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AXA Equitable Holdings, Inc. (NYSE:EQH)
Q3 2018 Earnings Conference Call
November 13, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the AXA Equitable Holdings third quarter 2018 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question at this time, simply press * then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key. Thank you.

Mr. Kevin Molloy, Head of Investor Relations, you may begin your conference.

Kevin Molloy -- Head of Investor Relations

Thank you. Good morning and welcome to AXA Equitable Holdings third quarter 2018 earnings call. Materials for today's call can be found on our website at ir.axaequitableholdings.com. Before we begin, I'd 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 point out the safe harbor language on slide two of our presentation. You can also find our safe harbor language in our third quarter 10-Q. Joining me on today's call is Mark Pearson, President and Chief Executive Officer of AXA Equitable Holdings and Anders Malmstrom, our Chief Financial Officer. Also on the line is John Weisenseel, AllianceBernstein's Chief Financial 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 like to now turn the call over to Mark and Anders for their prepared remarks. Mark?

Mark Pearson -- President, and Chief Executive Officer

Thank you, Kevin and good morning, everyone. This morning, we'll discuss our third quarter financial performance, provide an update on our strategic priorities, and share progress against our key financial targets. Before jumping into the results, I'd like to spend a moment highlighting some of the key factors influencing our performance for the third quarter.

Firstly, capital markets were favorable. The S&P rose 7% in the quarter and the 10-year treasury increased 20 BIPS, both helping operating earnings and our cash generation capability. Our hedging program is working as intended and the balance sheet remains strong. In the third quarter, we started to execute our capital management program. We have returned $130 million to shareholders, $73 million in dividends, and $57 million in open market share buybacks. This means we have $443 million remaining from our initial repurchase authorization we announced in August.

In addition, I'm pleased to announce today that our board has authorized increasing our share purchase program by an additional $300 million. Our capital management program allows us to continue to optimize the capital we hold in our company and the new $300 million authorization increases, another example of the confidence we have in the earnings power and financial strength of this company.

Finally, in line with most of our peers, we've completed our first actuarial assumption update as a public company. Anders will review this in detail shortly.

Turning to slide four and our third quarter financial highlights -- total assets under management grew 3% to $668 billion over the past year, supported by equity markets. Non-GAAP operating earnings grew to $693 million for the quarter, including a one-time favorable impact of $169 million relating to the outcome of the annual assumption update. Excluding this one-time update, operating earnings increased 38% to $524 million or $0.93 per share.

These strong results reflect continued execution against our productivity targets, good progress on the general account optimization initiatives, and lower tax rates. I am pleased to also report that all four of our business segments returned double-digit earnings growth.

In individual retirement, new first year premiums increased 18% to $1.9 billion when compared to Q3 2017. As previously reported, comparisons to 2017 must be looked at with caution, as the anticipated but not implemented DOL fiduciary rule distorted normal sales patterns. Nevertheless, according to the last Q2 industry statistics, we've increased our market share of new VA sales from 10% to 10.7%. In fact, August was our third-highest sales month in three years, reflecting our ability to deepen relationships with our distribution partners and innovation around low capital intensity products.

In group retirement, operating earnings increased to $134 million or up 20% excluding the favorable impact from assumption updates. Client engagement initiatives continued to yield positive results, with solid year over year growth in both first year and renewal premiums.

For AllianceBernstein, adjusted operating margin improved to 29.7%, driven by higher fees and lower non-compensation expenses. Overall, AB continues to generate strong growth in sales, revenue, and fee trends in targeted areas such as active equities and alternatives, where we've worked to evolve, develop, and scale our operations.

Lastly, our protections solution segment delivered operating earnings of $137 million and we are no longer subject to the accounting implications of loss recognition. Earnings benefited from a favorable impact from the annual assumption update and improved margins during the quarter. In this segment, we remain in selective in the markets in which we play, focusing on capitalized accumulation products, and targeting double-digit IRRs.

Overall, I am pleased with our third quarter performance. We continue to build a strong foundation for meeting our financial commitments to shareholders, including our 40% to 60% target payout ratio and a mid-teens ROE target.

Turning to slide five and our strategic priorities, these Q3 results place us firmly on track to deliver on our three core strategic initiatives. For our GA optimization being the rebalance from treasuries to longer duration corporates -- we have completed over 50% of the initiatives and achieved $62 million toward the $160 million goal.

From a productivity standpoint, we have reduced net costs in our insurance business and have high conviction that we are on track to deliver $75 million pre-tax target net of any reinvestment by 2020. And on sales growth, as I mentioned earlier, it is pleasing to report that all four of our business segments are growing strongly.

I will now turn the call over to Anders to go through our quarterly results in more detail. Anders?

Anders Malmstrom -- Chief Financial Officer

Thank you, Mark and good morning, everyone. On slide six, I will review our consolidated results for the third quarter before providing more details on the outcome of the actuarial assumption update, second results, and capital position.

As Mark noted, excluding impact from the assumption update, non-GAAP operating earnings increased 38% year over year to $524 million. This growth was driven by higher AUM across all business segments, stable operating expenses in our insurance segment, and lower taxes.

On a per share basis, non-GAAP operating earnings, excluding the impact of the assumption update was $0.93, also up 38% year over year. The GAAP net loss for the quarter was $496 million. Driving the variance between operating earnings and net income was a combination of primarily non-economic factors, including our hedging program and non-performance risk adjustment, as well as the outcome of our annual actuarial assumption update, which I will review in detail on the following two pages.

Total AUM, an important driver of our fee-based business, grew 3% year over year to approximately $668 billion, driven predominately by market appreciation. Sequentially, our pro forma non-GAAP operating ROE increased 200 basis points to 15.6%, driven by higher non-GAAP operating earnings in the current quarter. This level of ROE includes a benefit from our assumption update that remains in line with our mid-teens ROE objectives.

Turning to slide seven, I'd like to provide additional detail on the outcome of our annual actuarial assumptions update. For background, we moved to an annual assumptions and model update process in the third quarter, during which we completed our first comprehensive update as a US listed company.

We reviewed all material assumptions, making updates where warranted. First, non-GAAP operating earnings of $693 million for the quarter includes a favorable impact of $169 million related to assumption updates. Included in this table are the pre-tax operating impact for each of our insurance segments. In individual retirement, update to certain policy or behavior assumptions, including lower annuitization resulted in a favorable impact of $59 million. In group retirement, updates to reflect higher persistency had the favorable impact of $43 million.

For the protection solution segment, results primarily reflect a favorable $107 million impact from updates to surrender rates, expenses, and interest margin assumptions, partially offset by strengthening of mortality.

On a GAAP basis, consolidated net income for the quarter includes an unfavorable impact of $131 million, primarily reflecting unfavorable updates to policy or behavior in our individual retirement segment, primarily annuitization assumptions, partially offset by favorable updates to economic assumptions.

For net income, the annuitization assumption updates were magnified as VA policies assumes to enter annuitization are valued within our fair value reserve at a higher rate than under the SOP framework.

Finally, the assumptions update was favorable for our statutory capitalization due to higher persistency, improved threats and diversification. Statutory capital is the primary driver of our capital management program and provides confidence in our capital return outlook going into 2019.

Turning to slide eight, I'd like to take a moment to review the net income versus non-GAAP operating earnings work. Reconciling from a net loss of $496 million, the most significant below the line items are included in adjustments related to VA product features, including the outcome of the annual actuarial assumptions update and more changes as well as non-economic impacts driven by hedging and non-performance risk. I'll take each of these items as well as other adjustments in turn.

First, the actuarial assumption update resulted in an unfavorable pre-tax below the line impact of $435 million. This bar represents the difference between the favorable operating result and unfavorable net income impact. Next, primarily non-economic adjustments related to our GMXB hedging program includes several items resulting a below the line impact of $968 million, including $657 million related to the GAAP accounting treatment of our economically based hedge program. That's a hedge cash option cost of $14 million.

The market to market on our short duration VA investment for our SES product program, which had no impact this quarter and $370 million related to non-performance risk due to our own credit threat tightening during the quarter. This threat is an important input into the fair value component of our VA liability.

We have provided guidance on VA product features of $700 million impact per anum, on average, assuming our base case scenario of 6% annual equity returns and the 10-year treasury increasing 10 basis points per year until 2020. Given the 7%+ equity market increase in just the third quarter and rates reaching multi-year highs, the impact reflected in VA product features for the third quarter was magnified, as expected.

For additional context, if you assume the third quarter resulted in equity markets down 10% and all else equal, the impact reflected in VA product features would have been approximately positive $1 billion.

We are encouraged that the FASD has undertaken steps to correct the structural asymmetry under the targeted improvements for long dated insurance contracts. We believe when implemented in 2021, it will substantially improve the alignment between accounting and our economically based hedging program.

For example, the fair value of VA liabilities will much more closely match our economic liability for the product, significantly reducing the cap. In addition, the treatment of NPR will move from the P&L to OCI, reducing earnings volatility. Finally, included in the all other adjustments item are our recurring non-cash pension amortization expense of $24 million. Separation costs, which were $66 million in the third quarter and are expected to total $200 million for a full year 2018 and $84 million in a non-recurring tax relief.

Now, turning to segment performance, I will begin with individual retirement on slide nine. Excluding the impact of assumption updates in the current and prior year quarter, operating earnings can create 26% to $386 million, primarily driven by higher net investment income and fees on higher account values.

Fee type revenue increased by $41 million due to higher separate account AUM, while net investment income increased $36 million versus the prior year period due to higher asset balances and our SCS product and the GA optimization initiative. Account values grew $4.8 billion since the prior year quarter, largely driven by market depreciation, while total net flows decreased compared to the third quarter of 2017, we experienced strong net inflows in our current product offering, $749 million during the quarter, offset by ongoing net outflows from our mature fixed GMXB block.

This dynamic continues to de-risk our portfolio toward our new, less capital-intensive products. Our inverse portfolio is now more than 50% without living benefit guarantees. We continue to see strong momentum and improving trends in VA sales, with first-year premiums improving both sequentially and year over year, driven primarily by deepening relationships with existing distributors, particularly with SCS.

Turning to our group retirement segment on slide 10 -- excluding the impact of assumption updates in the current and prior year quarter, operating earnings grew 18% to $99 million, primarily due to growth in fee income on higher separate account assets. Account values also increased 8% or $2.7 billion year over year due to market appreciation but were partially offset by net outflows of $100 million.

As a reminder, the third quarter is a seasonally low quarter for flows in the 43B market as renewal is slow and surrenders increase due to the summertime school break. With that said, gross premiums increased a strong 9% on a year over year basis to $737 million, driven primarily by growth in renewal contributions and new sales momentum. The strength in new business and renewals are supported by our continued efforts to engage and advise existing clients while increasing our advisor base to attract new clients.

Now turning to investment management and research, which is AllianceBernstein on slide 11 -- as a reminder, operating results reflect the company's increased economic interest in AllianceBernstein from 46.7% in third quarter of 2017 to 65.1% as of September 30th. For the quarter, operating earnings grew from $45 million to $96 million due to the higher ownership, higher average AUM, and higher fee rate realization, reflecting a continued mix shift from lower to higher fee products.

Driven by strong revenue growth and disciplined expense management, AB's operating margin improved to 29.7%, a 470-basis point increase compared to the third quarter of 2017. Net inflows of $1.3 billion during the quarter were primarily led by inflows to higher fee strategies, including $2.9 billion into a broad array of active equities.

Ending AUM increased to $550.4 billion, primarily due to market appreciation of $20.2 billion over the last 12 months. Average AUM increased 3.8% and the portfolio fee rate grew 1.7% and 41.5 basis points.

Finally, we'll turn to protection solutions on slide 12. Operating earnings grew to $50 million, excluding the impact of assumption updates in the current and prior year quarter and was primarily driven by higher net investment income from the GA optimization initiative and stable operating expenses.

The outcome of the actuarial assumptions update and margins generated in the quarter also enabled us to exit loss recognition. As a result, we expect lower operating earnings volatility for the segment going forward. Compared to prior year period, annualized premiums increased 2% to $56 million primarily driven by the continued wrap up our benefit business.

As Mark mentioned earlier, we've begun execution of our capital management program in the third quarter and remain committed to returning capital to shareholders in line with our goal of 40% to 60% of non-GAAP operating earnings on an annualized basis.

On August 30th, we delivered our first quarterly cash dividend of $0.13 per share, resulting in a total of $73 million in dividends paid. Throughout the quarter, we repurchased $57 million of common shares in the open market. In total, this resulted in $130 million returned to shareholders during the quarter. In addition, our board of directors has this declared $0.13 per share, dividend based on our third quarter results.

For our 2018 capital management plan, we have $743 million of our combined $800 million share repurchase authorization remaining. It will aim to primarily repurchase shares from AXA going forward as it executes on its stated intention to sell down.

The $300 million authorization increase was enabled by a one-time benefit related to the release of a tax escrow no longer required at the holding company following the 2017 tax reform. At the company's current valuation, we felt it was in the best interest of shareholders to utilize these funds for an incremental share repurchase authorization.

Backing our capital management program and commitment to return 40% to 60% of operating earnings is our strong operating earnings generation. Favorable statutory assumption updates and robust capital position protected our hedging program.

All of these components support sustainable operating cashflows and provide confidence for our 2019 capital return program. Through the first nine months of 2018, we've upstreamed $1.3 billion of cash from our operating subsidiaries by maintaining a stable debt to capital ratio of 26%, in line with targets.

With that, I will turn the call back to Mark for some concluding remarks. Mark?

Mark Pearson -- President, and Chief Executive Officer

Thanks, Anders. Before breaking for questions, I'd like to reiterate this quarter's performance in the context of our long-term financial targets. On slide 14, we show a familiar snapshot of our key financial targets. Three-quarters of the way through the year, I'm very pleased with our results. We are well-positioned to continue to grow earnings while maintaining financial stability through market cycles and generating attractive returns and strong cashflows for our shareholders.

To reiterate our commitments, we hold ourselves accountable to deliver 5% to 7% compound annual growth in non-GAAP operating earnings through 2020, supported in part by the 30% adjusted operating margin target that AB has publicly reported, with a target payout ratio of 40% to 60%. This should result in an operating ROE in the mid-teens by 2020. Finally, we expect to maintain strong capitalization of CTE 98 for the variable annuity business and 350% to 400% RBC for the other insurance businesses.

With that, we'll open the call now to Q&A.

Questions and Answers:

Operator

Thank you. At this time, I would like to remind everyone in order to ask a question, press * then the number 1 on your telephone keypad. Your first question comes from the line of Erik Bass from Autonomous Research. Your line is open.

Erik Bass -- Autonomous Research -- Analyst

Hi. Thank you. Now that you've exited loss recognition and the protection business, how should we think about the run rate earnings power for that segment?

Anders Malmstrom -- Chief Financial Officer

Good morning, Erik. This is Anders speaking. I think as we've now exited the loss recognition testing, as I said, earnings volatility should come down. You can expect a run rate of about $50 million per quarter.

Erik Bass -- Autonomous Research -- Analyst

Thank you. I'm assuming with some seasonality in terms of immortality experience?

Anders Malmstrom -- Chief Financial Officer

Yeah, absolutely correct. There's seasonality to mortality. Because we exited loss recognition testing, all the other volatility should really be muted now.

Erik Bass -- Autonomous Research -- Analyst

Thank you. Given the rise in interest rates since you initially gave your target of $160 million of higher net investment income from the general account optimization, do you see any potential for upside if rates remain at or above current levels?

Anders Malmstrom -- Chief Financial Officer

Yeah. Look, I think that multiple factors play into the GA rebalancing. I would say from an interest rate perspective, because they're higher, there is offset there, but at the same time, keep in mind that the curve is much flatter than in the past. I think because of that, we're a little bit more cautious in duration when it comes to corporate in order to make sure we don't lose an opportunity and go too long and then the curve flattens. I would at this point in time stick to the $160 million. That's obviously if rates rise further, that would help, particularly if it would steepen, that would help as well.

Erik Bass -- Autonomous Research -- Analyst

Got it. Thank you.

Operator

Your next question comes from the line of Andrew Kligerman from Credit Suisse. Your line is open.

Andrew Kligerman -- Credit Suisse -- Managing Director

Hi, can you hear me?

Kevin Molloy -- Head of Investor Relations

Yes, now we can hear you.

Andrew Kligerman -- Credit Suisse -- Managing Director

Okay. Great. In line with your comment that you'd like to be in line with CTE 98 or you are in line with CTE 98, I look at one of your competitors, Brighthouse Financial and they complied with it and found that after factoring in tax reform and NAIC reform that they were short about $1 billion and they input certain capital and got above it. So, my question to you is with NAIC reform, with tax reform, would you be in line with CTE 98 and if not, how much capital might you need to put in?

Anders Malmstrom -- Chief Financial Officer

Yeah. That's a really good question. When we think about the NAIC reform, it has multiple components. As you mentioned, tax is an important one. We still go through the details, but what I can tell you today is I don't think we have any shortfall from a capital perspective. We actually believe right now that it will have no impact on our dividend capacity going forward, which means we're going to stick to the same target to be at CTE 98 in almost all scenarios going forward.

As I said, there are a couple of open points there and the committees haven't finalized everything, but we feel very confident.

Andrew Kligerman -- Credit Suisse -- Managing Director

So, from where you sit, Anders, no need to dividend down capital to the life operations from the parent?

Anders Malmstrom -- Chief Financial Officer

Absolutely. I think our dividend plan still sticks.

Andrew Kligerman -- Credit Suisse -- Managing Director

Then with regard to the robust sales that you saw in the variable annuity area, what's interesting is both equitable and your competitors seem to have done extremely well this quarter and I kind of benchmark it against thinking that annuity sales this year would be up maybe high single digits, low double digits depending on the products. I'm wondering is it the DOL registration going away? Was it a robust equity market in the third quarter? Looking forward over the next 12 months, do you think you can sustain this type of growth?

Mark Pearson -- President, and Chief Executive Officer

Hi, Andrew. It's Mark. Thanks for the question. Yeah, I'm very pleased to see our topline growth on the individual retirement business. It was a very quarter for us. We are seeing good momentum since the quarter as well. I think in addition to the point you made about the DOL, there was definitely an impact on the pattern of sales in 2017 in anticipation of a rule that didn't come in. That distorted the pattern. So, be careful quarter on quarter. The growth has come back for us.

I think a couple of things there for us. Firstly, the product innovation side, we were the pioneers and a leader on the SCS product and that's helped us very much. The other thing to take into account is our distribution strength, the partnerships we've got through AXA advisors, third parties, and into some insurance carriers is really helping in sales for us.

Andrew Kligerman -- Credit Suisse -- Managing Director

So, Mark, the growth potential still exists to continue?

Mark Pearson -- President, and Chief Executive Officer

Yes, we like the market and we like our position in it.

Andrew Kligerman -- Credit Suisse -- Managing Director

Okay. Thank you.

Operator

Your next question comes from the line of Jimmy Bhullar with JP Morgan. Your line is open.

Jimmy Bhullar -- JP Morgan -- Analyst

Hi, good morning. Could you talk about -- you mentioned annuity sales, just following up on that -- have you seen an increase in competition or any changes in demand for the SCS buffer annuity as other companies have come out with some similar products?

Mark Pearson -- President, and Chief Executive Officer

Yes, Jimmy. You're right. There is increased competition, particularly on that SCS, a number of competitors have followed us into that market. We'd still categorize the competition as rational. There's no return to the pre-2007 pricing problems. So, it's rational competition in there. I think there's two things. It's where we compete and how we distribute, as well as the products we have.

So, you'll remember me telling you that we were currently number 3 in the market but number 12 in the warehouses. So, we get a lot of our business where it's less spreadsheeting, less margin pressure. So, we think we're in a good position notwithstanding the increased competition.

Jimmy Bhullar -- JP Morgan -- Analyst

Okay. Then also could you remind us what your expectations are for free cashflow over the next couple of years, either a dollar amount or as a percentage of earnings?

Anders Malmstrom -- Chief Financial Officer

This is Anders speaking. I think what I can confirm is we stick to the 40% to 60% payout of our operating earnings. I think as you saw before, for 2018, we already showed that we're well within this range and you can expect that to continue over the next couple of years.

Jimmy Bhullar -- JP Morgan -- Analyst

Then just lastly on share buybacks, I think you mentioned this briefly in your comments, but I missed your point. Do you intend to just do open market purchases or could you do sort of an accelerated buyback in terms of participating in any offering?

Anders Malmstrom -- Chief Financial Officer

I think what I said, I would say if and when AXA sells down, we use the majority with AXA but we will also be in the open market.

Operator

Your next question comes from the line of Tom Gallagher with Evercore. Your line is open.

Tom Gallagher -- Evercore ISI -- Analyst

Good morning. Anders, I know you mentioned you think the FASB change will better align economics in variable annuities for you. So, you think it will be positive from that perspective. Can you provide any other perspective on initial estimates, even broader impressions you have on what the standard might be for your company in terms of book value impact or any other impacts we should be thinking about?

Anders Malmstrom -- Chief Financial Officer

Good morning, Tom. I think overall, as we said, the FASB reform really goes into the right direction. As you know, we manage our business to economics and right now, the biggest disconnect is that accounting is not economic. So, the FASB reform will really make it more economic. With that in the future, once this is implemented you can actually look at book value. Book value really gives you good indication how the business is performing going forward.

I think to give a quantitative impact, it's way too early. We need to do a little bit more work. Generally, it goes exactly in the right direction. It is how we want to manage the business on an economic basis, which will help in the end to actually look at all the indicators in the right way because today, this is not possible.

Tom Gallagher -- Evercore ISI -- Analyst

Got it. On the accounting asymmetry on the GMXB of $700 million a year, should I take that to mean when we look at your actuarial review, the $496 million net income loss or net loss for the quarter, if the economics today were better or if the accounting was better aligned with the economics there would have been a $700 million reserve release related to VA, which would have more than offset the net loss, is that kind of the high-level point you're trying to make there?

Anders Malmstrom -- Chief Financial Officer

Yeah. I think there are a couple of points there. In slide eight, we basically show the three components that we look at when we go from operating earnings to net income. It's the assumption update and then the edging piece, which is basically the $700 million guidance we gave you based on the management case and then it's the NPR.

The assumption update actually was amplified by the accounting mismatch because we updated annuitization. So, it was impacted by the asymmetry. So, it would be smaller under the new FASB rule. The hedging piece should principally go away in a perfect world and then the NPR goes through OCI in the future. So, all these three items would be much easier for all of us to actually talk about.

Tom Gallagher -- Evercore ISI -- Analyst

Okay. Final question -- the fact that you're now out of loss recognition testing, what does that effectively mean? Do you now have a thin margin or is there a big enough buffer within that business where you wouldn't expect it to be an issue from a volatility standpoint for several years? Can you provide a little more perspective there?

Anders Malmstrom -- Chief Financial Officer

Yeah. I think the good thing is we're out of the loss recognition and as we said, it's multiple reasons, one that we have high interest rates right now, which are reflected there. I would say if everything stays equal, we're in a good position. If interest rates would go back to where they were a couple of years ago, we would probably be seen again or negative, so with that, we have margin, but we don't have margin to withstand a 100-BIP reduction in interest rate.

Tom Gallagher -- Evercore ISI -- Analyst

Gotcha. Thank you.

Operator

Again, to ask a question, press * then the number 1 on your telephone keypad. Your next question comes from the line of Alex Scott with Goldman Sachs. Your line is open.

Alex Scott -- Goldman Sachs -- Analyst

The first question I had was a follow-up on one of Tom's questions. When I think about the economic liability, I think you mentioned in your prepared remarks that the economic liability is more consistent with where the liability would be once some of the accounting is updated. I appreciate it's early days to give an impact on the accounting, but would you give us a way to think about what level the economic liability is at now for the GMIB relative to, I think, the reserve that you guys disclosed currently?

Anders Malmstrom -- Chief Financial Officer

I would say maybe as a best proxy, take the CTE framework because the CTE is an economic framework. I think it's really way too early to give you a quantitative impact on the account versus the many factors are going to impact that number. Why don't you take the CTE as a proxy for the economic liability?

Alex Scott -- Goldman Sachs -- Analyst

Got it. The other question I had is on the AB stake -- as you guys are getting closer to year end, do you have any update on discussions with regulators and potential strategies to bring the AB stake that's in the life insurance subsidiary up to the holding company?

Anders Malmstrom -- Chief Financial Officer

Yeah, as I told you, I think it's in our interest to change the ownership structure. I think it's still too early to give you a date on where we are, but we're making good progress there.

Alex Scott -- Goldman Sachs -- Analyst

Got it. Thanks.

Operator

There are no further questions at this time. Ladies and gentlemen, thank you for joining. This concludes today's conference call. You may now disconnect.

Duration: 40 minutes

Call participants:

Kevin Molloy -- Head of Investor Relations

Mark Pearson -- President, and Chief Executive Officer

Anders Malmstrom -- Chief Financial Officer

Erik Bass -- Autonomous Research -- Analyst

Andrew Kligerman -- Credit Suisse -- Managing Director

Jimmy Bhullar -- JP Morgan -- Analyst

Tom Gallagher -- Evercore ISI -- Analyst

Alex Scott -- Goldman Sachs -- Analyst

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