Ladies and gentlemen, thank you for standing by. My name is Bhavesh, and I will be your conference operator today. At this time, I would like to welcome everyone to the Equitable Holdings’ Second 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 will now hand the call over to Tom Lewis, Equitable Holdings Investor Relations. You may begin your conference.

Good morning, and welcome to Equitable Holdings second quarter 2023 earnings call. Materials for today's call can be found on our website at ir.equitableholdings.com. Before we begin, I would like to note that some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. Our results may materially differ from those expressed in or indicated by such forward-looking statements. So, I'd like to refer you to the Safe Harbor language on slide two of our presentation for additional information. Joining me on today's call is Mark Pearson, President and Chief Executive Officer of Equitable Holdings; Robin Raju, our Chief Financial Officer; Nick Lane, President of Equitable Financial; and Bill Siemers, AllianceBernstein’s Interim Chief Financial Officer, Controller and Chief Accounting 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 May 10, we held our Investor Day and presented our strategy and go-forward guidance for the next five years. Today, we will provide both our quarterly results as well as progress against our strategic initiatives. Highlights from the second quarter are on slide 3. Equitable Holdings is unique. We have integrated advice, retirement, and asset management businesses, enabling us to deliver superior client returns and participate in all parts of the value chain. This quarter, non-GAAP operating earnings were $441 million or $1.17 per share, adjusting for notable items in the period which included lower alternative returns and elevated mortality. Non-GAAP operating earnings per share was $1.27, which is up 2% compared to prior year quarter, and up 5% compared to the first quarter of this year. We've had a record quarter in retirement, with record $1.4 billion of net inflows. In asset management, we reported net outflows of 4 billion, which includes $6 billion of pre-announced low fee redemptions in April, with a return to positive flows in May and June, as demand for AB's fixed income offerings, offset pressure from active equity outflows. Collectively, our businesses have delivered approximately $900 million of cash generation to holding here to-date, including a $600 million dividend from our insurance entity in July. Given this progress, we are confident in our ability to achieve our 2023 cash generation guidance of $1.3 billion. Our capital ratio has remained resilient, with a combined insurance Company RBC ratio of approximately 425% to 450% as of quarter-end. We also continue to maintain financial flexibility at Holdings with $1.6 billion of available cash. We returned $304 million to shareholders in the quarter, including $226 million in share repurchases, in-line with our enhanced 60% to 70% target payout…

Thank you, Mark. Turning to slide eight, I will touch on segment and consolidated results for the quarter. As Mark just highlighted, we continue to execute our capital light strategy, which you can see in our improved cash flow and business mix profile. Our second quarter non-GAAP operating earnings adjusted for notables of $480 million show our Wealth Management business having a similar weight to our legacy business, highlighting the different trajectories of those businesses. While our capital light retirement and asset management businesses continue to grow. Let me we go deeper on the segment results first, before turning to consolidated results. Our core retirement businesses account for two-thirds of the earnings mix. This is led by strong earnings growth in individual retirement, up 10% year-over-year, which is predominantly driven by the outperformance in our flagship SCS products. SCS has continued to benefit from higher yields and industry leading sales, enabling us to generate higher spread income. In total, individual retirement had record sales of $3.6 billion and record net flows of $1.5 billion in the quarter. Group retirement earnings were down year-over-year, which was expected due to our reinsurance transaction that closed at the beginning of fourth quarter. Taking this into account, the business performed nicely, led by net inflows in our K-12 tax-exempt teachers market. Protection earnings were $24 million higher than the first quarter, but it still lower than the long-term expectations as we continue to see mortality volatility, which I will touch on in a few moments. Adjusting for notables, protection solutions earned $77 million in the quarter. Across our three retirement businesses, we have generated over $200 million of value of new business through the first half of the year, putting us on track for the $400 million for the full-year guidance that we provided…

Thanks, Robin. In closing, our integrated advice, retirement, and asset management businesses, delivered strong results this quarter, including record, net inflows in retirement and $900 million of cash generation to-date, giving us confidence in our ability to deliver on our $1.3 billion 2023 guidance. Second, our balance sheet and capital ratios remain resilient, a testament to our fair value management. As of quarter end, our combined insurance company RBC ratio of approximately 425% to 450% and Holding Company cash of $1.6 billion support financial flexibility as we seek to consistently deliver on our capital management objectives. Lastly, while it is still early days, our distinct business model and growth strategy reinforce compelling and achievable 2027 financial targets. As we seek to grow cash generation to $2 billion, consistently deliver on our 60% to 70% payout ratio and drive 12% to 15% EPS growth. With that, we'll open the line for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Elyse Greenspan from Wells Fargo. Please go ahead with your question.

Hi. Thanks. Good morning. My first question, you guys -- we'll have $2.2 billion, right, of capital at parent, right, following the July dividend. That's obviously a very high amount above, right, the $500 million minimum that you guys target. So could we see capital return pick up from here? Just how are you thinking about just, what level you want to have at parent given just, volatile markets, etcetera, and also relative to just perhaps a pick-up in the level of capital return in the back half of the year?

Thanks for the question, Elyse. You're right, the $2.2 billion of cash flow, the strong position to be at, as we sit here today in these volatile markets where we still have uncertainty ahead of us. But it is important to note, it's the benefit of these capital light businesses that continue to kick-up cash flows to the Holding Company and more than 50% of that is unregulated at this time. As you know, we want to be consistent with, capital return throughout the period and keep to our 60% to 70% payout guidance. If you look in the quarter on a reported basis, we paid out on the higher end of that guidance. And even on a normalized paid-out basis we paid within that guidance of 60% to 70%. So, expects us to be consistent. We think it's a good time to buyback our stock at these type of evaluations. But we're going to be prudent as well given the uncertainty in the environment right now.

Thanks. And then, with mortality, Robin, you gave, a lot of good color with what's going on within protection solutions and you said, that mortality could still be elevated in the near-term. So, is your expectation that the level of mortality at least over the next few quarters will be within range of the around $50 million or so that you guys saw this quarter?

Yes, that is the expectation that we built in, on the GAAP results. You know, as I said on the, on the call, we've seen the elevated mortality over the few quarters. And this is really a shift from COVID pandemic to endemic, and it aligns well with what we're hearing from the reinsurers. It did improve this quarter, but we're still seeing higher mortality in that older age insured population, which is concentrated in the higher face value VUL policies. These are policies that we add on the book for 15 to 25 years. So, these are good policies, which we collected a lot of fees from historically. But, what we're seeing is predominantly a pull-forward into claims, which represents an acceleration of the claims that we would ordinary pay in future years. So, this is only a change in what I would say is our short-term GAAP expectation. Not anything to do with our statutory economic balance sheet. As we already hold the maximum reserves under GAAP, but under economic and statutory, we can hold higher reserves for provisional adverse deviations, which we do, and more accurately reflects to pull-forward of claims that we're experiencing. Therefore, if this does continue and we see the short-term volatility, you're going to see a higher free cash flow conversion rate if this pull-forward continues for mortality.

Thanks, Robin.

Thank you. Our next question comes from the line of Tom Gallagher from Evercore. Please go ahead with your question.

Good morning. Just a follow-up on the mortality question. Robin, I heard what you said. So, it sounds like this will not be a statutory issue from your perspective, either way. But as we approach the 3Q actuarial review, is there a chance you end up resetting some of these assumptions for the gap reserves and we get a charge in 3Q. I also heard what you said about the pull-forward and the expectation that it'll get better over time. But I guess given the near-term persistent adverse mortality? Is there -- should we have some expectation there could be a charge here on a GAAP basis?

No charge expectation on a GAAP basis. Tom, nothing material that you should expect going forward. Reminder, as I just mentioned, we hold the maximum amount of reserves that you can under GAAP rules for these VUL policies. So, even if we wanted to hold more, we can't, because by the GAAP rules, we hold the maximum amount. So, this is just a pull-forward of expectation. You shouldn't expect any changes, material changes to the assumptions for mortality in the third quarter.

Got you. And Robin, just to clarify, this is predominantly VUL, this is not SGUL, where you're seeing the higher, the worst unexpected experience?

Correct. VUL, that's the majority of our enforced SGUL, is small for us. We stopped selling that in 2009, due to the economics of those products. So, it's predominantly VUL. These are all policies that were enforced 15 to 25 years. So, they're just at the tail-end of them.

Okay. Thanks. And one final one on this topic, if I could. How much of your mortality block has the smooth accounting under LDTI from an actual to expected perspective versus how much where the immediate experience gets booked into current period earnings. Do you have a rough split on that?

No. Again, most of our, the LDTI really impacts the term in-force. That's where you'll have that smoothing. That's a smaller part of our business as those are, not capital efficient as we see them. The VUL policies, which are good policies 10% to 15% percent IRRs, those are the policies where you see, these volatility come through. And, it's really just a pull-forward based on what we see and based on what we hear from our reinsurers.

Okay. Thanks.

Our next question comes from the line of Ryan Krueger from KBW. Please go ahead with your question.

Hi, thanks, good morning. I have a Wealth Management question. If you got it to $200 million of annual earnings in 2027, I think you're -- the quarter annualized run-rate is close to $165 million to $170 million. So, it seems like you're nearly ahead of pace to get to the $200 million. So, just curious if you do anything as unsustainable in the current results or if you think you are in fact running ahead of pace there.

Yes. This is Nick. As you mentioned, we did have strong performance with positive net flows $1.3 billion in strong retirement sales. The earnings growth is attributed to, interest income on our client sweeps from a growing fee-based advisory accounts and higher distribution fees, like most Wealth Management peers, we've benefited from rising interest rates, going forward. We've provided guidance historically for every 100 basis point increase in the FFR, we would expect to capture, $1.5 million on revenue either increase or decrease relative to a change on that. We think we're well-positioned and on track take our goals, to meet the growing demand for advice given the edge we bring to the market with our track record of developing wealth planners differentiated advice model, and the operating scale we get from our investment partnership with LTL and the scale in our retirement businesses.

Got it. Thanks. And then on SCS sales, was there anything in particular that drove the pretty big uptick in volumes this quarter? Did you introduce new products or anything like that?

As we mentioned in Investor Day, we think there's both structural demand as the baby boom generation moves to that the accumulation for protected equity stories, amplified by the volatile times we're seeing in the macro political environment and we're well-positioned to continue to capture at this proportionate share given our distribution network as well as our constant innovation. So, we continue to update our segments as we see emerging demand, but I think it's more structural given the edge that we've built over the last decade in this space.

And this rate environment makes those products very competitive to fixed oriented products that are out there. So, we benefit from, better rates that we can offer to clients and then we're capturing the yield on the back end for shareholders. So, it's a win-win on both sides.

I think as well, Ryan, it's Mark here. When I look at it, I think the momentum has been a few quarters for us now. But also, we see growth across all of our distribution channels from our retail side through to the institutional side. So, it's not lumpy with one distribution. It's really across the board, which is encouraging for us going forward.

Thank you.

Thank you. Our next question comes from the line of Jimmy Bhullar - J.P. Morgan. Please go ahead with your question.

Hi, thanks. Good morning. So, the first question is just on the mortality issue. Your results have obviously been weak. So, recently a lot of your peers have been weak as well. What gives you the confidence that it's not more of a structural issue in terms of pricing, a risk collection in your block, and it's just more related to what you've mentioned in terms of pull-forward and claims?

Sure, Jimmy. I think, there are multiple things you have to do when you see volatility and mortality. One, is a further diagnostic of your enforced block, testing the teeth your thesis and stressing them. Second, is validation through the reinsurers. Those are all things that we do. The most important thing is this is just GAAP volatility. No impact on cash. It, if we continue to see this volatility because of our conservative statutory assumptions, we're just going to have a higher payout ratio, at the end of the day. So, no impact on cash there'll be some gap volatility if this continues. We hope we'll see both sides of the volatility. Volatility works both ways. So, we're looking forward to seeing both sides, but again, no impact on cash.

Okay. And then on, AB, obviously industry-wide flows have been fairly weak for asset managers, and you're seeing some of that same dynamic as well. Any comments you have on the pipeline or how does any visibility you have on how flows are looking into the second half, or is it just going to be more dependent on, however the overall environment is?

Go ahead, Bill.

Thanks, Mark. Okay. No, we're pretty confident in our flows, outlook for the second half of the year. As Mark mentioned, we have the $14 billion plus in the pipeline. Big part of that, two-thirds of that is in alts, private alts, with over 80% of it being a fee-based. And, we have strong inflows in the second quarter. We're hoping that follows through in the retail segment. We've had several growing areas despite, slightly net outflows in the second half [muni] (ph) SMAs as was mentioned before, is a $1 billion of net flows with a strong, annual growth rate. So, we're hoping that continues, positive, it's been positive, 11 of the 12 quarters 10 years in a row of organic growth. American income, net inflows of $1.5 billion in the second quarter, $4 billion year-to-date, that we're looking for that to continue. In the U.S. retail, we have 9% annual organic growth with net inflows 11 of the last 13 quarters. So we're looking for that to continue its momentum. And then, in private wealth, with the increase in private alts, and then, investments in money markets and that their organic growth rate is looking pretty good too. So, we're pretty confident in the second half of the year.

Thank you.

Thank you. Our next question comes from the line of Suneet Kamath from Jefferies. Please go ahead with your question.

Yes. Thanks. Just to circle back again on the mortality. Robin, is there a way to just to mention how big this block is of older age VUL policies, and then any more specificity over how long or what period of time you'd expect this to play out?

Yes. Look, the way I would just sum it up. These are older age policies, some of them 15 to 25 years that we expect, unfortunately, we expect that they will pass over the next five years, and that's built into our $2.5 billion of earnings guidance that we gave at Investor Day and our $2 billion of cash guidance that we gave at Investor Day. So, what we're seeing is just an acceleration of some of those debts, which means, that's a pull-forward of earnings going forward. We haven't disclosed specific size of the blocks you need, but I think the way to think about it, this is an acceleration of pull-forward of what we've already included in our earnings guidance and cash flow guidance. And it's really only, again, it's only a gap volatility point as the statutory books are more prudently reserved.

Got it. And then when we think about the free cash flow conversion improving as a result of the sort of phenomenon, is that because the gap or the denominator is going down and the gap earnings are lower, or is there some acceleration of cash generation related to this?

It's really just because the GAAP earnings are lower and there's no change to the statutory earnings as a result. So, that's really what it is. And, you saw that in the quarter, in the quarter, our payout ratio on a normalized basis was in the 60% to 70%. But if I take the reported number, it's close to 70%. So, we paid out on the higher end reflecting the fact that it's really just a GAAP volatility not a cash point.

Got it. Thanks.

Thank you. Our next question comes from the line of Alex Scott from Goldman Sachs. Please go ahead with your question.

Hi, good morning. First question I had is on, the strong sales growth you saw particularly in the individual retirement. And, I'd just be interested if you could provide any color around, the amount of capital that consumed or, said another way, the amount of capital you deployed towards that, because it seems like, you're hitting on your cash flow objectives. The other the other piece though is it seems like you're deploying, more than you have in the new business. So, I'd be interested in if, quantify that for us and also any comments on just the competitive environment and the opportunity you're seeing there?

Thanks, Alex. The businesses that we write are very capital efficient, capital light structures. That leading SCS product is a 15% IRR on the capital uses. If you recall, and I think we shared it over the years, the change in amount of, capital that we have to hold per dollar premium. These products that we write, whether it's in our individual retirement or and our group retirement, they're less than $0.22 that we hold for every dollar of premium. So, they're very capital efficient if you compare that to, fixed products that are probably $0.10 to $0.12 per dollar premium. So, we're playing in the right place. We're generating good returns, and we'll continue to support the growth because it's generating future cash flows for shareholders.

Got it. Follow-up I had is on dividend capacity out of the New York entity. I guess, following the $600 million dividend, could you frame for us how much ordinary dividend capacity is still there. And if you're able to comment at all on, how much of that will be needed for the novation under New York?

Sure. So we, up-streamed total of $900 million to the HoldCo, through July, which include $300 million of unregulated the $600 million insurance dividend that aligns with our free cash flow guidance of $1.3 billion. We assume that we'd have $600 million in-place. And, we took that out in July, so that's probably close to the maximum that we could take out to keep our RBC levels above the ratings -- for the ratings that we need and at 375% to 400%. So, that's what you should expect on year-end. We also completed, as I mentioned, in the quarter, the internal reinsurance transaction, where we moved capital from the New York entity to the Arizona entity to help support that, across the board. So, you shouldn't expect any other ordinary dividend, capacity from the retirement business from now to year-end. What you should expect is more unregulated cash flows though, from now to year-end. We're going to continue to see cash flows from AllianceBernstein, the retirement business, through the asset management contract, and then our Wealth Management business dividend, which comes up close to year-end. So, that's another, in total, $400 million of unregulated cash flows that we'll see from now to year-end.

Got it. Thank you.

Thank you. Our next question comes from the line Tracy Benguigui from Barclays. Please go ahead with your question.

Good morning. Robin, I believe after the fourth quarter earnings call, you reiterated that your operating earning sensitivity of every 10% movement in equity market, so about $150 million in earnings. And in 2022, the equity markets were down 20% and that was $300 million impact. So, your original cash flow expectation of $1.6 billion became $1.3 billion for ‘23. However, we're seeing recovery in equity market. So, is that $1.3 billion of moving target? Could we see upside based on equity market recovery? I think it's up 18% year-to-date

Yes, Tracy. That is our sensitivity of every 10%. It's about a $150 million. And as you saw, we went from $1.6 billion to $1.3 billion this year, reflecting the lower equity markets from last year. And, if equity markets continue at these levels, you should expect higher free cash flow next year in-line with the guidance that we provided.

Okay. And, congrats on wrapping up your internal reinsurance transaction. I feel like that cash flow split 50-50 between regulated and unregulated sources is not a new thing. So, just to be sure, you're expecting a more meaningful shift in that composition following your novation in two years.

Well, the 50% of, unregulated cash flow is where it sits now. It's 17% of the IPO. So, that aligns well with the strategy of unregulated cash flows. And then within the 50% that was coming from the retirement business, you should expect that to be split between the Arizona and the New York entity as we moved, as we shifted liabilities from the newer company to the Arizona company. That's really important because it means that we have more diversified regulated cash flows than more stable cash flows. As you know, the New York formula has been historically volatile, but the Arizona dividend formula will be more RBC-based. So, it provides more consistency and more transparency for shareholders on the cash flows from the regulated entities.

Okay. And real quick on VUL, you mentioned large claims. What is the average face amount of these claims, just so I can understand the severity aspect?

When we look at large claims on VUL, we're looking $2 million plus face amount.

Excellent. Thank you.

Thank you. Our next question comes from the line of Mark Hughes from Truist Securities. Please go ahead with your question.

Yes, thank you. Good morning. You talked about the China initiative just sort of curious. I think you've gotten some early approvals. When do you think that'll get ramped up and any early thoughts around the asset goals.

Hi, Mark. This is Bill Siemers, again. Yes, we've received our approval of our application in China. That was a few months ago. Currently, we're waiting on to get our license, but first that is subject to an inspection, which we've been geared up for, but hasn't occurred yet. We are hoping, to get this done and, have a fund -- release our first fund by the end of this year, but it's subject to, the timing of this license, which where it might slip into next year.

Appreciate that. And then in the Wealth Management, I think you touched on this, maybe giving us some of the pieces, but if you look at the year-over-year growth, obviously, quite strong. If you took out the improvement in the cash speed accounts, any sense of what the earnings growth was, aside from this interest rate impact?

Yes. I think we had, Mark, $42 million of Wealth Management earnings in the quarter. I think I said year-over-year, $11 million of that is coming from the interest rate sweep accounts. So, even in taking out the interest rate sweep account, you're still seeing really strong growth. I think it was about $12 million or so coming from the distribution revenue. And that's really from our insurance sales, the revenue that the Wealth Management business gets from that. And again, that's to Nick's point earlier, that really differentiates and what they do. They're not only selling investment products. They're selling insurance as an asset class. So, they have different sources of revenue that they can collect that drive future growth.

Very good. Thank you.

Thank you. Our final question for today comes from the line of Michael Ward from Citi. Please go ahead with your question.

Thank you guys. Good morning. Just a technical question, I was wondering about the Venerable general account assets where AB is the preferred manager. Just wondering, are there any terms in that agreement that could allow Venerable to quote unquote recapture that, AUM for maybe?

No. As part of the Venerable deal, we did enter into an IMA for AllianceBernstein scheme. That's a long-term IMA contract. I think, AB performed well on that. I think Venerable would say so as well. I can say that as well, being on their board, that they're happy with the performance of AllianceBernstein. So, we expect AB to continue to perform well. And, we're very looking-forward to the $14 billion of institutional flows get funded. And, that's going to improve the fee rate overall for AllianceBernstein going forward.

Okay. And then, just with some of the internal reinsurance changes, I was wondering if any anything has changed, sort of how you think about or consider, inbound potential de-risking opportunities, whether it's annuities or life, and if not, it just, the activity from third parties out there keeps picking up. So, just wondering if any changes on that front.

Yes. Look, the big deal for us across the board was that Venerable deal that we just spoke about. That was the big de-risking trade for us. But we're always going to look at ways to optimize capital, if we can deploy capital to Wealth Management or individual or all set AB by de-risking. We'll always look at them, but there's nothing on the table right now for us. We're really focused on executing against a strategy that Mark, laid out earlier in the call and we're focused on that execution at this point.

And I think it’s fair to say, Robin, on capital management, the focus has been on the internal reinsurance, which is a massive job that teams delivered extremely well on, securing cash flows and just making the cash generation more robust going forward. That's really been the big shareholder value capital management issue in the last couple of quarters.

Okay. Great. Thank you, guys.

Thank you, ladies and gentlemen. As we have no further questions at this time, we will conclude today's conference call. Thank you for participating. You may now disconnect.