Good morning. I'm Tracy Benguigui, Insurance Analyst at Barclays. I'm pleased to host this fireside session with Mark Pearson, CEO of Equitable. We have a lot to cover, but I'll just remind some folks some housekeeping items. We could submit questions up on your screen. We will also be looking at some polling questions, which is the survey button. We have about 40 minutes dedicated for this session. We will take the audience questions the last 10 minutes. With that, I'm going to turn it over to Mark for some opening remarks. Morning, Tracy. Good morning, everyone. Thank you for having me today, and thank you for joining. It's remarkable, isn't it? This is the second Barclays Global Financial Services Conference I've held remotely. I'd like to start my early comments by just sending out my thanks and saying how proud I am of the Equitable team, how they've responded to these unprecedented times. Despite those external challenges, we have achieved all of our three-year financial targets we set at the time of the IPO, and we're in a strong position for the future. Since the IPO in May 2018, our total shareholder return is up 67%, well ahead of our core peer average of 36% at the end of August. I think this is made possible by four key areas that set Equitable apart from others, and these drive our ability to generate value. First, our stable and predictable cash flow generation. It's about $1.5 billion a year from our operating subsidiaries, of which 50% will be from unregulated entities going forward. Second, our business model. We have leading positions in retirement and also asset management through our subsidiary, AllianceBernstein. AB has been performing exceptionally well with 17 consecutive quarters now of positive active equity net of redemption. Most importantly, the synergies between Equitable and AllianceBernstein, meaning we participate in the full value chain and can find ways to find better solutions for our clients. Thirdly, our affiliated distribution. We have over 4,300 Equitable Advisors and a broad range of third-party partnerships. This provides us with stability and privileged access to clients. I think in this time of a lot of market uncertainty, we have the opportunity to design economically sound products in partnership with our affiliated distribution and test them in the marketplace. Fourth, I think what sets Equitable apart is our economic risk management framework. This is evidenced recently by our landmark VA reinsurance transaction, which reduced two-thirds of our tail risk and our comprehensive hedging program, all based on a fair value approach. Looking ahead, our focus is to use these strengths to drive shareholder value in our core capital-light businesses. That is leading positions we have in the VA market. We're the number one provider of retirement plans to teachers in the K through 12 market, with approximately 1 million life clients. Of course, our investment in AllianceBernstein, which has been a top-performing asset manager, providing one-third of the $1.5 billion cash we generate each year. We're also starting to see additional growth from our nascent businesses in wealth management, employee benefits, and alternative investment strategies. We have plenty of opportunities to grow that cash regime. In addition to running our business, we want to contribute and lead in development of our ESG program and contribute to the ongoing debate to make our industry healthy and strong. We think the upcoming LDTI change is a step in the right direction towards transparency and fair value reserving, we'll continue to advocate for fair value reserving because we believe it's the right thing to do for clients and shareholders. Thank you for the chance, Tracy, to have these opening comments. I'll hand it now back to you. Thank you, Mark. We're going to look at many of the themes that you just discussed. I guess I'll start with a topic that's near and dear to your heart, interest rates. I'm curious to hear your forecast. How quickly do you think the Fed will begin tapering and institute rate hikes? Does your interest rate forecast change your hedging philosophy, or are you sticking with your preference to be immune to interest rate movements? Yes, this is such an important subject for the insurance industry. It's critical for shareholder returns, for confidence in our industry, and for the protection of policyholders. Tracy, we approach interest rates with humility. We have no superior knowledge that enables us to predict where interest rates will be tomorrow, let alone 10, 20, 30 years' time. The insurance industry is a unique industry. We make promises that last for decades, protecting families, enabling people to retire with dignity, allowing people to have peace of mind to live their lives. In order to do this, the industry has to be strong and properly reserved. Our position is, just as we set aside prudent reserves on mortality and morbidity, we believe that exposure to interest rates should be reflected in proper reserving of any life company. For us, we look at the forward curve, what's available in the market, including negative rates, to set our economic reserves and run our hedge program to mitigate interest rate exposure. I've been working more than 40 years now, there's no evidence to me that there's an interest rate cycle or reversion to me that I can see. I don't think the industry should be built in reliance of a key driver increasing that it doesn't change. To your point, we're aware that the Federal Reserve officials have indicated potential plans to pull back the pace of their monthly bond purchases, there's still many uncertainties in the market. The latest Delta variant, for example. We'll continue to manage our business based on economic realities. We'll continue to be fully reserved, and we'll continue to run our hedge program so that we're fully immunized on interest rate exposure against our economic. We are not reliant on rising interest rates to meet our commitments to shareholders or to policyholders. Got it. On this topic, Equitable has been quite vocal about the industry practice of using reversion to the mean in formulating long-term rate assumptions. While the last time most industry participants updated their assumptions was in the third quarter of 2020, Equitable actually accelerated its review back in the trough at the first quarter of last year, resulting in Equitable taking down long-term rate assumptions to 2.25%. Even though interest rates are a much higher spot now than 18 months ago, how are you thinking about your lower rate assumption? Yes, rates are higher, but I think we should put it in context. I mean, the 10-year treasuries are around 1.3% now, 70 or so basis points higher than the all-time lows. Yes, they've come up, but still extremely low by historical standards. Our management of the business is not going to change. Our strategy is to manage to the true economics using market rates that we hedge to. Yes, for GAAP, we have a 2.25 assumption, one of the lowest in the industry. For statutory, which drives our cash position, we reflect hedging, which should therefore correct and should have an effect. I'm aware that some companies are managing to so-called reversion to mean of above 3%. As I said, we're very humble on this, that may be correct, we don't know. If it isn't correct, it will pressure the industry in the future. We prefer not to expose investors and policyholders to aggressive assumptions about market risk. I think we really have a duty, insurance companies have a duty to shareholders and policyholders. I think anybody reliant on rates rising significantly, and not hedging against this, should simply reflect this risk in the capital they set aside. That's our position. Yeah. Equitable has been supportive of NAIC's efforts on the new VA Economic Scenario Generator. Can you provide some context of what you like and any drawbacks for Equitable? Yeah. We are strong supporters of the work the NAIC is doing to develop a new Economic Scenario Generator. It will provide a wider range of outcomes, which we believe is more realistic of the future. The old generator, the American Academy of Actuaries generator, is just out of date. All 10,000 scenarios of interest rates rising. This creates a bit of a moral risk out there of maybe people devoting resources to model the hedge program to look good within the Economic Scenario Generator rather than to adequately protect and hold reserves for the future. We are a strong advocate of the NAIC Economic Scenario Generator. As I mentioned in my opening, Tracy, strong supporter of the new LDTI accounting framework. I think I feel very strongly that the industry has to get to a position of transparency and comparability and avoid the likelihood of surprises that have hurt investors in the past. Quite frankly, it's amazing that this is even a debate. Surely reserves and capital should be set aside when there is an exposure to risk, whether that risk is mortality, morbidity, credit, or interest rates. We've actually done some work on this, and maybe you could clarify for us. I guess it's my impression that the NAIC is proposing a hybrid approach. The 3.25% statutory median is sticking, like there was only changes to reflect the universe's scenarios or calibrations. Is that a fair way to look at it? Yeah. I've seen the hybrid commentary. Discussions are still ongoing, as you know. Look, we appreciate that the NAIC has recognized the need for more lower for longer scenarios, and to incorporate those in more realistic interest rate assumptions. They've also included increased volatility and broaden the range of interest rates in the scenarios. I mean, to be clear, lower for longer scenarios means the industry will have to hold more capital for any open interest rate exposure. This really comes to my point. We continue to advocate for frameworks that promote fair value reserving, as we believe that this is in the best interest of policyholder shareholders and the industry as a whole. Okay, maybe we should move on to Reg 213. I know that's top of mind for many investors. Equitable has reached an important milestone by entering into a permitted practice with the New York DFS on Reg 213, which essentially allows Equitable to phase the impact of reserving rules over five years. While this achievement provides some breathing room, Equitable still has a lot to do. Can you recap for us the tools at your disposal and what progress you have made? Thanks. I'd be happy to. Yes, we've been working very closely with the DFS, and they were helpful in providing the permitted practice for what are redundant statutory reserves. We also start from a very strong RBC of 450 and surplus cash of $2.5 billion at the holdco. There's no immediate concern about meeting our current target payout ratio of 50%-60%. I mentioned a couple of times today, we manage the business to economic fair value, and we know the importance of cash returns to our shareholders. Reg 213, unfortunately, has unintended consequences resulting in redundant statutory reserves, i.e., higher than economic for our New York domiciled business. We're taking three actions to address this one. One, increasing the percentage of cash flows from unregulated entities from 35%-50%. We did this through internal restructuring actions. We're pursuing internal and external reinsurance. We're targeting 90% of new business to be written outside of our New York insurance company by the end of 2022. These are all within our control to execute. We don't need to rely on the DFS for any of this. To date, we've completed some of the internal restructuring, so we've increased unregulated cash flows. We hope to be in a position shortly to advise the market on further initiatives we've completed. Bottom line, these actions, along with the $2.5 billion cash at the holdco, strong RBC ratio, strong economic coverage ratio, no threat to our cash payouts. We're moving on with the management actions to accelerate the release of the redundant reserves. How should we be thinking about your statutory dividend capacity under the lens of this permitted practice 5-year phase-in? Our strategy really ensures that we have a broad range of stable sources of capital to support our guidance to the market. If you take the broad mix of the business and our economic reserving, we generate $1.5 billion cash annually, which is roughly a 50%-60% conversion of operating profits. Approximately one-third of the sources of capital, one-third of the $1.5 billion comes from AllianceBernstein, our asset management subsidiary. They provide unregulated dividends of $500 million a year, which kind of sets our floor. We've consistently, in the past, been able to upstream approximately $1 billion annually from our regulated life entities. As a reminder, on years we can't take dividends, we're still generating the cash. We're not losing it. As I mentioned a minute ago, we're taking management actions which will largely offset the negative impact of the unwinding of the economic practice, and this will ultimately decrease our reliance on dividends from our New York insurance entity. An example of that, some of the services for the separate account, which were previously completed by the insurance company, will now be managed by a new internal asset management company, Equitable Investment Management, increasing the unregulated cash flows from 35% up to 50%. Under normal conditions, we would expect to upstream approximately $1.5 billion from our subsidiaries, with half from unregulated entities. A dividend is not needed for next year's payout ratio. We already have the cash. Okay, great. Maybe based on some of the tools at your disposal, it's probably important to talk about block sales. Yes. As part of Reg 213 mitigation plan, you mentioned reinsurance as a management action. How do you think about potential reinsurance opportunities? Well, just to remind, we were industry leader in managing the complex liabilities associated with legacy VA blocks, evidenced by the landmark reinsurance transaction we completed with Venerable. We'll continue to look for innovative way to use reinsurance to improve shareholder returns, including ways to accelerate the pace of Reg 213 redundant reserves. Any in-force block is a potential option, but it's important that I note for investors, any action we pursue will not impair our economic balance sheet as we look to solve an uneconomic accounting issue. Our core principles remain unchanged. We'll continue to manage on economic basis, deliver on that 50%-60% payout ratio, and focus on long-term value creation. Now with Venerable, I think it took 12 months of discussions to get to the point of making an announcement and then several months after that to close a deal. Is it fair to say that since you've already did a lot of groundwork with Venerable transaction, you can transact quicker for future deals for Reg 213? Yeah. It did take the 12 months. I mean, it was a pivotal milestone for us in the industry. First of its kind, very complex, got a comfort trust in place and the investment criteria and the hedging criteria were met Important to that transaction. This really was the culmination of a decade-long risk management program driven by that fair value framework. In Venerable, backed by Apollo, we found a partner that validated, if you like, our economic reserve risk management framework, and we got a positive ceding commission out of it. It's always hard to comment on timeline of potential transactions, but the first of any first of its kind generally takes longer. I just remain confident we can mitigate the impacts of the regulations, but more than that, really look for ways to add shareholder value. Great. When entering into any new block transaction, how important is it for AB to be the preferred asset manager when evaluating a potential transaction? Right. Well, first and foremost, the criteria is that it has to make economic sense, resulting in an accretive outcome for us. However, in any deal, we'd look to take the opportunity to support AB. They've been an extremely beneficial partner to Equitable and can add value for others in the industry. AB has great investment capabilities, proven track record now of growing its private alts platform. This is all the reason more for us and others in the industry to select AB as a preferred asset manager for these types of transactions. AB's been a significant driver of growth for us, and we have longstanding mutually beneficial relationship. The business is great for us both strategically and financially. We're confident that the synergies we see between the two entities will continue to generate value for both sets of shareholders. Bottom line, we would make sure any deal made economic sense, but of course, we would look to support AB when the opportunity is economically appropriate. Equitable compete with the PE-backed insurers who may operate under different capital requirement mandates. Who can excel at privately sourced asset origination capabilities, an equation that could more effectively manage long-dated insurance risk as permanent sources of capital. That is an interesting topic, isn't it? Obviously a lot of activity in the insurance market for PE players, which we also contributed to through our deal with Equitable. Maybe I break it down in terms of competing for investors and competing for clients. PE-backed insurers provide a different proposition to investors. Many do have privately sourced asset origination capabilities and innovative investment structures, which offer the potential for enhanced returns, but through lower asset quality compared to a, let's say, traditional life insurer. I think what we're excited about is finding good quality private investment opportunities to enhance yields for our shareholders on policy. Having an asset manager subsidiary with AB's pedigree and track record in building out these alternates is a real strength of our business. Our proposition to investors is to provide attractive risk-weighted returns and consistent cash generation. In terms of competing with PE-backed firms for attracting new clients. They are most impactful in parts of the industry we do not really participate in, like fixed annuities. Equitable provides advice, investment, and insurance solutions. Through our affiliated distribution, we have a low-cost source of funds without having to rely on lower asset quality investment portfolios. With our affiliated distribution with Equitable, we're sort of marrying product and advice to deliver value for the client. We're not forced to rely on pricing alone to win sales. We take a much more holistic planning to it. We'll continue to offer good advice to our clients, attractive returns to shareholders. We'll design products on an economically sound basis. We'll take a fair value approach. By that, Tracy, I mean, we're going to look through the regulatory capital, which regulatory capital in all markets can sometimes lag investment innovation. Our goal will be to seek attractive risk-weighted, risk-adjusted returns for our shareholders. Turn some attention to AB. It seems like Equitable's strategic alignment with AB is growing, given your recent commitment to add $10 billion of GA assets to AB's illiquid platform, which helps Equitable's portfolio optimization efforts basically adds $180 million NII by 2023. It adds fee income to AB, and it attracts other third-party investors. I guess my question is, looking at GA optimization and AB's role there, could you highlight anticipated changes in your asset allocation? Yeah. It's correct. The strategic alignment with AB is growing, and we see a lot of value there. Just a reminder, AB manages $120 billion of assets for Equitable, 70% of the general account and 30% of the separate account. As you said, we are committing $10 billion of general account assets to help build out these higher multiple businesses, attract third-party capital, and that will translate to greater earnings potential for AB and EQH. AB has a good track record here. For every dollar of seed capital we have put into AB, they have been able to attract four additional dollars from third parties. The seeding is really working for these particular businesses. We have a great track record. With regards to our general account, we completed the first phase of what we call the optimization. We delivered $240 million of incremental annual yield, $80 million or so above our target. That was really a shift from treasuries to public corporates. We are now entering the second phase, leveraging AB's investment capabilities to capture the liquidity premium, and that is moving from public corporates to private credit, structured assets and alternatives. We are going to do so without sacrificing quality. As a result of this, we are targeting an additional $180 million of investment income by 2023. We really think this business model of ours is a significant asset, and we have the opportunity to really leverage the synergies between AB and Equitable to drive value for shareholders. Could you envision a scenario where you will take up your ownership from 65% to 100%? Tracy, we have been very happy with our investment in AB. They have been a significant driver of growth for us. The synergies are getting meaningful now. We look at this from time to time, but we have concluded that the current structure is the best one for us and our shareholders going forward. AB have been a top performer in the active asset management space. Seventeen consecutive quarters of net flows and a strong contributor to overall earnings. It is a great business for us strategically and financially. The synergies will create more value going forward. What I have done to make the two companies come closer together, earlier this year, AB management joined my management committee. We meet every week to look at these strategic initiatives, promote collaboration, drive execution of the strategic objectives. We like the current ownership structure, but we'll always evaluate opportunities that make good economic sense and drive long-term sharehold value. Got it. Equitable's strong holdco liquidity makes your 50%-60% payout look quite achievable, but it's noteworthy that you raised some capital to get there. What is your headroom to use that lever again if needed? Yes. The important thing to understand now is the strong position we've started with, $2.5 billion net tangible cover. These are dividends that we've collected from our operating experience and the holding company. The additional contingent capital that we added [with her is really just to diversify our capital structure. That really was important test for us, showing the confidence in our financial standing. We're going to be opportunistic in accessing the capital markets to optimize the capital structure if we see attractive market conditions. I think the most important thing is we have a solid track record of consistently generating operating cash flows of $1.5 billion a year, with now 50% of that from non-regulated initiatives. A capital management program's primary objective, it continues to focus on maximizing financial flexibility and consistently deliver on our 50%-60% payout ratio. What will it take for Equitable to fully distribute capital unlocked from the Venerable deal, as the $500 million targeted represents half of the amount unlocked? What is the anticipated timing of releasing the $500 million portion? Yes, as you noted, the Venerable transaction freed up $1 billion of value and enabled us to announce an incremental $500 million buyback on top of our normal 50%-60% payout ratio. We expect the remaining $500 million to flow up to the holding company over time. As we laid out at the time of the transaction announcement, the $500 million incremental buyback commitment is very strong as it is above our covered payout ratio. As I've said, we'll deploy capital to maximize long-term shareholder value We're getting some audience questions, there's one on capital management. I'll just weave that in here rather than waiting till the end. Any updates on capital returns and share buyback amount after executing the internal restructuring options to increase unregulated cash flows? Yes. I think investors should be aware of the cash generation capability, $1.5 billion, and our commitment to the 50%-60% payout ratio. We have the tools to deliver that. We're very confident that we can deliver. In terms of the internal restructuring, that didn't increase the $1.5 billion, Tracy. It just moved it from a regulated to a non-regulated entity. We took services that we provide out of the life company and put it into non-life companies. That means now that instead of 35% of our cash coming from non-insurance regulated entities, it's now 50% of the latter. Okay. I think the question was maybe more around your payout. Does that change your payout, having greater sources of unregulated cash flow? We're sticking to our 50%-60% payout ratio, and we'll review it from time to time. That's what investors should assume. Okay. When I asked you last year about your M&A appetite, I heard bolt-ons, nothing transformational. Is this still true, and what could change that? Maybe if I could tag on, does the Regulation 213 overhang have anything to do with your ability to complete an M&A deal? No, I think you've summed it up well. We're open to strategic bolt-on M&A to accelerate growth or add capabilities to our capital light businesses. Don't expect any big transformational deals. I'm not about to announce anything. Areas of interest would be employee benefits, wealth management, alternative teams. We're very aware of the importance of our buyback program to investors. We would only ever look at M&A that makes good economic sense. Some of the multiples we are seeing for some of these businesses are extremely high. Expect us to remain prudent and disciplined in our approach. Weigh the benefits of the transaction versus the capital return. Consistent, if you like, with our overall management philosophy. yeah, I think you summarized it well. The fact that one year's gone on, Tracy, and we haven't done anything in the year will show you that we are disciplined. I can't help but notice that on a sum of the parts approach, your business ex AB is valued by the market at two and a half times PE, which really does not make a lot of sense. What do you think the market is missing? To your point, we don't tend to comment on valuation. We manage the business on a sound economic basis and let the market determine. We've been doing well. Total shareholder return since our IPO is 67% against peer average of 36%. It's come off a little bit this year. I think there's a little bit of a hang on Reg 213, as you said. We'll focus on what we can control, executing our targets, including the $80 million productivity and $180 million GA rebalance target. This brings me back to the adoption of the FASB LDTI. It's not good for the industry that there isn't any belief in GAAP book values. It's really not good. I think the market is valuing us on cash flow, and our cash flow is consistently at $1.5 billion. Whether there's upside in the valuation, I have to leave it to you, Tracy, and others on the call to determine. Okay. I'll just take a few more audience questions. You've mentioned that your priorities before exploring further back book deals was to close the Venerable transaction and address Reg 213. Now that these are completed or dealt with in some fashion, what is potentially on the table for other back book deals? You said you were exploring other potential reinsurance deals if it makes sense. Can you provide further detail? Yeah. As you say, we're always going to look to increase shareholder value and pursue transactions regardless of the block. We've got a great track record here. As you saw with the Venerable deal, these are complex liabilities. We unlocked $1 billion of value and reduced two-thirds of our tail risk. It was an exceptional deal for us. I can't give any update other than to tell you we are working on things, if it makes economic sense, we'll do it because that'll drive value for our shareholders. Also another question. What can you do to show how much less risk the SCS product has versus traditional VA? SCS ends up being less of a VA type of product, and it's kind of like a hybrid product, has some elements of fixed index annuities. Which may, I guess, highlight, we're in a higher multiple because these risk attributes being closer to an FIA. Could you take on more invested asset to equity risk, even though it's in a separate account, similar to how FIA players typically do it? Yeah, it's an interesting point you made. Underlying your question is that all annuities aren't the same risk profile. We're very proud of the work we did on SCS. The product design has no guaranteed living benefits and is fully ALM matched. It's great for shareholders. It's great for clients, too. This is downside protection and an upside participation in the market. To your point, it's essentially a spread product that's repriced every two weeks to take account of current market conditions and limiting the risk of any dislocation. We think the beauty of the product is its simplicity. It's attractive to clients, particularly in volatile markets. As you know, it's the fastest growing part of our individual retirement business, and we had record sales of $1.9 billion in the second quarter. We've got the number one position in this RILA market. We continue to try and educate investors that it has much less risk, as you say, than a traditional VA, and we'll continue to do that. Yeah. Maybe sticking on the theme of buffered annuities. There's just been more entrants in the space, but it seems like the pie is also growing, and you've certainly innovated with Dual Direction. Yeah. What other product tweaks would you consider to remain competitive? I guess my follow-up there is, if competitive conditions intensify, would you consider expanding your risk appetite and start offering GLB riders? Yeah. Look, we're very proud of the work we did being first to market in the buffered annuity space and protected equity story for clients, and great for shareholders. Yes, you're right, the overall size of the pie is growing. Over one-third of VA sales today are in buffered annuity products, compared to less than 10% a few years ago. We reported another record quarter of sales in SCS with $1.9 billion in the second quarter, and that's up 90% or so since the year of our IPO. We see copy products come in. That's understandable. If somebody's having success with a product, others will come in on that. Look, I think our unique differentiator is our distribution, affiliated distribution with 4,300 advisors and a broad range of over 1,000 third-party branches. Giving us some stability and privileged access, if you like, to end clients. we're the number one RILA provider and the number two VA. Yes, our Dual Direction feature is doing well in the market. It helps us differentiate our buffered annuity offering, and it's accounting for approximately 30% of our SCS sales this year. Of course, we look at market share, our real focus and our priority is maximizing value. We'll continue to maintain pricing and risk discipline and continue to look for innovative ways to offer great products to clients. That may be economical. You should expect more innovation from us with those criteria. I just couldn't help to repeat the second part of the question. When you think about innovation, do you have a risk appetite to introduce GLB on this product? I think importantly, we are in the retirement savings and secure income solutions for clients, they have to be economically sound. I think this is a big societal need. There's a retirement gap. Responsibility has shifted, as you know, from employers to employees. We like the structured capital product because of the product design. It's shorter duration. Looking at GLBs with interest rates where they are, it's difficult in these markets. It's not something we're actively pushing. Great. I think we're a little bit over time. If I could just squeeze in one other investor question. I don't know how much you can say because they're looking for any type of updates for third quarter earnings. The momentum inside the business has been good this year. I'm not allowed to give any updates, as you know. We're happy with the momentum. Okay. With that, I think we're out of time. This conversation went by really quickly. I know I had a lot more questions on my end. Hopefully we'll touch base soon again in person. I'd like to thank you. With that, this session concludes. Thank you, Tracy. Thank you, everyone.