Equitable Holdings, Inc. (EQH) Q3 2021 Earnings Report, Transcript and Summary

Good morning. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Equitable Holdings Third 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. [Operator Instructions] Thank you. I would now like to turn the call over to Işıl Müderrisoğlu, Head of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Equitable Holdings third quarter 2021 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 2 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 Ali Dibadj, AllianceBernstein’s Chief Financial Officer and Head of Strategy. 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.

Thank you, Işıl. Good morning, everyone, and thank you for joining our call today. I am pleased to present our results for the third quarter of 2021, and I would like to begin by providing some key highlights on Slide 3. Product innovation across both our insurance and asset management subsidiaries continues to resonate well with clients and our distribution, strength and economic management of the business continues to generate value for shareholders. This is reflected in a record operating earnings in the third quarter, with strong results in our retirement and asset management businesses supported by favorable equity markets. Our third quarter non-GAAP operating earnings of $818 million, or $1.94 per share were 56% up year-over-year and 13% up sequentially on a per share basis. Assets under management increased 17% year-over-year to $871 billion, driven by strong net flows of $7.1 billion in the quarter equity markets and continued momentum in our capital light businesses. Secondly, I'm very pleased to highlight our progress on the mitigation of Regulation 213 redundant reserves. As a reminder, these are uneconomic reserves that would not be required if we were domiciled outside of New York state. We announced that the half-year that we received the permitted practice with the New York DFS, which provides us with a five year phasing of this new regulation. Since the half-year, we have delivered on our commitment to execute management actions to secure our future cash flows. In support of these efforts, Yesterday, we announced a xxx financing transaction via a reinsurance with Swiss Re, which unlocks $1 billion of statutory value and offsets approximately half of the regulation 213 redundant reserves. We have also completed our previously announced internal restructuring and now expect 50% of annual cash flows from non-insurance regulated subsidiaries of our holdings company that is – of the $1.5 billion cash we generate each year, approximately $750 million – now comes from our insurance entity and the balance from AB and non-insurance subsidiaries. Robin will provide more detail on these actions later in our call. Our fair value economic framework continues to be the compass by which we steer the business. This ensures sound economic pricing of our products, a robust capital position, and that we are closely aligned and look forward to the forthcoming adoption of LDTI accounting changes in 2023. We are very much for fair value and transparent reporting. The results of our annual assumption update this quarter has had a minimal impact and is testament to the effectiveness of our fair value management. The capital position remains strong, with $2 billion in cash and liquid assets at equitable holdings. We continue to consistently deliver on our 50% to 60% payout ratio target, plus an incremental $500 million from the Venerable transaction in this last quarter. $534 million was returned to shareholders in the form of dividends and buybacks, and $4.5 billion has been returned since our IPO. And the final point I would like to highlight is our business model, which differentiates equitable and positions us to deliver superior client outcomes and capture the full value chain for our shareholders. When we think of equitable, naturally we think of insurance and retirement segments, but the reality is we have three businesses; Retirement, Asset Management and our Affiliated Distribution. Collectively, these three businesses deliver a unique value proposition to capture the growing retirement opportunity while differentiating equitable from our peers, which I will highlight in further detail on the following page. So turning to slide 4, first, our insurance business. Equitable has been providing life and retirement solutions to help clients secure their financial well-being for more than a 160 years now. We have a history of innovation pioneering the first variable life product in the 1970s, the variable annuity with living benefit in the 1990s and creating the Buffett annuity market in 2010, demonstrating our ability to not just succeed, but also shape the markets we play here. Today, Equitable holds the number one position in the wider market, number two position in the variable annuity market and the number one position in the K through 12 for 3B educate as market. Underlying all of these businesses is our fair value economic framework. Over the last decade, we have shifted to businesses that are more capital efficient and less interest sensitive. As a result, Equitable life subsidiaries have historically generated stable cash flows of around $1 billion per year, despite historic low interest rates and volatile equity markets. What is unique is that our insurance operations are enhanced by our 65% ownership of AllianceBernstein, a globally renowned asset management. There were three strategic advantages to this. First, we are able to develop more attractive solutions for our clients, capabilities, such as our volatility management tools, model wealth portfolios and buffered annuities are complex to design and need both insurance and investment expertise. We have that expertise. Secondly, AllianceBernstein provides diversified and attractive returns from a capital light business. The returns from AB have been very impressive since our IPO – AB has delivered a total shareholder return of over 180%. Assets under management have grown from $540 million to $742 billion over that period. This directly benefits EQH shareholders. This performance is reflected in enhanced cash flows, which have grown from approximately $300 million per annum received by the holding company at the time of our IPO to approximately $500 million per year. Now, cash flows that are outside of the insurance regulated entities. Finally, there are attractive synergies between the two businesses. The virtuous cycle we've described in the past equitable serves as a source of permanent capital for AB now $121 million of equitable’s AUM . And we call our announcement last quarter to use $10 billion of general account capital to further seed and grow AB’s private alternative business. We utilize the general account to seed and build higher multiple alternative businesses in AB worth into an Equitable policyholders benefiting from enhanced risk adjusted returns and equitable shareholders benefiting from the 65% stake in AB. The final pillar to our unique business model is, of course, our affiliated distribution. Equitable Advisors represents approximately 70% of sales year to-date and provide certainty of revenues and the ability to better manage mix, both of which enable us to improve capital efficiency and deliver better risk weighted returns for our shareholders. For example, our leadership position in the K through 12 educators market is a direct result of our 1,100 dedicated retirement benefit group financial professionals and growth in our broker dealer business remains strong, up 37% year-over-year to $77.4 billion of assets under administration, primarily driven by our 500 wealth management advisors. Insurance, asset management and affiliated distribution is what sets Equitable apart. And looking forward, we'll continue to leverage these differentiators and drive long-term shareholder value. I will now turn to Robin to cover the third quarter results. Robin?

Thank you, Mark. Turning to slide 5, I will review our consolidated results for the third quarter. Before providing more detail……

It seems we have some issues gathering your information. Can I have your name, please? Caller, if you're on mute, please unmute.

…reflecting our continued general account optimization as well at one-time impact from favorable alternatives, performance and prepayments. In addition to increased fee revenue on higher account values. As Mark mentioned, our fair value approach to accounting setting, which I will highlight in a moment on the following page resulted in a minimal non-GAAP earnings impact of $6 million or $0.01 per share. Other notable items in the quarter were primarily driven by a higher alternative performance and prepayments, with the net impact on earnings of $153 million or $0.37 per share. Adjusting for notable items, the non-GAAP earnings were $660 million, or a $1.56 per share, up 23% year-over-year on a comparable basis. Moving to GAAP results net income was $672 million gain in the quarter, which was primarily driven by a strong non-GAAP operating earnings and flat equity markets, resulting in a limited impact in the asymmetry in the accounting between our economic hedging and our GAAP liabilities. Our hedging program, performed as expected, with hedge effectiveness of 95% AUM increased $871 billion, supported by a strong equity markets and positive third quarter net flows of $7.1 billion, reflecting the strength of our retirement and asset management businesses. Turning to slide 6, I'd like to briefly review the outcome of our annual assumption updates in the context of our economic reserving framework. As we previously highlighted, our fair value model incorporates realistic reserves both in terms of policyholder behavior and interest rates. This approach is not only prudent, but also positions us well for the industry's upcoming LDTI accounting changes in 2023. As evident from our results, the impact from this year's assumption updates were nominal only at $6 million impact non-GAAP operating earnings and an $85 million impact the net income largely attributable to behavioral adjustments made to further align our assumptions to emerging experience. As consumer behavior and capital markets continually evolve, we believe it is appropriate to reflect emerging experience in our assumptions. It's not only protect the integrity of our reserves, but also ensures we remain appropriately capitalized and immunizes our balance sheet in all environments. Further demonstrating our fair value approach is our GMxB reserving exemptions. As we've illustrated in the past, interest rate assumptions under GAAP and statutory accounting are disconnected from economic realities. For example, we hedged to our economic model, which uses the forward curve currently at approximately 2.5% compared to 3% in a quarter under the NAIC framework. As a result, our statutory balance sheet reflects reserves that are more aligned with today's reality and not dependent on bets that interest rates will rise. This also positioned as well for the changes the [indiscernible] to a scenario generator. Further, our last assumption, which represents a percent of policyholders we expect to surrender when guarantees are deeply in the money is among the lowest in the industry at approximately 55 basis points compared to the NAIC [Technical Difficulty]

This is the operator. Your information was unable to be gathered earlier. May I have the spelling of your first and last name, please? [Operator instructions]

Under the antiquated industry framework. Overall, equitable position on interest rate and policyholder behavior assumption results in stronger reserves and aligns as well to the upcoming accounting changes. Moving to the business segments, I will begin with individual retirement on slide 7. As a reminder, the Venerable transaction closed in June, and marking $1.2 billion in value, reducing over two-thirds of our legacy rates and resulting in a $180 million of annual impact earnings. On a reported basis, operating earnings were $316 million. Excluding the Venerable transaction, earnings would have been higher year-over-year, primarily driven by higher net investment income and strong equity markets. Results often included $22 million of notable items in the quarter, including $15 million of favorable net investment income from alternatives and prepayments, offset by negative $37 million of assumption updates. Turning to new business activity, we continue to benefit from strong consumer demand for our all-weather retirement product portfolio. This includes our number one position in the protected equity retail market, where we saw another record quarter of sales in our Structured Capital Strategies product of $1.9 billion and total sales in the segment of $2.8 billion. Our leadership position and strongly business activity reflect the strength and breadth of our distribution. As a result, we reported net inflows of $702 million in the quarter in our more capital resilient product. The first quarter of positive net flows in an individual retirement since IPO. Turning to group retirement on slide 8. We reported operating earnings of $192 million, up 49% versus the prior year quarter, driven by an increase in net investment income from alternatives and fee revenue on higher account values. Results also include $43 million of notable items, including $16 million of higher net investment income from alternatives and pre-payment and $27 million of assumption updates. Growth premiums remained strong with $831 million in the quarter, driven by first year premiums of $352 million, up 39% year-over-year and continued persistency with renewal premiums up 6% year-over-year. As with prior years, net outflows for the third quarter were primarily driven by seasonality in the four 3D market, with schools closed in the summer. Despite higher account values leading to slightly elevated withdrawals during the quarter, persistency rates in the business remain high at over 90% in line with historical experience. The business had remained resilient, thanks to our 1,100 dedicated, equitable advisers helping educators across America to save for retirement. Now turning to AllianceBernstein on slide 9. In the third quarter operating earnings were $134 million up 29% year-over-year, primarily driven by an increase in base fees on higher AUM, offsetting increased operating expenses. Ab had gross sales of $32.3 billion, up 10% year-over-year. Led by another record quarter sales in retail channel, up $25.6 billion, up 7% sequentially. Additionally, AB generated net inflows of $7.2 billion with $6.7 billion of active net inflows attributable to positive flows across all three distribution channels in the retail channel, AB net flows of $6.6 billion supported by a strong net flows in the US and Asia. This is the 18th consecutive quarter of positive active equity net flows in the retail channel. Ab continues to deliver a strong investment performance for its clients over 70% or more of fixed income and equity assets that are outperforming on a one year, three year and five year basis. Total assets under management at the end of the third quarter was $742 billion up 18% from the prior year quarter attributable to a strong market performance and over $21 billion of net inflows over the trailing 12 month period. Net inflows and operating leverage contributed to a strong adjusted operating margin of 31.8% in the quarter. Moving to protection solutions on slide 10, we reported operating earnings of $160 million, up from $51 million in the prior year quarter, primarily driven by a higher net investment income and higher fee revenue on higher account values Results include $59 million of notable items in the quarter, with $43 million attributable to higher net investment income from alternatives, prepayments and lower reserve accruals and $60 million from assumption updates. We continue to see strong premiums in our variable universal life and quality products with gross premiums up 13% year-over-year, highlighting our shift to less interest sensitive products. Annualized premiums were $67 million in the quarter, up 37% year-over-year, driven by continued momentum in our employee benefits business, which generated 50% year-over-year sales growth and now covers approximately 570,000 employees. Going forward, the expected impact of assumption update, continued benefit of our general account rebalancing program and improved value of our new business sales has vastly increased our earnings guidance to $75 million per quarter. Turning to slide 11, our strong capital and liquidity position continues to support our ability to deliver on our commitments. We continue to execute on our capital management program, returning $534 million to shareholders this quarter, including $450 million of buyback executed for accelerated share repurchases. In the context of our 2021 capital management program, we returned $1.4 billion to shareholders to-date and we remain on track to deliver on our 50% to 60% payout ratio, plus an incremental $500 million stemming from the close of the VA reinsurance transaction. We closed the quarter with $2 billion of cash and liquid assets at the holding company, well above our $500 million minimum target and maintained our leverage ratio in line with our long-term target. Our strong position has further enabled us to quickly and effectively execute our balance sheet initiatives such as debt restructuring and reserve financing, which I’ll review on the following page. Turning to slide 12, we've made good progress on delivering on our action plan to mitigate on economic redundant reserves from Reg. 213. Reaching a permitted practice with the New York regulator restructuring to increase our unregulated cash flows, and now a $1 billion reserve financing transaction with Swiss Re. As a reminder, Reg. 213 became effective for New York domiciled companies at the end of 2020, however, Reg. 213 became binding for Equitable, following the close of Venerable transaction in June, effectively introducing redundant reserves that would not be required if we were domiciled in any of the other 49 states. Hence we’ve reach the permitted process with the New York regulator at the end of June, we began internal restructuring and evaluating reinsurance transactions to mitigate such unintended consequences, thereby securing future cash flows. We are pleased to report we completed our internal restructuring actions, which ensures approximately 50% of our cash flows come from non-regulated entities. In August, we announced moving our separate account administration out of the life company to Holdings. In addition, we have now moved our general account investment advisory service to Holdings. Together, these actions, along with the AllianceBernstein cash flows, result in approximately 50% of our cash flows coming from non-regulated entities. Further, yesterday we announced a XXX reserve financing transaction with Swiss Re, which unlocked $1 billion of statutory value, addressing approximately 50% of the remaining redundant reserves related to Q13. Importantly, this transaction aligns with our fair value model and will have nominal impact on non-GAAP operating earnings. In the four months since the rate became effective, we have been diligent in managing the uneconomic, redundant reserves. Our actions to-date further illustrate our commitment to managing the business on an economic basis and generating long-term value for our shareholders. Overall, our balance sheet remains strong, with $2 billion of cash at the holding company and deep actions to secure our future cash flows from our subsidiaries. I will now turn it back to Mark for closing comments. Mark?

Thank you, Robin. Before opening up the line for your questions, I would like to reiterate some highlights from our third quarter results. First, supported by strong equity markets and the need for our products and services we have delivered a record quarter driven by strong results across our retirement and asset management businesses. Second, our newly announced $1 billion financing transaction and completed internal restructuring actions further secure our cash flows and mitigate impacts from Regulation 213. Third, we continue to employ our fair value economic framework, which reinforces our robust capital position and enables us to consistently deliver on our commitments to the market. And lastly, our business model and affiliated distribution are key differentiators which uniquely position Equitable Holdings to capture the full value chain for our stakeholders. With that, I'd like to open the line for your questions.

[Operator Instructions] Your first question comes from Elyse Greenspan with Wells Fargo. Your line is open.

Hi. Thanks. Good morning. My first question, you guys mentioned that you’re positioned well for the upcoming LDTI accounting changes, I was just wondering if you could expand on that, and I know some companies have started to give details on this specific financial impact that they expect, if you guys are ready to provide, you know, some quantitative disclosure or even qualitative just help us further understand the impact that you guys would expect?

Good morning, Elyse. It’s Robin here. As we've mentioned before, we're really excited about the changes in the accounting in 2023. The reason being that they're aligned to our fair value framework of managing the business to the economic realities today. And so how we manage the business and as I illustrated related to our interest rate assumption, our policyholder behavior assumptions, we believe it positions as well for the accounting change and we're excited for it going forward. We will come out with a full Investor Day in mid-2022. We'll provide more detailed elements of the accounting change for investors.

Okay. Thanks. And then my second question, you guys took a lot of capacity in related to Reg 213 this quarter following the Swiss Re deal. Did you guys look into additional reinsurance transaction to address the remaining redundant reserves or how should we think about that going forward?

Sure. So we are quite pleased with the actions we've taken to-date. We’ve received the permitted practice with the New York Department. We restructured our subsidiaries to ensure that 50% of our unregulated cash flows remain unregulated of that, $1.5 five billion. And now this $1 billion reinsurance transaction in Q3 positions us well going forward. We continue to talk to the DFS and they've been helpful for us in these actions that we've taken to-date. Going forward, we still have a menu of options that we'll look to deploy, but most importantly, we'll continue to assess it on an economic basis to ensure we deliver long-term value for our shareholders.

Okay. Thanks for the color.

Your next question comes from the line of Andrew Kligerman with Credit Suisse. Your line is open. Mr. Kligerman, your line is open.

Oh, good morning. Sorry. Thank you for taking my questions. And I guess the $1 billion question is, is timing around the next $1 billion and maybe with that why a triple X transaction as opposed to a variable annuity transaction?

Good morning, Andrew. So let me address your first one on timing. The benefit of the permitted practice we received from the New York regulator meant that we have a five year phase in for the $2 billion redundant reserves. So it gives us time to assess the options and ensure that any action we take is aligned to our economics in which we manage the business. As a result of having redundant reserves or additional redundant reserves, which are economic it allows us to evaluate options with existing redundant reserves that we have on the balance sheet. So, having more redundant reserves allowed us to assess in total what redundant reserves we want to take action on and a XXX financing transaction, which Swiss Re was the one that we can do quickly and at a good economic cost for shareholders over the long-term. So at the end of the day, we're quite pleased with the $1 billion transaction and we'll assess, as I mentioned, the menu of options that we have to address that redundant reserves that we have on the balance sheet.

And Robin, where would you like to deploy that capital? Any thoughts on that and – and timing? It's not likely to just sit on the balance sheet for a long time. Would you agree with that?

Correct. No, you should assume that in the fourth quarter, we’ll accelerate some of the redundant reserves of the Reg. 213 to offset the $1 billion unlock that we have from this transaction that would directly address the 50% of the redundant reserves that are going to come through Reg. 213.

I'm sorry, Robin. What I meant was deploying that capital meaning, would you buy back shares? Would you – would you do an acquisition? What –what are you thinking about with that capital now? I assume you want to – want to deploy that and – and would do so quickly or take your time?

No. See, you should think about two things. One is we – we’re committed to delivering on our 50% to 60% payout ratio. As you see from this year, we returned $1.4 billion to shareholders year-to-date. And we have probably an additional $400 million to go in the fourth quarter on that. As we continue to deliver, we’ll continue to assess the market for options to accelerate inorganic options if they drive economic value for shareholders over the long-term. But our first commitment is to continue to deliver on the 50% to 60% payout.

Okay. And just lastly, a amazing sales on the buffered annuity a $2.8 billion versus $1.65 billion – you know, competition is jumping into this market. So could you give a little backdrop on what you're seeing out there and why you've been so successful?

Nick, could you take that one?

Sure. First, I would say we continue to see the overall pie growing. I think it's driven by two factors. First, it's a product that's right for the times providing upside potential with downside protection given this period of market instability. Second is the fundamental demographics of more pre-retirees looking for protected equity stories as they approach the next phase. Our differentiator continues to be our affiliated distribution and a strong third-party networks where we have privileged relationships. We're proud to be the innovator of the RILO market back in 2011 and continue to deliver on the value proposition to our consumers. So as you mentioned, we saw a record third quarter sales and we've got confidence that will continue.

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

Good morning. First, just to follow-up, Robin and to understanding the mechanics of this deal. First question has this been approved by the NYDFS?

Hey, thanks, Tom. Yes it has been approved by the New York Department and we expect to close the deal in December.

Okay. And Robin, if I understood you correctly, so the $1 billion is going to go to offset half of the Reg. 213 $2 billion. And so should we then think about the annual amortization dropping from $400 million to $200 million? Is that effectively how this is going to work?

That's right. And that's what we'll do in the fourth quarter through the acceleration with this $1 billion unlock that we have from the reinsurance deal.

Okay. And then in terms of range or menu of options beyond this, are you – are you just trying to solve for a transaction that would fill in the remaining $1 billion? Or you're thinking if the economics are right, you might do something bigger and more strategic that could address both the remaining 213 Reg. and – and also will say do something more shareholder friendly, if the – if the terms are right? I'm thinking like whether it's, potentially a part of your buffer annuity block, if the economics were right or can you talk a little bit more about – is it – or you – what you're thinking is it just trying to solve for the remaining $1 billion? Or are you thinking potentially doing something bigger than that?

Sure. So, Tom, as you know, we manage the business on an economic basis and any action that we take will – will ensure to drive future economics for shareholders over the long-term. We have several options that we can execute against, but the option that we'll pick from similar to this XXX reserve financing transaction will have to meet our economic hurdle rate going forward. We would look to do if the options were available to do more. But it has to drive economics to shareholders over the long-term for us to pull any lever.

That makes perfect sense and if I could slip in just one last one, the – just to confirm the life raising guidance to $75 million if COVID mortality remains elevated would you expect that to be lower than that over the near-term or does already contemplate some COVID impacts?

Sure. So, let me address the $75 million first. We've made good progress since IPO on the life business. Three actions that drive that higher guidance to the mark of $75 million. One is the re-risking [Technical Difficulty] took in the general account allows us to assume higher future earnings on yields from – for the life business; two is the pivot the team made to shifting away from interest sensitive products to be well, we're a leader in the [indiscernible] volatile market supported by Equitable Advisors, and that assumes – that allows us to assume higher margins going forward; and three, the assumption updates that we made had a positive impact on run rate earnings because it assumes higher persistency on our business. So that allowed us the actions we've taken since IPO and to work with the teams had allowed us to come out and have confidence in the future $75 million earnings guidance that we provided. On the COVID front, as you've seen in the past, we've been on the lower rate of the guidance we've given. We continue to stick to that guidance still and we feel as though the $75 million is appropriate taking everything into account.

Okay. Thank you.

Your next question comes from the line of Tracy Benguigui with Barclays. Your line is open.

Thank you. Good morning. Slide 6 demonstrates the strength of your fair value framework and it would probably be helpful to see another column on Reg. 213 as VM-21 matters less for you, given your New York domicile. So under Reg. 213 my understanding that your CTE scenarios work better for older risk that went to venerable rather than newer risk, which is counterintuitive. And Robin, you said earlier, when you're looking at your menu of options, you will only look at those that you view as economic. But I'm wondering how you may weigh in any type of Reg. 213 arbitrage so the potentially newer blocks of business, even though that makes no sense on your economic framework. We're intuitively the older blocks to trade more economic capital.

Sure. Thank you, Tracy. As a company, we're not here to arbitrage the different uneconomic frameworks of US GAAP’s statutory or Reg. 213. Our first priority is to manage for the economic value to business and return 50% to 60% for shareholders. So you can assume that that's going to be the driver of motivation of action, driving economic value, not trying to address Reg. 213 itself or any other uneconomic antiquated industry frameworks that are existing today to really drive long-term economic value for our shareholders.

Got it. And also, I'm thinking about the billion dollar internal loan you took from the OPCOES to the HoldCo. Am I thinking about this the right way since you had 10 years to pay it back, it's really not an issue your ability to deploy holding company liquidity that's now $2 billion in terms your 50% to 60% payout?

That's correct. The $2 billion that we have today at the HoldCo, which was which is there as a result of the annual $1.5 billion of cash flows that we receive from our subsidiaries is there to support our payout ratio of 50% to 60% for shareholders.

Right. And then internal loan doesn't impede their ability, given a term structure that being 10 year.

Correct.

Okay. Thank you for clarifying.

Your next question comes from the line of Ryan Krueger with KBW. Your line is open.

Hi, good morning. First, follow-up on protection. Is – is this part of the business that's still in loss recognition or did this update cause you to exist loss recognition?

Okay. Thanks, Ryan. We are no longer in loss recognition, but we still had that PFPL reserve that we accrued on a quarterly basis. So these assumption updates that we've made in addition to the VUL sales that we have today within the business and a general account rebalancing allow us to accrue less – a lower PFPL reserve going forward. So it generates higher run rate earnings of $75 million as a result.

Got it. And then on your wealth management business that's reported within the corporate segment, can you give any update on the rough amount of earnings being generated by that business at this point in some of the actions you're – you're taking to – to grow that business?

Sure. We're really proud of our position there that's built with the Equitable Advisors’ distribution force that Mark mentioned earlier and supports our business model. We have $77 billion of AUA. And if you look, that's growing pretty significant throughout the year generated by positive net flows into that business, and we haven't disclosed operating earnings of that business, but we look to do so in the future. But we want to try to get that business to be more material. We're really targeting $100 billion to $150 billion of AUA for that business. so we can break out the operating earnings for investors.

Got it. Thank you.

[Operator Instructions] Your next question comes from Mark Hughes with Truist. Your line is open.

Yeah. Thank you. Good morning. You had pointed out in the individual retirement, I think that this is the first quarter of positive net flows, presumably definitely helped by your strong new sales and you've expressed confidence that'll continue. Do you think you’re in position at this point to maintain the positive net flows, is the balanced new business versus a run off has that turned the corner? Or is it just this particular quarter.

Great, this is Nick, I'll take that question. As you mentioned, we continue to be encouraged by the new sales momentum and our core differentiators in our distribution footprint, we are continuing to see strong growth in our core flows and expect that to continue as we continue to innovate our product line and address the growing retirement need that's out there. So we are confident that we will continue to grow that core business going forward.

So into positive territory more consistently, is that the way to think about it?

I think positive more consistently. Obviously, we continue to focus on value and run the business on an economic basis, and we think differently about our core and our legacy blocks.

And then the – any update on the expense reduction initiative, any milestones you've had so far?

Sure, Mark, I'll take that, as in – early in the year, we announced three initiatives to support our long-term 8% to 10% EPS growth. It was expenses of $80 million. General account optimization, the second stage of our rebalancing of $180 million. And then we have growth coming into our business and you see that with the $7.1 billion of flows that we had in the quarter overall. On the expenses, expect that to come through evenly over the next three years. We remain on track and you see that across our expense line and good operating leverage coming in with lower fixed expenses and then more variable expenses aligned to revenue overall. So we remain on track for all three initiatives.

Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.