Equitable Holdings, Inc. Q1 FY2022 Earnings Call

Good morning. My name is Chantal, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Equitable Holdings First Quarter 2022 Results Conference Call. As a reminder, today's conference call is being recorded. Isil Muderrisoglu, Head of Investor Relations. You may begin your conference.

Thank you. Good morning, and welcome to Equitable Holdings First Quarter 2022 Earnings Call. Materials 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. So I'd like to refer you 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; and Bill Siemers, AllianceBernstein's Interim Chief Financial Officer, Controller and Chief Accounting 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 financial supplement. I would now like to turn the call over to Mark and Robin for their prepared remarks.

Thank you, Isil, and good morning, everyone. Thank you for joining our call today. Our first quarter results highlight the resiliency of our broad range of retirement, asset management, and advice businesses against the backdrop of turbulent financial markets, inflationary pressures, and rising interest rates. EQT continues to post positive net inflows and strong free cash flow generation. Equitable Holdings generated $548 million in non-GAAP operating earnings or $1.36 per share, up 1% year-over-year, reflecting a 4% increase in assets under management. As a reminder, we reinsured nearly one-third of our legacy block to Venerable last June, and our earnings still increased year-over-year, even though the first quarter of 2021 reflected earnings from those reinsured policies. Adjusting for one-time items in the quarter, principally excess death claims relating to the ongoing pandemic, non-GAAP operating earnings were $1.53 per share, up 13% year-over-year on a comparable per share basis. We added $12 billion in net flows in the quarter, with positive net flows in both retirement and asset management, and this was our highest quarter of retirement net flows since our IPO. With our diverse businesses, we remain well positioned to advise and address the growing demand to protect the financial future of Americans who are confronting greater economic uncertainty. AB had another exceptional quarter. Seven straight quarters of positive net flows, realizing a 1% year-over-year fee rate increase, enabled AB to post an adjusted margin of 31.5%, an impressive showing by Seth and his team. With the dramatic style shift we have seen in recent quarters, it is encouraging to see 75% of our value products outperforming their benchmarks in the quarter. And versus MorningStar peers, 81% of our equity assets outperformed over the 5-year period. Our capital management strategy remains the same: to apply fair market values to our balance sheet, invest in our market-leading businesses, pay a competitive dividend, and return excess capital to shareholders through stock buybacks. Cash generated is on track for $1.6 billion in 2022, up approximately 30% since our IPO in 2018. Based on today's market capitalization, we are generating a free cash flow yield of approximately 12%. Furthermore, we have shown through the COVID period an ability to generate free cash flows across various economic scenarios. We also have an update to the LDTI accounting changes. In February, we gave guidance that at 2021 year-end market levels, the adjustment to book value would be within our $2 billion AOCI balance with no impact to our cash flows. At first quarter-end interest rate levels, our LDTI book value adjustment was neutral. And as of the end of April, we would estimate a positive LDTI transition impact; that is, book value would increase. This reflects that actual interest rates have risen in the quarter and are higher than the 2.25% long-term assumption we've been using in our GAAP reserves. Equitable continues to create long-term value for all stakeholders. Our long-term guidance of 8% to 10% EPS CAGR is supported by growth in our leading retirement, asset management, and affiliated distribution businesses. This diverse range of businesses is unique to EQH. In addition, we have productivity initiatives and incremental general account income through shifting the investment portfolio to higher quality, longer duration, and more illiquid investments. In the quarter, we expanded our private asset origination capabilities with AllianceBernstein, reaching an agreement to acquire CarVal Investors, which will add expertise in distressed credit, renewable energy, specialty finance, and transportation. Combined with CarVal, AB will now have an approximate $50 billion private markets platform and will be well-positioned to meet the growing demand for alternative investment strategies. I'm also pleased to report that MSCI has recognized our progress in our sustainability efforts and upgraded our rating from BBB to A. Our retirement, asset management, and affiliated distribution businesses differentiate EQH and drive our strategy to pivot to capital-light products, which accounted for more than 85% of premiums in the quarter. The acquisition of CarVal is a good example of synergies between our two operating companies. Equitable Financial has committed $10 billion from its general account towards AB's private markets platform. Of this, $750 million will be allocated across CarVal strategies, improving risk-adjusted returns and strengthening our efforts to grow higher-multiple, higher-margin businesses. We are benefiting from our early moves in the secure income market. AB closed a $10 billion custom target date fund, resulting in our Group Retirement business receiving a $530 million allocation. This is a perfect example of how we participate in the full value chain by having both asset management and retirement businesses. We are proud to be an early innovator delivering in-plan guaranteed income solutions. AB has been offering secure income solutions for ten years now. Obviously, we are meeting an important social need, providing participants with personalized target date funds during their working years and a guaranteed income stream in their retirement years.

Thanks, Mark. Before highlighting results for the quarter, I would like to spend a moment discussing our estimated LDTI transition adjustment on Slide 6. Last quarter, we disclosed our estimated book value adjustment would be within our AOCI balance at year-end, which was approximately $2 billion. As Mark mentioned, interest rates increased significantly in the quarter, with the 10-year up 80 basis points and the forward curve increasing from 2.5% to nearly 3% as of quarter-end. As a result, the benefit of increasing our near industry low 2.25% GAAP interest rate assumption to the forward curve minimizes the impact of fair valuing our GMIB SOP reserves under LDTI, leading to a neutral LDTI book value adjustment as of quarter-end. I'm also pleased to report that as of April month-end market conditions, our estimated LDTI book value adjustment is positive. Our positive book value adjustment highlights an important aspect that LDTI is trying to resolve. Today, companies have discretion and can choose the interest rate they incorporate into their reserves. If the assumption is higher than the forward curve, the assumption reflects a bet that interest rates will increase above and beyond current market expectations. Companies with higher interest rate assumptions hold less reserves, which in turn may put shareholder cash flows at risk. Equitable believes in a fair value approach, which means we can appropriately reserve and deliver capital returns without making bets on interest rates. The forward curve represents the market view of interest rates and currently assumes the Fed will continue to increase interest rates approximately seven more times over the next two years. Within our economic model, we manage our in-force and hedging program based on the forward curve as we believe managing to actual market rates is more appropriate than making our own assumptions on future interest rate levels. We remain well positioned for the upcoming LDTI transition in 2023 and expect our GAAP balance sheet to be more stable due to better alignment between our GAAP reserves and our fair value economic reserves. As a result, shareholders should expect to see consistently positive net income, reflecting a more economic match between our assets and liabilities. Turning to Slide 7. I will review our consolidated results for the first quarter before providing more detail on segment results and our capital management program. Adjusting for notable items in the period, non-GAAP operating earnings were $615 million this quarter or $1.53 per share, up 13% year-over-year on a per-share basis. We called out $67 million of notable items in the quarter, primarily attributable to elevated mortality and DAC updates to our in-force, which were partially offset by higher alternative income. Adjusting for the notables, our increase in earnings year-over-year was primarily driven by higher fee income on higher average AUM. Turning to GAAP results, we reported net income of $573 million this quarter, and our hedge program performed as expected with a hedge effectiveness of approximately 95%. AUM increased to $856 billion over the prior year's quarter, supported by favorable equity markets and continued positive net flows reflecting the strength of our retirement and asset management businesses. Our general account is benefiting from increasing rates and widening credit spreads with new money yields approximately 50 basis points higher than assets rolling off the portfolio as of quarter-end. This creates a natural tailwind for our business and should benefit our rebalancing program. We expect to reach our yield enhancement target earlier than anticipated with $180 million of our $180 million 2023 run rate target already achieved. We've also continued to make progress on our expense initiatives, realizing $35 million of our $85 million net target. Looking ahead, we expect to realize meaningful savings over the next two years as we optimize our real estate footprint and reap the benefits from an agile workforce. Moving to the business segments. I will begin with Individual Retirement on Slide 8. As a reminder, the Venerable transaction closed in June of last year, unlocking $1.2 billion in value while reducing over two-thirds of our legacy VA risk, resulting in an adjustment of $180 million to operating earnings per annum. Adjusted for notable items, operating earnings were $307 million for the quarter, lower year-over-year, primarily due to the impact associated with the Venerable transaction. We continue to see strong demand for our Individual Retirement, all-weather products with protected equity, guaranteed income and tax-efficient investment offerings resonating with clients during a period of volatility and rising interest rates. We reported positive net flows in the quarter as we continue to benefit from our product suite and differentiated distribution with $655 million of inflows in our capital-light product offering, partially offset by the runoff of our legacy VA business. In the quarter, we also maintained our #1 position in the protected equity RILA market reporting $2 billion in structured capital strategy sales, up 10% from the prior year and record sales in the month of March. Total Individual Retirement first year premiums were $2.8 billion, a 17% increase year-over-year. We continue to see rational pricing in the RILA market, and our continued success is a testament to our distribution model, which pairs our 4,300 affiliated advisors with targeted third-party selling partnerships. Importantly, our strong new business activity is focused on creating value, not only volume. We build and price our products to maximize the value of new business, which measures the present value of risk-adjusted cash flows. As interest rates have increased in the quarter, our value of new business continues to be at record levels, which will improve future shareholder returns over time. Turning to Group Retirement on Slide 9. We reported operating earnings less notable items of $149 million, up 7% versus the prior year quarter, driven by lower expenses and higher fee revenues. Positive net flows of $523 million in the quarter were primarily driven by inflows from AB's lifetime income strategies. This is another proof point of the synergies between our subsidiaries. AB's lifetime income provides a significant distribution channel for our retirement business, providing access to large 401(k) plans, which is a market our retirement business did not serve today. Furthermore, given our unique business model, EQH benefits from margins on both retirement and asset management manufacturing. Our tax-exempt market is driven by our industry-leading affiliated distribution. In the quarter, we reported positive net inflows with first year premiums up 7% year-over-year, which returned to pre-pandemic levels, outpacing first quarter 2019 sales. Our continued leadership in the K-12 educators market is a testament to our 1,100 dedicated Equitable advisors, specializing in the retirement needs of over 800,000 educators we serve. Now turning to AllianceBernstein on Slide 10. Operating earnings were $136 million, up 12% year-over-year, primarily driven by an increase in base fees on higher average AUM and performance fees in the quarter. While interest rates moved significantly higher in the quarter, we maintained strong fixed income performance with 64% of fixed income assets outperforming over the 1-year period and stronger long-term performance, with 72% and 71% of fixed income assets outperforming over the 3- and 5-year periods, respectively. Equity performance remained strong relative to peers with 68% of equity assets outperforming on a 1-year basis and 81% of outperformance over 5 years. The strong investment outperformance is leading to strong flows across their retail, institutional, and private wealth channels. Total gross sales of $41 billion were up 23% year-over-year, including $21 billion in retail sales, which is the fifth consecutive quarter of retail sales over $20 billion. Our Institutional channel reported $14 billion in gross sales, including a $9.6 billion retirement mandate, supporting record net inflows of $10 billion and the seventh consecutive quarter of organic growth. The private wealth channel, which represents approximately one-third of AB's fee-based revenues, reported gross sales of $6 billion, up 12% year-over-year with $2 billion of net inflows and 7% annualized organic growth year-over-year. Total assets under management at the end of the quarter were $735 billion, up 5% from the prior year's quarter, attributable to positive net inflows for the last 12 months, including $11 billion this quarter, and favorable markets. Importantly, over this period, annualized organic AUM growth of 6% was supplemented by a 1% fee rate growth. Moving to Protection Solutions on Slide 11. We reported operating earnings less notable items of $96 million, up over prior year, primarily driven by higher net investment income, higher fee revenue, and higher account value. Gross written premiums were $1 billion in the quarter, up 36% over prior year's quarter as we continue to make strides shifting towards less interest-sensitive accumulation VUL products with first year premiums up 65% year-over-year. We were saddened to see over 150,000 U.S. deaths in the first quarter. It's hard to believe that we've been at this pandemic for over two years now, with so many lives impacted across the world. Equitable's life products serve an important need during these difficult times, and we will continue to be there for our clients in their times of need. Through the end of March, excess COVID mortality was $61 million, which were made within our guidance of $30 million to $60 million operating earnings per 100,000 U.S. deaths. We maintain our current COVID guidance but expect better mortality with the U.S. death estimate in the second quarter, decreasing significantly, and are encouraged by preliminary death claims we are seeing in April. We remain confident in our $75 million quarterly earnings guidance going forward but do expect some potential volatility due to mortality. Turning to Slide 12. Our fair value management of the business continues to support our capital management program. We have made significant progress towards our 2022 capital management targets to date. Returned $461 million to shareholders, including $279 million of first quarter repurchases and an additional $112 million of 2022 share repurchases that were accelerated into the fourth quarter of 2021. To further support our capital return, we intend to increase our quarterly dividend to $0.20 per share at a $0.02 per share increase. We have consistently increased our dividend since our IPO, up 50%, demonstrating the financial strength of our balance sheet and business model. We also continue to deliver on our 50% to 60% payout ratio. And as mentioned earlier, shareholders continue to benefit from our diverse businesses who have retirement, asset management, and affiliated distribution, which resulted in our expected $1.6 billion of annual cash flow generation, up from $1.2 billion at our IPO. We closed the quarter with $1.5 billion of cash at the holdco, which aligns with our capital management strategy of maximizing financial flexibility to support consistent capital return in various market cycles. Lastly, we continue to make progress on the redundant reserves associated with Reg. 213. We expect to announce mitigated actions for the remaining redundant reserves in the second half of 2022. I'll now pass it back to Mark.

Thank you, Robin. Before we turn to your questions, I would like to reiterate some highlights from the quarter. First, our business model benefits from our complementary asset management and retirement businesses, with strong net inflows in the quarter and an increasing contribution from our affiliated distribution. Second, our fair value economic approach, which is the result of management action over the last decade, is more sound today than it has ever been, protecting our balance sheet and preparing us well for alignment to LDTI with no impact on our hedging program or cash flows. And lastly, our unique business model pairing asset management and retirement continues to drive long-term accretive growth for our shareholders. Going forward, we remain committed to acting as a force for good to bridge profits and purpose as we execute against our investment and expense initiatives to deliver on our 8% to 10% EPS growth. With that, I'd like to open the line for your questions.

Our first question comes from Ryan Krueger with KBW.

I would like to ask the obvious question first. Robin, can you elaborate on the potential actions you might take in the second half of the year to address the impact of Reg. 213?

Ryan, thanks for the question. As we've mentioned in the past, we continue to work in parallel to address the remaining redundant reserves to Reg. 213. We've taken action last year to address 50% of it. The remaining actions will be resolved either through external or internal reinsurance. And we've continued to make progress in the first quarter, and we're confident that our ability to mitigate it in the second half of the year.

Can you provide more insight on the performance on a statutory basis considering the volatile market environment, even though you don't release the RBC ratio quarterly?

Sure. As you mentioned, we don't disclose quarterly, and we haven't completed our control process. But what I could tell you is just a reminder that we do have two hedging programs in place that work well during these volatile times. The first one helps us fully hedge the economic risk associated with the liabilities on the guarantees. That's where we hedge fully equity and interest rates to the forward curve. And the second one is where we have the statutory hedge program designed to protect CTE98. Both performed well and exceeded the 95% efficiencies. And these programs give us comfort in the $1.6 billion guidance that we've given to the market today on the 2022 cash flow generation and allows us to continue to invest in the strong new business profitability that we have coming out of our insurance and asset management companies.

Our next question comes from Tom Gallagher.

My first question is from Slide 5. It looks like $100 million of your $1.6 billion of cash flows is expected to come from your distribution business. Can you comment on whether or not that's some capital release there? Or is that actually a normalized free cash flow result from that business that you would expect to sustain?

Sure, Tom. That's right. Of the $1.6 billion, you could expect approximately $100 million coming from the distribution business. That is normal cash flow generation we'd expect on a run rate business from the business. And we expect that to continue to grow as our affiliated distribution continues to sell profitable products and help advise our clients during these volatile times.

Got you. And then Robin, regarding the $2 billion impact from Reg. 213, should we view that as permanently locked in, or is it something that could vary? Particularly, considering the current weakness in the markets, could that $2 billion figure change if we were to adjust it to market conditions?

Sure. So just for context for everyone, the $2 billion of redundant reserves, of which we addressed $1 billion already through the actions we took in 2021, the remaining $1 billion would have some market movement, Tom, but I think it's still a good number because we look at it in relation to CTE98, and that's the number we anticipate in mitigating in the second half of the year.

Okay. And if I could just slip one more in. On the Reg. 213 initiative on freeing up that extra $1 billion of capital, should we assume that that's kind of where you're going to stop here with strategic actions? Or would you be looking to do more, including the legacy VA block or other things from a risk transfer standpoint?

Sure. All deals that we look at need to be accretive on an economic basis. That's how we look at if a deal is good or not and when we should do a deal. We do like the position we are in right now with our retirement business; only 18% of the AUM is in that legacy VA business with about $3 billion runoff on an annual basis. Over time, if we can accelerate that, again, being economically accretive, we'd certainly take a look.

Our next question comes from Andrew Kligerman with Credit Suisse.

Robin, regarding the Individual Retirement segment, you reported $307 million in earnings excluding notable items. The performance is significantly influenced by the equity markets. Assuming there hadn’t been a decline in equity markets, could you provide insight into what the earnings run rate might be? I understand there are some forthcoming expense savings and seasonal factors to consider, but I’d appreciate your perspective on where we can expect the individual retirement segment to trend moving forward.

Sure. Difficult for me to ignore equity markets during this time, as you can imagine, Andrew, but I'll try the best. The $307 million, keep in mind, that excludes Venerable. Venerable unlocks $1.2 billion of value, reducing the risk of that segment by two-thirds, but adjusted earnings by $180 million per annum. On a run rate perspective, you should expect seasonality for the fees charged on benefits. The benefit fees are charged annually, and Q2 and Q3 are generally the highest quarters when those fees are charged based on historical sales. More importantly, the risk profile and the cash generation on the $106 billion of AUM in the Retirement business remain strong. As you can see, the new business returns are at record levels. And so we're really excited about the trajectory of that business.

And with that, Robin, the seasonality, I mean, should I be thinking about it in the magnitude of a few tens of millions in seasonality or something much smaller? Any kind of framing there?

Yes, that's probably about as much detail that I would provide at this time, especially given the equity market volatility that we see as it is something that I can't ignore. But the seasonality, Q2 and Q3 expect to be higher. That's probably what I can provide at this time.

Got it. Okay. My second question is about Group Retirement and the lifetime income flow, which seems to have exceeded $500 million through the AllianceBernstein relationship. What is the current pipeline like for that? Can we expect to see more inflows at the $0.5 billion level?

Andrew, it's Mark. Thanks for the question. Yes, I think as Robin said in the script, this is a perfect example of the benefits we have from our business model, getting margins from the full value chain there, having both retirement and also asset management. You should expect that this type of business is lumpy. And when it comes, it will be large. One thing I'd like to say on there is AB has been working in this area for ten years now, way before the SECURE Act. So it's something AB and Equitable have a deserved market reputation for, and it's something we're excited about in the future. But it will be lumpy. That's for sure.

Our next question comes from Nicole Della Cava with Morgan Stanley.

It's Nigel Dally. I think that may be for me. I just wanted to follow up on Reg. 213. When the solution is in place, would that be a catalyst for you to be more aggressive on capital management? Our excess capital on the balance sheet is still very high. Or are we in a market environment where you prefer to hold on to a higher capital buffer at this point?

Sure. Reg. 213, the way we see it doesn't necessarily dictate how we distribute cash flows. It's based on our internal economic model, which continues to remain strong at healthy levels overall. The cash flow that we've generated within the business is $1.6 billion in 2022. That's up from the $1.2 billion, or 30% since the IPO after taking into account the Venerable transaction. So we feel really good about the cash flow generation of the business. We'll continue with our 50% to 60% payout, and we've proven that since IPO that we continue to pay out regardless of market cycles.

Great. And just another one on cash flow. The acquisition at AB, does that change your expectation as to how much cash you would likely be getting from that this year?

It does not. One, let me just talk about the acquisition first. We are excited to bring on CarVal Investors; the acquisition is scheduled to close early in Q3. It helps bring AllianceBernstein's platform up to $50 billion for private markets, making it meaningful. On top of that, Equitable in the general account will support with $750 million of investment. So it's a win-win because the general account will benefit from better risk-adjusted return for policyholders, and then AB will go out and raise third-party money with this new platform as well. So it supports us building a higher multiple business at AB. Over the short term, from an EQH perspective, the business, the deal is neutral from an accretion perspective, so no impact on cash flows. But over the long term, we're excited about the prospects that this franchise brings to AB.

Our next question comes from Suneet Kamath with Jefferies.

So I wanted to go back to the cash flows and the 6% from the affiliated distribution that you addressed earlier. So if that's the cash flow numbers, is there a way that we can think about the earnings that that business generates? Or is there some sort of disconnect between the cash flows and the earnings that that business produces?

Look, we're excited to talk to you today about that business. Number one, it's been a growing platform for us, $79 billion of AUA, $3 billion of gross sales. And today, we can give you guidance that we expect $100 million of cash flow generation. It is a fee-based oriented business that doesn't expect much differentiation between that business and the underlying cash flow generation. Nick, anything you want to add on that from an investment perspective?

Yes. I would just clarify, through Equitable advisors, we sell insurance products as well as investment fee-based products. We see the growth in the investment fee base as supporting the overall growth of managing the portfolio, creating a dual revenue and cash flow stream going forward.

Okay. And then I guess in terms of the cash generation, the $1.6 billion, I think that's just a touch higher than what you said last quarter, which I believe was $1.5 billion. Obviously, it's going up despite the fact that markets are lower. So just maybe want to understand what's going on there? Is this the lack of a market impact? Is that really because the statutory component of that is driven off of last year's results? Or what explains kind of the resilience and increase in that number despite the weaker markets?

Yes, Suneet. I think over the long term, the way we look at it is the mix of the business that we shifted to be more capital light. The legacy VA transaction or reducing the risk-oriented business gives us confidence in the cash flow generation of $1.6 billion, up 30% from IPO, and will continue to drive cash flows. That's our focus, drive free cash flows for shareholders for best use.

Yes, Suneet. Looking at it over the long term, we have shifted our business mix to be more capital light. Reducing our exposure to legacy VA transactions and risk-oriented businesses has given us confidence in generating $1.6 billion in cash flow, which is up 30% since our IPO, and we expect this to continue driving cash flows. Our primary focus is to generate free cash flows for our shareholders in the most effective way. Our next question comes from Tracy Benguigui with Barclays.

In your prepared remarks, you mentioned that your free cash flow yield is 12%, but given where your market cap is today, that would imply $1.3 billion of free cash flow, but you actually read your guide to $1.6 billion from your prior $1.5 billion. So I'm just wondering what I'm missing?

I think if you looked at the free cash flow yield at 12%, the number in the script is as of quarter end. We thought that was probably the best number to give. So we took a spot as of quarter end. Yes, you're right, at $1.6 billion and volatile markets, the free cash flow yield is higher today, making Equitable a more attractive proposition for investors.

Got it. And also just back to Reg. 213. Since reviewing your disclosures, it looks like under your permitted practice, you received a $1.5 billion hedge credit due to DFS' recognition in your hedge effectiveness, and that amount is reflected in your special surplus funds. So I guess my question is, does your recent hedge effectiveness change that hedge credit?

No impact, Tracy. What that was, if you recall, when we first announced Reg. 213, we received a permitted practice from the DFS, which allowed us to defer the $2 billion in total redundant reserves. We've taken 50% of that action, and we expect to resolve this in the second half of the year.

Okay. So that's more static, that offset?

That's part of the deferral we had in the $2 billion. It has no impact on hedge effectiveness. The hedge, Tracy, refers to our economic performance compared to our target in managing volatility. It's not connected to Regulation 213, which pertains to an economic reserve.

Okay. And then on your distributable earnings, and you mentioned 50% coming from nonregulated sources. Should I think about your $865 million of ordinary dividend capacity from Equitable Financial in 2022 that you may fully draw that down, as last year, you had no capacity?

That's correct. The dividend formula allows us to upstream dividends, and we plan to do so in the within the second quarter to support the $1.6 billion.

Our next question comes from Mark Hughes with Truist.

On the SCS product, you described a lot of strength in March. How much of that was just volatility in equity markets, rising interest rates? Is that momentum continued into 2Q? Is this a good product for this kind of market backdrop?

Yes. This is a product that was built for this time, upside potential with downside protection to create more resilient portfolios. As a pioneer in the industry of creating this product in this segment over ten years ago, we continue to benefit both through our affiliated distribution and our third-party networks. Structurally, we view the pie as continuing to grow based on the demographic shifts of baby boomers looking for protected equity stories amplified by the current market conditions. As Robin highlighted, we continue to manage this on an economic basis for sustainable profitability and remain confident going forward that we will be able to help Americans create more resilient portfolios during this period of dislocation.

And then on the Reg. 213, Robin, you talked about external or internal reinsurance. Any cost numbers associated with that? I assume it's contemplated in the 8% to 10% EPS guidance?

That's correct, Mark. Any impact we take will be minimal, but everything we discuss is included in our 8% to 10% EPS guidance, and we will aim to find the most financially beneficial solution in the second half.

We have reached the end of the question-and-answer session. This concludes today's conference call. You may now disconnect.