Equitable Holdings, Inc. (EQH) Earnings Call Transcript & Summary

All right. We're going to get going. It's great to have Equitable back with us this year. CFO, Robin Raju, is up on stage with me. And then there's a few other members of equitable in the audience that I'll just -- to acknowledge Steve Scanlon, Head of Individual Retirement and Tom Lewis and Jake Miller from Investor Relations. With that, I'm just going to hand it over to Robin to make a few opening remarks.

Thank you, Ryan, and thank you all for having me back here today. Is my mic working? Okay. Great. Just wanted to give a quick overview of Equitable for those who may not be familiar with the name. So Equitable serves the retirement and global investment market across the globe. We have 3 subsidiaries. First is our retirement business. It has about 220 billion of assets. It's a leader in providing tax advantage solutions in the individual retirement market. It's our fastest growing part of the business as well right now. We have over 19 billion in sales over the last 12 months, it's a really bullish market for annuities right now, and we're really benefiting from the tailwinds of a higher interest rate environment and a differentiated distribution model that we have in that retirement business. Our second business is our 61% ownership in AllianceBernstein. That's our global asset manager with 700 billion of AUM in 25 countries across the globe. Really differentiated in building out their private alts business together with the synergies and Equitable and also a good story on margin improvement over the next few years. And then our third business, which is our newest segment that we just broke out is our emerging wealth management business. That's comprised of about 4,100 dedicated Equitable advisers. They have 80 billion of assets under administration, and they're providing holistic advice to the clients and really focused on developing more wealth planners, which is about 700 of those 4,100 advisers and those advisers are 3x more productive than our traditional advisers across the board. Those 3 businesses are unique, and they're pretty well integrated across the board. Let me give you a few examples. In terms of designing better client outcomes, we created the fastest-growing part of the variable annuity market, which is called the RILA market. And we're a leader in that space. And that was created through a partnership through Equitable advisers and our retirement business on co-product design and testing new innovations with clients. And now that's a huge part of the market, and we're a leader in that space. And the second area in terms of design and better client outcomes, it's the partnership with AllianceBernstein and the retirement business. We were a pioneer in the secure income market that's in-plan guarantees and large 401(k) plans. We did that 10 years ago together between the retirement business and AllianceBernstein. And now AB is an innovator in that space. And we think that's a big upside for us in the future, maybe 5-plus years down the road, it's more of a [indiscernible] 3 initiative. Those businesses together delivered significant value for shareholders since IPO. We returned over 7 billion of capital to shareholders, and we continue to see strong momentum in our cash flow generation. And we just had an Investor Day in May, we announced new targets to the market that support our new growth strategy. We're going to grow cash flows to 2 billion. We're going to increase earnings by 25% and that moves us into a different category from where we were at IPO. So our main target that were going out to market was is to deliver 60% to 70% of operating earnings in terms of payout ratio as a function of operating earnings. Improve our EPS growth. It was 8% to 10%. We moved it to 12% to 15%. And those together are going to lead equitable in terms of delivering significant shareholder value over time. So we're excited where we're positioned today. I think Equitable is transitioned now where we're more delivering capital return, but now it's capital return plus growth. You're really seeing growth coming through our business, and we're really bullish about the markets that we operate in today. So Ryan, I'll pass it to you for some questions.

Great. Thank you. Well, one of the targets from the Investor Day was generating 110 million of incremental investment income by 2027. Can you talk a little bit about how you plan to achieve this as well as I think one question we get sometimes is, will that mean you're taking much additional investment risk?

Sure. So this is a Phase 3, what I would say of our investment income enhancement program. Since IPO, we've had 3 phases. Phase 1, we delivered 240 million to the investors. That was moving from treasuries to public credit. Phase 2, we've accessed more illiquid credit, and we delivered 180 million. And now in Phase 3, we see building out AB's private alternatives business being able to deliver an additional 110 million for investors as they support our EPS targets that we shared at Investor Day. That 110 million, we're on track to achieve 45 million by year-end. And that's really coming from continued access to some of AB's private credit capabilities and leveraging the synergies between the general account and AllianceBernstein. Now we are keeping though in mind to your question, Ryan, we are keeping a higher quality focus as we go into private credit. We want to retain the conservatism of our general account, and we probably feel it's a good time to get yield but be more conservative while you're getting at that yield considering where things are trading in the market today. So we have a good program in place, 45 million by year-end and on track to get that 110 million while keeping a conservative stance on the investment portfolio.

This is probably somewhat related, but -- can you talk more about the seed capital that Equitable has committed to AllianceBernstein? How much has been committed and also how much has been deployed so far? And then also just how you expect that to benefit the growth of AB's private markets business.

Sure. It's been one of the best synergies that we've had between the subsidiaries of AllianceBernstein and the retirement business. So AllianceBernstein started its private alts business in 2015 with 4 billion of seed capital from Equitable. They took the 4 billion that Equitable gave them and they raised third-party money to get to 20 billion by 2020. We then went out with a new 10 billion capital commitment, of which we deployed 7.5 billion to date. And with that capital commitment, they went out and grew additional third-party money, but also that we were able to complete an acquisition with CarVal Investors and bring on at-scale private credit investor. And that was a function of the capital commitment and the synergies we had in the company. With CarVal, they saw our Equitable was going to be giving seed money, giving them an opportunity for a different channel of growth. And with CarVal leveraging AB's global distribution footprint, we can expand our private credit capability. That private markets business is now 61 billion. So it's a good chunk in terms of AUM for AB. It's starting to deliver good revenue and good margin expansion. At Investor Day, we announced another 10 billion commitment. So we're going to get to 20 billion by 2027. And AB's private market business as a result, is going to grow to 90 billion to 100 billion and be almost 20% of the firm's revenue, which is a significant shift to a higher multiple business. For AllianceBernstein, we'll continue to provide good yields for the general account investors as well. So it's a win-win really for both. And then AB has -- continues to have an advantage of being able to recruit teams. So it's a low-cost funding [indiscernible] we're giving them to support acquisitions, to raise third-party capital and recruit teams and that leads into a higher multiple for EQH shareholders through AB ownership and more cash flows, more importantly.

I guess sticking with one more question on investments. Can you give an update on how your commercial mortgage loan portfolio is performing and, I guess, in particular, the focus being on office?

Sure. So for Equitable, the commercial mortgage loan portfolio is about 15% of the general account. The LTVs at origination were 51%. There are 53%, they're now 61%. We value those every year. So the current valuation is 61%. So you've seen the decline through the valuations, but still pretty good at 61% across the board. The debt-to-service coverage ratio is about 2.2x which improved year-over-year. So the overall portfolio is well diversified. Within that, to your question on the office space, that's about 5% of the general account. We've been pretty conservative on where we play. We're in really all Class A buildings, 90% occupancy rate, 2.1x debt-to-service coverage ratio across the board. No exposure to downtown Chicago, San Francisco, Seattle, Chicago. So we stayed out of the markets that seem to be in trouble at this point in time. Now there's still risk in the CML market. I'm not going to say there's no risk there, but we feel pretty comfortable where we are. I think an important factor, Equitable, near-term maturities, less than 4% of the portfolio is maturing over the next 2 years. So it's pretty manageable of the portfolio that's maturing this year. There are about 8 loans. We've already done about 60% of them either renewed at current market levels or had them pay down. So we're pretty active in managing and servicing that book and being able to stay out of the markets where we see issues.

Great. Shifting over to the Individual Retirement business. You had mentioned that it's a very good environment for sales right now, and you've had very strong sales, particularly in your SCS product. You've also had a number of new competitors come into this -- into the rival space over time. So can you talk more about, I guess, how are you kind of able to maintain your market share and have good growth in that business while also still achieving your targeted returns?

Yes. Well, Steve Scanlon runs that business, I got to hear him talk a lot about this morning, so I feel very prepared for the question. Look, it's as I started, this market is a tremendous market right now, and we're well positioned in there because we were innovative. We were first to market, we created it and we have unique distribution capabilities that allows us to win, continue to keep market share and gain value across the board. So these products, let me start with the customer angle. These are extremely compelling to customers in a high interest rate environment. Right now, our #1 SCS product offers a 20% downside protection and 500% upside for an investor -- for a client. That's a tremendous value proposition at this point in time. Now you can go shop around and get your highest banking yields for 5% right now. But this offers downside protection and upside potential for retirees. That's what they're looking for. So the clients very -- the client offering is very compelling. At the same time, we benefit from our distribution. So Equitable advisers does about 37% of our sales. And every year, there are anchor distribution force, they allow us to test new products, control margins and continue to expand up in the marketplace. We then have unique P&C relationships that we're 1 of 3 because it's a registered product, and that allows us to continue to expand our distribution. A proof point of our distribution is we're #1 in the market, but we're #10 or something in the wirehouses. We don't play just to shop. We play to where we can drive value and win and offer customer -- a good customer proposition at the end of the day. And that's what we're seeing in the market. So -- we had $1.5 billion of net flows in that individual retirement business. Last quarter, momentum remains tremendous, and this is just a great time to be in that business. So we're really bullish on that market.

I guess in Group Retirement, it seems like the core 403(b) business has had a little bit slower growth, I guess, at least in the last few years. Could you just talk about what -- kind of what you're seeing there and what's driving that?

Sure. So in our group retirement business, it's made up of a few businesses, you highlighted. Our main business is our core K-12 403(b) business. That's where we're #1 in that market space, and we're differentiated because we have 1,000 dedicated advisers that help and serve teachers in that market. So they go into with the teachers, they sit down with them and they help them go through the supplemental pension plan and the need for retirement planning. So they -- no one else has that amount of advisers in the ground helping teachers every day, and that's what's allowed us to maintain that leadership position in the K-12 business. The business had positive net flows in the second quarter of $118 million. Premiums were up about 18% year-over-year. So we're still getting some growth in that core business. We did see some outflows in some of the noncore businesses, older institutional business relationships that we had. So the total net number that you see in Group Retirement was negative in the second quarter. But where we make money and where we're differentiated in the K-12 market, we had positive net flows. And we continue to like the momentum in that business. Third quarter is always a little soft in that business because, obviously, the summertime, the teachers aren't in school. So there's some seasonality with the flows, but I still expect to have a good fourth quarter and good momentum heading into the next year.

Got it. I guess another area you've mentioned as a longer-term growth opportunity is in planned guarantees within 401(k) plans following the SECURE Act. How much traction are you seeing so far? And how do you see the longer-term opportunity?

Sure. I think it's a tremendous opportunity for asset managers and insurers to partner together. So the large plan 401(k) is a $7 trillion market. We don't play in that market today because it's really record keeping. We're not differentiated in providing recordkeeping services. It's a low-margin business for us today. What secure -- what the SECURE Act has done, 1.0 and 2.0, it's made target date funds with implant guarantees available as the qualified default option in plants. That provides trustees, protection and providing annuities together with target date funds as the default option. All the asset managers are now working on solutions to partner with insurers to get into this space. We were innovative almost too far -- too innovative because we were in the game 10 years ago with AllianceBernstein. That's part of that what I talked about earlier. But that was before it was a default option and we saw it out as a major headwind of gaining traction across the board. But now as a default option, AB won a big plan last year. It was a $9 billion plan that they won. Of that, our Group Retirement business had almost $600 million in net flows coming in because of that default option feature and providing implant guarantees. We expanded our partnership. We now have a partnership with BlackRock in that space. BlackRock has 11 committed clients. So we expect to see lumpy flows because there are big chunks come in at one time in terms of institutional business across the board. But we really think this is the future in terms of providing annuities to the middle market. Today, to get annuities, you need to go through an adviser, and most of that service is mass affluent or higher end. Now we can provide annuities through target date funds and provided decumulation solutions for a large part of the U.S. retiree market, which we wouldn't otherwise have access to. So we think it's a tremendous opportunity in terms of accessing that U.S. retirement market. Now we don't include it in our plans for 2027 because we don't know how meaningful it will be in the short term, but we think over the long term, this is a great growth business for us.

Great. In Wealth Management, can you just talk about how Equitable is approaching that business? How does it differ from some of the other peers in the market? And kind of I guess, what actions have you taken in recent years to improve the productivity of the advisers?

Sure. Wealth management, that was a third business that I spoke about upfront. 4,100 advisers, $80 billion AUA, $4.5 billion of net flows over the last 12 months. So really good organic growth that we saw come through in that business. What's differentiated about us is our wealth management and our advisers provide both insurance and asset-based solutions. So there are 2 sources of income that they can get, and that attracts high-producing advisers. So we saw of our 4,100 advisers, 700 of them, we call as wealth planners. Those wealth planners leverage both insurance and wealth as asset classes in their toolbox. And that allows them to be 3x more productive than the remaining adviser group. That 700 was about 450 in 2018, and we put in place a big training program. We called holistic advice planning to expand their productivity, and we saw that 450 go to the 700. And so for us to achieve our plan by 2027, we anticipate that 700 being a bigger chunk of that 4,100 larger base. So expanding productivity, expanding insurance sales, expanding asset-based sales and, therefore, improving earnings. And that's going to allow us to double the earnings in that business by 2027.

The margins in Wealth Management are in the low teens right now, where do you see that headed over that 2027 time frame? And what are the key drivers?

So last quarter, we had about $42 million of earnings in that business, 13% margin approximately across the board. We see those margins increasing to the high mid-teens as that 700 group increasing. So that 700 wealth plans is really the big driver for us because they're 3x more productive than the other advisers that we have. And as those advisers gain a bigger traction in our larger adviser group, we're going to see more revenue, more GDC and then more underlying margin as a result. We also benefited from the interest rate sweep accounts of the $42 million, that was about $12 million over the quarter. We'll continue to benefit that as rates continue to be higher with the higher Fed funds rate, but we're not dependent on that either to achieve our 2027 earnings number.

In terms of growing the wealth advisers is the primary objective to convert existing advisers to that category that are more productive? Or are you also recruiting in new advisers into that?

Yes, 3 things. We've seen most success first in improving the number of wealth advisers from our existing force. So having 700 of the 4,100, if we can have 1,000 of the 4,100, that's going to be the most cost-effective way and the highest margin way to grow our wealth management earnings. So our primary focus there is training. Second, we have seen success in recruiting experienced hires but experienced hires, they're attracted to Equitable because they may come from a wealth platform where they're only doing asset-oriented sales or wealth or wrapper sales. We can provide them both the wrapper and insurance, so it gives them an opportunity to have more income. So that's obviously attractive for an adviser on a higher income opportunity. And then third, we will look at bolt-on M&A. We did Penn investment advisers last year. That was about a $600 million AUM growth that we have. Small because it's -- we're not going to be in the higher end, high [PET] paying a 20x PE for stuff, but smaller bolt-on acquisitions that are accretive are something that we'll continue to look at. So -- those are the 3 primary drivers. But the more we can convert a bigger chunk of that 4,100 to wealth planners, that's going to drive the higher amount of growth for us.

Got it. Shifting over to protection, you've had a higher mortality in the last few quarters. Can you give more detail on what you're seeing? And also just any perspective on why you think it's happening now kind of as the population mortality is actually gradually been improving.

We have seen an improvement in the overall population excess mortality trends as we saw it based on the CDC data that we see. But what we see is during COVID, the uninsured population, unfortunately, was more impacted than the insured population. And we're seeing sort of a lag effect where the insured population is seeing more excess mortality than the uninsured population now because they didn't see it during COVID. So -- and some of that could be because delays in annual treatment, physicals. And so it's catching up to some of our folks, unfortunately. So we are seeing in our older age, we're focused on variable universal life policies. The reason why because it fits well with our retirement strategy. That's something people use for tax-efficient retirement planning. And we're seeing older age policies -- policies that have been in force 20, 25 years, where we're seeing sort of a pull forward of people that we may assume that would pass away next year or 2 years passing away now, unfortunately. And so that's accelerating some debts, but we expect to get that back in the future years as earnings should be higher given that pull forward that we have in those debt claims.

And can you also talk about the reserving differences between GAAP and stat? I know on the last quarter call, you mentioned that you already hold higher reserves on stats so that you don't expect much of a cash flow impact. But can you go over that a little bit more?

Sure. On the U.S. GAAP accounting, for variable universal life policies, you can only reserve up to the cash surrender value of the contract. You can't have more reserves for that. You can, if you have secondary guarantees like USG products, you can hold more reserves than the cash surrender value, but this is really just VUL policies. There are no secondary guarantees associated with these. So that's the max you can hold. Even if I wanted to home more, I can't on the U.S. GAAP accounting. Under statutory there's something called provisional adverse deviation or pads. That allows us to have more conservative framework set up on the stat results. And so early on this year, what we did is we worked with multiple reinsurers and we've gained input of what they expected to post-COVID mortality effect to be. And we've taken those inputs and we've incorporated those in our statutory pads. And as a result, we're not seeing a cash impact as a result of this pull forward because a stat framework is more conservative at the end of the day. So what you're seeing in this pull forward now is a higher free cash flow conversion rate for the protection business, but we expect it to normalize in the future. And that's why you see in our 60% to 70% payout ratio, us paying out the normalized earnings number, the 60% to 70% of the normalized number because it's not a cash impact we're seeing. It's more a GAAP pull forward, I would say.

Got it. I know you've typically talked about $75 million of earnings per quarter in protection. I think you've talked near term maybe closer to $50 million. But for protection or anything else, now that I guess, during the final month of the quarter, are there any other things you would want to kind of highlight for the third quarter for investors to think about?

Yes. I think for the third quarter, I think protection, we're still seeing some of that pull forward in mortality. So expect us to be in that $50 million range. The second area, I would think of is alts. We've seen good recovery in private equity in terms of the growth-oriented funds and buyout funds but 20% of our exposure is in real estate equity and those have not performed as well. So there's going to be continued lag. We're not going to be at our normalized rate yet in the third quarter because the lag in the real estate equity. So -- but we're still seeing continued quarter-over-quarter improvement because of the growth equity orientation. And then we continue to see strong flows across the business. As I mentioned, Individual Retirement continues to deliver strong sales in our SCS product and strong net flows. So we continue the momentum in the business.

Shifting to a little bit of a different topic, so that NAIC has been field testing the new economic scenario generator for mostly for variable annuities. How do you think this will impact Equitable as well as the industry once it's implemented? And I'll start with that and then we can.

Yes. It's a long overdue change. We've been trying to advocate this for some time. We're happy to see it come through. So just for those who aren't familiar, no matter what happened, you used to assume 3.5% or 3.25% whatever the interest rate was in your liabilities. No matter what rates were, whether they're at 3%, whether they're at $0.50, they assume they go back to 3.5%. What did that do that didn't promote proper risk management and people didn't hedge interest rate exposure because they had this NAIC assumption that they can rely on. So the economics scenario generator is going to incorporate more wealth for longer interest rate scenarios, and that's going to force people to hedge more and promote sound risk management and effectiveness across the industry. They conducted their field testing last year. I know in the results we saw, it did increase reserves for companies that didn't hedge appropriately. And we think that's a good thing because it will promote more economic hedging across the board. So we're hoping that goes into effect by early 2025 at the latest. So we can get that in. But again, that's been like a 6-year journey for us. I feel like we've talked about forever, it's finally taken into effect and it's really going to promote better risk management across the insurance business.

For Equitable specifically, do you expect much -- if any impact?

No, because since Equitable hedges fully on equity and interest rates, we don't necessarily have the same level of impacts that others would have.

And then are there -- besides this one, are there any other key regulatory developments that you're watching right now?

Yes. I think we're acting -- watching and actively promoting a few. Look, I think just one point that's important, where the insurance industry in total trades today is a function of mistakes in the past in terms of whether it be the GMxB business in 2007, LTC, USG, it's companies took inappropriate risk in insurance companies. All the regulation that's happening now is to promote better risk management, which should translate into a more consistent and better return for our investors. So we're a big -- we're highly supporting all these reforms that happened. We just spoke about the NAIC ESG reform. The other one is structured securities in appropriate -- in holding appropriate capital on structured securities. We think holding mezzanine-oriented structured products within some of the insurance liabilities. The capital charge that's there today isn't really recognizing the risk of those securities. We've made some improvement. It looks like we'll go from 30% to 45% at least on the equity tranches of CLOs which I think is a good and a good step forward. But we need more and better reform that's more consistent and more appropriate to the risk people are taking, and that will promote better returns over the long term for shareholders.

You recently completed an internal reinsurance transaction from New York to Arizona. Can you talk about -- or I guess remind investors why you did that? And was there any impact to your -- any upfront impact from that in terms of your capital ratios? Or is it really more about future dividend capacity?

Sure. So internal reinsurance was really one of the last steps in our journey to capital optimization. And really, we're trying to make sure that we can be more competitive and look just like many of our peers do in terms of where we sell insurance products where our in-force is. So what it did is Equitable is unique. Our primary in-force and new business sales came out of solely New York entity. What that did is it exposed us to uneconomic regulation in New York and it also exposed us to dividend volatility coming out of New York's uneconomic formula. So what we wanted to do is move more to policies outside of New York and we completed our internal reinsurance transaction, which moves about 50% of our in-force business to Arizona. And now we sell all of our individual retirement and life business out of the Arizona company for non New York policies. So -- it better aligns to the other 49 states and ensures we can keep the competitiveness from a shareholder view, it's going to provide more transparency on the regulated dividends. as a big chunk of it is going to come from the Arizona company, which will be more RBC based, so there will be better transparency versus New York where we had -- some years, we take 2 dividends equivalent out, some years 0 because of the volatility in the formula. So I think going forward, it provides more transparency. We did have an upfront, there was a benefit on TAC upfront, but there was some offset with some tax return. So upfront was roughly neutral. But over time, we'll get back some of the tax [indiscernible] so we think over time, it will be beneficial as well. So this is the first step in our journey. The next step we're going to do is novation of those policies. That will physically move those policies, transfer them from New York to Arizona. The benefit of that is we'll just have more opportunities for capital optimization going forward. But that's a 2-year process, regulatory approvals, which are in process, but then we need client mailings to every client in 50 different states, which have 50 different processes. So we're going to go through that, and we're ready to execute on that as well.

When -- is it 2 years from -- or I guess, when did the 2-year period start?

I think once we -- from Q2 because we completed internal reinsurance. So I think from Q2 is a good mark for us.

Got it. And then one of the other aspects of your 2027 plans were $150 million of expense saves. What are the key components to achieving that?

Yes. So Equitable has a long history of delivering on productivity and expense saves. You're going to hear us always -- whenever we go out with a commitment, we want to ensure that we can execute against them. We're big on managing the controllables at Equitable. And so from an expense standpoint, we delivered at IPO, $75 million in net savings. After that, we announced another $80 million that we delivered on. And this $150 million of expense saves is coming from both the retirement business and asset management business. So about $75 million to $80 million of it will come from AB's move to Nashville. That will be effective January 2025. So that comes through nicely. It's on track. It just needs now -- we need the time for the leases to expire. The second chunk, we're getting about $30 million from our retirement business this year. That's just, again, leases and occupying less space in New York. And so we've moved down and we consolidate spaces. So we locked in some saves there. And then we have about another $60 million to $65 million that we have coming through over the next 4 years. And that's just us continuing to maintain a top quartile expense base.

Got it. Then on capital return, you talked about the 60% to 70% payout ratio, which is equating to a pretty good percentage capital return. But then you also have probably over $1.5 billion of on-balance sheet excess capital as well. How are you thinking about that piece of it? Is that -- are you holding that more for downside risk in the economy? Is it more a general company practice that you want to maintain that cushion? Or can you give us more on your thought process there?

Yes. Since IPO, we've always had either -- we've been at our $500 million minimum or we've had excess capital. And some of that's due to the volatility in the New York dividend formula as we want to be consistent in maintaining a 60% to 70% payout ratio now to shareholders and that consistency is important to us. But in this time, we are watching out for some macro concerns we have, whether it be credit or in different portfolio risk that we see in the economy that may have second and third order impacts that come back to Equitable. So I'm cautious here a little bit because I do think higher interest rates, although it's good in terms of many the places we operate, our product portfolio, the spreads we get on investment income, I'm also conscious in the macro economy that higher interest rates provide a lot of pressure on small businesses for borrowing costs as these floating securities come at a higher cost now and that's going to put pressure in our economy. So I want to be mindful of that and watch that going forward. But our long-term strategy isn't to hold $1.5 billion of cash at the holdco, right? It's -- we want to ensure that we're delivering shareholder value with every resource that we have, and that's a big piece of it.

Pause here and see if there's any questions in the audience. I will continue. I guess you did a successful risk transfer deal on variable annuities a few years ago. I guess how are you thinking about if it could make sense to do another transaction to just fully dispose of the remaining legacy variable annuities versus just keep it and generate the cash flow as it runs off.

So the legacy VA business now is about 10% of Equitable's earnings. It's going to go down to 5% by 2027, and that business runs off about $2 billion to $3 billion every year. And at Investor Day, what we showed to investors is that business is going to be cash flow accretive over the next 5 years. So it's going to have a higher free cash flow rate than the earnings that are generated due to the runoff and the release of capital. That business is fully reserved to manage on an economic basis. So we're quite comfortable with the risk exposure that we have there. Now as we complete our internal reinsurance and renovation, that does open up more opportunities for capital optimization. And if we see an opportunity that's worth it for investors, we certainly take a look at accelerating that runoff. But it's not something we have to do, like the Venerable deal. That was a big deal. We created $1 billion of value for shareholders. What's left is pretty small. And it's really not representative of Equitable across the board. So for us to do another deal, it's really going to have to be worth it because we're taking counterparty risk, et cetera. So we want to make sure that if there's a deal there that it's really worked for investors considering the risk that it entails.

One other question, I guess, sometimes is just -- so the SCS product, even though it's called the variable annuity, it's really a spread product. Are there -- you don't really sell fixed annuities or fixed indexed annuities. Is that something that has ever been considered? Or do you feel like the RILA product is already satisfying that end client?

Yes, I do think the RILA product is just a better customer proposition at the end of the day than the fixed oriented products. So I think I'll start with that. That fits well with our Equitable advisers distribution. It generates great return. And for every dollar in RILA, we only have to hold about 2% of capital for that. So it's very capital efficient and capital-light in that nature. Now with rates higher, we continuously look at the market. Obviously, MYGAs are a faster-growing part. Those returns seem to work now. But those MYGA products have more capital that you have to hold. So versus 2% of SES, a MYGA product, you may have to hold anywhere from 6% to 10%. So really, it's going to have a higher return rate hurdle for us. But the more we can sell of SES, given the customer proposition that it offers, the distribution that we have, the returns that it generates for shareholders, the more we'll do it. But we'll always look at other parts in the market. But for us to move in another part, the capital efficiency is going to have to be strong.

Then my last question was I want to ask -- make you get to into valuation. I know -- I think you said you're only going to do that once every 5 years.

Now it's like 3 months.

But maybe to ask it slightly differently, what do you think the market is misunderstanding most about your company at this point in time based on where the valuation is?

Yes. Look, I think I think at the end of the day, Equitable Holdings needs to continue to execute against its strategy, continue to return capital to shareholders, and with the growth that we have, we're in a pretty unique position. We've returned $7 billion of capital to shareholders since IPO. The legacy business went from about 40% -- 30% to 40% of earnings to 10% today and less than 5%. We have a fast emerging wealth management business that's going to grow to $200 million of earnings. We have good levers for growth, including AB's alternative business, expense management and additional investment income. And as we continue to execute grow our earnings to $2.5 billion, improve our cash generation to $2 billion, I think it will work itself out over time. Now we continue to have to execute. That's on us as a management team to execute against the goals that we put out to market and we have to communicate the Equitable that people thought of at IPO is not the Equitable that it is today. We're made up of capital-light businesses, 50% of the cash flows come from unregulated resources. And we have a growth profile now. We didn't have a growth profile at IPO. At IPO, we had to derisk and prove that we can execute and deliver cash to shareholders. Now we're doing that, and we have growth coming in. And I think it's a great time to own Equitable. I think it's a great time to invest in the industry, frankly. If people are pricing their products appropriately, I think the insurance industry is primed to capture a big portion of the retirement market in the U.S. and I think Equitable is going to differentiate in its growth through its advice, wealth and asset management model.

All right. Great. Well, we'll wrap it up there. Thank you very much, Robin.