Q1 2025 Equitable Holdings Inc Earnings Call
Hello, and welcome to the equitable Holdings first 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. If you would like to ask a question. During this time. Please press star one on your telephone keypad.
Eric Bass: I would now like to turn the conference over to Eric Bass head of Investor Relations you may begin.
Speaker Change: Thank you good morning, and welcome to Equitable Holdings first quarter 2025 earnings call materials for today's call can be found on our website at IR Dot equitable holdings Dot com.
Speaker Change: 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.
Speaker Change: 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, Robyn Ross <unk>, Our Chief Financial Officer, Nick Lane, President of Equitable financial Tom Simeoni Alliance Bernstein, Chief Financial Officer, and owner, Arizona Head of Alliance Bernstein as global client group and <unk>.
Speaker Change: Private wealth business.
Speaker Change: During this call we will be discussing certain financial measures that are not based on generally accepted accounting principles.
Speaker Change: Known as non-GAAP measures reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and related definitions may be found on the Investor relations portion of our website 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.
Mark: Given the recent volatile markets, we recognize the first quarter may seem like a distant memory.
Mark: Therefore in addition to reviewing our results. We will also take a step back to focus on the powerful underlying growth drivers for <unk>.
Mark: And why investors should be confident in equitable's ability to navigate periods of volatility and create long term shareholder value.
Mark: Since our IPO in 2018, we have executed through periods of economic and market disruption maintaining positive net flows and consistent capital return to shareholders. Even during the depths of the pandemic and the market sell off in 2022.
Mark: Equitable is operating from a position of strength, given our robust balance sheet integrated business model and differentiated distribution.
Mark: Periods of uncertainty only heighten the need for retirement and investment advice and I'm confident that if we stay connected to our clients and focus on controlling what we can control we will deliver value for all our stakeholders.
Mark: Turning to slide three let me briefly cover our first quarter results.
Mark: non-GAAP operating earnings were $421 million or $1 30 per share down 7% year over year on a per share basis.
Mark: Adjusting for notable items non-GAAP operating EPS was $1 35, which is down 3% compared to the prior year.
Mark: As Robyn will discuss in more detail later, we experienced a very high level of large individual life mortality claims this quarter.
Mark: And our protection solutions segment reported a loss of $17 million.
Mark: While disappointed with the result, this quarter underscores why we made the decision to reinsure, 75% of our individual life block to RGA.
Mark: This transaction is on track to close midyear and will significantly reduce our exposure to mortality volatility moving forward.
Mark: Results for our retirement and wealth management businesses reflect some seasonality in revenues and expenses, but had solid underlying growth momentum.
Mark: <unk> operating earnings rose, 19% year over year, driven by higher average AUM and improved margins.
Mark: Our retirement businesses produced one 6 billion of net inflows in the first quarter driven by momentum in our <unk> franchise and expansion of our institutional offering.
Mark: We also had $2 billion of advisory net inflows in our wealth management business advisor productivity is up 8% and the business is a 12% organic growth rate on a trailing 12 month basis.
Mark: Finally, ABB delivered positive net flows across each of its three distribution channels and had total active net inflows of $2 $7 billion.
Mark: We are particularly excited about the momentum and its private markets business, where AUM is up 20% year over year to 75 billion.
Mark: And the pipeline remains strong.
Mark: While the market volatility in tax payments have pressured April flows a b as.
Mark: Is well positioned given its global investment platform.
Mark: Supplied asset mix and unique distribution platforms.
Mark: Moving to capital, we returned $335 million to shareholders in the first quarter, which represents an 80% payout ratio.
Mark: In April we also purchased $760 million of AB holding units.
Mark: Tend to offer increasing our ownership in alliance Bernstein to 69%.
Mark: There are significant flywheel benefits between equitable and AEP and we are excited to be able to capture more of these economics for our shareholders.
Mark: We expect to close the RGA reinsurance transaction in the middle of the year.
Mark: Which will free over $2 billion of capital and enhance our focus on retirement asset management and wealth management.
Mark: We also plan to execute $500 million of incremental share repurchases post close.
Mark: Then we will discuss potential uses of the remaining capital later and we will be in the fortunate position of having significant excess capital.
Mark: Clearly the market environment has changed meaningfully over the past months, but equitable is well positioned to navigate a period of macro volatility.
Mark: Starts with having a strong balance sheet.
Mark: Year end combined NII see RBC ratio was approximately 425% and we have $1 $1 billion of holding company liquidity after purchasing the a b units and tendering for some of our outstanding series B preferred securities in April.
Mark: This is before factoring in the $2 billion benefit from the reinsurance transaction.
Mark: We fully hedge the equity market and interest rate exposure underlying the product guarantees we offer protecting our capital position, therefore market declines only impact our income statement and not a balance sheet.
Mark: We also benefit from getting over 50% of our cash flow from non insurance businesses, which enables us to consistently return capital to shareholders. Even during periods of stress like we are experiencing now.
Mark: I am confident that equitable has the right strategy and approach to emerge from this period, even stronger than it is today.
Mark: One of the reasons I'm confident is because of the durable growth drivers underlying the markets, where we have chosen to play which we highlight on slide four.
Mark: If anything periods of market volatility increased the need for and highlight the value of the advice, we provide and the retirement and investment solutions we offer.
Mark: There are 4 million Americans, turning 65, each year and over $600 billion of assets coming out of 401K plans annually.
Mark: These retirees need help figuring out how to ensure that we'll have enough assets and income to support them for the rest of their lives.
Mark: The life insurance industry is uniquely suited to provide protected equity solution black wireless all guaranteed income.
Mark: The last month provides a reminder that markets can go down underscoring the value that our offering provides to policyholders.
Mark: We have generated positive net flows in our retirement businesses every year that we've been a public company.
Mark: Highlighting the strong secular demand drivers and appeal of our all weather product portfolio.
Mark: Another key reason that we have been successful in growing our retirement franchise is a unique distribution we have through equitable advisers.
Mark: 65% of Americans are looking for investment advice and adviser mediated assets have grown twice as fast as overall U S financial assets.
Mark: These trends are driving growth in our wealth management business, which is a 12% organic growth rate for advisory assets over the past year.
Mark: We're also attracting new advisors and helping them grow their practices with productivity up 8% year over year.
Mark: The final component of our flywheel is asset management, which is critical to enabling us to deliver value to our clients.
Mark: Because <unk> is able to produce strong investment returns, we can offer attractive annuity and protection solutions driving sales and positive net flows.
Mark: These closed and enable <unk> to invest in new capabilities, such as expanding its private markets offering creating value for itself and equitable.
Mark: <unk> has been able to consistently generate positive active net flows and is well positioned to be a winner in two of the fastest growing segments in the market private credit and insurance asset management.
Mark: We firmly believe that combining insurance and asset management provides competitive advantages for both firms and we were excited to recently increase our ownership in <unk> to 69%.
Mark: Turning to slide five.
Mark: I want to spend a minute reviewing equitable strong track record of managing through volatile markets since our IPO.
Mark: It all starts with having a robust balance sheet.
Mark: As a reminder.
Mark: <unk> takes a market neutral approach to hedging, which means that we fully hedge the equity market and interest rate exposure underlying our product guarantees.
Mark: Therefore, our capital position is relatively insensitive to market movements, which you have seen in our stable RBC ratio overtime.
Mark: We also set prudent assumptions for policyholder behavior and insurance risk factors, which have been validated by the positive ceding commissions. We have received when executing third party reinsurance transactions.
Mark: Equitable entered this period of volatility from a position of strength with a 425% combined NII see RBC ratio and $1 $1 billion of holding company liquidity. After the a b and preferred tenders. We are on track to close the likely ensure.
Mark: <unk> transaction in the middle of the year, which will free over $2 billion of capital and provides significant resources that can be used to take advantages of opportunities in the market, including additional share buybacks.
Mark: We plan to bring a sizable dividend to the holding company post close and still expect our RBC ratio to increase by 75 to 100 points.
Mark: Equitable also benefits from generating predictable cash flow with about 50% of cash coming from our asset and wealth management businesses.
Mark: This has enabled us to consistently return capital to shareholders, maintaining our buybacks even during the peak of the pandemic.
Mark: Leaning into share repurchases during periods of market declines helps offset the impact of lower fee income on EPS and creates value for our shareholders.
Mark: Putting it all together.
Mark: Confident that equitable is well positioned to manage this period of volatility and uncertainty and will also be ready to play offense if opportunities emerge.
Robin: I will now turn it over to Robin to discuss our financial results in more detail.
Robin: Thanks, Marc turning to slide six our highlight our first quarter results.
Robin: On a consolidated basis non-GAAP operating earnings were $421 million or $1 30 per share.
Robin: The only notable item in the quarter was below plan alternative investment income.
Robin: Which reduced earnings by $13 million after tax.
Robin: Adjusting for this non-GAAP earnings per share was $1 35 per share.
Robin: As Mark mentioned our results this quarter were impacted by elevated mortality claims in our individual life insurance block, which reduced earnings per share by about <unk>.
Robin: Relative to our normal expectations.
Robin: If mortality have been in line with budget earnings per share. Excluding notable items would have increased 12% year over year.
Robin: GAAP net income was $63 million in the quarter. This is lower than our non-GAAP operating earnings due to noneconomic hedging impacts which are offset in OCI.
Robin: Total assets under management and administration rose, 3% year over year to one trillion.
Robin: But they declined on a sequential basis as a result of weaker equity markets in the first quarter.
Robin: Our reported book value per share ex ACI with $27 62 in the quarter.
Robin: As a reminder, GAAP accounting requires us to carry a b at book value.
Robin: Which we believe materially understates shareholders' equity at the <unk> level and inflates our leverage ratio.
Robin: We added new disclosure this quarter to highlight book value per share, including our ownership in <unk> market value.
Robin: The adjusted book value per share was $39 96 as of March 31st and our leverage ratio would have been nearly seven points lower.
Robin: This difference will become more notable moving forward given our increased ownership in ebay.
Robin: I'll provide some further details on our segment level earnings drivers on slide seven.
Robin: Mortality claims in our individual life insurance block came in approximately $80 million above our expectations on a pre tax basis.
Robin: <unk> block is concentrated in higher face value policies and has limited reinsurance coverage and this quarter, we experienced an abnormally high number of large claims.
Robin: While hard to be definitive we believe a harsh flu season was a contributing factor.
Robin: The CDC has classified data is the first high severity flu season since 2017 2018.
Robin: <unk> cumulative hospitalization rate is the highest it there since 2011.
Speaker Change: The poor experienced this quarter and recent volatility in our individual life earnings underscoring why we made a strategic decision to reinsure, a 75% of our life block to RGA.
Speaker Change: This transaction, which is on track to close mid year, we will significantly reduce our mortality exposure and enhance our focus on our core growth engines.
Speaker Change: I also want to spend a minute discussing our individual retirement earnings which declined year over year. Despite strong net flows.
Speaker Change: The results were pressured by a few items.
Speaker Change: First is expenses, which reflect higher seasonal compensation costs for benefits payroll taxes, and long term incentive payouts due to 2020 for bonus payments.
Speaker Change: In addition to growth in commission payouts reflects strong sales volume, particularly in equitable advisers.
Speaker Change: Not all payouts can be capitalized in DAC.
Speaker Change: We expect compensation expense to normalize in the second quarter, but commissions will depend on sales levels and the mix by channel.
Speaker Change: Turning to revenues, we continued to see steady growth and spread earnings or NIM driven by positive <unk> net flows.
Speaker Change: However, our fee income was negatively affected by a decline in average separate account assets and fewer fee days in the first quarter.
Speaker Change: Given the equity market decline, we've seen so far in April it will likely remain a near term headwind offsetting growth in NIM.
Speaker Change: Keep in mind that our traditional VA block has a higher return on assets than our raila blocked so a reduced fee income will also pressured our segment return on assets.
Speaker Change: Overall, our individual retirement business produces a high return on capital and consistent cash flows.
Speaker Change: While the benefit of our strong organic growth takes some time to emerge and results, we expect steady growth in earnings over time.
Speaker Change: First quarter results for group retirement, and wealth management businesses were in line with our expectations.
Speaker Change: Which included some anticipated revenue and expense seasonality.
Speaker Change: Both businesses had positive organic growth with $192 million of group inflows and $2 billion of wealth management Advisory net flows.
Speaker Change: <unk> productivity improved 8%.
Speaker Change: As a good leading indicator of future growth.
Speaker Change: <unk> had a strong quarter with positive net flows across each of its distribution channels, a relatively stable base fee rate and good expense control.
Speaker Change: Business had an adjusted margin of 33, 7% for the quarter up 340 basis points from the first quarter to 24.
Speaker Change: While the market declined in April could pressure near term flows and margins.
Speaker Change: <unk> has a diversified asset mix and a differentiated distribution.
Speaker Change: Including a private wealth business leadership position in Asia, and its partnership with equitable.
Speaker Change: All position it well for long term success.
Speaker Change: Finally, our alternative investment portfolio had a 6% annualized return in the first quarter consistent with our guidance.
Speaker Change: Current market volatility makes projecting future returns difficult.
Speaker Change: We expect them to remain below our 8% to 12% long term target in the second quarter.
Speaker Change: We will provide a more specific update later in the quarter when we have better visibility.
Speaker Change: Turning to slide eight we will highlight Equitable's capital management program.
Speaker Change: During the quarter, we returned $335 million to shareholders, including $261 million of share repurchases, which translates to an 80% payout ratio.
Speaker Change: This is above our 50% to 70% guidance range, primarily due to lower earnings as a result of unfavorable mortality.
Speaker Change: Over the past year, we have reduced our share count by approximately 7% helping to drive growth in earnings per share.
Speaker Change: We also plan to increase our quarterly cash dividend on common shares by 13% to <unk> 27 in May pending board approval.
We ended the quarter with $2 2 billion of cash and liquid assets at holdings up from $1 8 billion at the end of the fourth quarter.
Speaker Change: During the first quarter, we received about $200 million of cash flows from subsidiaries and issued $500 million of new hybrid securities in March.
Speaker Change: In April we invested $760 million to increase our ownership in AB.
Speaker Change: And used $283 million of the hybrid proceeds to tender for some of our existing series B preferred equity.
Speaker Change: As a result, we currently have $1 1 billion of cash at the holding company comfortably above our 500 million target.
Okay.
Speaker Change: On slide nine we highlight our macro sensitivities, both from an earnings and balance sheet standpoint.
Speaker Change: The earning sensitivities are consistent with what we've highlighted previously even as we've grown our business.
Speaker Change: Every 10% change in equity markets has about $150 million of annual impact on after tax earnings.
Speaker Change: Turning to interest rates, a 50 basis point change in long term rates has about a 40% to $45 million impact on our annual earnings.
Speaker Change: We have a relatively limited sensitivity to changes in short term rates as we have a similar exposure to floating rate assets and liabilities.
Speaker Change: The primary impact is on our cash sweep revenue in our wealth management business.
Speaker Change: We are a 100 basis points change in the fed funds rate equates to about a 70 basis points change in our sweep yield.
Speaker Change: Cash sweeps only driving about 20% of wealth management earnings and less than 2% of total company earnings to this is very manageable.
Keep in mind that the sensitivity to prior to any management actions such as expense controls.
Speaker Change: We still have about $50 million of our targeted $150 million in annual expense saves that will earn in by 2027 and equitable have demonstrated a strong expense discipline in prior periods of market volatility.
Speaker Change: Turning to the balance sheet as Mark discussed, we fully hedge the equity market and interest rate exposure associated with our product guarantees.
Speaker Change: Therefore, our capital position has little sensitivity to market.
Speaker Change: The primary risk that we take as credit exposure through our general account investment portfolio.
Speaker Change: We have updated our credit stress test for the portfolio as of year end 2024, and the result is illustrated on the right hand side of the slide.
Speaker Change: For fixed maturity securities Distresses calibrated to the global financial crisis like scenarios.
Speaker Change: We also assume minus 40% equity market decline.
Speaker Change: Each negatively affects the value of our private equity and other alternative investments.
Speaker Change: The impact of such a severe stress would be a 50 point reduction in our RBC ratio.
Speaker Change: Currently this would take us from about 425% down 375%.
Speaker Change: We expect the life reinsurance transaction to increase our RBC ratio by 75 to 100 points after paying an extra ordinary dividend to the holding company.
Speaker Change: Which will provide significant additional capital question if needed.
Speaker Change: Our insurance subsidiaries only produce about 50% of our holding company cash flows.
Speaker Change: So we would still generate meaningful cash even if we needed to reduce our insurance dividend for a period.
Speaker Change: Therefore, we feel confident that we are well positioned to withstand even at 50 year credit downturn.
Speaker Change: Putting it all together, we feel we're well positioned to navigate a period of macro volatility.
Speaker Change: And have expense levers in place if markets remain challenging.
Speaker Change: Finally on slide 10, we lay out the timeline and key milestones for our life reinsurance transaction.
Speaker Change: To reiterate the transaction is on track to close in mid 2025, and we will free up over $2 billion of capital.
Speaker Change: We plan to deploy these proceeds in a prudent and timely manner.
Speaker Change: And as I mentioned earlier, we used approximately $760 million of Holdco liquidity to acquire $19 7 million of AB holding units.
Speaker Change: Increasing our ownership in alliance Bernstein from 62% to 69%.
Speaker Change: Post close we expect to bring an extraordinary dividend to the holding company and we remain committed to executing $500 million of incremental <unk> share repurchases.
Speaker Change: On top of our 60% to 70% payout ratio.
Speaker Change: This leaves nearly $1 billion of remaining resources.
Speaker Change: Given the pullback in our share price additional share buybacks beyond the $500 million are stirringly, something we will look at and this would likely need to be accompanied by some debt repayment to manage our leverage ratios.
Speaker Change: We will also be watching the broader market environment.
Speaker Change: This transaction provides a lot of financial flexibility, which is a significant positive in periods of uncertainty.
Speaker Change: Therefore, it makes sense to exercise some patience.
Speaker Change: But we remain committed to making the reinsurance transaction accretive to both earnings and cash flow per share.
Now, let me turn the call back over to Mark Mark.
Mark: Thanks, Robyn, while we're living in a period of heightened macro uncertainty I remain very optimistic about the long term growth prospects for equitable given favorable demographic trends and the dual need for the advice.
Speaker Change: <unk> and investment solutions, we offer our clients.
Speaker Change: Equitable has a robust balance sheet predictable cash flows and an all weather product portfolio.
Speaker Change: As a result, the company has a strong track record of executing through volatile markets and creating value for our shareholders.
Speaker Change: Our financial position will only be enhanced by our individual life reinsurance transaction, which gives us the ability to play offense if opportunities arise we.
Speaker Change: We will now open the call to take your questions.
Speaker Change: Thank you.
Speaker Change: I'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: I would like to withdraw your question simply press Star one again.
Speaker Change: We ask that you please limit yourself to one question and one follow up thank you.
Speaker Change: Your first question comes from Sydney to come up with Jefferies. Your line is open.
Sydney: Great. Thanks first for Robin on the $2 billion of proceeds.
Speaker Change: Can you size the extraordinary dividend that you plan to take up to the holding company.
Speaker Change: Good morning, Anthony.
As you mentioned, we expect that $2 billion benefit our capital relief from the life insurance company.
Speaker Change: Post the transaction with RGA and that Hasnt changed to.
Speaker Change: To date as you know, we redeployed about $750 million with investment in A&P that brings our ownership to 69% that leaves us about one 5 billion less from the transaction.
Speaker Change: Main committed to deploying to 500 million on top of.
Speaker Change: Of the $760 million, we invested already and that leaves us about $1 billion of proceeds which we'd expect to take out an extraordinary dividend later in this year. So assuming that we achieve our one six to $1 seven guidance. That's what we're still working towards and then we have $1 billion of extraordinary dividend that we're looking to take as well on top.
Speaker Change: Now given the pullback we've been getting a lot of questions on the use of it now given the pullback of our share price since in.
Speaker Change: In the month of April that certainly buybacks would be certainly something that we look like that we'll look at but we need to accompanying that with debt repayment given the leverage ratio, but we're also going to be watchful of the broader market environment as I mentioned on the call. The transaction gives us tons of financial flexibility and resources deploy and given the volatility we're not in a bad it's not a bad position.
Speaker Change: Sit on a bunch of cash right now as we wait the transaction to close as well.
Speaker Change: Yes.
Speaker Change: Okay, and then I guess for Marc or maybe Nick you made the point in your prepared remarks about this as a <unk>.
Perfect environment to highlight the benefit of <unk> and some of the other products that you offer I guess the question is are you seeing that in April in other words, a lot of times people make that comment but market volatility sometimes often free.
Speaker Change: Freezes the market, but are you seeing incremental demand for your product given what's going on in the market.
Nick: Yes. This is Nick we're seeing robust sales in April.
Nick: To reiterate Mark's comments look we see continued demand driven both by the demographic trends and this heightened period of volatility research shows that 70%.
Nick: Of people out there are concerned about the impact of volatility.
Nick: Their retirement assets and given our distribution and product portfolio, we are well positioned to meet that need.
Nick: The product range, we have something that really is an advantage to us we talked about the all with a portfolio of somebody's wanting to.
Nick: Secure income for the long term, we have solutions for that while our product of course is a way somebody can protect capital on the downside that participate in any market recovery. So the product range itself helps but yes to your question April was a good good months for us as Nick said.
Nick: The next question comes from Ryan Krueger with <unk> W. Your line is open.
Nick: Thanks, Good morning.
Speaker Change: First question was just on the seasonally elevated expenses as well as the lower fee days in the first quarter are you able to give us a rough sizing of the consolidated impact that had on earnings or EPS for the company.
Nick: Sure.
Nick: Did have overall some seasonality in expenses as I mentioned on the call thats related to timing of when we paid benefits and taxes on the bonus payments and then also the long term incentive comp I think maybe a lot of the.
Nick: Focus has been in individual retirement.
Nick: Where we have seen growth in revenue, but some of the expense pick up.
Nick: <unk> has shown earnings decline year over year, that's about $10 million that should come back next quarter in terms of pre tax impact for individual retirement on earnings on that and in addition for individual retirement, we expect steady growth in our net investment margin aligning with the growth in the general account as we still continue to see robust sales.
Nick: And that no other product in X and Mark just mentioned as well, but keep in mind for individual retirement about half of our earnings our fee related and that we will be sensitive to equity markets.
Nick: Across the board. So we do expect some expenses to come back, but we are exposed to equity market volatility in these times.
Nick: Got it thanks, and then on the leverage ratio.
Nick: Do you feel that you need to bring the leverage ratio down from here or is there a comment on the incremental buybacks just that you would need to do some debt repayment to keep the leverage ratio at the same level of <unk> yet.
Nick: Yes, I think with the.
Nick: When we think about leverage ratio, mainly looking at rating agency leverage ratio GAAP leverage ratio as we feel fine with the also remember what I mentioned on the call to GAAP leverage ratios don't reflect ABS market value, which would bring that down by about seven points across the board, but if we did incrementally more than $500 million that we're going to add on top of that.
Nick: 50% to 70% as part of the transaction, we'd likely accompany that with some debt repayment.
Nick: To make sure our leverage ratios are in line with what the rating agencies want to see.
Nick: Yes.
Speaker Change: The next question comes from Michael Ward of UBS. Your line is open.
Michael Ward: Hey, good morning, Thanks very much.
Speaker Change: Net flows were very strong.
Speaker Change: Across pretty much every segment just curious how you think about this momentum heading into the volatility that we've seen in April.
Speaker Change: And I guess specifically.
Speaker Change: Around <unk> and AEP.
Speaker Change: Great. Thanks, This is Nick I'll kick it off.
Speaker Change: As we've highlighted a couple of times, we see strong structural drivers and.
Speaker Change: The current heightened period of volatility enhancing interest.
Speaker Change: Our products to start in individual retirement.
Speaker Change: The first quarter, we had $1 4 billion.
Speaker Change: It flows.
Speaker Change: And 8% organic growth rate over the last.
Speaker Change: 12 months.
Speaker Change: As Mark highlighted our buffered annuity is right for these times that provides downside protection with upside potential. So people that can secure their assets, but gives them the opportunity to participate if the market bounces back.
Speaker Change: Okay.
Speaker Change: You hit on group retirement group retirement, we had positive net flows primarily our core K 12 teacher business I'd remind you. It's payroll contribution business focused on longer term retirement savings. We have 1000 advisors working with over 800000 teachers and five.
<unk> thousand local school environments employment tends to be.
Speaker Change: More consistent through macro cycles, so we would expect that to.
Speaker Change: Consistently grow in the single digits. So we do see upside potential in institution.
Speaker Change: The institutional market as this environment is highlighting the need for secure income within defined contribution group plans.
Speaker Change: So we're focused in this time, we remain steadfast in guiding our clients, we see a demand for advice. So we see a demand for more durable retirement solutions and we're well positioned to capture a disproportionate share of the value that we see emerging.
Speaker Change: I'll hand, it over to <unk> to hit on.
Speaker Change: Thanks, Nick.
Speaker Change: Yes.
Speaker Change: As was mentioned on the question we came off.
Speaker Change: Of a very strong Q1 in terms of flow that they'd be all of our three channels were net positive April is always a tricky month for us given its tax.
Speaker Change: I'll come back to the market volatility, but given our book because we're skewed towards high net worth and also our network, particularly in our private wealth business in our U S retail business with.
Speaker Change: Tend to get some outflow pressure in April even when the markets are relatively well functioning.
Speaker Change: That combined with the heightened market volatility and the uncertainty around the <unk>.
Speaker Change: Our rate cuts and in place.
Speaker Change: Put some.
Speaker Change: Some challenges around the flows particularly around the retail channels. As you know are every bit as strong as our retail franchise. Whenever there is a rate uncertainty we tend to see a slowdown in flows in that region.
Speaker Change: That being said all of the signs are quite positive if I go beyond April several strengths emerge one if you look at our institutional pipeline, our institutional pipeline increase materially several billion dollars in the first quarter. So that gives us confidence in terms of flows into our institutional channel going for.
Speaker Change: Word.
Speaker Change: As you know equitable commitment to private <unk> continues.
Speaker Change: And our private assets content to grow rapidly and we still have another $6 $5 billion from the equitable commitment there so thats a positive.
On the retail side as I think about fixed income first typically a steepening yield curve around widening credit spreads means long term better returns for fixed income strategies and we benefited from fixed income rebalancing in 200 to 324, we had $35 billion of net flows when that rebalancing happen.
Speaker Change: In the past so once this.
Speaker Change: Red card cycle starts we're going to see the margin flowing back to taxable fixed income and we're going to benefit.
Speaker Change: Most likely disproportionately from that and on the equity side.
Speaker Change: The good news is some of our flagship products and geographies are performing well.
For instance, our Japan franchise remains strong despite all of the equity market than currency volatility and we are benefiting from some of the structural trends there like the new retirements.
Speaker Change: Accounts called knee says so all in all April definitely tough months for almost every asset manager. We are an exception, but when I look at where the pockets had it I think we are very well positioned in terms of benefiting from the market as well as our distribution channels.
Speaker Change: Okay.
Speaker Change: Thank you guys.
Speaker Change: And then on capital deployment I'm, just kind of curious recognizing there's uncertainty out there but.
Speaker Change: There anything that you would say.
Speaker Change: Or I guess kind of like a timeline of calm markets that could get you.
Speaker Change: Off the sidelines to be more aggressive on the buyback and should we think about your capital usage is kind of buybacks debt reduction or maybe holding excess capital or is there other options that you haven't spoken about.
Speaker Change: Sure.
Speaker Change: Mike just in our normal share buyback program, if we see dislocation in the market will certainly dip in and buyback more stock.
Speaker Change: Normal course, if the stock is cheaper that's just.
Speaker Change: Timing that we'll do on top of that with the transaction, we're going to wait till the transaction closes once the transaction closes that allows it wanted to see where the markets are in the evolution with the volatility that we're currently seeing but also allows us to take out the extraordinary dividend from the insurance company as well and at that point in time.
Speaker Change: We have tremendous financial flexibility at the holding company with the cash that we have just a normal course of normal dividends. In addition, with the benefit of the transaction. So we will evaluate share buybacks.
Speaker Change: With some debt repayment.
Speaker Change: It's very volatile at that time, the stock likely to be cheap so.
Speaker Change: Share buybacks, even look more interesting and that type of period and then we will also be on the FX or anything out that remains available for us at that time, but again kind of financial flexibility and Thats a good thing to have in these volatile times.
Speaker Change: The next question comes from Tom Gallagher with Evercore ISI. Your line is open.
Tom Gallagher: Good morning had had a few questions on <unk>.
Speaker Change: Nick maybe to start with you.
Tom Gallagher: Sort of.
Tom Gallagher: Piqued by.
Tom Gallagher: My interest interest was piqued by your comment that April sales were robust.
Tom Gallagher: Are we talking about.
Tom Gallagher: A modest increase like 10% something much larger.
Tom Gallagher: Wanted to get a sense for what Youre seeing right now because.
Tom Gallagher: And I'll get to my follow up after that if we just start with that thanks.
Tom Gallagher: Yes.
Speaker Change: We don't disclose that level of Av.
Speaker Change: But I would say there are robust compared to first quarter.
Speaker Change: Got it.
Speaker Change: And I guess my my follow up is really this is probably for Rob and the.
Speaker Change: It's an interesting dynamic when you have a counter cyclical product now.
Benefiting from the markets being weaker.
Speaker Change: And where clients are demanding probably the product.
Speaker Change: And in a greater way because of the underlying equity protection, but I don't think the earnings in that product are really equity sensitive Robin would you mind.
Speaker Change: Just reminding us.
Speaker Change: The underlying profit margin of that product and whether there is equity sensitivity to earnings get better or worse, if the market's weekend. Thanks.
Speaker Change: Sure.
Speaker Change: As Nick and Mark and Mark mentioned earlier this volatility in equity market drive the need for <unk> product and the product is structured around buffers that provide downside protection and upside participation, but I want to reiterate that's not the only product that we have within the offering at an all weather product portfolio that provides buffered protection income protection.
Speaker Change: And in investment only tax advantaged vehicles as well that the team fully capitalized to drive.
Speaker Change: Growth in the retirement market.
Speaker Change: <unk> specifically you are right the underlying mechanics, it's really a spread based earnings products and your thoughts bread on NIM and individual retirement increased 9% year over year.
Speaker Change: And we will continue to grow with the growth in Nebraska sales going forward. It does take their time in terms of GAAP profit emergence. So some of the profit emergence ends up being slower because we have acquisition cost upfront, but at that time, but the ultimate sensitivity to the river is spread based earnings. The overall segment, though it is still 50%.
Speaker Change: Fee base.
Speaker Change: And so the overall segment has sensitivity to equity market from the other products that we sell that or more.
Speaker Change: Investment only oriented.
Speaker Change: Yes.
Speaker Change: Tom It's Mark if I could just add something to the demand which.
Speaker Change: I think it's worth saying.
Speaker Change: These clients would be late <unk> early sixties.
Tom Gallagher: Tom inside that would be typical for us they have savings there.
Tom Gallagher: I have 401, K, so it's not coming out of disposable income necessary. So as we mentioned on the call is something like $600 billion, a year is coming out of for one case into better vehicles.
Tom Gallagher: All of which <unk> is one so.
Tom Gallagher: That helps keep the demand up.
Speaker Change: The next question. The next question comes from Jimmy Buhler with Jpmorgan. Your line is open.
Jimmy Buhler: Hey, good morning, So first just a question on the annuity business, but on a different topic. Just can you comment on what youre seeing in terms of competition and just competitor behavior.
Jimmy Buhler: Especially in the preferred market, but just overall given that a number of companies seem to be very active in many more companies are selling similar products than was the case a few years ago, and then Relatedly. If I look at your sales and flows there were still very strong but.
Jimmy Buhler: I think closing were weaker than they had been the last several quarters and sales growth slowed as well.
Jimmy Buhler: Versus what it had been obviously also a fairly high levels.
Nick: Sure This is Nick.
Speaker Change: For our overall retirement segment, we were up 6% year over year and as we've mentioned we have an all weather portfolio of protected equity buffered annuities income and <unk>.
Speaker Change: <unk> were up 3% year over year and this was another record first quarter.
Speaker Change: We're very intentional about focusing on segments, where we can generate attractive returns.
Speaker Change: Sustainable shareholder value. So we've been mindful of competitive trends on pricing.
Speaker Change: As we've mentioned historically as we see new entrants enter there tends to be a period of aggressive pricing. We have seen this before and it tends to be temporary and not sustainable.
Speaker Change: Good day.
Speaker Change: Increased competition in Rolla has net net.
Speaker Change: <unk> continued to grow the size of the pie as it raises adviser.
Speaker Change: <unk> and the broader 30 trillion retirement market.
Speaker Change: Annuities.
Annuities and buffered annuities are still underpenetrated, given the need out there as the market leader, we continue to benefit from that growing pie over the last three years, we have more than doubled our sales.
Speaker Change: And finally, I'd just say, we're in a different macro environment today than January.
Speaker Change: Looking forward, we continue to be very excited about the opportunity and believe that given our history of innovation at our privilege distribution, we are well positioned to capture a disproportionate share of the value being created.
Speaker Change: And then just on Lightpath I think there weren't any.
Speaker Change: New cases, this quarter, but do you have any line of sight on what the rest of the year is looking like.
Speaker Change: Sure. So we remain bullish on the long term growth of this market and the current.
Speaker Change: Market environment is amplifying the need for secure income solutions within defined contribution plans.
Speaker Change: As context last year, we had $600 million in flows from our institutional segment.
Speaker Change: Coming from the launch of our life path HVAC in the first quarter.
Speaker Change: We've continued to deepen and broaden our institutional offers.
Speaker Change: We had over $400 million in flows coming from our partnership with the leading.
Speaker Change: As a provider we did not have any plans funded in the first quarter, we expect about $250 million of inflows from life's path in the second quarter. As we stated they're going to continue to be lumpy, we get visibility 60 to 90 days.
Speaker Change: Looking now so going forward, we've been a leader in this market and we think given our relationships with both Blackrock.
Speaker Change: JP Morgan and others, we're well positioned as this market continues to grow.
Joel <unk>: The next question comes from Joel <unk> with Dowling Your line is open.
Speaker Change: Hey, good morning <unk>.
Speaker Change: So spreads in individual retirement look to have compressed a bit in the quarter anything unusual you would call out and what are you just expecting from a spread yield yield standpoint moving forward.
Speaker Change: Hey, Joel it's Robin I'll take that.
Speaker Change: In the quarter Youre going to always have some noise quarterly on a quarterly basis, when looking at spread income and Thats, where I would look at the year over year as a function of longer term growth, but in the quarter with short term rates decreasing we did see some decline in some of the floating rate exposure, but as a reminder, the floating rate assets are managed and matched.
Speaker Change: With the floating rate liabilities. So at the one year segments reset we expect to get some of that back going forward, but you'll see some of that quarterly noise, but over the long term. We still continue to expect strong growth in terms of spread income along with the general account book value.
Speaker Change: The segment and consistent cash flows coming out of this as well.
Speaker Change: Yes.
Speaker Change: Okay makes sense and then just wanted to see if you have any update on your Bermuda entity any plans to move any business there in the near term.
Speaker Change: Okay.
Speaker Change: Yes, Bermuda is set up and operational for US It continues to be provide us with good optionality to manage cash flows going forward no no further update to give at this time now, but we remained focused.
<unk> focus on capital optimization and this is just another piece of the toolkit of decades is optionality.
Speaker Change: The next question comes from Jack Morton with BMO capital markets. Your line is open.
Jack Morton: Hey, good morning.
Jack Morton: Just on the full year cash flow run rate guidance of the 106 to $1. Seven are you seeing any risk to that outlook, given the lower equity markets year to date.
Jack Morton: I know you generate a lot of cash flow from our unregulated sources, but just wondering if there's still a material equity market sensitivity that we should be thinking about regarding free cash flow.
Jack Morton: Sure.
Jack Morton: The one six to $1 seven guidance that we gave for the full year does assume an 8% normal equity market return, but keep in mind, 50% of those cash flows are coming from the insurance businesses, which is based on last year's results and so we will have some equity sensitivity on the other 50% on the asset and wealth.
Jack Morton: I think if I take a look from where we are now we're probably on the lower end of the guidance of the one six to $1 7 million, but still feel comfortable with that guidance.
Jack Morton: Yes.
Speaker Change: Got it thanks and then.
Speaker Change: On the alliance Bernstein any any changes to your thoughts around the ultimate ownership of that business now that youre at around 69%. What are you looking to increase that.
Speaker Change: Sure.
Speaker Change: Hi, it's Mark I'll take that yes, very pleased that we've increased our ownership to 69% and the real issue as we said on the call is they are very big synergies between the equitable businesses and AEP and we're starting to harvest those synergies.
Speaker Change: And as we've said before we like the fact that we have a currency in AB did helps us with.
Speaker Change: Acquisitions as you did with Cobell it helps us with remuneration and it helps us put a put a value on a big part of our business. So no plans to increase the settlement.
Speaker Change: The next question comes from Nick <unk> with Wells Fargo. Your line is open.
Speaker Change: Hey, Thanks, Good morning, just a follow up to the cash generation question as well.
Speaker Change: What gives you confidence in the $2 billion in 2027, especially given that you guys are at the lower end of the $106 seven now.
Speaker Change: And when that was given at the Investor day did that contemplate the increase in ownership.
Speaker Change: Sure.
Speaker Change: Fully confident in that $2 billion number now we going out at Investor day.
Speaker Change: As you've seen.
Speaker Change: Directly.
Speaker Change: We pretty much come in line with the numbers that we give to the market because we're focused on execution.
Speaker Change: As a reminder, that when we gave that at Investor day to assumed an 8% annual return we saw equity markets up 20% plus the previous two years and now this year, we see a decline. So we don't think that changes the long term cash flow outlook that we provided at Investor day.
Speaker Change: At Investor Day, we did not contemplate increasing our ownership in AB.
Speaker Change: Nor do we contemplate the life transaction at that time that being said remind remember Richard swapping the transaction essentially swaps life insurance earnings for Alliance Bernstein earnings, which we believe is higher multiple and provides a better return profile for our investors. So that we can avoid unnecessary volatility in the business. So full confidence in the $2 billion for <unk>.
Speaker Change: 27.
Speaker Change: The next question comes from Maxwell Fritcher with <unk> Securities. Your line is open.
Speaker Change: Hi, Good morning, I'm on for Mark Hughes, just for the protection.
Speaker Change: <unk> are you seeing any of the elevated mortality from.
Speaker Change: Flu season carryover into <unk>, thus far.
Speaker Change: Can't give an update yet.
Speaker Change: For April April isn't over yet.
Yes.
Speaker Change: Thank you.
Speaker Change: To go forward, but.
Speaker Change: We don't have insight yet into the month of April with mortality now, but keep in mind that this is exactly why we focus and we are focused on closing the life transaction.
Speaker Change: During Q2 Q3, so we're not dealing with mortality volatility anymore, and we can focus on our core growth engines that we've been discussing on the call.
Speaker Change: Understood and then.
Speaker Change: The.
Speaker Change: Outflows in outside the U S any any color there.
Speaker Change: Maybe.
Speaker Change: Any visibility going forward.
Speaker Change: Sure our owner here I can take that.
Speaker Change: As I mentioned, a little bit in the previous flow question.
Speaker Change: When we have uncertainty around the rate outlook, and what will be the pace and degree of rate cuts.
Speaker Change: When we get some pressure on our taxable fixed income business in Asia as you know.
Speaker Change: Got a high performing manager in the Asian market and taxable fixed income is definitely.
Speaker Change: Our strong flagship for us and that has been the main driver of the outflows overseas.
Speaker Change: That being said over the years, we have been very successful in diversifying our position leveraging our brand strength in Asia like for instance, if you look at the first quarter. We had very significant net flows into our multi asset solutions, because we created the multi asset income solution, particularly targeting the Taiwan market.
Speaker Change: To diversify our exposure to our global high yield product and that has been working very well.
Speaker Change: And then separately as I mentioned in the previous question as a recap our Japanese business tends to skew heavily towards equities U S equities.
Given our strong distribution network there we continue to maintain trends our prolonged Q1 into April.
Speaker Change: So all in all.
Speaker Change: I don't have any major concerns in terms of the long term outlook I think we will continue to well cost.
Speaker Change: While in Asia and in other overseas markets, but there might be some short term possible.
Speaker Change: Flow pressure, particularly in taxable fixed income, particularly in Asia.
Speaker Change: The next question comes from Mike Burton with Raymond James Your line is open.
Mike Burton: Hey, Good morning. This is something you highlighted on the new side.
Speaker Change: And in the presentation, but could you give us a little bit of color on how the protection services deal reduces credit risk. Thanks.
Speaker Change: Yes, I think you broke up a little bit I think you are referring to the <unk>.
Dressed up that we provided as of yearend.
Speaker Change: Yes, the slide the slide nine you added something where you talked about how the protection services deal reduces the credit risk.
Speaker Change: I think I think you're I guess, you're referring to the fact that some of the RGA transaction SGA assets associated with it that would reduce.
Speaker Change: Some of the credit risk associated if you take a look on the page.
Speaker Change: Speaking about the overall.
Speaker Change: The overall credit risk in the Ta portfolio as of year end, which RBC with 425% and you can see the credit losses credit migration and the impact from alternatives about 50 points to that and then the protection deal. What is it helped because we have that $2 billion benefit and after we take out <unk>.
Speaker Change: During our dividend the RVP will improve by 75 to 100 point that brings us to $4 50 to 475.
Speaker Change: Where you get the benefit from the protection deal as it relates to our RBC posted credit stress test.
Speaker Change: Okay.
Speaker Change: Got it and then given the projects and services protection deals changing the footprint of the investment portfolio.
Speaker Change: Does this give equitable and opportunity consider reinvesting at a quicker pace some of the assets I know, especially there was.
Speaker Change: Quite a bit of the portfolio that was purchased around the time of the 2018, IPO, which was in a low rate environment. So just wondering if that deal gives you an opportunity to accelerate some of that repositioning.
Speaker Change: Yes no.
Speaker Change: The structure of Repositions debt that we've spoken about since the IPO have been completed on that debt.
Speaker Change: Delivered significant income for the insurance company I think we're focused now is relative value with the growth in the <unk> product. The general account is growing and we continue to get private credit capabilities with Alliance Bernstein and donor mentioned, we're about $14 billion of the $20 billion of of commitment that we have a widow.
Speaker Change: <unk> Barry themes that it isn't another 6 billion to go and that should provide incremental income.
Speaker Change: Going forward and then I'm sure once we get there there'll be more to come as well.
Speaker Change: That is all the time, we have for questions. This concludes today's conference call. Thank you for joining you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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