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…

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…

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.