Equitable Holdings, Inc.

Hello and welcome to Equitable Holdings Inc. third quarter earnings call. Please note that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I'd now like to hand the call over to Eric Bass, head of investor relations. You may now go ahead, please.

Thank you. Good morning and welcome to Equitable Holdings' third quarter 2025 earnings call. Materials for today's call can be found on our website at ir.equitableholdings.com. Before we begin, I would like to note that some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. Our results may differ materially from those expressed in or indicated by such forward-looking statements. Please refer to the Safe Harbor language on slide two of our presentation for additional information. Joining me on today's call are Mark Pearson, President and Chief Executive Officer of Equitable Holdings, Robin Raju, our Chief Financial Officer, Nick Lane, President of Equitable Financial, Seth Bernstein, Alliance Bernstein's President and Chief Executive Officer, and Tom Simeone, Alliance Bernstein's 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. 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.

Good morning and thank you for joining today's call. Equitable Holdings delivered solid third quarter results marked by continued organic growth momentum and increased earnings power across our businesses. We also allocated $1.5 billion of capital to drive shareholder value and future growth. successfully redeploying a large portion of the proceeds from our individual life reinsurance transaction with RGA. This includes approximately $200 million of investments to help accelerate growth in asset and wealth management. Looking forward, our integrated business model positions us well to be a long-term winner in retirement, asset management, and wealth management, and we remain confident in achieving each of our 2027 financial targets. On slide three, I'll provide a few highlights from the third quarter. Non-GAAP operating earnings were $455 million, or $1.48 per share, down 6% year over year on a per share basis. Adjusting for notable items, non-GAAP operating EPS was $1.67, which is up 2% compared to the prior year. As expected, Earnings rebounded from the first half of the year, helped by growth in each of our core businesses and the completion of the life reinsurance transaction. I'm also pleased that we saw only small impacts from our annual assumption review, validating our conservative approach to assumption setting. We ended the quarter with record assets under management of $1.1 trillion, up 4% sequentially, which bodes well for future growth in earnings. We will also see additional benefits for management actions to enhance yields in our investment portfolio and drive productivity savings. Organic growth momentum remains strong, supported by our flywheel business model. Our retirement businesses generated $1.1 billion of net flows during the quarter, driven by continued growth in our wireless sales. As a reminder, flows tend to be lower in the third quarter due to seasonality in the K through 12 teachers business, and we did not have any material institutional flows in the period. Wealth management had another strong quarter with $2.2 billion of advisory net inflows, a 12% annualized growth rate. Advisor productivity increased 8% year over year. Turning to asset management, AB reported total net outflows of $2.3 billion, which includes $4 billion of low-fee assets transferred to RGA as part of the life reinsurance transaction. Excluding this, AB had net inflows of $1.7 billion, driven by the private wealth and institutional channels. Private markets assets increased 17% year over year to $80 billion and are on track to achieve AB's $90 to $100 billion target by 2027. Moving to capital deployment, we use $1.5 billion to drive shareholder value and make investments for future growth. During the quarter, we returned $757 million to shareholders, including $676 million of share repurchases. We completed most of our planned $500 million of incremental buybacks and expect our full-year payout ratio to be at the upper end of our 60% to 70% target range. We also reduced outstanding debt by $500 million, to manage our leverage ratio and give us more capital flexibility moving forward. Finally, we announced two strategic transactions that help scale our wealth management and AB private markets businesses. We are acquiring Stifel Independent Advisors, which has over 110 advisors and $9 billion of advisory assets. In addition, we are allocating $100 million to support AB's investment in FCA RE, an Asia-focused sidecar established by Fortitude RE and Carlyle. AB will become a key investment partner for Fortitude and initially manage $1.5 billion of private credit assets for FCA RE. I will discuss these transactions in more details in a minute. but they both offer attractive IRRs and are consistent with our strategy to scale adjacent businesses. Turning to slide four, we highlight our strategy to drive growth and create shareholder value. We are focused on three core growth businesses, retirement, asset management, and wealth management that have synergies and provide flywheel benefits. Participating in all three of these businesses allows us to capture the full retirement value chain. There are four key pillars to our strategy. Number one, defend and grow our retirement and asset management businesses. Secondly, scale our high growth and high multiple wealth management and private markets businesses. Third, see future growth by investing in high potential opportunities, like annuities and 401K plans and emerging asset management markets. And finally, be a force for good and deliver on our mission to help our clients secure their financial well-being so they can live long and fulfilling lives. On the next two slides, I will provide a deeper dive into our strategy for scaling adjacent businesses. First, I will focus on our wealth management business, which is a key growth driver for the company. Having affiliated distribution also provides a significant competitive advantage for Equitables retirement businesses. Wealth management has strong growth momentum with $6.2 billion of year-to-date advisory net inflows. Advisor productivity is up 8% year-over-year and 24% since 2022. Earnings are on track to reach $200 million in 2025, two years ahead of plan. We also allocated capital to enhance the strong organic growth momentum. We have increased our investment in experienced advisor recruiting, bringing in over $1.1 billion of recruited assets over the past 12 months. Earlier this year, we hired a new head of business development to build out our platform, and we have a strong pipeline and expect to ramp up recruited AUA over time. As I mentioned earlier, We also recently announced the acquisition of Stifel Independent Advisors, which has over 110 advisors and $9 billion of AUM. Stifel's advisors have similar characteristics to Equitable's advisors, creating a nice cultural fit. There are also meaningful operational synergies. We expect the transaction to close in the first half of 2026, and forecast it to add about $10 million to wealth management earnings in 2027. This is a good example of the type of bolt-on acquisition we will look at to help scale our wealth management business at a reasonable cost. Looking forward, assuming normal markets, we forecast wealth management earnings to continue growing at a double-digit rate, driven by asset growth and further advisory productivity improvement. In addition, margins should expand over time as the business scales. I would also note that our business does not have significant exposure to lower short-term interest rates. Cash suite income has accounted for only 15% of the segment's year-to-date earnings, and 100 basis points of Fed rate cuts would reduce annual earnings by only about circa $15 million. Turning to slide six. I want to highlight some examples of how Equitable is deploying capital to support growth at AB. Having access to Equitable's balance sheet is a competitive advantage for AB relative to most traditional asset managers, and the investments we make yield flywheel benefits across EQH. Our investments come in three primary forms. Number one, allocations from Equitable's general account portfolio. which can be used as seed capital to launch new strategies or permanent capital to scale existing offerings. To date, we have deployed over $17 billion of our $20 billion commitment to AB's private markets platform. Number two, in addition, we support team liftouts that bring new capabilities to AB. For example, in the past year, AB added private ABS and residential mortgage teams to expand its private markets offering, and Equitable was able to provide them with immediate capital to invest. Number three, finally, we helped finance M&A or strategic investments, either by providing cash or issuing AB units. We did this with the acquisition of Carvel in 2022, and more recently with the investments in the Ruby Reed, and FCA re-sidecars. These sidecar investments highlight some of the unique synergies between AB and Equitable. AB leveraged Equitable's insurance expertise in the due diligence process, and both firms benefit from developing a strategic partnership with a sponsor. These investments also provide Equitable with exposure to new insurance markets, such as pension risk transfer and Asia. AB has been able to leverage these investments to help deliver strong growth in private markets and third-party insurance, two key strategic focus areas for the company. Private markets AUM has grown at a 12% CAGR since 2022 and is on track to meet or exceed the 90 to 100 billion target by 2027. Third-party insurance general account AUM is up 36% since 2021, and AB has added six new mandates year-to-date. Stepping back, the recent actions we've taken to support the growth of AB and wealth management are good examples of us executing on our strategy and leveraging our unique flywheel benefits. I will now turn the call over to Robin to go through our financial results in more detail.

Thanks, Mark. Turning to slide seven, I will provide some more detail on our third quarter results. On a consolidated basis, non-GAAP operating earnings were $455 million, or $1.48 per share. We reported a GAAP net loss of $1.3 billion, primarily driven by a one-time impact from asset transfers at the closing of our individual life reinsurance transaction. There was an offset and adjustment to AOCI. We had a few notable items in the quarter. First was a $36 million adjustment for July mortality experience, most of which was covered under our reinsurance agreement with RGA. The transaction had an effective date of April 1st, so it covers claims in July. However, the reinsurance benefit is not reflected under U.S. GAAP, as we did not close the transaction until July 31st. Accordingly, there is a difference between our GAAP result and our cash result. Going forward, we expect to see significantly less volatility in our life results, which are now reported in Corporate Another. We also had $24 million of one-time expenses in Corporate Another. Finally, we had a $4 million benefit in wealth management from a reserve release, which reflects better emerging experience on the loans we've made to recruit experienced advisors. Our annual assumption review had a $1 million positive net impact on operating earnings. As Mark mentioned earlier, this validates our conservative approach to assumption setting. Adjusting for these items, non-GAAP operating earnings per share was $1.67, up 2% year-over-year. Total assets under management and administration rose 7% year over year to 1.1 trillion, which bodes well for future earnings growth. In addition, we'll see further benefits from expense initiatives that will contribute to the bottom line over time. Adjusted book value per share, XAOCI, end with AB at market value with $33.59. In our view, This is more meaningful than reported book value per share, which reflects our AB holding at book value. On this basis, our adjusted debt to capital ratio was 24.5%. On slide 8, I'll provide some more details on our segment level earnings drivers. Starting with retirement, earnings declined for the third quarter 2024 but increased 9% sequentially after adjusting for notable items in both periods. Net interest margin, or NIM, was down year over year due to a lower level of market value adjustment gains and some spread compression as our pre-2020 RILA block runs off, but it did increase 4% sequentially. As discussed last quarter, we do not assume any benefit from MVAs going forward. and we expect spread pressure from the old aryla block to be de minimis by mid-2026. NIMS should continue to increase from the third quarter level, driven by growth in general account assets. We also saw fee-based revenues increase 4% from the second quarter due to strong equity markets. Separate account balances ended the quarter 4% higher, which bodes well for further growth in fee revenues in the fourth quarter. Growth in revenues was partially offset by higher DAC amortization, which reflects growth in the block and increased surrenders. This quarter is a good baseline for amortization moving forward, and we expect it to increase by approximately $4 million per quarter. Moving to asset management, AB delivered a strong quarter with earnings up 39% year-over-year. This includes the benefit of increasing our ownership from 62% to 69%. Fee revenue increased 6% sequentially, driven by favorable markets and a higher base fee rate. The adjusted margin improved 290 basis points year-over-year to 34.2% and is expected to come in above the 33% target for the full year. AUM ended the third quarter at a record $860 billion, which should support future growth in base fees. And we now project full-year performance fees of $130 to $155 million, up from our prior forecast of $110 to $130 million. Turning to wealth management, we delivered strong earnings and net flows. Earnings increased 12% year-over-year, excluding the reserve release. and 12% annualized organic growth compared very favorably with peers. We expect segment earnings to continue growing at a double-digit rate moving forward. Finally, results in corporate and other were negatively affected by the notable items I mentioned earlier and adverse mortality throughout the quarter. We expect to see much more muted impact from mortality in future periods as we get the full benefit of the life reinsurance transaction. We will also see incremental benefits from our expense efficiency initiatives. Our alternatives portfolio generated an 8% annualized return in the quarter, consistent with our 8 to 12% long-term expectation. This exceeded our guidance of a 6% return due to a gain on a strategic investment. We expect returns at the low end of our 8 to 12% target range again in the fourth quarter. Lastly, the consolidated tax rate for the quarter was 17%, below our normal expectation of 20% due to some favorable items. We now expect a full-year consolidated tax rate to be in the high teens. Looking to 2026, we still expect the full-year overall company tax rate to go back to 20%. Putting it all together, we see good momentum heading into the fourth quarter and remain focused on controlling what we can control to drive higher earnings in the future. Turning to slide nine, I'll highlight Equitable's capital management program. During the quarter, we returned $757 million to shareholders, including $676 million of share repurchases. We completed most of the planned $500 million of incremental buybacks in the third quarter. For the full year, we expect our payout ratio, excluding the one-time buyback, to be at the higher end of our 60 to 70% guidance range. Over the past four quarters, we have reduced our share count by approximately 8%, helping to drive growth in earnings per share. We ended the quarter with $800 million of cash at the holding company, above our $500 million minimum target. During the quarter, Holdings received $1.6 billion in subsidiary dividends, including $1.3 billion from our Arizona insurance entity. We used this to fund a capital return to shareholders, tender for $500 million of debt. and redeem the remaining $165 million of our Series B preferreds. In the fourth quarter, we expect to take an additional dividend from our Arizona subsidiary and will also receive distributions from our asset and wealth management businesses. For the full year, we expect total cash upstream to the holding company to be $2.6 to $2.7 billion. This includes 1.6 to 1.7 billion of organic cash generation in 2025, in line with our guidance. In addition, we will upstream 1 billion of proceeds from the life reinsurance transaction. Importantly, over 50% of our organic cash generation is coming from asset and wealth management businesses, highlighting our diversified business model. We will provide additional guidance on our 2026 cash flow outlook early next year and remain on track to achieve the $2 billion of annual cash generation by 2027. I will now turn the call back over to Mark.

Thanks, Robert. Equitable as healthy organic growth momentum and higher assets under management are driving increased earnings power across our retirement, asset management, and wealth management businesses. I'm also pleased with the progress we've made in redeploying the $2 billion of proceeds from the life reinsurance transaction to drive shareholder value and make strategic growth investments to scale our wealth management and AB private markets businesses. Looking forward, we expect EPS growth to accelerate and remain confident in achieving our 2027 financial targets. We will now open the line for your questions.

We are now opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. Your first question comes from the line of Sunit Kamath of Jefferies. Your line is now open.

Great. Thank you. I wanted to start with private credit. And if we take a step back, you know, we have some people outside the insurance industry pointing fingers at the insurance industry, some folks within the industry saying we're fine. So I wanted to get your perspectives on two things. One, what your view of the environment is. And I guess the bigger question is, as you start to add private credit assets, can you talk about the process that you go through with Carvel just to understand what the requirements and criteria are, whether you want to talk about ratings or who rates the securities? Just want to get some color on the background there. Thanks.

Sure. Morning, Sunit. Thanks for the question. I think on the broader environment and Carvel sets on the line, so I'll let him touch that. But let me talk quickly about how we think about it at Equitable Holdings. We do think private credit and broader credit is a good asset class for clients and investors at Equitable and Alliance Bernstein. And we want to make sure we're compensated for the risk we take. For Equitables general account specifically, this is a business in insurance that we have sticky liabilities and where you want to take some liquidity risk. And as a result, private credit is an attractive asset class that matches well with our liabilities. We invest in investment-grade assets, and we pick up in a liquidity premium as a result. Specifically on the ratings, as I know this has come up in some of the calls, about 90% of our fixed maturity portfolio is rated by at least one of the big three rating agencies. We have 8% at DBRS and 2% is NAIC only. We only have $200 million that's rated by Egon Jones, and that's really within our middle market lending portfolio. So that's about less than 20 basis points of our total portfolio. Just importantly, ratings is an output, but we don't rely on ratings. What we rely on at Equitable Holdings is the underwriting capability within our general account team and at Alliance Bernstein. And that's really the benefit of our flywheel here is we have direct access of underwriting. And so we need to get comfortable first with the underwriting of the portfolio that we're being compensated for any risk that there is, and then you would get the ratings. So the overall portfolio, the general account, it's about 98% investment grade and A2 rating, but that's the output of this good underwriting that takes place between Equitable and Alliance Bernstein. And we continue to view even in this environment private credit as an attractive asset class, but both private and public credit for the general account does come with risk. That's our role. We want to take good risk and make sure that our shareholders are being compensated for it, and we feel comfortable where we are today for the general account at Equitable. Maybe I'll pass it to Seth so we can talk about AB, broader credit, and Carvel as well.

Okay, thank you, and Sunit, hello. Let me just make the broader statement, which is as we look at our private credit businesses, which Carvel is one of several, Our overall investment performance, including recent results, has been as expected or better. We've seen pretty strong results across the board, certainly recovering, particularly in commercial real estate. But I would say generally that given the amount of money that's moved into private credit, we've certainly seen some reduction in strength of the covenant structures. And it's clear that people are reaching for risks in what has been in a very strong demand market. That being said, we stay very close to home in the risks we underwrite, whether at Carvel or our middle market lending business. And those processes are bottoms up, due diligence intensive, and highly negotiated structures. which to date have protected us pretty well. We've been pretty prudent at stepping aside where we think the terms and the structure or the management team are not giving us the visibility that we would think is essential for us to take a favorable decision in that regard. So yes, there are signs of exuberance, and obviously there have been indications of fraud, at least in two cases. that are out there, but we think we're well protected and we're comfortable with the positions we have both in the general account of equitable, but also more broadly for our third party clients.

Okay. Thanks for the comprehensive answer. My second question is on the Ryla market. And I know about half of your sales are somewhat protected given equitable advisors and some of the PNC companies that you sell through. But I wanted to focus on the other half where I think there's probably more competition. And I just wanted you to talk to maybe two things. One, how are you differentiated in that other half? And then second, are you seeing anything in terms of terms and conditions that start to make you a little bit worried about aggressive features, things that we saw in kind of the mid-2000s? Just want to make sure that doesn't kind of creep up on us. Thanks.

Great. Thanks, Nate. This is Nick. As you highlighted, first, we do see continued strong demand for RILAs across the space, driven by the demographics and this macro uncertainty, and that resonates across all channels. As Mark highlighted, overall RILA sales were up 7%, another record high for us in the quarter. We think our flywheel gives us a sustainable, durable edge in three ways across the different markets. One, we generate attractive yields through AB. The second, as you highlighted, which is we have our privileged distribution through equitable advisors, but we have a track record as a pioneer, having been the first to launch this product over a decade ago. and continue to deliver on the value proposition, consistent stories, and the relationships with over 15,000 advisors in the third-party space. And then finally, we have the scale given our wholesaler footprint, our number one position. When we look at how we are continuing to evolve in the market, we have a successful track record of innovation that's really anchored both from the insights we get from equitable advisors that we translate on consumer need to other markets, as well as anchoring our products in our economic that ensures we deliver attractive returns. So our focus has been on prudent innovation relative to both within the segments in RILAs. We were the first to launch dual direction. These are new segments that tap into different needs, as well as new versions that open up new markets. For example, in August, we launched our SES Premier product, which allows consumers to pay a fee for a higher cap, which is fitting a new need that others are looking at. So I would say, you know, going forward, we believe we're in a privileged position to capture a disproportionate share of the value being created in this fast-growing market.

Your next question comes from the line of Tom Gallagher of Evercore ISI. Your line is now open.

Good morning. First question, Robin, beyond the 35 million one-time adjustment for mortality, you mentioned underlying mortality experience was also unfavorable. Can you comment on how much below your expectation kind of underlying mortality experience was in the quarter and why you're confident that should normalize going forward? I think you said you expect less volatility. Was it maybe a little more color on what drove it this quarter and why you're comfortable that that should normalize?

Sure. Thanks, Tom. So we did call out about $36 million or $0.12 per share as a notable item for July mortality experiences. And this is to reflect economic benefit from the reinsurance transaction that was not reflected in the gap results. Mortality was a bit elevated in August and September, and broader across the whole quarter, we saw higher severity in the quarter as it relates to mortality. but our retained experience, which is net after the benefit of the RGA transaction, was only about $10 million worse than expected for the months of August and September. So while it did weigh on earnings for corporate and other, the impact was relatively modest, underscoring the benefit of the reinsurance transaction. So we don't expect it to be highly volatile like it was previously going forward that we have RGA in place.

Okay, thanks. That seems fairly modest. The follow up question is just about capital. And I heard your comment about you have a $500 million whole code target. You have 800 million currently. I guess historically you ran with this giant buffer at the holding company, 2 billion plus. But now things have changed. I think you've significantly improved cash flow outside of the insurance entities. Is $800 million a good kind of level? I know you have a $500 million target, but should we be thinking about in normal course you're going to run with some buffer on top of that? Is $800 million reasonable to think about as a base case? And then also, how much is left from the RGA deal? Is it around $300 million that you would have in addition to normal cash flow? Thanks.

Sure, Tom. So on cash flows, look, our cash flow position is very robust. If you recall back, going back when we IPO'd, only 17% of the cash flows were coming from asset and wealth businesses, and now it's over 50%. And that's reflective of our distinct strategy in growing our asset and wealth businesses as we capture a bigger share and the overall flywheel that we have at Equitable Holdings. For the Holdco, we want to target $500 million. Yes, at times, we'll always have a little bit more, but not substantially, just to manage volatility within results. So I wouldn't take away that we have a higher target than the $500 million, but, yeah, sure, we're always going to have a little bit more. as you want to manage any cash flows that are needed, whether it's for interest expense or timing of upstreams from the holding company as well. As it relates for the RGA transaction, we're happy that we completed and closed the transaction effective July 31st. Reminder, $2 billion in total value. We used that value and that shift to really move our business away from long-dated, highly volatile life business to faster-growing businesses in asset and wealth. You saw that in this quarter as well. So we invested about $800 million to increase our stake in Alliance Bernstein from 62% to 69%. We had $500 million of incremental share buybacks on top of our 60% to 70%. That's going to be helpful for go-forward EPS growth. We also reduced our debt position by $500 million. And in this quarter, we invested approximately $200 million to scale our wealth management business a bit more with the steeple acquisition. That's about 110 advisors, $9 billion of AUM, AUA. So that's good for our growth in our wealth management business going forward. and continue to invest in sidecars to grow AB's private credit business. So that's the $2 billion of proceeds right there. There's about $300 million of left that we said we would deploy, and that will be deployed in due time, either in growth investments or additional share buybacks, depending on where we are in the market.

Your next question comes from the line of Brian Kruger of KBW. Your line is now open.

Hey, thanks. Good morning. I think you called out 10 million of unfavorable mortality in August and September that impacted the corporate segment. Was there anything else that would you consider somewhat unusual this quarter? I think you showed kind of a $98 million loss. It sounds like it was a 10 million mortality impact. Anything else you'd point out that maybe caused that to be worse than you'd normally expect?

Nothing else I would call out, but look, in corporate and other, there's always a little bit of a noise, and we will provide earnings guidance for corporate and other next quarter as we discuss our 2026 outlook. But you should expect the quarterly loss to be smaller than the $100 million per quarter that we had guided to prior to the resegmentation.

Okay, got it. And then... Can you go into the sidecar strategy a little bit more in terms of investing, in terms of AD investing in third-party sidecars? You've done a few things now. Do you see this as something you'll continue to do beyond what you've already done, or is that most of what you think you'll do?

Well, why don't I start? This is Seth Bernstein. We have done two that we've announced. talking with others and there's ultimately a limit on what we would be willing to do here depending on the opportunities but we're quite mindful of the overall risk we're prepared to take on the balance sheet with respect to insurance risk and again we we do this in partnership with equitable uh utilizing their extensive um underwriting capabilities, which we don't have here in-house, as well as outside consultants that we use to evaluate the opportunities. So this is going to be, I think, a continuing attribute of private credit markets, given insurers, particularly life insurers, desire to access capital to continue to expand their businesses and do so in the most cost-effective way. It has proven to be a pretty attractive way for us to deploy new assets and develop new client relationships. But ultimately, there is a limit on the amount we're prepared to do. And perhaps, Robin, I don't know if you have a perspective from the equitable perspective level.

Look, from an EQH perspective, sidecars fit quite well into the flywheel. We can underwrite insurance liabilities and AB can invest in private credit. Just to double-click a little bit where we've invested so far, if you look at the RGA sidecar, Ruby Re, we're getting into an asset-intensive sidecar, PRT liabilities. Those are liabilities that Equitable is not directly in but can help underwrite the AB team, and AB can invest and leverage their private credit capabilities. And then if you look at the FCA sidecar, well, that's now an international market, Asia-based liabilities. We can help underwrite and, again, leveraging AB's private credit capabilities. So as we look at these opportunities, we want to make sure the equity stands by itself, that it delivers good risk-adjusted IRRs. and then also it builds on the capabilities that we have at Alliance Bernstein to grow our private markets business, which is now $80 billion and well on track to the $90 to $100 billion that we laid out at Investor Day. So we like the sidecar strategy. It leverages the flywheel, and we'll do more of them if we see that they fit the needs between equitable and eBay.

Your next question comes from the line of Joel Horvitz of Dowling. Your line is now open.

Hey, good morning. In retirement, the DAC amortization jumped $10 million quarter over quarter. Robin, you mentioned, I think in your prepared remarks, that surrenders was a driver. But I guess are surrenders getting worse than expectations? I thought that was the driver of the jump a year ago.

Yeah, that's right. Well, two things drive in higher DAC amortization that I mentioned, higher growth in sales, which obviously we capitalize and have to amortize, and then some higher surrenders that we have in place, and that's what I mentioned on the call as well. Nick, you could provide some color on it as well.

Yeah, so just on overall flows, as a reminder, our retirement segment now encompasses both our individual retirement as well as our group retirement business lines. So breaking that down, first with an individual retirement, we achieved $1.4 billion of net flows, driven by $3.9 billion of RILA sales. In the last nine out of the last 10 quarters, we've had record sales, so we continue to see momentum. Next, as was sort of highlighted in the previous remarks, this was partially offset by our expected seasonal outflows in group retirement. which is comprised of our tax-exempt institutional and our corporate business. In tax-exempt, this is our teacher's business. We experience modest outflows consistent with seasonal expectations given that teachers pause contributions during the summer months. As a reminder, this is where we have our 1,200 advisors that work with close to 900,000 educators in school districts on supplemental retirement plans. We would expect this line to continue to achieve single-digit growth with strong ROAs and be positive for the year. Institutional, we didn't have any material flows in third quarter. However, we've gathered over $800 million in assets year-to-date. And then finally, in our corporate business, this is our legacy 401k lower margin that's sort of been in structural runoff. we would remind you that 20% of the outflows are for retirement distributions, and the remainder we're capturing 50% given our flywheel model through equitable advisors. So looking forward in the retirement business, we expect to continue to generate strong flows supporting the future growth of our earnings and cash flow.

And where we did see surrenders, the actual surrender rate didn't increase. It was more the benefit of higher markets, so higher account values overall. So the surrender rate itself was okay.

Got it. That's helpful. And then, Nick, just following up on, I guess, institutional, any expectations for Q4? And maybe can you comment on expectations for the sales of the fixed annuity product that you launched?

Sure. We continue to be bullish on the untapped potential for long-term growth in the institutional market. You know, just to frame, it's an $8 trillion defined contribution market with a potential addressable market for in-plan annuities probably between $400 billion and $600 billion longer term. Still in the early innings, we have the policy support. That's the regulatory tailwinds through the SECURE Act. We have the products. We have the partnerships now with the target date funds and the record keepers. So we're really now on that fourth step of engaging plan sponsors. We're encouraged by the momentum, having gathered over $800 million since we launched the BlackRock partnership last year, and believe – that going forward, we're in a strong position with the first mover advantage. This is both our expertise in the product design, as well as our partnership network with AB. AB's been in this space for over a decade. And BlackRock, this is allowing us to build a track record that we think the fast followers are going to look at when they start to adopt these solutions. Specifically for the next quarter, we don't expect material sales. We get visibility about 30 to 60 days prior to transfer, but there is a strong pipeline for 2026.

Your next question comes from the line of Alex Scott of Barclays. Your line is now open.

Hi. I just wanted to make sure I had it clear on sort of the movement in hold code liquidity. It sounded like there's still some cash being taken up. So I just wanted to see if you could walk us through what does that look like on more of a pro forma basis for what you're expecting in 4Q? And if the higher sort of incremental share repurchases are more complete at this point, then how would you stack up the set of priorities for potentially deploying more?

Sure. So we ended the quarter at $800 million at the Holdco. We put a chart on page slide nine of the deck that highlights the walk from last quarter to this quarter. It included the subsidiary dividends, the capital return, the debt tender. the preferreds and some interest expense. In the fourth quarter, you should expect that we'll continue to get upstreams from both the Arizona Insurance Entity and also AB, our wealth management business, and the asset management contracts that we have. That should total around $700 million. And then we'll have capital return as well in the quarter and interest expense on top of that as well. So we should end the quarter probably above $1 billion in Holdco cash as well. And then going forward, as we think of next year, we'll give guidance on our cash flows next year. obviously we're committed to the 60 to 70% payout ratio and we want to continue to find, you know, attractive, you know, bolt on opportunities to feel growth in the business as well. Uh, similar to like what you saw this quarter.

Got it. Um, that's helpful. And, you know, in, in wealth management, as I think about some of the other, you know, peer companies out there that have built up their wealth management groups, I think, you know, team lifts has been a big part of it. Um, Can you talk about that as part of your strategy? Is that something that you're deploying capital towards and using to build it up over time? I guess it would be a little more organically.

Sure. First, as we hide, we're excited by the Stifel transaction. These are high-quality advisors that are a strong cultural fit. We see the opportunity for them to continue to accelerate the growth of their practices on our platform. As Mark highlighted with 110 advisors, $9 billion of AUA, this is a good example of the bolt-on acquisitions where we're deploying capital to augment our strong organic growth as we continue to build scale. Looking forward, we see continued momentum in our underlying organic growth drivers. We're one of the few in the industry that continues to bring in new advisors or new talents into the industry, which allows us to be disciplined in our experienced hire efforts. So we think we're well positioned to meet this growing demand for advice and are very encouraged with the momentum that we have. Thank you.

Your next question comes from the line of Jimmy Bullard of JP Morgan. Your line is now open.

Hey, good morning. First, I just had a follow-up question for Nick around your comments on competition in the Ryla market. I'm not sure I missed what you said, but I realize you guys have a unique distribution and obviously scale in the product line as well, but the market is a lot more crowded than it was a few years ago, and some of your competitors have alluded to an increase in competition. What is it that you're seeing competitors do in the market, and are you seeing any that are offering maybe overly generous terms and conditions, or is it just that there are more companies and it gets harder to sell as a result?

Yeah, so obviously, as you mentioned, the competitive landscape has changed since we pioneered the product a decade ago. with the majority of carriers now having launched a product. We're very mindful of competitive trends on pricing. Usually new entrants offer a teaser rate, and they revert back because it's not sustainable. We remain focused on profitable growth. As the market leader with a durable edge, we're continuing to benefit from that growing pie as more advisors and consumers become familiar with the value of buffered annuities as an asset class in their portfolio. I'd highlight, you know, over the last three years, our wireless sales have almost doubled, and we've produced record sales in nine of the last ten quarters. So we continue to focus on, I would say, innovation anchored in our economic model. And you'll see us delivering, I would say, sustainable growth within that market.

And then just maybe on individual life, obviously your exposure going forward to the block is going to decline given the reinsurance contract. But if you think about the underlying policies, margins have deteriorated over time. They've been especially weak the last few years. And do you view that as more of an aberration and just normal volatility in the business? Or is there something about the type of policies or terms in the block that have been pressuring results in recent years that might be more sustainable?

Sure. So when we think about the individual life business, let's just take a high level where our focus is on equitable advisors. And the reason being is we don't find that third party businesses being attractive. And a lot of the volatility we see from the results was a function of third party sales pre-global financial crisis that had very high face amounts. and had a low ROE on it, and that's why we did the RGA transaction to take a 5% ROE business and reinvest it in higher growth businesses for equitable to drive our strategy going forward. We are perfectly economically reserved. We manage the business on an economic basis, so the reserves are all good. There is some noise in the GAAP accounting with volatility, and part of the reason we did the RGA transaction was to reduce that volatility going forward, but we don't see anything else other than volatility at this time. There are older age policies, high face amounts, so if someone dies, if they don't die this year, it's likely they're going to die soon, and then you're going to see that volatility come in. As a result, we feel good of where we set our reserves economically, and we feel very good about the RGA transaction because This helps accelerate our strategy into these faster-growing businesses.

Your next question comes from the line of Elise Greenspan of Wells Fargo. Your line is now open.

Thanks. Good morning. My first question is on, you know, the $300 million, I guess, that the capital left from the RGA deal, right, that you just haven't fully earmarked. How do we think about you guys balancing using that, right, for... M&A versus buyback? And will you just, I guess, make the decision if it goes to incremental buyback once you kind of get through what you've already outlined as the, you know, extra buyback?

Sure. So, I just think of the $300 million. I mean, we're not going to be tracking it going forward. It's going to be returned in normal course of business as part of our 60% to 70% payout ratio. So if you see us at the high end of the payout ratio, it may be because of some of the $300 million, but I wouldn't anchor on the $300 so much as we have excess capital in this system, so we can do both. We can return capital to shareholders and do both on acquisitions, invest in sidecars to fuel growth for our business going forward. We want to drive earnings growth in the business and we want to drive EPS accretion. So we have the ability to do both because of our unique business model.

Thanks. And then, you know, you guys had last said you were in the middle of that 12% to 15% EPS CAGR. That's where you thought you would be, right, with the financial plan. Is that still, you know, where we sit today, you know, post Q3?

Yes, we still feel comfortable with the 12% to 15% in the middle of the range as part of our 2027 target. We feel comfortable with all of our 2027 targets, to be frank. The $2 billion of cash flows, we can see the visibility on that. We're into $1.6 to $1.7 billion this year. That will go up next year, and we're on track for the $2 billion. You can see since our investor day, we're well on track to the high end of the payout ratio of 60% to 70%, where we were below on the EPS growth. If you normalize as of last quarter, we showed we're at 11%. We'll continue to hold ourselves accountable, and we see the benefit of record AUM at $1.1 trillion, organic growth coming in through all of our businesses, expense initiatives, investment initiatives. all will come through to support the 12% to 15% growth going forward, in addition to the additional buybacks, which help reduce our share count. So we feel quite comfortable with the 12% to 15% target.

Your next question comes from the line of Jack Madden of BMO Capital Markets. Your line is now open.

Hi, good morning. Just one on the spread lending business. Just wondering if you could talk a little bit more about the growth opportunities there. How big do you think that business can be for Rack with a Bull and any thoughts on current market conditions?

Sure. So we launched this FABN business specifically in 2020. We issued about $4.5 billion so far year to date, and it's about $10 billion in total. We have a lot of capacity to continue to grow that business. This business directly benefits, again, from the flywheel as we can benefit the strength of equitable and having a strong rating, borrow at a low cost of funds, and take that and invest it at attractive risk-adjusted yields at Alliance Bernstein. So it's really a function of the flywheel. And the FABN business is just, you know, a secondary benefit of the growth in our RILA business, as Nick spoke about earlier, as our general account grows. continues to grow. Our wireless sales continue to grow, attract more customers. It gives us more capacity to do FABN as long as the returns are there. So we'll continue to be a benchmark issuer in the market, but it's a function of our overall growth strategy that helps drive our ability to have FABN.

Got it. Thanks. And then just to follow up on your Bermuda entity, I know you executed a large transaction earlier this year, but just wondering if there's any thoughts or anything update on your thoughts around further transactions, whether it's enforce flow reinsurance or down the line, maybe third party deals and kind of over what timeframe do you expect to do more with that entity?

Yeah, we're really excited to have our Bermuda entity set up and also, you know, very thankful for the people in our Bermuda company that are help operating that as we have people on island at this time as well. And we'll continue to grow our presence there over the next few years and The Bermuda business, we did our inaugural in-force transaction this year on our group side. It's a lever in our toolkit for capital management. We can use it for flow reinsurance, which is something we'll look at for 2026. And then post-2027, we'll look at to see if we can leverage it for further growth, whether it be third-party or broader markets. to help our growth profile overall. So I think it's a good framework. It's an economic framework. We like the regulatory regime in Bermuda. It's very close to our economic framework that we manage internally. So it's going to help us sustain cash flows on a go-forward basis as well. So we're happy to have Bermuda, and we're going to leverage it as part of our toolkit. Thank you.

Your next question comes from the line of Tracy of Wolf Research. Your line is now open.

Thank you. Good morning. Very basic question. So when AB partnered with RGA to create the Ruby RE, I was thinking that makes sense since RGA doesn't have real asset management capabilities. But turning to FCA RE, Fortitude RE has asset management capabilities with Carlyle. And on the 42D press release, they said the vehicle should add $10 billion of fee earnings AUM to Carlyle. So could you add some color on how AB won that mandate for private alternative management and where essentially that is outsourced and what is the related AUM?

Let me try and answer that. This is Seth Bernstein. We want it because we have an existing relationship with Fortitude and know one another pretty well. And they approached us as they were looking for raising capital for this particular vehicle. And we were prepared to, just given the quality of the insurance risk they were taking, the market, particularly attractive market for us given our broader reach within Asia and our desire to grow our insurance activities in that region. And the result is that we believe for the amount of money we put in, we will raise, I think, about a billion and a half dollars of incremental private alternatives to manage for them in areas that are complementary, I believe, to what Carlisle already does for them.

Okay, awesome. And then when you did the Ruby re-deal and that enhanced relationship with RGA, do you see this relationship with Fortitude Re maybe enhancing future risk transfer deal with that partner?

I'm sorry, can you ask the question again?

Okay. So when you created the Ruby re-deal with RGA, that enhance your relationship with RGA? And I'm just curious, given this deal with Fortitude Re as you're looking to optimize your blocks, you know, right now you still have New York Legacy VA. And I'm wondering if perhaps this could enhance your relationship with Fortitude Re.

Right.

I'll hand it over to Robin to answer that.

Yeah, sure. Tracy. Um, we, we look at these on a standalone basis. Um, we don't have any, you know, other, we've done the big block deals, um, at equitable. We did the legacy VA transaction. We did the largest life insurance library insurance transaction in the industry. You know, at this point in time, we're looking to grow the different business lines, and we look at sidecars as a way to grow AB's private credit business while getting in good returns on the equity that we invest. So I wouldn't read into our sidecar investments leading to, you know, future reinsurance deals with any partner. If we're going to do reinsurance, we'd obviously look at all the partners in the different industry and get the best returns for shareholders.

Thank you. We have reached the end of our Q&A session and the end of our session for today. Thank you so much for attending today's call. You may now disconnect. Goodbye.