Stubbornly high Q1 mortality puts a dent in Equitable earnings

Equitable Holdings is the latest life insurer to report disturbingly unexplained mortality results.

Equitable executives met with Wall Street analysts Wednesday and reported healthy first-quarter revenues of $4.6 billion. However, the mortality results dampened enthusiasm.

Mortality claims on Equitable’s individual life block ended the quarter at $80 million above company projections, said Robin Raju, chief financial officer. The block contains larger face value policies and has “limited” reinsurance coverage, he added.

“We experienced an abnormally high number of large claims,” Raju said. “While hard to be definitive, we believe a harsh flu season was a contributing factor. The CDC has classified this as the first high severity flu season since 2017-2018 and the cumulative hospitalization rate is the highest observed since 2011.”

Lingering higher-than-expected mortality has baffled health experts since the COVID-19 outbreak in 2020-21. It is especially troublesome for life insurers who rely on actuarial assumptions to set financial targets.

Equitable’s Protection Solutions segment reported a $17 million loss in the quarterly, partly due to the elevated mortality claims, President and CEO Mark Pearson said.

“While disappointed with the result, this quarter underscores why we made the decision to reinsure 75% of our individual life block to RGA,” Pearson said.

Announced in February, the agreement with RGA Reinsurance Co. will generate more than $2 billion of value for Equitable Holdings, which includes a positive ceding commission and release of capital. The deal is expected to close in the second or third quarters, executives said.

The deal “will significantly reduce our mortality exposure and enhance our focus on our core growth engine,” Raju said.

In Other News:

Market volatility. Pearson and Raju addressed the impact of “volatility” several times during the hour-long call. Tariffs introduced by President Donald Trump are blamed for upending the U.S. economy and roiling markets around the world.

In the first quarter, the S&P 500 Index declined by 4.6%, marking its worst quarterly performance since 2022. The U.S. economy contracted at an annualized rate of 0.3%, marking the first decline in real GDP since early 2022.

Equitable remains is great shape to deal with long-term volatility, Pearson said.

“Clearly, the market environment has changed meaningfully over the past month, but Equitable is well positioned to navigate a period of macro-volatility,” he said. “It starts with having a strong balance sheet. Our year-end combined NAIC RBC ratio was approximately 425%. And we have $1.1 billion of holding company liquidity.”

Responsible hedging means that “market declines only impact our income statement and not our balance sheet,” Pearson added. “We also benefit from getting over 50% of our cash flow from non-insurance businesses, which enables us to consistently return capital to shareholders even during periods of stress like we're experiencing now.”

Once the reinsurance deal closes, Equitable will add another $2 billion to its coffers, Raju noted.

Quarterly Snapshot:

• Increased its ownership stake in Alliance Bernstein to 69%. Equitable spent about $761 million to acquire 19.8 million units of AB.
• Positive net flows of $1.6 billion in the Retirement segment, $2 billion in Wealth Management and $2.4 billion in Asset Management.
• Quarterly earnings of $1.35 per share, missing the Zacks Consensus Estimate of $1.49 per share.

Management Perspective:

“Periods of market volatility increase the need for and highlight the value of the advice we provide and the retirement and investment solutions we offer. There are 4 million Americans turning 65 each year, and over $600 billion of assets coming out of 401(k) plans annually. These retirees need help figuring out how to ensure they will have enough assets and income to support them for the rest of their lives.”

CEO Mark Pearson

By The Numbers:

• Total Revenue: $4.6 billion ($2.2 billion in Q1 2024).
• Net Income (gain or loss): $49 million ($78 million in Q1 2024).
• Earnings Per Share: $1.35 per share ($1.39 in Q1 2024).
• Share Repurchases: $261 million.
• Dividend Declared: $74 million.
• Stock Price Movement: Stock declined about 5% at midday Wednesday to $48.69 per share.

Individual Retirement:

Account values: $95.9 billion ($85.2 billion in Q1 2024).

Net interest margin: $323 million ($296 million in Q1 2024).

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.