Q4 2023 Equitable Holdings Inc Earnings Call
Operator: www.inclinic.com Hello, and welcome to the Equitable Holdings, Inc. Full Year and Fourth Quarter Earnings Call. All lines have been placed on mute to prevent any background noise.
Hello, and welcome to the Aqua Equitable Holdings, Inc. Full year and fourth quarter earnings 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 and if you would like to ask a question simply press star one.
Operator: After the speaker's remarks, there will be a question and answer session, and if you would like to ask a question, simply press star 1. I would now like to turn the call over to Erik Bass, Head of Investor Relations. Please go ahead.
I would now like to turn the call over to Eric bass head of Investor Relations. Please go ahead. Thank you good morning, and welcome to equitable holdings full year and fourth quarter 2023 earnings call materials for today's call can be found on our website at IR Dot equitable holdings Dot com.
Erik James Bass: Thank you. Good morning, and welcome to Equitable Holdings' full year and fourth quarter 2023 earnings call. Materials for today's call can be found on our website at ir.equitableholdings.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 differ materially from those expressed in or indicated by such forward-looking statements. Please refer to the Safe Harbor language on slide 2 of our presentation for additional information.
Erik James Bass: 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.
Erik James Bass: Our results may differ materially from those expressed in or indicated by such forward looking statements. Please refer to the safe Harbor language on slide two of our presentation for additional information.
Erik James Bass: Joining me on today's call is Mark Pearson, President and Chief Executive Officer of Equitable Holdings; Robin Raju, our Chief Financial Officer; Nick Lane, President of Equitable Financial; Bill Seamers, Alliance Bernstein's Interim Chief Financial Officer; and Onar Erzon, Head of Alliance Bernstein's Global Client Group and Private Wealth. During this call, we will be discussing certain financial measures that are not based on generally accepted accounting principles, known as non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and related definitions may be found on the Investor Relations portion of our website, in our Earnings slide presentation, and financial support. I will now turn the call over to you.
Erik James Bass: Joining me on today's call is Mark Pearson, President and Chief Executive Officer of Equitable Holdings.
Mark Pearson: Robyn Ross <unk>, our Chief Financial Officer, Nick Wayne President of Equitable financial Bill Seamers Alliance Bernstein, as interim Chief Financial Officer, and own our Arizona head of Alliance Bernstein Global client group and private wealth business.
Mark Pearson: During this call we will be discussing certain financial measures that are not based on generally accepted accounting principles known as non-GAAP measures reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and related definitions may be found on the Investor relations portion of our website in our earnings release.
Mark Pearson: This slide presentation and financial supplement.
Mark Pearson: I will now turn the call over to Mark Good morning, and thank you for joining today's call 2023, Mark to momentous year for equitable.
Mark Pearson: Good morning, and thank you for joining today's call. 2023 marked a momentous year for Equitable as we celebrated our 5th anniversary as a public company and hosted an inaugural Invest Today to tell our story and provide updated financial targets. We're very excited about the road ahead for Equitable Holdings. In our retirement business, higher interest rates and favorable demographic trends are providing the best environment for growth in well over a decade. In Asset Management, AB continues to see strong client demand for private market investments, and we're optimistic that the stabilization of interest rates will lead to a resurgence in fixed income flows. Finally, our wealth management business is attracting strong client inflows and should continue to benefit from Americans' need and desire for financial advice. This morning, I'm going to provide an update on the progress we're making against the strategic initiatives provided at our Investor Day.
Mark Pearson: We celebrated our fifth anniversary as a public company and hosted an inaugural Investor day to tell our story and provide updated financial targets.
Mark Pearson: We're very excited about the road ahead for equitable holdings in our retirement business higher interest rates and favorable demographic trends are providing the best environment for growth in well over a decade.
Mark Pearson: In asset management continues to see strong client demand for private market investments and we are optimistic that stabilization of interest rates will lead to a resurgence in fixed income flows.
Mark Pearson: Finally, our wealth management business is attracting strong client inflows and should continue to benefit from Americans need and desire for financial advice.
Mark Pearson: This morning, I'm going to provide an update on the progress we're making against the strategic initiatives provided at our Investor Day, and then turn it over to Nick to talk about the strong commercial momentum, we're seeing at both equitable and alliance Bernstein.
Mark Pearson: And then I'll turn it over to Nick and Onar to talk about the strong commercial momentum we're seeing at both Equitable and Alliance Burns. Then Robin will focus on our financial results and outlook for 2024. Turning to slide three.
Nick Wayne: They're involved but we will focus on our financial results and outlook for 2024.
Nick Wayne: Turning to slide three.
Mark Pearson: Full-year non-GAAP operating earnings were $1.7 billion, or $4.59 per share, which is up 6% year over year on a per share basis. 2023's reported results were below our expectations, primarily due to lower returns on alternative investments and elevated mortality claims during the first three quarters of the year. After adjusting for notable IT, non-GAAP operating EPS was $5.13, which is up 3% compared to the prior year, while short-term headwinds put pressure on earnings this past year. We expect non-GAAP operating EPS growth to accelerate in 2024. Strong equity markets and stabilization in the industry bode well for improved alternative return. And we're encouraged that mortality returned to more normal levels in the fourth quarter.
Nick Wayne: Full year non-GAAP operating earnings were $1 7 billion or $4 59 per share, which is up 6% year over year on a per share basis.
Nick Wayne: 2020, Threes reported results were below our expectations, primarily due to lower returns on alternative investments and elevated mortality claims during the first three quarters of the year.
Nick Wayne: After adjusting for notable items non-GAAP operating EPS was $5 13.
Nick Wayne: Which is up 3% compared to prior year.
Nick Wayne: While short term headwinds put pressure on earnings this past year, we expect non-GAAP operating EPS growth to accelerate in 2024.
Nick Wayne: Strong equity markets and stabilization in interest rates bode well for improved alternative returns and.
Nick Wayne: We are encouraged that mortality returned to more normal levels in the fourth quarter.
Mark Pearson: Robin will touch on our outlook in more detail in a few minutes. Meanwhile, we continue to manage the business to drive long-term results and consistent cash generation. In 2023, we delivered $1.3 billion of cash flow in line with guidance, which is testament to the underlying strength of Equitable's retirement business and diversified mix of fee- and spread-based earnings. Importantly, over 50% of cash flows to the holding company now come from non-insurance subsidiaries, which is up from 17% at the IPO. The combination of predictable cash generation and a strong capital position enables us to consistently return capital to shareholders. At Invest Today, we raised our payout ratio target to 60-70% of non-GAAP operating earnings. And we returned $1.2 billion to shareholders this past year, which equates to 72% of non-GAAP operating earnings or 65% after adjusting for notable items.
Nick Wayne: Robin will touch on our outlook in more detail in a few minutes.
Robin: We continue to manage the business to drive long term results and consistent cash generation in.
Robin: In 2023, we delivered $1 $3 billion of cash flow in line with guidance, which is testament to the underlying strength of Equitable's retirement business and diversified mix of fee and spread based earnings.
Robin: Importantly over 50% of cash flows to the holding company now come from non insurance subsidiaries, which is up from 17% at the IPO.
Robin: The combination of predictable cash generation and a strong capital position enabled us to consistently return capital to shareholders.
Robin: At Investor Day, we raised our payout ratio target to 60% to 70% of non-GAAP operating earnings and we returned $1 $2 billion to shareholders. This past year, which equates to 72% of non-GAAP operating earnings of $65.
Robin: After adjusting for notable items.
Mark Pearson: Looking ahead to 2024, our board has approved a new $1.3 billion buyback authorization, and we expect to continue returning capital to shareholders in line with our payout ratio guide. At Equitable, we all pride ourselves on controlling the controllables, which is particularly important during periods of macro volatility and uncertainty. I have already mentioned the shift towards capital-light businesses and increase in non-insurance cash. Some other examples include the actions taken to optimize the real estate footprint of both Equitable and AB and to manage expenses across the organization.
Robin: Looking ahead to 2024, our board has approved a new $1 $3 billion buyback authorization and we expect to continue returning capital to shareholders in line with our payout ratio guidance.
Robin: At equitable, we all supplied ourselves on controlling the controllable, which is particularly important during periods of macro volatility and uncertainty.
Robin: I have already mentioned the shift towards capital light businesses and increase in non insurance cash flows.
Robin: Some other examples include the actions taken to optimize our real estate footprint for both equitable and a b and to manage expenses across the organization.
Mark Pearson: We also continue to drive incremental yield from our general account by repositioning the portfolio to take advantage of AB's strong capabilities in private equity. Also outlined at our investor day were compelling and achievable financial targets, which are supported by growth in our commercial business. We are very pleased with the strong organic growth momentum in retirement and wealth management, as well as the ongoing progress in building out AV's higher-fee private markets platform. We will further highlight progress against our targets and the strong growth momentum heading into 2024 in a minute. But first, I want to provide a brief reminder of our strategy, Competitive Edge, and Financial Principles, which are highlighted on slide four.
We also continue to drive incremental yield from our general account by repositioning the portfolio to take advantage of a strong capabilities in private markets.
Robin: Also outlined at our Investor day were compelling and achievable financial targets, which are supported by growth in our commercial businesses.
Robin: We are very pleased with the strong organic growth momentum in retirement and wealth management as well as the ongoing progress in building out a higher fee private markets platform.
Robin: We will further highlight progress against our targets and the strong growth momentum heading into 2024 in a minute, but first I want to provide a brief reminder, on our strategy competitive edges and financial principles, which are highlighted on slide four.
Mark Pearson: Our strategy is centred around defending and growing our core retirement, an asset management position, while scaling higher growth businesses such as Wealth Management and AB's Private Markets Platform. Equitable is unique in its ability to capture the entire value chain across product manufacturing, asset management, and distribution, which provides us with a competitive advantage. You are seeing this show up in our strong sales and net income. Importantly, we also manage the business with clear financial, We have often talked about our market-neutral balance, which means that we hedge first dollar interest rate exposures and equity market exposures on the guarantees we've made to our clients. This means that we are not making a bet on the direction of markets when we price products.
Speaker Change: Okay awesome.
Speaker Change: Strategy is centered around defending and growing our core retirement and asset management businesses, while scaling higher growth businesses, such as wealth management and private markets platform.
Speaker Change: Equitable is unique in its ability to capture the entire value chain across product manufacturing asset management and distribution, which provides us with competitive advantages you are seeing this show up in our strong sales and net flows.
Speaker Change: Importantly, we also manage the business with clear financial principles.
Speaker Change: We have often talked about our market neutral balance sheet, which means that we hedge first dollar interest rate exposures and equity market exposures on the guarantees we have made to our clients.
Speaker Change: This means that we are not making a bet on the direction of markets when we price products.
Mark Pearson: In addition, we prioritise value over volume and target 15% plus IRRs on new business with a narrow range of outcomes. This all leads to consistent cash generation, which we view as the key driver of value creation for our shareholders over time. At Invest Today, we laid out a plan to increase annual cash generation by 50% to $2 billion by 2027, and we remain well on track to achieve that. This strong cash flow supports our target payout ratio of 60 to 70% of non-GAAP operating earnings and Ongoing Capital Deployment for share repurchase. Helps drive conviction in our ability to grow non-GAAP operating earnings per share 12 to 15% annually through 2027. Turning to slide 5.
Speaker Change: In addition, we prioritized value over volume and target, 15% plus <unk> on new business with a narrow range of outcomes.
Speaker Change: This all leads to consistent cash generation, which we view as the key driver of value creation for our shareholders over time.
Speaker Change: At Investor Day, we laid out a plan to increase annual cash generation by 50% to $2 billion by 2027, and we remain well on track to achieve this.
Speaker Change: This strong cash flow supports our target payout ratio of 60% to 70% of non-GAAP operating earnings and ongoing capital deployment for share repurchases helps drive conviction and our ability to grow non-GAAP operating earnings per share, 12% to 15% annually through 2020.
Speaker Change: Seven.
Speaker Change: Turning to slide five.
Mark Pearson: I want to highlight the progress we're making against our Investor Day commitment. In retirement, equity market tailwinds, higher interest rates, and record net inflows drove core AUM to $154 billion, up 11% compared to year-end 2020. We maintain leading positions in the Ryla and K-12 educators market.
Speaker Change: I want to highlight the progress, we're making against our Investor day commitments.
Speaker Change: In retirement equity market tailwind.
Speaker Change: Higher interest rates and record net inflows drove core AUM to $154 billion.
Speaker Change: Up 11% compared to year end 2022.
Speaker Change: We maintained leading positions in Nevada, and K through 12 educators market.
Mark Pearson: The growth we are seeing is driving strong value in new business, which represents the present value of future cash flows generated from business rewrites. In 2023, we realized $460 million of V&V in our retirement business, which is ahead of the $400 million projected at investment. In asset management, AB closed the year with $725 billion in AUM, up 12% year-over-year, driven by market tell. AB also had net inflows in retail and private wealth, although these were more than offset by net outflows in institutions.
Speaker Change: The growth we are seeing is driving strong value of new business, which represents the present value of future cash flows generated from business we write today.
Speaker Change: In 2023.
Speaker Change: We realized $460 million of bnb in our retirement business, which is ahead of the $400 million projected at Investor day.
Speaker Change: In asset management <unk> closed the year with 725 billion.
Speaker Change: AUM up 12% year over year, driven by market tailwind.
Speaker Change: <unk> also had net inflows in retail and private wealth. Although these were more than offset by net outflows in institutional.
Mark Pearson: While margins declined modestly versus 2022, we still expect material improvement over the next few years, helped by the close of the Bernstein Research Joint Venture in the first half of 2024. We also continue to make progress on our strategic initiatives, starting with expense.
Speaker Change: While margins declined modestly versus 2022, we still expect material improvement over the next few years helped by the close of the Bernstein Research joint venture in the first half of 'twenty four.
Speaker Change: We also continue to make progress on our strategic initiatives, starting with expenses, we have achieved $38 million of our $150 million savings target.
Mark Pearson: We have achieved $38 million of our $150 million savings target, and AB is on track to realize total savings of $75 million from its Nashville relocation in 2025. In our general account, we added $52 million of incremental net investment income through the fourth quarter of 2020 due to the combination of strong growth in our spread-based businesses, favorable new money yields, which were 215 basis points above our portfolio yield in the fourth quarter, and increased allocations to Investment Grade Illiquid Investments. It puts us well on track to meet or exceed our $110 million target by 2027. In everything we do, we also want to make sure we're being a force for good, delivering value for all of our stakeholders, including policyholders, investors, and employees.
Speaker Change: <unk> is on track to realize total savings of $75 million from its Nashville relocation in 2025.
And our general account.
Speaker Change: Added $52 million of incremental net investment income through the fourth quarter of 'twenty three.
Speaker Change: The combination of strong growth in our spread based businesses favorable new money yields, which were 215 basis points above our portfolio yield in the fourth quarter and.
Speaker Change: And increased allocations to investment grade illiquid investments puts us well on track to meet or exceed 110 million target by 2027.
Speaker Change: And everything we do we also want to make sure we're being a force for good delivering value for all of our stakeholders, including policyholders investors and employees.
Mark Pearson: We continue to invest in our people, with the opening of our new headquarters this year being a great example. Our new space is designed with a focus on collaboration and employee wellness, creating a more productive and enjoyable work environment. I'm pleased to see our progress and successes being recognized externally. This month, S&P rated its rating for equitable holdings to A-.
Speaker Change: We continue to invest in our people with the opening of our new headquarters this year being a great example.
Speaker Change: New space is designed with a focus on collaboration and employee wellness, creating a more productive and enjoyable work environment.
Speaker Change: I am pleased to see our progress and successes being recognized externally. This month S&P rated rating for equitable holdings to a minus acknowledging equitable strong balance sheet and growth of non insurance cash flows.
Mark Pearson: Acknowledging an equitable strong balance sheet and growth of non-insurance cash. To sum up, I feel confident in the strategy and targets we laid out at the investor day, and I will now turn over to Nick and Onar to provide additional updates on progress against that growth stream. Thanks, Mark.
Speaker Change: To sum up I feel confident in the strategy and targets, we laid out at the Investor day.
Speaker Change: I will now turn it over to Nick and owner to provide additional updates on progress against our growth strategy. Thanks, Mark as Mark mentioned, we're seeing good growth momentum in our core retirement business with record sales and flows in the individual retirement and strong value of new business.
Nick: As Mark mentioned, we're seeing good growth momentum in our core retirement business, with record sales and flows in individual retirement, and strong value of new... Given the demographic changes, with the majority of baby boomers now hitting peak retirement age 65, this is a very good time to be in retirement, and Equitable is well positioned to take advantage, given our leadership position in the RILA market and strong distribution platform. We're also making meaningful progress in scaling our wealth management, with both earnings and organic growth running ahead of the plan provided at investment. Wealth management is our fastest-growing segment, and Equitable Advisors is a critical differentiator for our retirement business. We're a top 10 independent broker dealer with 4,400 advisors and 87 billion of assets under administration. We see continued demand for personal financial advice, with 65% of American investors seeking advisors to help them with their financial needs.
Nick Wayne: Given the demographic changes with the majority of baby Boomers now hitting peak retirement age 65. This is a very good time to be in the retirement business and equitable is well positioned to take advantage given our leadership position in the <unk> market and strong distribution platform.
Nick Wayne: We're also making meaningful progress in scaling our wealth management business with both earnings and organic growth running ahead of the plan provided at Investor Day wealth management is our fastest growing segment and equitable advisers is a critical differentiator for our retirement business.
We're a top 10 independent broker dealer with 4400 advisers and $87 billion of assets under administration, we see continued demand for personal financial advice with 65% of American investors seeking advisors to help them with their <unk>.
Nick Wayne: Financial needs in 2023, we had $3 billion of advisory net inflows of 7% annual organic growth rate, which in combination with market <unk> resulted in.
Nick: In 2023, we had $3 billion of advisory net inflows, a 7% annual organic growth rate, which, combined with market tailwinds, resulted in AUA growing 20% year-over-year to $87 billion. A key leading indicator of our ability to grow advisory assets is growth in the number of wealth planners on our platform. These are advisors who focus on reoccurring fee-based investments, and they are three times more productive than non-wealth plans. In 2023, we increased the wealth planner count by 7% to 750,000. Meanwhile, wealth management earnings increased 57% year-over-year to nearly $160 million.
Nick Wayne: Growing 20% year over year to $87 billion.
Nick Wayne: A key leading indicator of our ability to grow advisory assets as growth in the number of wealth planners on our platform.
Nick Wayne: These are advisors, who focus on reoccurring fee based investment accounts and they are three times more productive than non wealth planners in 2023, we increased the wealth planner count by 7% to 750.
Nick Wayne: Wealth management earnings increased 57% year over year to nearly $160 million, putting the business well ahead of plan to reach $200 million of earnings by 2027.
Nick: Putting the business well ahead of its plan to reach $200 million of earnings by 2027. Higher short-term interest rates have provided a nice tailwind, driving an increase in revenue from cash flow. Why we could see some earnings pressure if the Fed cuts rates this year.
Nick Wayne: Short term interest rates have provided a nice tailwind driving an increase in revenue from cash sweeps, while we could see some earnings pressure if the fed cuts rates this year the strong growth in.
Nick: The strong growth in AUA bodes well for growth in CA. Now I want to turn to the third pillar of our strategy, which is to seed future growth. We continue to lay the foundation for our institutional in-plan guarantee business, which is reported in group retirement. Today, there are $7 trillion in assets in 401ks, with approximately $3 trillion invested in target date default options. The passage of the SECURE Act 1.0 and 2.0 served as a catalogue.
Bodes well for growth in fee income.
Nick Wayne: Now I want to turn to the third pillar of our strategy, which is to seed future growth. We continue to lay the foundation for our institutional in planned guarantee business, which is reported in group retirement.
Nick Wayne: Today, there are seven trillion dollars of assets and 401 case with approximately three trillion invested in target date default options. The passage of the secure act one point and two points.
Nick Wayne: Served as catalysts, providing safe harbor to include annuities within 401, K target date funds opening up a substantial new market opportunity for insurers, we're well positioned to capitalize on this through our existing partnership with Alliance Bernstein, a first mover.
Nick: Providing a safe harbor to include annuities within 401k target date funds and opening up a substantial new market opportunity for insurance. We're well positioned to capitalize on this through our existing partnership with Align Spernstein, a first mover in the in-plan annuity market over a decade ago, and a new offering we developed in partnership with BlackRock. We expect to see initial inflows from BlackRock in 2024 as they work to onboard 11 committed clients. While it will take time, we see potential for significant growth in the market over the next few years. I'll now pass it over to Onar for an update on Alliance burden. Thanks, Nick.
Nick Wayne: In plan annuity market over a decade ago, and a new offering we developed in partnership with Blackrock, We expect to see initial inflows from Blackrock in 2024 as they work to onboard 11 committed clients. While it will take time, we see potential for significant growth in the March.
Nick Wayne: Over the next few years.
Speaker Change: I'll now pass it over to own or for an update on alliance Bernstein <unk> co.
Onar: We continue to believe the global asset management industry is poised for growth in the coming years, and AB is well-positioned from a competitive standpoint, given its global platform, diversification across asset classes and distribution channels, and solid investment. While AB was not immune to slowing institutional demand this past year, we have grown organically by 2% on average over the last five years, well outpacing the peak. In 2023, we grew strongly in retail and private wealth, driven by market share gains in both U.S. retail and our offshore high-income business. Fixed Income Markets, both taxable and municipal, were key sources of strength in 2023, which has continued into the new year. In addition, we saw strong growth in our Activity Air platform, which now has 12 funds with $1.5 billion in total assets under management.
Owen: Nick we continue to believe the global asset management industry is poised for growth in coming years, and ABB is well positioned from a competitive standpoint, given its global platform diversification across asset classes on distribution channels and solid investment performance.
Nick Wayne: While <unk>, while not immune to slowing institutional demand. This past year, we have grown organically by 2% on average over the last five years, while outpacing the peer group.
Nick Wayne: In 2023, we grew strongly in retail and private wealth driven by market share gains in both U S retail and our offshore high income business.
Nick Wayne: Income market, both taxable and municipal where key sources of strength in 2023 retail continued into the new year.
Nick Wayne: In addition, we saw strong growth in our active ETF platform, which now has 12 funds with one 5 billion of total AUM looking ahead, our institutional pipeline currently sits at $12 billion without private markets platform, representing over 80% of the fee base.
Onar: Looking ahead, our institutional pipeline currently sits at $12 billion, with our private markets platform representing over 80% of that. Private markets continue to be an area of strategic growth for AB with AUM up 9% year-over-year to $61 billion as of year-end, supported by capital deployed from Equitable General. Our private wealth business is also seeing strong demand for private credit and has further headroom for growth. We have historically been successful in raising third-party capital in strategies seeded by Equitable, and we continue to target $90 billion to $100 billion of private market AUM by 2020. Areas of inflows in 2023 included secondaries, renewable energy, mortgage loans, and European commercial real estate debt, several of these driven by equity. In 2024, we are fundraising in AB Carvel's flagship strategy, as well as AB PCI, our middle market lender, including a new NAV landing strategy. As we look to seed future growth, our global distribution platform, with leading brand recognition in areas of Asia, continues to differentiate. We are strategically focused on growing our presence in Asia and EMEA and are proud to have recently obtained a license to operate our wholly-owned mutual fund business in China, with our first product launches expected in 2020.
Nick Wayne: Private markets continues to be an area of strategic growth for AEP with AUM up 9% year over year to $6 1 billion as of yearend supported by capital deployed from equitable General account.
Nick Wayne: Our private wealth business is also seeing strong demand for private credit and has further headroom for growth.
Historically been successful in raising third party capital and strategies seeded by equitable and we continue to target $90 billion to $100 billion of private markets.
By 2027.
Nick Wayne: Areas of inflows in 2023 included secondary renewable energy mortgage loans and European commercial real estate debt.
Nick Wayne: Is driven by Equitable's commitments.
Nick Wayne: In 2024, we are fund raising and AB carve outs flagship strategy as well as Avi PCI, our middle market lending business, including a new lender.
Nick Wayne: Lending strategy.
Nick Wayne: As we look to seed future growth, our global distribution platform with leading brand recognition in areas of Asia continues to differentiate ADP. We are strategically focused on growing our presence in Asia in EMEA and are proud to have recently obtained a license to operate our wholly owned mutual fund business in <unk>.
Nick Wayne: China with our first product launches expected in 'twenty four.
Onar: We also continue to see the global insurance market as a substantial opportunity, with nearly $30 trillion in general account assets, of which approximately $4 trillion are outsourced to third-party, non-affiliated companies. In partnership with Equitable, our 40 years of experience in insurance asset management positions us well to grow. We have over 60 dedicated insurance experts globally who contribute to the significant assets we manage in this space with capabilities spanning across public and private sectors. For the second straight year, our insurance asset management team was awarded Investment Team of the Year by Insurance Asset Management. We were also awarded Alternatives Manager of the Year by... Our aspiration is to become a top-10 provider of asset management and insurance, and we will evaluate opportunities for sidecars and strategic partners. www.AXA.com
Nick Wayne: We also continue to see the global insurance market is a substantial opportunity with nearly 30 trillion in general account assets of which approximately 400 million are outsourced to third party non affiliated managers.
Nick Wayne: In partnership with equitable, our 40 years of experience in insurance asset management positions us well to grow this business.
Nick Wayne: We have over 60 dedicated instruments experts globally, who contribute to the significant assets, we manage in this space with capabilities spanning across public and private markets.
Nick Wayne: For the second straight year, our insurance asset management team was awarded investment team of the year our insurance address.
Nick Wayne: We were also awarded alternatives manager of the year by instruments as interest.
Nick Wayne: Our aspiration is to become a top 10 provider of asset management and insurance and we will evaluate opportunities for <unk> cards on strategic partnerships to drive additional growth.
Robin: I will now turn it over to Robin to discuss progress against our enterprise financial plan. Robin. Thanks, Onur. On slide 7, I will discuss progress against our enterprise-level financial targets that we laid out at InvestorDay. Cash generation remains our North Star, and we target producing $2 billion of cash flow to the holding company annually by 2027. In 2023, we upstreamed $1.3 billion to the holding company, which is in line with guidance that we provided earlier this year. Our strong free cash flow enables us to consistently return capital to our shareholders, and as Mark noted earlier, in 2023, we returned $1.2 billion through buybacks and dividends. This equates to 72% of reported non-GAAP operating earnings, above the high end of our 60-70% payout ratio target. Finally, non-GAAP operating earnings per share increased 6% on a reported basis and was up 3% after adjusting for no devices.
Nick Wayne: I will now turn it over to Robyn to discuss progress against our enterprise financial targets Robyn.
Robyn Ross: Thanks, Gunnar on slide seven I will discuss progress against our enterprise level financial targets that we laid out at Investor day.
Cash generation remains our north star and we target producing $2 billion of cash flow to the holding company annually by 2027 in.
Robyn Ross: In 2023, we upstream $1 3 billion to the holdings, which is in line with guidance that we provided earlier this year.
Robyn Ross: Our strong free cash flow enabled us to consistently return capital to our shareholders and as Mark noted earlier in 2023, we returned $1 $2 billion through buybacks and dividends. This equates to 72% as reported non-GAAP operating earnings above the high end of our six.
Robyn Ross: To 70% payout ratio target.
Robyn Ross: Finally, non-GAAP operating earnings per share increased 6% on a reported basis and was up 3% after adjusting for notable items.
Robin: This is below our target of 12 to 15% non-GAAP EPS growth projected through 2027, primarily due to elevated mortality claims and below-plan alternative investments. We expect both of these headwinds to ease in 2024, which coupled with strong fourth-quarter equity markets and our organic growth momentum should drive meaningful improvement in earnings per share. Turning to slide 8.
Robyn Ross: This is below our target of 12% to 15% non-GAAP EPS growth CAGR through 2027, primarily due to elevated mortality claims and below plan alternative investment returns. We expect both of these headwinds to ease in 2024, which coupled with strong fourth quarter equity market and.
Robyn Ross: Our organic growth momentum should drive meaningful improvement in earnings per share.
Robyn Ross: Okay.
Speaker Change: Turning to slide eight I'll touch on results for the fourth quarter.
Robin: I will touch on results for the fourth quarter. On a consolidated basis, Equitable Holdings reported non-GAAP operating earnings of $476 million in the quarter, or $1.33 per share, up 54% year-over-year. After adjusting for $3 million of unfavorable after-tax notable items, non-GAAP operating earnings were $479 million, or $1.34 per share, up 20% on a year-over-year basis. We have detailed results by segment independent.
Speaker Change: On a consolidated basis equitable holdings reported non-GAAP operating earnings of $476 million in the quarter or $1 33 per share.
Speaker Change: 54% year over year.
Speaker Change: After adjusting for $3 million of unfavorable after tax notable items non.
Speaker Change: non-GAAP operating earnings were $479 million or $1 34 per share up 20% on a year over year basis.
Speaker Change: We have detailed results by segment in the appendix, but I wanted to briefly touch on a few key drivers.
Robin: But I wanted to briefly touch on a few key drivers. Alternative investment returns were negative 1% in the fourth quarter, resulting in a 17 cent reduction in earnings per share versus our normal expectation but in line with the guidance we provided for the fourth quarter. This affected earnings across most segments, with the biggest impact on protection solutions, group retirement, and corporate, and others. Mortality experience was in line with expectations.
Alternative investment returns were minus 1% in the fourth quarter, resulting in a 17% reduction in earnings per share versus our normal expectation, but in line with the guidance, we provided for the fourth quarter.
Speaker Change: This affected earnings across most segments with the biggest impact in protection solutions group retirement and corporate and other.
Speaker Change: Mortality experience was in line with expectations.
Robin: And after adjusting for the lower alternative returns and an actuarial update, Protection Solutions earnings would have been $68 million, at the upper end of our 50 to 75 million guidance. We're pleased to see improvement in mortality following several consecutive quarters of elevated claims. But expect some continued pull forward in 2024. I'd also remind you that there tends to be some adverse seasonality in first quarter results due to the winter flu season. Alliance Bernstein had a strong earnings quarter, with results helped by a favorable tax item that added $0.04 to earnings per share.
Speaker Change: And after adjusting for the lower alternative returns and an actuarial update protection solutions earnings would have been $68 million at the upper end of our $50 million to $75 million guidance range.
Speaker Change: We're pleased to see improvement in mortality following several consecutive quarters of elevated claims, but expect some continued pull forward in 2024.
Speaker Change: I'd also remind you that there tends to be some adverse seasonality in first quarter results due to the winter flu season.
Speaker Change: Alliance Bernstein had a strong earnings quarter with results helped by a favorable tax item that added <unk> <unk> to earnings per share.
Robin: AB also collected $51 million in performance fees in the fourth quarter, which is consistent with historical experience. Across Equitable and Alliance Bernstein, total assets under management and administration grew year-over-year and sequentially, driven by strong equity markets. In addition, in the fourth quarter, individual retirement had net flows of $1.5 billion, and Wealth Management attracted $544 million of advisory net flow. This growth bodes well for future earnings and fee income, but it had little impact on fourth-quarter results as the average separate account balances were lower versus the third quarter. Shifting and adding. We reported a $698 million loss in the quarter, primarily due to our interest rate hedges as the 10-year Treasury declined by nearly 100 basis points.
Speaker Change: <unk> also collected $51 million of performance fees in the fourth quarter, which is consistent with historical experience.
Speaker Change: Across the Accretable and Alliance Bernstein total assets under management and administration grew year over year and sequentially driven by strong equity markets.
Speaker Change: In addition in the fourth quarter individual retirement had net flows of $1 5 billion.
Speaker Change: Wealth management attracted $544 million of advisory net flows.
Speaker Change: This growth bodes well for future earnings and fee income, but it had little impact on fourth quarter results and the average separate account balances were lower versus the third quarter.
Speaker Change: Shifting to net income.
Speaker Change: We reported a $698 million loss in the quarter, primarily due to our interest rate hedges at the 10 year Treasury declined by nearly 100 basis points.
Robin: As a reminder, we hedge a portion of our interest rate risk using the general account to avoid volatility in statutory. This creates an uneconomic mismatch in GAAP accounting as the change in the value of the liability shows up in net income, while the change in the value of the general account is reported in OCI. For the full year, we reported positive net income of $1.3 billion, which is in line with the sensitivities we provided earlier this year. We ended the year with $2 billion of cash at holdings, well above our $500 million minimum target. This provides us with ample liquidity and capital flexibility to both navigate uncertain markets and play offense when appropriate. Lastly, within our insurance company, we expect to report a year-end combined NAIC-RBC ratio of approximately 400 to 425 percent, above our 375 to 400 percent target. Turning to slide 9.
Speaker Change: As a reminder, we hedge a portion of our interest rate risk in the general account to avoid volatility in statutory capital.
Speaker Change: This created an economic mismatches GAAP accounting and the change in the value of the liability shows up in net income while the change in the value of the general account is reported in OCI.
Speaker Change: For the full year, we reported positive net income of $1 3 billion, which is in line with the sensitivities we provided earlier this year.
Speaker Change: We ended the year with $2 billion of cash at holdings, well above our $500 million minimum target. This provides us with ample liquidity and capital flexibility to both navigate uncertain market and play offense when appropriate.
Speaker Change: Lastly, within our insurance company, we expect to report a year end combined NTIC RBC ratio of approximately 400% to 425% above our 375% to 400% target.
Speaker Change: Turning to slide nine.
Robin: Our strong diversified cash generation continues to drive shareholder value. In 2023, we upstreamed $1.3 billion of cash to the holding company, in line with our prior guidance. Over half of these cash flows were derived from non-insurance, with over $700 million stemming from asset management, wealth management, and the asset management contract with the retirement.
Speaker Change: Our strong diversified cash generation continues to drive shareholder value.
Speaker Change: In 2023, we upstream $1 3 billion of cash to the holding company in line with our prior guidance.
Speaker Change: Over half of these cash flows were derived from non insurance sources.
Speaker Change: Over 700 million stemming from asset management wealth management, and the asset management contract with the retirement company.
Robin: This high percentage of cash flows from our asset and wealth management business is an important point of differentiation versus many of our peers and makes our cash generation more predictable. The completion of our internal reinsurance transaction also gives us more confidence in future cash flows by moving roughly half of our statutory reserves from New York to Arizona, which uses a more NAIC-RBC-based approach for calculating dividend capacity. S&P announced this week an upgrade to Equitable Holdings' rating to A- and specifically called out the quality and stability of our cash flows.
Speaker Change: This high percentage of cash flows from our asset and wealth management businesses is an important point of differentiation versus many of our peers and makes our cash generation more predictable.
Speaker Change: The completion of our internal reinsurance transaction also gives us more confidence in future cash flows by moving roughly half of our statutory reserves from New York to Arizona, which uses a more NTIC RBC based approach for calculating dividend capacity.
Speaker Change: S&P announced this week and upgrade to equitable holdings rating to a minus.
Speaker Change: And specifically called out the quality and stability of our cash flows.
Robin: We view this as validation of our differentiated cash flow story and the strength of our business. Our strong cash generation enables us to consistently return capital to shareholders. In the fourth quarter, we returned $315 million, including $241 million of share repurchase. For the year, we spent $919 million on buybacks, reducing shares outstanding by 9%.
Speaker Change: We viewed it as validation of our differentiated cash flow story and the strength of our business model.
Speaker Change: Our strong cash generation enabled us to consistently return capital to shareholders in the fourth quarter, we returned $315 million, including $241 million of share repurchases.
Speaker Change: The year, we spent $919 million on buybacks, reducing shares outstanding by 9%.
Robin: Looking ahead, our board approved an additional repurchase authorization of $1.3 billion earlier this week as we continue to focus on cash generation and capital return. We are also generating attractive returns on the capital we allocate to new business, which is highlighted on slide 10. This is a great time to be in the retirement market.
Speaker Change: Looking ahead, our board approved an additional repurchase authorization of $1 3 billion earlier. This week as we continue to focus on cash generation and capital return.
Speaker Change: We are also generating attractive returns on the capital we allocate to new business, which is highlighted on slide 10.
Speaker Change: This is a great time to be in the retirement market. The combination of favorable demographics and higher yields is driving strong consumer demand for our products and advice and higher rates enable us to earn attractive margin on new sales.
Robin: The combination of favorable demographics and higher yields is driving strong consumer demand for our products and advice, and higher rates enable us to earn attractive margins on new sales. For Equitable, this has resulted in a record value of new business in the past two years, despite a relatively stable amount of capital deployed. As a reminder, the value of new business represents the present value of the future cash flows generated by new business sales. This value is above and beyond the economic cost of capital. Equitable continues to be disciplined in pricing new business for 15% plus IRRs and a narrow range of outcomes, which will produce a strong value for new business over time.
Speaker Change: <unk>. This has resulted in a record value of new business in the past two years, despite a relatively stable amount of capital deployed.
Speaker Change: As a reminder value of new business represents the present value of the future cash flows generated by new business sales.
Speaker Change: This value is above and beyond the economic cost of capital.
Speaker Change: Equitable continues to be disciplined in pricing new business for a 15% plus IRR and a narrow range of outcome, which will produce a strong value of new business over time.
Robin: On slide 11, I will discuss our outlook for 2024. We expect non-GAAP earnings per share to grow at a faster pace in 2024 than it did in 2023, driven by a few factors. First, in 2023, elevated mortality reduced non-GAAP earnings per share by $0.36 relative to our normal expectations. While we anticipate some continued pull-forward in mortality in the near term, given the older age of our lifeblood, we do not believe it will be of the same magnitude as it was in 2023.
Speaker Change: On slide 11, I will discuss our outlook for 2024.
Speaker Change: We expect non-GAAP earnings per share to grow at a faster pace in 2024 <unk> date in 2023, driven by a few factors.
Speaker Change: First in 2023 elevated mortality reduced non-GAAP earnings per share by 36.
Speaker Change: Relative to our normal expectation.
Speaker Change: While we anticipate some continued pull forward a mortality in the near term given the older age of our Lifelock, we do not believe it will be to the same magnitude as it was in 2023.
Robin: We project earnings for the Protection Solutions Business to be in the range of $200 to $300 million in 2024, or roughly $50 to $75 million per quarter. As we discussed last quarter, we are exploring a range of options to improve the profitability of the business and to reduce earnings volatility. Next, the low plan alternative equity investment returns reduce non-GAAP earnings per share by $0.42 in 2020.
Speaker Change: We project, earning for protection solutions business to be in the range of $200 million to $300 million in 2024, or roughly 50% to $75 million per quarter.
Speaker Change: As we discussed last quarter, we are exploring a range of options to improve the profitability of the business and to reduce the earnings volatility.
Speaker Change: Next below plan alternative equity investment returns reduce non-GAAP earnings per share by 42 and 2023.
Robin: Alternative equity investments comprise approximately 3% of the total general fund. We expect returns to improve in 2024, helped by the strong fourth quarter equity market and the decline in interest rates, which bodes well for our private equity holdings. However, we anticipate a longer path to recovery for our real estate equity and venture capital. Therefore, we currently forecast returns to be in the mid-single digits in the first quarter and slightly below our 8-12% long-term expectation for the full year. Additionally, with strong markets in 2023, particularly in the fourth quarter, we are starting 2024 at a higher asset base. This should drive higher fee income across our retirement businesses, Alliance Bernstein, and WealthManager. We estimate a 10% move in equity markets will have a $150 million impact on annual earnings.
Speaker Change: Alternative equity investments comprised of approximately 3% of the total general account.
Speaker Change: We expect returns to improve in 2024 helped by the strong fourth quarter equity market and a decline in interest rates, which bodes well for our private equity holdings.
Speaker Change: However, we anticipate a longer path to recovery for our real estate equity and venture capital Holdings. Therefore, we currently forecast returns to be in the mid single digits in the first quarter and slightly below our 8% to 12% long term expectation for the full year.
Speaker Change: Additionally, with strong markets in 2023, particularly in the fourth quarter, we are starting 2024 at a higher asset base.
Speaker Change: This should drive higher fee income across our retirement businesses Alliance Bernstein and wealth management.
Speaker Change: We estimate a 10% move in equity markets will have $150 million impact on annual earnings.
Robin: Lastly, we continue to control the controllable and expect to make additional progress on our strategic initiatives to drive net investment income improvement and productivity savings. Turning to cash. We forecast 2024 cash generation of $1.4 to $1.5 billion. Similar to 2023, we expect roughly 50% of the cash generation to come from non-insurance sources. Due to the New York dividend formula, we expect a majority of our regulated dividends to come from our Arizona end. Arizona's RBC-based dividend approach gives us more flexibility and makes us less reliant on the ordinary dividend.
Speaker Change: Lastly, we continue to control the controllable and expect to make additional progress on our strategic initiatives to drive net investment income improvement and productivity saves.
Speaker Change: Turning to cash we forecast 2020 for cash generation of one four to $1 5 billion.
Speaker Change: Similar to 2023, we expect roughly 50% of the cash generation to come from non insurance sources.
Speaker Change: Due to the New York dividend Formula We expect the majority of our regulated dividend to come from our Arizona Anthony <unk>.
Arizona as RBC based dividend approach gives us more flexibility and makes us less reliant on the ordinary dividend formula.
Robin: Share repurchases remain an attractive use of capital, and we will continue to target a payout ratio of 60% to 70% of non-GAAP operating earnings, supported by a strong cash flow and $2 billion of holding company capital. This should deliver a meaningful reduction in our share count, helping drive earnings per share growth. Lastly, we have a favorable macro backdrop heading into 2024. The S&P ended 2023 11% above its average level for the year.
Speaker Change: Share repurchases remain an attractive use of capital and we will continue to target a payout ratio of 60% to 70% of non-GAAP operating earnings supported by our strong cash flow and $2 billion of holding company cash.
Speaker Change: This should deliver a meaningful reduction in our share count helping drive earnings per share growth.
Speaker Change: Lastly, we have a favorable macro backdrop heading into 2024 <unk>.
Speaker Change: The S&P ended 2023, 11% above its average level for the year.
Robin: And while interest rates are below their peak, new money yields continue to be well above our portfolio yield. With that, I will now turn the call back over to Mark for closing remarks.
Speaker Change: And while interest rates are below their peak, new money yields continue to be well above our portfolio yield.
Speaker Change: With that I'll now turn the call back over to Mark for closing remarks.
Speaker Change: Mark.
Mark Pearson: Thanks, Robin. In closing, Equitable delivered solid business results in 2023. While non-GAAP operating earnings faced some near-term headwinds, we still achieved our cash generation guidance, and our full-year payout ratio was in line with our 60-70% target. We also delivered a 20% total shareholder return, helped by the December announcement of our inclusion in the S&P 400 Index. Looking forward, I'm particularly pleased with the growth momentum across our business, which shows up in both record retirement and wealth management net flows and, importantly, the value of new business. We're also delivering on our strategic actions to improve margins and enhance investment. I'm excited about the opportunity for Equitable to capitalise on the current favourable growth environment, and we remain confident in our ability to deliver on the financial guidance we outlined at investment. With that, we'll now open the line for questions. Thank you. If you have a question, please press star 1 on your telephone keypad. We ask that you please limit yourself to one question and one follow-up question. Your first question comes from the line of Suneet Kamath with Jeffreys.
Mark Pearson: Thanks, Robyn and closing equitable delivered solid business results in 2023.
Mark Pearson: non-GAAP operating earnings faced some near term headwinds, we still achieved a cash generation guidance and our full year payout ratio was in line with a 60% to 70% target.
Mark Pearson: We also delivered a 20% total shareholder return helped by the December announcement of our inclusion in the S&P 400 index.
Mark Pearson: Looking forward I'm, particularly pleased with the growth momentum across our businesses, which shows up in both record with time on term wealth management net flows and importantly value of new business.
Mark Pearson: We're also delivering on our strategic actions to improve margins and enhance investment income.
Mark Pearson: Excited about the opportunity for equitable to capitalize on the current favorable growth environment, and we remain confident in our ability to deliver on our financial guidance, we outlined at Investor day.
Speaker Change: With that we'll now open the line for questions.
Speaker Change: Thank you if you have a question. Please press star one on your telephone keypad, we ask that you. Please limit yourself to one question and one follow up question.
Speaker Change: Your first question comes from the line of Tony <unk> with Jefferies. Your line is open.
Suneet Kamath: Your line is open. Thanks. Good morning.
Tony: Thanks, Good morning, Robyn can you maybe just give an update on the protection solutions solutions that you are considering I mean, you've given us earnings guidance.
Robin: Robin, can you maybe just give an update on the protection solutions that you're considering? I mean, you've given us earnings guidance for that line, but I'm assuming that guidance doesn't include the impact of anything that you guys are considering. So maybe an update in terms of what you're thinking about the timing, and then should we expect either an impact on earnings or cash flow to the extent you implement it? Thanks, Suneet.
Tony: For that line, but I am assuming that guidance doesn't include the impact of anything that you guys are considering so maybe an update in terms of what youre thinking about timing and then should we expect either an impact on earnings or cash flow to the extent you implement the solutions.
Robin: So, 2023 was a challenging year for protection solutions. You know, that reflects both excess mortality and also lower alternative returns, the majority of which gets allocated to that segment. In the fourth quarter, as you heard in the call for Just for Notable Items, the segment earned $68 million, which is on the upper end of the guidance. Focusing on mortality, we were encouraged by results this quarter as claims were in line with expectations and reinsurance coverage was also in line. But if you look at the last two quarters and just look at gross claims, both were in line.
Tony: Thanks, and you said 2023 was a challenging year for our protection solutions that reflects both the excess mortality and also lower alternative returns the majority of which gets allocated to that segment in the fourth quarter as you heard in the call if adjust for notable items. The segment earned $68 million, which is on the upper end of the guidance.
Tony: Focusing on mortality, we were encouraged by our results. This quarter as claims are in line with expectations and reinsurance coverage, which is well in line, but if you look at the last two quarters and just look at gross claims both.
Robin: So gross claims were in line with our expectations last quarter and this quarter. We are optimistic that we've experienced the biggest impact of the pull forward in the older age claims, but that said, as I mentioned on the call, we do expect, you know, continued pull forward in 2024 and, you know, we're watching in the fourth quarter; we haven't seen anything yet, but we're watching in the first quarter as mortality tends to be higher due to seasonality from the flu season. So we do expect the $200 million to $300 million guide for 2024 to still exist. Now we are, as you mentioned, encouraged by the mortality in the quarter, but we're cognizant that results from mortality for the last year have not met our expectations, and ultimately, this is one of our smallest businesses, comprising 10% of earnings. Therefore, we are reviewing all options to improve profitability and reduce earnings noise as we think it could be additive to shareholder returns.
Tony: Both were in line. So growth claims were in line with our expectations last quarter and this quarter. We are optimistic that we've experienced the biggest impact of the pull forward in the older age claims, but that said as I mentioned on the call. We do expect continued pull forward in 2024, and we are watching and we haven't seen anything yet, but we're <unk>.
Tony: In the first quarter as mortality tends to be higher due to seasonality from the flu season. So we do expect that $2 million to $300 million guide for 2020 forward it still exists.
Tony: Now we are as you mentioned, we're encouraged by it.
Tony: By the mortality in the quarter, but we're cognizant that results from mortality for the last year has not met our expectations and ultimately this is one of our smallest businesses comprising of 10% of earnings. Therefore, we are reviewing all options to reduce to improve profitability and reduce the earnings noise as we think.
Tony: It could be additive to shareholder returns that being said, we're not going to rush into anything we're going to make sure that it provides economic value over the long term and improved cash flow to long term for shareholders, but all options are on the table for us to improve the returns on this business.
Robin: That being said, we're not going to just rush into anything; we're going to make sure that it provides economic value over the long term and improves cash flow over the long term for shareholders. But all options are on the table for us to improve the returns on this business.
Robin: Okay, and then I just wanted to come back to individual retirement. Obviously, your biggest segment, and I would argue it's... getting a pretty low valuation in the market. So, given all the changes that you've made, and I think the risk profile is quite a bit different than typical VA companies, I think it would be helpful to just kind of talk a little bit about the tail risk, or lack thereof, in this business, and what the biggest risks are in the individual retirement business that you've retained, because I think that's something that's still not getting a lot of attention in the market. Sure, we're really proud of this business, as Nick mentioned on the call, and Mark, it's a tremendous time for the retirement business across the board, strong organic growth, $1.5 billion of net flows in the quarter.
Speaker Change: Got it Okay, and then I just wanted to come back to individual retirement, obviously your biggest segment and I would argue it's getting a pretty low valuation in the market. So given all of the changes that you've made and I think the risk profile is quite a bit different than typical VA companies I think it would be helpful to just kind of talk a little bit about.
Speaker Change: The tail risk or lack thereof in this business and what the biggest risks are in the individual retirement business that you've retained because I think thats something thats still not getting a lot of attention in the market.
Speaker Change: Sure. We're really proud of this business as Nick mentioned on the call on Mark It's a tremendous time for the retirement business across the board strong organic growth $1 5 billion of net flows in the quarter. The biggest shift we made I mean this has been a journey. This shift is reducing the tail risk in the portfolio and.
Robin: The biggest shift we made, I mean, this has been a journey to shift, is reducing the tail risk in the portfolio, and that's mostly in the legacy business, and that has gone away over time through the venerable transaction. This core business, as you see in the appendix slide, is primarily spread-based earnings. The biggest risk that we have is credit risk, and as you know, we manage a more conservative portfolio, but really, what we're generating is spread-based earnings from that SCS product. It's short-duration, ALM-matched, and it's high-quality, and over time, this comes through in cash flows. The biggest driver of cash flows for equitable holdings is that retirement business, and as we continue to generate strong growth in the business, that'll improve cash flows over time. Okay.
Speaker Change: That's mostly in the legacy business and that was gone away over time through the Venerable transaction. This core business that you see in the appendix slide it's primarily spread based earnings. So the biggest risk that we have is credit risk and as you know we manage our more conservative portfolio, but really what we are generating a spread based earnings from that SCS.
Speaker Change: Product, it's short duration matched and it's high quality and over time. This comes during the cash flows.
Speaker Change: Biggest driver of the cash flows for equitable holdings is that retirement business and.
Speaker Change: And as we continue to generate strong growth in the business that will improve cash flows overtime.
Speaker Change: Okay got it thanks.
Speaker Change: Your next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open.
Elyse Greenspan: Hi, Thanks, My first question Robyn based on the capital plan that you guys laid out right you're still going to end 24 with a pretty healthy question at the Holdco and I know we've discussed this in the past and you guys just want to be conservative, but as you think out through 'twenty four can anything.
Elise Greenspan: Thanks. Your next question comes from the line of Elise Greenspan with Wells Fargo. Your line is open.
Robin: Hi, thanks. My first question, Robin, based on the capital plan that you guys laid out, right, you're still going to end up at 24, with, you know, a pretty healthy cushion at the Holdco. And I know we've discussed this in the past, and you guys just want to be conservative. But as you think out through 24, can anything change that stance? You know, cash to parent is going up, right? And you're remaining, you know, at the same capital return target, just trying to think what could cause, you know, you don't want to take down that cushion at some point during this. Sure.
Elyse Greenspan: Changed that stance.
Elyse Greenspan: Cash to parent is going up right and you are right.
Elyse Greenspan: Remaining the same capital return target.
Elyse Greenspan: Trying to think what could cause.
Elyse Greenspan: Don't want to take down that question at some point during this year.
Elyse Greenspan: Sure I think let's just focus on 2023 for one second we paid out.
Elyse Greenspan: On the higher end of our payout guidance over 70% on a reported basis, 65% on a normalized basis and we dipped into some of the Holdco cash last year to do that and <unk>. In 2024, we continue to guide we expect cash generation to be strong at one four to $1 5 billion and will be in that.
Robin: I think we should just focus on 2023 for one second. You know, we paid out on the higher end of our payout guidance of over 70% on a reported basis, 65% on a normalized basis, and we dipped into some of the wholesale cash last year to do that. And going forward in 2024, we continue to guide. We expect cash generation to be strong at $1.4 to $1.5 billion, and we'll be in that payout ratio of 60% to 70%. And if we see there are opportunities to buy more stock in the market and overall tailwinds continue, we'll look to utilize some of that cash. But I think the strong cash flows represent the strength of our business model, you know, 50% coming from non-insurance sources, assets, and wealth. And that gives us the opportunity to navigate both uncertain markets, and we can be offensive as well. So it gives us the flexibility that we want at the hold go. Thanks.
Elyse Greenspan: Payout ratio of 60% to 70% and if we see there are opportunities to buy more stock in the market.
Elyse Greenspan: Overall tailwind continue we will look to utilize some of that cash, but I think the strong cash flows represent the strength of our business model, 50% coming from non insurance sources asset and wealth and that gives us the opportunity to navigate both uncertain market. Then we can be offensive as well. So it provides us the flexibility that.
Elyse Greenspan: We want at the Holdco.
Speaker Change: Thanks, and then maybe continuing there you guys have done some large legacy transactions, we've obviously seen.
Speaker Change: Transactions buildup within within the sector now in the back half of last year is there any kind of updated thoughts.
Speaker Change: On potentially doing another transaction.
Speaker Change: With your legacy blocks.
The legacy block is small it's in run off less than 10% of earnings for us.
Speaker Change: It will continue to run off and it kicks up good cash for US obviously, if something was available and again it provide shareholder value. That's our ROE, we're always looking to maximize.
Robin: And then, you know, maybe continuing there, right, you guys have done, you know, some large legacy transactions. We've obviously seen transactions, you know, build up within the sector, you know, in the back half of last year. Is there any kind of updated thoughts, you know, on potentially doing another transaction, you know, with your legacy block? You know, the legacy block is small, it's in runoff, and less than 10% of earnings for us. It'll continue to run off, and it kicks up good cash for us. Obviously, if something is available, and again, it provides shareholder value, that's our role.
Speaker Change: Shareholder value and we'll look at it but our primary focus right now is growth, we see a tremendous opportunity.
Speaker Change: In the U S retirement market, that's where we're allocating capital with these type of returns that we see so that's our primary focus is growing the cash flows, but obviously, we always look to optimize the portfolio, if we see something thats attractive for shareholders.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Ryan Krueger with Tw. Your line is open.
Ryan Krueger: Hey, Thanks, good morning.
Ryan Krueger: First question was on SCS and river products generally certainly.
Ryan Krueger: <unk> had great growth there and the industry has as well just curious to what extent do you think product demand for <unk> products.
Ryan Krueger: We're always looking to maximize shareholder value, and we'll look at that. But our primary focus right now is growth. We see a tremendous opportunity in the U.S. retirement market. That's where we're allocating capital with these types of returns that we see. So that's our primary focus, growing the cash flows. But obviously, we always look to optimize the portfolio if we see something that's attractive for shareholders. Thank you. Your next question comes from the line of Ryan Krueger with KBW. Your line is open. Hey, thanks. Good morning.
Ryan Krueger: Influenced by the level of interest rates.
Ryan Krueger: If interest rates do come back down or do you think it's not really that sensitive and it's really more just about secular demand for the product at this point.
Ryan Krueger: Yes. This is Nick look I think it's a great time to be in the market driven by both structural forces that I would highlight that demographic changes.
We're getting to peak 65, with the majority of baby boomers entering.
Ryan Krueger: Retirement.
Nick: The first question was about SCS and Riva products generally. Certainly, you've had great growth there, and the industry has as well. Just curious, to what extent do you think product demand for Riva products is influenced by the level of interest rates? If interest rates do come back down, or do you think it's not really that sensitive and it's really more just about secular demand for the product at this point? Yeah, this is Nick.
Nick Wayne: They're not just living longer they've got different expectations on average 20 years. So we see that structural shift contributing to the demand.
Going on.
I would add that.
Nick Wayne: <unk> by I would say asset volatility given the geopolitical uncertainty.
Nick Wayne: Going forward. So it's a great time to be in buffered annuities as the pioneer in this market that launched the product over 10 years, I think <unk> seen consistent.
Nick Wayne: Both of our business and an expansion of the market and low interest rate and high interest rate environments.
Speaker Change: Thanks, and then just a question on the interest rate sensitivity guidance.
Nick: Look, I think it's a great time to be in the market, driven by both structural forces, and I would highlight the demographic changes. We're getting to peak 65, with the majority of baby boomers entering retirement. They're not just living longer; they've got different expectations, on average, 20 years.
Speaker Change: 3% to $45 million per 50 basis point change are you able to disaggregate short term interest rates from that I'm, just trying to better understand your I understand the short term rate sensitivity in the wealth business, but just trying to understand what it could be in the rest of the business as we get closer to the fed starting to cut rates.
Nick: So we see that structural shift contributing to the demand that's going on. And I would add, you know, that's amplified by, I would say, asset volatility, given the geopolitical uncertainty going forward. So it's a great time to be in buffered annuities. As the pioneer in this market that launched the product over 10 years ago, I think you've seen consistent growth, both in our business and an expansion of the market in low interest rate and high interest rate environments. Thanks.
Speaker Change: Yes, I think primarily with the fed rate that's the cash sweep revenue sensitivity that we gave you so plus or minus 100 basis points fed is about 70 basis points of cash sweep yield that's our primary exposure to the short term rates.
Speaker Change: Interest rate sensitivity of plus or minus 50 basis points, 40% to $45 million of after tax non-GAAP earnings I would think that 10 years, a better proxy for that sensitivity.
Speaker Change: Okay, great. Thank you.
Speaker Change: Your next question comes from the line of Alex Scott with Goldman Sachs. Your line is open.
Robin: And then just a question on the interest rate sensitivity guidance of $40 to $45 million per 50 basis point change. Are you able to disaggregate short-term interest rates from that? I'm just trying to better understand your – I understand the short-term rate sensitivity in the wealth business, but just trying to understand what it could be in the rest of the business as we get closer to the Fed starting to come, right? Yeah, I think primarily with the Fed rate, that's the cash sweep revenue sensitivity that we gave you. So plus or minus 100 basis points Fed is about 70 basis points of cash sweep yield.
Speaker Change: Hi.
Alex Scott: First question I had was on the ordinary dividends from New York and I heard the comments that a bit more will come from Arizona. This year. It sounds like you know associated with this New York Formula.
Alex Scott: And I just wanted to check I mean is that something that we should think about going forward for the foreseeable future or is that something nuanced around the calculation for 2024, I mean, certainly the overall cash flow numbers. So.
Speaker Change: Very good so I don't want to discount that but I just wanted to understand the underlying dynamics there.
Speaker Change: Well thankfully more than 50% of our cash flows come from asset and wealth businesses, where we don't have to deal with.
Alex Scott: That's our primary exposure to short-term rates. The interest rate sensitivity of plus or minus 50 basis points, 40 to 45 million of after-tax non-gap earnings. That's, I would think, the 10-year is a better proxy for that sensitivity. Okay, great, thank you. Your next question comes from the line of Alex Scott with Goldman Sachs. Your line is open. Hi.
Speaker Change: Insurance dividend formulas, the internal reinsurance transaction moved about 50% of our liabilities to Arizona and that will be more based on an RBC based approach I think since IPO. We've been we've always had some years, where we've had lower dividends New York Some years, where we've got high.
Speaker Change: Dividends from New York due to the volatility in the Formula I'll remind you, though in 2023, we took out actually $1 7 billion from the New York Company $600 million went to the Holdco and one one we use the capitalized Arizona company. So we continue to take a lot of cash out and our strategies and Thats why you see the cash at all.
Robin: The first question I had was on ordinary dividends from New York. You know, I heard the comments that, you know, a bit more will come from Arizona this year. It sounds like, you know, associated with the New York formula. And I just wanted to check, I mean, is that something that we should think about going forward, like for the foreseeable future, or is that something nuanced around the calculation for 2024? I mean, certainly, the overall cash flow number still looks, you know, very good. So I don't want to discount that, but I just want to understand the underlying dynamics there.
Speaker Change: <unk> company, we wanted to take as much cash out.
Speaker Change: The insurance companies as possible and we'd prefer to have it at the holding company and over time that that.
Speaker Change: You've seen that into consistent cash flow as we generated.
Speaker Change: Understood.
Speaker Change: It sounds to me like it's more specific to 2020 for dividends.
Speaker Change: Correct.
Speaker Change: Got it okay follow up I had is.
Speaker Change: Just.
On the Blackrock clients that are coming onboard in 2024 can you help us think about how impactful that is and I mean is there.
Robin: Well, Thankfully, more than 50% of our cash flows come from asset and wealth businesses where we don't have to deal with insurance dividend formulas. The internal reinsurance transaction moved about 50% of our liabilities to Arizona, and that'll be more based on an RBC-based approach. I think since IPO, we've always had some years where we've had lower dividends in New York, and some years where we've had higher dividends from New York due to the volatility in the formula.
Speaker Change: Just an initial group of clients, but but that'll build I mean can you help us think about the.
Speaker Change: The magnitude of that opportunity and how we should think about it over the next few years.
Speaker Change: Sure. This is Nick first we see this market as offering significant I would say long term opportunity as we have highlighted in the call before one K.
Nick Wayne: Market represents over seven trillion dollars with qualified default option.
Nick Wayne: Capturing roughly 50% of that.
Robin: I'll remind you, though, in 2023, we took out $1.7 billion from the New York company, $600 million went to the Holdco, and $1.1 billion we used to capitalize the Arizona company. So we continue to take a lot of cash out, and our strategy is, and that's why you see the cash at the holding company, we want to take as much cash out of the insurance companies as possible, and we prefer to have it at the holding company. And over time, you've seen that in the consistent cash flows we generate. understood. So this is something that sounds to me like it's more specific to 2024 dividends. Correct. I got it.
Nick Wayne: This is the initial stages of that.
Emerge over time with the passage of secure act as both the insurance companies, leading asset managers and record keepers design those solutions.
Nick Wayne: We expect to get flows from Blackrock over this year they will come in in a lumpy fashion with large additional deposits, but then supported by reoccurring.
Nick Wayne: Premiums. So overall, we're excited about the long term prospects.
Nick Wayne: And view this as part of the solution to solve.
Nick Wayne: The emerging U S retirement crisis.
Speaker Change: Thank you.
Nick: Okay, a follow-up question I had is: on the BlackRock clients that are coming on board in 2024, can you help us think about how impactful that is and, I mean, is that just an initial group of clients, but that'll build? I mean, can you help us think about the magnitude of that opportunity and how we should think about it over the next few years? Sure, this is Nick.
Speaker Change: Your next question comes from the line of Tom Gallagher with Evercore ISI. Your line is open.
Thomas Gallagher: Good morning, <unk> first is just wanted to I wanted to get a better directional sense on capital return, how youre thinking about it the $1 3 billion.
Authorization.
Thomas Gallagher: How should we think about that because if I look at what your if you're just really planning on generating.
Nick: First, we see this market is offering significant, I would say, long-term opportunity. As we highlighted in the call, the 401k market represents over $7 trillion, with qualified default options capturing roughly 50% of that. This is the initial stage of that that's emerged over time with the passage of the SECURE Act, as both the insurance companies, leading asset managers, and record keepers design those solutions. We expect to get flows from BlackRock throughout this year.
Thomas Gallagher: What your free cash flow guidance implies it would probably suggest your buybacks run at a similar level to what you returned this quarter $240 million or so.
Thomas Gallagher: At least in that ballpark, obviously, the 1 billion three buyback is quite a bit above that level can.
Thomas Gallagher: Can you comment on are you planning on stepping it up staying at.
Thomas Gallagher: The $240 million level, just directionally can you help bridge that thanks.
Speaker Change: Thanks, Tom I think the most important number to have in mind is the $2 billion of Holdco cash that we have that provides us the flexibility.
Nick: They will come in in a lumpy fashion with large additional deposits, but then supported by reoccurring premiums. Overall, we're excited about the long-term prospects and view this as part of the solution to solve the emerging U.S. retirement crisis. Thank you. Your next question comes from the line of Tom Gallagher with Evercore ISI. Your line is open. Good morning.
Speaker Change: The authorization itself it doesn't expire for data provides us timing if markets ended up coming higher in earnings were higher we can have.
Speaker Change: Higher share buybacks, but the ultimate guided to 60% to 70% payout ratio.
Speaker Change: Since IPO, we've always been consistent in maintaining into payout ratio guidance. So we've had and if we see markets are good and earnings are higher than will return more.
Thomas Gallagher: First, I just wanted to get a better sense of capital return, how you're thinking about it, the $1.3 billion Authorization. How should we think about that? Because if I look at what you're, if you're just really planning on generating what your free cashflow guidance implies, it would probably suggest your buybacks run at a similar level to what you return this quarter, 240 million or so, at least in that ballpark. Obviously, the billion three buyback is quite a bit above that level. Can you comment on, are you planning on stepping it up, staying at the $240 million level, just directionally, can you help bridge that bank? Thanks, Tom.
That's what the flexibility of the authorization provides us.
Speaker Change: Gotcha.
Speaker Change: And the Robin the follow up is the $200 million to $300 million level of protection annual guidance. If we think about you potentially finding a reinsurance solution that reduces the volatility.
Speaker Change: Is it fair to assume.
Speaker Change: The level of earnings will likely go down because obviously, you're going to have to pay for their protection or do you just see the range narrowing I just want to understand like how to how to think about dimensioning.
Robin: I think the most important number to have in mind is the $2 billion of hold-go cash that we have. That provides us with flexibility. Deauthorization itself doesn't expire, so that gives us time.
Speaker Change: How are you approaching that.
Speaker Change: Yes, I think it's fair to assume that when you do reinsurance youre, giving up some economic cost.
Speaker Change: That may not translate into earnings now that may translate into lower earnings in the future life.
Robin: If markets end up going higher and earnings are higher, we could have higher share buybacks. But the ultimate guide is the 60% to 70% payout ratio. Since IPO, we've always been consistent in maintaining the payout ratio guidance we've had. If we see that markets are good and earnings are higher, then we'll return more. That's what the flexibility of the authorization provides us. Gotcha. And, Robin, the follow-up is the $200 million to $300 million level of protection, annual guidance. If we think about you potentially finding a reinsurance solution that reduces the volatility, is it fair to assume the level of earnings will likely go down, because obviously you're going to have to pay for the protection, or do you just see the range narrowing? I just want to understand how to think about dimensioning, how you're approaching that.
Speaker Change: <unk> businesses are long tail. So it could be 15 to 20 years, but it's an economic cost trade off that we're measuring against but we would expect by if we did something that it would lower our narrow band.
Speaker Change: For the protection solutions earnings base, but we're looking at a range of potential options and what we're trying to find is what provides most economic value for shareholders.
Speaker Change: Got you, thanks, and if I could just sneak in one more just on the whole commercial real estate market.
Speaker Change: We'll call it concern that M. I C. B has created and you've had some other issues occurring here. They get started with all people were.
Speaker Change: I've been concerned about office and now it seems to be spreading to multifamily just curious if you guys have a broader market view.
Speaker Change: If you think things are going to get worse from here.
Speaker Change: Broader market perspective, and what that might mean for your exposure to CRE.
Robin: Yeah, I think it's fair to assume that when you do reinsurance, you're giving up some economic costs. That may not translate into earnings now, but it may translate into lower earnings in the future. You know, life businesses are long-tailed, so it could be 15 to 20 years, but it's an economic cost trade-off that we're measuring against. But we would expect, if we did something, that it would lower or narrow demand for the protection solutions earning space. But we're looking at a range of potential options, and what we're trying to find is what provides the most economic value for shareholders. And if I could just sneak in one more, just on the whole commercial real estate market, we'll call it concern that NYCB has created and you've had some other issues. Transcripts provided by Transcription Outsourcing, LLC., have been concerned about office space, and now it seems to be spreading to multifamily.
Speaker Change: Yeah, maybe quickly on broader market about use your question and give you some <unk>.
Speaker Change: Some more details on our portfolio as well look the broader market obviously remains challenged.
Speaker Change: Across from mainly on the office space, we see it primarily across it could dip into multifamily, but again, just like anything and more specifically on real estate. It's all about where you are what type of buildings you ran.
Speaker Change: And location really does matter and the debt and equity structure matters.
Speaker Change: You can always think about the headlines.
Speaker Change: What the banks own are sometimes a different quality, what the insurance company on just by the capital nature.
Speaker Change: These securities as well.
Speaker Change: For equitable the office portfolio represents about 5% of our total general account.
Speaker Change: It's a pretty high quality portfolio with solid operating results were on class a buildings I think the metric that I looked at the end of the year for us internally with our debt to service coverage ratio. It actually went up to two three times as of the fourth quarter, which was up from two one times and that reflects improved operating.
Robin: Just curious if you guys have a broader market view, if you think things are going to get worse from a broader market perspective, and what that might mean for your exposure to CRE. Yeah, maybe quickly on the broader market, but I'll use your question to give you some more details on our portfolio as well. Look, the broader market obviously remains challenged across, mainly on the office space we see it primarily across. It could dip into multifamily, but again, just like anything, and more specifically in real estate, it's all about where you are, what type of buildings you're in, and location really does matter, and the debt and equity structures matter. So you can't always think about the headlines.
Speaker Change: <unk> income from the properties that we have the overall mortgage portfolio LTV was 64%.
Speaker Change: Which bodes well its slightly higher than last year, but that's just due to the lower valuations.
Speaker Change: <unk> has successfully resolved all of our 2023 maturity then we only have five office loans maturing in 2024, we had one delinquent loan at year end and that loss is reflected in GAAP DSO and also our year end statutory results and included in our 2024 capital plan. So we continue to be very <unk>.
Speaker Change: To go with our overall loan portfolio and our ability to manage through cycles, and you said that and as I mentioned the market is challenging now, but where rates, peaking in Q3 Q4 that should help some of the fundamentals in the business going forward.
Robin: What the banks own is sometimes of different quality, what the insurance company owns just by the capital nature of these securities as well. For equitable purposes, the office portfolio represents about 5% of our total general account. It's a pretty high-quality portfolio with solid operating results. We're in Class A buildings.
Speaker Change: Okay. Thanks.
Speaker Change: Your next question comes from the line of Jimmy <unk> with Jpmorgan. Your line is open.
Jimmy: Hi, I had a question first just on alliance Bernstein flows.
Robin: I think the metric that I looked at at the end of the year for us internally was our debt-to-service coverage ratio. It actually went up to 2.3 times as of the fourth quarter, which was up from 2.1 times, and that reflects improved operating income from the property that we have. The overall mortgage portfolio LTV was 64%, which bodes well. It's slightly higher than last year, but that's just due to lower valuations. We successfully resolved all of our 2023 maturities, and we only have five office loans maturing in 2024. We had one delinquent loan at year-end, and that loss was reflected in GAAP FESAL and also our year-end statutory results and included in our 2024 capital plan.
Jimmy: Your comments on the pipeline and been pretty upbeat, but flows have been I think negative the last three quarters six of the last eight quarters and many other asset management managers have had similar issues. So.
Jimmy: What are your views on the strong pipeline materializing into inflows.
Jimmy: If rates keep moving around or should we assume a weaker flows until there's some stability in rates.
Jimmy: Thanks.
Owner from Alliance Bernstein.
Jimmy: Definitely.
Owner: We remain confident about our sales prospects if you break our business into its three components. Our retail business continues to net flow consistently if you look at the larger segments like U S retail where gross sales for the last eight years.
Owner: I've been in organic net flows toward the last five years capturing market share.
Owner: Our Asia ex Japan fixed income franchise had a lot of momentum carrying into the new year.
Robin: So we continue to be very comfortable with our overall loan portfolio and our ability to manage through cycles. As you said, and as I mentioned, the market is challenging, though, but with rates peaking in Q3, Q4, that should help some of the fundamentals in the business going forward. Okay, thanks. Your next question comes from the line of Jimmy Bhullar with J.P. Morgan. Your line is open.
Owner: And we have other opportunities as well such as a strong Japanese retail equity franchise.
Owner: And then on private wealth, although we had some seasonal outflows in the fourth quarter with tax loss harvesting et cetera. It skews towards high net worth and ultrahigh net worth individuals we have been in organic net flows for the three consecutive years and structurally we believe we're going to benefit.
Jimmy S. Bhullar: I had a question first, just on Alliance Bernstein flows. Your comments on the pipeline have been pretty upbeat, but flows have been, I think, negative for the last three quarters, six of the last eight quarters, and many other asset managers have had similar issues. So, what are your views on the strong pipeline materializing into inflows if rates keep moving around, or should we assume weaker flows until there's some stability in rates? Thanks, owner of Alliance Bernstein. Definitely, we remain confident about our sales prospects. If you break our business into its three components, our retail business continues to generate a net flow consistently.
Owner: In terms of our proprietary private wealth business, I think where we had more idiosyncratic challenges partially influenced by some of the recent performance in a few strategies as the institutional space again, it's been a hard to predict lumpy outflows from individual mandates. So.
Owner: It creates.
Owner: Year to year or quarter to quarter fluctuations in net flows, but if you take a long term structural view we.
Owner: We remain confident in our growth engines, both from a distribution perspective, as well as the strength of our pipeline, which skews heavily towards private thoughts as you know that probably adults.
Owner: Raises the embedded fee rate in the pipeline to six 3% to six basis points and Thats three times.
Onar: If you look at the larger segments like U.S. retail, we have grown sales for the last eight years, and we have been in organic net flows for the last five years, capturing market share. Similarly, our Asia ex-Japan fixed income franchise had a lot of momentum carrying into the new year, and we have other opportunities as well, such as a strong Japanese retail equity franchise. And then on private wealth, although we had some seasonal outflows in the fourth quarter with taxable harvesting, etc., which skews towards high net worth and also high net worth individuals, we have been in organic net flows for three consecutive years, and structurally, we believe we're going to benefit in terms of our proprietary private wealth business.
Owner: Lighting channel fees. So we have a lot of embedded revenue growth in the pipeline. We don't expect huge disruptions in terms of deployment of that pipeline actually we added to that pipeline.
Owner: The fourth quarter more so than we did in the third quarter on the first quarter, but also if you look at the realizations since realizations were a nice our pipeline came down so its good to see both the additions as well as.
Owner: Realizing.
Owner: The deployments, which tours into fees right away.
Owner: Okay.
Owner: Just.
Owner: Following up on the individual life your margins have been.
Owner: Better the last couple of quarters.
Onar: I think where we have had more idiosyncratic challenges, partially influenced by some of the recent performance in a few strategies, in the institutional space. Again, it's very hard to predict lumpy outflows from individual mandates. So that creates the year-to-year or quarter-to-quarter fluctuations in net flows, but if you take a long-term structural view, we remain confident in our growth engines, both from a distribution perspective as well as the strength of our pipeline, which skews heavily towards private alts. As you know, private alts raise the embedded fee rate in the pipeline to 56 basis points, and that's three times the underlying channel fees.
Owner: They were obviously weaker prior to that.
Owner: <unk>.
Owner: Do you have better confidence and resolve.
Owner: Going forward.
Owner: Early part of 2023 more of an aberration or do you still expect results to continue to be volatile.
Owner: In the short term.
Speaker Change: We do expect them to show up.
Speaker Change: <unk>. Some continued pull forward that's reflected in our $2 million to $300 million guidance for the full year that we've given and in Q1, that's seasonally high.
Speaker Change: A high flu season also COVID-19 lingers as well so you could see some continued experience there so far we haven't seen anything now but that is.
Robin: So we have a lot of embedded revenue growth in the pipeline. We don't expect huge disruptions in terms of deployment from that pipeline. Actually, we added to that pipeline in the fourth quarter more so than we did in the third quarter and the first quarter, but also, if you look at the realizations, since realizations were nice, our pipeline went down. So it's good to see both additions as well as realizations of the deployments, which turn into fees right away. Okay, and just following up on individual life, your margins have been better in the last couple of quarters, but they were obviously weaker prior to that.
Speaker Change: That is generally a high peak season for mortality.
Speaker Change: Okay. Thank you.
Speaker Change: Your next question comes from the line of Wilmar Virtus with Raymond James Your line is open.
Wilmar Virtus: Hey, good morning.
Poor guide seems to imply EPS of around $6 616 does that include or assume that interest rates go down and if so by how much.
All of our when we when we guide for projections, we take the forward curve.
Wilmar Virtus: As of year end to fed funds rate in interest rates.
Wilmar Virtus: I would point you did at forward curves if you want to look at guidance as it relates to what's embedded in our numbers and then we also assume an equity return of 6% with a 2% dividend yield as well and then the sensitivities we provided in the appendix the equity's interest rates and short term cash sweeps.
Robin: Do you have better confidence in results going forward? Was the early part of 2023 more of an aberration, or do you still expect results to continue to be volatile in the short term? We do expect in the short term some continued pull forward that's reflected in our 200 to 300 million guidance for the full year that we've given, and in Q1, that's seasonally a high flu season, you know, COVID lingers as well, so you could see some continued experience there. So far, we haven't seen anything, though, but that is generally a high peak season for mortality.
Speaker Change: Thank you and then.
Speaker Change: Quick one when Equitable's novation policies to Arizona to the policyholders have to consent to the move or can they improve by negative consent.
Speaker Change: I guess my question is is there any risk that certain policies won't novae and if so what would that look like.
Speaker Change: Yes.
Speaker Change: Just overall novation, we expect innovation process to take over two years, it's gone through state approvals now which can vary by state.
Robin: Okay, thank you. Your next question comes from the line of Wilma Burtis with Raymond James. Your line is open. Hey, good morning.
Some states do provide allow us negative concerned some states provide concern is needed.
Speaker Change: We're also undergoing a process of novation policies that were reinsured. The Venerable. This has already been approved by the Iowa and New York regulators. So that's in good state and we think it helps our broader strategy and aligns us to our peers and provides us financial flexibility going forward, so, but we're quite comfortable.
Wilma Burtis: Your 24 guide seems to imply EPS of around $6.00 at $6.16. Does that include or assume that interest rates go down, and if so, by how much? All of our when we guide for projections, we take the forward curve as of year-end, the Fed Funds Rate, and interest rates.
Speaker Change: Comfortable with the process that we have but it is a cumbersome process state by state and there are different rules state by state.
Speaker Change: Okay.
Robin: I'd point you to the forward curves if you want to look at guidance as it relates to what's embedded in our numbers. And then we also assume an equity return of 6% with a 2% dividend yield as well. And then the sensitivities we provided in the appendix, the equity, the interest rates, and the short-term cash freeze. Thank you. And then a quick one, when Equitable is novating policies to Arizona, do the policyholders have to consent to the move, or can they approve it by negative consent? I guess my question is, is there any risk that certain policies won't novate, and if so, what would that look like? Yeah, overall, we just expect the novation process to take over two years; it's going through state approvals now, which can vary by state. Some states do provide, allow us negative consent; some states provide consent as needed.
Speaker Change: A quick one I mean, what happens if.
Speaker Change: The policyholder Soma, Peruvian say health care.
Then some policyholders would stay in New York and operate like they are today on their internal reinsurance.
Speaker Change: But we expect the majority of that the majority of the policyholder should know bate over.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Mark Hughes with Truth Securities. Your line is open.
Mark Hughes: Yes. Thank you good morning on the SCS product seem to like your.
Mark Hughes: If I'm looking at the numbers correctly right.
Mark Hughes: Private market was up about 30% in U.
You seem to double that.
Mark Hughes: Is that a function of wider distribution just more productivity you already the market leader.
Mark Hughes: Whether you can sustain the kind of market share gains you've seen.
Robin: We're also undergoing a process of novating policies that were reinsured to Venerable. This has already been approved by the Iowa and New York regulators, so that's in good standing. And we think it helps our broader strategy and aligns us with our peers and provides us with financial flexibility going forward. But we're quite comfortable with the process that we have, but it is a cumbersome process, state by state, and there are different rules state by state. And just a quick one, I mean, what happens if the policy ultrasone improves if they have? Then some policyholders would stay in New York and still operate like they are today on their internal reinsurance, but we expect the majority of the policyholders wouldn't obey it.
Nick Wayne: Sure This is Nick.
Nick Wayne: As we articulated on Investor day, we think we're well positioned to capture a disproportionate share of the value in that space for the reasons that you articulated we are the pioneer in this market over 15 years, we've got a track record our purpose distribution, that's both third party as well as equitable advisers.
Nick Wayne: That understands how to integrate this into.
Nick Wayne: A portfolio as well as our continuous innovation and thinking through new segments I would highlight one of the advantages. We have is in our innovation is given our equitable advisers when.
Nick Wayne: When we get feedback on what new client needs are what advisers are looking for and this drives our innovation on the product to continue to leverage this is part of more portfolios.
Robin: Thank you. Your next question comes from the line of Mark Hughes with Truist Securities. Your line is open. Yeah, thank you. Good morning. On the SCS product, it seems like you're, if I'm looking at the numbers correctly, the Ryla Mark goes up about 30%. You seem to double that.
Nick Wayne: And then in the group.
Nick Wayne: Our retirement you described the net outflows in non core channels offset by the.
Nick Wayne: Inflows in the tax exempt market does that dynamic continue.
Nick: Is that a function of wider distribution, just more productivity? You are already the market leader. I'm sort of curious whether you can sustain the kind of market share gains. Sure, this is Nick.
Nick Wayne: Or is there some inflection point where the.
Nick Wayne: In fluids.
Nick Wayne: It will become more prominent.
Speaker Change: Yes, Mike as you highlight our group retirement is comprised of what I would say three channels are tax exempt channel our corporate shared on institutional within our core tax exempt business.
Nick: Look, as we articulated on Investor Day, we think we're well positioned to capture a disproportionate share of the value in that space for the reasons that you articulated. We are a pioneer in this market. For 15 years, we've got a track record.
Speaker Change: We had positive flows for the year of 365 million for the quarter of $115 million driven by new client enrollments in renewal contributions as the number one provider of supplemental were higher than planned to kindergarten to 12th grade teachers, we benefit from the scale of our 1000 ads.
Nick: Our privilege distribution, that is both third-party as well as equitable advisors that understand how to integrate this into a portfolio as well as our continuous innovation and thinking through new segments. I would highlight one of the advantages we have in our innovation is that, given our equitable advisors, we get feedback on what new client needs are, what advisors are looking for, and this drives our innovation on the product to continue to leverage this as part of more portfolios. And then, in the group retirement, you describe net outflows and non-core channels offset by the... Inflows into the tax-exempt market, does that dynamic continue, or is there some inflection point where... The inflows become more prominent? Yeah, Mike, as you highlight, our group retirement is comprised of what I would say is three channels: our tax-exempt channel, our corporate channel, and institutional.
Speaker Change: <unk>, serving over 9000 payroll slots and we're proud that educators that work with advisors.
Speaker Change: <unk>, 70% more and are better prepared for retirement as a result, and that we continue to see.
Speaker Change: <unk> flows.
Speaker Change: Organic growth and strong.
Speaker Change: In the corporate market, we would expect.
Speaker Change: We had good inflows as you highlighted we saw outflows in the non core.
Speaker Change: Sort of older 401, K blocks I would highlight as a reminder, given our distinct model with equitable advisers about 25% of these outflows from this worksite model translate into individual solutions as consumers look to meet their holistic needs.
Nick: Within our core tax-exempt business, we had positive flows for the year, $365 million, and for the quarter, $115 million, driven by new client enrollments and renewal contributions. As the number one provider of supplemental retirement plans to kindergarten to 12th-grade teachers, we benefit from the scale of our 1,000 advisors serving over 9,000 payroll slots, and we're proud that educators that work with advisors contribute 70% more and are better prepared for retirement.
Speaker Change: Where we see the step function changes in the institutional channel, which is reported in group retirement and as we highlighted in the prepared remarks and some of the questions.
Speaker Change: We've got confidence that we'll start to see flows here in 'twenty four.
Speaker Change: Those would be large but lumpy.
Speaker Change: Okay.
Speaker Change: Appreciate it thank you.
Speaker Change: And your final question comes from the line of Mike Ward with Citi. Your line is open.
Mike Ward: Thanks, guys good morning.
Nick: As a result, you know, in that, we continue to see consistent flows, organic growth, and strong ROAs. In the corporate market, we would expect to see good inflows, as you highlighted. However, we saw outflows in the non-core sort of older 401k blocks.
Mike Ward: I was just wondering what you've been seeing in terms of the demand levels between the different annuity products in individual.
Mike Ward: So I guess, maybe December January kind of post fed announcements just trying to think through how we should think about that going forward.
Nick: I would highlight, as a reminder, given our distinct model with equitable advisors, about 25% of these outflows from this worksite model translate into individual solutions as consumers look to meet their holistic needs. Where we see step function changes in the institutional channel, which is reported in group retirement, and as we highlighted in the prepared remarks and some of the questions, we've got confidence that we'll start to see flows here in 24. Those will be large but lumpy.
Speaker Change: Yes look we see the demand.
Speaker Change: For buffered annuities continued to grow both of those structural reasons and the fact that people are looking for protected equity stories as they move through their retirement journeys.
Speaker Change: So overall.
Speaker Change: <unk>.
Speaker Change: We see continued growing demand there driven by those structural dynamics.
Speaker Change: Okay traditional.
Nick: I appreciate it. And your final question comes from the line of Mike Ward with Citi. Your line is open. Thanks, guys. Good morning.
Speaker Change: Was that also a question.
Speaker Change: Yeah, well yeah.
Speaker Change: And then looked at as part of the broader portfolio. We provide we provide protected equity solutions income solutions and tax allocation strategies.
Mike Ward: I was just wondering what you've been seeing in terms of the demand levels between the different annuity products and individual, you know, since I guess maybe December, January, kind of post-Fed announcements, just trying to think through how we should think about that going forward. Yet, look, we see the demand for buffered annuities continue to grow, both for structural reasons and the fact that people are looking for protected equity stories as they move through their retirement journeys. So overall, you know, we see continued growing demand there driven by those structural dynamics. Traditional VAs: was that also a question?
Speaker Change: It's apparent to everyone that people are living longer and having secure income is a critical part of ensuring a secure retirement for the future. So we see structural demand continuing to grow we continue to focus on value and parts of the market, where we bring an edge and can create that sustainable.
Speaker Change: Value.
Speaker Change: Got it. Thank you and then maybe for for protection, just thinking about the mix between life and non mortality kind of group benefits.
Nick: Uh, yeah, well, yeah. And then, look, it's part of the broader portfolio we provide. We provide protected equity solutions, income solutions, and tax allocation strategies. It's apparent to everyone that people are living longer, and having secure income is a critical part of ensuring a secure retirement for the future.
Speaker Change: You've been you've been posting pretty good growth.
Speaker Change: Just wondering how you how you are working on growing that non mortality side.
Speaker Change: And if you'd ever consider like a bolt on type.
Speaker Change: There.
Speaker Change: Yes, we love the employee benefits markets, because it's shorter duration and it's.
Nick: So we see structural demand continuing to grow. We continue to focus on value in parts of the market where we bring an edge and can create that sustainable value. And then maybe for protection, just thinking about the mix between life and non-mortality kind of group benefits. You've been posting pretty good growth. Just wondering, you know, how you're working on growing that non-mortality side, and if you'd ever consider a bolt-on type ad there. Yeah, we love the employee benefits markets because it's shorter duration and it's lower tail risk, as we talked about earlier in our product portfolio.
Speaker Change: Lower tail risk as we talked about earlier in our product portfolio. We have grown at over 800000 lives covered so we've seen good growth come through it's still a small part a few years away from breakeven.
Speaker Change: As I mentioned the capital at the Holdco provides us flexibility to be offensive as situations arise, but again it has a high threshold because if we need to have accretion to shareholders.
Speaker Change: Primary focus on capital allocation of the Holdco foods, M&A and it was accretive to shareholder we'd probably be in wealth and asset management versus those who are probably property that we see more of come through and but against high threshold given the accretion levels that we need.
Speaker Change: Got it thanks guys.
Robin: We've grown that to over 800,000 lives covered, so we've seen good growth come through. It's still a small part, a few years away from break-even. As I mentioned, the capital of the whole code provides us with flexibility to be offensive if situations arise, but again, it has a high threshold because we need to have accretion to shareholders. Primary focus on capital allocation of the whole code, if it was M&A and it was accreted to shareholders, would probably be in wealth and asset management first, as those are probably properties that we see more of come through, but again, a high threshold given the accretion levels that we need.
Speaker Change: Thank you. This will conclude today's conference call. We thank you for joining you may now disconnect your lines.
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Robin: Thanks, guys. Thank you. This will conclude today's conference call. We thank you for joining us. You may now disconnect your line.
Speaker Change: Okay.
Operator: Please wait. The conference will begin shortly. The conference will begin shortly. Please wait. The conference will begin shortly. Please wait. The conference will begin shortly.
Speaker Change: Okay.
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