Equitable Holdings, Inc. (EQH-PA): A Detailed Look at the Insurer's Resilient Performance and Promising Growth Prospects

Published on September 24, 2024 | Ticker: EQH-PA

Equitable Holdings, Inc. (EQH-PA) is a diversified financial services company that has demonstrated resilience and promising growth potential in the face of market volatility. With a strong presence in the retirement, asset management, and wealth management sectors, the company has delivered solid financial results, showcasing its ability to navigate challenging environments.

Financials

In the latest fiscal year, Equitable Holdings reported annual net income of $1,302,000,000 and annual revenue of $12,335,000,000. While the company's annual operating cash flow stood at -$863,000,000 and annual free cash flow at -$980,000,000, these figures reflect the company's strategic investments in growth initiatives and ongoing operational expenses.

Looking at the quarterly performance, Equitable Holdings' first quarter of 2024 results were particularly noteworthy. The company reported non-GAAP operating earnings of $490 million, or $1.43 per share, representing a 49% year-over-year increase. This strong performance was driven by robust organic growth across the company's core business segments, favorable market conditions, and ongoing productivity initiatives.

Business Overview

Individual Retirement

The Individual Retirement segment, Equitable's largest business, delivered impressive results, with an 8% organic growth rate over the past year. This growth was fueled by the continued demand for the company's registered index-linked annuity (RILA) products, which provide clients with the opportunity to participate in equity market upside while offering partial downside protection. The RILA products have become a key driver of the segment's higher spread income, which increased by 26% year-over-year.

Group Retirement

In the Group Retirement segment, the company saw a 48% year-over-year increase in spread income, reflecting the shift towards more spread-based products and the benefits of higher interest rates. The segment's net flows, while negative in the first quarter, were impacted by higher surrenders and withdrawals, primarily from the corporate and institutional lines. However, the company remains confident in the long-term growth potential of the tax-exempt business, which serves over 900,000 teachers across 9,000 school districts.

Investment Management and Research

The Investment Management and Research segment, represented by the company's AllianceBernstein (AB) subsidiary, also contributed to Equitable's strong performance. AB reported $106 million in operating earnings, up from $99 million in the prior-year quarter. The segment's assets under management (AUM) increased to $758.7 billion, driven by market appreciation and net inflows, particularly in the Retail and Private Wealth channels.

Wealth Management

Equitable's Wealth Management segment continued to track well ahead of the company's 2027 targets, with earnings up 34% compared to the prior-year quarter. The segment's advisory assets grew 4% organically over the past year, despite the departure of a large advisor group during the first quarter.

Protection Solutions

The company's Protection Solutions segment, which includes the life insurance and group employee benefits businesses, reported operating earnings of $41 million, a significant improvement from the $35 million loss in the prior-year quarter. This turnaround was driven by lower policyholders' benefits, higher net investment income, and increased fee-type revenue, primarily from the growth in the Employee Benefits business.

Legacy

Equitable's Legacy segment, which consists of the company's capital-intensive fixed-rate guaranteed minimum benefit business written prior to 2011, generated $51 million in operating earnings, down from $60 million in the prior-year quarter. The decrease was primarily due to higher policyholders' benefits and increased compensation and operating costs.

Liquidity

The company's balance sheet and liquidity position remain strong, with $1.9 billion of cash and liquid assets at the holding company level as of the end of the first quarter. Equitable's insurance subsidiaries are also well-capitalized, with a combined RBC ratio of 411% and an NAIC-based RBC ratio of over 425%. This financial flexibility allows the company to continue funding growth initiatives, upstreaming cash to the holding company, and maintaining its capital return program.

Outlook

Looking ahead, Equitable remains confident in its ability to deliver on its 2027 financial guidance, which includes a target of 12% to 15% annual EPS growth. The company's unique integrated business model, combining wealth management, product manufacturing, and proprietary asset management, positions it well to capture the significant growth opportunities in the U.S. retirement market.

The passage of the SECURE Act has made it easier for plan sponsors to add annuities inside 401(k) plans, creating a substantial opportunity for Equitable and its AllianceBernstein subsidiary. The company's partnership with BlackRock to offer the LifePath Paycheck solution has already resulted in initial inflows, and Equitable expects this in-plan guarantee market to be a meaningful contributor to future growth.

Furthermore, Equitable's leading position in the registered index-linked annuity (RILA) market, combined with its strong distribution capabilities and the ongoing shift towards spread-based products, should continue to drive growth in the Individual Retirement segment. The company's Group Retirement business is also poised to benefit from the launch of the BlackRock LifePath Paycheck product and the steady growth in the tax-exempt market.

The company's Investment Management and Research segment, through its AllianceBernstein subsidiary, remains a key strategic asset. AB's diversified investment management capabilities, research expertise, and growing private markets platform provide valuable synergies with Equitable's other business lines. The recent joint venture with Société Générale to combine their respective cash equities and research businesses is expected to enhance AB's operating margins by 200 to 250 basis points on an annualized basis.

Equitable's Wealth Management segment has also demonstrated impressive growth, with a 22% year-over-year increase in assets under administration (AUA) to $92 billion. The segment's earnings continue to track well ahead of the company's 2027 targets, driven by favorable market conditions and strong organic growth in fee-based investment accounts.

While the company's Protection Solutions segment faced challenges in 2023 due to elevated mortality claims, the past two quarters have shown a return to more normalized levels. Equitable remains committed to improving the profitability and reducing the volatility of this business, and is actively evaluating reinsurance options to achieve these goals.

Conclusion

In conclusion, Equitable Holdings has demonstrated its resilience and growth potential in the face of market volatility. The company's diversified business model, strong distribution capabilities, and innovative product offerings position it well to capitalize on the significant opportunities in the U.S. retirement market. With a solid balance sheet, ample liquidity, and a clear strategic vision, Equitable is poised to continue delivering value for its shareholders.

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