Equitable Holdings Inc

NYSE:EQH

Earnings Call Transcript 2018-Q2

[Operator]

Good morning. My name is Mathew and I will be your conference operator today. At this time I would like to welcome everyone to the AXA Equitable Holdings, Inc. Second Quarter Earnings Call and Webcast. [Operator Instructions] Than you.

Kevin Molloy, Head of Investor Relations, you may begin your conference.

[Kevin Molloy, Head-Investor Relations]

Thank you. Good morning and welcome to AXA Equitable Holdings’ second-quarter 2018 earnings call. Materials for today's call can be found on our website at ir.axaequitableholdings.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 material differ from those expressed in or indicated by such forward-looking statements.

So I’d like to point out the Safe Harbor language in Slide 2 of our presentation. You can also find our Safe Harbor language in our second quarter 10-Q.

Joining me on today's call is Mark Pearson, President and Chief Executive Officer of AXA Equitable Holdings; and Anders Malmstrom, our Chief Financial Officer. Also on the line is John Weisenseel, AllianceBernstein’s Chief Financial Officer.

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, in our earnings release, slide presentation, and the financial supplement.

I would like now to turn the call over to Mark and Anders for their prepared remarks.

[Mark Pearson, President and Chief Executive Officer]

Thank you, Kevin, and good morning, everyone. As we discussed on our last earnings call, the second quarter of 2018 was the landmark quarter for the company, during which we completed our initial public offering and began trading on the New York Stock Exchange.

In addition, let me remind you of some of the other key milestones we have achieved. In April, we raised $3.8 billion in long-term debt with a weighted average duration of 16.9 years at a 4.52% average coupon. In order to repay internal loans to AXA SA and purchase AXA’s remaining interest in the AllianceBernstein, bringing our ownership of AB to approximately 65%.

We also merged our primary captive variable annuity reinsurer into AXA Equitable Life, which positions us well for the upcoming, anticipated NAIC variable annuity reform.

Today, I’m also pleased to announce the commencement of our capital management program, which we believe reflects the strength of our balance sheet and the confidence we have in this company to produce sustainable cash flows.

The first part of our capital management program is our common stock dividend. We have declared our firsts quarterly cash dividend of $0.13 per share payable on August 30, which gives an annualized yield of approximately 2.4%.

Secondly, our Board of Directors has approved a $500 million share repurchase program which we will start to execute in the open market during this, the third quarter of 2018. In order to limit the impact of the program and the liquidity of our public float, big spray that share repurchases will primarily occur from AXA. As a reminder, AXA’s post IPO lockup period ends in early November. The commencement of this capital management program allows us to optimize the capital we hold in our company and delivers on our long-term commitment to return 40% to 60% of non-GAAP operating earnings.

As you can see on Slide 4, AXA Equitable Holdings delivered strong operating results in the second quarter. Against the backdrop of constructive markets our four business segments continue to demonstrate their ability to grow earnings. From a regulator standpoint, the industry continues to work through important reforms, including the NAIC variable annuity reform and proposed fiduciary standards. Overall, we believe that NAIC reform is moving BA capital standards towards an economic framework, which we support and is consistent with how we manage our business. Regarding fiduciary standards, more clarity has emerged over recent months and we are beginning to see the impact of this through improving sales trends. As always, AXA Equitable Holdings will maintain our focus on providing our clients with the advice and products to protect their financial future.

Turning now to the main results from our second quarter, total AUM increased 4% to $656 billion, supported by equity market performance and net inflows across a number of our target markets in the retirement and investment management businesses.

Overall, all our non-GAAP operating earnings increased to $506 million, up 27% on the second quarter of 2017. This before much reflects our AUM growth, good execution against the company's productivity, and general account optimization initiatives and a lower tax rates.

All segments have seen earnings growth in the second quarter. Firstly, in Individual Retirement, operating earnings increased 30% from the second quarter of 2017 to $399 million, driven by higher account values, improved VA margins and continued expense discipline. Sales momentum also picked up in the second quarter, stemming from new distribution partnerships and overall sales mix remained good with other 60% of first-year premiums coming from products sold without GMxB features.

We also sell positive net flows up from quarter one 2018 from a newer less capital intensive products, partially offsetting the continued one off of a mature fixed GMxB block.

In Group Retirement, we continue to add new clients and recently we achieved the milestone of our one millionth group retirement client. Our successful advice-driven model has translated to another quarter of positive net flows with second quarter net inflows of $150 million, primarily driven by strong recurring contributions.

For Investment Management and Research, for AllianceBernstein, operating earnings increased to $97 million, up 59% from the second quarter of 2017, reflecting our increased ownership of AB, now approximately 65% and an improvement in the businesses operating margin year-over-year. Overall, AB's adjusted operating margin improved 240 basis points year-over-year to 27.3%.

In the quarter, AB's fee realization rate actually expanded as higher revenues from inflows into equity and alternative investment services more than offset the impact of outflows from lower fee strategies.

Lastly, annualized premiums in our Protection Solutions business rose 22% from the second quarter 2017, primarily due to increased sales of variable life products and the continued ramp up of our small-market employee benefits business.

As previously mentioned, today we launched our capital management program, funded by dividends received from the insurance subsidiaries and AB. We also maintain a strong balance sheet with capitalization an excess of CTE98 for variable annuities and 350% to 400% RBC for our non-variable annuity businesses.

As of June 30, we have an RBC ratio in excess of 700%. These results combined delivered a 14.6% operating ROE, an increase of 100 basis points compared to the first quarter of 2018 and in line with our long-term mid-teens target.

Today, I'm also announcing new members to my leadership team. Nick Lane, current CEO of AXA Japan will be joining the team in the first quarter of 2019 as President of AXA Equitable Life, leading the Individual Retirement, Group Retirement and Protection Solutions segments as heading up our affiliated and third-party distribution. He will also join the EQH Management Committee. Nick joins us following over two years leading AXA's business in Japan. He previously had roles of AXA Equitable Life, including leading our Commercial Business Lines and our affiliated adviser sales force and as a member of our corporate strategy team. Nick will bring valuable expertise to AXA Equitable Holdings and will be able to upon his energy and passion for the U.S. business.

Brian Winikoff, our current Head of Life, Retirement, and Wealth Management Organization, will be departing the company. Brian will stay through the end of the year to ensure smooth transition of his responsibilities. I would like to thank Brian for his many contributions to the business over the past several years.

To further strengthen our finance organization as a public company, I'm very pleased to announce that we are bringing in new talent with listed company experience. William Eckert will become AXA Equitable Holdings Chief Accounting Officer. Prior to joining us, he was Corporate Controller and Principal Accounting Officer at Athene Holding. Paul Hance will join as AXA Equitable Life's Chief Actuary in September. And most recently Paul served as Actuary Head of Valuation Center of Excellence at Prudential Financial. In summary, we are further strengthening our leadership team by bringing in seasoned leaders with listed company experience, which I believe positions us well to deliver on our commitments to shareholders and customers.

Turning to Slide 5. I'd like to dive into progress on our strategic priorities, which are focused of ongoing, enhancing productivity and optimizing capital. We believe that by emphasizing these key areas, we are well positioned with multiple levers to drive overall non-GAAP earnings growth of 5% to 7% compounded by 2020. And clearly, our share repurchase program will further accelerate that growth on a per share basis.

As a reminder with general account optimization, we anticipate generating an additional $160 million pretax benefit by 2020. As of the end of the second quarter, we completed 50% of the transition and have achieved $48 million uplift. Our productivity initiatives are focused on further rationalizing our cost base, and we expect to generate a $75 million pretax benefit, net of any reimbursement by 2020. Through the first half of 2018, we have reduced net cost in our insurance business by total of $11 million year-to-date. And although it is early days, we remain on track to meet our goals by 2020.

Lastly, we are targeting 3% to 4% non-GAAP operating earnings by 2020 from various initiatives across each of our business segments. We believe the strength of our capital life product strategy combined with the depth and breadth of our distribution footprint will support this underlying business growth overtime.

In Individual Retirement, for example, we are already seeing positive sales momentum from recent product updates and several significant new distribution agreements, which we launched during the second quarter. Given our history of product innovation and our targeted distribution approach, we remain confident in our ability to capitalize on the growing demand for our lifetime income and protected growth solutions.

In Group Retirement, our leading position in the 403(b) K-12 market provides a foundation for consistent flows and creates longer-term opportunities with deeper relationships through our overall 1,000 strong dedicated advisers. Building on recent successes, we will continue to prioritize growth through both new and recurring businesses, whilst maintaining expense discipline and further optimizing our advice-driven client engagement model.

In Investment Management and Research, AB continues to demonstrate its ability to generate differentiated returns across a broad array of active investment services. This success has produced net inflows across active equities and alternatives, driving higher fee rates and revenues. This combined with AB's track record of cost management has a result in continued expansion of its operating margin.

In addition, AB announced this quarter its intention to relocate its corporate headquarters from its New York Offices to Nashville over the next several years. The transition is already underway and will favorably impact the long-term cost structure of the company.

Finally, in Protection Solutions, our targeted focus on less capital-intensive accumulation segments and on select distribution partners has yielded positive results, including year-over-year growth in annualized premiums. Augmenting this growth, we are scaling our employee benefits business and expect this to contribute differentiated returns overtime.

Overall, our strategy has and should continue to generate attractive earnings, robust cash flows and capital return to shareholders consistent with our 40% to 60% of non-GAAP operating earnings payout targeted ratio.

In addition, we are on track to produce a sustainable mid-teens ROE in the near term and strong EPS growth, driven by a combination of 5% to 7% non-GAAP operating earnings growth and the execution of our capital management program.

I will now turn the call over to Anders to go through our quarterly results in more detail. Anders?

[Anders Malmstrom, Chief Financial Officer]

Thank you, Mark. And good morning everyone. On Slide 6, I will review our overall results for the second quarter, before providing more details by segment.

Non-GAAP operating earnings in the second quarter of 2018 increased 27% year-over-year to $506 million, driven by higher revenues from increased policy charges and fees combined with improved GMxB margins and net investment income.

As Mark mentioned, we had two important changes reflected in our capital structure during the second quarter. First, we increased our ownership of AB to approximately 65%. And second, we issued new public debt to complete our initial capital structure.

On a per share basis, non-GAAP operating earnings per share was $0.90, also up 27% year-over-year, given our steady share count of 561 million shares outstanding during the quarter.

Net income for the quarter was $158 million, down from $608 million in the prior year period, primarily due to favorable one-time items that occurred in the second quarter of 2017.

On the year-to-date basis, net income increased 3% to $326 million compared to the first half of 2017. As a reminder, we conduct our annual actuarial assumption review in the third quarter. The difference between operating earnings and net income in the quarter can be explained, primarily by the recurring accounting mismatch of our variable annuity product features of $280 million. For your information, included in this amount is a $24 million cost for our target hedge options. The remaining $256 million are due to the mark-to-market valuation. In addition, we recorded $33 million of separation costs in the period.

Total AUM, an important driver of our fee-based business grew 4% year-over-year to approximately $656 billion, driven predominantly by market depreciation. And sequentially, our operating ROE increased to 100 basis points to 14.6%, primarily driven by higher operating earnings in the current quarter. The level of ROE is in line with our mid-teens ROE objective.

Turning to our segments, I will begin with Individual Retirement on Slide 7. Operating earnings increased 30% to $399 million, primarily driven by higher net investment income, and improvement in GMxB results and the reduction in expenses. Net investment income increased $37 million year-over-year, primarily due to higher asset balances in our in our popular SES product and the GA optimization initiative.

Operating expenses were down year-over-year due to our continued focus on creating operation efficiencies. Account value increased $4.5 billion year-over-year, largely driven by market depreciation. While net flows decreased compared to the second quarter of 2017, we continue to experience strong net inflows that our current product set, $867 million during the quarter and ongoing and net outflows of from our matured fixed GMxB loans. This dynamic continues to derisk our portfolio towards our new less capital-intensive products.

As Mark mentioned, we saw improving trends in sales with deposits and first year premiums improving sequentially. The declining year-over-year following strong sales in the first half 2017 in anticipation of the Department of Labor Fiduciary Rule implementation. We continue to take a value over volume approach in this market.

Turning to our Group Retirement segment on Slide 8. Operating earnings grew 63% to $78 million due to higher fee income from equity market performance and higher net investment income combined with lower expenses. Account value increased $2.6 billion year-over-year, due to market depreciation and continued positive net flows. The segment continue to experience strong net flows in the second quarter, increasing to $150 million, driven by higher premiums.

Gross premiums increased to $880 million, driven by growth in renewal contribution as well as strong client retention and new sales momentum. The strength in new business and renewals are supported by the efforts we have made to engage existing clients, while increasing our adviser base to attract new clients.

Now turning to Investment Management and Research, which is AllianceBernstein on Slide 9. As a reminder, in April, housing ownership NAV increased to approximately 65%. And on a weighted average basis was approximately 62% for the quarter, given the timing of the transaction. Operating earnings grew 59% in the quarter to $97 million due to the increased ownership in AB, higher average AUM across all channels and higher fee rate realization, reflecting a mix shift from lower to higher fee products.

Driven by strong revenue growth and disciplined expense management, AB's operating margin improved to 27.3%, a 240 basis point increase compared to the second quarter of 2017.

Net outflows of $7.7 billion during the quarter were primarily driven by a low fee institutional redemption, partially offset by net inflows to higher fee strategies, including $3.4 billion into a broad array of active equities. Ending AUM increased to $539.8 billion, primarily due to market depreciation of $24.6 billion over the last 12 months.

And finally, we'll turn to Protection Solutions on Slide 10. Operating earnings grew 50% to $24 million, driven by higher policy revenues and net investment income combined with expense discipline. As we have discussed previously, loss recognition testing will continue to impact our protection solutions business and resulted in higher DAC amortization costs during the period.

We expect earnings volatility in this segment to persist for the foreseeable future as our loss recognition testing continues. Annualized premiums increased 22% to $66 million, primarily due to higher individual and small business variable life sales, combined with our continued ramp up of our employee benefit business.

Moving to Slide 11 as Mark discussed earlier, we have launched our capital management program and expect to return capital to shareholders in line with our goal of 40% to 60% of non-GAAP operating earnings on the annualized basis.

Our capital return approach includes inaugural quarterly cash dividend of $0.13 per share based on second quarter earnings, plus authorization of a $500 million share purchase program. Share purchases will begin in the third quarter of 2018 subject to market conditions. We will look to primarily buy shares from AXA as it executes on its stated intention to sell down, as well as in the open market. This approach will allow us to further optimize our capital structure and maintain shareholder liquidity.

In total we have set forward the path of common dividends and the share purchase authorization to deliver on our target payout ratio of 40% to 60% of 2018 non-GAAP operating earnings.

In July, we up-streamed a $1.1 billion dividend from our primary Life subsidiary and its additional of non-regulated cash flows from AB we have ample capital flexibility to begin executing on the program. At the same time we are focused on maintaining our strong balance sheet and capitalization levels. As of June 30, our estimated combined RBC ratio was in excess of 700%. We anticipate the tax reform changes to the RBC formula will have an impact of approximately 13% to 14% of RBC or lower RBC by roughly 100 points.

At the end of the second quarter our debt-to-capital ratio was 25% in line with our expectations, and holding company cash remains strong at $400 million as of June 30. As a reminder it was before the cash upstream from our Life subsidiary.

With that I will turn the call back to Mark for some concluding remarks. Mark?

[Mark Pearson, President and Chief Executive Officer]

Thanks Anders, before breaking for questions I'd like to reiterate this quarter's performance in the context of our long-term financial targets.

On Slide 12, we’ve shown a familiar snapshot of our key financial targets. Having completed our IPO during the second quarter I am pleased with our strong results. Our leading positions within select markets, premier multichannel distribution platform and investment expertise position us well to continue to generate earnings growth, maintain financial stability through market cycles and generate attractive returns and strong cash flows for shareholders.

We've positioned the company to maintain a strong balance sheet while delivering disciplined financial growth. We are holding ourselves accountable to the level of 5% to 7% compound annual growth in non-GAAP operating earnings through 2020, supported in part by the 30% adjusted operating margin target that AB has publicly reported. And with a target payout ratio of 40% to 60%, this should result in an operating ROE in the mid-teens by 2020.

We expect to maintain strong capitalization of CTE98 for the variable annuity business and 350% to 400% RBC with the other insurance businesses. With that we will open the call to Q&A.

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of Ryan Krueger with KBW. Your line is open.

[Ryan Krueger, KBW]

Hi thanks good morning. You found uptick in the ROA and earnings power in Individual Retirement in the quarter, can you just talk about it, if you view the second quarter has a good run rate for that business going forward?

[Anders Malmstrom, Chief Financial Officer]

Yes. So this is Anders speaking, look, I think overall – absolutely I think it was it was a good quarter for the Individual Retirement business, I think we had good flows even though not as last year but overall I think it was very good quarter.

[Mark Pearson, President and Chief Executive Officer]

Hi, I it’s Mark, I think as well we saw an uptick in the sales into the quarter two relative to quarter one, so that's something we’ve been looking for after all the DOL noise has died down so that was a good trend.

[Ryan Krueger, KBW]

Thanks. And then it sounds like you're comfortable with the NAIC VA reform, but any updates on potential impacts from that? And I guess, also do you expect a shift from reserves to statutory capital when this comes to? And will that impact your dividend capacity going forward?

[Anders Malmstrom, Chief Financial Officer]

This is again Anders speaking. Look, I think, overall, as we said, we are supportive of the VA reform I think it goes in the right direction. It's more economic than it is today. So I think that's important. The reform has been proved of that now it's important to the committees go through the details they are going to do that over the next couple of months. I think from our perspective, we are comfortable with the outcome of the reform. We don't think that it has a material impact on our dividend capacity going forward.

But as I said, I think we have to go through the details now once the committee finalizes the details.

[Ryan Krueger, KBW]

Okay, thank you.

[Operator]

Our next question comes from the line of Erik Bass with Autonomous Research, your line is open.

[Erik Bass, Autonomous Research]

Hi thank you. First just had a clarification question on the buyback and then – while the authorization goes through March, should we really view this as 2018 capital return? So the 40% to 60% of expected capital return for 2019 would be on top of this, even if the buyback does stretch in to the first quarter?

[Mark Pearson, President and Chief Executive Officer]

Yes. Erik, that's correct. That would be a good summary of the position.

[Erik Bass, Autonomous Research]

Okay, thank you. And then on protection, do you have any sense of how long you'd expected to take rebuild positive margin and exit loss recognition? And until that happens I realized there was going to be some volatility, but you have a sense of what the normal level of quarterly or annual earnings that we should expect?

[Anders Malmstrom, Chief Financial Officer]

Yes, look I think it's going to take us is another couple of quarters to get out of loss recognition testing. There’s basically two things that really helped us on that front. One is obviously, strong new sales that have a good margin that will help us and to get out of loss recognition testing. The other thing is the interest rates increase, let's say, more than what you expect in your assumptions. And from that perspective, as we told you, we're going to expect that we're going to stay in couple of quarters in a loss recognition testing.

But to your second question about the underlying trends, I mean, if you take out the duck amortization that you see in this business, it's actually take that out, overall, you see a positive trend in the business and it's really encouraging that we're going to see strong earnings in the out years.

[Erik Bass, Autonomous Research]

Thank you. And just one last one on protection, it's a little bit surprised to see the drop in net investment income quarter-over-quarter because I think that was a business that you have highlighted as one of the bigger beneficiaries from the general account restructuring. Is there a noise in this quarter? Or I guess, how should we think about the investment income allocation to the businesses?

[Anders Malmstrom, Chief Financial Officer]

Yes, I think good question. When you look at the, how we manage the investments and portfolio overall, we have the central investment portfolio and it really helps us on the ALM. That's how we manage ALM and then we allocate investment income to the segments. And you see some small noise. If you actually look at the half year results, you don't see that. It's really kind of a noise, as you say. But overall I think we had a strong improvement on the investment income overall from this program. I think as Mark mentioned before, its $48 million already realized in our results.

So the segments get the benefit, but you see some small noise there.

[Erik Bass, Autonomous Research]

Okay. Thank you.

[Operator]

Our next question comes from the line of Andrew Kligerman with Credit Suisse, your line is open.

[Andrew Kligerman, Credit Suisse]

Good morning. Quick technical question. On the variable annuity product features, which get more below the line, I believe the guidance on overall variable annuity hedging, I guess, about $700 million a year, but now you're also including some effects from the SCS product. So could you break out the, maybe your targeted or guided effects from the SCS product into hedging going forward below the operating line?

[Anders Malmstrom, Chief Financial Officer]

So, I think, Andrew, good morning. I think, you're absolutely, correct. I think if you look at the overall impact coming from the market, the majority is related to mark-to-market. I think I gave you the breakdown overall the impact operating to net income is $280 million out of $256 million is really mark-to-market, the rest is coming from the static hedge cost. We don't break it out what is coming from GMxB and what is coming from SCS majority is GMxB. Obviously, I think to give you the guidance, we gave you guidance in a normal year but I think, as you know, it's very sensitive to equity markets, so it can be higher, can be lower, average when you follow the plan, which, I think, think, assumes 6% equity growth that the guidance is still valid.

[Andrew Kligerman, Credit Suisse]

Is 700% is still valid going forward?

[Anders Malmstrom, Chief Financial Officer]

Absolutely.

[Andrew Kligerman, Credit Suisse]

Okay. Great. And then shifting over to Group Retirements, really solid in terms of sales and flows and renewals, but it seems modestly down in each – flattish in each of these categories. What are your strategies going forward and expectations in terms of growth in this sector?

[Mark Pearson, President and Chief Executive Officer]

Hi, this is Mark, maybe I will take that Andrews. First, as you know, we've got a pretty good position there, particularly in the 403(b) business. So the growth strategies are really penetrating further those 8,700 school districts we have. Getting productivity and the ones where we are active. We've seen a nice uptick in our BG advisers.

These are dedicated advisers just over 1,000. So growing the adviser force is key to that growth strategy, as well as improving the existing productivity. And we've started to do some work both direct and with third-party distributors as well. So they are the main drivers behind the growth strategies in the Group Retirement business.

[Andrew Kligerman, Credit Suisse]

And do you think you can get those numbers moving up year-over-year going forward?

[Mark Pearson, President and Chief Executive Officer]

Yes. That is part of the plan. As I say, we are in a very solid position there. It's an advised base model, works if you like. And it's really key to that organic strategy leave. We put to the market of looking to the 3% to 4% growth on [indiscernible].

[Andrew Kligerman, Credit Suisse]

And just lastly any quick color on Brian Winikoff's departure?

[Mark Pearson, President and Chief Executive Officer]

Brian has been commuting from Boston, and he home yet to New York and spoke to me about wanted to get to the closer to the family. So that's really decision Brian came to. And we – as I said earlier, we want to thank him for what he has done. He has added a great deal to the business.

And as I said in my earlier comments, really delighted to be welcoming Nick into the team. And Nick, as some of you might know, have spent 12 years to 15 years in the business. So he is going to bring a lot of energy. Brian will be staying with us through the end of the year, and it will be a nice smooth transition for when Nick arrives in quarter one of 2019

[Andrew Kligerman, Credit Suisse]

Great, thanks Mark.

[Mark Pearson, President and Chief Executive Officer]

Thanks.

[Operator]

Our next question comes from the line of Suneet Kamath with Citi Bank, your line is open.

[Suneet Kamath, Citi Bank]

Thanks. Just on the GMxB portion of the $200 million number I had thought that may be FASB was considering some accounting changes that might make the GMIB a little bit more apples-to-apples with some of the other VA writers out there, which would potentially eliminate this asymmetry. Is that something that you're hearing as well and any thoughts on that?

[Anders Malmstrom, Chief Financial Officer]

Yes. This is Anders. Absolutely, its moving towards fair value. I think if I'm right, it will be in 2022 or 2021. So it's coming pretty soon. I think from my personal point of view, I think, that goes in the right direction. I think it's the right way to look at it so it will be much more fair value and you're going to see this gap is going to be much, much closer if not going to go away between operating and net – from that particular item.

[Suneet Kamath, Citi Bank]

Right, which is the majority of, I think what you said [indiscernible]?

[Anders Malmstrom, Chief Financial Officer]

Absolutely. And I think it goes in the right direction, absolutely. And I think it's economic and it's how we look at the business.

[Suneet Kamath, Citi Bank]

Got it. And then sort of related to VA also, I wanted to try to go back to the present value cash flow analysis that you guys provided at the time of the IPO. Our understanding is that includes all of the VA that's in individual and most of the VA in group, which I think is, a little bit different than how other companies sure that. Is it possible to get a sense of what that would look like if you took of the Group Retirement VAs?

[Anders Malmstrom, Chief Financial Officer]

Look, I think, you're absolutely, correct. When we talk about VAs, we take all the VAs to once Individual Retirement and once in Group Retirement. We don't separate them, but if you want to from a cash flow, you can go to account values and make your own assessment where the cash flows are coming from. But obviously the capital requirement is more on the Individual Retirement side than on the Group Retirement side.

[Suneet Kamath, Citi Bank]

In other words, so is the risk profile is more skewed to the Individual Retirement?

[Anders Malmstrom, Chief Financial Officer]

Absolutely.

[Suneet Kamath, Citi Bank]

And may be just last one if I could. On Group Retirement similar to Ryan's question, it seems like the ROCE there I think, 25.4% was generally higher than what we're seeing from other companies I know everyone has a different business mix. But any thoughts to the sustainability of that ROCE?

[Anders Malmstrom, Chief Financial Officer]

Look I think, I mean, you're going to see some swings quarter-over-quarter, as you saw in our case. But I would say, we will be steadily above the 20% range from an ROCE, which is our target. We don't expect to go to 30%, obviously. But I think you're going to see a solid ROCE coming from Group Retirement.

[Suneet Kamath, Citi Bank]

Got it. Thanks.

[Operator]

[Operator Instructions] Our next question comes from the line of Alex Scott with Goldman Sachs, your line is open.

[Alex Scott, Goldman Sachs]

I guess the first question was on the follow-up on NAIC capital reform, I guess one of your peers mentioned they would adopt it early. Or what's your view on that and potentially adopting it early? And I know you gave the sensitivity of 100 point impact from tax reform on the RBC, but do you have any sense of how this new capital framework would impact the RBC?

[Anders Malmstrom, Chief Financial Officer]

Yes. To your question about the early adopting. I think it's early to make a final determination, if you want an early adopt or not. As we said before, the framework is now approved. The committees go through the details, and we now have to implement these details once they have fine. And then we're going to make a decision if you want to early adopt or not. I think the important point on our side is that we're not constrained right now through the standard not to be able to pay dividends.

We can pay dividends, and we actually – we just a state out of the operating entities. So I don't think early adoption would actually changed the way we think about that cash upstream on a going forward basis. So I'm really – I think I want to go to the details once you get the details we have to decide that whether the adoption make sense or not.

To your second question, yes, tax reform, impact of about 13% of our RBC which translates into 100 points. We're not yet there to give a number on the NAIC, but we expect that has an impact on RBC, but there will be reset, I think, in the whole industry of the NAIC reform gets implemented.

[Alex Scott, Goldman Sachs]

And then may be a one follow-up question just on the corporate segment. I know there is sort of lot going on between wealth management there, I think some of the variable annuity reinsurance piece that's in there and there are moving pieces in the quarter’s[ph] interest expense and so forth. Could you help us think about it like on a go-forward basis, what's the reasonable expectation for the corporate loss? And how much volatility around that should we expect?

[Anders Malmstrom, Chief Financial Officer]

Look, I think of that all the restructuring has been done, now you know the biggest change in corporate and other was really the debt. And I think we have now issued the debt. We have the interest cost, we know them. And as you mentioned all the other businesses in there that have some volatility. I think we're pretty much on run rate from a going forward basis, I can expect maybe $10 million plus or minus of that volatility there, and that should give you some guidance.

[Alex Scott, Goldman Sachs]

Okay, thank you.

[Operator]

There are no further questions at this time. I'll turn the call back over to Kevin Molloy, Head of Investor Relations.

[Kevin Molloy, Head-Investor Relations]

Okay. Thank you. Thanks everyone for joining us this morning. As always, if you have any follow-up questions, please don't hesitate to give us a call or e-mail. You can reach us at us at 212-314-2476 or through email at [e-mail]. Thanks and have a great day.

[Operator]

This concludes today's conference call. You may now disconnect.