Equitable Holdings, Inc.

Thank you for standing by and welcome to the Equitable Holdings first quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Isil Muddererusolu, Head of Investor Relations, to begin the conference. Isil, over to you.

Good morning and welcome to Equitable Holdings' first quarter 2023 earnings call. Materials for today's call can be found on our website at ir.equitableholdings.com. Before we begin, I would like to note that some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. Our results may materially differ from those expressed in or indicated by such forward-looking statements. So I'd like to refer you to the Safe Harbor language on slide two of our presentation for additional information. Joining me on today's call is Mark Pearson, President and Chief Executive Officer of Equitable Holdings, Robin Raju, our Chief Financial Officer, Nick Lane, President of Equitable Financial, and Kate Burke, Alliance Bernstein's Chief Operating Officer and Chief Financial Officer. 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. Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures and related definitions may be found on the investor relations portion of our website in our earnings release, slide presentation, and financial supplement. I would now like to turn the call over to Mark and Robin for their prepared remarks.

Good morning and thank you for joining today's call. This is the first time we are presenting our results under the new LDTI accounting standard. And also this quarter, we provide additional disclosures to our new wealth management segment and separating our legacy VA portfolio from our core retirement business. Let's get straight into it. On slide three, we present highlights from this past quarter. Non-GAAP operating earnings were $364 million, or $0.96 per share, adjusting for notable items in the period, which included elevated mortality claims and lower alternative returns. Earnings per share were $1.21, up 9% on quarter four 2022, and down 18% compared to prior year quarter, reflecting movements in equity markets and alternatives. Assets under management and administration ended the period at $864 billion, down 8% year-over-year, but up 5% year-to-date. Our businesses delivered strong results this quarter, with $3.2 billion inflows in our core businesses, positive across retirement, asset, and wealth management. With the collapse of SBV, Credit Suisse, and Signature Bank, there has understandably been a lot of attention on the finance sector. Today, Robert and I will spend most of our time on our liquidity position and strength of our balance sheet. We are conservatively positioned with an A2 rated investment portfolio and a high quality diversified mortgage portfolio. Lapse rates remain within expectations as well as historical averages. A testament to products that are ALM matched and hedged to protect both policyholders and shareholders. We'll touch on this later in more detail. Turning to capital, we have $1.8 billion of cash at holdings supporting financial flexibility and giving confidence that we can consistently deliver on our payout guidance across market cycles. In the quarter, we returned $286 million to shareholders including $214 million in share repurchases. As such, we delivered a 63% payout in the quarter, which is at the upper end of our stated guidance. Our RBC ratios remain above target levels. This quarter sees the introduction of the new LDTI accounting standards, the most meaningful change in over 40 years. Equitable welcomes the greater transparency and the closer alignment between accounting and fair value management. We are also taking this opportunity to show our businesses and what we think will be a better way for investors. Firstly, we are splitting out our capital intensive legacy VA business from our core retirement business. This reflects the fact that five years since the IPO, we have been very successful in reducing the risks on the legacy portfolio and it is now no longer significant. The book is only $22 billion in account value, 16% of the total. Through reinsurance, hedging, and buyback programs, we have reduced CTE 98. That is assets needed to withstand the average of the worst 2% of scenarios by over 70% since our IPO. The danger before this was that capital intensive legacy was lumped with and obscuring the value in our more capital light and spread based individual retirement products. Products like our market leading SES are perfectly ALM matched and have no living benefits. As such, there's a very narrow range of financial outcomes, very different profile to the legacy VA. Our revised disclosures provide greater visibility into the drivers of value within our business. As a reminder, over 50% of our annual cash flows come from unregulated sources, primarily wealth and asset management. Our new wealth management segment highlights one of the faster growing and higher multiple portions of our business and demonstrates the synergies and strong client persistency we realize from one of our biggest assets, that is, our 4,100 affiliated advisors. We are excited about the growth prospects here and believe that our holistic life planning advice model and investment capabilities should translate into attractive growth in the future. Turning to slide four, you will see an overview of what has changed in our new disclosures. In our largest segment, individual retirement, investors now have greater visibility into the size, earnings power, and momentum of our core retirement offerings. This segment has $79 billion in AUM in a mix of fee-based and spread-based earnings and totals approximately 38% of operating earnings in the quarter. We expect to see continued growth in this segment through our privileged distribution, meeting the demand for tax-deferred accumulation and income. In wealth management, we capture investment advisory fees, income on cash sweeps, and distribution margin on insurance sales. We've grown from approximately $40 billion of assets under administration and IPO to $76 billion today. This segment contributed $32 million of operating earnings in Q1, and net flows have been growing at an 8% CAGR over the last five years. Last is our legacy segment. This includes capital intensive fixed rate variable annuities issued prior to 2011, which were previously included in individual retirement. Legacy represents approximately 12% of operating earnings adjusting for notable items. The segment continues to generate earnings and cash flow, and we are comfortable with the reserving and hedging of these liabilities. In 2021, we completed the venerable transaction which significantly reduced our risk profile. This is our smallest segment with $22 billion of account value and running off at $2 to $3 billion per year. We look forward to providing more detail on these segments and the broader opportunity ahead at our Investor Day next week. Please turn to slide five. To understand EQH, it is important to understand the benefit from synergies we get between our businesses. We are uniquely positioned in advice, retirement, and asset management. 85% of equitable advisor annuity sales go to equitable and nearly 100% of life insurance sales. Equitable has also received new business from approximately 14,000 third party advisors in the last year. Equitable uses its general account to see the build out of AB's private markets in return for higher risk-weighted returns. AB has been very successful in attracting $4 of third-party funds for every $1 of seed money and has now built a broad alternatives platform, including the Carvel acquisition, which now stands at $58 billion. We have deployed over 70% of our $10 billion capital commitment to AB which provides higher general account yields and attractive high multiple fee revenue at AB. Beyond our capital commitment from the general account, continued growth in structured capital strategies product range is benefiting AB as they manage over 90% of our SCS account values. Turning to our businesses. In retirement, we delivered $4.7 billion in premiums, led by our suite of Ryla products, up 12% year over year, as we continue to innovate and capitalize on the demand for protected equity. Approximately 50% of all sales come from our affiliated distribution. We had another strong quarter with $1 billion of net inflows, benefiting from strong demand and client persistency. We also continue to progress on our expense initiatives, achieving $60 million run rate savings through quarter rent. We remain on track to achieve this target by year end. Turning to asset management, AB's global platform generated positive net flows of $0.8 billion, with $1.8 billion of active inflows as retail and high net worth investors became more comfortable taking on risk. and were keen to take advantage of higher fixed income yields. AB's realized fee rate improved by 4% year over year, driven by the addition of Carvel. In AB's institutional channel, the pipeline remains strong with $13 billion, 2 thirds of which is comprised of private alternatives, which continues to give us confidence in the growth of our $58 billion private markets platform. In our new wealth management segment, we generated $1.4 billion in net inflows in the quarter, with assets under administration growth of 4% year to date to $76 billion. In equitable advisors, we now have 700 wealth planners, advisors focused on financial planning and investment products. Through continued productivity improvements, and a shift towards fee-based advice, we expect to continue to improve our margin in this 90% free cash flow conversion business. In summary, our unique retirement, asset, and wealth management businesses continue to be resilient in all markets. Turning to slide six, Robin and I will spend a few minutes discussing the current market environment and addressing a few areas of focus for investors. The banking crisis that commenced on March 8th has clearly impacted our sector. As we've seen, our business tracks the broader market and with the S&P 500 up 9% year-to-date, our fee-based businesses like AB and Wealth Management benefited. On credit quality, we are conservatively positioned and can withstand very severe shocks. We maintain a high-quality commercial mortgage loan portfolio And on liquidity, we are structurally very different to a bank, as our mainly retail clients hold products which have market value adjustments or surrender charges. Let me pass over to Robin to go into the data for you. Robin.