question simply press star one on your telephone keypad. Our first question will come from the line of Elyse Greenspan with Wells Fargo. Please go ahead.
Hi, Thanks. Good morning. My first question you guys now have $2 billion at the Holdco, that's obviously well above your target obviously, recognizing right I think you said rents on certain time.
When would you look to I guess manage that down closer to your target and how do you balance the uncertainty uncertain markets.
And credit environment that we're in right now.
Okay.
Hey, Robin Thanks for the question.
Youre right, we have $2 billion of cash at the Holdco, we like that position and this type of market environment. We've also returned 1 billion to shareholders year to date and as a result, we're on the higher end of our 50% to 60% payout ratio. Despite the volatility in markets. The S&P 500 declining over 25% and interest.
Increasing quite a bit and Thats, a testament of our hedging program the conservative nature of our conservative investment.
Investment portfolio, which enables us to have that consistent cash flow return to shareholders.
We do we don't mind, having 2 billion at the Holdco and this type of environment. We think it's prudent we think it's better to have a cash buffer instead of trying to rebuild the capital position and this type of environment.
That's helpful and then anything new I guess.
On the M&A side of things I guess following that carve out all deal.
I guess what.
I consider using some of that buffer towards additional transactions.
Good morning, Elyse, it's mark Thanks for the question yes.
Yes.
You mentioned the success of the carve out transaction, we are delighted with that and it fits the strategy too.
Shift <unk> towards capital light businesses, and particularly high multiple businesses as we see on the ultimate side.
Seth and Kate and the team have done a fabulous job in completing that transaction and and integrating it.
And the position of being able to look for opportunities, but obviously in this market as as Robin said.
We will be conservative and prudent in anything we look at the areas. We would look at would be asset management and wealth management.
But you should expect us always to be very professional on it and.
We will be mindful of using shareholders shareholder money in this market.
So no no announcements at this stage, but very very pleased with how the <unk> acquisition has gone.
Yes.
Thank you.
Your next question will come from the line of Jimmy <unk> with Jpmorgan Securities. Please go ahead.
Good morning, So first I had a question on it would be and obviously you had a very strong flows.
Over the past few years, even when many of your competitors were not doing as well and recently closed have gotten worse. So.
Can you sort of discuss what.
What your views are on what's causing this if youre seeing any sort of concentration of outflows from either from either a strategy or a <unk>.
Region and not sure how much of this relates to a business you might have put on in the last.
A few years.
Yeah.
Okay.
Yes.
Sorry, Jimmy we're just having a line problem with K <unk> no Bryan sorry about that.
Okay.
Okay.
Yes.
It broke her overall.
This quarter, we had more challenging flows they were largely related to on the institutional side. A couple of specific client mandates, let's say from time to time happened, but we continue to see I think good strength and.
On the active equities side.
Where we also saw some challenges were in the retail I don't think we're immune to that versus our peer group. There and then private wealth continues to put up.
Reasonable flow so we are.
Overall have I think confidence in the underlying business going forward. Obviously, we are subject to the challenges in this volatile market, but we do think that as clients are going to be looking to.
Go towards a more risk on.
Environment again that we're very well positioned to continue that part of the floods in the future.
But as long as we're sort of in an uncertain environment, where there's fears of recession and sort of.
The overall industry is struggling for parole flows I'm assuming that your results are going to follow a similar pattern.
Uh huh.
We are we have very strong institutional pipeline as we highlight as mark highlighted.
That gives us some confidence in our ability to continue to execute.
Versus our peer group in this environment, but yes, we're subject to the same chart. We are we are subject to the same challenges that our pipeline at 25.
<unk> is high and is that three times, our normal fee rate I think that highlights the repositioning that we've done over time towards alternatives that is an important part of that pipeline and we anticipate that will continue to show strength in that area.
Hey, Seth.
Okay, Jimmy its Marty maybe if I.
It's Marc maybe I would just add a couple of things from the from the Ecuador point of view.
Yes, absolutely right.
We can't be totally immune to the markets, but I think a couple of things in the AEP.
A b equitable framework, which differentiate from peers, especially on the ABB side very strong in Asia presence strong long term performance on equities and also on our long term performance on fixed income so that's helping as well and then I think.
And set of.
They executed the build out of the alternatives platform over.
Not many years and utilizing the synergies with Equitable's General account.
We really is a differentiator for us in the marketplace. So yeah. We are in a tough market, but I think we've got some things in the business model.
Which means if we execute well we can continue to outperform peers.
Okay.
And then on the group retirement business. The flows were negative this quarter is that mostly because of the seasonality in the business and the working schedule for teachers or are you seeing underlying weakness in that part of the market as well.
This is Nick just the short answer is yes, that's the seasonality we saw an improvement of $78 million compared to last year. The fundamentals of our tax exempt business is strong we're back to our president.
Pandemic levels. This is both driven by enhanced school access and a lot of investments we need in their technology platforms.
To better serve them so year to date in that segment and tax exempt which is our core we have about $500 million of positive net flows and we will continue to build on that momentum.
Thank you.
Your next question will come from the line of Ryan Krueger with K B W. Please go ahead.
Hey, good morning.
Robin what what's the dollar amount or percentage of your investment portfolio Thats floating rate assets at this point.
Hey, Ryan.
Earlier this year, we are in a low interest rate environment. We did start purchasing some floating rate securities on the asset side. We also have liabilities, which are floating rate. So the net exposure is approximately $3 billion and in the quarter. That's benefited us on the upside in this high interest rate environment of approximately $25 million for earnings.
So it is another tool we have in the kit that enables us to benefit from the upside in interest rates along with our G. A rebalancing in the new business value, we're generating and in this time period.
Yes.
Okay.
Thanks.
Then in terms of expense actions are there are there additional things that are being done outside of the expense plan that are more discretionary that you're taking to offset some of the impact of a weaker market.
Sure. So we're on our total expense program, we have an $80 million net target by 2023, we've achieved $43 million of date again, that's net of Reinvestments that we have in the business as we are investing in our businesses to support the growth and value that we're seeing today.
We remain on track for that $80 million, we have some big leases coming up in 2023, and the New York area, and we restructure those leases, which help us lock into those saves by 2023, so the business remains well positioned and if needed we'll take additional actions to secure earnings. In addition at the <unk>.
Good bye to early 2025, they will recognize $75 million to $85 million and expense efficiencies from the Nashville move that remains on track. So they're good levers in the business to offset some of the inflation trends, we're seeing and we're going to continue to deliver net earnings growth as a result.
Thank you.
Okay.
Your next question comes from the line of Nigel Dally with Morgan Stanley . Please go ahead alright.
Alright. Thanks. Good morning, So low left is debated issue across the industry for individual life insurance you did your actuarial review there was very little impact. So I hope you can provide some additional details there as to why your block is performing well while other companies are taking sizable charges.
Sure I think it starts with them way equitable has manages the business and positioned ourselves as you heard Mark and I mentioned earlier, we set assumptions based on emerging experience, even if they're not credibility. We don't believe that's appropriate because our.
We believe to create trusted in the industry and an equitable we should avoid surprises for investors and Thats why you see equitable positive impact on assumption updates in the quarter across all of our business individuals group and protection.
Yes.
On the floor and a retirement business, it's been tremendous we see another record quarter 3 billion of sales, but more importantly to valued at we're generating on that sales continues to be excellent for us in this high interest rate environment, we are not capital constrained for new business, we're able to support that new business and the growth that we get for it and <unk>.
As long as we're achieved these type of margins in that business will continue to support it.
Thanks for <unk>.
Your next question will come from the line of Alex Scott with Goldman Sachs. Please go ahead.
Hey, good morning.
I know you guys want to move out from the account in conversation, but I did have what I wanted to ask in the accounting just just given the decline in operating earnings.
I think it it sounded like that does have to do with the attributed fevers your actual fees and annuities and I just wanted to see or are you able to share anything around.
You know compare ability across companies because they.
I think that other companies are potentially defining operating earnings differently and I just wanted to make sure I understand if you know what I'm looking at is going to be apples to apples across the industry.
Sure. So we despite not wanting to talk about accounting and focused on the business. We are we are very excited about the upcoming I V. T. I counting the fact that go into effect January next year, while it's not perfect. It does bring the accounting closer to the fair value economics at the business that we manage against and.
We should expect as a result that operating earnings across the industry is going to change. It's the first time, the accounting standards changing in 40 years, and you're gonna have liabilities mark to market changes to DAC amortization, so add that function the new matrix should be different than the old metric. If if it's the same as deal metrics, there's something that's wrong into <unk>.
At the end of the day, so we can't comment on other companies because I'm not an expert in their individual financial statements, but it equitable did moved us closer to cash which for US result in a higher payout ratio posed that'll be T. I and we're confident in day and the trust that this will bring in the industry as operating earnings will become.
More resilient and closer to cash.
Got it.
That's helpful and just in terms of cash flow as we think about 2023.
The the insurance company, and and sort of the ins and outs of the New York ordinary dividend capacity.
Where do you see that shake it out in terms of you know how much cash you'd be able to extract.
You know considering.
I guess the affirmative practice that you have in New York as well as some of the actions you've taken to fund the.
Have you ever done the reserves.
Sure. So as Mark mentioned earlier, we remain on track for the 1.6 billion for 2022 as a reminder, that 1.6 billion about 60% of that is non unregulated. So big piece of that is coming from a lion's Bernstein, our investment services contract that we have with the insurance companies and our wealth man.
<unk> business. So we've dropped your day <unk> exactly to that point to provide certainty on a big chunk of those cash flows goin'.
Going forward, we expect that 1.6 billion to obviously be impacted by markets as I mentioned in my in my prepared remarks, you know it's in line with the plus or minus 10% sensitivity that we gave him that has 150 million impact on operating earnings and cash the insurance company specific dividend will be finalized in February .
Already there are some nuances with the formula, but we should be on track for our cash flow is given to check, but given offset by the change in market. That's the casto generation, we see and it should be approximately 1.3 billion cash flows in this current current market environment, given the sensitivity that we've given.
Got it okay. Thank you.
Your next question will come from the line of Tracy Geeky with Barclays. Please go ahead.
Good morning, I'm, just wondering if you could touch upon the violent market have you seen the product of all things considering competition to meet client preferences, specifically I wanted to know if there's any changes.
The branch characteristics of the product.
Great. This is Nick first is mark and Robyn highlighted we had another strong quarter led by our <unk> sales of roughly 2 billion with very robust do business value, we see the pied continuing to grow given the demand drivers versus a structural shift of the 70.
Baby Boomers that continue the age.
And amplified by these volatile times, the poor fundamentals perfectly ALLL matched that is the core which we anger our products and economic reality and that does not change the upside potential downside protection is the right solution for these times.
We can expect to continue to capitalize on these fundamentals given our history of innovation.
We pioneer this product over a decade ago. It was about building more resilient portfolios with products anchor did economic realities and we continued to.
Innovate on the segments to meet.
We access that through our privilege distribution, that's suppose equitable advisors or 4100.
Affiliated sales plus our third party networks that allows us to meet this need in a profitable way.
Okay.
Great and there's a little bit more technical question I am Mar the interest maintenance reserves on the spot side I think normally you can add like houses realized schemes smoothing chopped off by giving <unk> interest rates right. Now you can't neutralize. The lawsuits are you seeing any short term pressure on top of all because of that.
Now we currently have a positive I M. R. I M. R balance obviously with interest rates, increasing we do have unrealized losses on in within the general account, but for US economically goes assets are being held to maturity. So we think that's <unk>, that's okay and that's why.
We look at book value Axxeo T I as the appropriate metrics to value insurance companies.
Alright, thank you.
Our final question will come from the line at the Sydney came up with Jaffray's. Please go ahead.
Yeah. Thanks, Good morning, I, just wanted to start with the Sds product one of the things that we are hearing in the market is that.
Pricing and returns or maybe less favorable than they were when you guys innovated. This product in the first place and maybe that has changed with the move and in rates that we've seen of late but just wanted to get a sense of.
How the returns and the pricing compares today to maybe.
Maybe over the past few years, if you could provide that detail.
Yes, you need as I mentioned this court or even in the last the last few quarters test them into the great work done by the individual retirement business the distribution into pricing, it's our highest margins ever that we received in this product then it's a function as Nick mentioned earlier of a rational market <unk> growing but higher interest rates is.
Well I've certainly benefited that product then it's become more appealing to consumers, but it's a great portfolio and a great product for consumers, but also for shareholders and that's demonstrating through to record margins.
Got it and then I guess, an L. D T I and slides seven I just Wanna make sure I understand this I mean, it looks like you're operating earnings are coming down with 150 to 250 million I get that free cash flow conversion is is going higher but it seems like that's because the denominator is lower so maybe you just want to understand exactly what's going on with.
That 150 to 250 and if that is in fact, an operating earnings hit that you guys are expecting.
Does it give you any thought around risk transferring the remaining legacy block just to kind of clean up the block, but also get this accounting pressure kinda behind you.
Sure if you need as a reminder, you know no impact on cash profitability as we view to business economically nothing's changed but the accounting standard on how they value liabilities has changed and as a result, we've we've adopted to the new accounting standard, which moved to 150 to 250 million.
Closer to cash flows the main drive every day tribute fees that I mentioned in my remarks, the new accounting allows you to accrue more more of the base fee to cover someone to sharp falls in the Ryder charges on the legacy product that we're at issuance. That's similar that new accounting framework is similar to the M 21.
The statutory framework in how we view and economically so it's quite natural that it moves it closer to cash and we're quite comfortable with the metric and we think that will create stability and a higher cash flow generation per share going forward.
But no change then on your view of the legacy block and whether it makes sense to just offload that.
No I mean again. This is just this is accounting and how did he had a caseloads are reflected in the accounting they've no change the cash flows or economic profitability within our blocks.
Okay. Thanks.
Ladies and gentlemen that will conclude today's conference call. We thank you all for joining you may now disconnect.
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