Equitable Holdings Inc

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in its entirety and in conjunction with the consolidated financial statements and related notes contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in in our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”).

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in its entirety and in conjunction with the consolidated financial statements and related notes contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”).

Previous wording

We manage our business through six segments: Individual Retirement, Group Retirement, Investment Management and Research, Protection Solutions, Wealth Management and Legacy. We report certain activities and items that are not included in these segments in Corporate and Other. See Note 16 of the Notes to the Consolidated Financial Statements for further information on our segments.

Current wording

We manage our business through six segments: Individual Retirement, Group Retirement, Asset Management, Protection Solutions, Wealth Management and Legacy. We report certain activities and items that are not included in these segments in Corporate and Other. See Note 17 of the Notes to the Consolidated Financial Statements for further information on our segments.

Previous wording

U.S. equity markets showed strength in the first quarter 2024, benefiting from a resilient U.S. economy and a widely held outlook for monetary easing, including expected interest rate reductions (based on statements of members of the Board of Governors of the Federal Reserve System), albeit at a slower pace than expected in early 2024.

Current wording

U.S. equity markets showed strength in the second quarter of 2024, benefiting from a resilient U.S. economy with job creation consistently exceeding expectations, cooling inflation, and a widely held outlook for monetary easing, including expected interest rate reductions (based on statements of members of the Board of Governors of the Federal Reserve System), albeit at a slower pace than previously expected.

Previous wording

A wide variety of factors continue to impact financial and economic conditions. These factors include, among others, uncertainty regarding the federal debt limit, volatility in the capital markets,, persistent inflationary pressures, high fuel and energy costs, changes in fiscal or monetary policy and geopolitical tensions. The Russian invasion of the Ukraine, the Israel-Hamas war and the potential for broader regional hostilities, and the ensuing conflicts and the sanctions and other measures imposed in response to these conflicts significantly contributed to volatility in the financial markets and have increased the level of economic and political uncertainty.

Current wording

A wide variety of factors continue to impact financial and economic conditions. These factors include, among others, uncertainty regarding the federal debt limit, concerns regarding inflation, high fuel and energy costs, changes in fiscal or monetary policy and geopolitical tensions, including the U.S. presidential election. The Russian invasion of the Ukraine, the Israel-Hamas war and the potential for broader regional hostilities, and the ensuing conflicts and the sanctions and other measures imposed in response to these conflicts significantly contributed to volatility in the financial markets and have increased the level of economic and political uncertainty.

Previous wording

The NAIC is evaluating the risks associated with insurers’ investments in certain categories of structured securities, including CLOs. In March 2023, the NAIC adopted an amendment to the Purposes and Procedures Manual to give the NAIC’s Structured Securities Group, housed within the SVO, responsibility for modeling CLO securities and evaluating tranche level losses across all debt and equity tranches under a series of calibrated and weighted collateral stress scenarios in order to assign NAIC designations. Under the amended Purposes and Procedures Manual, CLO investments will no longer be broadly exempt from filing with the SVO based on ratings from Credit Rating Providers. The NAIC’s goal is to ensure that the weighted average RBC factor for owning all tranches of a CLO more closely aligns with what would be required for directly owning all of the underlying loan collateral, in order to avoid RBC arbitrage. The NAIC is collaborating with interested parties to develop and refine the process for modeling CLO investments. Insurers are required to begin reporting the financially modeled NAIC designations for CLOs with their year-end 2024 financial statement filings, although the NAIC announced in March 2024 that implementation is expected to be delayed by a year to allow more time to develop the modeling methodology. The delay requires an amendment to the Purposes and Procedures Manual, which the NAIC is likely to adopt in August 2024.

Current wording

The NAIC is evaluating the risks associated with insurers’ investments in certain categories of structured securities, including CLOs. In March 2023, the NAIC adopted an amendment to the Purposes and Procedures Manual to give the NAIC’s Structured Securities Group, housed within the SVO, responsibility for modeling CLO securities and evaluating tranche level losses across all debt and equity tranches under a series of calibrated and weighted collateral stress scenarios in order to assign NAIC designations. Under the amended Purposes and Procedures Manual, CLO investments will no longer be broadly exempt from filing with the SVO based on ratings from Credit Rating Providers. The NAIC’s goal is to ensure that the weighted average RBC factor for owning all tranches of a CLO more closely aligns with what would be required for directly owning all of the underlying loan collateral, in order to avoid RBC arbitrage. In June 2024, the NAIC approved interim rules that raise capital requirements for holdings of CLO and other asset-backed security residual interests. The NAIC is also collaborating with interested parties to develop and refine the process for modeling CLO investments. Insurers are required to begin reporting the financially modeled NAIC designations for CLOs with their year-end 2024 financial statement filings, although the NAIC announced in March 2024 that implementation is expected to be delayed by a year to allow more time to develop the modeling methodology. The delay requires an amendment to the Purposes and Procedures Manual, which the NAIC is likely to adopt in August 2024.

Previous wording

In 2023, the U.S. Department of Labor (the “DOL”) proposed a regulation to change the definition of “fiduciary” for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”) and parallel provisions of the Internal Revenue Code of 1986, as amended (the “Code”), when a financial professional, including an insurance producer, provides investment advice, and to amend various existing prohibited transaction exemptions (“PTEs”) that financial professionals rely on when making recommendations. On April 23, 2024, the DOL finalized and published this new definition of “fiduciary” for purposes of ERISA and parallel provisions of the Code and finalized and published amendments to these PTEs. We are evaluating the potential impact of these developments on our business, particularly as it pertains to the sale of insurance products to retirement investors.

Current wording

In 2023, the U.S. Department of Labor (the “DOL”) proposed a regulation to change the definition of “fiduciary” for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”) and parallel provisions of the Internal Revenue Code of 1986, as amended (the “Code”), when a financial professional, including an insurance producer, provides investment advice, and proposed amendments to various existing prohibited transaction exemptions (“PTEs”), including PTE 84-14, that financial professionals rely on when they make investment recommendations to retirement investors. On April 23, 2024, the DOL finalized and published this new definition of “fiduciary” for purposes of ERISA and parallel provisions of the Code and finalized and published amendments to these PTEs (the “Final Rule”). Shortly thereafter, these changes were challenged in court, including by a coalition of insurance industry trade associations that filed a motion for a preliminary injunction and stay of portions of the Final Rule, including the regulation that changes the definition of “fiduciary” and the amendments to the PTEs. On July 25 and July 26, 2024, two federal district courts entered separate stays of the effective date of the Final Rule, including the regulation that changes the definition of “fiduciary” and the amendments to the PTEs. While this litigation proceeds, we are evaluating the potential impact of the Final Rule on our business, particularly as it pertains to the sale of insurance products to retirement investors.

Previous wording

•fee income derived from our retirement and protection products and our investment management and research services;

Current wording

•fee income derived from our retirement and protection products and our asset management services;

Previous wording

Our fee income varies directly in relation to the amount of the underlying AV or benefit base of our retirement and protection products, the amount of AUM and AUA in our Wealth Management business, and the amount of AUM of our Investment Management and Research business. AV and AUM, each as defined in “Key Operating Measures,” are influenced by changes in economic conditions, primarily equity market returns, as well as net flows. Our premium income is driven by the growth in new policies written and the persistency of our in-force policies, both of which are influenced by a combination of factors, including our efforts to attract and retain customers and market conditions that influence demand for our products. Our investment income is driven by the yield on our General Account investment portfolio and is impacted by the prevailing level of interest rates as we reinvest cash associated with maturing investments and net flows to the portfolio.

Current wording

Our fee income varies directly in relation to the amount of the underlying AV or benefit base of our retirement and protection products, the amount of AUM and AUA in our Wealth Management business, and the amount of AUM in our Asset Management business. AV and AUM, each as defined in “Key Operating Measures,” are influenced by changes in economic conditions, primarily equity market returns, as well as net flows. Our premium income is driven by the growth in new policies written and the persistency of our in-force policies, both of which are influenced by a combination of factors, including our efforts to attract and retain customers and market conditions that influence demand for our products. Our investment income is driven by the yield on our General Account investment portfolio and is impacted by the prevailing level of interest rates as we reinvest cash associated with maturing investments and net flows to the portfolio.

Previous wording

During the third quarter of each year, we conduct our annual review of the assumptions underlying the valuation of DAC, deferred sales inducement assets, unearned revenue liabilities, liabilities for future policyholder benefits and market risk benefits for our Individual Retirement, Group Retirement, Protection Solutions, and Legacy segments (assumption reviews are not relevant for the Investment Management and Research and Wealth Management segments). Assumptions are based on a combination of Company experience, industry experience, management actions and expert judgement and reflect our best estimate as of the date of the applicable financial statements.

Current wording

During the third quarter of each year, we conduct our annual review of the assumptions underlying the valuation of DAC, deferred sales inducement assets, unearned revenue liabilities, liabilities for future policyholder benefits and market risk benefits for our Individual Retirement, Group Retirement, Protection Solutions, and Legacy segments (assumption reviews are not relevant for the Asset Management and Wealth Management segments). Assumptions are based on a combination of Company experience, industry experience, management actions and expert judgement and reflect our best estimate as of the date of the applicable financial statements.

Previous wording

In the fourth quarter of 2023, the Company updated its operating earnings measure to exclude the impact of realized amounts related to equity classified instruments. The recognition of the realized capital gains and losses from investments in current net investment income is generally considered distortive and not reflective of the ongoing core business activities of the segments. The presentation of operating earnings in prior periods was not revised to reflect this modification. The impact to operating earnings was immaterial for the three months ended March 31, 2023.

Current wording

In the fourth quarter of 2023, the Company updated its operating earnings measure to exclude the impact of realized amounts related to equity classified instruments. The recognition of the realized capital gains and losses from investments in current net investment income is generally considered distortive and not reflective of the ongoing core business activities of the segments. The presentation of operating earnings in prior periods was not revised to reflect this modification. The impact to operating earnings was immaterial for the three and six months ended June 30, 2023.

Previous wording

(1)Includes certain gross legal expenses related to the cost of insurance litigation of$106 million for the three months ended March 31, 2024.

Current wording

(1)Includes certain gross legal expenses related to the cost of insurance litigation of $0 million and $106 million for the three and six months ended June 30, 2024, respectively and $35 million and $35 million for the three and six months ended June 30, 2023.

Previous wording

(2)For the three months ended March, 31 2024, non-recurring tax items reflects the effect of uncertain tax positions for a given audit period and for the three months ended March 31, 2023 primarily includes tax valuation allowance decease.

Current wording

(3)For the three and six months ended June 30, 2024, non-recurring tax items reflects the effect of uncertain tax positions for a given audit period and for the three and six months ended June 30, 2023 primarily includes a decrease of the deferred tax valuation allowance of $376 million and $990 million.

Previous wording

(1)Includes certain gross legal expenses related to the cost of insurance litigation of$0.32 for the three months ended March 31, 2024.

Current wording

(1)Includes certain gross legal expenses related to the cost of insurance litigation of $0.00 and $0.32 for the three and six months ended June 30, 2024, respectively and $0.10 and $0.10 for the three and six months ended June 30, 2023.

Previous wording

(2)For the three months ended March, 31 2024, non-recurring tax items reflects the effect of uncertain tax positions for a given audit period and for the three months ended March 31, 2023 primarily includes tax valuation allowance decease.

Current wording

(3)For the three and six months ended June 30, 2024, non-recurring tax items reflects the effect of uncertain tax positions for a given audit period and for the three and six months ended June 30, 2023 primarily includes a decrease of the deferred tax valuation allowance of $1.06 and $2.75.

Previous wording

•Amortization of DAC increased by $20 million mainly due to growth in our Individual Retirement segment from sales momentum.

Current wording

•Amortization of DAC increased by $14 million mainly due to growth in the Individual Retirement segment from sales momentum.

Previous wording

•Net investment income increased by $40 million mainly due to higher investment yields and higher Alternative investment income, partially offset by higher collateral expense.

Current wording

•Net investment income increased by $130 million mainly due to higher assets balances, higher investment yields and higher Alternative investment income, partially offset by losses from our JV equity method investments within our Asset Management segment.

Previous wording

•Interest credited to policyholders’ account balances increased by $103 million mainly due to growth of SCS account values in our Individual Retirement segment, partially offset by lower interest on funding agreements.

Current wording

•Interest credited to policyholders’ account balances increased by $103 million mainly due to growth of SCS account values in our Individual Retirement segment, partially offset by lower interest expense on funding agreements in Corporate and Other;

Previous wording

•Net income attributable to the noncontrolling interest increased by $17 million mainly due to higher pre-tax earnings.

Current wording

•Net income attributable to the noncontrolling interest increased by $24 million mainly due to higher pre-tax earnings.

Previous wording

Net income attributable to Holdings decreased by $63 million to a net income of $114 million for the three months ended March 31, 2024 from a net income of $177 million for the three months ended March 31, 2023. The following were notable changes in net income (loss):

Current wording

Net income attributable to Holdings decreased by $394 million to a net income of $542 million for the six months ended June 30, 2024 from a net income of $936 million for the six months ended June 30, 2023. The following were notable changes in net income (loss):

Previous wording

•Compensation, benefits, interest and other operating expenses increased by $163 million mainly due to an increase in legal expenses and higher compensation and benefits expense, partially offset by the recognition of incentive grant gain in connection with the AB headquarters relocation to Nashville in our Investment Management and Research segment.

Current wording

•Compensation, benefits, interest and other operating expenses increased by $142 million mainly due to an increase in legal expenses and higher compensation and benefits expense, partially offset by the recognition of incentive grant gain in connection with the AB headquarters relocation to Nashville in our Asset Management segment.

Previous wording

•Fee-type revenue increased by $131 million mainly driven by higher advisory base fees and distribution revenue from higher average AUM from our Investment Management and Research segment and higher distribution and advisory fees type revenue from our Wealth Management segment from higher retirement sales and average asset balances combined with higher interest income from sweep accounts.

Current wording

•Fee-type revenue increased by $385 million mainly driven by the gain on sale of AB’s Bernstein Research Service, higher advisory base fees and distribution revenue due to higher average AUM from our Asset Management segment and higher advisory fees type revenue from our Wealth Management segment from higher retirement sales and average asset balances.

Previous wording

•Change in market risk benefits and purchased market risk benefits decreased by $1.1 billion mainly due to an increase in interest rates in the first quarter of 2024 compared to a decrease in the first quarter of 2023.

Current wording

•Change in market risk benefits and purchased market risk benefits decreased by $278 million mainly due to an increase in interest rates in the first quarter of 2024 compared to a decrease in the first quarter of 2023. This was partially offset by less favorable equity market movements in the second quarter of 2024 compared to second quarter of 2023.

Previous wording

•Investment losses decreased by $48 million mainly due to credit losses recognized in the first quarter of 2023 when intending to sell securities in an unrealized loss position in anticipation of Equitable Financial’s ordinary dividend to Holdings.

Current wording

•Investment losses decreased by $88 million mainly due to credit losses recognized in the first quarter of 2023 when intending to sell securities in an unrealized loss position in anticipation of Equitable Financial’s ordinary dividend to Holdings and liquidity sales.

Previous wording

•Policyholders’ benefits decreased by $53 million mainly due to lower net mortality, partially offset by growth in Employee Benefits in our Protection Solutions segment.

Current wording

•Policyholders’ benefits decreased by $70 million mainly due to lower net mortality, partially offset by growth in Employee Benefits in our Protection Solutions segment and higher benefits from GMIB annuitizations, partially offset by higher premiums in fee-type revenue in our Legacy segment.

Previous wording

•Income tax expense increased by $755 million primarily due to a partial release of the valuation allowance of $614 million on the deferred tax asset for the three months ended March 31, 2023 and higher pretax earnings in the three months ended March 31, 2024.

Current wording

•Income tax expense increased by $1.2 billion primarily due to a partial release of the valuation allowance of $990 million on the deferred tax asset for the six months ended June 30, 2023 compared to no valuation allowance release for the six months ended June 30, 2024.

Previous wording

Non-GAAP Operating Earnings increased by $126 million to $490 million for the three months ended March 31, 2024 from $364 million in the three months ended March 31, 2023. The following were notable changes in Non-GAAP Operating Earnings:

Current wording

Non-GAAP Operating Earnings increased by $179 million to $984 million for the six months ended June 30, 2024 from $805 million in the six months ended June 30, 2023. The following were notable changes in Non-GAAP Operating Earnings:

Previous wording

•Fee-type revenue increased by $156 million mainly driven by higher advisory base fees and distribution revenue from higher average AUM from our Investment Management and Research segment and higher distribution and advisory fees type revenue from our Wealth Management segment from higher retirement sales and average asset balances combined with higher interest income from sweep accounts.

Current wording

•Fee-type revenue increased by $256 million mainly driven by higher advisory base fees and distribution revenue from higher average AUM from our Asset Management segment and advisory fees type revenue from our Wealth Management segment from higher retirement sales and average asset balances, Employee Benefits premium growth in our Protection Solutions segment, partially offset by lower revenue from Bernstein Research Services due to the sale of this business completed during April 2024.

Previous wording

•Policyholders’ benefits decreased by $53 million mainly due to lower net mortality, partially offset by growth in Employee Benefits in our Protection Solutions segment.

Current wording

•Policyholders’ benefits decreased by $70 million mainly due to lower net mortality, partially offset by growth in Employee Benefits in our Protection Solutions segment, and higher benefits from GMIB annuitizations, partially offset by higher premiums in fee-type revenue in our Legacy segment.

Previous wording

•Compensation, benefits, interest expense and other operating costs increased by $74 million mainly due to higher compensation and benefits expense, partially offset by the recognition of incentive grant gain in connection with the AB headquarters relocation to Nashville in our Investment Management and Research segment.

Current wording

•Compensation, benefits, interest expense and other operating costs increased by $77 million mainly due to higher incentive compensation expense, partially offset by lower base compensation and other expenses driven by the sale of Bernstein Research Services and the recognition of an incentive grant gain in connection with the AB headquarters relocation to Nashville in our Asset Management segment; higher Benefits and Taxes and Sub-Advisory fees from our Protection Solutions and Legacy segments, and higher variable compensation from higher sales from our Individual Retirement and Wealth Management segments.

Previous wording

•Income tax expense increased by $28 million mainly driven by higher pre-tax earnings in 2023.

Current wording

•Income tax expense increased by $64 million mainly driven by higher pre-tax earnings in 2024.

Previous wording

We manage our business through the following six segments: Individual Retirement, Group Retirement, Investment Management and Research, Protection Solutions, Wealth Management and Legacy. We report certain activities and items that are not included in our six segments in Corporate and Other. The following section presents our discussion of operating earnings (loss) by segment and AUM, AV and Protection Solutions Reserves by segment, as applicable. Consistent with U.S. GAAP guidance for segment reporting, operating earnings (loss) is our U.S. GAAP measure of segment performance. See Note 16 of the Notes to the Consolidated Financial Statements for further information on our segments.

Current wording

We manage our business through the following six segments: Individual Retirement, Group Retirement, Asset Management, Protection Solutions, Wealth Management and Legacy. We report certain activities and items that are not included in our six segments in Corporate and Other. The following section presents our discussion of operating earnings (loss) by segment and AUM, AV and Protection Solutions Reserves by segment, as applicable. Consistent with U.S. GAAP guidance for segment reporting, operating earnings (loss) is our U.S. GAAP measure of segment performance. See Note 17 of the Notes to the Consolidated Financial Statements for further information on our segments.

Previous wording

Income tax expense is calculated using the ETR and then allocated to our business segments usinga 14% ETR for our retirement and protection businesses (Individual Retirement, Group Retirement, Protection Solutions and Legacy), a 26% ETR for Wealth Management and a 29% ETR for Investment Management and Research.

Current wording

Income tax expense is calculated using the ETR and then allocated to our business segments using a 14% ETR for our retirement and protection businesses (Individual Retirement, Group Retirement, Protection Solutions and Legacy), a 27% ETR for Wealth Management and a 29% ETR for Asset Management.

Previous wording

(1)For the three months ended March 31, 2023, amounts reflect a total special payment applied to the accounts of active clients as part of a previously disclosed settlement agreement between Equitable Financial and the SEC.

Current wording

(1)For the six months ended June 30, 2023, amounts reflect a total special payment applied to the accounts of active clients as part of a previously disclosed settlement agreement between Equitable Financial and the SEC.

Previous wording

Operating earnings increased $28 million to $228 million during the three months ended March 31, 2024 from $200 million in the three months ended March 31, 2023. The following were notable changes in operating earnings (losses):

Current wording

Operating earnings increased $28 million to $462 million during the six months ended June 30, 2024 from $434 million in the six months ended June 30, 2023. The following were notable changes in operating earnings (losses):

Previous wording

•Net investment income increased by $170 million mainly due to higher SCS asset balances and higher investment yields and higher Alternative investment income, partially offset by higher collateral expense.

Current wording

•Net investment income increased by $327 million mainly due to higher income primarily due to higher SCS asset balances, higher investment yields and higher Alternative investment income.

Previous wording

•Fee-type revenue increased by $8 million mainly due to higher average separate account values.

Current wording

•Fee-type revenue increased by $15 million mainly due to higher average separate account values.

Previous wording

•Amortization of DAC increased by $20 million mainly due to growth in the business from sales momentum.

Current wording

•Amortization of DAC increased by $39 million mainly due to growth in the business from sales momentum.

Previous wording

•The increase in AV of $6.6 billion in the three months ended March 31, 2024 was driven by an increase in investments performance as a result of equity market appreciation of $5.0 billion in the three months ended March 31, 2024, as well as net inflows of $1.6 billion.

Current wording

•The increase in AV of $10.3 billion in the six months ended June 30, 2024 was driven by an increase in investments performance as a result of equity market appreciation of $6.8 billion in the six months ended June 30, 2024, as well as net inflows of $3.5 billion.

Previous wording

•Net inflows of $1.6 billion were $717 million higher than in the three months ended March 31, 2023, mainly driven by higher sales in the three months ended March 31, 2024.

Current wording

•Net inflows of $3.5 billion were $1.1 billion higher than in the six months ended June 30, 2023, mainly driven by higher sales in the six months ended June 30, 2024.

Previous wording

(2)For the three months ended March 31, 2023, amounts reflect a total special payment applied to the accounts of active clients as part of a previously disclosed settlement agreement between Equitable Financial and the SEC.

Current wording

(2)For the six months ended June 30, 2023, amounts reflect a total special payment applied to the accounts of active clients as part of a previously disclosed settlement agreement between Equitable Financial and the SEC.