Equitable Holdings Inc. Q1 2023 Earnings Call

Thank you for standing by and welcome to the Equitable Holdings first quarter earnings call.

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I'd now like to welcome you Shouldnt, we did ever sold to head of Investor Relations to begin the conference.

Good morning, and welcome to <unk> Holdings first quarter 2023 earnings call materials for today's call can be found on our website at IR Dot equitable holdings Dot com before we begin I'd 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 backroom of holding Robyn <unk>, Our Chief Financial Officer, Nick Lane, President of Ecmo Financial and Kate Burke Alliance Bernstein, Chief operating Officer, and Chief Financial Officer during.

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.

Liaison that these non-GAAP measures to the most directly comparable GAAP measures and related definitions maybe 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.

This is the first time, we are presenting our results under the new <unk> accounting standard and also this quarter, we provided additional disclosures to our new wealth management segment and separating our legacy VA portfolio format for the time this business.

Let's get straight into it on slide three we present highlights from this past quarter.

non-GAAP operating earnings were $364 million or 96 cents per share.

Adjusting for notable items in the period, which included elevated mortality claims and lower alternative returns earnings per share were $1 21 up 9% on quarter, four 2022, and down 18% compared to prior year quarter.

Reflecting movements in equity markets and alternatives.

Assets under management and administration ended the period at $864 billion down.

Down 8% year over year, but up 5% year to date.

Our businesses delivered strong results this quarter with $3 $2 billion inflows in our core businesses positive across retirement asset and wealth management.

With the collapse of SBB credit Suisse and signature bank that has understandably been a lot of attention on the finance sector.

Today, Robert and I will spend most of our time on our liquidity position and strength of our balance sheet.

We are conservatively positioned with an H two rated investment portfolio.

High quality diversified mortgage portfolio.

Lapse rates remain within expectations as well as historical averages.

A testament to products that are matched and hedged to protect both policyholders and shareholders will touch on this later in more detail.

Turning to capital we have one $8 billion of cash at holdings supporting financial flexibility and giving confidence that we can consistently deliver on our payout guidance across market cycles.

In the quarter, we returned $286 million to shareholders, including $214 million in share repurchases.

As such we delivered a 63% payout in the quarter, which is at the upper end of our stated guidance.

Our RBC ratios remain above target levels.

This quarter since the introduction of the new <unk> accounting standards, the most meaningful change in over 40 years.

Equitable welcomes the greater transparency and a closer alignment between accounting and fair value management.

We are also taking this opportunity to show up businesses and what we think will be a better way for investors.

Firstly, we are splitting out our capital intensive legacy VA business from our core retirement business.

This reflects the fact that five years since the IPO.

We have been very successful in reducing the risks on the legacy portfolio and it is now no longer significant.

The book is only $22 billion in account value 16% of the total.

So reinsurance hedging and buyback programs, we have reduced Cte 98 that is assets needed to withstand the average of the worst 2% of scenarios.

Over 70% since our IPO.

The danger before this was that capital intensive legacy was lumped with and obscuring the value in a more capital light and spread based individual retirement products.

Looks like our market, leading SCS are perfectly matched and have no living benefits.

As such there was a very narrow range of financial outcomes very different profile to the legacy VA.

Sure.

Our revised disclosures provide greater visibility into the drivers of value within our business.

As a reminder, over 50% of our annual cash flows come from unregulated sources, primarily wealth and asset management.

Our new wealth management segment highlights one of the faster growing and higher multiple portions of our business.

And demonstrates the synergies and strong client persistency, we realize from one of our biggest assets that is a 4100 affiliated advisors.

We are excited about the growth prospects here and believe that our holistic life planning advice model and investment capabilities should translate into attractive growth in the future.

Turning to slide for.

You will see an overview of what has changed in our new disclosures.

In our largest segment individual retirement investors now have greater visibility into the size earnings power and momentum of our core retirement offerings.

This segment has 79 billion.

And our mix of fee based and spread based earnings and totals approximately 38% of operating earnings in the quarter.

We expect to see continued growth in this segment through our privilege distribution meeting the demand for tax deferred accumulation and income.

In wealth management, we capture investment advisory fees income on cash sweeps and distribution margin on insurance sales.

We have grown from approximately $40 billion of assets under administration of the IPO to $76 billion today.

This segment contributed $32 million of operating earnings in Q1.

And net flows have been growing at an 8% CAGR over the last five years.

Sure.

Losses, our legacy segment.

This includes capital intensive fixed rate variable annuities issued prior to 2011.

Which were previously included in individual retirement.

Legacy represents approximately 12% of operating earnings adjusting for notable items.

This segment continues to generate earnings and cash flow and we are comfortable with the reserving and hedging of these liabilities.

In 2021, we completed the venerable transaction, which significantly reduced our risk profile.

This is our smallest segment with $22 billion of account value and running off at $2 billion to $3 billion per year.

We look forward to providing more detail on these segments and the border opportunity ahead at our Investor Day next week. Please.

Please turn to slide five to understand <unk>. It is important to understand the benefit from synergies we get between our businesses.

We are uniquely positioned in advice retirement and asset management.

85% of equitable advisor annuity sales go to equitable and nearly 100% of life insurance sales.

<unk> has also received new business from approximately 14003rd party advisors in the last year.

Equitable users its general account to see the build out of Aes private markets in return for higher risk weighted returns.

<unk> has been very successful in attracting $4 of third party funds for every $1 of seed money.

And has now built a broad alternatives platform, including the <unk> acquisition.

Now stands at $58 billion.

We have deployed over 70% about $10 billion capital commitment to <unk>.

Which provides higher general account yields and attractive high multiple fee revenue at AEP.

Beyond our capital commitment from the general account continued growth in structured capital strategies product range is benefiting.

As they manage over 90% of our SCS account values.

Yes.

Turning to our businesses.

In retirement, we delivered $4 7 billion in premiums led by our suite of <unk> products up 12% year over year as we continue to innovate and capitalize on the demand for protected equity.

Approximately 50% of all sales come from our affiliated distribution.

We had another strong quarter with $1 billion of net inflows benefiting from strong demand and client persistency.

We also continue to progress on our expense initiatives, achieving $60 million run rate savings through quarter end, we remain on track to achieve this target by year end.

Turning to asset management.

This global platform generated positive net flows of <unk> 8 billion.

With $1 8 billion of active inflows as retail and high net worth investors became more comfortable taking on risk and we're keen to take advantage of higher fixed income yields.

Okay.

Realize fee rate improved by 4% year over year, driven by the addition of carve out.

In institutional channel pipeline remains strong with $13 billion.

Two thirds of which is comprised of private alternatives, which continues to give us confidence in the growth about $58 billion private markets platform.

And our new wealth management segment, we generated $1 4 billion of net inflows in the quarter with assets under administration growth of 4% year to date to $76 billion.

And equitable advisers, we now have 700 wealth planners advisors focused on financial planning and investment products.

Through continued productivity improvements and a shift towards fee based advice, we expect to continue to improve our margin in this 90% free cash flow conversion business.

In summary.

Unique retirement asset and wealth management businesses continued to be resilient.

In all markets.

Turning to slide six Robin and I will spend a few minutes discussing the current market environment and addressing a few areas of focus for investors.

The banking crisis that commenced on March eight as clearly impacted our sector.

As we've seen.

Our business tracks, the broader market and with the S&P 500 up 9% year to date, our fee based businesses like <unk> and wealth management benefited.

On credit quality, we are conservatively positioned and can withstand very severe shocks.

We maintain a high quality commercial mortgage loan portfolio and.

On liquidity, we are structurally very different to a bank as a mainly retail clients all products with share market value adjustments also and the charges.

Let me pass over to Robin to go into the data for you Robert.

Thank you Mark turning to slide seven I will now spend a few minutes discussing the three areas market highlighted.

First on credit.

We are well positioned to withstand a credit event and recovered quickly from it.

Generally the insurance industry is well capitalized.

However, as you can see on the left hand side of this page equitable can better withstand significant stress in our investment portfolio.

<unk> is an independent stress that by autonomous.

<unk> got an a credit event that is similar to the global financial crisis of 2000 and neat.

RBC ratio holds up better than peers with a drop of only 40 points versus peers at 48 point.

In this event, we will stay within our target range of $3, 75% to 400% RBC.

We are also constantly performing internal strategies on our portfolio, which are more severe than this example on.

On the bottom you can see one of our internal stresses which tells a similar story to our economy.

Equitable's portfolio and capital remains resilient through a scenario that is more severe than in global financial crisis.

We define distress as using the global financial crisis for investment grade.

The dotcom crisis for below investment grade, which was more severe than the global financial crisis.

While also using up 40% valuation chock off the CML portfolio and a meaningful shock to other chemo types.

And even in our internal stress scenario, our RBC ratio only impacted by 52 points.

There are a few observations that we would make from deeper adult.

First our high quality investment portfolio is resilient.

96% of our fixed maturities are rated investment grade and the portfolio has a total credit rating of eight three which excludes try Bruce.

Second we have a track record of maintaining a strong RBC ratio.

Through every period since our IPO, we have delivered an RBC ratio above 400%, a testament to our economic management of the balance sheet.

And last our statutory capital generation remained strong in 2023, we will generate roughly 10 RBC point per quarter in the retirement company.

It means that showed a material credit event arise.

We will likely be able to fully build back our regulatory capital to the current access levels within one year's time.

So in summary, our portfolio is high quality and able to withstand stress it into credit cycle.

The next topic I will address is our real estate exposure.

Our mortgage loan portfolio.

<unk> represents approximately 17% of our highly diversified general account.

We earn over 50 basis points more than comparable quality fixed maturity.

Making them an attractive use of capital. They also have an excellent historical performance across multiple downcycled a.

Additionally, Diaz the class provides more flexibility to many others.

Males have manageable maturity, resulting in tighter asset liability matching.

Diving deeper in the office portion of our portfolio our investments in the office space are high quality withdrawn credit metrics.

Our office portfolio has an average loan to value of 65%.

Ah that service coverage of 2.3 times, while 99% of our loans are investment grade.

<unk> like any type of underwriting we focus on the high quality properties and tenants with nearly all of our loans being tied to class a building with an average occupancy rate of around 90%.

Looking to the future 2023 office maturity represent only two per cent of our overall CML portfolio up coming due this year.

In summary, equitable has a long history in this space and we have expertise to manage through turbulent market.

Our track record of having no losses or delinquency through the global financial crisis are COVID-19 pandemic is proof of this.

The last area I would like to highlight is policyholder lapses given what has happened in the banking sector.

Insurers have more structural protection from severe lapses in bank deposits too and.

In the market that we operate in have generated consistently stable lap rates historically.

In a rapidly changing market like we just experience.

Our products have features called market value adjustment.

Which means that clients can only withdraw the current value of their policy rather than the full benefit.

This reduces the incentive declined to move their money.

Next we provide millions of Americans within individual retirement accounts.

As a result more than 98% of our client balances are in retail.

This means that we aren't susceptible to a couple of large institutions pulling their money as seen with some of the banks affected by the crisis.

These retirement accounts are so primarily through financial advisors and are intact advantage of cats.

This creates operational friction for clients to move money and tax consequences, if they would like to liquidate their funds into cats.

That last for more than six years on average.

In all 90 per cent of the account value in our retirement products have lapsed protection.

This is resolved in inconsistent lapse rate hovering around 8% since early two thousands in this time, we've experienced the global financial crisis, a decade long bull market, a global pandemic and rapid rate hikes D.

These features enable us entirely match, our assets and liabilities.

Our current duration gap is less than half a year.

It means our investment portfolio can hold high quality assets to maturity and is not required to unnecessarily sell assets to meet obligations.

In summary, this dropped you are a product protect us from lapses and this has proven to be true over the longterm through different market cycles.

Turning to slide 10, I will highlight total company results for the quarter.

This is our first quarter and the new accounting regime. The biggest the counting change for the industry in over 40 years, which we believe will increase transparency to the market for the entire industry.

We're excited this is finally here and as you know for equitable does change or no impact or our hedging program or cash flows because it moves closer to fair value.

We reported non-GAAP operating earnings of $364 million or 96 cents per share up.

10% compared to the fourth quarter.

On a year over year basis, we serve volatility of mortality and lower alternative returns offsetting are higher Riley sprite income in the quarter.

These are accumulation oriented policies, which are reserved at cash surrender value, leading the volatility and results under L. D T I.

We had positive mortality experience in Q2, and two three and 2022, which helped offset the last two quarters of adverse experience.

Over the last nine quarters mortality continues to be in line with expectations on a cumulative basis, taking into account our COVID-19 sensitivities.

Additionally, alternatives word while we're year over year as you would expect.

Portfolio experienced gains in our traditional private and growth equity strategies, which was offset by declines in our real estate equity investments, which had strong performance in 2022.

Ah jousting for $92 million a notable items in the quarter non-GAAP operating earnings were $456 million or $1.21 per share down 18% on a comparable year over year per share basis spot up 9% over the fourth quarter.

Largely driven by the impact of lower markets and alternative returns offset by share buybacks, which reduced our share count by 7% year over year <unk>.

In our results you can also see the benefit of our growing spread business and Ses and productivity, which we captured an additional 10 million of savings in the quarter as we continue to execute against our strategy.

Turning the gap results, we reported $177 million a positive net income in the quarter.

This reflects L. D T I reduce sensitivity to equity movement by 80% and our general account interest rate hedges, which are captured in OCI.

Quarter and assets under management and under administration was in line with market movements at year over year market declines drove assets lower.

However, elevated markets and net inflows in each of our businesses in the first quarter drove assets under management and administration.

5% versus the last quarter.

Turning to slide 11.

Our prudent capital management has enabled us to consistently returned capital despite the ongoing market volatility.

In the quarter, we returned $286 million, which includes $214 million repurchases, resulting in a 6 million share count reduction in the quarter.

As I highlighted earlier over the last 12 months, we have reduced our chairs by 7% demonstrating our ability to create shareholder value through challenging markets.

We have 1.8 billion of cash at the holding company.

This is a net cash number following of repayment of our latest stat maturity in April .

As a reminder, we have no more debt maturities until 2028.

It provides us financial flexibility to navigate through various market cycles going forward.

Additionally, we are on track for our guidance of 1.3 billion of cash generation to the holding company this year.

This is enabled by our diverse cash generation sources, we nearly 50% coming from unregulated entities of a b wealth management entity investment contract for our retirement business.

Later this month, we intend to increase our dividend and 22 cents per share.

From 20 cents.

This will bring our dividend yield up to nearly 3.5%, which is above the 2% yield for the average S&P 500 company.

I will now turn the call back to Mark for closing remarks.

Mark Thanks.

<unk> and.

In closing I retirement assets and wealth management businesses continue to deliver strong operating results, while a fair value balance sheet conservative investment portfolio and wholesale cash position give us confidence in our ability to navigate periods of market stress.

Continue to execute on our state the targets, including productivity savings and consistently returning 55% to 65% of earnings to shareholders.

Two enhanced disclosures will providing investors with additional information to value, our growing retirement assets and wealth management franchises.

We're also looking forward to meeting again next week as we host out invest today on our five year anniversary as a public company.

I'm incredibly proud of what we have delivered to our clients and <expletive> hold a <unk> and a management team looks forward to highlighting the opportunity ahead for equitable holdings.

Thank you and will now open the lines for your questions.

Thank you and at this time I would like to remind everyone in order to ask a question <unk> then the number one on your telephone keypad police K questions can slash two one question and one follow up to ensure we address as many questions as possible today.

We will begin our first question from at least Greenspan from Wells Fargo. Your line is open.

Hi, Thanks, Good morning, Uhm. My first question. So you guys have 1.8 billion at parent might net of so we sent that maturity and so that's obviously a good amount above your target you know a couple of times to prepare to March two guys with men.

<unk>, you know uncertain and volatile time, so how should we think about you know where you would want to be in reference to your 500 million target. Just you know as we deal with you know.

A lot of uncertainties out there right now.

Sure morning at least we're quite pleased to be able to sit with 1.8 billion of cash at the holding company in this type of market environment and that's a reflection of one to strong economic risk management that we have and hedging program in two to diversified sources of cash flow is that we have coming up to the Holdco from alliance Bernstein and.

Our wealth management business, along with continued dividends from the retirement business <unk> market environment, we prefer to have a buffer at the holding company until this uncertainty clears up we still haven't we're still on track to generate the $1.3 billion of free cash flow is this year, which will allow us to meet our 55% to 65% payout ratio.

And over to long term will continue and you can lead to reassess the Holdco cash division as it relates to the market environment around us.

Could you also provide us an update on your progress and moving your business out of New York to Arizona.

Sure. So there there multiple steps there. The first one was moving our individual retirement business new business to be written out of Arizona, We completed that last year. So all of our business from our individual retirement line, which is our largest line.

2.8 billion of sales this year came from the non your policies from the Arizona Company.

Second is our group retirement business that will be on track to be completed this year and and dirt on our <unk>. We're in process of restructuring the company I'm working on our internal reinsurance we continue to work on that and look forward to providing an update once completed.

Thank you.

Your next question comes from the line of Jimmy Beulah from J P. Morgan Your line is open.

Good morning, So first just a question on your commercial mortgage loan book.

Are you able to provide any metrics on.

Problem loans are those that are on your watch list and how that's trended in recent months for the book overall and specifically on the office portion of the portfolio.

Sure. Thank Jamie I, just reiterate just a few comments on the CMO portfolio. It certainly a sector that we we see riskin, especially in the office sector offer over a wide spectrum, but just like any other credit what's really important to underwriting capabilities and in depth.

Doctor, who your tenants are in N out office sector, which is about 5% of our total general count we're in nearly all class a buildings and we have a 90 per cent occupancy rate and a strong at the service coverage ratio, which means trouble loans would be limited when you have a strong at the service coverage ratio of that amount left and two per cent.

A R <unk> maturities come up to date in 2023, so we feel well position in that portfolio and then also if you look at if you look at the the quality and and a different pieces most of it C. M. One and G. M to an R. C. M. Three portion of the portfolio actually decrease from 8% in <unk>.

2022% to 3% in the latest quarter. So we've actually seen improvement and at the same time, Jimmy as you know we update our appraisals on an annual basis and that's not something everybody does and we think that's important.

And then on the protection business, how much of the loss was because of the normal seasonal volatility versus maybe for mortality beyond seasonality and what's yours expectation for the earnings power of the protection business on up and you will no longer term basis.

Sure. So most of our protection business. It's written on the you all policies, which are higher face amounts and naturally we do more volatility, but we see a few things occurring onto mortality side. One is COVID-19 move into a problem a pandemic green endemic state and did did lead to come with a higher mortality that we see on top of.

The normal first quarter seasonality. In addition, we did see a higher flu season into 2022, 2023 year, and which was particularly bad, especially impact and knows higher face amounts, but I think it's important if you look back over the last nine quarters, our mortality had been in line with our gap reserves and expectations. So although you see volatility and you saw.

Two positive quarters consecutively in 2022, five by two negatives <unk> cumulative result is what's important and that shows are pricing in line into profitability as in line for the business as we look forward into year, we'd expect a mortality to normalize back to our protection run rate that we put out to the market and so far in April we see.

Mortality in line with expectations.

Okay and just on the mortgage loans do you have any loans that are on the watch list or not performing currently or not.

We do we have about four four of our posed to 188 loans on the watch list and we continue to monitor but everything as I said, the Oprah book is high quality.

Okay, and that's four has been fairly consistent or is it just come up in the last few months it's been.

Consistent.

Okay. Thank you.

Your next question is from the line of Tom <unk> from a V. R. Your line is open.

Good morning.

Robin just wanted to follow up on.

That last answer you gave on ratings migration of the commercial mortgage loan book.

Hear you correctly, you went from 8% at year end 2022 in C. M. Three rated loans down to 3% in Q1.

That's right our ratings actually improved over to where it was over the last year. There are ratings were 8% in 2022, and he moved down to 3% and <unk>. The overall quality of the book actually improved even.

Even despite this environment. So again that goes back to you to type them and it's all about the underwriting who your tenants are and the quality of the office based on your end.

Okay, I just want to make sure I'm clear on that timing, though.

Zed was that a year it was down to 3% at year end 2022, so that would have been reflected in your RBC.

At year end 22 or is that something that just happened at the end of this past quarter that where you would then get in RBC tailwind on.

No it's down it moved from 8% to 3% over the last few years cause some of that is reflected as of year end in in the first quarter at the standard today, it's at three per cent.

Gotcha, so that wasn't a big drop just in one quarter that was over the course of the year.

Correct Okay.

My other question is the billion three of cash generation that you're still reiterating for 23.

I think that implies.

600 to 700 million dollar dividend that with my wife's company.

<unk> from from what I recall reading.

Dividend capacity of 1 billion seven this year.

So just curious how you're thinking about as you approach that I guess, what mid mid year decision of how much of a dividend to pick out in a life company.

Is it possible, we're going to get something a lot higher than the $1 billion three depending on how your capital generation works.

Sure. So you know the capital position strong into company, we intend to meet our 1.3 billion of free cash flow guidance, we've given to the market and data soon to $600 million dividend from the retirement business keep in mind that although we have access ordinary dividend capacity. If we're successful in moving the policies for.

Our New York business or a non New York business will also need to fond of capital for those liabilities and we'll have to use the capital in New York. So will you like to use some of that extra ordinary dividend capacity to back to Capitol that we the liabilities that we move to the non New York entity as well.

Okay. Thanks.

The next question comes from the line of Andrew Clicking <unk> Credit Suisse. Your line is open.

Hey, Thanks, a lot and good morning.

Just following up on the commercial mortgage loans Robyn you mentioned that every year you you reevaluate. These these loans so how should we be thinking about 62% L. T v's that a year and number could it potentially changed a lot in the <unk>.

Quarter.

<unk>, yes, it's 63% a year is a first quarter number as of the first quarter, but as you seen historically, we update on an annual basis and it reflects the different market environments that ran and the strength of the tenants that we have in these buildings with strong.

Income coming in from those tenants.

In addition, you should know that all of our branches are lower than any third party appraisal that we received so meaning we taking a conservative approach to our appraisal methodology as it relates to those ltvs as well.

Several months old.

They're not.

Completed in the in the course of one two twenty-three some of it could have been in three Q22 for example, but they're all done within a year.

The right way to think about it yeah.

Yeah, that's the right way to think about it.

Okay got it. Thank you and then with regard to the individual retirement segment.

Really solid in terms of first your premiums $2.84 billion up a little bit from last year could you talk a little bit about what's what's what's driving the strong Riley sales were there any major <unk> any major product feature changes in too.

Any any color on the wholesaling.

Sure. This isn't that as you mentioned were building off of a record of 2022 in volume and value.

As you alluded to evidenced by the 12% increase in Royal a sales.

I think we're well positioned to capture a disproportionate share of value given our track record of innovation, we did come out with some new segments in the first quarter, but also are distinct distribution network of both affiliated distribution and that global advisors and our privilege space Third party, where we have a long track record of it.

You indicated that protected equity stories, so given the macro trends and given are distinct physician. We think we have a sustainable urge to continue to go forward.

And any particular feature you would call out that was different from the year ago.

I would've attributed to our structural modes of consistent performance. So I think we've got a sustainable edge going forward, we obviously continue to innovate.

And I look forward to going into more detail of Investor Day next week.

Awesome. Thanks.

Your next question comes from the line of <unk> from Jeffries. Your line is open.

Thanks morning, Uhm, so on slide four of your deck you spent a lot of time talking about capital late.

Which makes sense, but if I think about your payout ratio that 55% to 65%, which got a lift from LDP I. It seems like that's maybe broadly in line with the life sector. So I guess given the changes in your business mix should we expect some upside eventually to that 55% to 65% driven.

More by sort of the numerator as opposed to the denominator.

Sure. Thanks to need I'll, just point to as you recall it IPL are payout ratio was 40% to 60% representing the larger range of outcomes that we had from the business mix at that time, as we've improved business mix and yes, <unk> as well as earnings move closer to cash payout ratios.

Now 55 to 65 over time as we continue to improve business mix.

That could certainly lead higher but for a business that writes a lot of profit a level retail oriented.

Sales of you just heard from Nick.

It's never gonna be 90% to 100% in aggregate because we have to fund the new business in that given year, which it and recognized under GATT, but is recognized under cats, but overall I do think that could move as you continue to move to shifted our business next overtime.

Okay that makes sense and then I guess on the wealth management business and I was looking at your supplement that you you put out.

When you give the LDL DTI disclosures and it just looks like the earnings in that business went from like $58 million and $21 million to $101 million and 22.

Revenues were flat so the big driver there seemed to be expenses and that growth came despite the market challenges. So I just wanted to maybe unpack that a little bit just so we get a sense of like that.

Such a big move like what's the trajectory of this business kind of going forward and and maybe what happened in 22 on the expense side that caused that big earnings lift. Thanks.

Sure.

This is Nick as a reminder, or new wealth management segmentation is a comprehensive P&L of our entire assets.

Throughout global advisors, it continues to be established and growing business.

Evidence is installed by the increase in that flows.

The three main drivers there that will unpack an investor they are the distribution fees the advisory cities in the cash sweep accounts.

So we're excited about the growth of that business and believe we have a distinctive urge to continue to move forward.

It's a pretty good models to need if you look year over year, Despite AOA being down earnings are flat and benefiting a big piece from the interest rate sweeps that make just mentioned so I think we had an 11 million benefit year over year from interest rate sweep. So it's a good model that.

And this type of market environment will continue to grow and it's our fastest growing they define as we sit here today.

That makes sense, if I could just sneak one more in and maybe you will talk about this next week, but somebody other companies that we cover that have wealth management businesses have kind of.

Focused on growing up a bank sort of internally as just another sort of arrow in the quaver in terms of driving growth is that something that you guys are thinking about.

I couldn't imagine answering the questions about a bank in addition to all the other question.

But uhm.

Look we have and Nick will touch on a more an investor day, we have we have a pretty good motto leveraging our relationship with <unk> that gives us good internal leverage and benefiting from the sweep accounts that this type of interest rate level. So we feel pretty comfortable and the model that we have.

Okay. Thanks Robert.

Your next question comes from the line of Alex Scott Goldman Sachs. Your line is open.

Hi, Good morning, first time I heard on the the legacy business I just wanted to see if you could frame.

Mount of capital back in that business, whether gap allocations that allocation just to help us think through.

You know the value of that and as you can kind of do some of this restructuring.

Kind of amount of capital is is back and it says something you all could provided.

Sure and I think we highlighted a bit on the call up to the legacy business today is quite small it's 16% of our total AUN capital behind it as we measure by <unk> 98 has declined almost by 70% since IPO from 14 billion to about $4 billion Uhm as of year end and it continues to run off.

Two to 3 billion organically over the years. So we're quite pleased with the work done on that business. It's fully reserved I was validated <unk> transaction and over time, it'll run off and will continue to grow that core business and generate good cash flow for shareholders.

Got it.

And the second question I have is.

Really a more theoretical question.

Your stock obviously is trade it for the cash for a multiple of that it's a bit of a head scratcher at times and I.

<unk>, what's your perspective on how to fix it I mean, it seems like with the reset mentation.

You can show or know much better where you're shifting towards her multiple businesses are growing et cetera, I think some of the things you mentioned in response to at least this question suggested there's there's a variety of things being considered in terms of restructuring.

Different parts of the business.

Two graphically and maybe some other things I mean.

I guess the question is can can you speed that up in terms of the mix shift are there are there ways to do that using your excess capital and some of these restructuring transactions or is it going to just take.

Some time before before you're able to more fully make a shift towards more wealth management enough asset management.

Alex High it's it's small appeared since <unk>. Thanks for the question and this will be a big part about invest today discussion next week, but it just had a very high level.

I think we would agree with you the.

Relative valuation metrics and take into account the strength of flows suggest upside potential for shareholders and that's certainly something will be.

Looking about yesterday next week.

I think if you look over the the last five years you've seen the.

Cash flows grow but we've also seen the percentage of cash flows from Noninsurance regulated entities moved from 17% to 50%. So we have moved very very fast in this transformation.

Over those five years and I think with the.

Additional disclosure so given out socially on the more foster movie wealth management.

A b S. B b as performing relatively extremely strongly we'll start to see the that ratio even even approved for that as we move out and I think it's wilbon is just.

Alluded to on the legacy pull legacy out now 60% off.

Of the account by the actual swelling or for $2 million to $3 million.

It is not significant it's fully was anybody using that to to to value EQ H, It's just well.

That will give some mortgage next it'll be a big part about.

Your next question comes from the line of tracing being geeky from Barclays. Your line is open.

Good morning on the topic of <unk> would like to touch upon your funny agreement I realize that <unk> are not sign or a mall. So really there's no run on deposits type of concept, but the key is to duration match that operating that with backed assets and I noticed that you're a 2022 and 2023 <unk>.

2.5 million. So my question is did you build any refinancing assumption in order to maintain that balance or do you approach the market more opportunistically and have assets backing those issues at the same duration. So you could actually see that balance go down.

Hey, Tracy Thanks for the question RFA Deanne book is perfectly matched do we have an opportunistic.

Trade that we have in the marketplace and we ensure that it's perfectly duration matched and as you know rating agencies required at as well.

Okay Awesome, just a quick clarification on your comment about a higher flu season I was actually just looking this morning at C. D C data and it looks like it's telling to 19000 dash switch does feel low price versus prior seasons pre pandemic. So you're just comparing what you're seeing to last year season.

Yeah, we're comparing what we've seen over the last over the last five to seven years and combine with if it's a combination of COVID-19 going from pandemic. The endemic elevated flu season, which was particularly bad in 22 23, when you look at the standard deviation on it as well.

<unk> and it's impacting some of our higher rate the Mount clients and that's what we saw in mortality volatility in the quarter.

Okay, and just really really quickly can you just add more color, what's driving 10 points of RBC each generation acquire with an individual retirement is that just your typical statutory Ernest earnings generation and does not contemplate operating dividend.

That's right. That's that's across all D retirement, and protection businesses, we expect to generate that 10 points of RBC, that's purely from organic capital generation.

Thank you.

Your next question comes from the line of Brian Kruger from K B W. Your line is open.

Good morning, I, just had a quick one and I'm not sure if I missed this but you still view $75 million of quarterly protection <unk>. That's a good run right with more quarterly volatility under LBP I or.

75 million changed at all.

That's why we still expect that $75 million to be run rate that the guidance, we give but as you mentioned, we expect higher volatility given our higher base amount in the way. It is accounted for now DTI I and over the last nine quarters I think if you look back that's what we've delivered on the mortality fries.

Okay, great. Thank you.

Your next question comes from the line of Michael Ward from City. Your line is open.

Hey, guys. Thanks. Good morning, I was just wondering on the stress test I was wondering if you could isolate the office a mortgage loan component and the RBC points.

We did not we did not isolate the and call out the office component, but if you look at the comparison of the independence dress death in the real estate dressed us we specifically Rand at 40 per cent valuation shock on the office portfolio, which.

<unk> drew and some of the credits dress line and also the ratings migration line, but we didn't call out all of the different pieces of it we put it all together as one combined shock assuming dot com for below investment grade, which is almost two X data the global financial crisis to 40% CML office portfolio, and then 10% shock on the <unk>.

<unk>. So it's all combined at the 52 points.

Got it.

Thank you and then so the so the average office L. T V. I think is 65% so you're shocked by 40%. So I was just wondering like how you would you might hypothetically expect that to flow through does it assume default maybe a L T.

Hit 100.

And does that assume that you take an equity after.

It does anything we take an equity after it seemed that above 100, you take a hit on the loan and then I assume some of migration as well.

That we have in our stress and that's what you see on the ratings migration line.

Okay. Thanks, and then maybe one more just have you extended any commercial or office property.

Loans already.

<unk> yeah.

Yeah, I mean, we always work on the loans, we have a good long standing history with the tenants.

We work with them on an extension didn't after we have less than 2% of the overall portfolio coming up this year and.

And will continue to work on those that they come through.

Success.

Is there are no further questions I would like to thank our speakers for today's presentation and thank you all for joining US just now concludes today's conference to enjoy the rest of your day and you may now disconnect.

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