EQUITABLE FINANCIAL LIFE INSURANCE CO – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's discussion and analysis of financial condition and results of
operations is presented pursuant to General Instruction (H)(2)(a) of Form 10-Q.
The management's narrative that follows should be read in conjunction with the
consolidated financial statements and the related Notes to Consolidated
Financial Statements included elsewhere herein, with the information provided
under "Note Regarding Forward-looking Statements and Information" included
elsewhere herein and Management's Discussion and Analysis of Financial Condition
and Results of Operations ("MD&A") in Part II, Item 7 and "Risk Factors" in Part
I, Item 1A included in Equitable Financial's Annual Report on Form 10-K for
the year ended December 31, 2022 ("2022 Form 10-K"). The management's narrative
that follows represents a discussion and analysis of Equitable Financial's
financial condition and results of operations and not the financial condition
and results of operations of Equitable Holdings, Inc. ("Holdings").

Executive Summary

Overview

We are one of America's leading financial services companies, providing advice
and solutions for helping Americans set and meet their retirement goals and
protect and transfer their wealth across generations. We operate as a single
segment entity based on the manner in which we use financial information to
evaluate business performance and to determine the allocation of resources. We
benefit from our complementary mix of product offerings. This mix in product
offerings provides diversity in our earnings sources, which helps offset
fluctuations in market conditions and variability in business results, while
offering growth opportunities.

Long - Duration Targeted Improvements ("LDTI") Adoption

Effective January 1, 2023, the Company adopted ASU 2018-12 and elected a
transition date of January 1, 2021, thereby permitting the Company to implement
the standard only for the last two fiscal years rather than the customary last
three fiscal years.

The Company adopted ASU 2018-12 for liability for future policy benefits,
additional insurance liabilities, DAC and balances amortized on a basis
consistent with DAC on a modified retrospective basis. ASU 2018-12 was adopted
for MRBs on a full retrospective basis. See Note 2 of the Notes to the
Consolidated Financial Statements for further information on the adoption of
LDTI.

Macroeconomic and Industry Trends

Our business and consolidated results of operations are significantly affected
by economic conditions and consumer confidence, conditions in the global capital
markets and the interest rate environment.

Financial and Economic Environment

A wide variety of factors continue to impact financial and economic conditions.
These factors include, among others, concerns over increased volatility in the
capital markets, equity market declines, rising interest rates, inflationary
pressures fueling concerns of a potential recession, plateauing or decreasing
economic growth, high fuel and energy costs, changes in fiscal or monetary
policy and geopolitical tensions. Market volatility, particularly during March
2023, was driven by instability in the banking sector following continued
interest rate increases by the U.S. Federal Reserve in 2022 and 2023, as a run
on some mid-size U.S. banks resulted in regulatory intervention, including the
guarantee of all deposits by the FDIC. The ongoing military conflict between the
Ukraine and Russia and the sanctions and other measures imposed in response to
this conflict also continue to contribute to geopolitical tensions and market
volatility.

Stressed conditions, volatility and disruptions in the capital markets,
particular markets, or financial asset classes can have an adverse effect on us,
in part because we have a large investment portfolio. In addition, our insurance
liabilities and derivatives are sensitive to changing market factors, including
equity market performance and interest rates which continued to rise during the
first quarter 2023. An increase in market volatility could continue to affect
our business, including through effects on the yields we earn on invested
assets, changes in required reserves and capital and fluctuations in the value
of our AUM and AV, from which we derive our fee income. These effects could be
exacerbated by uncertainty about future fiscal policy, changes in tax policy,
the scope of potential deregulation and levels of global trade.

The potential for increased volatility could pressure sales and reduce demand
for our products as consumers consider purchasing alternative products to meet
their objectives. In addition, this environment could make it difficult to
consistently

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develop products that are attractive to customers. Financial performance can be
adversely affected by market volatility and equity market declines as fees
driven by AV and AUM fluctuate, hedging costs increase and revenues decline due
to reduced sales and increased outflows.

We monitor the behavior of our customers and other factors, including mortality
rates, morbidity rates, annuitization rates and lapse and surrender rates, which
change in response to changes in capital market conditions, to ensure that our
products and solutions remain attractive and profitable. For additional
information on our sensitivity to interest rates and capital market prices, see
"Risk Factors-Risks Relating to Conditions in the Financial Markets and Economy"
and "Quantitative and Qualitative Disclosures About Market Risk" in the 2022
Form 10-K.

Regulatory Developments

We are regulated primarily by the NYDFS, with some policies and products also
subject to federal regulation. On an ongoing basis, regulators refine capital
requirements and introduce new reserving standards. Regulations recently adopted
or currently under review can potentially impact our statutory reserve, capital
requirements and profitability of the industry and result in increased
regulation and oversight for the industry.

The NAIC is evaluating the appropriate accounting treatment of an insurer's
negative interest maintenance reserve ("IMR") balance, since a rising interest
rate environment may cause an insurer's IMR balance to become negative as a
result of bond sales executed at a capital loss. If this occurs, current
statutory accounting guidance requires the non-admittance of negative IMR, which
can impact an insurer's surplus and financial strength reflected in its
financial statements and result in lower reported surplus and RBC ratios. The
NAIC has exposed new statutory accounting guidance that would permit an insurer
with an RBC greater than 300% to admit negative IMR up to 5% of its general
account capital and surplus, subject to certain restrictions and reporting
obligations. Comments on the proposal are due in June 2023. The NAIC is focused
on identifying an interim solution for year-end 023 statutory reporting,
although it also intends to develop a long-term solution even if interest rates
change. The Company currently has positive IMR but would benefit from the
increased flexibility to manage its investment portfolio provided by the NAIC
interim solution if adopted.

The NAIC is also evaluating the risks associated with insurers' investments in
certain categories of structured securities, including CLOs. In March 2023, the
NAIC adopted an amendment to the Purposes and Procedures Manual to give the
NAIC's Structured Securities Group, housed within the SVO, responsibility for
modeling CLO securities and evaluating tranche level losses across al debt and
equity tranches under a series of calibrated and weighted collateral stress
scenarios in order to assign NAIC designations. Under the amended Purposes and
Procedures Manual, which will become effective no earlier than year-end 2024
financial reporting, CLO investments will no longer be broadly exempt from
filing with the SVO based on ratings from Credit Rating Providers. The NAIC's
goal is to ensure that the weighted average RBC factor for owning all tranches
of a CLO more closely aligns with what would be required for directly owning all
of the underlying loan collateral, in order to avoid RBC arbitrage. The NAIC is
collaborating with interested parties to develop and refine the process for
modeling CLO investments.

The NAIC has also proposed an interim change to their RBC requirement for equity
tranches of all securitizations, including CLOs. If adopted, this would increase
the capital charge for these equity tranches from 30% to 45%. This proposal
remains subject to comment from regulators, insurance companies, and other
interested parties and thus may still be revised or delayed. An interim charge
will likely have to be approved by June 30 for it to be effective for year-end
2023 statutory filings. The interim charge is intended to remain in effect until
the NAIC finalizes and adopts its modeling framework for CLOs which is not
expected to be completed until at least year-end 2024.

In March 2023, the Securities and Exchange Commission (SEC) reopened the comment
period for the Investment Management Cybersecurity Release proposing new rules
under the Investment Advisers Act of 1940 and the Investment Company Act of 1940
that would require registered investment advisers and investment companies to
adopt and implement written cybersecurity policies and procedures reasonably
designed to: (1) address cybersecurity risk management, (2) disclose information
about cybersecurity risks and incidents, (3) report information confidentially
to the SEC about certain cybersecurity incidents, and (4) maintain related
records.

In addition, in March 2023, the SEC proposed rule amendments that would require
brokers and dealers, investment companies, and investment advisers registered
with the SEC to adopt written policies and procedures for incident response
programs to address unauthorized access to or use of customer information,
including procedures for providing timely notification to individuals affected
by an incident involving sensitive customer information with details about the
incident and information designed to help affected individuals respond
appropriately. The proposal also would broaden the scope of information covered
by amending requirements for safeguarding customer records and information, and
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of consumer report information, as well as impose requirements to maintain
written records documenting compliance with the proposed amended rules. Finally,
the proposed amendments would conform annual privacy notice delivery provisions
to the terms of an exception provided by a statutory amendment to the
Gramm-Leach-Bliley Act.

Finally, in March 2023, the SEC proposed a new rule and form and amendments to
existing recordkeeping rules to require broker-dealers, clearing agencies, major
security-based swap participants, the Municipal Securities Rulemaking Board,
national securities associations, national securities exchanges, security-based
swap data repositories, security-based swap dealers, and transfer agents to
address cybersecurity risks through: (1) policies and procedures, (2) immediate
notification to the SEC of the occurrence of a significant cybersecurity
incident, (3) as applicable, reporting detailed information to the SEC about a
significant cybersecurity incident, and (4) public disclosures that would
improve transparency with respect to cybersecurity risks and significant
cybersecurity incidents.

The public comment period for this proposed rule will end in May 2023. We cannot
predict what form the final new or amended rules may take, or what affect such
developments in the law may have on our business or compliance costs. For
additional information on the regulatory developments and risk we face, see
"Business-Regulation" and "Risk Factors-Legal and Regulatory Risks" in the 2022
Form 10-K.

Revenues

Our revenues come from three principal sources:

•fee income derived from our products;

•premiums from our traditional life insurance and annuity products; and

•investment income from our General Account investment portfolio.

Our fee income varies directly in relation to the amount of the underlying AV or
benefit base of our life insurance and annuity products which are influenced by
changes in economic conditions, primarily equity market returns, as well as net
flows. Our premium income is driven by the growth in new policies written and
the persistency of our in-force policies, both of which are influenced by a
combination of factors, including our efforts to attract and retain customers
and market conditions that influence demand for our products. Our investment
income is driven by the yield on our General Account investment portfolio and is
impacted by the prevailing level of interest rates as we reinvest cash
associated with maturing investments and net flows to the portfolio.

Benefits and Other Deductions

Our primary expenses are:

•policyholders' benefits and interest credited to policyholders' account
balances;

•sales commissions and compensation paid to intermediaries and advisors that
distribute our products and services; and

•compensation and benefits provided to our employees and other operating
expenses.

Policyholders' benefits are driven primarily by mortality, customer withdrawals
and benefits which change in response to changes in capital market conditions.
In addition, some of our policyholders' benefits are directly tied to the AV and
benefit base of our variable annuity products. Interest credited to
policyholders varies in relation to the amount of the underlying AV or benefit
base. Sales commissions and compensation paid to intermediaries and advisors
vary in relation to premium and fee income generated from these sources, whereas
compensation and benefits to our employees are more constant and impacted by
market wages and decline with increases in efficiency. Our ability to manage
these expenses across various economic cycles and products is critical to the
profitability of our company.

Net Income Volatility

We have offered and continue to offer variable annuity products with GMxB
features. The future claims exposure on these features is sensitive to movements
in the equity markets and interest rates. Accordingly, we have implemented
hedging and reinsurance programs designed to mitigate the economic exposure to
us from these features due to equity market and interest rate movements. Changes
in the values of the derivatives associated with these programs due to equity
market and interest rate movements, together with the GMxB MRBs assets and
liabilities are recognized in the periods in which they occur. This results in
net income volatility as further described below. In addition net income is
impacted by changes in our reinsurers credit

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spread, while changes in the Company's credit spread is recorded in other
comprehensive income. See "-Significant Factors Impacting Our Results-Impact of
Hedging and GMIB Reinsurance on Results."

In addition to our dynamic hedging strategy, we have static hedge positions
designed to mitigate the adverse impact of changing market conditions on our
statutory capital. We believe this program will continue to preserve the
economic value of our variable annuity contracts and better protect our target
variable annuity asset level. However, these static hedge positions increase the
size of our derivative positions and may result in higher net income volatility
on a period-over-period basis.

An additional source of net income (loss) volatility is the impact of the
Company's annual actuarial assumption review. See "-Significant Factors
Impacting Our Results-Effect of Assumption Updates on Operating Results", for
further detail of the impact of assumption updates on net income (loss).

Significant Factors Impacting Our Results

The following significant factors have impacted, and may in the future impact,
our financial condition, and results of operations or cash flows.

Impact of Hedging and GMxB Reinsurance on Results

We have offered and continue to offer variable annuity products with GMxB
features. The future claims exposure on these features is sensitive to movements
in the equity markets and interest rates. Accordingly, we have implemented
hedging and reinsurance programs designed to mitigate the economic exposure to
us from these features due to equity market and interest rate movements. These
programs include:

•Variable annuity hedging programs. We use a dynamic hedging program (within
this program, generally, we reevaluate our economic exposure at least daily and
rebalance our hedge positions accordingly) to mitigate certain risks associated
with the GMxB features that are embedded in our liabilities for our variable
annuity products. This program utilizes various derivative instruments that are
managed in an effort to reduce the economic impact of unfavorable changes in
GMxB features' exposures attributable to movements in the equity markets and
interest rates. Although this program is designed to provide a measure of
economic protection against the impact of adverse market conditions, it does not
qualify for hedge accounting treatment. Accordingly, changes in value of the
derivatives will be recognized in the period in which they occur with offsetting
changes in reserves partially recognized in the current period, resulting in net
income volatility. In addition to our dynamic hedging program, we have a hedging
program using static hedge positions (derivative positions intended to be
held-to-maturity with less frequent re-balancing) to protect our statutory
capital against stress scenarios. This program in addition to our dynamic hedge
program has increased the size of our derivative positions, resulting in an
increase in net income volatility.

•GMxB reinsurance contracts. Historically, GMxB reinsurance contracts were used
to cede to affiliated and non-affiliated reinsurers a portion of our exposure to
variable annuity products that offer a GMxB feature. We account for the
reinsurance contracts as MRBs and report them at fair value. In addition, on
June 1, 2021, we ceded the block, comprised of non-New York "Accumulator"
policies containing fixed rate GMIB and/or GMDB guarantees.

Effect of Assumption Updates on Operating Results

Our actuaries oversee the valuation of the product liabilities and assets and
review the underlying inputs and assumptions. We comprehensively review the
actuarial assumptions underlying these valuations and update assumptions during
the third quarter of each year. Assumptions are based on a combination of
Company experience, industry experience, management actions and expert judgment
and reflect our best estimate as of the date of the applicable financial
statements. Changes in assumptions can result in a significant change to the
carrying value of product liabilities and assets and, consequently, the impact
could be material to earnings in the period of the change.

Most of the variable annuity products, variable universal life insurance and
universal life insurance products we offer maintain policyholder deposits that
are reported as liabilities and classified within either Separate Accounts
liabilities or policyholder account balances. Our products and riders also
impact liabilities for future policyholder benefits and unearned revenues and
assets for DAC and DSI. The valuation of these assets and liabilities (other
than deposits) is based on differing accounting methods depending on the
product, each of which requires numerous assumptions and considerable
judgment. The accounting guidance applied in the valuation of these assets and
liabilities includes, but is not limited to, the following: (i) traditional life
insurance products for which assumptions are locked in at inception;
(ii) universal life insurance and variable life insurance secondary guarantees
for which benefit liabilities are determined by estimating the expected value of
death benefits payable when the account balance is projected to be zero and
recognizing those benefits ratably over the accumulation

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period based on total expected assessments; (iii) certain product guarantees for
which benefit liabilities are accrued over the life of the contract in
proportion to actual and future expected policy assessments; and (iv) certain
product guarantees reported as embedded derivatives at fair value.

For further details of our accounting policies and related judgments pertaining
to assumption updates, see Note 2 of the Notes to the Consolidated Financial
Statements.

Consolidated Results of Operations

Our consolidated results of operations are significantly affected by conditions
in the capital markets and the economy because we offer market sensitive
products. These products have been a significant driver of our results of
operations. Because the future claims exposure on these products is sensitive to
movements in the equity markets and interest rates, we have in place various
hedging and reinsurance programs that are designed to mitigate the economic risk
of movements in the equity markets and interest rates. The volatility in net
income attributable to Equitable Financial for the periods presented below
results from the mismatch between: (i) the change in carrying value of the
reserves for GMDB and certain GMIB features that do not fully and immediately
reflect the impact of equity and interest market fluctuations; (ii) the change
in fair value of products with the GMIB feature that have a no-lapse guarantee;
and (iii) our hedging and reinsurance programs.

The following table summarizes our consolidated statements of income (loss) for
the three months ended March 31, 2023 and 2022:

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