Q4 2024 Equitable Holdings Inc Earnings Call
Good morning, and welcome everyone to the equitable holdings 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.
Like to ask a question during these times with your press Star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again.
Speaker Change: And please limit to one question and one follow up. Thank you I would now like to turn the call over to Eric bass head of Investor Relations. Please go ahead.
Eric Bass: Good morning, and welcome to equitable holdings full year and fourth quarter 2024 earnings call materials for today's call can be found on our website at IR Dot equitable holdings Dot com.
Eric 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. Please refer to the safe Harbor language on slide two of our presentation for additional information.
Speaker Change: Joining me on today's call are Mark Pearson, President and Chief Executive Officer of Equitable Holdings Robin Rajiv <unk>, Our Chief Financial Officer, Nick Lane, President of Equitable financial Jackie Marks Alliance Bernstein, Chief Financial Officer, and owner, Arizona Head of Alliance Bernstein Global client group.
Eric Bass: In private wealth business.
Eric 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.
Eric 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.
Eric Bass: Good morning, and thank you for joining today's call.
Eric Bass: 2024 showcase the power of equitable holdings integrated business model and the strong growth momentum across out of the continent asset management and wealth management segments.
Eric Bass: This is a fantastic time to be focused on the U S retirement market and equitable is uniquely positioned to grow and deliver value to all our stakeholders.
Eric Bass: I'll briefly highlight our 2020 full results and the progress we're making.
Eric Bass: Each of our 2027 financial targets.
Nick: Before turning over to Nick.
Nick: To discuss the initiatives to help sustain growth momentum for equitable and AB.
Nick: Robin will then discuss our financial results and provide some guidance for 2025.
Speaker Change: Turning to slide three.
Robin: Full year non-GAAP operating earnings were $2 billion or $5 93 per share, which is up 29% year over year on a per share basis.
Robin: Adjusting for notable items non-GAAP operating EPS was $6 18.
Robin: Which is up 20% compared to the prior year and above our 12% to 15% annualized growth guidance.
Robin: Assets under management and administration increased 10% year over year and now exceed one trillion.
Robin: Which bodes well for growth in fee and spread based earnings as we move into 2025.
Robin: We generated $1 $5 billion of cash flow to the holding company at.
Robin: At the high end of our guidance range.
With over 50% coming from our asset and wealth management businesses.
Robin: For 2025, we forecast cash generation of one six to $1 7 billion.
Robin: Continuing the ramp to $2 billion by 2027.
Robin: This strong cash flow enables equitable to consistently return capital to shareholders and we deployed $1 $3 billion in 2024, equating to a 66% payout ratio consistent with our 60% to 70% target range.
Robin: We also continued to make progress against key strategic initiatives.
The year end, we have achieved $100 million of run rate expense saves and have clear plans to meet or exceed our $150 million target by 2027.
Robin: Repositioning our investment portfolio has enabled equitable to generate $80 million of incremental net investment income to date.
Robin: Putting us ahead of plan to achieve a $110 million by 2027.
Finally.
Robin: AB successfully executed the separation of its Bernstein research services business and completed its New York City office relocation.
Robin: <unk> expects to produce a 33% plus adjusted operating margin in 2025, which represents over 400 basis points of improvement from 2022.
Robin: Shifting to our business segments, we continued to deliver strong organic growth with full year net inflows of $7 $1 billion in retirement and $4 billion in wealth management.
Robin: Reported full year active net inflows of $4 $3 billion and had its second highest year ever fulfill them wide sales.
Robin: Importantly, this was achieved while maintaining a stable fee rate.
Robin: <unk> also increased private markets AUM.
Robin: By 14% to $70 billion.
Robin: Helped by investments from Equitable's General account.
Robin: Equitable also established itself as a clear leader in the emerging implant guarantee market.
Robin: Highlighted by over $600 million net inflows in the year.
Robin: Blackhawks light path pay check offering.
Robin: And the announcement of a new partnership with J P Morgan asset management.
Robin: We expect additional inflows in the first half of 2025 and see significant growth potential in this market over the next few years.
Robin: On slide four we highlight some of the key performance indicators for our business segments and the progress we have made against our Investor day targets.
Robin: As a reminder.
Robin: There are three key tenants to our strategy.
Robin: First we're focused on defending and growing our core retirement and asset management businesses, where we have scale and well established market positions.
Robin: Secondly, we're looking to scale adjacent high growth businesses, where we have a clear right to win.
Robin: These include our wealth management segment, and Avs private markets platform.
Robin: Finally.
Robin: We want to seed future growth by finding new emerging market opportunities.
Robin: These include implant guarantees and ABS entrants into the China market and expansion and insurance asset management.
Robin: We have made significant progress against each of these objectives and are on track to meet or exceed all of our key 2027 targets.
Robin: I've already mentioned many of these accomplishments as part of our 2024 highlights so I won't repeat them, but the results demonstrate that we have chosen to play in attractive markets and have the right strategy to be successful in each of them.
Robin: There are meaningful synergies between a retirement asset management and wealth management businesses, enabling us to generate better economics by participating in the full value chain.
Robin: Turning to slide five.
Robin: We provide a scorecard against our three primary financial targets, which are to grow annual cash generation to $2 billion by 2027.
Robin: The level of 60% to 70% payout ratio.
Robin: <unk> non-GAAP operating earnings per share, 12% to 15% annually.
Robin: As I mentioned, we generated $1 5 billion of cash in 2024 and expect this to grow to one six to $1 7 billion in 2025, a 7% to 13% year over year increase.
Robin: This puts us well on track to achieve our $2 billion target by 2027.
Robin: And Robin will talk later about actions, we've taken to further improve visibility into future cash flows.
Robin: Our predictable cash flow and strong balance sheet enables us to consistently return capital to shareholders, regardless of the market environment.
Robin: Over the past two years, we've had a payout ratio of 67% above the mid point of our 60% to 70% target range.
Robin: During this period, we have reduced shares outstanding by 15%.
Robin: Turning to earnings growth, we had a slow start in 2023 due to headwinds from elevated mortality and the lagged impact of the equity market decline in 2022.
Robin: But 2024 marked an inflection point for the business.
Robin: non-GAAP operating EPS, excluding notable items increased 20%.
Robin: Bringing the two year growth rate to 12%.
Robin: Which is the low end of our target range.
Robin: We expect this growth momentum to continue in 2025 and remain confident in delivering 12% to 15% annualized growth through 2027.
Speaker Change: Now I'd like to turn the call over to Nick and Ono to discuss some of the things we're doing to sustain organic growth in our core businesses and scale and adjacent markets.
Nick: Thanks, Mark I'll start by discussing some of the key growth initiative, we're focused on in retirement in wealth management, let me start with retirement.
Nick: In individual retirement, we continue to extend our edge through client centric innovation building on our leadership position in the fast growing <unk> market.
Nick: We were the pioneer in that market and in recent years, we've introduced new strategies like dual direction and added new indices and this year, we will enhance our core SCS and STS income products.
Nick: We see rising consumer demand for lifetime income solutions, where the equitable is well situated to meet this need. We are also a leader in the registered income product market, where barriers to entry are high and we faced limited competition.
Nick: While our offering will continue to evolve based on consumer needs, we won't deviate from our commitment to providing attractive returns with a narrow range of outcomes for our shareholders importantly, the strong growth we see in individual retirement has benefits across the equitable as it drives asset manage.
Nick: Net flows and wealth management revenue.
Nick: Turning to group retirement, we are broadening our institutional offering and recently became a provider of income solutions for leading HSA administrator as with most institutional markets flows will be lumpy and episodic, but we expect to receive about $200 million in the first.
Nick: Quarter. We're also looking to become a bigger player in the small case 401, K and $4 57 markets by introducing equitable sponsored pooled employer plans or perhaps that will allow our advisers to leverage their relationships with small business owners and professional organization.
Nick: This market has been growing 9% annually over the last five to seven years and it aligns well with our distribution has attractive margins and complements our core <unk> business.
Nick: Next in wealth management.
Nick: Excited about the momentum in our wealth management business, our brand and supported independence model are resonating well in the market with record.
Nick: And net flows we see opportunities to further accelerate.
Nick: <unk> 2024 marked a record year for experienced advisor recruiting. We also recently hired a new head of business development from a leading competitor to enhance our focus in this area when coupled with our strong organic growth. This should continue to drive sustainable momentum in our wealth planner count.
Nick: Which was up 10% this year and adviser productivity.
Speaker Change: Let me turn it over to own or to discuss.
Speaker Change: Thanks, Nick.
Speaker Change: We have several initiatives to expand our offering and accelerate growth.
Speaker Change: As we have discussed a key focus of growing our private market platform to 90 to 100 billion of assets by 2027 at which point it will drive over 20% of our revenues.
Speaker Change: We recently hired a new team focused on the private ABS market, which adds capabilities that align well with the needs of equitable and our other insurance clients.
Speaker Change: Some of our recent loan strategies, which were ceded by equitable have also begun to scale.
For example, we recently added new client mandates in <unk> lending and residential mortgages.
Speaker Change: In addition, we are expanding semi liquid also offerings like our AB carve out credit opportunities interval fund, which now has over 200 million of AUM and will soon be going live on additional distribution platforms.
Speaker Change: We have seen good success with our active ETF platform, which now has over $5 billion AUM across 17 products and we expect this growth trajectory to continue.
Speaker Change: We are also excited about the momentum in our separately managed account offering which had record sales and net flows in 2024, and we are expanding our tax managed SMA platform to include multi asset solutions.
Speaker Change: Finally in the fourth quarter, we announced that we are making a $100 million investment in RJ sidecar vehicles blueberry.
Speaker Change: We expect to generate an attractive return on the capital we have invested and we also signed an investment management agreement to manage $1 billion for RGA, which will be fully in private credit strategies.
Speaker Change: With equitable support we will continue to evaluate other potential sidecar opportunities to help us capture the significant growth opportunity in insurance asset punishment.
Speaker Change: I will now turn it over to Robyn to discuss fourth quarter results.
Robyn: Banco <unk> turning to slide seven I will highlight our results from the quarter.
Robyn: On a consolidated basis <unk> Holdings reported non-GAAP operating earnings of $522 million or $1 57 per share up 18% year over year.
Robyn: The only notable item in the quarter was below plan alternative investment income, which reduced earnings by $27 million after tax or <unk> <unk> per share.
Robyn: Adjusting for this item non-GAAP EPS was $1 65 per share up 23% year over year, driven by organic growth across our businesses favorable markets and share repurchases.
Robyn: GAAP net income was $899 million for the quarter significantly above our operating earnings driven by non economic impacts from our hedge portfolio, which were offset by changes in OCI.
Robyn: Segment details are provided in the appendix, but I want to highlight a few drivers of this quarter's results.
Robyn: Starting with asset management reported.
Robyn: We reported very strong fourth quarter earnings helped by $66 million of performance fees from public alternative strategies, and a lower comp to revenue ratio.
Robyn: These results tend to be seasonally strong in the fourth quarter.
Robyn: And we still forecast an adjusted operating margin of 33% in 2025, assuming neutral market.
Robyn: In protection solutions full year earnings were $239 million ex notable items.
Robyn: <unk> with our $200 million to $300 million guidance range.
Robyn: In the fourth quarter gross mortality claims were close to our expectation.
Robyn: But we experienced elevated net mortality because of two large claims where we had minimal reinsurance coverage.
Robyn: For the quarter, our reinsurance coverage with 12% of gross claims below the 15% we typically expect.
Robyn: The volatility is not surprising given the concentration of our life block in older age policies with high face values and low retention levels and it does not change our outlook for mortality.
Robyn: As a reminder, we expect seasonality in this business with higher life claims in the first and fourth quarters.
Robyn: Expenses were elevated in the fourth quarter due to strong business growth in 2024.
Robyn: Sales and Dnb were up significantly, which resulted in higher commission payouts and incentive comp accruals.
Robyn: This is a theme across most of the segments and is particularly evident in individual retirement wealth management and corporate and other.
Robyn: We view most of the increase in expenses this quarter as it good expense given they are variable in nature and reflect the growth in our businesses over the past year.
Mark: As mark highlighted across equitable in AAV.
Mark: We achieved a $100 million of run rate savings through the end of 2024.
Mark: And are on track for at least $150 million of annual savings by 2027.
Mark: We will continue to find ways to become more efficient and eliminate bad expenses from the enterprise.
Mark: You should see expenses grow slower than revenues over time, although there is some seasonality.
Mark: I would know compensation and benefit expenses for our businesses tend to be highest in the first quarter.
Mark: Finally, as expected we had a lower tax rate across most of our businesses due to some favorable discrete items in the quarter.
Mark: This reduced the overall company tax rate to 17% in the quarter, but the full year tax rate came in at 19% consistent with our guidance.
Mark: Yeah.
Mark: Turning to slide eight I'll provide some guidance for 2025.
Mark: We have good momentum with double digit growth in both spread and fee based income.
Mark: Which should continue given healthy net flows and a tailwind from interest rates and equity markets.
Mark: We expect spread income to roughly track the growth in general account assets, excluding embedded derivatives, while fee revenue across retirement.
Mark: And wealth management will benefit from higher average AUM balances.
Mark: For protection solutions, we forecast 2025 earnings ex notable items to come in at the lower end of our $200 million to $300 million range.
Mark: Or to what we reported in 2024.
Mark: This assumes stable mortality experience and alternative investment income at the lower end of our target range.
Mark: For corporate and other while there can be some quarterly volatility in results.
Mark: We expect this segment to generate a full year loss of approximately $400 million.
Mark: We also project alternative returns in our investment portfolio to come in at the lower end of our 8% to 12% target range.
Mark: An improvement from the 5% return reported in 2024.
Mark: I expect alternatives to start the year end of 5% to 6% range before grading up as M&A and IPO activity accelerates in the U S.
Mark: Finally, we expect our tax rate to be 20% for the overall company and we forecast at 17% rate for our insurance businesses, 26% for our wealth management business and 30% for Alliance Bernstein.
Mark: Putting it all together, we expect 2025 EPS growth to be consistent with our 12% to 15% target.
Mark: Turning to slide nine we will highlight Equitable's capital management program and cash flow outlook.
Mark: During the quarter, we returned $335 million to shareholders, including $260 million of share repurchases.
Mark: For the full year, we reduced shares outstanding by 7%.
Mark: We ended the year with $1 8 billion of cash and liquid assets at holding down from $2 billion at the end of the third quarter.
Mark: In addition to share repurchases and common dividends, we also used $174 million to purchase additional shares.
Mark: $56 million to retire some of our series B preferred equity.
Mark: We expect our year end 2024, combined NTIC RBC ratio to be approximately 425% above our 375% to 400% target.
Mark: For the full year, we had cash generation of one 5 billion, which is at the high end of our guidance range.
Mark: Importantly, more than 50% of this cash flow is coming from non insurance businesses.
Mark: As Mark mentioned, we expect cash generation to increase to the one six to $1 $7 billion range in 2025.
Mark: Putting us on track to achieve $2 billion of annual cash generation by 2027.
Mark: We also continue to take steps to optimize our balance sheet.
Mark: In January we established a new Bermuda reinsurance subsidiary.
The entity provides us optionality and could be used to reinsure enforced liabilities and our new business.
Mark: The Bermuda framework align well to our internal economic framework and will support us generating consistent cash flows to holdings.
Mark: We're also making good progress on initiatives to reduce volatility and improve the returns on capital in the life business.
Mark: And remain on track to provide an update in the first half of 2025.
Mark: Turning to slide 10.
Mark: We highlight the attractive returns that we generate on capital allocated to new business.
Mark: As a reminder value of new business, our bnb represent the present value of the future cash flow generated by new business sales in our retirement and wealth businesses.
Mark: This is the value, we earn above and beyond the economic cost of capital.
Mark: In 2024, we had record value of new business of approximately $775 million.
Mark: Despite only a modest increase in the total capital deploy for growth.
Mark: This highlights how we have been able to successfully focus our business on higher margin and less capital intensive products.
Mark: In 2024, we saw credit spreads compress to historic lows.
Mark: Which puts pressure on margins for <unk>.
Mark: But we remain disciplined in pricing new business for 15% IRR and a narrow range of outcomes.
Mark: We're able to do this because of our integrated business model and the strong D&B, we produce will drive future cash flow growth and generate value for shareholders.
Marc: Now, let me turn the call back to Marc Marc.
Marc: Thanks, Robyn I am excited about the momentum that equitable has entering 2025 with.
Speaker Change: We're focused on attractive growth markets and our results demonstrate the power of our integrated business model across insurance asset management and wealth management.
Speaker Change: We're well on track to achieve our 2027 financial targets and are confident in our ability to execute and deliver value for all our stakeholders.
Speaker Change: I would now like to open the call to take your questions.
Speaker Change: At this time I would like to remind everyone in order to ask a question and depressed Star then the number one on your telephone keypad again, please limit to one question and one follow up well pause for just a moment to compile the Q&A roster.
Brian Kruger: And your first question comes from the line of Brian Kruger with gave me W. Please go ahead.
Brian Kruger: Good morning. My first question was on Bermuda do you view it more as something to just help sustain the 60% to 70% payout ratio target as you fund higher growth in the retirement industry or should we think of it as something that could either lead to upside to that or free up.
Brian Kruger: Existing capital on in force blocks.
Ryan: Good morning, Ryan.
Ryan: Pleased to establish the Bermuda equity on January one as I mentioned on the call. This will continue to support the consistent cash flow and provides us optionality going forward. The optionality, meaning it can give us the ability to reinsure imports business or support and do flow reinsurance for new business as well to sustain the growth momentum.
Ryan: We have and continue to achieve our free cash flows of $2 billion by 2027.
Ryan: It's aligned to our strategy and allowing us to consistently generate capital to the holding company and cash and it also gives us optionality to support future growth, while maintaining our economic discipline.
Ryan: Got it and then.
Ryan: Question.
Speaker Change: Alliance Bernstein, I guess as the majority shareholder and there was some discussion.
Speaker Change: Hi, Seth.
Speaker Change: Higher conference about the possibility of considering a C Corp conversion I guess curious how equitable is thinking about that as the biggest shareholder of the company.
Seth: Thanks, Brian maybe I'll ask Jackie to talk about it first from our perspective, because that's where it starts go ahead Jackie.
Speaker Change: You're on mute Jackie.
Jackie: Can you hear me.
Speaker Change: Okay.
Speaker Change: Great sorry about that must have been a delay.
Speaker Change: We've done extensive analysis over recent months.
Speaker Change: Looking at that C Corp conversion and honestly our analysis indicates that <unk> current structure is in the best interest of our unit holders and at this time, we don't see any reason to adjust that.
Speaker Change: As you know is structured as a publicly traded partnership which gives us an.
Speaker Change: Attractive tax structure, and if we were to change that to a C Corp, <unk> would be subject to much higher tax rate leading to significant dilution in our EPS.
Speaker Change: It's also important to note that our tax structure is different than many of the alternative asset managers, who did convert.
Speaker Change: We currently pay a lower effective tax rate than they did pre conversion and we would have a much higher earnings dilution than they did.
Speaker Change: And therefore.
Speaker Change: We would need to see significant expansion in our multiple and at this time, it's just too big a bet.
Speaker Change: But to make for our owners.
Speaker Change: And Brian from an from an <unk> perspective, it's similar for a b unitholders, we don't see the value in paying a higher tax rate for our shareholders given the growth momentum we have going forward.
Speaker Change: Okay, great. Thanks, that's very clear.
Speaker Change: And your next question comes from the line of any screen span with Wells Fargo. Elise. Please go ahead.
Speaker Change: Hi, Thanks. Good morning. My first question is just looking to get more color just on protection like you did guide to the lower end of the range for 25, just any color that you can provide there and then Robert I think in the past right you were talking about potentially entering into reinsurance or other things with protection one.
Speaker Change: The results were more volatile I think thats still off the table at this point, but if you can update us on thoughts around that as well.
Speaker Change: Sure.
Speaker Change: Just taking a step back overall protection earnings for the quarter were about 6% of total <unk> earnings for the full year, 10%.
Speaker Change: Strong growth growth momentum and we want to continue to invest in the retirement and asset and wealth management businesses and it doesn't offer the same attractive returns as those businesses that we have for us today.
Speaker Change: If I take your question in two steps first on guidance for the full year in 2024, we achieved $238 million of earnings on a normalized basis and that was on a relatively good year from a mortality perspective so.
Speaker Change: That's why given the in force that we have with higher face amounts that we've seen some volatility on it we're guiding towards the lower range of our $2 million to $300 million. So I would expect anywhere between $200 million to $250 million being a good year considering results from this year.
Speaker Change: On the.
Speaker Change: On the solutions that we looked at before as you know we started this trying to manage on volatility and we looked at excess loss reinsurance to help mitigate that volatility, but the pricing wasn't attractive relative to the economic value that we would give up so that led us to look at a broader range of solutions that goes anywhere from good expense.
Speaker Change: Management, which the teams are actively working on today and that's already taken place in force actions, such as reinsurance as well and so we're continuing to make progress on that and we're on track to provide an update in the first half of 'twenty five.
Speaker Change: Thanks. So then my second question can you provide just an update.
Speaker Change: On Blackrock the life planner path.
Speaker Change: Check product sorry, Jeff.
Speaker Change: Just kind of the outlook there.
Speaker Change: And how youre thinking about kind of 25 as well as 26 targets.
Nick: Sure This is Nick.
Nick: Near term, we would expect similar levels of inflows from 'twenty five as we received in 'twenty four.
Speaker Change: As a reminder, 24 Blackrock had six plans fund and we received approximately $600 million of total flows we don't have total visibility into the timing of those.
Speaker Change: Funding of those plans and flows will continue to be lumpy I'd highlight that going forward in the longer term, we continue to see significant opportunity in the a trillion dollar 401K market for in plan guaranteed solutions, but it is still early days and as I previously mentioned.
Speaker Change: We're further broadening and deepening our just our institutional offers.
Speaker Change: With our leading.
Speaker Change: Partnership with an HSA provider to support their enhanced savings offers as well as our partnership with J P. Morgan that expected to come out with a planned solution at the end of this year early next year.
Speaker Change: So I think our track record of innovation in the Premier partnership network that we've built really put us in a good position to cash.
Speaker Change: Capture demand for this lastly, I just as a reminder, highlight that our 2027 financial targets.
Speaker Change: We did not assume any contribution from our institutional so this would be upside.
Speaker Change: Thank you.
Sony: And your next question comes from the line of Sony to come up with Jefferies. Please go ahead.
Sony: Thanks, Good morning.
Sony: I wanted to start on the annuity business. So we've seen strong nominal sales for both you and the industry for the past couple of years, but we've also seen.
Speaker Change: Any significant tailwind from the market, that's presumably helping fund some of those nominal sales. So I guess the question is do you have any data that looks at are you reaching more people are you selling more individual contracts just so we can kind of separate.
Speaker Change: Growth from the market versus growth from that's truly organic.
Amit: Great. Thanks, Amit.
Amit: As you highlighted we are seeing strong growth with our.
Amit: Record $7 billion in net flows the short answer to your question is this is coming from both fronts.
Amit: New policy counts increased roughly 15% in 2024, and we're also benefiting from higher account balances with annual policy size up a little bit over 13% in the same period.
Amit: As thoroughly as highlighted there is roughly 600 billion of flows coming out of 401K's.
Amit: 2024, and these are going into new.
Amit: <unk> solutions in wealth management offers.
Amit: We remain bullish about the retirement market, we have doubled volumes with record sales over the last three years and I think what's key is our privilege distribution network, both equitable advisers and in third party with the trusted relationships. We built over the last decade are allowing us to.
Amit: Access this need.
Amit: So suddenly it's mark if I could just add a couple of things just at the strategic.
Amit: <unk> level.
Amit: There has been strong flows into the annuity market, who used to run at $250 billion a year last year's four two <unk> billion.
Speaker Change: Youre, absolutely right as well, it's been favorable tailwind for that obviously annuity sales do better when interest rates are higher for example, but to Nick Nick's point the fundamentals driving the need for annuities are not going away $4 1 million Americans are hitting age 65.
Speaker Change: Today as Nick said the size of the 401K market seven trillion, there that will move from accumulation into D. Cumulation.
Speaker Change: And naturally.
Speaker Change: Then the regulatory support has been very favorable for the industry.
Where you see strong bipartisan support for secure act et cetera. So yes. It does fluctuate with some of the interest rates in equity markets, but the.
Speaker Change: The tide is very much in favor of the of the industry. It's a very good market to be in.
Speaker Change: Got it understood.
Speaker Change: And then my second is for Robyn.
Speaker Change: So $1 8 billion of Holdco cash. So one three of that is above your target. Your RBC is now well above your target you have Bermuda now it just seems that theres a tremendous amount of capital flexibility. So I guess at what point do you feel comfortable drawing down that $1 3 billion of excess.
Speaker Change: Thank you need as you mentioned, we feel good about.
Speaker Change: About our strong capital position it gives us confidence that we'll be able to capitalize on this attractive growth opportunity that we see in the U S than Nick and Mark just mentioned and achieve our 60% to 70% payout ratio keep in mind in 2024, we funded record levels of individual retirement, new business and supported.
Speaker Change: The $600 million of initial inflows from the Blackrock product and at the same time, we delivered on the 65% of our payout ratio at the midpoint of our range. Our holdco cash will fluctuate on a quarterly basis, depending on the timing of when we receive dividends from the subsidiaries in the quarter. We received good upstream the dividend.
Speaker Change: Asset wealth management in our insurance businesses of over $500 million, So you're always going to see some flux fluctuation on a quarterly holdco cash now we do we expect to reduce the current excess cash position toward the target levels, but we're cognizant that markets and the macro environment can change quickly so we'd rather do this.
Speaker Change: In a disciplined way year over year as opposed to a one time extra ordinary dividend our accelerated share repurchase so expect us to remain disciplined unexpected defined the best uses for use of those cash flows and expect it to continue to grow the business and deliver share return for shareholders.
Speaker Change: Okay. Thanks Robin.
Speaker Change: Your next question comes from the line of Thomas Gallagher with Evercore. Thomas. Please go ahead.
Thomas Gallagher: Thanks, Robin I just wanted to ask.
Speaker Change: Hey.
Speaker Change: Broader question.
Speaker Change: What are you what are you what are the range of things you really considering as you're evaluating protection the protection business and is it purely on one hand.
Speaker Change: It could be as simple as.
Speaker Change: And equitable funded.
Speaker Change: Bermuda reinsurance transaction of some sort.
Speaker Change: On the other side of things.
Speaker Change: Are you considering like a full divestiture of this business through a third party transaction because there is a lot.
And mortality you also have like a group benefits platform in there I just wanted to get a sense for.
Speaker Change: Are we.
Speaker Change: Are you considering a full range of options or is it something thats much more specific just on capital efficiency and limiting more.
Speaker Change: <unk> volatility.
Speaker Change: Can you help unpack that.
Speaker Change: Sure Tom as I mentioned, we're going to provide an update in the first half of 2025, but let me break it out in components.
Speaker Change: We are doing FERC is good old expense management, we are a business that has a low return on capital and we have to improve the returns on it and the teams actively taking action to improve the expense based on that to support where we are in terms of the sales and the revenue that we're getting across it.
Speaker Change: Second as you mentioned, we did set up the Bermuda entity and that provided the options that we can explore to repair and improve returns on capital and third we will leverage and 10 third party reinsurance to unlock capital and value of our enforced block. So we're looking at all levers and we will decide on what's best for shareholders as a result, but expect an up.
Speaker Change: <unk> in the first half of the year and expect us going forward that we're going to continue to focus on growth over retirement wealth and asset management.
Speaker Change: Okay.
Speaker Change: That's helpful. And then just wanted to come back to rival market and competition.
Speaker Change: And where you think everything is headed here because.
Speaker Change: Obviously, you've had good organic growth in <unk>.
Speaker Change: There is.
Speaker Change: Certainly speculation that one of your big competitors.
Speaker Change: Might be changing hands.
Speaker Change: And if it's.
<unk> ended up.
Speaker Change: Being transferred to a more aggressive alternative competitor I think there's some concern that that market could come under some pressure pricing wise competition wise.
Speaker Change: So anyway, just curious what you think about that generally and do you think it's still a big enough pool, where youre not overly worried about about that dynamic.
Nick: Yes. This is Nick.
Nick: Still bullish on the <unk> market and given the structural components that Mark spoke to believe we're still in the relatively early to mid innings of the growth of this market given the demographics, given the favorable legislation and given the money in motion and <unk>.
Nick: Terms of competitive activity out there to date net net it's been positive and has grown the size of the pie we benefited from that as the market leader. This year sales were up roughly 30% and ROA are <unk> projects that the market will continue to grow at 10%.
Nick: A year.
Nick: We are very aware of.
Nick: <unk> trends and pricing look we've seen this before as you get the new entrant. There does tend to be this period of aggressive teaser pricing.
Nick: We've seen this in its temporary and its not sustainable.
Nick: Obviously, our islay margins.
Nick: On an absolute level or come down.
Nick: Since we were the.
Nick: Pioneer in the market over a decade ago, but we're still generating very attractive returns on new business and continue to achieve our targeted 15% IRR.
Nick: Would emphasize we focus on value and remain disciplined in our cap setting.
Nick: And.
Nick: That's allowed us to continue to generate a record sales, but also record DMD that we're seeing out there.
Nick: So looking forward, we continue to be excited about the market I think any noise with competitors.
Nick: Focus is people on who has been a consistent provider and is a stable source to provide this value proposition to their consumers and their advisors when they need it most.
Nick: Tom It's Mark if I could just add.
Mark: To what Nick said.
Nick: Absolutely.
Nick: I think obviously, we always have to stay alert to competitive pressures in these types of markets and we face that before we see some of the.
Nick: Back to ensure was already in the market. So it wouldn't be new to us or somebody else bought a platform.
Nick: But I think one of the things we point to is one of our distribution model. We don't just rely on wire houses or third parties, we have equitable advisers, it's a strong stable source of.
Nick: Revenue flows to us and Thats <unk>.
Tom: Competitive advantage, we have and then secondly, I think our business model Tom if you.
Tom: New entrants come in with more aggressive asset backed.
Tom: Offerings to the marketplace, obviously, it's hugely in our advantage that we have AEP as well we are able to.
Tom: Play in the private credit private market places as well so yes.
Tom: Yes, we have to be alert to it is Nick.
Tom: Quite rightly said, we price in a diligent basis, but.
Tom: The thing I would point to for equitable is the uniqueness of our distribution and the uniqueness of the business model will allow us to be competitive for longer than others, who are just product manufacturers.
Speaker Change: Got you thanks, guys.
Tom: Okay.
Speaker Change: And your next question comes from the line of Alex Scott with Barclays. Please go ahead.
Alex Scott: Hey, Good morning, first one I had for you is on sort of that Nobody's shouldnt process that I think you all we're going through.
Speaker Change: I think there were a couple of different steps to possibly but any update that you can provide on how the regulatory approvals are going to that.
Thomas Gallagher: Sure Alex Thank you first off.
Speaker Change: We're on track for everything that we mentioned last year regarding novation lots of hard work from our teams to get there.
Speaker Change: There are two elements of it we completed in January our novation to Venerable doubted that was a big piece.
Speaker Change: Moved almost at 30% to 40% of our current enforced.
Speaker Change: <unk> that helped reduce some of the counterparty credit risk that we hold economically into downloads completed the second step is we're moving business from our New York entity that we've already reinsured, but we know we're going to move it on novae to the Arizona Thats on track that we'll complete this year as well and so we have all the approvals.
Speaker Change: We need it.
Speaker Change: State by state mailing different rules by state it will have three ways.
Speaker Change: And we're on track to complete this.
Speaker Change: Got it that's very helpful and then on the.
Speaker Change: Bermuda entity that you set up can you help us think through.
Speaker Change: Capital. It was initially ceded with then.
Speaker Change: That in 2024.
Speaker Change: Assuming the 'twenty four 'twenty five cash flow sort of includes the netting.
Speaker Change: Having to.
Speaker Change: Supply that capital so I'm, just looking to understand sort of.
Speaker Change: That's more one time items and maybe I could think about.
Speaker Change: Cash flow, excluding that could be at a slightly higher level.
Speaker Change: Sure. So if you look in 2024 were at the higher end of our guidance that we gave to the market at $1 5 billion that includes some funding of the Bermuda entity already so that's already completed and then we will continue to be on track to achieve the higher end of our guidance.
Speaker Change: Towards the $2 billion by 2027.
Speaker Change: And then that's all net of any expectations that we have in contributions in Bermuda.
Speaker Change: Got it okay. Thank you.
Speaker Change: And your next question comes from the line up Jamie Muller with JP Morgan. Please go ahead.
Jamie Muller: Hey, Good morning, I had a question on your group retirement business.
Speaker Change: And if we look at flows there they've been negative the past few years and normally you would think that that business is potentially growing given your presence in the teachers market. So.
Speaker Change: Obviously, theres a number of different products and different things going on in each of those product lines. So, but if you could talk about.
Speaker Change: The trends in that business by line and overall, just so we could get a better idea of the growth trajectory of that business going forward and also address what's been causing the negative flows.
Nick: Sure This is Nick.
Nick: Look we like where we play in the group retirement business is a steady source of growth going forward. As a reminder, it has three components to the tax exempt which is the teachers business that you talked about.
Speaker Change: Our corporate business and then our new institutional offerings.
Speaker Change: And sure sort of our tax exempt and institutional remains strong and we're seeing positive flows for the year and the outflows are coming from the legacy corporate lower margin segments, adding a little bit more color tax exempt as Ben was positive for the full year.
Speaker Change: And.
Speaker Change: $77 million and we expect it to.
Speaker Change: We continue to see I would say steady growth business, where we have 1000 dedicated.
Speaker Change: Retirement benefit advisors at 9000 schools that are sitting down with teachers.
Speaker Change: Talking about the benefits of our supplemental.
Speaker Change: Retirement plan on top of their pensions and we think that's durable institutional I highlighted that before these are new efforts and plan our partnership in HSA.
Speaker Change: Last year, we received roughly 600 million and we expect similar type close we've already received $200 million in our partnership with our HSA offered.
Speaker Change: In the corporate.
Speaker Change: Sales were up about 14% for the year, we did see outflows continuing as people as part of the trend move too.
Speaker Change: The de accumulation phase, we've been Morris episodic historically.
Speaker Change: Our participation, but were making concerted efforts there to improve flows and I highlighted the launch of our new pools employer program, which aligns well with our equitable adviser distribution footprint of helping small businesses.
Speaker Change: The last comment I would just make is within corporate.
Speaker Change: The outflows of about 20% of those flows.
Speaker Change: We're participant distributions using the product as intended of the remaining about 50% of those flows are being captured in other individual or wealth management solutions. So we've got a well diversified portfolio and would expect that to.
Speaker Change: <unk> continued to deliver strong returns.
Speaker Change: And Robin on your overall tax rate this quarter, it seemed low and a number of businesses. So what drove that and what's your expectation going forward.
Speaker Change: Yes.
Speaker Change: Hi, Jamie we did receive favorable audit results from previous return to that helped the tax rate this year.
Speaker Change: Going forward, we've given the guide I mean, the main increases in <unk>.
Speaker Change: Continued to generate revenue in more states that forces state tax and then we expect insurance tax rate to normalize as well.
Speaker Change: Going forward as I mentioned earlier.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Jack Morton with BMO capital markets. Please go ahead.
Speaker Change: Hi, good morning.
Speaker Change: Maybe a question on the value of new business disclosure.
Speaker Change: You had a pretty nice uptick in 2024.
Speaker Change: Can you talk about a little bit more about what drove that in your outlook for 2025, and maybe Directionally, where you see our IRR is trending versus the 15% plus level.
Speaker Change: For <unk>, you called out competition and tighter spreads impacting potentially those returns so just but any other moving pieces that you would call out.
Jack Morton: Sure Jack.
Speaker Change: Nick and Mark mentioned earlier, we've seen tremendous growth in the individual retirement business. This year and Thats really the primary driver of the strong bnb as we move into more capital light products like river, they're floating rate VA that enables us to deploy capital, but at an efficient rate and continue to have record levels of value.
Speaker Change: You have new business, obviously higher interest rates help us in this type of environment.
Speaker Change: That makes our products more competitive but it also shared with you we're very disciplined.
Speaker Change: And maintaining margins when we can as we write new business.
Speaker Change: Just really the reflection of our business model distribution drew equitable advisers asset management yield generated by alliance Bernstein and disciplined product manufacturing in our retirement business.
Speaker Change: Overall, it's a really their retirement business, that's driving the exceptional growth year.
Speaker Change: Great. Thank you and then one on wealth management.
Speaker Change: You're getting pretty close to the earnings target you set for 2027 it.
Speaker Change: It seems like the underlying kind of growth drivers and advisor in both cleaner counter pretty robust.
Speaker Change: Just wondering if youre not expecting to hit that target maybe breakeven as soon as this year and just how you see productivity growth and margin improvement trending in 2025.
Nick: Sure. This is Nick as you highlighted we're seeing strong momentum.
Nick: With $4 billion of advisory net flows for the year of 7% organic growth rate and good profitability full year earnings close to $184 million.
Nick: We're continuing to invest scenarios.
Nick: Like our award winning Columbia holistic life planning training program in new areas like experienced hires which we think will translate into future margin expansion as the business scales very encouraged by the leading indicators advisor productivity was up 10%.
Nick: Overall head count up 4% wealth planner.
Nick: Which are three times more productive.
Nick: It is now.
Nick: Roughly 825 advisors. So we think we bring a distinctive edge given our people our planning in our platform. It puts US ahead of plan to reach 200 million and once we get there we'll reassess.
Nick: Thank you.
Mark Hughes: And your next question comes from the line of Mark Hughes with <unk> Securities Mark. Please go ahead.
Speaker Change: Yes, Thank you and good morning, where should we think about net flows in the asset management business.
Speaker Change: Look in the near term.
Mark Hughes: The early read on 2025.
Speaker Change: Hi, Mark Guy So owner, let me take that question.
Speaker Change: We had a positive start to the year, it's too early to project the full year, but we feel very confident about the strength of our platform. If you reflect on 24. It was our second best sales year.
Speaker Change: If you look at our global retail platform.
Speaker Change: Almost side, the best year ever by achieving sales of $100 billion, almost and that is very diversified across the U S.
Speaker Change: Europe Asia and Latin America.
Speaker Change: If I look at the early trend and they're the things that give me a lot of positive.
Speaker Change: Our confidence is our U S retail business continues to have good success.
Speaker Change: We are continuing to see strong momentum in.
Particularly with tax exempt fixed income area, which.
Speaker Change: As a strength area for us we are a market leader.
Speaker Change: With many of the strong distribution partners Japan.
Speaker Change: Japan continued its strength.
Speaker Change: Really.
Speaker Change: <unk> distribution platform in Japan, very diverse with 50 plus partners that is off to a very good start and then finally very encouraged by some of the progress we are making in insurance as Mark and others have commented in terms of our progress there, whether it's RGA as well as other wins with us.
Speaker Change: Third party insurance clients on top of equitable strong growth.
Speaker Change: Momentum with annuities and other businesses, obviously, we need to always be mindful of the risks.
Speaker Change: Equities have been challenged for us in 'twenty four institutional part so it could be it was the.
Speaker Change: The weak area.
Speaker Change: We have a lower base in terms of at risk assets and institutional equities, but definitely that will likely remain under pressure. So overall.
Speaker Change: Positive outlook.
Speaker Change: But as we've seen in the last 10 days in the market. There's a lot of market uncertainty, we will be one of the stronger houses in the market, but we expect most of it as well.
Speaker Change: Thank you for that and then Robin you talked about the old to return.
Speaker Change: Starting in the 5% range before grading up.
Speaker Change: We think it's going to progress through the year is there any reason to think <unk> couldnt be within 8% to 12% range, we have visibility for that.
Speaker Change: Sure Mark.
Mark Hughes: We'll certainly give guidance throughout the year as we as we get to know more information currently where we said we think that 5% range is probably the right number for the first quarter, obviously, we expect.
Mark Hughes: Everything that we hear is the active M&A and IPO market as we go into the year and that will help certainly help the private equity alternative returns that we'd expect in the full year that we'd achieve that 8% to 10% that lower end of that guidance range that we've given.
Mark Hughes: And that will progress naturally at the year.
Mark Hughes: I appreciate that thank you.
Speaker Change: And your next question comes from the line of Michael Ward with UBS. Michael. Please go ahead.
Mark Hughes: Hey, Thanks, guys good morning.
Mark Hughes: Most of my questions have been answered, but maybe just on the on the Decumulation team and.
Mark Hughes: And thinking about the wealth business specifically.
Mark Hughes: Solid momentum of course, just wondering if that's a segment that you might ever consider.
Mark Hughes: As an investment area Inorganically like a bolt on just to turbocharge that growth.
Mark Hughes: And take some share.
Mark Hughes: D Cumulation.
Mark Hughes: Across the industry.
Mark Hughes: Yes, as Mark and Mike mentioned it.
Mark Hughes: They are retiring opportunity is.
Speaker Change: Early innings here 4 million Americans retiring retiring every day seven trillion 401k market that needs to provide the accumulation solutions. So we're very bullish on this as Nick mentioned earlier, it's not in our 2027 targets, but we expect it to have an impact post 2027, and a big part of our growth strategy overall from.
Mark Hughes: And M&A standpoint on it.
Mark Hughes: Our M&A strategy is very clear we are focused on growing that strategy, a retirement asset and wealth management, where we want to grow and provide scale is within the wealth management plays in private credit markets private credit as you know an acquisition like carve out.
Mark Hughes: Quite well it allows us to grow private credit capabilities leveraging for our retirement products going forward. So we're.
Mark Hughes: We're quite disciplined in M&A and we will continue to focus on areas, where we feel we could provide shareholder value.
Speaker Change: And maybe just add on that specifically on wealth management.
Mark Hughes: We continue to look at a discipline.
Mark Hughes: Standpoint at properties, but we're focusing on <unk>.
Mark Hughes: That's where we see as we've gone out with a new segment that our people planning and our platforms are resonating out there and so it's at the small end right now where we see attractive returns.
Mark Hughes: Great. Thank you guys.
Mark Hughes: There is no further questions at this time. This concludes the meeting. Thank you all for joining you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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