Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Equitable Holdings Fourth Quarter and Full Year Earnings Conference 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. Isil Muderrisoglu, Head of Investor Relations, you may begin your conference.

Thank you. Good morning, and welcome to Equitable Holdings fourth quarter and full year 2022 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 Kate Burke, AllianceBernstein's Chief Operating Officer and Chief Financial Officer. During this call, we will be discussing certain financial measures that are not based on generally accepted accounting principles, also known as non-GAAP measures. Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures and related definitions may be found on the Investor Relations portion of our website, in our earnings release, slide presentation, and financial supplement. I would now like to turn the call over to Mark and Robin for their prepared remarks.

Good morning and thank you for joining today's call. On Slide 3, I will highlight results from the year. Non-GAAP operating earnings were $5.08 per share, or $5.55 per share after adjusting for notable items, down 8% in the year, a strong performance despite 2022's turbulent markets, which saw equity markets fall 20% and bond values down 13%. Managing what is within our control is particularly important now. We have achieved our $180 million incremental general account investment income target, one year ahead of schedule, and realized net expense savings of $50 million. Assets under management at the end of the period were $754 billion, down 17% year-to-date, but up 5% compared to quarter three. We had a strong year with $10 billion in total company inflows with $4.6 billion of inflows in our core retirement business in addition to $900 million in asset management and $4.5 billion in wealth management. While we did see elevated mortality in the fourth quarter, this reversed favorable experience reported earlier in the year. And overall, our full year mortality experience was $20 million better than our expectations. The benefits of our economic management and hedging program continue. We have $2 billion of cash at holdings and the combined RBC ratio at the end of the year of 425%. In 2022, we returned $1.3 billion to shareholders, a 15% growth in free cash flow per share. This payout was 57% of our adjusted non-GAAP operating earnings, at the top end of our guidance range. Post LDTI accounting changes, we are increasing our payout guidance to 55% to 65% of operating earnings and expect 2023 cash generation of $1.3 billion. We see continued momentum in our retirement and asset management businesses. We benefit from the increasing demand for advice orientated retirement products, with total premiums…

Thank you, Mark. Turning to Slide 5. We reported $2 billion in non-GAAP operating earnings this year, over $2.2 billion and $5.55 per share after adjusting for notable items in the period. As Mark mentioned, our earnings results performed as expected compared to prior year, impacted by market headwinds, which were partially offset by the continued execution of our general account rebalancing, achieving our target of $180 million incremental income a year ahead of plan. In addition, we realized $50 million of net expense savings in our retirement businesses as of year-end, and remain on track to achieve our $80 million target in 2023. Looking ahead, we also expect to benefit from $75 million in savings at AllianceBernstein in 2025 associated with our Nashville relocation. Turning to segment results. Our businesses continued their strong performance, demonstrated the significant demand for the client solutions we provide during these volatile markets. In Individual Retirement, we reported operating earnings of $1.2 billion after adjusting for notable items. Total premiums were up 5% this year with record sales and structured capital strategies, up 12% year-over-year. Results reflect the benefit of rising rates, helping us achieve record new business value. In 2022, an individual with a 60:40 portfolio had a negative return of 16%. But if that same individual bought our SCS solution with a 20% buffer at the start of the year, the market impact would have been fully absorbed, demonstrating the all-weather portfolio we offer for clients. In a market with heavy competition across variable and fixed products, Equitable is differentiated through our distribution, which allows us to operate in the most profitable part of the retirement market with RILA's and floating rate VAs. In Group Retirement, our operating earnings were $520 million after adjusting for notable items with total premiums up 16%…

Thanks, Robin. In closing, we delivered a strong performance this year, despite turbulent markets. Through our fair value management, we continue to protect capital and consistently deliver value to shareholders. We have maintained a strong capital position through a volatile market and our expected $1.3 billion of cash generation this year supports our increased payout target of 55% to 65% post LDTI. Additionally, our continued momentum in retirement and asset management can be seen as we remain a leader in the RILA market, pricing, economically sound, and in demand products. While our subsidiary AB continues to provide a strong value proposition for their clients with a favorable mix shift and private markets platform driving growth. We will continue our relentless commitment to bringing the best of Equitable in order to deliver results that benefit our clients, employees, and of course our shareholders. Looking forward, we will provide a restated financial supplement, reflecting LDTI accounting changes in early April, ahead of our first quarter results. And we are pleased to announce that we will be hosting an Investor Day in early May to provide further insight on our businesses and the opportunity ahead. With that, we will now open the line for questions.

[Operator Instructions] Your first question comes from the line of Ryan Krueger from KBW. Your line is open.

Hi, good morning. My first question was on free cash flow. I think the $1.3 billion assumed markets are flat at year-end 2022 levels, is the sensitivity still about $150 million per 10%? And that's my first question and then I will follow up.

Good morning, Ryan. Yes, we're pleased to provide the guidance of the $1.3 billion of free cash flow for 2023. That's based on year-end market levels and doesn't have any additional market sensitivity going forward built into it. Our sensitivity that we provided to the market previously, 10% of $150 million of cash flows remains. You've seen that last year when we had $1.6 billion, markets declined 20%. And as a result, the free cash flow guidance that we can give this year is $1.3 billion from our operating subsidiaries.

Got it. And would the sensitivity be more current year or impact the next year?

It would – some of it would impact this 2023 and some of it would impact 2024. As you recall part, less than 50% of the cash flows now are coming from the insurance company, which is based on the prior year's dividend formula. So that will be less sensitive to cash flows in 2023.

Got it. And then on – now that you've completed the general account repositioning, is there more repositioning that you expect from here? And can you give any sense of further potential upside to NII?

Yes. We're pleased to finish the $180 million target one year advance from 2023. Going forward, I think you can expect us to continue to benefit from higher yields in the general account. As Mark and I mentioned in the call, we're benefiting from high yields with new money yields coming in above 5% at the current period. And so that will flow through earnings over time, along with the continued growth from our SCS product. In addition, to date, we've completed 70% or $7 billion of the $10 billion in committed capital to AllianceBernstein. So once we complete that, there will be an additional upside to the $180 million, along with additional upside at AllianceBernstein as we continue to build the private markets platform, which is approximately $56 billion today. So we continue to see upside benefiting from the rising rate environment and the continued business growth. And we'll provide more guidance – Ryan, more guidance to come on the Investor Day in May.

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

Good morning. First question is on Slide 11. Robin, it says, net income volatility under LDTI is going to decline around 80%. I just want to confirm how to interpret that. If I look at 4Q results, you had $436 million of operating earnings, but negative net income of $789 million. If you think about the new math and the new accounting, would – what kind of spread should we expect going forward? If you overlaid the new accounting on 4Q results, would it have been – can you give some directional indication?

Yes. So what we tried to provide is for Equitable going forward under LDTI, as LDTI accounting GAAP moves closer to fair value, that our net income sensitivity will reduce going forward. And as you see in Slide 11, the guidance I'll just point you to is based on equity movements. So if equity markets increased by 6%, under the old GAAP accounting, we would have had a negative $1 billion adjustment in the net income. Now going forward, if equity markets increase 6.5%, the adjustment will be $200 million. That's the major difference on the equity assumption on a full year basis as the liabilities move closer to fair value, and our hedging program is still designed to protect our free cash flow growth going forward. And once we report our LDTI updated financials in the financial supplement in April, you will get to see the numbers on a quarterly basis going back in time as well.

That's helpful, Robin. So if I use that math – and again, I'm just – I'm not looking for a precision here, just some directional indication. If I looked at the spread of $436 million translating to almost an $800 million negative net income number, using that rule of thumb you just gave me, at a minimum, net income would have been positive this quarter, I presume. Does that sound about right to you?

That does sound about right to me that I think under post LDTI, Q4 would have been positive net income. The number I can give you as well to go back to as a proof point, if you look at 2021, under the old GAAP net income it would have been about negative $440 million for the full year. Under LDTI financials, it's a positive $1.7 billion net income gain under the full year. And that goes to our point that net income should be less volatile going forward as LDTI moves fair value accounting closer to our economic model.

That's really helpful. If I could sneak one more in, just RBC ended at 425% that came in above what I would have expected. And I know you mentioned organic capital generation and hedging performance. Was there anything else that drove the strong RBC? Did you release AAT reserves? Was there another reinsurance deal? Any other one-off items? Or was it all organic capital and hedging?

Yes. The capital position, as we ended the year, remained quite strong, $2 billion of cash at the Holdco, and the RBC came in at 425%, as you mentioned. That's all reflective of organic growth coming in within our businesses. No one-time items. And at the same time, in 2022, we were able to mitigate the redundant reserves of Reg. 213 through the actions that we've taken. So we're quite proud of the capital position that we stand. It reflects our economic management hedging program and actions we'll take to address uneconomic accounting issues.

Okay. Thanks.

Your next question comes from the line of Jimmy Buller from JPMorgan Securities. Your line is open.

Hi, good morning. I had a couple of questions. First, on just the competitive environment in the buffer annuity market. It seems like a lot of other companies have gotten into the market. And are you seeing them act fairly rational? Or are you seeing an uptick in competition or better terms and conditions? And partly asking just given the fact that your SCS sales, while strong in an absolute sense, were down from last year, I think, about 12% this quarter.

Yes. This is Nick. First, as you highlighted, yes, the fourth quarter was a little soft, but we saw a positive improvement in our net flows, as Mark and Robin highlighted for the full year, record volume, record value of new business and over $4 billion in positive flows. And the higher interest rate environment helps our economics and/or the pricing benefits we give to consumers. We're focused on sustainable value and we really like where we play for the following reasons. First, being the competitive dynamics. We see the fixed annuity space as being crowded. There are over 40 players. The cost of entry is lower given the distribution dynamics they can be sold by non-registered advisors. Comparatively speaking, the RILA market is fewer main players and different distribution dynamics given the registered nature of the advisor to sell the product. And as a result, our belief is fixed annuity players are going to increasingly need to enhance our credit risk to make margin and create consumer value. The second really is that consumer value proposition. We are a pioneer in launching the buffered annuity note. Fixed players are more focused on principal protection, whereas RILA players are focused on protected equities, which gives more upside potential. And finally, I would say, is our privileged distribution, specifically the strength of Equitable Advisors are over 4,000 advisors that understand the value proposition and have deep client relationships, which means we don't need to chase the market to deliver sales or cover costs. So we like where we play. We think we're well positioned to capitalize on the current volatility of the markets and the longer-term structural demographics.

Okay. And then on capital and buybacks and free cash flow, should we assume that the main source of buybacks for 2023? Is this going to be your free cash flow minus Holdco expenses and dividends? Or do you expect – which would, I think, be around $800 million or so, given the $1.3 billion guidance? So what do you expect to tap into your Holdco liquidity as well, which is significantly higher than, I guess, you need to keep?

Sure. So I think our guidance on a post LDTI basis is going to be that 55% to 65% payout ratio as not only on top of the free cash flow generation of $1.3 billion that we have from our subsidiaries, we have the Holdco flexibility as well depending on how earnings proceed during the year. So we feel quite comfortable, and we're quite happy with the upstreaming of cash from the Holdco.

Okay. But in terms of buybacks, would those be limited from the cash that's coming up to the holding company? Or is there a possibility you tap into your existing Holdco liquidity as well?

No, it's not limited. As I said, we'll stick with that guidance of both LDTI 55% to 65%, and that should give you comfort on how we're going to proceed going forward.

Thank you.

Your next question comes from the line of Michael Ward from Citi. Your line is open.

All right, thank you guys. I'm just wondering, the legacy annuity segment breakout, is the core spread-based segment is going to be purely SCS or might it include traditional VA? And should we think about it in any way as objecting you might look to further derisk legacy?

Yes. So as we break out our Individual Retirement business, it's about $96 billion of AUM in the fourth quarter. Within the core business will be our leading SCS product that has about a $35 billion in general account AUM. In addition, our floating rate VA, which was business written outside the financial crisis and has downside protection related to interest rates. The legacy VA portion will be our pre-financial crisis, variable annuity legacy product. That's going to continue to be in runoff as we go forward. And we think by breaking those out along with wealth management, you'll be able to better value the businesses as we don't feel as though today that we're getting appropriate value for the strength of our distribution and franchise that we have in our variable annuity business overall. And as a reminder, that legacy business today is only 18% of our total AUM. And I think by providing more clarity at Investor Day and how that runs off over time should help.

Great, thanks. And the – and related to derisking legacy, any further activity considering there?

We'll always look at options to drive shareholder value over the long-term. A reminder, the policies are co-mingled between New York and non-New York. We'll continue to work on separating those policies. And over time that should give us optionality if we thought it drove shareholder value.

Okay, thanks. And then – so my second one was on wealth management breakout. You mentioned $100 million of annual cash generation. Any sense of expected earnings – operating earnings from that segment?

We'll provide more details on the operating earnings, the segmentation through Investor Day, but also in our LD – in our financial supplement that's going to be released in April, not only will we show the LDTI results, but we'll also break out the segmentation, so you'll be able to have that modeling ahead of Q1 earnings.

Okay, thanks.

Your next question comes from the line of Michael Kligerman from Credit Suisse. Your line is open.

Michael Kligerman, okay. It’s Andrew. And I guess my first question is around that New York separation of the business. Robin, maybe an update on sort of the timing how that’s coming along? And then, in conjunction with that, are you having conversations with potential reinsurers about transactions? Is that something that’s a very active dialogue?

Thank you, Andrew. Appreciate your question. Andrew, as you know in 2022, we were first focused on addressing the uneconomic Reg 213. We resolved that. In 2023, our focus is going to be on – and separating these businesses between New York and non-New York policies. We’ve already done it with new business with a 100% of our individual retirement. New business now being written outside of New York for the non-New York policies. And then we’ll work this year on separating that business at. That does take time. It’s a lot of operational work, client notifications, et cetera. So that’ll take some time and then that should provide us optionality over time.

It’s Mark, Andrew. I guess on the verbal annuity on the legacy side, we see no need to do anything. We’ll of course keep open to it. I think as we are showing right from the COVID year where we didn’t suspend buybacks and what we’ve seen last year in the 15% growth in the free cash flows, we show that we have de-risks [ph] portfolio through our reserving and through our hedging, and that we can continue to get cash out of it. So when we did the Venerable deal, Andrew, if you remember, we needed to prove to the market there was a positive seed and that someone else would pay money for that now. So we’re open to looking at it. But we’re not going to do something that is economically not sensible and we don’t need to. So that’s the position on it really.

Okay. So it just sounds…

It’ll run off naturally over time. It’s running off at like 3 billion a year.

Okay. So it just sounds like you’re being very thoughtful in the way you’re positioning those blocks by separating out New York and…

Yes, exactly. And if it was causing us pain on the cash flow generation or giving us terrible volatility, of course we would act as we’ve seen before. But it isn’t and it’s – there’s – the cash that we’re generating for you shareholders is consistently coming through. So we don’t feel it’s a burning bridge. We have to do something on it. But if there was a deal there that was attractive, we’d take it.

Makes a lot of sense. Maybe just shifting over to Group Retirement earnings at 115 million. It was kind of in line Q-over-Q, but down quite a bit relative to the 140 million, 150 million range seen in the seven quarters prior to that. And I get that the equity market headwinds are dragging – a real drag. But the substantial spread component I thought would’ve benefited the rate – the benefits of the rate environment would’ve had an offsetting effect. So maybe a little color on what’s driven the decline over the last two quarters and kind of how you see those earnings coming in going forward?

Sure, Andrew. So the Group Retirement business came in at about 115 million in the quarter. That’s a good run rate going forward at that level of AUM that we have in that business. If you go back over eight quarters, what’s really made the difference when you see it is the AUM coming down along with markets. And in addition, the alternative income is a big component that drives variation. As a reminder, we normalize to the bottom end of our alternative guidance. So we normalize the 5% on the low end and 15% on the high end. So that’s going to be a big delta as well when you look at it over time. In the fourth quarter, you did see the first impact from the Global Atlantic deal was roughly 4 million in the quarter as well. But we’re quite happy with the momentum we have in that business. The earnings power is there, but it’s certainly sensitive to equity markets. And just like all of our businesses, you’ll see we’ll benefit from the higher investment yield over time.

That’s helpful. Thank you.

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

Thank you. Good morning. Just a quick follow-up on separating non-New York in-force from New York is one mechanic of getting that done, reestablishing an internal reinsurance agreement with your Arizona entity?

It’s not an easy process to separate business from New York to non-New York. We’ll continue to work with the regulator, certainly reinsurance to our Arizona company is part of it across the board. But we think it’s good practice and it’s prudent to separate those policies so we can have. The outside of New York policies operate in the same economic regime that the 49 other states operate and the New York policies will operate in the New York regime. So, as we mention mentioned earlier, we just think it’s good practice and prudent to do so.

Okay. Also we’ve reviewed the statutory filings and it appears that Equitable lead New York insurer would have accumulated about 867 million in 2023 ordinary dividend capacity through the first nine months of 2022. And then it sounds like you had strong statutory organic surplus growth in the fourth quarter. So that would imply potentially greater than 50% of your cash flows coming from regulated subsidiaries. With the source of funds from regulated subsidiaries, is there any room to return in excess of 1.3 billion in 2023?

Sure. The guidance that, again we’ll stick to is that 55% to 65% post LBTI earnings, reminder, we will always return capital when prudently to do so for shareholders, we returned 6 billion since our IPO, that’s 120% free cash flow per share. We’re one the few in the industry that has never shut down that program. So it’s not only a lot of cash that we’ve returned since IPO, but it’s been consistent and stable over time and will continue to do so. The subsidiary dividends are now less than 50% coming from the regulated company. A big piece of that is coming from AllianceBernstein, our Wealth Management business now, which is about a 100 million of cash, and then also the investment management contracts we have with the sub. The New York entity is always subject to the New York formula, which we should finalize by the time we file the K and we expect it’ll support the 1.3 billion. And if it stares [ph] more, there’s more, but we’ll continue to be consistent and prudent over time in returning capital to shareholders.

Thank you.

Your next question comes from the line of Suneet Kamath from Jefferies. Your line is open.

Yes, thanks. Just first, I’m not sure if it’s a question or a comment, but would you consider when you separate the legacy VA from the new VA giving us not only the earnings, but the capital and the cash flows that are backing those businesses?

Well, you certainly see the earnings split when we split out the legacy VA’s business across the board. And those earnings are going to go down at a good rate over time, and we’ll share that more in Investor Day. And then when we separate the different pieces in the company, we’ll provide more detail at that time.

Okay. And then if and when you separate the New York block from the non-New York block, is that like a capital freeing event for you guys or not?

No, I think again, we hold economic, we look at capital economically across all of our entities at once. So I wouldn’t relate that to freeing up capital. I would think of it more as prudent management. So we can operate on the NAIC regime like the other 49 states. And in addition, it gives us ability and optionality going forward if we chose to do so.

Got it. And then maybe just the last one. I don’t know if it’s for Robin or for Kate. But on the AB operating margin, I think it came in at a little over 28% for the year. In the past we’ve talked about a 30% plus. I think Robin mentioned some Nashville savings. So maybe just give us a sense of what the current plan is maybe over the next couple years in terms of the margin, and then how does the Bernstein Research joint venture, if at all impact that margin go for it? Thanks.

Hi, Suneet. Yes, I’m happy, Suneet, I’m happy to comment. Over the long run, we continue to want to be able to achieve that 30%. Clearly, the market environment has a major impact on our ability to do so. We’re happy with the 28.4% that we delivered this year. We do have a couple of margin improving things in the future. As you highlighted, the Nashville move will be completed and we will get those real estate savings coming through in 2025. That is a significant, that should have an impact on our ability to grind that margin higher. And then on the Bernstein Research, SocGen JV, we continue to make progress there. We’re hoping that it will close here in the fourth quarter of 2023. And we do anticipate that will also over time have improvement on our margins as well. So those are two margin improvement stories that are foreseeable in the future.

Okay, thanks.

Your next question comes from the line of Mark Hughes from Truist. Your line is open.

Yes, thank you very much. Sort of curious your view on M&A at this point. You’ve got some nice businesses that are smaller that are emerging. You’re breaking up into some new segmentation. I’m thinking like employee benefits is growing pretty rapidly. How do you see potential for M&A and how do you view that as a use of capital?

It’s Mark Pearson. Mark, thanks for the question. We have two phases, really. The first phase coming out of the IPO we set for the first four, five years. We need to establish our credibility. We need to show that we can run this business outside of AXA and show that we can deliver those targets that we set out, which we’ve done all culminating in the 6 billion cash we’ve returned to shareholders. The balance sheet is strong now, so we can look for M&A and we did so recently with the CarVal acquisition, and I think that would be a good model to – for us to look at it. We bought CarVal, it plugs into AB’s distribution and it’s in a part of the market where we have real strategic interest in particular on the private markets. Yes, you’re right, there could be opportunities on AB and asset management. But the only thing I would really emphasize on the call, we will always remain very, very disciplined in looking at acquisition opportunities. And we have to always compare it to what’s the hurdle rate on share buybacks. So, it’s a high hurdle to clear.

Understood. And then you might have provided this, but on the SCS sales, how much of that was through proprietary distribution, your advisors for instance?

This is Nick. On average Equitable Advisors is roughly 30% to 40% of sales.

Excellent. Thank you.

And your final question comes from the line of Alex Scott from Goldman Sachs. Your line is open.

Hi, good morning. I had a follow-up just on the capital questions that we were already asked. You talked about the strong IRRs you got on some of the new product sales this year. I mean, could you give us a feel for how much capital you’re deploying behind new business and how that compares with sort of what running off and will that as the legacy block winds down, will that change that dynamic a bit? Could we think about that increasing free cash flow over the longer term or maybe even the medium term?

Sure, Alex, so as you noted, the new business that we write today has strong IRR. We serve a highest value of new business in this year benefiting from higher rates, but also continued client demand across all of our business. We’ve had 10 billion of net inflows which is really a testament of our all-weather product portfolio and the business model that we have, which is unique and differentiated across our peers. The capital that we invest in that business is included in the insurance side within that 425% strong RBC that we get. And what that means is that there’s going to be good returns for shareholders and increased free cash flow over time for shareholders as we proceed. We can provide and we’ll probably provide more details on the capital and that we invest in the new business and the value that’s generated on Investor Day as we think it’ll be a key component that you can see how Equitable is differentiated on how we deploy capital, but also how we get good returns from it.

Got it. That’d be helpful. That’s all I got. Thank you.

And this does conclude today’s conference call. Thank you for your participation. You may now disconnect.