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F500-2021-244-Equitable Holdings

Headquartered in New York City, the company provides financial services in the form of retirement planning, insurance, and investment management.

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Founded in 1859, Equitable is a New York City financial services holding company that provides variable annuity, life insurance, and employee benefit products to both individuals and businesses.

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Equitable Holdings (EQH): Company Profile, Stock Price, News, Rankings

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Equitable Holdings

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Thank you for standing by, and welcome to the Equitable Holdings, Inc. 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. I would now like to turn the call over to Eric Bass, Head of Investor Relations. Please go ahead, Eric.

Thank you. Good morning, and welcome to Equitable Holdings second quarter twenty twenty five earnings call. Materials for today's call can be found on our website at ir.equitableholdings.com. Before we begin, I would like to note that some of the information we present today is forward looking and subject to certain SEC rules and regulations regarding disclosure. Our results may differ materially from those expressed in or indicated by such forward looking statements.

Please refer to the Safe Harbor language on Slide two of our presentation for additional information. Joining me on today's call are Mark Pearson, President and Chief Executive Officer of Equitable Holdings Robin Raju, our Chief Financial Officer Nick Lane, President of Equitable Financial Tom Simeone, AllianceBernstein's Chief Financial Officer and Ono Erzan, Head of AllianceBernstein's Global Client Group and Private Wealth business. During this call, we will be discussing certain financial measures that are not based on generally accepted accounting principles, also known as non GAAP measures. Reconciliations of these non GAAP measures to the most directly comparable GAAP measures and related definitions may be found on the Investor Relations portion of our website and in our earnings release, slide presentation and financial supplement. I will now turn the call over to Mark.

Good morning and thank you for joining today's call. This quarter marks the halfway point of our five year planning period, and we're pleased with the organic growth momentum across our businesses and the progress we've made on our strategic initiatives. In July, we closed our landmark individual life reinsurance transaction with RGA, which freed over $2,000,000,000 of capital and will significantly reduce future earnings volatility. Looking forward, we are excited about the growth prospects across our retirement, asset management and wealth management businesses, and the flywheel benefits from our integrated business model position us well to be a long term winner in each of these markets. Turning to Slide three, let me briefly cover our second quarter results.

Non GAAP operating earnings were $352,000,000 or $1.1 per share, down 23% year over year on a per share basis. Adjusting for notable items, non GAAP operating EPS was $1.41 which is down 8% compared to the prior year. The primary driver of the decline was elevated individual life mortality claims. In addition, fee based earnings were pressured by lower average equity market levels during the second quarter. While results this quarter came in below expectations, we see several positive leading indicators that suggest growth will accelerate in the second half of the year.

Our mortality exposure has been reduced by seventy five percent and markets have had a strong recovery. Assets under management and administration at quarter end totaled a record $1,100,000,000,000 which is up 5% year to date and bodes well for future growth in spread and fee based earnings. We also see healthy organic growth momentum supported by our flywheel business model. Our retirement businesses produced $1,900,000,000 of net inflows in the second quarter, driven by strong rider sales and $250,000,000 of BlackRock LifePath paycheck net inflows. Wealth Management also had another very strong quarter with $2,000,000,000 of advisory net inflows, and the trailing twelve month organic growth rate is 12%.

We continue to see positive advisor recruiting trends, and productivity increased 8% year over year. Turning to asset management, AB was not immune to the challenging market conditions in the second quarter and reported net outflows of $6,700,000,000 which includes active net outflows of $4,800,000,000 The outflows were concentrated in April and the business returned to net inflow in June. AB also continues to grow its private markets business with AUM up 20% year over year to $77,000,000,000 and the total institutional pipeline increased to $22,000,000,000 the highest level since 2022. Moving to capital. We returned $318,000,000 to shareholders in the second quarter, which represents a 74% payout ratio above our 60% to 70% target.

We are on track for $1,600,000,000 to $1,700,000,000 of organic cash generation in 2025, with over 50% coming from our asset and wealth management businesses. In addition, we expect to bring approximately $1,000,000,000 of additional insurance dividends to the holding company in the 2025, following the close of the Individual Life Reinsurance transaction. As Robin will discuss, we plan to execute at least $500,000,000 of incremental share repurchases and repay some debt before year end. We have already received regulatory approval for these dividends. Over the past few months, we have made significant progress executing against our strategic initiatives to reduce earnings volatility, improve our return on capital and drive future growth.

I've already highlighted the life reinsurance transaction with RGA, which closed on July 31. In addition, in June, we completed the first internal reinsurance transaction to our Bermuda entity as well as the majority of our policy innovation initiative. These actions enhance our financial flexibility and visibility into future cash flows from our insurance entities. Finally, you're seeing evidence of the flywheel synergies between Equitable and AB. A good example is the Ruby Re Sidecar investment, which yielded a $1,000,000,000 private credit investment management agreement with RGA, including mandates for newer strategies that have recently been seeded by Equitable.

This has helped to accelerate momentum in AB's insurance business, which has added four new insurance general account relationships year to date. Turning to Slide four, I'll provide an update on performance against our three primary financial targets, which are to grow annual cash generation to $2,000,000,000 by 2027, deliver a 60% to 70% payout ratio and grow non GAAP operating earnings per share 12% to 15% annually. As I mentioned, we are on track for $1,600,000,000 to $1,700,000,000 of organic cash generation in 2025, and we have a good line of sight into achieving our $2,000,000,000 target for 2027, even after reinsuring 75% of our in force individual life block. Our cumulative payout ratio over the past ten quarters is 68%, at the upper end of our 60% to 70% target range. As a reminder, the $500,000,000 of additional share repurchases following the Individual Life transaction is on top of this target.

The one metric where we are slightly below plan is EPS growth, as we have a ten quarter average growth rate of 11% versus our 12% to 15% target. Year to date, non GAAP operating EPS excluding notable items is down 5% due to elevated mortality claims. If the reinsurance transaction had been effect starting January 1 and our mortality claims were reduced by 75%, non GAAP operating EPS growth would have been 3% in the first half of the year. Looking forward, we expect EPS growth to accelerate given the recovering markets and benefit from incremental share repurchases. Turning to Slide five.

We highlight some of the key performance indicators for our business segments and the progress we have made against our Investor Day targets. I won't cover everything on this page, but want to call out a few items. Starting with Retirement, we have delivered 5% organic growth year to date and 6% over the past ten quarters. This has helped drive 13% annual growth in AUM significantly ahead of plan. Not included in retirement net flows is our spread lending program.

We have issued $3,400,000,000 of FABNs year to date and have approximately $9,000,000,000 outstanding. We expect to be a consistent issuer going forward, which will contribute to growth in future spread income. Turning to AB, while active net flows are modestly negative year to date, the base fee rate has remained relatively stable and the business is on track for a 33% margin in 2025. This is up four ten basis points since 2022 and reflects the benefits from AB's office relocation strategy and the Bernstein Research JV. We have made significant progress in scaling our wealth management and a b private markets businesses.

Wealth management has delivered a 12 organic growth rate over the trailing twelve months, has grown AUA to a $110,000,000,000, and is on track to exceed $200,000,000 of annual earnings ahead of schedule. Private markets AUM has grown to $77,000,000,000 up 20% over the past year, and we expect it to reach 90,000,000,000 to $100,000,000,000 by 2027. Finally, we are seeding future growth by developing new markets for both AB and Equitable. We continue to see in plan annuities as a growth market, and we have a first mover advantage through our relationships with AB, BlackRock, and JPMorgan. Since launching the BlackRock LifePath paycheck product in the 2024, we have received over $800,000,000 of inflows.

We also expanded our institutional offering through a partnership with a leading HSA provider, which has yielded approximately $350,000,000 of net inflows year to date. AV is making good progress in target growth areas like active ETFs and insurance mandates, which now have AUM of $8,000,000,000 and $48,000,000,000 respectively. Moving to Slide six. I want to reinforce the value created by our individual life reinsurance transaction and the benefits it will have for Equitable moving forward. By reinsuring 75% of our in force individual life block on a pro rata basis, we have significantly reduced our exposure to future mortality claims and the associated volatility.

This should enable us to deliver more predictable earnings. We are also generating over $2,000,000,000 of value through a positive ceding commission and the release of capital supporting the block. This represents a multiple of approximately 20 times our lost earnings, a very attractive valuation. This freed capital will be redeployed into higher return businesses and drive accretion for shareholders. We have already used $760,000,000 to increase our ownership stake in AB from 62% to 69%, and we plan to execute $500,000,000 of incremental share repurchases in the 2025.

We also expect to repay some debt. This leaves us with some remaining capacity for opportunistic growth investments or additional buybacks. I'm very excited about the road ahead for Equitable, and I'll now turn the call over to Robin to go through our financial results in more detail.

Thanks, Mark. Turning to Slide seven. I will provide some more detail on our second quarter results. On a consolidated basis, non GAAP operating earnings were $352,000,000 or $1.1 per share and we reported a GAAP net loss of $349,000,000 We had a few notable items in the quarter. Our alternative investment portfolio returned 6.3% in the quarter modestly below our 8% to 12% long term expectation but in line with our guidance for the second quarter.

In Protection Solutions, we had $74,000,000 after tax of negative one time items driven primarily by the discovery of a third party administrator issue that resulted in the late reporting of some COLI claims. We are confident that all outstanding claims have now been identified and that there won't be any impact in future quarters. We also identified a few other small items that were cleaned up ahead of the closing of the RGA transaction. Finally, in Corporate and Other, we had $16,000,000 of notable items, primarily from one off expenses related to a true up of PCAP issuance cost and an adjustment to the FAVN currency hedges. After adjusting for these items, non GAAP operating earnings per share would have been $447,000,000 or $1.41 per share.

Total assets under management and administration rose 8% year over year to 1,100,000,000,000.0 This bodes well for future earnings growth. Adjusted book value per share ex AOCI and with our AD ownership stake at market value was $40.89, up 11% year over year. In our view, this is a more meaningful number than reported book value per share ex AOCI, which reflects our AV holding at book value. Our adjusted debt to capital ratio with AV's ownership stake at market value was 23% in the quarter. On Slide eight, I'll provide some further details on our segment level earnings drivers.

Starting with mortality, we again experienced a higher than expected level of larger claims in our individual life insurance block, primarily concentrated in older age policyholders. Excluding the late reported COLI claims that I mentioned previously, mortality came in about $35,000,000 after tax worse than our normal expectations. Moving to Individual Retirement. Earnings declined on a year over year basis driven by a couple of factors that I'd like to dive deeper into. Fee based revenues declined by 3% reflecting lower average separate account balances due to outflows in our older GMX B block and the equity market decline through April.

Fee based products account for about half of our segment earnings and have a higher return on assets than spread products. Net interest margin or NIM was flat year over year as strong growth in net investment income was offset by higher interest credited. We attribute this to three dynamics. First, we are starting to see more of our very profitable older wireless segments mature. These policies were written at a time when competition was limited and we could achieve margins well above our normal hurdle rates.

While we continue to earn attractive 15% IRRs on new business, this is below the returns earned when we had the market largely to ourselves. Second, a component of interest credited is market value adjustments or MBAs, which are collected if a contract is early surrendered or the policyholder's changed segments within their RILE contract. MBAs had been quite stable from the 2022 through the 2024, but they have declined in recent periods and were essentially zero this quarter. This reduced year over year NIM growth by about 10%. We do not assume any benefit from MVAs in pricing and expected limited GAAP earnings contribution moving forward.

Third, we have multiple product lines that drive individual retirement NIM, including RILAs and payout annuities, as well as income from surplus. So this can create noise on a quarterly basis. When we update our financial reporting next quarter, we plan to provide additional disclosure to help you model NIM across our retirement businesses. The final drag on earnings has been higher commission expense, which reflects strong sales volumes, particularly at Equitable Advisors, where not all payouts can be capitalized in DAC. This is ultimately a positive as we'll see higher earnings over time, but new business does not immediately start to contribute to GAAP profits.

Looking forward, we view $220,000,000 to $225,000,000 as a good baseline for third quarter earnings for Individual Retirement assuming normal markets and our current segment reporting methodology. Keep in mind that not all the benefit from the strong organic growth in Individual Retirement shows up within the segment's earnings. Robust sales volumes benefit transactional revenues in wealth management and drive asset flows to AB. In addition, growth in our general account assets allows us to expand our spread lending program, which generates earnings that currently get allocated across all of our insurance segments. Turning to Group Retirement, earnings declined sequentially due to lower average separate account balances in the second quarter, but the market rebound should lift third quarter results.

AB reported a solid quarter from an earnings perspective and remains on track to achieve its full year margin target of 33%. AUM ended the second quarter at record levels, which should support growth in base fees and AB now expects full year performance fees of 110,000,000 to $130,000,000 up from our prior forecast of 90,000,000 to $105,000,000 Finally, Wealth Management had a very strong quarter with earnings up 16% year over year. We expect this momentum to continue given robust net new asset growth and supportive equity markets. Across our businesses, we expect earnings to improve in the second half of the year given record AUM levels, higher investment portfolio yields, benefits from expense actions and reduced mortality exposure. Turning to Slide nine, we executed on several important capital management initiatives during the quarter, which will support growth and enhance visibility into future cash flows.

As Mark previously discussed, we are thrilled to have closed the Life Reinsurance transaction with RGA, which we expect will reduce earnings volatilities and will enhance returns on capital and be accretive to earnings and cash flow per share. In June, we also completed the first transaction with our Burrita entity, reinsuring approximately $30,000,000,000 of group annuity contracts. While this transaction does not impact our view of excess capital, it enhances our visibility into future cash generation and our ability to upstream excess surplus on a consistent basis. This is because of a better alignment between the Bermuda framework and how we economically hedge our annuity book. Looking ahead, having a Bermuda entity provides another tool in our capital management toolkit, and we'll be opportunistic in utilizing it.

This could include seeding additional blocks of in force business, seeding new business on a flow basis or even reinsuring third party business. Finally, we've completed the first wave of policy innovations, moving a portion of our reinsured legacy VA policies to Venable and a portion of internally reinsured policies from New York to Arizona. By innovating these policies, we reduce counterparty risk, simplify our statutory accounting, and increase future financial flexibility. These strategic initiatives support Equitable's consistent capital management program, which is highlighted on Slide 10. During the quarter, we returned $318,000,000 to shareholders, including $236,000,000 of share repurchases.

The payout ratio was 74 of earnings excluding notable items in the quarter, above our 60% to 70% guidance range. Over the past year, we have reduced our share count by approximately 6% helping us drive growth in earnings per share. We currently have about $800,000,000 of cash at the holding company above our $500,000,000 minimum target. During the quarter, we spent approximately $760,000,000 to purchase additional AV units and $283,000,000 to retire our outstanding Series B preferred stock. During the second half of the year, we expect to upstream $1,700,000,000 of excess surplus from our insurance subsidiaries to the holding company, which include both organic cash generation and a portion of proceeds from the Life Reinsurance transaction.

We have received regulatory approval for any required extraordinary dividends. Following the Life Reinsurance transaction and these planned dividends, we will have a pro form a combined NAIC RBC ratio of over 500% above our 400% minimum target. This puts the enterprise in a strong capital position and provides capacity to fund growth and meet our payout ratio targets even during periods of market volatility. We plan to execute at least $500,000,000 of incremental share repurchases in the 2025. And we will also look to pay down some outstanding debt to manage our leverage ratio and maintain flexibility.

We will be opportunistic in redeploying the remaining transaction proceeds in a timely manner to support growth and drive shareholder value. Now let me turn the call back over to Mark. Mark?

Thanks, Robin. Looking forward, Equitable is well positioned to capitalize on the growth opportunities across retirement, asset management and wealth management helped by the flywheel benefits of our integrated business model. We have strong organic growth momentum and the individual life reinsurance transaction will reduce the earnings volatility that has weighed on our year to date results. We also have a robust balance sheet and significant freed capital to redeploy, which will be accretive to earnings per share. As a result, we expect EPS growth to accelerate in the 2025, and we remain confident about achieving our 2027 financial targets. We will now open the line for your questions.

We will now begin the question and answer And your first question comes from the line of Ryan Krueger with KBW. Ryan, please go ahead.

Hi. Good morning. Robin, thank you for the more color on the earnings in Individual Retirement. I guess the question is, you gave us the baseline earnings for the third quarter, But how should we think about the growth in earnings beyond that? I guess you do have you have good growth momentum in the business, but it does seem like the earnings, I assume, will continue to grow less than than account value just given the dynamics you mentioned on runoff of higher margin legacy Rilla business as as well as some of the mix shift between variable annuities and Rilla.

So I don't know if you can give us any more context, but just trying to think about the growth off of that third quarter starting point.

Okay, Ryan. Yes, let me just break it down in a few components, what happened now in this current quarter and then how should we think about it going forward. So we view approximately $220,000,000 to $225,000,000 as a reasonable baseline for the third quarter. As you noted and I noted on the call, results came in lower from the few components. One, fee based products in our historical floating rate VA which is more linked to the separate account.

Markets were lower in April which was below our expectations which is about 2% the 2% for a quarter. But that should help us going forward. So that's going to support the $220,000,000 to $225,000,000 guidance that I gave given the equity market rebound. Reported NIM was flat year over year as strong growth in net investment income was offset by interest credited. As we talked about previously, a big piece of that is market value adjustments.

These bounce around quarter to quarter. It's been about $10,000,000 pretax recently but with zero this quarter. So that obviously has an impact. We don't predict much of that going forward but that could sway results on the positive side if that bounces back as well. I would view NIM spreads have somewhat stabilized and will continue to stabilize this year as we see the runoff from our very profitable book when we own the market to ourselves where margins have more stabilized at a 15% IRR.

So you can assume that to flatten out this year and probably for the next nine to twelve months we're going to see that shift so the NIM rate should be consistent going forward. But the business momentum remains strong as we mentioned in the call. And going forward, we do expect the general account to grow, which benefits the other parts of our flywheel including AB AUM, wealth management fees and then also our spread lending capability, which will all benefit us going forward.

Thanks. Just one related follow-up. I don't know if you have if you have something approximate, not looking for anything exact, but how much of your in force rival would you say is is more of the the the older business when you had, you know, excess returns compared to business that's probably more in line with your pricing targets now?

Yes. It's about the in force and I would put that like pre-twenty twenty, it's about 15% of the total account value and that's very good, very high margins because we're the only ones in the market at that time. As more people have come in those margins have stabilized. But so it's not a huge shift. That's why we think over the next few quarters that should stabilize if that will come off.

And your next question comes from the line of Suneet Kamath Suneet, please go ahead.

Great. Thanks. Robin, I want to come back to the spreads in IR. It sounds like you're saying that that should sort of stabilize or flatten out here. Is there any sensitivity to that outlook if the Fed starts or if and when the Fed starts cutting rates?

No, because it's not a for Vrayola product specifically, Suneet, it's not only the short term rates. It's really looking at, I would say, closer something to the ten year treasury and then also we're looking at volatility and we're looking at corporate spreads. So those are the three drivers of that RILE of profitability which we use to price products. So we're matching our pricing depending on the movement to that 15% IRR. So we're less sensitive to those movements and more focused on making sure our pricing meets that hurdle rate.

Okay. That makes sense. And then I guess sticking with IRR and Ryla, how do the economics of the products that you sell through the Wealth Management business compare to the products that you sell through third parties? And I'm assuming it's sort of a level commission, so that's not the difference, but there's probably other factors that we should think about in terms of profitability. Can you just kind of talk about that?

Well, I'll ask Nick to jump in and talk about the growth that we're seeing within that segment. But within our wealth management franchise those are where we're closer to the client and we see better persistency and we do see higher margins as a result of that when we sell any of our products through our wealth management business. That's why owning and having affiliated distribution is a differentiator for Equitable and a key part of our flywheel going forward. And Nick, do you want to add on some of the growth we're seeing on the wealth management side?

As Mark and Robin highlighted, Equitable Wireless sales were up 9% year over year. This was another record high with a total of $1,700,000,000 of net flows. We continue to believe that to be a sustainable success story, you need to generate attractive yields, have distribution, which generates lower cost liabilities. This is both Equitable Advisors and third party partners that have a more curated share of products on the shelf and scale. And we think Equitable has that flywheel benefit, so we're a sustainable success story in the business.

And your next question comes from the line of Tom Gallagher with Evercore ISI. Tom, please go ahead.

Good morning. Just a question on capital management and what you're thinking there. I guess after your extraordinary dividends, you're still going to have a 500% pro form a RBC. Would the baseline plan be to take out another extraordinary dividend next year on so you would end up doing more buybacks in 2026 than you would normally generate. It sounds like you're going to do some debt paydown as well.

But how are you thinking about kind of the cadence of getting some of this excess capital out from the RGA deal? And of that $1,000,000,000 that I guess wasn't deployed into an increased AB stake ballpark, would the vast majority of that likely go into buyback today? Or are you still deciding between debt paydown and share repurchase? Thanks.

Thanks, Tom. I think you had a few questions there, so I'll take all good questions. So we're thrilled, as I said on the call, to close this RGA transaction. More importantly is the strategic value of this transaction as it really cements us into this flywheel of asset retirement and wealth management and also recognizing we're not a differentiator in owning mortality risk. So for us this is a very strategic transaction. We're benefiting from unlocking $2,000,000,000 of value and reduced mortality exposure going forward.

As you mentioned, we've invested $750,000,000 in AllianceBernstein that increases our stake to 69%. We're also committed to doing $500,000,000 of share buybacks in the second half of the year. That's going to be one of the pieces that helps EPS growth on the second half as well. That's going to be above the 60% to 70% payout. And with the $1,000,000,000 remaining I would split it in one piece for certain as the transaction becomes effect in the third quarter we'll have a loss on the GAAP side related to the assets that move but also with the purchase of AllianceBernstein units that's held at book value.

So that combined puts an impact on the equity in the company. So as a result, we do want to reduce debt to make sure our leverage ratios are in line with our rating agencies would expect. I would think about that anywhere up to $500,000,000 because it will be a tender offer that we would likely do in the second half of the year depending on markets. And then with the remaining $500,000,000 we're as always, we look for bolt on opportunities within the wealth side across Equitable and AV. We do always look at sidecars and then we'll certainly look at it additional share buybacks as we need to drive accretion because of where we trade today as well.

As the I think the first part of your question on future capital deployment, yes, post the transaction post the extraordinary dividend and the ordinary dividend of $1,700,000,000 out of the insurance company, The RBC ratio of the combined entities is above 500%. So the capital ratios at the subs are very robust at this time. We don't have any plans to take out any other dividend from the insurance companies this year. And then next year we'll look at where the ratios are and the organic cash generation and we'll look to upstream next year and then the following year in order to meet our $2,000,000,000 cash flow guidance which come both from the insurance company and 50% from asset and wealth.

Your next question comes from the line of Elyse Greenspan with Wells Fargo. Elyse, please go ahead.

Hi, thanks. Putting together, I guess, Robin, a lot of the comments that you gave, right, you guys said EPS growth should pick up in the back half. And then obviously, it takes time, right, for the full credit, right, for repurchase to work in as well as business growth, etcetera. So with how you see things, guess, you expect, I guess, the second half to be better than the first half, but I guess below the 12% to 15% target for EPS and then we get back there in 2026. Is that kind of the right way to think about it when you think about the moving pieces?

Yes, think that's right. I think look, we with the tailwinds behind our business to growth momentum, higher equity markets, reduced mortality exposure and additional share buybacks, EPS growth will certainly improve in the second half and we'd expect to be back on track for the 12% to 15% in 2026 and then obviously towards 2027 to achieve our commitments. We also have leverage in place if the market doesn't continue to participate well. So we have expense actions that we can take. We also have investment actions that we continue to execute We're about $15,000,000,000 through our $20,000,000,000 commitment in the private credit build at AB.

That's helped AB grow that business to $77,000,000,000 and we're getting good investment income off of that as well. So I think where we're positioned today, see good growth coming into second half and then going forward. But we also have levers in place in case things don't materialize as we expect.

Thanks. And then I was hoping just to get some incremental color just on wireless sales in the quarter as well as just what you're seeing from a competitive and just market standpoint?

Yes. Thanks. Obviously, the competitive dynamics have changed since we pioneered the product over a decade ago. With that said, year to date, we haven't seen any material change in the relative competitive intensity. We continue to see strong demand and growth driven by the demographics, the baby boomers moving to their next chapter of their lives, heightened by this current state of, I would say, macro uncertainty.

I alluded to our strong sales already in the quarter, up 9%. We're very mindful of competitive trends on pricing. As we've mentioned, when we see new entrants enter, they tend to have a period of aggressive pricing. We've seen this before and it tends to be temporary. We focus on value versus pure volume. And as the market leader, we've continued to benefit from the growing pie. I would highlight over the last three years, our sales have more than doubled over that period. So we believe, looking forward, we're in a privileged position to capture a disproportionate share of the value given our asset origination capability, our distribution network and our scale.

And your next question comes from the line of Jamie Voller with JPMorgan. Jamie, please go ahead.

Good morning. So first, just a question for Robin on the buybacks. The I think the 500 extra that you've communicated, are you going to be opportunistic in terms of timing of that depending on how the stock price behaves? Or should we assume that that's going to be more flat lined?

Thanks, Jimmy. Yes, we're going to start the $500,000,000 on top of our committed 60% to 70% in the third quarter. We'll run that through based on the trading volume that is. And obviously, that gives us a lot of good dry powder to be opportunistic depending on the share price as well. So you should expect it to be active in the market.

And then on the you certainly have the ability to do more. Obviously, you have to reduce debt as well given the lower earnings base with the reinsurance transaction. But the what is it that you're or you mentioned maybe potential tuck in deals or other uses of capital, besides debt reduction. Are like, have you already earmarked something for potential acquisitions? Or, is it more that if you don't find anything, then maybe the $500,000,000 more likely than not will be increased over time?

Jimmy, first we have to get through the $500,000,000 because that's on top of the 60% to 70% payout. There's shares that we have available to us to buy back. So that's going to take time. So expect that they deploy the remaining proceeds by 2026, and it will be in the combination of share buybacks. And if something becomes available to us that's accretive for wealth management businesses and Equitable or ED or side cards that align to our strategy to grow insurance, third party insurance mandates, those are things that we look at as well. But we have to get through the first portion first and then that gives us options going forward.

But anything that we do will have to drive shareholder value.

Jimmy, it's Mark. If I could just add to that, I think and I hope as you've seen over the years, we will be incredibly disciplined. The fact that we've got the money does not burn a hole in our pockets. We will be very disciplined in anything we look at. And to Robin's point, we know we have to beat the baseline of the value that would be accretive to shareholders through a share buyback. So that provides a healthy discipline for us.

And your next question comes from the line of Jack Mann with BMO Capital Markets. Jack, please go ahead.

Hi. Good morning. Just a follow-up on the individual retirement business. How much longer do you expect that RILA roll off dynamic to continue? Is it fair to say it's mostly behind us now?

Or is there just like a little bit more to come over the next few quarters? And then on the earnings baseline for next quarter, just confirming that assumes no market value adjustments and that would, I guess, be less favorable compared to your kind of historical average experience?

Sure. I expect this the older business to run off definitely over the next few quarters still. And then I also we also do not assume any MBA in the $220,000,000 to $225,000,000 that I provided during the call. But we should still see this dynamic. As I mentioned, it's about 15% of the book pre-twenty twenty that's still there.

So that dynamic is going to run off over the next few quarters. That will still occur. But we still have underlying good growth momentum, as Nick highlighted, and that should come through in earnings.

Got it. Thanks. And then just one on the Bermuda entity. I guess, are benefits from using that entity material enough that there could eventually be a step change higher in the cash conversion or payout ratio that you would expect longer term? Then any any thoughts on the timing for additional transactions, particularly around potential third party transactions for that for that entity?

Let's say, first off, we've really liked the Bermuda system because it really allows us to manage economically. As you know, we're unique here and we have an economic approach on how we manage liabilities and how we hedge. The Bermuda frameworks allows us to fully manage on an economic basis. That means we won't have volatility in any results related to our hedging program, and that gives us consistency of cash flow going forward, which is good for shareholders. So it's really about more consistency in cash flow and managing economically as the framework allows us to again.

We just closed the first transaction on June and June, so there's still a lot more to be done. As I mentioned on the call, we'll look at flow reinsurance on new business. We'll look at other internal measures in 2026 and 2027. We'll execute again those. And then it gives us optionality post 2027 and later on if we wanted to look at third party as well.

And your next question comes from the line of Michael Ward with UBS. Michael, please go ahead. Michael, if you are on mute, please unmute. Let's go proceed to the next question. Our next question comes from the line of Cave Muntasari with Deutsche Bank. Cave, please go ahead.

Good morning. And I apologize, I think I missed Jack's question. Hopefully, it's not the same question I have to ask. But on this $30,000,000,000 of annuities reinsured to Bermuda, are you able to give us a bit of an estimate of the capital benefit from that transaction? Maybe not an exact number, but some kind of a range would be helpful.

Sure, Gabe. As I mentioned, we don't view it as like an excess capital materialization because nothing changed in our economic capital from moving to Bermuda. It's more about having consistency of cash flows going forward. The capital benefits that we're going to get throughout the year is going to be coming from the RGA transaction, which as we mentioned, unlocks $2,000,000,000 of value for us and post dividends allows us to run the company at a 500% RBC post all the dividends. So that's what puts us in a good capital position.

And now the Bermuda transaction gives us the consistency of the cash flow on an economic framework going forward.

Okay. So there's no actual benefit from that transaction specifically then, like internal lower capital requirement in Bermuda for that type of product?

Yes. The benefit is the consistency of cash flow aligning to our economic hedging program.

Okay. And now second question is on technology. Which parts of your business, I guess, could benefit most from the implementation of Gen AI? And do you think it's more about improving efficiencies? Or can it also help you drive growth?

Great. Thanks for the question. Obviously, AI is rapidly evolving and being adopted in the space out there. We've built a foundation, given that we're in a regulated space, that allows us to seek seed and scale the benefits. Primarily in the last phase, we've seen it on the operational side relative to doing mundane tax tasks and we continue to explore the potential to use it for value added services such as how we produce Alpha or our advice model.

Our conviction is that AI is not going to replace advisors out there, but people that use AI are going to replace people that don't. So we see the potential to continue to explore and accelerate in this space.

And your next question comes from the line of Mark Hughes with Truist Securities. Mark, please go ahead.

Yes. Thank you. Good morning. Not a big impact, but the surrenders in Group Retirement were a little lower than we've been seeing over the last several quarters. Anything in particular you'd call out there?

Sure. Mark, we've seen lower surrenders in the quarter. I think some of it has to do with the equity market decline in April. People have been more steady with their money, but we also have actions in place across our businesses to retain more clients as we continue to provide holistic advice to them. But nothing really to call out that's material there.

Yes. Understood. And then on the RILE side of the business, I thought Limra, for what it's worth, was saying they expect continued expansion as more broker dealers are offering these products. When you think about your distribution through those third parties, you've had a lot of success with BlackRock and elsewhere. But just as a kind of a general matter of the adoption of RILAs across the financial services space, anything you've seen different lately?

Yes. I'd comment on that. Look, net net, I think as the demand has continued to grow, given the value proposition of the protected equity story, we are seeing greater adviser awareness and consumer interest for the product, which is increasing the overall pie itself. Having been the pioneer in this market ten years ago, we were able to secure what I would say privileged distribution, where the product aligns with the investment philosophy of the third party firms for how they need a consumer's best interest.

And your next question comes from the line of Wilma Burdis with Raymond James. Wilma, please go ahead.

Hey, good morning. The stock's off a little bit this morning, but when I look at the core 25 segment results, they're really on top of my underlying EPS model estimates. Most of the noise really seems to be related to the deal. Do you agree? Should we start to see more consistent results with the deal closed?

I know you touched on that. But, and is there any additional noise to come through in 3Q?

Hi, Wilma. Yes. No, I expect the results to be stable going forward. Obviously, we essentially decreased by 75% the most volatile part, that we've seen in our results previously. So going forward, we expect strong results, again, coming from better equity markets, lower mortality exposure and then the incremental share buybacks of $500,000,000 above the 60% to 70% payout ratio.

And could you give a little bit more color on the FABN program? Some competitors have highlighted drag from high volumes of FABNs as they've been waiting to deploy the assets at higher spreads. Is this something that's impacting Equitable? Or has the company already been able to invest the proceeds? And if it is an impact, is there something we should think of on spread uplift?

Sure. We've been accessing the FABN market as an issuer since 2020. I think it's one, again, the benefits of having an in house asset manager and AllianceBernstein that has that origination capability that we can continue to issue FABN and achieve attractive IRRs similar to our retail business above 15%. We've achieved $3,400,000,000 year to date. We have $9,000,000,000 outstanding and the AV team does a great job of putting that money to work to ensure that we get the yields that we price for.

And your next question comes from the line of Michael Ward with UBS. Michael, please go ahead.

Equitable Holdings Q2 2025 Earnings Call Transcript | Fortune

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Equitable Holdings (EQH) Q2 2025 Earnings Call Transcript

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