Equitable Holdings Inc

NYSE:EQH

Earnings Call Analysis

Equitable Holdings Q3 2023 Performance

Equitable Holdings reported a strong Q3 with non-GAAP operating earnings of $413 million, a 16% increase year-over-year, with per-share earnings rising by 15% to $1.30 after adjustments. Net income soared to $1.1 billion. The company recorded $3 billion in net inflows due to high demand for their RILA product. Track for annual cash target of $1.3 billion, with a robust HoldCo cash position enabling $315 million returned to shareholders, aiming at the high end of a 60%-70% payout ratio. Boosted by interest rates at 15-year highs and positive demographics, operating earnings in wealth management climbed over 80%, putting the company ahead of its 2027 earnings target.

Maintaining Positive Net Income Despite Earnings Miss

The company reported positive net income that keeps it in the running for S&P index inclusion. However, despite strong underlying business momentum, Q3 earnings per share (EPS) failed to meet consensus estimates and internal expectations, largely due to one-time factors and less predictable events which led to 'noisy' financial results.

Challenges and Adjustments Impacting Performance

Three major factors influenced this quarter's financials: Returns from alternatives and prepayment income fell $20 million short of expectations, primarily due to underperformance in real estate equity investments which make up 20% of the alternatives portfolio. A completed assumption update led to a favorable $16 million adjustment, reflecting a strategy to integrate immediate experience and limit surprises. Lastly, the quarter's consolidated tax rate came in higher at 22%, against an anticipated 19%, attributable to an unfavorable adjustment in the dividend received deduction. Looking forward, the company is taking steps to mitigate the volatility, including optimizing its tax rate and reassessing reinsurance strategies in the Protection Solution segment.

Segment Performance and Prospects

Despite challenges, the Individual Retirement segment demonstrated strength, with back-to-back quarters of record sales and net flows driven by the spread-based RILA product SCS, attesting to mounting consumer demand for protected equity and secure income solutions. Wealth Management faced a dip in earnings due to decreased summertime sales, but the company anticipates a recovery. Corporate results were less favorable with a loss exceeding expectations, but overall, the company is on track to grow EPS at a 12% to 15% annual rate through 2027, supported by a positive interest rate environment that is aiding yield enhancement targets and cost savings initiatives.

Cash Flow Strength and Capital Management Insight

Strategic business transformations over the past five years have not only expanded the core retirement and asset management markets but also significantly improved earnings, cash flow, and business mix quality. The unregulated nature of the asset and wealth management businesses has been a boon for consistency in cash flow, converting nearly 100% of earnings to cash. Such reliability in cash flow has allowed for increasing the payout target to 60-70% of operating earnings—a 20 percentage point jump since the initial public offering. As regards to capital management, the company continues to generate strong cash, returning significant amounts to shareholders through share repurchases, while maintaining a robust holding company cash balance of $2 billion. Looking forward, the company is on course to meet its $1.3 billion cash flow target for the year.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, my name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Equitable Holdings Third Quarter Earnings Call 2023. [Operator Instructions]

I will now turn the conference over to Erik Bass, Head of Investor Relations. You may begin your conference.

[Erik Bass, executive]

Thank you. Good morning, and welcome to Equitable Holdings Third Quarter 2023 Earnings Call. Material for today's call can be found on our website at ir.equitableholdings.com.

Before we begin, I would like to note that some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. Our results may materially differ from those expressed in or indicated by such forward-looking statements. Please refer to the safe harbor language on Slide 2 of our presentation for additional information.

Joining me on today's call is Mark Pearson, President and Chief Executive Officer of Equitable Holdings; Robin Raju, our Chief Financial Officer; Nick Lane, President of Equitable Financial; Bill Siemers, AllianceBernstein's Interim Chief Financial Officer; and Onur Erzan, Head of AllianceBernstein's Global Client Group and Private Wealth business.

During this call, we will be discussing certain financial measures that are not based on generally accepted accounting principles, also known as non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and related definitions may be found on the Investor Relations portion of our website, in our earnings release, slide presentation, and financial supplement.

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

[Mark Pearson, executive]

Good morning, and thank you for joining today's call. This is a promising time for Equitable and the life insurance industry as the combination of higher interest rates and favorable demographic trends, provides the best backdrop for growth we've seen in well over a decade.

Equitable is particularly well positioned to capitalize on these tailwinds given our unique business model which allows us to monetize all 3 components of the insurance value chain: Product manufacturing; asset management; and distribution.

On Slide 3, we present an overview of the third quarter. Third quarter non-GAAP operating earnings were $413 million or $1.15 per share, up 16% year-over-year, but down 2% compared to the second quarter, modestly below our expectations. Adjusting for notable items in the period, which included lower alternative returns, elevated mortality and a higher tax rate. Non-GAAP operating earnings per share was $1.30, which is up 15% compared to third quarter of last year and up 2% sequentially.

Robin will touch on this in more detail in a few minutes. We continue to benefit from momentum in both our retirement and wealth management businesses with a combined $3 billion of net inflows in the quarter, supported by record demand for our industry-leading buffered annuity and 4,100 proprietary advisers, which enable us to capture distribution margin for our retirement offerings and investment products.

In Asset Management, we were not immune to industry-wide pressures with $1.9 billion in outflows in Quarter 3, but active flows were nearly flat in the quarter, a better result than for most peers. Turning to capital. Our businesses continue to deliver diverse sources of earnings, which ultimately leads to a more predictable cash flow. Year-to date we have generated approximately $1 billion of cash to holdings and remain on track for our $1.3 billion guidance for the year.

Importantly, more than half of our cash flow now comes from nonregulated entities, which makes it more predictable. Our cash generation and holdco cash position of $2 billion continue to support meaningful capital return to shareholders. We returned $315 million in the quarter and over $900 million year-to-date, putting us on track to come in at or above the high end of our 60% to 70% payout ratio target.

Our third quarter results also reflect our annual assumption review, the first under the LDTI accounting framework. The minimal impact to operating results reflects the benefits of our conservative approach to setting assumptions and designing products with a narrow range of outcomes. We continue to focus on driving profitable, organic growth across our businesses, executing against these strategic priorities outlined at our Investor Day, including our yield enhancement and productivity initiatives. We are also benefiting from higher interest rates, which are at levels we haven't experienced in over 15 years and favorable demographics with 11,000 Americans turning 65 each day.

In our general account, higher new money yields and the continued demand for our RILA product furthers the shift in our retirement business towards spread-based earnings. Higher interest rates have also been a tailwind for our Wealth Management segment with revenue on cash balances supporting operating earnings growth of over 80% over prior year quarter. Current interest rate levels put us ahead of plan relative to our 2027 target to double earnings to $200 million per annum.

On Slide 4, I'll touch on the favorable impact of higher interest rates in a bit more detail. We have often talked about our market-neutral balance sheet, which means that we hedge first dollar interest rate exposures and equity market exposures on the guarantees we've made to our clients. This means that we are not making a bet on the direction of markets when we price products. As a result, our RBC has remained in a narrow and comfortable range despite significant volatility in interest rates and markets over the past few years.

This ultimately enables us to drive consistent cash generation and capital return to shareholders. While our balance sheet is neutralized from the impact of interest rate movements, higher rates provide a meaningful tailwind to our earnings and growth outlook. Our retirement product offering is more attractive to clients, evidenced by our second consecutive quarter of record sales and net flows.

Importantly, higher rates also mean better economics for our shareholders and we're generating IRRs above 15% and a record value of new business. As a reminder, strong retirement sales also benefit AB and our Wealth Management business. In our general account, we're investing new money at levels that are 160 basis points above our portfolio yield, which is driving higher net investment income and wider spread.

Finally, we are also realizing a benefit in Wealth Management with increased revenue on cash sweeps supporting strong year-over-year earnings growth. Turning to Slide 5. We highlight the strong results we are seeing across our businesses as we continue to execute against our growth strategy. In Retirement, we reported a record quarter with $1.5 billion of net inflows, a 5% annualized organic growth rate with strong results in individual retirement offsetting typical third quarter seasonality in our Group Retirement segment.

Total premiums were $5.4 billion in the quarter, up 17% year-over-year, led by our industry-leading RILA product with $3.1 billion in premiums, up 37% year-over-year.

In Asset Management, we continue to drive growth in our private markets platform with $8 billion of our initial $10 billion capital commitment from Equitable's general account deployed to date and an additional $10 billion committed at our Investor Day in May, bringing our cumulative commitment to $20 billion.

The acquisition of CarVal, also significantly enhanced AB's offering and private markets AUM has grown 11% year-over-year to $61 billion as of quarter end. Total net outflows at AB of $1.9 billion in the quarter were modest relative to the industry with active flows nearly flat and outpacing peers. Organic growth in the retail channel was attributable to taxable fixed income and municipals and U.S. retail flows have been positive for 12 of the last 13 quarters.

Fixed income performance remained strong with nearly 75% of assets outperforming over the 1- and 3-year periods. In the institutional channel, fixed income and passive outflows offset organic growth in active equities. The pipeline remains strong with $12.5 billion of unfunded mandates and private alternatives comprise more than 80% of the fee base.

Our Wealth Management segment, which is the fastest-growing portion of our business reported 8% annualized organic growth in the quarter, with $1.6 billion of net inflows. Net inflows and market tailwinds over the last 12 months drove 16% year-over-year growth in assets under administration, now $79 billion. While operating earnings are benefiting from higher interest rates, we are also seeing improved adviser productivity, which was up 2% compared to the second quarter of this year. Increasing adviser productivity is a key lever to drive higher wealth management margins, and we are encouraged by the momentum in this business.

I will now turn it over to Robin to provide additional updates on the quarter. Robin?

[Robin Raju, executive]

Thanks, Mark. Turning to Slide 6. I will touch on the results for the third quarter. On a consolidated basis, Equitable Holdings reported non-GAAP operating earnings of $413 million in the quarter or $1.15 per share, up 16% year-over-year. After adjusting for $67 million of unfavorable after-tax notable items and a favorable assumption update of $12 million, non-GAAP operating earnings were $468 million or $1.30 per share, up 15% on a comparable year-over-year per share basis.

We also generated net income of $1.1 billion or $3.02 per share. Under LDTI, every quarter that we have reported has resulted in positive net income. This ensures we remain eligible for inclusion into S&P indices. While pleased with the underlying growth momentum across our business, third quarter EPS came in below consensus expectations and our view of the run rate earnings power for the business. This was a noisy quarter. And on Page 7, I'll walk you through the major moving pieces and how we're thinking about the outlook going forward.

Turning to Page 7. There are 3 items that affected the results across the enterprise. First, alternatives and prepayment income were $20 million below our normal expectation. Our alternative portfolio had an annualized return of 6% in the quarter as solid private equity results were offset by the continued weakness in our real estate equity investments, which represent 20% of the alternative portfolio. As a reminder, we normalized to the low end of our 8% to 12% normalized return expectations.

Looking forward, we expect similar returns in the fourth quarter but project further recovery in performance in 2024. Second, we completed our 2023 assumption update and made some model changes in the third quarter, which resulted in $16 million favorable adjustment. The modest changes reflect our fair value management philosophy, which incorporates emerging experience into our assumptions. This limit surprises like large unlocks for investors.

Lastly, the consolidated tax rate in the quarter was 22%, above our 19% expectations. This quarter, we had an unfavorable dividend received deduction true-up, which drove the higher rate. While taxes can bounce around each quarter, we continue to estimate a 19% consolidated tax rate and a 17% tax rate for the insurance business. We also had a few items that affected specific business segments that I wanted to highlight.

Protection Solutions earnings were $34 million higher than the second quarter, but below our guidance of $50 million to $75 million per quarter near term. Overall, gross mortality claims were close to our updated assumptions but net claims came in higher than expected due to less reinsurance coverage. In a typical quarter, about 15% of our gross claims are covered by reinsurance. But this quarter, we only had coverage on 10%, this was about a $23 million after-tax variance. Adjusted for which segment earnings would have been at the lower end of our expected range. We still viewed $50 million to $75 million as our best estimate of near-term quarterly earnings power of the business and we expect this to move higher over time.

As a reminder, while we expect some continued drag from a pull-forward and mortality in the next few quarters, this has a minimal impact on cash generation since we have already adjusted the statutory assumptions to account for the increased COVID endemic related mortality. I would also note, that we had a modest positive adjustment from our actuarial assumption update, underscoring the conservative assumptions for our block.

Moving forward, we will explore ways to reduce the earnings volatility in the Protection Solutions segment, such as by adding more reinsurance or reducing retention limits. In Individual Retirement, we delivered a second straight quarter of record sales in net flows, highlighting the growing consumer demand for protected equity and secure income solutions. Total sales were $3.8 billion, and net flows were $1.7 billion, which continues to be driven by our spread-based RILA product, SCS. This momentum bodes well for the future growth in Individual Retirement earnings and cash generation.

However, one of the dynamics we've seen is that as the terms we can offer, the policyholders improves with higher interest rates. There is some increased lapse activity in our in-force block, which we have factored into our near-term assumptions. Under GAAP accounting, this requires us to amortize more DAC, and we expect quarterly amortization expense to be roughly $5 million higher going forward. While this is a modest near-term headwind for earnings, I would emphasize 2 things.

One, as we mentioned earlier, we're seeing record net flows and the growth in this block will have a much bigger impact on earnings over time. Secondly, DAC amortization is a noncash expense, that is no change in projected cash flow for the business. Overall, we continue to be very bullish on the outlook for Individual Retirement.

In Wealth Management, we collected $5 million of lower commission related earnings this quarter due to a lower level of 403(b) sales. This corresponds with the seasonality in our Group Retirement business related to teachers being off during the summer months. Going forward, you should assume some seasonal pressure on the wealth management results in the third quarter. But we viewed $45 million of earnings as a better run rate to think about for the fourth quarter.

Finally, on Corporate and Other, we generated a normalized loss of $109 million which is worse than our expected quarterly run rate of roughly $100 million This is due to timing of some expenses. As a backdrop, we remain confident in our ability to grow EPS at 12% to 15% annual rate through 2027. Across all our businesses, we continue to control the controllables. We are ahead of our plan for achieving the $110 million general account yield enhancement target helped by the higher rate environment.

Additionally, we're ahead of schedule on our $150 million expense savings target and expect to capture $30 million run rate of savings this year.

Finally, as Mark touched on earlier, the higher rate environment provides a strong tailwind for new business. Across all 3 retirement businesses, we are running well ahead of our projection for D&B in 2023, which will contribute to future earnings and cash flow.

Turning to Slide 8. Let's dive deeper into the diverse sources of earnings that lead to our consistent cash generation. Our deliberate actions over the last 5 years to shrink our legacy block, grow our wealth management and private markets business and expand our core retirement and asset management markets have led us to meaningfully grow earnings and cash flows, while also shifting to a higher-quality mix. At the same time, we consistently convert earnings to cash flows in our retirement business for 2 reasons.

First, the business is strongly capitalized and tightly hedged, ensuring our balance sheet is market neutral. This enables our earnings and cash to remain stable through volatile markets. Second, $200 million of the cash flows from these businesses are unregulated and go directly to the holding company through our investment management contracts. As a result, our retirement cash flows are much more consistent and higher quality than other retirement players in the industry.

At the same time, we have 2 high-quality unregulated businesses in asset and wealth management that comprise the remaining 40% of our anticipated $1.3 billion of cash flows this year. This business converts nearly 100% of their earnings to cash flow. The quality and durability of cash flows enabled us to increase our payout target earlier this year to 60% to 70% of operating earnings. This is a 20 percentage point increase since our IPO, demonstrating a significant shift in our business over time.

This leads me to our next slide where I'll dive deeper into our capital management program. Turning to Slide 9. Our strong cash generation continues to drive shareholder value. In the quarter, we returned $315 million, which includes $238 million of share repurchases, resulting in an $8 million share count reduction. Over the last 12 months, we have returned 1.1 billion to shareholders, reducing our shares outstanding by 8%. At the same time, our holding company cash increased to $2 billion after taking a dividend from the insurance subsidiary.

Our cash position gives us confidence to continue paying out 60% to 70% of non-GAAP operating earnings, even in volatile markets. It also enables us to play offense and be opportunistic rather than being on the defense. Year-to-date, we have upstreamed $1 billion of dividends to the holding company and remain confident that we will hit our $1.3 billion target for the year.

In the fourth quarter, we will receive unregulated dividends from AllianceBernstein, our wealth management business and our investment management contract with the retirement company. From an investor perspective, we believe that Equitable Holdings presents an excellent value proposition. After paying interest expense, we expect to generate $1.1 billion of distributable free cash flow, which represents a 12% free cash flow yield. Our businesses have strong organic growth potential and we expect cash generation to increase by 50% to $2 billion by 2027.

With that, I will now turn the call back to Mark for closing remarks. Mark?

[Mark Pearson, executive]

Thanks, Robin. In closing, we continue to benefit from momentum in both our retirement and wealth management businesses, with a combined $3 billion of net inflows in the quarter. Our balance sheet and capital position remained robust with conservative assumptions resulting in no material assumption review impact.

Our cash generation and HoldCo cash position of $2 billion continues to support consistent capital return to shareholders, tracking at or above the high end of our 60% to 70% target payout ratio. We remain on track for the financial guidance we outlined at our Investor Day as we continue to focus on driving growth across our businesses while capitalizing on the tailwind provided by higher interest rates.

With that, we'll now open the line for questions.

[Operator]

[Operator Instructions]

Your first question comes from the line of Elyse Greenspan from Wells Fargo.

[Elyse Greenspan, analyst]

My first question is on Protection Solutions. So if in the fourth quarter, if mortality is expected to still remain elevated. And I know in the slides, you guys pointed to alternative results being similar to the Q3 sequentially. So when does that imply that in the fourth quarter, you would still fall below that $50 million to $75 million target? Or is there something I'm missing in there? Or is there normalizing on the reinsurance side? I'm just trying to piece that all together.

[Robin Raju, executive]

Thanks, Elyse. So for protection in the fourth quarter, we continue to expect to see some of the pull forward come through. That would put us in the range of the $50 million to $75 million guidance. We continue to expect that range over the near term in Protection Solutions. And then obviously, some of the alts would come against that as well. And so from a normalized basis, we should be at the lower end of the range when considering alts as long as we remain at that midpoint. In the third quarter, to give you comfort, as you see, on a normalized basis, we are at the lower end of the range of $49 million or $50 million. We continue to see good momentum and improvement in actually gross claims. But as you noted, we did see some of the reinsurance coming lower than expected. We're at 10% in the quarter versus 15% historically and we'd expect that to normalize going forward as well.

But a reminder, again, the pull forward and what we see in the range has no impact on the cash flows and the cash flows continue to grow strongly overall across our businesses.

[Elyse Greenspan, analyst]

And then there was like around a $1.5 billion impact to net income for the VA product feature line this quarter. I had thought that, that would be smoother under LDTI, can you just give some color on what went on there in the quarter.

[Robin Raju, executive]

Sure. So we -- as I mentioned on the call, this is the seventh straight quarter that we've seen positive net income post LDTI. And so we're comforted and continuing to see positive results there. On our hedging program, we do hedge with the general account and some on the interest rate side. So the general account flows through AOCI versus the liability flowing through the VA product features and then we do that purposely to avoid statutory volatility, and so we can have consistent capital return. So it should be in line with the sensitivity that we've given for interest rates as it relates to LDTI.

[Operator]

Your next question comes from the line of Tom Gallagher from EVR.

[Thomas Gallagher, analyst]

Robin, just following up on your comment on considering reinsurance, additional reinsurance purchases on your protection block to lower volatility, can you talk a little bit about what you're considering there? what pricing is like? is that likely to lower the earnings in the segment? Or would you not see -- would you not expect it to have much of an impact?

[Robin Raju, executive]

Sure, Tom. Look, for protection, we're not -- we're obviously not happy with the results for the business. And so therefore, we are exploring options to mitigate volatility of the results. And we'd hope to mitigate it by hopefully at some point in the first half of next year. Certainly, in the -- if you look relative to peers, we've historically had higher retention limits on that business. That's a function of us being a subsidiary part of a big company previously before our IPO. And so we have to explore those retention limits. Obviously, if we give up and we reduce the volatility, you're giving up some long-term economic returns. So that's the trade-off that we'll continue to assess. But we're in discussions with reinsurers and assessing those trade-offs.

[Thomas Gallagher, analyst]

Okay. And any -- I know it's early, it just came out yesterday, but any initial thoughts on this new Department of Labor proposal on retirement and how that might impact either the industry or Equitable?

[Nicholas Lane, executive]

Sure, Tom. This is Nick. We are still digesting the almost 500 pages. With that said, initial reading, the main for us from the DOL is that all rollovers from ERISA 401(k) plans will be considered fiduciary activities.

And while in spirit, this aligns with the 2016 rule. What is different in this iteration, it does not include any private rights of actions. And since 2016, a majority of firms have revamped their compliance processes to align with the existing SEC and stay best interest in fiduciary rules.

What does this mean for the industry? The biggest impact appears to be that nonsecurity licensed insurance agents that sell nonregistered products like fixed index annuities will now be covered.

There's also some interesting language pulling robo-advisers in scope. For Equitable, we see no material impact given the investments we've made and the changing landscape. As a reminder, Equitable advisers operates today under the higher SEC Reg BI fiduciary standards. 403(b) plans are not in scope and our individual annuity products or registered product, registered product securities sold through registered broker-dealer channels.

Going forward, we'll continue to review the details. And I do expect there to be significant industry comments over the next 60-day period. On specific provisions that will provide more clarity.

[Operator]

Your next question comes from the line of Jimmy Bhullar from JPMorgan.

[Jamminder Bhullar, analyst]

So first, just a question on AB. Should we assume that flows in the business and obviously, other asset managers have been affected by this, but should we assume the flows are going to be challenging until there's a little bit more stability in interest rates in the equity market? Or are there other things that suggest that things might improve in your business in the near term?

[Onur Erzan, executive]

Thanks, Jimmy. This is Onur Erzan from AB. As you pointed out, it has been a tough environment. That said, if you look at our active flows in the third quarter, we were roughly flat, which was better than other peers that reported so far. So we feel good about our relative performance on the business. And when we look at the growth engines, we feel pretty good about the momentum. We were top 5% in equities and [ Munis ] in the U.S. retail, top 3% in cross-border taxable fixed income. So definitely feeling good about those, even in institutional, which led to the outflows overall, including passive, actually institutional equities had an annualized organic growth rate of 7%.

So we feel confident about the diversity of our growth engines. It's -- and finally, our institutional pipeline remains very strong at $12 billion, and the effective fee rate on that is 3x the effective fee rate we have today in the institutional business, so definitely revenue accretive. So we have a lot of strength to feel good about. That said, we cannot predict the rates and the rate uncertainty definitely keeps the investors on the sidelines and skews the flows towards money market funds and low risk, low fee products.

So cannot time it perfectly, feel confident in terms of our ability to perform well, but definitely, there could be some sluggish growth depending on the rate environment.

[Jamminder Bhullar, analyst]

And then, Robin, on the protection, I think earnings have been weaker than your estimates or your guidance for 6 of the past 7 quarters, and there's always some reason, obviously, for that, and it's varied over time. But what still gives you the confidence that $50 million to $75 million is the right range should -- or have you thought about lowering the range given results in the last several quarters?

[Robin Raju, executive]

Sure, Jimmy, you're right. It's come in below our expectations over the last few periods. But on a normalized basis for those -- for the reinsurance that I mentioned, it did come in at the lower end of our range, even given -- even taking into account the alternative portfolio. So seeing that come through and knowing if we went back to our 15% reinsurance coverage that we've had, we would have been at the lower end of the range and also seeing gross claims improved quarter-over-quarter. That's what gives us confidence in the range, but we're not just relying on confidence. We're going to obviously explore actions to reduce the volatility of the business because, honestly, it's a small part of Equitable Holdings. We generated $1.3 billion of cash flows. It's growing at $2 billion of cash flows and we're answering questions about volatility in a smaller segment here. So we look to reduce that going forward and get the focus back on how we're growing cash flows by 50% to 2027.

[Operator]

Your next question comes from the line of Alex Scott from Goldman Sachs.

[Taylor Scott, analyst]

First one I had just a quick follow-up on the comments on the fiduciary rule. I think you mentioned there was no private right of action. I noticed in the -- I thought there was an enforcement section that mentioned the private right of action. I think there may be a nuance there with like Title 1 versus Title 2 or something, but just interested in that piece of your comment. And what your read of that language on enforcement was?

[Nicholas Lane, executive]

Yes. At this time, we would view it as a nuance, but we'll be coming back with more details on that.

[Taylor Scott, analyst]

Okay. Understood. Second question I had was just on the environment for RILA products and competition. Are you seeing any more competition coming in from the private equity players? Are they starting to get any more traction in some of the distribution channels, where I think you all haven't, had they competed directly with them? Are you still able to avoid some of that pressure? Is there a sort of lagging more into private debt allocations and able to provide pretty strong pricing.

[Nicholas Lane, executive]

Yes. At this time and for the comments Robin made, we had a record quarter in terms of flows and sales. Competitive dynamics continue to be positive vis-a-vis other markets given our edge in terms of being a pioneer in the market, given our distribution footprint, both Equitable advisers and privileged third party. And given our innovation in the space, we think we're uniquely captured to capture a disproportionate share of the value there.

[Mark Pearson, executive]

Nick, it's still the case that it's sort of 8 players in the market there against nearly 50 players in the fixed annuity market. So we are aware, [ Alex ] -- the possible new entrants. But at the moment, we don't see it and pricing remains very, very strong.

[Operator]

Your next question comes from the line of Suneet Kamath from Jefferies.

[Suneet Kamath, analyst]

So Mark, I think in your closing comments, you talked about being opportunistic with capital. And clearly, you have a lot of capital at the holding company. Is one way we might see that is you traveling above the 60% to 70% payout target for some period of time as we move into 2024.

[Mark Pearson, executive]

We're not changing any guidance, but if you look in this last quarter, we actually did travel up slightly higher than that particular ratio. I think as both Robin and I, have said with a healthy balance sheet as we have now and the excess cash that does enable us to look at opportunities. I mean, the most recent one we did, of course, 15 months or so ago was CarVal. That really was a way to accelerate our strategy in the build-out of alts. That remains an area where we're very interested in and we remain very interested in wealth management and growing distribution in that size.

So all I would say, Suneet, for the right deal at the right price and where we can see accretion for our shareholders, we'll be very interested in looking at them. But it's not our strategy. Our strategy remains to build out those businesses. And if we see a way to accelerate it, we will sort of look at it.

[Suneet Kamath, analyst]

Got it. Makes sense. And then I guess, as we think about the build-out of the private asset portfolio within the general account, I think you're marching towards that sort of $25 billion, how should we think about the capital requirements associated with that growth in privates?

[Robin Raju, executive]

Sure. So we're about 80% of the year through and getting to our $10 billion for the year. And so we have confidence in that. And then we have another $10 billion commitment to AB's business. And as you know, the big -- the big surprise there is AB growing that to almost $90 billion by 2027 and it being 20% of the revenues at AllianceBernstein. So that's the big price for EQH.

Obviously, as our business grows, we have to hold capital for the risk that we take. But this is coming with the growth in our overall business, and we're not fundamentally shifting the mix that we see. So we don't see a significant capital constraint as a result in the movement of the general account. And so for -- historically, if you look back, for every dollar that we put in, into AllianceBernstein, they've grown $4 worth of third-party money. So we think it's a great value proposition for shareholders without constraining capital.

[Suneet Kamath, analyst]

Sorry. So the capital requirements on the privates are not materially different than what you guys were holding before?

[Robin Raju, executive]

No. If you look at our business mix today in terms of what we have in private credit and what we have in alternatives, that mix in the general account isn't shifting significantly from now to 2027. So it's coming -- a lot of it's coming from growth in our underlying business.

[Operator]

Your next question comes from the line of Tracy Benguigui from Barclays.

[Tracy Dolin-Benguigui, analyst]

Going back to Protection in your comment that gross claims were 10% reinsured versus your 15% average. Did the lower reinsurance recovery have anything to do with risk recapture maybe under a YRT treaty.

[Robin Raju, executive]

No, it's just a function of lower high base amount claims in the quarter.

[Tracy Dolin-Benguigui, analyst]

Okay. Got it. And just wondering on the comment about normalizing going forward, do you think the face amount might be lower? Or is your normalized recovery dependent upon the comment that you need to add more reinsurance or reduced retention limit?

[Robin Raju, executive]

No. It has nothing to do with the actions that we take. If you look in the appendix, we put a slide in for the Protection Solutions business and it shows the historical reinsurance coverage that we had. And on average, we've been about 15% and in the quarter, you can see it sticks out to you at 10% in the quarter. So we'd assume that we get back to that historical average just based on the mix of business that we have. And that should put us within that $50 million to $75 million guidance that we've given.

[Tracy Dolin-Benguigui, analyst]

Okay. I did see that. So your comment was just based on your track record.

[Robin Raju, executive]

Correct.

[Tracy Dolin-Benguigui, analyst]

Yes. Okay. But also just to be sure, did your capital returns this quarter exceed your 60% to 70% payout because of just nuances with GAAP accounting like higher DAC. It doesn't translate to statutory cash flow generation?

[Robin Raju, executive]

That's right. And in the quarter, on a reported basis, we paid more than the 60% to 70% payout ratio. On a normalized basis, we paid at the higher end of that range and continue to see returning cash to shareholders as a great way to drive value, given where the stock trades today. And so we'll continue to return capital to shareholders as we see fit.

[Operator]

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

[Wilma Jackson Burdis, analyst]

The assumption review. Could you just go into a little bit more detail in the assumption review, it's interesting to see a favorable assumption review, especially it seemed like it was related to lapse and utilization.

[Robin Raju, executive]

Sure. I would take the assumptions review in aggregate the way I look at it. And in aggregate, the net income impacts of the assumption review across all of our business was $4 million at the end, and that's why you should expect because that's how we manage our assumptions. We manage on a conservative basis. We move to emerging experience and we do not want to surprise investors with negative unlocks that are large, they're distracting and they're not represented in our core business.

So if you look across every single business line that we have. We update assumptions on an annual basis and move towards emerging experience. So you're going to see ins and outs within every single assumption. But at the end of the day, it rounds to a very small number.

[Wilma Jackson Burdis, analyst]

And then -- well, could you talk about the opportunities to acquire Wealth Management teams versus the ability to grow organically?

[Nicholas Lane, executive]

Sure. Our model is succinct because we both bring in new people into the industry and grow them into wealth managers. We've amplified that through our experienced adviser initiatives, which would be looking for a supported independence model. The opportunity for a differentiated advice model, the platform that gives them open architecture to a full suite of fee-based reoccurring investment products, plus our strength of our retirement platform. Year-to-date, we've recruited roughly 80 advisers on the experience side. So we see traction on that side.

[Operator]

Your next question comes from the line of Maxwell Fritscher from Truist Securities.

[Maxwell Fritscher, analyst]

I'm calling in for Mark Hughes. I joined a little late, so I apologize if you covered this. But in Wealth Management, you've had positive year-over-year sales growth in Advisory after contractions in the first 2 quarters of the year and strong growth in brokerage and direct. Is there anything in particular you're seeing there that you can share? I know you had just mentioned recruiting, but anything else?

[Nicholas Lane, executive]

Yes. Structurally in the industry, you've seen with interest rates up, people move cash into fixed maturity options which are more on the -- which aren't fee-based investments. So that shifted some of it from the fee-based investment to the structure maturities. As Robin highlighted, we continue to see growth in our reoccurring fee-based investment accounts in terms of positive net flows, and that continues to be a growing percentage of our AUA.

[Operator]

Your next question comes from the line of Mike Ward from Citi.

[Michael Ward, analyst]

Maybe back to the regulatory landscape. I know the focus has been on the DOL. I think in some of the SEC priorities for '24 might include variable annuities too. Just wondering if you had any inklings or communications on what they're interested there.

[Nicholas Lane, executive]

At this time, the SEC has been focused on implementation of Reg BI in the interpretations of that regulation. That's been the major push. We'll have to come back to you on any specific variable annuity.

[Michael Ward, analyst]

Okay. I know it's really. And then just a second on some of the good guys and the net flow metrics. I think some areas like private credit have been pretty strong in helping you guys strategically be dug into this at the Investor Day. What I'm wondering is kind of how the outlook for these asset classes might change, if and when we get to a point of declining interest rates? And how do you guys sort of think through that.

[Onur Erzan, executive]

Mike, it's again Onur from AB. Yes, we feel pretty good about the outlook for our private alternatives platform. We have roughly $14 billion in dry powder there. So we can definitely deploy capital across all of our strategies, ranging from real estate debt to corporate lending and CarVal. In terms of the declining rates, first of all, it's hard to predict when that's going to happen. I think the base case seems to suggest it's more high for longer. But even in a relatively lower rate scenario, the attractiveness of private credit remains strong because we have a lot of floating rate exposures, but also you have the ability to go with fixed and we have seen this through the market cycle because if you think about history, we had these strategies depending on the strategy, except CarVal, going back to 2012, 2014 and we have generated consistent net flows, regardless of the interest rate environment. So it's pretty rate agnostic. So we believe the momentum will continue.

[Operator]

This concludes today's conference call. Thank you for your participation, and you may now disconnect.