Q4 2022 Equitable Holdings Inc Earnings Call
Good morning, My name is Rob and I'll be your conference operator today at this time I would like to welcome everyone to the equitable holdings fourth quarter and full year 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 followed by the number one on your telephone keypad.
If you would like to withdraw your question again press the star one.
Michelle Moody with Sogou head of Investor Relations you May begin your conference.
Thank you good morning, and welcome to equitable holdings fourth quarter and full year 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.
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 Acrobat, holding Robin raise Yu, our Chief Financial Officer, Nick Lane, President of Equitable 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 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.
This 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 on slide three I will highlight results from the year.
non-GAAP operating earnings were $5.08 per share or $5 55 per share after adjusting for notable items down 8% in the year.
Our strong performance, despite 2020, twos turbulent markets, which saw equity markets for 20% and bond values down 13%.
Managing what is within our control is particularly important now.
We have achieved a 180 million incremental general account investment income target.
One year ahead of schedule and realized net expense savings of $50 million.
Assets under management at the end of the period was $754 billion.
17% year to date, but up 5% compared to quarter three.
We had a strong year with $10 billion in total company inflows with $4 6 billion of inflows in our core retirement business. In addition to $900 million in asset management and $4 5 billion in.
In wealth management.
While we did see elevated mortality in the fourth quarter.
The favorable experience reported earlier in the year and overall, our full year mortality experience was $20 million better than our expectations.
The benefits of our economic management and hedging program continue.
We have $2 billion of cash at holdings, and a combined RBC ratio at the end of the 425%.
In 2022, we returned $1 3 billion to shareholders, a 15% growth in free cash flow per share.
This payout was 57% of all adjusted non-GAAP operating earnings at the top end of our guidance range.
The <unk> accounting changes, we are increasing our payout guidance to 55% to 65% of operating earnings.
And expect 2023 cash generation of one $3 billion.
We see continued momentum in our retirement and asset management businesses.
We benefit from the increasing demand for advice orientated retirement products with total premiums up 6% over the year to $19 billion.
At ABB, Jeff and his team on navigating the industry wide pressures on flows and margins extremely well.
We completed the acquisition of call Val investors, helping shift ABS asset mix over the year and improving its annual fee rate by 3%.
Interest rates increased over 230 basis points in the year benefiting both our general account and new business values.
On the general account, new money yields are 190 basis points higher than the average portfolio yield and.
And interest rate rises combined with strong sales have resulted in record new business value for the year.
Turning to slide four we highlight the unique opportunity we have to leverage synergies across our retirement asset management and advisory businesses.
Demonstrates our businesses are stronger together and drive significant value for shareholders.
As of the year and we have deployed 70%.
$10 billion capital commitment from our insurance business.
Seed growth and Ab's private markets platform.
With meaningful impact coming through higher yields in our general account.
And supporting the acquisition of carve out investors. Similarly, a bee's lifetime income solutions supports equitable's institutional four one K business.
With nearly $800 million of premiums in the year.
Looking forward, we see this as a largely untapped opportunity to benefit from the passage of the secure 2.0.
Yes.
Turning to advice.
We continue to realize the benefits of our proprietary sales force with equitable advisers, delivering approximately 50% of our $19 billion retirement premiums this year in.
In addition to $10 4 billion of wealth management sales.
In retirement are strong premium supported $4 $6 billion in coal retirement inflows up 18, 9% compared to prior year.
And despite the fall in markets, we are delivering a 4% organic growth rate.
We also delivered record new business value from strong sales and the benefit of rising interest rates.
Yes.
Turning to asset management flows and short term performance remained under pressure.
<unk> story for the industry.
But a b's relative performance is strong.
With $900 million at total inflows driven by $3 2 billion in active strategies, excluding the expected redemptions from Axa.
Despite fixed income outflows with rising rates, putting pressure on performance this year.
So organic growth across the U S retail and Japanese markets, along with active equities had municipals.
And the private wealth business grew organically for the fifth year in the last seven.
Importantly, the strategic focus on Abb's private markets and the acquisition of Cabell.
Bought our private markets platform to $56 billion.
57% on the year.
Resulting in a 3% fee rate improvement and a healthy institutional pipeline too.
So a nice track record of attracting third party teams and building internal capabilities, we see meaningful long term growth opportunities for a b and equitable leading to higher multiple earnings and cash flows.
And our wealth management business, we reported $10 4 billion and investment product sales.
All of which over 85% with fee based advisory accounts.
Second best year in sales after a record year in 2021.
Despite challenging markets advisors delivered $4 5 billion in wealth management net inflows driving a 5% organic growth rate and productivity was up 2% over prior year.
We look forward to breaking out this segment next quarter, providing further disclosure and transparency around the importance of our 4300 advisors to our business model.
I will now turn the call over to Robert to discuss the results from the year and fourth quarter in more detail Robin.
Thank you Mark.
Turning to slide five.
We reported 2 billion and non-GAAP operating earnings. This year are $2 2 billion and $5 55 per share after adjusting for notable items in the period.
As Mark mentioned, our earning results performed as expected compared to prior year impacted by market headwinds, which were partially offset by the continued execution of our general account rebalancing.
Achieving our target of about $180 million incremental anytime a year ahead of plan.
In addition, we realized 50 million of net expense savings in our retirement businesses as of year end and remain on track to achieve our $80 million target in 2023.
Looking ahead, we also expect to benefit from $75 million and saving that alliance Bernstein in 2025 associated with their Nashville relocation.
Turning to segment results our businesses continued their strong performance demonstrated the significant demand for the client solutions, we provide during these volatile markets.
In individual retirement, we reported operating earnings of $1 2 billion after adjusting for notable items.
Total premiums were up 5% this year.
Sales and structured capital strategies up 12% year over year.
Results reflect the benefit of rising rates, helping us achieve record new business value in.
In 2022.
And individual with a 60 40 portfolio had a negative return of 16%.
But if that same individual bought our SaaS solution with a 20% buffer at the start of the year the market impact would have been fully absorb.
Demonstrating the all weather portfolio, we offer for clients.
In a market with heavy competition across variable and fixed products equitable is differentiated through our distribution, which allows us to operate in the most profitable part at the retirement market, great violence and floating rate.
Yeah.
In group retirement, our operating earnings were $520 million after adjusting for notable items with total premiums up 16% year over year.
Our primary market is our tactic them channel.
Serving the over 800000 educators in the K 12 teachers market.
Tax exempt delivered net inflows benefiting from the differentiated by equitable advisers provide the educators in schools across America.
We also introduced our institutional channel this year within the group retirement segment, which demonstrates the synergy between our subsidiaries.
The AEP foreign K implant guarantee product allows clients to benefit through an AAV managed retirement solution.
With an equitable managed income allocation.
This allows us to provide secure income to retiree so that they can live long and fulfilling lives.
Our retirement business benefited from nearly $800 million in premiums associated with our retirement plan.
Earlier this year.
And we expect to continue to see flows at the secure act enables us to address the growing need for income and the large four one K market.
Turning to asset management operating earnings of $424 million.
Net flows were positive for the full year, excluding low fee act the redemption.
<unk> benefited from its fourth consecutive year of active organic growth.
While short term performance was challenged in line with the broader market long term performance remains strong with 70% of fixed income and 77% of equity outperforming over the last five years and we remain confident in <unk> ability to continue to deliver profitable organic growth leveraging.
The strength of their distribution and permanent capital from equitable.
In protection solutions operating earnings were $307 million after adjusting for notable items this year.
We continued to benefit from our strategic shift towards our accumulation oriented <unk> offerings with total premiums and first year premiums up 3% and 8% year over year.
In employee benefits, we've seen strong growth with 741000 lives covered now at 22% compared to prior year and premiums up 36% in the year.
Taking a step back we continue to make progress on shifting our business mix with over 50% of earnings coming from our group protection and asset management businesses.
Additionally, we look forward to making two enhancements to our disclosure in 2023 that will further highlight the value of our businesses.
First we will split the individual retirement segment.
Between our core business, which is more spread oriented.
And our legacy business, which will continue to run off.
Second we are going to break out our wealth management business from corporate and other.
This is a business that generates $100 million in cash annually and when we break it out you'll see it's a faster growing part of our overall business due to the strong organic growth.
This unit has delivered.
Together with the new segmentation and continued growth in free cash flows equitable holdings offers an attractive value proposition for long term shareholders.
Turning to slide six our highlights total company results for the quarter we.
We reported non-GAAP operating earnings of $436 million or dollar 11 per share.
Lower than the third quarter on a per share basis, primarily due to elevated mortality, which I will provide further detail on in a moment and lower alternative returns in the quarter.
Adjusting for $93 million of notable items in the quarter non-GAAP operating earnings of $529 million or $1 36 per share down 17% on a comparable year over year per share basis.
Turning to GAAP results, we reported a 789.
In the quarter.
And then by higher equity markets on a point to point basis.
Looking forward, our net income volatility will be reduced post al DTI due to GAAP liability being fair valued which better matches our economic hedges.
We are providing more detail on drivers and updated sensitivity in the appendix.
Water and AUR and was.
In line with market movements.
Continued market volatility, which partially offset by strong ongoing business momentum across all of our lines.
Our results for the quarter should be considered in light of our business model, which derives the majority of its earnings from fees based off of account values. Our earnings reflect lower average equity markets on both an annual and sequential basis.
That said, we are also benefiting from higher interest rates and spreads fear headed by the continued demand for our leading SCS product, which generates spread based earnings and has a $35 billion general account value.
Within the general account as well, we're investing a new money yield of 5% in the second half of the year and we're generating higher net investment income and record levels of new business value, which will result in future cash flows.
On slide seven I will dive deeper into our mortality experience over the last two years to better put in perspective, the fourth quarter results.
The chart on the stage shows how axial mortality has fared each quarter versus what we expected in our GAAP reserving after accounting for our COVID-19 guidance as you can see looking back eight quarters, our experience is better than what we assumed in our GAAP reserving.
In the fourth quarter, we saw elevated claims due to higher frequency, which was likely little related at the fourth quarter, sorry, Luke cases peak earlier than historical trends.
Mortality was $57 million higher than we expected and was primarily driven by larger older age policy.
As a reminder, our protection business, primarily third mass affluent clients through our <unk> policies, which have higher face amount.
GAAP reserving for these policies is based off the cash value of the accounts and does not take into account the fees collect data over the life of the contract.
Therefore, you will see some volatility, but these policies generate double digit IRR for our shareholders.
Over the long term, our mortality has been better than our GAAP reserve expectations and full year 2021, our mortality was $34 million more favorable than we expected and in the past year. It was $20 million Mark favorable even after accounting for the fourth quarter results.
Additionally, preliminary results year to date share that mortality is performing in line with expectations.
Moving forward, we do expect volatility, but are comfortable with our 75 million per quarter earnings guidance with protection solution.
Turning to slide eight our prudent capital management enabled us to return nearly 60% of our non-GAAP operating earnings adjusted for notable items to shareholders at.
At the higher end of our guidance.
We are able to continue our consistency of capital return, despite a volatile market and a health pandemic due to our economic management of the business.
Throughout the year, we returned $1 3 billion with $224 million in the fourth quarter, which included $150 million of repurchases, resulting in a 15% return to shareholders on a free cash flow per share basis in 2022.
This brings our total capital returned to shareholders since IPO to more than $6 billion or over 50% of our niche market cap in a span of less than five years.
On a free cash flow per share basis.
This translates to over 120% return to shareholders.
We closed the year with $2 billion of cash at the holding company and a strong RBC ratio of 425%.
Each above their respective targets.
This was enabled by our organic capital generation and the ability of our highly effective hedging program to match the market movements.
In January we took advantage of market conditions to issue a $500 million 10 year note to refinance our upcoming maturity in April .
Looking forward. Our next maturity comes due in 2028, meaning we will not need any new refinancing until then.
Earlier this week, our board of directors approved an additional $700 million share repurchase authorization.
Bringing our total repurchase authorization of $1 billion, which had no expiry date.
Lastly, our continued mix shift towards a capital light business model and unregulated cash flows enabled us to generate more stable and predictable cash flows.
Looking forward, we expect $1.3 billion of subsidiary dividends in 2023.
Our cash flows will not be impacted by the upcoming al DTI accounting changes.
The accounting moves closer to cash flows.
<unk> out our payout guidance increases to 55% to 65% post al DTI.
I will now turn the call back to Mark for closing remarks, Mark. Thanks.
Thanks, Robyn in closing we delivered a strong performance this year despite turbulent markets.
Through our fair value management, we continue to protect capital and consistently deliver value to shareholders.
We have maintained a strong capital position through a volatile market and our expected one 3 billion of cash generation this year.
Supports our increased payout target of 55% to 65% postal DTI.
Additionally, our continued momentum in the time into an asset management can be seen as we remain a leader in the viola market pricing economically sound and in demand products.
Our subsidiary <unk> continues to provide a strong value proposition for their clients with a favorable mix shift and private markets platform driving growth.
We will continue our relentless commitment to bringing the best of equitable in order to deliver results that benefit our clients employees and of course our shareholders.
Looking forward, we will provide a restated financial supplement reflecting L. D. T. I accounting changes in early April ahead of our first quarter results.
And we are pleased to announce that we will be hosting an investor day in early may to provide further insight on our businesses and the opportunity ahead.
With that we will now open the line for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Your first question comes from the line of Ryan Krueger from K B W. Your line is open.
Hi, good morning.
My first question was on free cash flow I think the $1 3 billion assuming markets are flat at year end 2022 levels.
It is the sensitivity is still about $150 million per 10%.
And that's my first question and then I'll follow up.
Good morning, Ryan, Yes, we're pleased to provide a guidance of the $1 3 billion of free cash flows for 2023, that's based on year end market levels and doesn't have any additional market sensitivity going forward built into it or sensitivity that we provided to the market previously tempered.
<unk> of $150 million of cash flows remains you have seen that last year. When we had $1 6 billion market declined 20% and as a result, the free cash flow guidance that we can get this year is $1 3 billion from our operating subsidiaries.
Got it.
The sensitivity would be more current year or impact.
Next year.
It was something that would impact 2023, and some of it would impact 2024.
As you recall, our part less than 50% of the cash flows now are coming from the insurance company, which is based on the prior year's dividend formula So that will be less sensitive to cash flows in 2023.
Got it and then now that you've completed the general account repositioning is there is there are new.
Is there more repositioning that you expect from here and can you give any sense of further potential upside to NII.
Yes, we're pleased to finish the 180 million target one year advance from 2023.
Going forward I think you can expect us to continue to benefit from higher yields in the general account as Mark and I mentioned in the call. We're benefiting from high yields with new money yields coming in above 5% at the current period and so that'll flow through earnings over time, along with the continued growth from our SCS product. In addition to date we.
We've completed 70% or $7 billion of the 10 billion in committed capital to alliance Bernstein. So once we complete that there'll be an additional upside to the 180 million along with additional upside at alliance Bernstein as we continue to build the private markets platform, which is approximately 56 billion today. So we continue to.
The upside benefiting from the rising rate environment, and a continued business growth.
And we'll provide more guidance, Brian more guidance to come on the Investor day in May.
Your next question comes from the line of Tom Gallagher from Evercore ISI. Your line is open.
Good morning.
First question is on slide 11.
Robin It says net income volatility under L. D T is going to decline around 80%.
Just want to confirm how are how to interpret that if I look at <unk> results.
You had $436 million of operating earnings, but negative net income of 789 million.
Do you think about the new math and the new accounting.
Would what kind of spread should we expect going forward. If you overlaid the new accounting on <unk> result would it have been can you give some directional indication.
Yeah. So what we tried to provide is for equitable going forward on their L. D. T. I S. L V T I accounting gap moves closer to fair value that our net income sensitivity will reduce going forward and as you've seen a slide 11. The guidance I'll just point you to is based on equity movement. So if equity markets increased by two.
6% under the old GAAP accounting, we would've had a negative $1 billion adjustment.
Net income now going forward, if equity markets increased six 5% the adjustment will be $200 million. That's the major difference on the equity assumption on a full year basis as the liabilities moved close to their fair value and our hedging program is still designed to protect our free cash flow growth going forward and once we report are.
<unk> updated financials and the financial supplement in April you'll get to see the numbers on a quarterly basis going back in time as well.
That's that's helpful. Robyn so if I use that math and again I'm just I'm not looking for precision here just.
Some some directional indication if I looked at the spread of 436 436 million translating to.
Most of that 800 million dollar.
Negative net income number using that rule of thumb you just gave me at a minimum net income would have been positive this quarter I presume is that.
Does that sound about right to you.
That does sound about right to me that I think on their postal DTI Q4 would've been positive net income the number I can give you as well to go back to as a proof point. If you look at 2020 one under the old GAAP net income it would've been about negative $440 million for the full year.
L D T I financials, it's a positive $1 7 billion net income gain under the full year and that goes to our point that net income should be less volatile going forward as L. D T I Miss fair value accounting closer to our economic model.
That's that's that's really helpful. If I could sneak one more in just RBC ended at 425.
That that came in above what I would have expected and I know you mentioned organic capital generation and hedging performance.
Was there anything else that drove the strong RBC did you release, a a T reserves was was there another reinsurance deal any other one off items or was it all.
Organic capital and hedging.
Yeah, the capital position as we ended the year remained quite strong $2 billion of cash at the Holdco and the RBC came in at 425% as you mentioned, that's all reflective of organic growth coming in within our businesses No. One time items and at the same time in 2022, we were able to mitigate the.
Some reserves at breakthrough 13 through the actions that we've taken so we're quite proud of the capital position that we stand it reflects our economic management hedging program and actions will it take to address them on.
Uneconomic accounting issues.
Okay. Thanks.
Your next question comes from the line of Jimmy Buhler from J P. Morgan Securities. Your line is open.
Hi, Good morning, I had a couple of questions first on just the competitive environment and the buffer annuity market seems like a lot of other companies have gotten into the market.
Are you seeing them act fairly rational or are you seeing an uptick in competition or better terms and conditions and.
Partly asking just given the fact that your SCS sales.
While strong in an absolute sense were down from last year, I think about 12% this quarter.
Yes. This is Nick.
First is <unk>.
<unk> hired at the fourth quarter was a little soft, but we saw a positive improvement in flows.
As Mark and Robyn highlighted for the full year record volume record value of new business and over 4 billion in positive flows and the higher interest rate environment helps or our economics and are the pricing benefits, we give to consumers.
We're focused on sustainable value and we really like where we play for the following reasons first being the competitive dynamics, we see the fixed annuity space as being crowded there are over 40 players the cost of entry is lower given the distribution dynamics. They can be sold by non registered advice.
<unk> comparatively speaking the rail market is fewer main players in different distribution dynamics, given the registered nature of the advisor to sell the product and as a result, our belief is fixed annuity players are going to increasingly needed to enhance our credit risk to make margin and create consumer value.
The second really is that consumer value proposition, we are a pioneer in launching the buffered annuity note.
Fixed players are more focused on principal protection, whereas rial of players are focused on protected equities, which gives more upside potential.
And finally, I would say it is our privilege distribution specifically the strength of equitable advisers are over 4000 advisers that understand the value proposition of deep client relationships, which means we don't need to chase the market to deliver sales are covered calls so we like where we play we think were well positioned.
And to.
To capitalize on the current volatility of the markets in the longer term structural demographics.
Okay and then.
On capital and.
Buybacks and free cash flow should we assume that the main source of buybacks for 2023 is this going to be.
Your free cash flow of minus Holdco expenses and dividends or do you expect that.
<unk> be around 800 million or so given the $1 3 billion guidance or when do you expect to tap into your.
Holdco liquidity as well, which is significantly higher than I guess you need to keep.
Sure. So I think our guidance on a post that'll be ti basis is going to be that $55 to 65% payout ratio as not only on top of that free cash flow generation of $1 3 billion that we have from our subsidiaries we have the holdco flexibility as well depending on how earnings proceed during the year.
So we feel quite comfortable and were quite happy with the upstream of cash from the Holdco.
Okay, but in terms of buybacks would those be limited from the gas that's coming up to the holding company or is there a possibility you tap into your <unk>.
Existing holdco liquidity as well.
No. It's not limited as I said, we'll stick with that guidance of <unk> 55 to 65 and that should give you.
Comfort on how we're going to proceed going forward.
Thank you.
Your next question comes from the line of Michael Ward from Citi. Your line is open.
Alright, Thank you guys.
I was just wondering if the legacy annuity segment breakout.
Core spread based segments going to be purely SCS or minus included professional.
And should we think about it in any way as subjecting you might look to further derisk legacies.
Yeah, so as we break out our individual retirement business, it's about 96 billion.
A U M into fourth quarter within the core business will be our leading SCS product that has about 35 billion in general account.
In addition, our floating rate VA, which was business written outside the financial crisis and has downside protection related to interest rates. The legacy VA portion will be our pre <unk>.
Financial crisis variable annuity legacy product, that's going to continue to be in run off.
As we go forward and we think by breaking those out along with wealth management, you'll be able to better value. The businesses as we don't feel as though today that we're getting appropriate value for the strength of our distribution and franchise that we have.
And our variable annuity business overall and as a reminder, that legacy business today is only 18% of our total U N and I think by providing more clarity at Investor day, and how that runs off over time should help.
Alright. Thanks.
The related to Derisking legacy any further activity since entering there.
Well always look at options to drive shareholder value over the long term.
Under the policies are co mingle between New York and non New York will continue to work on separating those policies and over time that should give us optionality, if we thought it drove shareholder value.
Okay. Thanks, and then my second one was on wealth management breakout you mentioned $100 million of annual cash generation.
Expected earnings operating earnings from that segment.
We will provide.
More details on the operating earnings the segmentation.
Through Investor day, but also in our <unk> and our.
Financial supplement that's going to be released in April not only will we showed L. DTI results, but will also break out the segmentation until you you'll be able to have that modeling ahead of Q1 earnings.
Thanks, Dan.
Okay.
Your next question comes from the line of Michael <unk> from Credit Suisse. Your line is open.
Michael Quagga men okay.
Andrew and.
I guess my question is.
Around that New York.
Separation of the business.
Robin maybe maybe an update on sort of the timing.
How that's coming along and then.
Conjunction with that are you, having conversations with potential reinsurers about transactions is that something that is a very active dialogue.
Thank you Andrew I appreciate your question.
Hey, Andrew.
As you know in 2022 were first focused on addressing the uneconomic breakthrough 13, we resolve that in 2023, our focus is going to be on.
Separating these businesses between New York and non New York policies, we've already done it with new business, we had 100% of our individual retirement.
Business now being written outside of New York for the non New York policies and then we will work this year on separating that business that that does take time. Its a lot of operational work client notifications et cetera. So that'll take some time and then that should provide us optionality overtime.
It's Mark I, just I guess on the.
Variable annuity on the legacy side.
We see no need to do anything we will of course keep open to it I think as we are showing.
From the Covid year, where we didnt suspend.
<unk> and what we've seen last year in the 15% growth in the free cash flows we show that we have de risk this portfolio to our reserving and to our hedging and that we can continue to get cash out of it. So when we did the variable deal Andrew if you remember we needed we needed to prove to the market there was a pause.
The seed and that someone else would pay money for.
Pull that now so we're open to looking at it but we're not going to do something that is economically not sensible.
And we don't need to so that's that's the position on it really.
Okay.
It will run off naturally over time, it's running off at like 3 billion a year.
Okay. So it just sounds like you are being very thoughtful in the way you're positioning those blocks by separating out in New York and yeah exactly.
If it if it was causing us pain on the cash flow generation or giving US total volatility of course, we would act as we've as we've seen before but it isn't and it's a you know there's the cash that we're generating for you shareholders is consistently coming through so we don't feel it's a burning bridge we have to.
Do something on it.
But if there was anything there that was effective we'd take it.
It makes a lot of sense, maybe maybe just shifting over to group retirement earnings at $115 million.
Kind of in line Q over Q, but down quite a bit relative to the 140 $150 million range.
As seen in the seven quarters.
Prior to that.
I get that the equity market headwinds are.
Or dragging a real drag but.
The substantial spread component.
I thought would have would have benefited the rate and.
The benefits of the rate environments would have had an offsetting effect so maybe a little color.
On what's driven the decline over the last two quarters and kind of how you see those earnings coming in going forward.
Sure Andrew So the group retirement business came in at about $115 million in the quarter. That's a good run rate going forward at that level of a U M that we have in that business. If you go back over a quarters, what's really made the difference when you see it as the AUM coming down along with markets and then in addition, the alternative income.
<unk> is a big component that drives variation as a reminder, we normalize to the bottom end of our alternative guidance. So we normalized to 5% on the low end and 15% on the high end. So that's going to be a baked out there as well when you look at it over time in the in the fourth quarter you did see the first impact from the globe.
Anecdata was roughly $4 million.
In the quarter as well, but we're quite happy with the momentum we have in that business. The earnings power is there, but it's certainly sensitive to equity markets and just like all of our businesses, you'll see will benefit from the higher investment yields overtime.
That's helpful. Thank you.
Your next question comes from the line of Tracy Bengie from Barclays. Your line is open.
Thank you. Good morning, just a quick follow up on separating non New York and Florida from New York is one mechanic of getting that gun reestablishing and internal reinsurance agreement with your Arizona entity.
There, it's it's not an easy process to separate business from New York to non New York will continue to work with the regulators certainly.
<unk> to our Arizona company as part of it across the board, but we think it's good practice and it's prudent to separate those policies. So we can have the outside of New York policies operating the same economic regime that the 49 other states operate in the New York policies will operate in the New York regime. So you know as we measure and Chanel.
Earlier, we just think it's good practice imprudent to do so.
Okay. Also you know we would review the statutory filings and it appears that <unk> need New York insurer would have accumulated about $867 million in 2023 ordinary dividend capacity through the first nine months of 2022, and then it sounds like you had strong statutory org.
Panic surplus growth in the fourth quarter.
So that would imply potentially greater than 50% of your cash flow coming from regulated subsidiary.
With the source of funds for regulated subsidiaries is there any room to return in excess of $1 3 billion in 2023.
Sure the guidance that again, we will stick to it that $55 to 65% post ELV T. I earnings reminder.
We'll always return capital when prudently to detail for shareholders. We returned 6 billion since our IPO, that's 120% free cash flow per share where wanted a few in the industry that has never shut down that program. So it's not only a lot of cash that we've returned since IPO, but it's been consistent and stable over time and we'll continue to do.
So it.
The subsidiary dividends are now less than 50% coming from the regulated company.
A big piece of that is coming from alliance Bernstein, our wealth management business now, which is about $100 million of cash and then also the investment management contracts, we have with the sub the New York entity is always subject to the New York Formula, which we should finalize by the time, we file the K and we expect it will support the $1 3 billion and if it.
There's more there's more but we will continue to be consistent and prudent overtime and returning capital to shareholders.
Thank you.
Your next question comes from the line of <unk> <unk> from Jefferies. Your line is open.
Yeah. Thanks, just first I'm not sure if it's a question or comment but.
Would you consider when you separate the legacy VA from the the new VA, giving us not only the earnings but the capital and the cash flows that are backing those businesses.
Yes.
Well you certainly see the earnings split when we.
Split out the legacy VA.
Our business across the board and those earnings are going to go down.
At a good rate over time, and we will share that more in Investor day, and then when we separate the different pieces and the company will provide more detail at that time.
Okay, and then if and when you separate the New York blocked from the non New York Block is that is that like a capital freeing event for you guys or.
Or not.
No I think again, we hold economic we look at capital economically across all of our entities at once so I wouldn't I wouldn't relate that to free freeing up capital I would think of it more as prudent management. So we can operate on a DNA regime like the other 49 states.
And in addition, it gives us the ability and optionality going forward, if we chose to do so.
Got it and then maybe just last one I don't know if its for robin or for Kate but on the operating margin I think it came in at the.
A little over 28% for the year in.
And in the past, we've talked about a 30% plus I think Robin mentioned, some Nashville savings. So maybe just give us a sense of what the current plan is maybe over the next couple of years in terms of the margin and then how does the Bernstein research joint venture if at all impact that margin go forward. Thanks.
Okay.
Hi.
Yeah, I'm happy I'm happy to comment.
On that.
Over the long run.
Continue to want to be able to achieve that 30% clearly the market environment has a major impact on our ability to do so we're happy with the 28, 4% that we delivered.
This year, we do have a couple of margin improving things in the future as you highlighted the Nashville move will be completed and when you'll get those real estate savings coming through in 2025 that is a significant that should have an impact on our ability to grind that margin higher.
And then on the Bernstein.
We researched socs and J.
J D. We continue to make progress there, we're hoping that it will close here in the fourth quarter of 2023, and we do anticipate that that will also over time have improvement on our margins as well. So those are two margin improvement story et cetera for sample in the in the future.
Okay. Thanks.
Your next question comes from the line of Mark Hughes from Truest. Your line is open.
Okay. Thank you very much sort of curious your view on M&A at this point you've got some nice.
The foods that are smaller that are emerging youre breaking up into the new segmentation I'm thinking like employee benefits growing pretty rapidly.
How do you see potential for M&A.
How do you view that as a use of cash.
Capital.
It's Mark Pearson. Thanks, Thanks for the question.
Our two phase is really the first phase coming out of the IPO. We said for the first four or five years, we need to establish that credibility we need to show that we can run this business outside of Axa and show that we can deliver those targets that we set out which we've done and they all culminating in the $6 billion cash with.
Return to.
To shareholders.
The balance sheet is strong now so we can we can look for M&A and.
And we did so recently with the call Val acquisition, and I think that would be a good model too.
For us to look at it.
We we bought cabell it plugs into a bees distribution and it's in a part of the market, where we have real strategic interest in particular on the on the private markets. Yeah, you're right there could be opportunities on E B and asset management, but the only thing I would.
We really emphasize on the call we will always remain very very disciplined.
In looking at acquisition opportunities.
And you know we have to always compare it to what's the hurdle rate on share buybacks. So it's a high hurdle to clear.
Understood and then that you might have provided the split on the SCS sales how much of that was.
Through proprietary distribution.
Your advisers for instance.
The snake on average equitable advisers is roughly 30% to 40% of sales.
Excellent. Thank you.
And your final question comes from the line of Alex Scott from Goldman Sachs. Your line is open.
Hi, good morning.
The follow up just on the capital questions that were already yes.
Sure.
Yeah, well you talked about the strong IRR as you got on some of the new product sales. This year could you give us a feel for how much capital you're deploying behind new business.
And how that compares with sort of what's running off.
All that is.
The legacy block winds down.
Will that change that dynamic a bit.
Yeah could we think about that increasing free cash flow over the longer term or maybe even the medium term.
Yes.
Sure Alex So as you as you noted the new business that we write today has strong IRR, we start a highest value of new business.
In this year benefiting from higher rates, but also continued client demand across all of our business. We had $10 billion of net inflows, which is really a testament of our all weather product portfolio and the business model that we have which is unique and differentiated across our peers. The capital that we invest in that business is included in the.
Insurance side.
Within that 425% strong RBC that we get and what that means is that they're gonna be good return for shareholders and increase free cash flow over time for shareholders. As we proceed we can provide and we'll probably provide more details on the capital that we invest in a new business and the value that's generated on Investor day as we do.
It will be a key component that you can see how equitable.
Differentiated on how we deploy capital, but also how we get good returns from it.
Got it that'd be helpful. That's all I got thank you.
Okay.
And this does conclude today's conference call. Thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
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