Equitable Faces Wall Street Annuity Love Gap

Equitable created the hottest segment of the U.S. individual annuity market. It is outselling competitors, benefiting from a strong selling environment and hedging away most of the investment risk — but it's having a hard time impressing Wall Street.

Suneet Kamath, a securities analyst at Jefferies, asked about Wall Street investors' annuity enthusiasm gap Wednesday during a conference call that Equitable held with the analysts.

"I would argue it's getting a pretty low valuation in the market," Kamath said.

Equitable shares are selling for about $34 each, or 6.4 times net income per share. That compares with a 29.5 price-to-earnings ratio for Apple and a 21.4 price-to-earnings ratio for UnitedHealth.

Robin Raju, Equitable's chief officer, emphasized that Equitable has done more to manage market risk than the annuity issuers of the past, and Nick Lane, Equitable's president, pointed to the baby boomers' rush to use assets to generate retirement income.

"This is a great time to be in the market," Lane said.

What it means: If Wall Street investors liked annuity issuers more, the issuers might be able to offer clients cheaper, more varied products with better crediting rates.

Equitable: Equitable Holdings is the New York-based parent of the AllianceBernstein asset management business and the Equitable insurance business.

It held Wednesday's call to go over its earnings for the fourth quarter of 2023. The company reported a $589 million net loss for the quarter on $2.2 billion in revenue, compared with $138 million in net income on $1.8 billion in revenue for the fourth quarter of 2022.

Operating earnings, which exclude fluctuations in the estimated value of assets and benefits obligations, increased to $476 million, from $348 million.

Individual annuities: First-year premiums and deposits for individual annuities increased to $3.8 billion, up 48% from the total for the year-earlier quarter.

Equitable created the market for a different type of variable annuity, the registered index-linked annuity, about 15 years ago, and most of its annuity sales are now RILA sales.

RILA sales increased about 30% in the fourth quarter, and Equitable's own RILA sales increased about 60%.

Raju, Equitable's chief financial officer, said Equitable's exposure to stock market and interest rate risk is much lower than that of typical variable annuity issuers, because the company used a reinsurance arrangement to pass most market risk related to older annuities to Venerable.

Hedging arrangements absorb most of the RILA-related market risk, Raju said.

Equitable's RILA products come with buffers, or partial protection against market losses.

Lane, Equitable's president, said the aging of the population is one reason for strong RILA demand.

"I would say that's amplified by asset volatility, given the geopolitical uncertainty," Lane said. "It's a great time to be in buffered annuities."

Equitable is continuing to increase its share of the RILA market because it has a 15-year track record and can use input from its own advisors to create new and improved products, Lane said.

Group annuities: Equitable first began talking about supporting a BlackRock in-plan annuitization option program in 2020.

Eleven BlackRock program customers are on track to begin using Equitable annuitization options. The customers will make large initial deposits, then send in a steady flow of recurring premium payments, Lane said.

Individual life: Mortality was in line with expectations in the second half of 2023, but full-year mortality was higher than Equitable had expected.

"We are reviewing all options to improve profitability and reduce earnings noise," Raju said.

Nick Lane. Credit: Equitable