EQH - NYSE

Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Equitable Holdings First Quarter 2024 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Erik Bass, Head of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Equitable Holdings First Quarter 2024 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 2 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; Jackie Marks, AllianceBernstein's Chief Financial Officer; and Onur 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. Equitable Holdings delivered strong first quarter results, and I'm pleased that the organic growth momentum in our businesses is beginning to translate into higher earnings. Across Equitable and AllianceBernstein, we continue to see strong demand for our retirement, asset management and wealth management solutions, helped by favorable demographic trends and a supportive macro environment. This is enabling Equitable to generate strong value of new business, which will drive future growth in earnings and cash flows while also delivering on our mission to help our clients live fulfilling lives and retire with dignity. Turning to Slide 3. First quarter non-GAAP operating earnings were $490 million, or $1.43 per share, which is up 49% year-over-year on a per share basis. There were offsetting notable items in the quarter, and non-GAAP operating EPS after adjusting for notables was also $1.43, which is up 18% compared to the prior year. As discussed last quarter, we expect non-GAAP EPS growth to accelerate in 2024, driven by strong organic growth, ongoing benefits from productivity saves and general account optimization and easing headwinds from the adverse mortality and lower alternative investment returns experienced in 2023. You saw that this quarter, and we continue to forecast 12% to 15% annual EPS growth through 2027. Looking forward, Equitable and AB should both benefit from growth in assets under management and administration, which increased 13% year-over-year to $974 billion. In addition, the favorable interest rate environment remains a tailwind for retirement sales and investment income. Equitable also continues to consistently return capital. And in the first quarter, we bought back $253 million of stock and paid $73 million of common dividends. This equates to a total payout ratio of 68%, at the upper end of our 60% to 70% guidance. We ended the quarter with $1.9 billion of cash and liquid assets at the holding company, providing ample flexibility to both continue returning capital and take advantage of the attractive growth environment. Equitable remains on track to generate $1.4 billion to $1.5 billion of cash in 2024, with roughly half of this coming from asset and wealth management. Turning to our growth strategy. We continue to see good momentum in our core businesses while scaling emerging higher-growth businesses. In retirement, our largest business, we had another strong quarter with net inflows of $1.5 billion, which translates into a 5% annualized organic growth rate. Sales and deposits were up 42% year-over-year and continue to be driven by our spread-based RILA product, although we're seeing growth across all products. Robin will expand on this later in our presentation. In asset management, AB's overall net flows were slightly positive, with very strong active net inflows of $3.7 billion being partially offset by the loss of a large low-fee passive mandate. Retail flows continue to be very strong, and private wealth also had a solid quarter. The institutional pipeline currently sits at $11.5 billion, with the majority in private market strategies. AB also closed the Bernstein research joint venture on April 1, which will result in margin expansion of 200 to 250 basis points on an annualized basis. Wealth management earnings continue to track well ahead of our 2027 target, helped by favorable markets and strong organic growth in fee-based investment accounts. Over the past year, the advisory business has grown 4% organically. This is slightly lower than the recent trend due to an adviser group departure this quarter, but the growth outlook remains strong, with earnings up 34% compared to the prior year quarter, and AUA up 22% to $92 billion. We've also made good progress on our strategy to seed future growth. AB received its China license earlier this year and launched its first mutual fund in March. Additionally, we received initial flows from BlackRock's LifePath Paycheck offering in April and continue to be excited about the in-plan guarantee growth opportunity. Before turning the call over to Robin, I'd like to spend a couple of minutes discussing the U.S. retirement market and the growth opportunities I see for Equitable and AB. Please turn to Slide 4. I've had the privilege of working in retirement businesses across the globe, and the U.S. is by far the most attractive market I've seen for a few reasons. First, it's a huge market with over $35 trillion of assets, nearly 10x the size of the next largest market. Secondly, there's a clear need for private market solutions. The U.S. has an aging population that is living longer, which necessitates a higher level of retirement savings. Social security will not meet this need, and the shift from defined benefit to defined contribution plans has transferred that savings burden to individuals. The lack of traditional pensions means that Americans also need to figure out how to convert their savings into lifetime income, which is something most people are not equipped to do on their own. Solving this need presents a critical challenge for the country and is central to Equitable's mission. We are reaching the peak period for baby boomer retirements, with 4.1 million Americans turning 65 every year through 2027. By 2050, the U.S. is projected to have a retirement gap of $137 trillion, by far the largest amongst developed countries. Turning to Slide 5. I'd like to focus on how Equitable and AB are positioned to capture this retirement opportunity through our unique integrated business model that combines wealth management, product manufacturing and proprietary asset management. It all starts with our advice-driven model and ability to engage directly with our clients on their retirement savings, income and intergenerational wealth transfer needs. Equitable has 4,300 affiliated advisers and access to over 14,000 actively producing third-party agents through targeted distribution relationships. This enables us to reach a wide range of clients to provide tailored solutions, whether they are just starting their careers or in the midst of retirement. In our Individual and Group Retirement businesses, we have chosen to focus on 3 segments of the retirement market that leverage our distribution strengths, have compelling growth potential and offer attractive returns on capital. In Individual Retirement, we are the leading provider of registered index-linked annuities, or RILAs. We believe RILAs offer a compelling consumer value proposition by providing an opportunity to grow retirement income while also having partial downside protection against the market decline. From Equitable's perspective, RILAs are a spread-based, capital-light product, allowing us to generate 15% plus IRRs with a narrow range of outcomes. Over the last 12 months, our Individual Retirement segment has delivered 8% organic growth while generating higher spread income and strong value of new business. LIMRA projects RILAs to be the fastest-growing segment of the annuity market over the next few years. We are also the market leader in providing supplemental retirement savings for K-12 educators. We operate through a worksite advice model with 1,100 dedicated advisers that understand educators' specific needs. And today, we work with over 900,000 teachers across 9,000 school districts. This is a steady growth market where Equitable's distribution provides a real competitive advantage. Finally, we are very excited about the emerging in-plan guarantee market. The passage of the SECURE Act makes it easier for plan sponsors to add a decumulation option to define contribution plans by placing annuities inside 401(k) plans. Over $7 trillion of assets sit in 401(k) plans today. So this represents a tremendous opportunity for us and our industry. Equitable currently has offerings with BlackRock and AB, both leading asset managers in the 401(k) market. BlackRock has 14 plans, with $27 billion of target-date fund AUM signed up for its LifePath Paycheck solution, and we received initial inflows in April. Beyond the business opportunity, we are very proud that across Equitable and AB, we are innovating to address a real social need that all working people can understand. We can protect them from the risk of outliving their savings. Underpinning everything we do in retirement is one of Equitable's greatest assets, AllianceBernstein. AB currently manages $123 billion of AUM for Equitable. And as we continue to grow in spread-based products like RILAs and in-plan annuities, AB will capture most of those general account inflows. AB also directly benefits from the growth in retirement savings market as it manages over $200 billion of third-party retirement assets. Despite the challenges facing the active asset management industry, AB has delivered 2% average annual organic growth over the past 5 years, much better than most peers. Putting it all together, I truly believe Equitable is in a privileged position. The U.S. retirement market presents a huge growth opportunity, and Equitable is unique in being able to participate across distribution, product manufacturing and asset management. I'll now turn it over to Robin to go through our results in more detail.

Turning to Slide 6. I will highlight results for the quarter. On a consolidated basis, Equitable Holdings reported non-GAAP operating earnings of $490 million in the quarter or $1.43 per share, up 49% year-over-year. While we had a couple of notable items, these offset one another, and non-GAAP EPS ex notable items was also $1.43 per share. This is up 18% on a year-over-year basis and 7% sequentially as we're seeing the benefits of strong organic growth, favorable markets and ongoing share repurchases reflected in the results. Details by segment are included in the appendix, but there are a few items I want to highlight. Operating earnings increased on a year-over-year basis in each of our core businesses, indicating healthy fundamental trends across the company. Mortality was in line with expectations. As a reminder, we assume higher claims in the first quarter due to impacts from the winter flu season. We've now had 2 consecutive quarters where mortality has been in line with our expectations, which supports our view that the elevated claims experienced in the first half of 2023 was a temporary pull forward. For the full year, we still expect Protection Solutions operating earnings of $200 million to $300 million, with some volatility on a quarterly basis. Investment income was also up over $200 million year-over-year. Base net investment income continues to benefit from growth in the general account assets and higher new money yields, which were 180 basis points above the portfolio yield in the quarter. Annualized alternative returns were 5.8%, which is still below our 8% to 12% expectation but improved relative to recent quarters. Turning to taxes. We reported a consolidated tax rate of 19% for the first quarter, in line with our full year guidance. Our insurance segment had a tax rate of approximately 14%, which is below the 17% rate expected for the full year due to timing of tax refund benefits. On the other hand, AB had a slightly elevated tax rate in the quarter of 29%, which is above our full year guidance of 27%. Net income was $114 million in the quarter as the benefit from higher interest rates was more than offset by the impact of higher equity markets. Total assets under management and administration increased 13% year-over-year and 5% year-to-date driven by equity market tailwinds and net inflows in retirement and wealth management. We remain on track to achieve the general account yield enhancement and productivity targets outlined at our Investor Day and continue to execute against our strategic priorities. As of quarter end, we deployed $9.6 billion of our $20 billion commitment to AB's Private Markets platform. We expect to finish deploying the first $10 billion of the commitment in the second quarter. In April, AB closed the Bernstein research services joint venture with SocGen. This transaction will have an immaterial impact on go-forward earnings but improved AB's operating margin by 200 to 250 basis points on an annual basis. In the first quarter, AB's adjusted operating margin improved to 30%, supported by growth in AUM and active net inflows of $3.7 billion during the quarter. Turning to Slide 7. The combination of robust retirement sales and net flows, supported interest rates and equity market tailwinds are translating into higher earnings. Spread income is up 26% year-over-year in Individual Retirement and up 48% in Group Retirement. This reflects a shift in our retirement business towards more spread-based products driven by the growth in RILA sales. As a reminder, the RILA products provide good economic returns for shareholders and has a very different risk profile than variable annuities sold pre-financial crisis. Unfortunately, investors still tend to lump all [ BAs ] together. So I want to spend a minute highlighting why we like the RILA products. RILAs address a client need for protected retirement solutions. And from our perspective, it is purely a spread-based product similar to fixed annuities. All the assets are invested in the general account, and a product fixed maturity date and short average duration enable tight ALM matching. The equity market exposure is fully hedged at the time of issuance. We reprice the product every 2 weeks based on current interest rates and option costs, ensuring we can deliver a consistent IRR of at least 15%. Finally, RILAs are capital light for Equitable and have less than half the required capital of a fixed annuity. RILAs now account for roughly 50% of Individual Retirement AUM, and growth in this product has been a key driver of higher net investment margin. In addition, we're seeing the benefit from higher interest rates and actions we've taken to enhance portfolio yields by allocating more of our general account to private assets managed by AllianceBernstein. Looking forward, we expect growth in spread income to roughly track growth in general account assets as spreads stabilize. Individual Retirement had an 8% organic growth rate over the past year. And this is even faster if you look at spread-based assets. In Group Retirement, we expect the general account growth to accelerate as inflows from BlackRock's LifePath Paycheck have begun in the second quarter. It's important to note that this growth in the general account assets also directly benefit AB, which manages the vast majority of Equitable's portfolio. With the help of Equitable, AB's Private Markets business has grown to $63 billion, and we expect this to reach $90 billion to $100 billion by 2027. These are high-margin assets and the growth in private markets will support AB's fee rates and boost margins over time. While retirement new business has shifted more towards spread-based products, we still have a sizable block of in-force policies in separate accounts that generate fee-based income and are benefiting from strong market returns. Similarly, we are seeing healthy year-over-year growth in fee-based revenues for AB and wealth management. Since fees are charged based on average AUM levels, they should continue to build if markets remain at or above current levels. Finally, as I noted earlier, we saw some recovery in variable investment income this quarter as our alt portfolio delivered a 5.8% annualized return. We currently expect second quarter results to be similar to the first quarter, with full year returns coming in slightly below our 8% to 12% target range. Turning to Slide 8. Equitable continues to generate predictable cash flow and consistently return capital to shareholders. During the first quarter, we returned $326 million, which equates to a 68% payout ratio at the upper end of our 60% to 70% non-GAAP operating earnings guidance. Buybacks continue to be an accretive form of capital return, and we have reduced our share count by approximately 9% over the last 12 months. We also plan to increase the quarterly cash dividend on common shares to $0.24 in May, pending Board approval, which will maintain our annual dividend payout at approximately $300 million. We closed the quarter with $1.9 billion of cash and liquid assets at holdings, which remains above our minimum target. Our insurance subsidiaries are also well capitalized. We ended the year with a combined RBC ratio of 411% and an NAIC-based RBC ratio of over 425%. This gives us ample capital flexibility to fund growth, upstream cash and meet our payout ratio commitments. We continue to forecast $1.4 billion to $1.5 billion of cash generation this year, with about 50% of that coming from our asset and wealth management businesses. Finally, AB received a $304 million equalization payment from the closing of Bernstein research joint venture, which is used to pay down debt. There is no impact to Equitable Holdings cash position, but this transaction provides AB more financial flexibility in the future. Now let me turn the call back over to Mark for closing remarks.

Thanks, Robin. Equitable delivered strong first quarter results as organic growth momentum across our businesses is beginning to translate into higher non-GAAP EPS, which increased 18% versus first quarter '23 after adjusting for notable items in both periods. We also delivered on our 60% to 70% payout ratio target and are on track for $1.4 billion to $1.5 billion of cash generation in 2024, with approximately half of that coming from noninsurance businesses. Looking ahead, I remain confident in our growth strategy and ability to deliver on our 2027 financial guidance. This is the best environment we've seen for growth in well over a decade, and Equitable's unique ability to capture the full value chain across distribution, manufacturing and asset management leaves us well positioned to take advantage of it. We'll now open the line for questions.

[Operator Instructions] Our first question is from the line of Suneet Kamath with Jefferies.

I wanted to start with the Individual Retirement net flows. I think this is the second highest level we've seen probably in a long time. Can you just provide some color in terms of where that demand is coming from? Are these 401(k) rollover funds? Or are these other annuities that are rolling into RILA? Just some color on that would be helpful.

Sure. This is Nick. We see continued demand coming from the structural demographics that Mark talked about. These are pre-retirees or retirees that are looking for protected equity stories. This is coming out of 401(k)s target dates as they approach the next chapter of their life. As Mark highlighted, this is the fastest-growing segment of the market according to LIMRA. We saw that show up relative to a 50% increase year-over-year in sales and the near-record net flows. As a pioneer in the market, we believe we're in a privileged position to continue to capture this growing demand. Given our history of innovation, we are a pioneer in this market. Our privileged distribution is not just the demand but having the distribution to meet that demand. That's both through Equitable advisers and the 14,000 other active sellers through third-party networks plus the asset management capabilities of AllianceBernstein. So we believe these are assets few others possess, and we're in a privileged position to capture a disproportionate share of the value that's emerging.

Got it. Okay. That makes sense. And then I guess my second question for Robin. $1.9 billion of cash at the holding company, you're expecting another $1.4 billion or so this year. So that's going to knock it to $3 billion plus. I mean at what point do you feel comfortable drawing down some of that excess, especially as we think about that target of $500 million? It just seems like you're going to be traveling well north of that target for some time unless you start redeploying that capital.

Sure. Thanks, Suneet. We feel good about the strong capital position with $1.9 billion at the holdco. It gives us confidence that we'll be able to capitalize on the attractive growth environment that Nick just highlighted while also delivering our 60% to 70% payout ratio target. Keep in mind, during the quarter, we funded a record level of new sales in Individual Retirement, and we have a strong new business pipeline for the rest of the year, including the launch of the BlackRock LifePath Paycheck product. At the same time, we paid out 68% of our operating earnings. That's at the higher end of our payout ratio. So continue to expect us to draw down naturally that holdco cash as we continue to pay out on the higher end of the ratio. And we want to be prepared also beyond both the offense but the defense as we know markets can move quickly on us in both directions. So we'll be prepared to act either way, but we're pleased to be in the strong capital position.

Your next question is from the line of Elyse Greenspan with Wells Fargo.

My first question was on Protection Solutions. Robin, I know you affirmed the $200 million to $300 million guidance for the year. And it sounds like elevated mortality has gone away at least for the last couple of...

Elyse, I'm sorry you are -- yes, there you go. Sorry. Yes, thank you. Go ahead.

Sorry, sorry, my apologies. I was asking about Protection Solutions. So you reaffirmed the full year earnings guide, the $200 million to $300 million. And obviously, it's been 2 good quarters from a mortality perspective. I know in the past, you mentioned looking into potential reinsurance for that business. But is that now no longer under consideration just given that the pull forward perhaps of mortality is a thing of the past?

Thanks. So after 2023, which was challenging for us, we were pleased to see 2 consecutive quarters of claims on a net basis being in line with our expectations. And the first quarter, as we highlighted in the call, we do typically expect slightly worse mortality due to the seasonality from the flu. But we should normalize for the full year, and that's reflected in our $200 million to $300 million full year guidance that we've given. On the potential for reinsurance, we continue to have constructive discussions for reinsurers and are evaluating multiple options to improve profitability and reduce the quarter-to-quarter noise in our protection business. Our goal for this business is continue to increase margins and reduce volatility over time. And if we continue to see consistent mortality over the next few quarters, we'll continue to reevaluate our guidance for the longer term for 2025.

And then my second question is on AllianceBernstein. Flows were positive in the quarter. And you guys highlighted $11.5 billion institutional pipeline. Just trying to get a sense of just the trajectory and inflows that you expect for this business over the rest of this year.

Onur, you're on the line. Was that clear?

Sure. Onur speaking from AllianceBernstein. Yes, you are right. We had a strong active flow quarter in Q1. This was supported by a very strong $7.4 billion of net flows in fixed income and $1.1 billion of net flows in private alternatives. In terms of the rest of the year, we expect to see continued flows into our fixed income franchise. This includes both our taxable fixed income franchise in Asia, Japan as well as our mini franchise in U.S. retail. And then on the alternative side, we have several new product launches. We have in the soft close for our CarVal flagship fund. And then we just had the first semi-liquid product launching in U.S. retail. So as a result, we expect those fixed income and private alts flow to continue into the rest of the year. In equities, particularly institutional, there's always further unpredictability given the lumpy nature of that, both on the inflows and outflows, and we had a couple of outflows in the past. But our Japanese franchise, which is a very successful U.S. equity presence there, continues to flow positively. So although equities is more mixed with the fuller valuations and uncertain macro environment, we see definitely some areas of strength like our strong Japanese franchise. So overall, feeling pretty good about the past quarter as well as what we have seen so far in the second quarter, which gives us optimism for the rest of the year.

Your next question is from the line of Ryan Krueger with KBW.

My first question was on AB margins. The 200- to 250-basis-point uplift from the SocGen transaction. Is that -- should we start with the 1Q margin that was more around 28% if you back out the onetime expense benefit?

Jackie, I'll pass it to you.

Thanks, Robin. Yes, so starting with the Q -- the 1Q margin included obviously the onetime benefit, which if you back out is the starting margin before we factor in the removal of the full Bernstein research services from Q2 onwards. That's where you factor in the annualized 200- and 250-basis-point benefit.

Okay. Got it. That would imply like a low 30% margin kind of as the starting point, all else equal?

Yes, that's correct.

Okay. Got it. And then it looked like you had $106 million cost of insurance litigation impact in the quarter, at least on a GAAP basis. Was that -- did that have an impact to your statutory capital? Or was there already a reserve that was established for that?

Sure. Thanks, Ryan. I'll take that. So just on the cost of insurance, just we raised COIs in 2016 on policies that had over $1 million face amount and issue age with 70 and older. Those are policies that were issued between 2004 to 2007. The total value of that increase for Equitable was $1.3 billion. So pretty sizable. Over the last few years, we've made accruals during the litigation process that we have, and we expect to get back roughly half of the value that we've obtained, and we don't expect any additional accruals at this time and no impact to our go-forward guidance.

Your next question is from the line of Jimmy Bhullar with JPMorgan Securities.

Robin, just to clarify, the $106 million, is that a stat impact as well? Or did you say that there was not -- I understand you said nothing go-forward, but thus far, is it in stat as well? Or is it not a stat impact?

It is. It's accrued under stat as well, the $106 million, but also, the value that we obtained through the policies of $1.3 billion to the total increase, that's reflected in our balance sheet as well.

Got it. And then just on the Group Retirement business. Can you talk about the drivers of the weak close there and what's going on and then also the related impact that you expect of that on your future revenues and margins?

Great. This is Nick. To start, our Group Retirement business is comprised of 3 worksite line: tax-exempt, corporate and institutional, which is reported in that segment. In our tax-exempt business, as Mark referenced, we're the #1 provider in K-12 supplemental retirement plans with slots in 9,000 school districts and serving over 900,000 teachers with 1,100 advisers. The teachers that work with advisers have 70% higher contribution levels, resulting in strong consumer value and barriers to entry. In tax-exempt, in the first quarter, we saw a first year premium up 50% with positive flows in that line based on the activity from last year when schools fully reopened post COVID. So we would expect steady, consistent organic, single-digit growth with solid margins continuing in that area. Similar to the industry, higher interest rates have had an impact on net flows. Within the broader Group Retirement market, we saw higher outflows primarily coming from our corporate line and discontinued other higher account balances driven by higher equities and then older-aged clients that had asset concentrations in the general investment options sleeve, which receives guaranteed rates. I would note that within the outflows, 25% of the outflows were participant driven, from clients using the products as intended for retirement income. And of the remainder, roughly 50% are being retained within Equitable advisers, in other product lines as their needs change under a fiduciary standard. So finally, we remain confident in the organic growth of our tax-exempt. And we would expect to see new flows emerge in the institutional business line, given our partnership with AB and BlackRock that Mark referenced earlier in the call.

And then just lastly, are you able to comment on the impact of the DOL rule on your business? I realize majority of your products weren't affected. But any sort of positives and/or negatives from the rule?

Sure. While the rule had some minor adjustments, there were no material changes. So as a result, our views on the impact haven't changed. As you mentioned, we see the biggest impact on companies that sell nonregistered products through nonregistered distribution channels. At Equitable, we focus on registered securities through registered broker-dealer channels. Currently, Equitable advisers already operates under the SEC Reg BI fiduciary standard and PTE 2020-02. So we don't see a material impact. With that said, the broader industry has concerns on the process and the impact to consumers. So we expect there to be litigation going forward, and we'll continue to monitor the situation.

Your next question is from the line of Tom Gallagher with Evercore ISI.

First question is just on this BlackRock LifePath Paycheck rollout. Should we expect this to move the needle on group retirement flows in 2Q? Or is this going to be more modest and incremental?

Thanks, Tom. It's Mark Pearson. Look, we're very bullish on this part of our business, the in-plan guarantee opportunity. As you know, the SECURE Act makes it easier for sponsors to add a decumulation option in there. And it's going to give us significant long-term growth potential in there. We're very bullish. We've already received flows from the BlackRock partnership we have. We will start to report those at the end of Q2. And we know that BlackRock have been out there and told the market they have commitments from 14 plans with over $25 billion of AUM in target-date funds. So of those plans, we will start to receive an allocation the remainder of this year for clients aged 55 and above. So I think it will be meaningful on net flows. It will take a little bit of time to come through as a meaningful contribution to earnings though. But in terms of flows, we'll start to see it this year, and we're very bullish on it.

That's good color, Mark. And then Robin, I just wanted to come back, as a follow-up to Ryan's question, on the cost of insurance charges. So I just want to make sure I understood it. So $1.3 billion was the ultimate benefit you got from the repricing on that block you're referencing and you said you expect -- you gave half of it back. So have we seen cumulative COI litigation charges of $600 million or something like that related to the 2016 repricing of the COI? Like -- and has all of that already hit? Or can you just provide a little bit of clarity for the 2 pieces?

Sure. Yes. So when we made the increase in 2016, the total value, the PV value of the increase at that time was $1.3 billion. Over the last few years, we've accrued what we expect to get back. And in total, it's been roughly $600 million, of which $106 million was in the first quarter. We do not expect any further accruals related to this matter, and we don't see any impact to go-forward guidance.

Your next question is from the line of Joel Hurwitz with Dowling & Partners.

I wanted to follow up on group. Despite some of the general account flow pressure that was discussed earlier, the net interest margin was up pretty significantly year-over-year and even quarter-over-quarter. I guess just any color on the sizable improvement in spreads there. And do you see that as sustainable moving forward?

Sure. So the group business for the quarter was $124 million of earnings, up 28% year-over-year. I have to say to Nick's comments earlier, I mean, we see great operating leverage in this business, strong growth in equity markets, and we're retaining that -- those fees to the bottom line. So we're very pleased with overall earnings growth coming through in the group side. We've seen good improvement in net investment income as well. Remember, a lot of the net investment income is allocated to the different segments, so they could fluctuate from quarter-to-quarter. But we do expect to continue to grow that through the capabilities of AllianceBernstein. In the quarter as well, the group business benefited from favorable tax. So of the $124 million I mentioned, net of some of the alts in the tax, probably $115 million is a good number to think about for the Group Retirement business.

Okay. That's helpful. And then another follow-up on the BlackRock product. Any way you can dimension the initial April flows? And then in terms of that business, what is the return profile of that business? And how does that compare to the other Group Retirement business that you have?

Sure. We're not going to get ahead of the flows. We'll wait to the second quarter. But as Mark mentioned, we expect it to be accretive to the Group Retirement business going forward. In terms of returns perspective, I would think of it similar to other spread products in the marketplace. When we -- you're going to see meaningful flows relative to the Group Retirement business, but over the long term is when we see the real potential of this in capturing the longer-term retirement demand in the U.S. market and serving that client need that Mark highlighted on the call. So we're really bullish about the opportunity, don't want to get ahead of it, don't see it impacting cash or earnings in the near term. But you'll start to see it come through in net flows.

Your next question is from the line of Wilma Burdis with Raymond James.

Could you talk a little bit about the valuation and availability of potential wealth management scale deals?

Yes. We're -- we always look at M&A opportunities in the U.S. market and international, specifically on -- we're focused on the wealth side and alternatives as we look at deals, but valuations continue to be high in the market, and we don't necessarily see it being accretive to shareholders relative to share buybacks at this time. That being said, we're pretty active, and you see that in the numbers on headcount up year-over-year on experienced hires. That's where we think it's smart to deploy. We're bringing on experienced hires that have good AUM leverage to them. So that's where we'll concentrate in the near term. And remember, just -- I just want to keep in mind when we get asked questions about M&A, like with the growth that we see coming through in the individual business, the group business through BlackRock and the alts business of AllianceBernstein, M&A isn't something that we need in order to deliver our targets. Our organic growth plan has performed tremendously, and M&A will continue to be an option, but it's just an option because we're getting such good growth. That's where we'll prioritize our time.

Can you just provide a little bit more color on the outlook for alternative investment returns in 2Q and then the expectation for them to normalize a little bit later in '24?

So alts returned 5.8% on an annualized basis in the first quarter. We expect similar returns in the second quarter. The caveat being real estate equity, that's been under some pressure due to rates increasing. For the full year, we still expect to be slightly below our 8% to 12% as long as equity markets maintain at these levels as the growth funds will continue to outperform relative to the real estate equity. So we're quite comfortable with the asset class over the long term. It's returned 10% on an annualized basis. So it's in the 8% to 12% long-term guidance that we've given.

Your next question is from the line of Bob Huang with Morgan Stanley.

So maybe my first question is on Group Retirement. The result was probably the strongest since first quarter 2022. Obviously, that's driven by NII, higher fee income and things of that nature. Just given the broader flow picture, broader macro environment, how durable do you think that earnings power is? And how should we think about just the earnings trajectory longer term going forward for that space?

Look, as I mentioned earlier, the flows that Nick -- we're seeing good growth in terms of first year premium, we saw slightly higher surrenders, but we're retaining almost 50% of it through Equitable advisers. The growth in earnings is sustainable. We've seen it across time. As I mentioned, we have good operating leverage in that business. We're up 28% year-over-year. And if equity markets continue and we continue to invest in higher yields and deliver good risk-adjusted returns, we'll continue to see growth in earnings. And then on top of that, over time, as the BlackRock LifePath product becomes more material, there's upside there as well.

Great. My follow-up is on DOL rule. I know that you talked about earlier that you're already under -- operate under Reg BI standards. But curious if the fiduciary rules would have an impact on sales for proprietary AllianceBernstein products that are sold on the Equitable distribution channel. Or are there any impact between the AllianceBernstein side of things as well?

Onur can jump in there, but the answer is no.

Yes. Thank you, Nick. Onur. Just to validate, based on our initial assessment, we don't see any material change in the business trajectory based on the DOL ruling tomorrow versus yesterday.

Your next question is from the line of Mark Hughes with Truist Securities.

In the legacy business, the assets, the account value is actually up a little bit. Earnings were down. Is that relationship -- should we just continue to see the earnings taper kind of regardless of what happens in terms of account value? What's the relationship there?

Sure. So the legacy business continues to run off. You saw outflows in the quarter of $659 million. That's in line with our $2.3 billion per annum guidance. So that's going to continue to run off. It will be less than 5% of earnings by 2027, so pretty immaterial despite strong cash flows as it's well reserved. In the quarter, then you're going to see it benefit from higher equity markets that will help account value and we'll get more fee income, but continue to expect it to run off under normal course.

And then the in-plan growth, the -- what sort of allocation are you -- or do you anticipate to these plans? Is the idea that there's kind of some level of allocation early on and then the real opportunity emerges when perhaps those folks go into decumulation mode, as you say, and maybe they shift to give you more annuity-type products, is that the way to think about it that you're kind of...

Yes, this is Nick. Let me give you a little bit of color on that. First, let's start the broader 401(k) market, the $7 trillion market, of which roughly $3 trillion is allocated towards target-date funds. The way AB's product and the LifePath Paycheck product work is there's an allocation as consumers towards annuities and guaranteed income as consumers get closer to retirement. So specifically, in the LifePath Paycheck, when a consumer starts -- or a participant turns 55, they would be allocated roughly 10% within annuities, and that would build towards age 65. So the opportunity is both managing those assets and the fees off of that. And if they annuitize, then the economics would link to an annuity payout. So that's how I would think about this as an asset class within a target-date portfolio. The inflows will come both on the remapping. So that's why it comes in lumpy. We saw that 2 years ago with AB receiving the case as a plan converts and then they will consistently grow over time.

Your next question is from the line of Mike Ward with Citi.

On the LifePath opportunity with BlackRock, just wondering if that has any like exclusivity in it? Or could you potentially, over time, receive interest or do similar contracts or partnerships with other kind of retirement funds?

Yes. We're not going to comment on the specific relations with BlackRock and the LifePath product. We're happy to help with them, help them develop the product and have another partner on there as well. In addition, reminder, we have partnerships with AllianceBernstein, who was first in the market 10 years ago. So we're quite pleased with that, and we'll continue to work with others on different types of offerings to serve this need for retirement income for U.S. retirees.

Okay. And then just the group insurance business and protection, wondering how you guys think about investing in the growth of that business or how do you think about that business strategically.

Well, we're actively investing in that business. It's in the protection segment at this point in time. I'll let Nick highlight on some of the growth numbers that we're seeing come across and we expected to breakeven soon. So we continue to see good prospects. Nick, do you want to highlight some of the growth numbers?

Yes, yes. I would say within our Employee Benefits line, we're a disruptor relative to our new technology, and our positioning is powerfully simple. We continue to see strong growth there. First year gross premiums were up 16%. And then as Robin alluded to, we expect to continue to grow this. It will have a breakeven in the not-too-distant future.