Equitable Holdings, Inc. (EQH) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A revealed strong financial performance, strategic product development, and a positive market strategy with promising growth in private credit and RILA markets. Despite some concerns about mortality experience, management's guidance and strategic investments suggest a positive outlook. Shareholder returns through buybacks and the RGA transaction proceeds further support a positive sentiment.
Key Financial Performance
Non-GAAP operating earnings $455 million or $1.48 per share, down 6% year-over-year on a per share basis. Adjusting for notable items, non-GAAP operating EPS was $1.67, up 2% compared to the prior year. The decline was attributed to notable items and adjustments, while the increase after adjustments was due to growth in core businesses and completion of the life reinsurance transaction.
Assets under management (AUM) $1.1 trillion, up 4% sequentially and 7% year-over-year. The increase was driven by strong equity markets and growth in private markets.
Retirement businesses net flows $1.1 billion during the quarter, driven by continued growth in RILA sales. Seasonal factors in the K-12 teachers business and lack of material institutional flows were noted.
Wealth Management advisory net inflows $2.2 billion, representing a 12% annualized growth rate. Adviser productivity increased 8% year-over-year.
Asset Management net outflows $2.3 billion, which includes $4 billion of low-fee assets transferred to RGA as part of the life reinsurance transaction. Excluding this, AB had net inflows of $1.7 billion, driven by private wealth and institutional channels.
Private markets assets $80 billion, up 17% year-over-year, on track to achieve AB's $90 billion to $100 billion target by 2027.
Capital deployment $1.5 billion used to drive shareholder value and future growth. This included $757 million returned to shareholders, $676 million of share repurchases, and $500 million debt reduction.
Adjusted book value per share $33.59, reflecting adjusted debt-to-capital ratio of 24.5%.
Net interest margin (NIM) Down year-over-year due to lower market value adjustment gains and spread compression, but increased 4% sequentially. Expected to improve as older RILA block runs off and general account assets grow.
AB earnings Up 39% year-over-year, driven by increased ownership from 62% to 69%, favorable markets, and higher base fee rates. Adjusted margin improved 290 basis points year-over-year to 34.2%.
Wealth Management earnings Increased 12% year-over-year, excluding reserve release. Segment earnings are expected to continue growing at a double-digit rate.
Corporate and Other results Negatively affected by notable items and adverse mortality. Future periods expected to see muted impact from mortality due to life reinsurance transaction.
Alternatives portfolio return 8% annualized return in the quarter, exceeding guidance of 6% due to a gain on a strategic investment.
Consolidated tax rate 17% for the quarter, below the normal expectation of 20% due to favorable items. Full-year consolidated tax rate expected to be in the high teens.
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Operating Highlights
RILA Sales: Retirement businesses generated $1.1 billion of net flows during the quarter, driven by continued growth in RILA sales.
Wealth Management Advisory Net Inflows: Wealth Management had $2.2 billion of advisory net inflows, a 12% annualized growth rate.
Private Markets Assets: Private markets assets increased 17% year-over-year to $80 billion, on track to achieve $90 billion to $100 billion target by 2027.
Stifel Independent Advisors Acquisition: Acquiring Stifel Independent Advisors with over 110 advisors and $9 billion of advisory assets, expected to close in the first half of 2026.
FCA Re Investment: Allocated $100 million to support AB's investment in FCA Re, managing $1.5 billion of private credit assets for FCA Re.
Capital Deployment: Allocated $1.5 billion to drive shareholder value, including $757 million returned to shareholders and $500 million debt reduction.
Expense Efficiency Initiatives: Incremental benefits expected from expense efficiency initiatives to contribute to the bottom line over time.
Wealth Management Growth Strategy: Focus on scaling Wealth Management business through acquisitions like Stifel Independent Advisors and enhancing adviser productivity.
Private Markets Expansion: Investments in private markets and strategic partnerships to grow AUM and expand into new insurance markets like pension risk transfer and Asia.
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Risk or Challenges
Net Outflows in Asset Management: AB reported total net outflows of $2.3 billion, which includes $4 billion of low-fee assets transferred to RGA as part of the life reinsurance transaction. Excluding this, AB had net inflows of $1.7 billion. This indicates potential challenges in maintaining consistent inflows and managing asset retention.
Decline in Non-GAAP Operating Earnings: Non-GAAP operating earnings were $455 million or $1.48 per share, down 6% year-over-year on a per share basis. This decline could impact financial performance and investor confidence.
Adverse Mortality Experience: There was a $36 million adjustment for July mortality experience, most of which was covered under the reinsurance agreement with RGA. However, this indicates potential volatility in life insurance-related results.
Spread Compression in Retirement Business: Net interest margin (NIM) was down year-over-year due to a lower level of market value adjustment gains and some spread compression as the pre-2020 RILA block runs off. This could impact profitability in the retirement segment.
Exposure to Interest Rate Cuts in Wealth Management: Cash sweep income accounted for 15% of the segment's year-to-date earnings, and a 100 basis points Fed rate cut would reduce annual earnings by approximately $15 million. This indicates sensitivity to interest rate changes.
One-Time Expenses in Corporate and Other: There were $24 million of one-time expenses in Corporate and Other, which could affect short-term financial results.
GAAP Net Loss: A GAAP net loss of $1.3 billion was reported, primarily driven by a one-time impact from asset transfers at the closing of the individual life reinsurance transaction. This could raise concerns about the financial impact of strategic transactions.
Higher DAC Amortization in Retirement Business: Growth in revenues was partially offset by higher DAC amortization, reflecting growth in the block and increased surrenders. This could pressure margins in the retirement segment.
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Guidance & Outlook
Future Financial Targets: Equitable Holdings remains confident in achieving its 2027 financial targets, including $2 billion of annual cash generation by 2027.
Wealth Management Growth: Wealth Management earnings are forecasted to continue growing at a double-digit rate, driven by asset growth and further advisory productivity improvement. Margins are expected to expand over time as the business scales.
Private Markets Growth: Private markets assets are on track to achieve AB's $90 billion to $100 billion target by 2027, with a 12% CAGR since 2022.
Capital Deployment: Equitable Holdings plans to continue strategic investments, including the acquisition of Stifel Independent Advisors, expected to close in the first half of 2026 and add $10 million to Wealth Management earnings in 2027.
Tax Rate Outlook: The full-year consolidated tax rate for 2025 is expected to be in the high teens, with a return to 20% in 2026.
Net Interest Margin (NIM): NIM is expected to increase from the third quarter level, driven by growth in general account assets, with spread pressure from older RILA blocks becoming minimal by mid-2026.
Performance Fees: Full-year performance fees for AB are projected to be $130 million to $155 million, up from the prior forecast of $110 million to $130 million.
Cash Generation: Organic cash generation for 2025 is expected to be $1.6 billion to $1.7 billion, with over 50% coming from Asset and Wealth Management businesses.
Expense Efficiency Initiatives: Incremental benefits from expense efficiency initiatives are expected to contribute to future earnings growth.
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Shareholder Return Plan
Dividend Payout Ratio: For the full year, the payout ratio is expected to be at the higher end of the 60% to 70% guidance range.
Cash Upstream: Over the past 4 quarters, $1.6 billion in subsidiary dividends were received, including $1.3 billion from the Arizona insurance entity.
Share Repurchases: $676 million of share repurchases were completed during the quarter, with most of the planned $500 million of incremental buybacks executed.
Share Count Reduction: Over the past 4 quarters, the share count was reduced by approximately 8%, contributing to growth in earnings per share.
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Key Q&A
Q:What is your view of the private credit environment and the process for adding private credit assets with CarVal?
A:Management views private credit as an attractive asset class for Equitable Holdings, matching well with their liabilities. They invest in investment-grade assets and rely on their underwriting capabilities rather than ratings. About 98% of their general account portfolio is investment grade. They remain cautious about risks and ensure compensation for risks taken.
Q:How are you differentiated in the RILA market, and are you concerned about aggressive features from competitors?
A:Equitable Holdings sees strong demand for RILAs and highlights their differentiation through attractive yields, privileged distribution, and innovation. They launched the SCS Premier product to meet new needs. Management is mindful of competitive trends but focuses on profitable growth and innovation.
Q:Can you comment on the unfavorable mortality experience and why you expect it to normalize?
A:The unfavorable mortality experience was $10 million worse than expected for August and September, driven by higher severity. Management expects less volatility going forward due to the reinsurance transaction with RGA, which has mitigated the impact.
Q:What is your target for HoldCo liquidity, and how do you plan to manage it?
A:The target for HoldCo liquidity is $500 million, but they may maintain a buffer above this level. They ended the quarter with $800 million and expect to exceed $1 billion in Q4. The RGA transaction proceeds are being deployed for growth investments and share buybacks.
Q:What is the strategy for sidecar investments, and will you continue to pursue them?
A:Sidecar investments are seen as a way to leverage Equitable's underwriting capabilities and AB's private credit expertise. They have completed two sidecar deals and are open to more if they align with their strategy. These investments support growth in private markets and deliver good risk-adjusted returns.
Q:What drove the higher DAC amortization in the retirement segment, and are surrenders worsening?
A:Higher DAC amortization was driven by increased sales and higher surrenders due to higher account values, not an increase in surrender rates. Seasonal outflows in group retirement were consistent with expectations, and management expects continued strong flows in the retirement business.
Q:What are your expectations for the institutional market and fixed annuity product sales?
A:Management is optimistic about long-term growth in the institutional market, supported by regulatory tailwinds and partnerships. They have gathered $800 million in assets year-to-date but do not expect material sales in Q4. The pipeline for 2026 is strong.
Q:How do you plan to balance the remaining $300 million from the RGA deal between M&A and buybacks?
A:The $300 million will be deployed as part of their 60%-70% payout ratio, balancing capital returns to shareholders and growth investments. They aim to drive earnings growth and EPS accretion.
Q:What is your outlook for the Individual Life business and its recent performance?
A:The Individual Life business has seen volatility due to older policies with high face amounts. The RGA transaction has reduced this volatility and allowed reinvestment in higher-growth businesses. Management feels confident in their economic reserves and strategy.
Q:What are your growth opportunities in the spread lending business?
A:The FABN business has issued $10 billion in total and has significant growth capacity. It benefits from Equitable's strong rating and AB's investment capabilities. Growth in the RILA business supports the expansion of FABN.
Q:What are your plans for the Bermuda entity, and will it be used for further transactions?
A:The Bermuda entity is a tool for capital management, including flow reinsurance and potential third-party deals post-2027. Management values its economic framework and plans to leverage it for sustained cash flows.
Q:How did AB win the mandate for private alternative management with Fortitude Re?
A:AB won the mandate due to an existing relationship with Fortitude and their expertise in private alternatives. They expect to manage $1.5 billion of incremental private alternatives for Fortitude, complementing Carlyle's capabilities.
Q:Does the Fortitude Re deal enhance your relationship for future risk transfer deals?
A:Management views sidecar investments as standalone opportunities and does not see them leading to future reinsurance deals with specific partners. They evaluate all partners to ensure the best returns for shareholders.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing whether competition in the RILA market is leading to overly generous terms and conditions. They also did not provide specific details on the expected normalization timeline for mortality experience or the exact impact of higher surrenders on DAC amortization.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AB investment
AUM
Asset Wealth
FCA
RGA
Slide
account
acquisition
addition
adjustment
advisor
asset
assumption
basis
book value
business
capital
cash
date
detail
example
fee
flow
flywheel benefit
item
life reinsurance
market
momentum
productivity
rate
ratio
reinsurance transaction
retirement
return
shareholder value
synergy
track
EQH Transcript
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Equitable Holdings, Inc. (EQH) Q4 2025 Earnings Call Transcript
Positive2-5
The earnings call summary and Q&A indicate positive sentiment. Wealth management and private markets show strong growth, with strategic investments and partnerships in place. Despite some concerns about mortality exposure and increased expenses, management demonstrates confidence in achieving financial targets. Analysts' questions reveal a positive outlook on cash flow conversion and market leadership in RILA. The overall tone suggests a positive stock price movement, supported by optimistic guidance and strong financial performance.
Equitable Holdings, Inc. (EQH) Q3 2025 Earnings Call Transcript
Positive11-5
The earnings call summary and Q&A revealed strong financial performance, strategic product development, and a positive market strategy with promising growth in private credit and RILA markets. Despite some concerns about mortality experience, management's guidance and strategic investments suggest a positive outlook. Shareholder returns through buybacks and the RGA transaction proceeds further support a positive sentiment.
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EQH Report
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