Equitable(EQH) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Non-GAAP operating earnings for Q2 2022 were $526 million or $1.31 per share, a 4% decrease from Q1 2022, primarily due to lower fees from reduced account values and assets under management [10] - GAAP net income for the quarter was reported at $1.7 billion, driven by non-economic accounting treatment of GAAP liabilities [19] - Assets under management (AUM) at the end of the quarter were $754 billion, reflecting a 13% decrease year-over-year due to market movements, although positive net flows from retirement and wealth management businesses partially offset this decline [20] Business Line Data and Key Metrics Changes - The Individual Retirement segment achieved record sales, contributing to net inflows of $1.3 billion in core Retirement products, a 52% increase, marking the highest since the IPO [14] - AllianceBernstein (AB) reported modest net outflows but saw positive flows of $1.3 billion within the institutional business, with a 2% fee rate improvement year-over-year [15] - The company completed the acquisition of CarVal Investors, which raised an additional $2 billion in assets under management since the announcement [16] Market Data and Key Metrics Changes - The S&P 500 index fell more than 20% in the first half of 2022, impacting both equity and bond values significantly [12] - Despite market challenges, the company maintained a strong RBC ratio of 440% at quarter-end, indicating robust capital management [28] Company Strategy and Development Direction - The company focuses on maximizing economic value to generate distributable cash flows, reaffirming a cash flow guidance of $1.6 billion for the year [30] - Economic reserving and fair value hedging programs are highlighted as unique strategies that protect the balance sheet and ensure consistent cash returns to shareholders [30] - The company aims to mitigate the remaining $1 billion of redundant reserves associated with Regulation 213 by year-end [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate challenging market conditions, emphasizing the effectiveness of their hedging program [40] - The company remains focused on executing its capital return objectives while being mindful of potential headwinds impacting fee-based earnings [20] - Management noted that the favorable mortality experience was linked to a significant decline in U.S. COVID deaths, which positively impacted their results [46] Other Important Information - The company returned $295 million of capital in the quarter, including $220 million in share repurchases, maintaining a consistent payout ratio of 50% to 60% [28] - The company has achieved $141 million of the $180 million target for general account rebalancing, with expectations to complete this ahead of schedule [20] Q&A Session Summary Question: RBC ending at 440% and capital generation - Management explained that the robust RBC ratio reflects the effectiveness of the economic hedging program, which protected statutory capital against adverse market movements [33] Question: Parameters around $2 billion higher reserve for Reg. 213 - Management confirmed that they are on track to resolve the remaining $1 billion redundant reserves by year-end and do not foresee additional reserve increases under current market conditions [34][35] Question: General account repositioning and NII upside - Management indicated that they have achieved $141 million of the targeted $180 million in NII upside and expect to finish ahead of schedule due to higher rates and spreads [37] Question: M&A thoughts post-CarVal deal - Management stated that while they are open to inorganic growth opportunities, their strategy does not depend on acquisitions, focusing instead on organic growth [44][45] Question: Favorable mortality and COVID impact - Management noted that favorable mortality was primarily due to a decline in U.S. COVID deaths, with ongoing monitoring of trends [46][68] Question: Cash flow guidance and market impacts - Management reiterated that the $1.6 billion cash flow guidance remains unchanged despite market challenges, attributing this to strong upstreaming from the retirement company [49] Question: Buybacks and capital return strategy - Management confirmed their commitment to maintaining buybacks at a consistent pace, supported by a strong cash flow and effective hedging strategies [52]