Q3 2024 Equitable Holdings Inc Earnings Call
Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time I would like to welcome everyone to the equitable holding third quarter earnings conference call. All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad.
to withdraw your question, press star one again. We do ask that you please unmute yourself to one question and one follow-up. I would now like to turn the phone over to Erik Bass. Had a investor relations, please go ahead.
Erik Bass: Thank you. Good morning and welcome to equitable holdings, third quarter 2020 for earnings call. Materials for today's call can be found on our website at IR.equitableholdings.com.
Erik 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. Our results may differ materially from those expressed in or indicated by such forward-looking statements.
Erik Bass: Please refer to the Safe Harbor Language on slide two of our presentation for additional information.
Erik Bass: Joining me on today's call, our Mark Pearson, President and Chief Executive Officer of Equitable Holdings.
Erik Bass: are Chief Financial Officer, Nick Lane, President of Equitable Financial, Jackie Marks, Alliance Bernstein's Chief Financial Officer, and Onur Erzan, head of Alliance Bernstein's Global Plant Group and Private Wellf Business.
Erik Bass: During this call, we will be discussing certain financial measures that are not based on generally accepted accounting principles, also known as non-GAAP measures.
Erik Bass: 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 and in our earnings release, slide presentation, and financial supplement. I will now turn the call over to Mark.
Mark: Good morning and thank you for joining today's call. Equitable Holdings third quarter results demonstrate continued strong growth momentum both in terms of new business activity and earnings per share. We once again had positive net flows across our retirement, asset management, and wealth management businesses.
Mark: And firm-wide, assets under management surpassed the $1 trillion mark.
Mark: Equitable's integrated business model positions us well to capitalize on the tremendous opportunity in the U.S. retirement market and deliver value to all our stakeholders.
Mark: On slide three, I'll provide a few highlights from the third quarter.
Mark: Non-GAAP operating earnings were $501 million or $1.53 per share, which is up 34% year-over-year on a per-share basis.
Mark: Adjusting for notable items, non-GAAP operating EPS was $1.59, which is up 22% compared to the prior year, and above our 12-15% annualized growth guidance.
Mark: Assets under management and administration increased 20% year over year and now exceed 1 trillion dollars.
Mark: We returned $330 million to shareholders during the quarter, which equates to a 65% payout ratio within our targeted range of 60 to 70%.
Mark: Holding company cash increased to two billion dollars from the second quarter reflecting a 440 million dollars ordinary dividend from our Arizona entity paid in July.
Mark: For the full year, we now expect cash generation to come in at the high end of our $1.4-$1.5 billion guidance range.
Mark: During the third quarter, we completed our annual assumption update, which resulted in no major changes and had only modest impact on our gap earnings.
Mark: This validates our conservative approach to assumption setting, particularly for policyholder behavior.
Mark: Turning to our reporting segments, we continue to execute well on our growth strategy.
Mark: In retirement, sustained demand for our individual retirement offerings drove net inflows of $1.7 billion in the quarter. Across individual and group retirement, sales were up 25% year over year.
Mark: As expected, we did not have any new BlackRock Life Path Paycheck plans fund during the quarter, but we remained bullish on the in-plan annuity opportunity.
Mark: In August, J.P. Morgan Asset Management announced plans to collaborate with Equitable on its new Smart Retirement Lifetime Income Offering.
Mark: In Asset Management, AB reported its third consecutive quarter of organic growth.
Mark: With total net inflows of $1.1 billion and active net inflows of $2.2 billion.
Mark: AB also completed its real estate relocation during the third quarter, which will contribute 100 to 150 basis points of margin expansion on a go-forward basis.
Mark: AB now expects a baseline adjusted operating margin of 33% in 2025, assuming neutral markets, which is up more than 400 basis points compared to the full year 2022.
Mark: Moving to wealth management, our business reported record advisory net inflows of $1.9 billion and assets under administration now exceeds $100 billion.
Mark: We're seeing strong momentum in both advisor recruiting and productivity improvement, which are good leading indicators of future growth in earnings and margins.
Mark: Turning to slide 4.
Mark: I want to spend a couple of minutes discussing our competitive position in the U.S. retirement market.
Mark: This is a fantastic market with a growing need for the solutions we provide and emerging opportunities to reach customers in new ways.
Mark: It starts with our ability to capture the full retirement value chain.
Mark: We are a leading product manufacturer in the individual and group retirement space and we also capture economics as a distributor through equitable advisors and on the assets managed by Alliance Bernstein.
Mark: This provides significant advantage versus companies that are pure manufacturers, which shows up in multiple ways.
Mark: There are four key drivers of economics in the retirement business.
Erik Bass: The investment yield you can generate?
Erik Bass: The Fees You Collect
Erik Bass: The cost of funds on your liabilities and your G&A expense ratio.
Mark: To be successful over time, a company needs to have advantages in at least one, and ideally more than one, of these areas.
Mark: Equitable partners closely with AB to source the assets needed to generate competitive risk-adjusted yields.
Mark: And it's a symbiotic relationship as the capabilities built for our general account can also be monetized through third-party net flows.
Mark: While there's been a lot of focus on the growth in our spread-based earnings, given the success of our Ryla product, we also generate a significant amount of high-return, fee-based earnings from separate account products and through AB and Equitable Advisors.
Mark: The value of Equitorial Advisors also shows up in our low cost of funds.
Mark: Having proprietary distribution provides better persistency and enables us to retain more of the economics.
Mark: In addition, we can launch new products through Equitable Advisors, which allows us to innovate and create new markets, like we did with the Ryla.
Mark: Finally, Equitable has a top quartile expense ratio in individual retirement compared to our peers.
Mark: Putting it all together, our company is well positioned to adapt and thrive as the competitive landscape evolves.
Erik Bass: Another area of focus for investors has been the sustainability of the recent strength in industry sales across individual retirement products.
Erik Bass: Turning to slide 5, I want to highlight why we continue to be very bullish about the retirement growth story.
Erik Bass: As we've highlighted before, demographic trends create increased need for retirement savings and income solutions, regardless of the macro environment.
Erik Bass: There are 4.1 million Americans turning 65 each year, and the large and growing retirement gap underscores the need for the advice and products we provide.
Erik Bass: This need has been recognized by the government with bipartisan support for the two SECURE Acts.
Erik Bass: which expanded access to workplace retirement savings plans and provide plan sponsors with a safe harbor to include annuities within 401k plans.
Erik Bass: We see this as creating a significant new market by enabling insurers to access the $7 trillion of assets currently sitting in 401k plans.
Erik Bass: We are encouraged by the initial interest shown in guaranteed lifetime income options by both plan sponsors and asset managers with sizable target date fund complexes.
Erik Bass: During the third quarter we announced plans to develop a secure income solution with JPMorgan Asset Management which will complement our existing offerings with AB and BlackRock.
Erik Bass: Equitable has had positive net flows in our retirement business every year since IPO during a period which covers a wide range of macro backdrops.
Erik Bass: Over the last 12 months, net inflows of $6.8 billion are more than double what we reported in 2018.
Erik Bass: A key reason we've been able to do this is the all-weather portfolio of insurance and assets and wealth management solutions that we offer to our clients.
Erik Bass: Most of these fill a specific need, such as for protected equity exposure or guaranteed lifetime income, that is present regardless of the level of interest rates or equity markets.
Erik Bass: Looking ahead, I'm excited about the growth momentum in our business and continue to believe this is a fantastic time to be in the U.S. retirement market.
Erik Bass: I'll now turn it over to Robin to discuss our financial results in more detail.
Robin: Thanks, Mark. Turning to slide 6, I will highlight our results from the quarter.
Robin: On a consolidated basis, Equitable Holdings reported non-GAAP operating earnings of $501 million in the quarter, or $1.53 per share, up 34% year-over-year.
Robin: We had 20 million of notable items, which includes 13 million of lowered and planned alternative investment returns and 10 million of one-time model updates, partially offset by 3 million favorable impact from our annual assumption review.
Robin: Adjusting for these items, non-GAAP EPS was $1.59 per share, up 22% year-over-year, driven by organic growth across our businesses, favorable markets, and share repurchases.
Robin: We reported a GAAP net loss of $134 million in the quarter, driven by non-economic impacts from our hedge portfolio, which were largely offset by gains in OCI.
Robin: While this is a short term headwind for the individual retirement earnings it will drive future growth and profits.
Robin: Turning to asset management.
Robin: <unk> had a strong result, delivering a third consecutive quarter of positive net flows.
Robin: Stable base fee rate and a 330 basis point year over year margin improvement.
Robin: <unk> will begin to recognize the full benefit of its U S. Real estate relocation strategy in the fourth quarter and we expect the baseline adjusted operating margin of 33% in 2025, assuming flat markets.
Robin: In protection solutions mortality came in at the favorable end of expectations and we reported.
Robin: Operating earnings ex notables year.
Robin: Year to date operating earnings ex notables are $196 million.
Robin: Put in this segment on track to be within our $200 million to $300 million annual guidance range.
Robin: Finally, our consolidated tax rate was in line with our 19% guidance.
Robin: The tax rate for our insurance segments came in below our 17% expectation.
Robin: Due to some favorable tax settlements.
Robin: But this was offset by a lower tax benefit in corporate and other.
Robin: We now project a full year 2020 for insurance tax rate to be below 17%, but it should revert to 17% in 2025.
Robin: We still expect the full year tax rate for AAV, and wealth management to be 29% and 26% respectively.
Robin: Turning to slide seven I will provide more details on the drivers of our earnings growth.
Robin: Results continue to benefit from growth in both spread and fee based income.
Robin: Individual retirement net interest margin increased 5% year over year.
Robin: Supported by the continued growth of the <unk> business.
Robin: While group retirement, NIM was up 12% year over year.
Robin: As I mentioned last quarter, we expect individual retirement spreads to be relatively stable moving forward as new business margins have normalized and are consistent with our 15% IRR target.
Robin: However, we now have a 60 billion block umbrella business.
Robin: That said there will be some quarterly noise in NIM.
Robin: In the third quarter, our underlying core spread was consistent with the first half of the year. While we added a couple of non <unk> items that affected individual retirements reported spread income.
Robin: Most notably we saw a sharp decline in market value adjustment gains on early surrenders, which show up as an offset to interest credited.
Robin: These can vary from quarter to quarter, but if we were to take an average level from the past 10 quarters NIM would have been $15 million higher this quarter.
Robin: Turning to fee income.
Robin: We saw healthy growth across retirement asset management and wealth management.
Robin: Fees are charged on average AUM levels today to continue to trend higher if markets remain at or above current levels.
Robin: Finally, I wanted to provide an update on our outlook for variable investment income.
Robin: Our alternatives portfolio produced an annualized return at 6% in the third quarter.
Robin: We started solid private equity returns and real estate equity funds had slightly positive performance.
Robin: We project a similar level of return for our portfolio in the fourth quarter.
Robin: Turning to slide eight.
Robin: I would like to discuss equitable macro sensitivities and how to think about the implications of different macro environments.
Robin: First and foremost we fully hedge the interest rate and equity market exposures underlying all product guarantees.
Robin: Testing, our balance sheet against any movements there.
Robin: Therefore markets really only affect earnings and potentially sales.
Robin: Starting with short term interest rates, our primary exposure is through our wealth management cash sweep balances.
Robin: We ended the third quarter with cash balances of $2 8 billion.
Robin: And they generate approximately only 1% to 2% of total company earnings.
Robin: The small exposure for our businesses.
Robin: We also have exposure to floating rate assets, where yields are tied to short term interest rates.
Robin: But these are largely matched with floating rate liabilities like app hlv lending and one year wireless segments.
Robin: Long term interest rates are more meaningful for our businesses as our portfolio duration is about six years, but the earnings impact is still relatively modest.
Robin: A 50 basis point parallel shift in yield curve would have a 40% to $45 million impact on annual after tax earnings.
Robin: Which represents less than 2% of total earnings.
Robin: This does not include a potential offset from higher fixed income fees earned at AEP.
Robin: From a growth perspective, there are a few dynamics to consider in general a steeper yield curve is positive for our annuity demand as the interest rate paid to policyholders is tied to the intermediate portion of the curve.
Robin: Lower cash yields may also spur investors to put more money to work, which would be good for flows in wealth management and E Bay.
Robin: On the other hand, if long rates come down.
Robin: Result in less attractive pricing for guaranteed variable annuities and life insurance products, which could hurt demand for equitable the level of interest rate has limited impact on the demand in our primary markets, we operating including <unk> four 3 billion savings plans and in plan annuities.
Robin: Turning to equity markets. This is an important driver of the fee based earnings we generate and our retirement business.
Robin: And wealth management.
Robin: Each 10% change in market returns has about $150 million impact on annual earnings.
Robin: From a sales perspective, we could see lower flows for AB in wealth management if markets declined by.
Robin: Protected equity solutions like <unk> could benefit.
Robin: As a reminder, higher volatility is good for <unk>, allowing us to offer more attractive terms to policyholders.
Speaker Change: Overall as Mark described this is a great retirement market that we operate in where our diversified and integrated business model. We have an all weather portfolio products that has been able to deliver profitable growth in a wide range of interest rate and equity market environment.
Robin: On slide nine we highlight Equitable's capital management program position and cash flow outlook.
Robin: In the quarter, we returned $330 million to shareholders, including $254 million of share repurchases.
Robin: This translates to a 65% payout ratio of non-GAAP operating earnings excluding notable items consistent with our 50% to 70% payout target.
Robin: We ended the quarter with $2 billion of cash and liquid assets at holdings.
Robin: Which is up from the second quarter following the receipt of a $440 million ordinary dividend from our Arizona insurance entity in July.
Robin: We now expect to achieve the upper end of our one four to $1 5 billion cash generation guidance for 2024 with about 50% of this coming from non insurance entities.
Robin: We will provide an outlook for 2025 cash generation next quarter, but we remain confident in achieving the $2 billion of annual cash generation by 2027.
Robin: Our predictable cash flow in combination with our strong hold co cash position.
Robin: Enabled us to consistently return capital to shareholders. While also funding the growth in the retirement market.
Robin: As we mentioned on previous calls we're also exploring ways to further optimize our balance sheet.
Robin: Such as establishing a sidecar or Bermuda entity. We're also reviewing ways to improve our return on capital and reduce the earnings volatility in our life businesses, we're making good progress and I expect we'll be in a position to provide update early in 2025 now.
Speaker Change: Now, let me turn the call back over to Mark for closing remarks.
Speaker Change: Mark.
Mark Pearson: Thanks, Robyn in closing equitable delivered another solid quarter with sustained organic growth momentum across our businesses translating into strong growth in earnings per share.
Mark Pearson: Looking forward I'm excited about the growth opportunities across U S retirement asset management and wealth management.
Mark Pearson: Also convince of Equitable's integrated business model provides us with real competitive advantages that will enable us to deliver value to all our stakeholders.
Speaker Change: We will now open the line for questions.
Speaker Change: At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad. We do ask that you. Please limit your questions to queue. Our first question will come from the line of Sydney Cayman with Jefferies. Please go ahead.
Sydney Cayman: Thanks, Good morning, I wanted to ask a couple on annuities so first.
Sydney Cayman: Mark we've seen industry sales 100 billion for four quarters in a row I get all the information that you have on slide five but frankly, we could have made a lot of these demographic arguments a few years ago. So what do you think is causing these sales to be as strong as they are and what do you think is the biggest risk to this.
Sydney Cayman: Growth outlook that you are talking about.
Mark Pearson: Thanks for the questions I think as we said on the prepared remarks, there, we're very confident and optimistic about the market. The demographics have been around for a while but they have not peaked I think thats the key point here.
Mark Pearson: Americans, reaching $864 $1 million, a year and we have yet to reach that peak so the demographics.
Speaker Change: I've been around for a while you see that in the retirement savings gap.
Mark Pearson: But they are actually increasing and I think secondly.
Mark Pearson: And also a lot more attention in this.
Sydney Cayman: This mark I mean, we're very proud that we.
Speaker Change: We're the people to innovated and created the viola market you see new entrants coming in that's creating a lot more awareness.
Speaker Change: Amongst distributors and you'll see that coming through in money coming out of 401K's and into these types of products. So looking out we remain very bullish and very confident on our market demographics awareness and the distributors.
Speaker Change: Reacting to the products, we have out there.
Speaker Change: And then on the risk side.
Speaker Change: This pool.
Speaker Change: As Robin said in that particular slide.
Speaker Change: You can see risks if interest rates were to come down sort of fixed annuity type products tend to be less attractive, but protected equity stores like <unk>.
Speaker Change: Tend to do well.
Speaker Change: In those markets as we showed two 2021 and 2022.
Speaker Change: So it's looking very positive.
Speaker Change: We're feeling really good about the market I think that's the best.
Mark Pearson: This conditions for the industry for many decades.
Speaker Change: Got it and then my second question is just on your product lineup in annuities.
Mark Pearson: Our hearing other companies talk about having the full gamut of annuity products from fixed fixed index.
Mark Pearson: Traditional VA raila. It seems like you guys are more focused on <unk> have you given any thought to expanding your product portfolio.
Mark Pearson: Sure. This is Nick look we're very intentional about focusing on segments, where we can leverage our unique business model to.
Mark Pearson: To generate attractive returns for both shareholders and clients.
Mark Pearson: As you highlighted we're the market leader in the fastest growing segment of the annuity market sales were up 45% year to date. So we continue to focus on that and leverage.
Mark Pearson: Leverage the strength of the privilege distribution that we've created over the last decade to include equitable advisers.
Speaker Change: In terms of the emerging needs within retirement that Mark mentioned look it's a $30 trillion U S retirement market and so we are seeing money in motion.
Speaker Change: As Mark alluded to Throughly projects that there's over $500 billion of assets coming out of 401, K's every year, which is creating new opportunities for both forms of secure secure income income and protected equity stories as well as advice to guide clients through that.
Speaker Change: Next stage.
Speaker Change: So.
Mark Pearson: We like where we're at and we continue to focus on those areas.
Speaker Change: Our next question comes from the line of Tom Gallagher with Evercore ISI. Please go ahead.
Tom Gallagher: Good morning, Robin just a follow up to your point you made on market value adjustment games in early surrenders.
Speaker Change: You said it was $15 million.
Tom Gallagher: Should we assume that these go away based on what Youre seeing or do you think you'll see a bounce back in.
Speaker Change: You'll see some level of that coming back through earnings in the individual retirement.
Robin: Thanks, Tom So just as a reminder, if I take a step back we're seeing the strong growth that mark and Nick talked spoke about in the <unk> market and it's really shifted the mix of the earnings in the individual retirement business. So it's great that we can finally talk about spread income in that business because its now about 50% of the general account business across.
Robin: The board in the quarter, we continued to see strong growth in NIM is up 5% year over year driven by the strong inflows.
Robin: And IR sales have nearly doubled over the past three years, which drove has driven that asset base to about 60 billion of AUM.
Robin: So as you noted in the quarter and as I noted before were going to see some noise on a quarterly basis, but margins are still strong and we're writing business at a 15% IRR target the market value adjustment, we do see some noise quarter to quarter, but as I mentioned over the last 10 quarters, it's averaged about $50 million, so given where interest rates are.
Speaker Change: Adding 15 million back would be a good would be something good to do in your models going forward I, suppose, but youre going to be noise, but over time, we're going to continue to grow NIM.
Speaker Change: With the growth in the railroad business.
Speaker Change: Okay. That's that's helpful and then.
Speaker Change: I guess.
Speaker Change: Just a follow up question on competition.
Speaker Change: Corbridge announced they're entering the railroad business Apollo.
Speaker Change: Our Investor day talked about growing broiler being a big strategic imperative.
Speaker Change: Just curious.
Speaker Change: And Mark I heard what you said about the market I agree I think there's a very good future path.
Speaker Change: Do you think Wow. These new like strong competitors are entering would you expect to lose share.
Speaker Change: Are you going to have to adjust pricing to deal with that or do you think you'll be able to see similar growth at similar returns in 2025 thinking more near term in west La.
Speaker Change: Long term, maybe it is things will be good enough for everyone to get their fair share, but what do you. What do you think will happen in 2025 based on the competitive dynamics. Thanks.
Speaker Change: Thanks, very much Tom I'll give just.
Speaker Change: Overview, and then I'll ask Nick to Nick to follow up look it's a very very big market, it's not going to be a market, where there's only one player wins it's.
Speaker Change: It's a huge market, it's a growing market, 45% up year to date.
Speaker Change: And we see that huge retirement savings gap and also.
Speaker Change: I Should've mentioned in my answer with <unk>, we have bipartisan support for secure act.
Speaker Change: Guarantee so there's a lot of momentum.
Speaker Change: In the market, yes, there is a lot of competition there is bound to be too.
Speaker Change: To answer your question directly we will market share come down, yes, I think it will but the growth will not slow for us.
Speaker Change: If you think about it Tom with 100% of this market because we were the only place I believe with the ones who are innovating so it's going to come down as more.
Speaker Change: Competitors come in but I think we had something like 28% sales growth.
Speaker Change: Year to date and.
Speaker Change: Margins or making a 15% IRR hurdle so the competition hasnt been hurting us on that side.
Speaker Change: The three things, which are really coming to us one is the business model. We have so we participate in all parts of the value chain.
Speaker Change: We source yield for maybe.
Speaker Change: We get distribution mode margin to external advisors and with manufacturers as well so we participate more on the economics.
Speaker Change: Any of our competitors can do including the ones you just just mentioned.
Speaker Change: And secondly, we have established positions. So I think that makes us good Nick do you want to add a few things in terms of what we see on the <unk>.
Speaker Change: Competitive.
Speaker Change: Sure first I'd highlight look we have benefited from the growing pie over the last three years, we've more than doubled our sales volume.
Nick: Look we are mindful of competitive trends on pricing as new entrants come in there does tend to be a period of teaser rate pricing as they attempt to gain a foothold we have seen this before and it tends to be temporary because it is not sustainable.
Nick: As both Mark and Robin alluded to we are generating attractive returns and continue to hit our 15% IRR.
Nick: I think our business model gives us a competitive edge.
Nick: And that allows us to focus on value and remain disciplined on our <unk>.
Speaker Change: On our cap rates.
Speaker Change: Over the last year to date, we generated $5 $4 billion of individuals net flows.
Speaker Change: Yes, you can file a product.
Speaker Change: But it's hard to build distribution and with equitable advisers from the third party.
Speaker Change: Privilege distribution that we've created over the last decade. These are third party partners that have a more curated shelf space.
Speaker Change: We think we're well positioned to capture a disproportionate share of the value.
Speaker Change: The pie continues to grow.
Speaker Change: Our next question comes from the line of Ryan Krueger with <unk>. Please go ahead.
Speaker Change: Okay.
Speaker Change: Hey, Thanks, good morning.
Ryan Krueger: I don't think you said this in the prepared remarks, but can you give us any insight into the expected flows from the Blackrock bypass pay check product in the fourth quarter.
Ryan Krueger: Hi, it's mark Thanks for the question as we mentioned earlier, we're very excited to be working with Blackrock I think one of the patents I hope you see with equitable is this innovation and first mover advantage, we look to gain as we've seen and while we feel the same way about the <unk>.
Speaker Change: <unk> guarantees we have partnership with Blackrock with our partnership with AEP and we are working now with J P. Morgan as well, so well well positioned on this and as I say to the team internally. When you have innovation you've got to move fast on first mover because of the competition.
Speaker Change: <unk> soon after with specifically with black quote because we mentioned it will it is going to be lumpy.
Speaker Change: And we're not anticipating any flows.
Speaker Change: In this in this quarter, but we are anticipating flow starting again in first half of 2025, and we remain very bullish on the longer term outlook for this the other thing just to remember Ryan on the implant guarantees none about 2027 targets of alliance on this business.
Speaker Change: In particular, the $2 billion cash generation target. We gave you. So this really is.
Speaker Change: Due to an additional growth.
Ryan Krueger: Great. Thank you and then just a quick one on the floating rate assets are floating rate assets and liabilities.
Speaker Change: It sounds like you don't expect much impact from that over time.
Speaker Change: Would you anticipate any noise initially.
Speaker Change: Just wanted to make sure Theres no are there any timing differences between the floating rate assets and the liabilities or anything like that we should be thinking about for the fourth quarter. Following the fed cut.
Speaker Change: Hey, Ryan, Yes, no as I mentioned earlier related to individual retirement, you could see some noise on a quarterly basis, but since were matched.
Speaker Change: Over a 12 month period Youre not going to you should be continue to have stable NIM I mean that business across the board, but yes in any given quarter if rates go lower depending on to reach out to the liability if there could be some quarterly noise, but I don't expect it to be material given the size of our floating rate exposure.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Joel Horowitz with Dowling and partners. Please go ahead.
Joel Horowitz: Hey, Hey, good morning, Robin one more on the market value adjustment would you say this quarter was driven by the decline in rates in <unk>.
Joel Horowitz: If we were to see rates pull back again do you think you would see a similar market value adjustment impact.
Speaker Change: That become more of a recurring trend.
Speaker Change: Hey, Joe Yeah, no as I mentioned earlier in the question look the <unk> business is now at $60 billion spread oriented product for the individual retirement and we continue to capitalize on that opportunity, yes, youll see some noise here and there.
Speaker Change: And attributed to one specific thing, yes, lower interest rates, but also you had a mix of where it is surrenders are coming from so it could be multiple factories in there across the board as I guided earlier over the last 10 quarters, we saw.
Speaker Change: That having about a $15 million impact so I would add back $15 million and I would expect that's probably the best guidance. We can give you at this time and yes, you will see some noise, but overall you see a 5% growth in NIM year over year and you can expect continue to expect us to grow spread related income in the individual retirement business.
Speaker Change: Alright got it and then just shifting to group. So so earnings in group retirement were very strong obviously, you have some fee based tailwind there, but anything else you would call out as.
Speaker Change: Driving the strong growth in that business or do you think this level of sustainable at current market levels.
Speaker Change: Yes. The earnings we continue to see high leverage you know the earnings related to equity markets and spread related income you sort of spread related income up 12%.
Speaker Change: Year over year and strong fee based income so.
Speaker Change: As you've seen historically with that business, it's pretty stable sticky and we get good leverage on the fees related. So we continue to expect that going forward.
Speaker Change: Our next question comes from the line of Alex Scott with Barclays. Please go ahead.
Alex Scott: Hi, good morning.
Alex Scott: First one I had is on protection.
Alex Scott: I just wanted to see on mortality.
Alex Scott: It seems like it's gotten better.
Alex Scott: Be interested if you have any.
Alex Scott: Additional.
Alex Scott: Color you can provide on the performance you're seeing there and the sustainability of the better performance.
Speaker Change: Okay.
Speaker Change: So protection continues to be about 10% of our earnings in aggregate.
Speaker Change: For the company so a small amount in total we guided the year to have a $2 million to $300 million annual earnings guidance and it looks like through the year, we expect to be in that range. We've gone away from the quarterly guidance because for that business that you can have one case with the large base amount then it could throw off any given quarter.
Speaker Change: So theres still some volatility in it but if you if you look back over the last two years, we guided that we saw a pull forward and more mortality and you're really seeing that come through as you sort of pull forward last year and now you see back to it.
Speaker Change: Normalized mortality results coming through so we feel good about where we are we're sticking to that $2 million to $300 million annual guidance going forward and we will continue to look at ways to reduce volatility in that business.
Speaker Change: Got it that's helpful.
Speaker Change: And apologies if I missed some of this earlier on the call, but I just was interested if you have an update.
Speaker Change: The amount of cash that you expect to be able to take out heading into the end of the year and just an.
Speaker Change: An update on capital management priorities as we think through 2025.
Speaker Change: Sure. So we continue to benefit from the diverse and predictability of our cash flows reminder, 50% of our cash flows come from non insurance businesses asset and wealth and so in the call. While we mentioned as we guided towards the high end of our one four to $1 5 billion guidance.
Speaker Change: For the full year, a big piece of that coming from the extraordinary dividend that we received approval in and we will take out.
Speaker Change: In the fourth quarter here. So we feel good about the cash flow the diverse starches predictability and that allows us to meet our cash flow commitments and we feel really good about our $2 billion cash flow guidance for 2027.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Nick <unk> with Wells Fargo. Please go ahead.
Speaker Change: Hey, good morning, I guess, maybe just another follow up on on capital.
Speaker Change: You guys have been running at a pretty pretty strong buffer for I guess the past two years now and just thinking about that in the 2 billion guidance for cash generation for 2007 I guess.
Speaker Change: What is what do you guys have to see like going forward to maybe bring that buffer down a bit and is there any plan to bring it down or should we just assume that that's going to be the.
Speaker Change: The buffer for here on out.
Speaker Change: Yes. Thanks for the question. So look we feel really good about our strong capital position. It gave it gives us confidence to capitalize on this attractive growth market that we've seen in that market. Nick spoke about earlier, while also delivering on our $60 to 70% payout ratio. If you look year to date, we funded record levels of sales and <unk>.
Speaker Change: Individual retirement business and a $500 million of inflows into Lightpath paycheck product at the same time, we paid out at 65% payout ratio at the midpoint of our earnings target. So our holdco cash does fluctuate on a quarterly basis, depending on the timing that we receive dividend from the subsidiaries. The balanced this quarter is at two <unk>.
Speaker Change: <unk>, which we feel good about but that's because we got $440 million from Arizona in July. So that's at an elevated level, we do expect to reduce the current excess cash position towards target levels, but we're cognizant that the market and the macro environment can change quickly. So we'd rather do this in a disciplined way over time as opposed to.
Speaker Change: Onetime extraordinary dividend our accelerated share repurchase. So again this is a phenomenal growth environment, we're investing into growth for returning capital to shareholders and we will look to bring down the excess cash over time in a systematic way.
Speaker Change: Yes.
Speaker Change: That's helpful. Thanks.
Speaker Change: And maybe just switching to individual retirement it seemed like total surrenders picked up a bit in the quarter.
Speaker Change: I guess year over year and sequentially anything to call out there or is that just is that a restatement issue or is that just normal business growth.
Speaker Change: Now you're seeing looked at with the interest rates, where they are to grow that you see on top line you are always going to see some increased level of surrender activity across the industry not the gander ordinary to call out here, we continue to capture a big share in the retirement market and you see that with the $1 9 billion of positive net flows coming through individual retirement.
Speaker Change: Our next question will come from the line of will Novartis with Raymond James. Please go ahead.
will Novartis: Hey, good morning can you talk a little bit more about the mortality and protection was a favorable or is there any other incident there. Thanks.
Speaker Change: Okay.
Speaker Change: Hey, well might yesterday as I mentioned protection.
Speaker Change: Protection It continues to be a small part of our overall business here at equitable.
Speaker Change: The results have come in line with expectations. We gave that you ended in $2 million to $300 million of guidance and we expect to be within that range for the full year. So.
Speaker Change: And mortality continues to fall in line with expectations this quarter, but as we've seen historically there could be some volatility given our exposure to high face amount policies, but we feel good about where we stand here today.
Speaker Change: And just a quick.
Speaker Change: Quick follow up on that one I mean, it seems like it's pretty much in the range now for a few quarters. It seemed like there was a little bit of Covid, maybe excess weighing on it.
Speaker Change: Feels like it's been normal for a couple of quarters is that does that feel like a pretty good trend and then one more quick one for you after that thanks.
Speaker Change: Yes, we feel comfortable with the two to 300 million guidance that we've given to the market and we'll stick with that.
Speaker Change: Okay, Alright sounds good.
Speaker Change: And then could you just go a little bit more into what's driving the flows in investment management, just maybe talk a little about products and other things. Thanks.
Speaker Change: Thanks for the question.
Speaker Change: <unk> from Alliance Bernstein, Yes, we had a strong active net flow quarter in the third quarter to two.
Speaker Change: That's positive.
Speaker Change: This quarter marked our third consecutive net flow quarter in the year. So we have been on a.
Speaker Change: Positive streak and if you look at our asset management business active flows in total were around $8 $5 billion net.
Speaker Change: Spirit outcome than many of our public peers. So we feel pretty good about our momentum.
Speaker Change: The momentum remains relatively broad based so we benefited from.
Speaker Change: The strong demand in fixed income backed by our strong performance. If you look at one year performance, we've been beefing up in more than 90% of our assets. So that continues to.
Speaker Change: Support our continued fixed income growth. This was both Asia ex Japan.
Speaker Change: Domestic tax exempt so it's multiple channels.
Speaker Change: In equity is actually we had another positive quarter in retail so it's good to see we benefited from some of the continued bull run in the equity markets at least in our retail business and then we continue to build out our alternatives franchise. We are on track to our Honda billing Gulfport private adults.
Speaker Change: We closed the quarter at 68.
Speaker Change: And private wealth had a record annual.
Speaker Change: Our fund raising and Alt with $2 $3 billion, so that demonstrates again, the breadth and depth of our growth engines Alliance Bernstein in terms of the product pipeline.
Speaker Change: Our Etfs.
Speaker Change: Form.
Speaker Change: The two year Mark in September $5 billion plus.
Speaker Change: With 15 products. So we're pleased with the buildup of the ETF franchise as a new startup.
Speaker Change: Our alternatives product lineup continues to expand now we have a perpetual vehicle in the market from Carnival.
Speaker Change: Credit opportunities funds and that all of that has assets in it than we are seeing.
Speaker Change: Some third party interest to be already on boarded into a large custodian platform. Another few clients are in the pipeline both other custodians as well as our clients.
Speaker Change: Clients and then finally last but not the least obviously.
Speaker Change: So thats area for <unk>.
Speaker Change: And insurance synergies, we continue to expand our investment great lineup in private to halt.
Speaker Change: Mortgages now financing specialty finance and extension of our <unk> private placement platform on the structured side. So you will continue to see us get deeper and broader in insurance through prior results.
Speaker Change: Yes.
Speaker Change: Our next question will come from the line of Mark Hughes with Truest Securities. Please go ahead.
Mark Hughes: Yes, Thank you and good morning also on.
Mark Hughes: You described both 33% baseline operating margin for 2000, 22025, assuming flat markets.
Mark Hughes: We do see continued good performance in the markets some faster topline growth, but what's the sensitivity of margins to the topline should there be improvement off that baseline.
Speaker Change: Hi, This is Jackie here from maybe.
Speaker Change: Good guide, 2025% to 33%.
Speaker Change: Representing over 400 basis points of margin expansion, which is near the midpoint of what we.
Speaker Change: What we gave at Investor day in 2023 of 350 to 500 basis points.
Speaker Change: We do still exert further margin expansion over time as we continue to scale the business and as our private markets business continues to scale that would then by 2027.
Speaker Change: So the hiring.
Speaker Change: And we gave at Investor day.
Speaker Change: Understood and then a quick question and this may be a small matter but.
Speaker Change: I understand the within the legacy when the folks of <unk> those balances being.
Speaker Change: Captured in the individual retirement business, which makes perfect sense.
Speaker Change: Could that be material at all and maybe the broader question of.
Speaker Change: Your experience with annuity nation out of individual retirement, and how much that perhaps extend the duration of those assets.
Speaker Change: Yes.
Speaker Change: People do a new Italian it goes into payout annuity and tissue to new contract.
Speaker Change: We have that are already in individual retirement.
Speaker Change: Move somebody and utilization from legacy to individual retirement in the quarter, it's roughly $10 million in the quarter and it's been pretty consistent over time, yes, you do end up being into spread based product, which we like spread based earnings and add a longer duration as well along those products.
Speaker Change: And that will conclude our question and answer session, we'd like to thank you all for joining equitable holdings third quarter earnings call. You may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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