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Equitable Holdings Inc (NYSE:EQH)
Q4 2019 Earnings Call
Feb 27, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Equitable Holdings Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Jessica Baehr, Head of Investor Relations. Thank you. Please go ahead, madam.

Jessica Baehr -- Head of Investor Relations

Thank you. Good morning, and welcome to Equitable Holdings Full Year and Fourth Quarter 2019 Earnings Call. Materials for today's call can be found in 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 point out the safe harbor language on slide two of our presentation. You can also find our safe harbor language in our 10-K.

Joining me on today's call is Mark Pearson, President and Chief Executive Officer of 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 now like to turn the call over to Mark and Anders for their prepared remarks.

Mark Pearson -- Chief Executive Officer and President Equitable Holdings

Thank you, Jessica, and good morning to all who are joining our call today. This morning, we are pleased to present our full year and fourth quarter 2019 earning results. We'll also provide an update on how we are performing against our key financial targets and strategic priorities. Before turning to our results, I would like to share an update of some recent highlights. Entering 2020, we again find ourselves in exciting and historic new territory. Today, we are delighted to once again be Equitable, having returned to the iconic American business name and brand that has been integral to our identity since 1859. As a series of secondary market transactions in 2019 effectively reduced AXA's economic interest to zero, we were hard at work, building our capabilities to ensure we will continue to succeed and thrive as an independent listed company.

In addition to creating our own frameworks, policies, structures and systems, we now have a governance body comprised of talented and diverse leaders, which accurately reflects who Equitable is today. Achieving independence was a pivotal moment for our organization. And while this transaction brought an array of opportunities and challenges, I'm proud that our teams kept their focus firmly on serving our clients as reflected in the strong results we are sharing with you today. When looking at 2019 in total, we delivered strong operating performance across the business, driven by net inflows of $25 billion and AUM growth of over $116 billion. Our robust cash flow enabled us to continue returning significant capital to shareholders to the tune of $1.6 billion in dividends and share repurchases throughout the year.

And the consistency of our performance and strength of our balance sheet continue to give us confidence in our ability to consistently return capital to shareholders over time. This is evidenced by the $600 million share repurchase program we announced just yesterday, an amount incremental to the $400 million buyback authorization that was accelerated into 2019. Together with our quarterly dividend, which we intend to increase next quarter, we remain well positioned to continue delivering on our 50% to 60% payout target ratio. As an update to our discussion from last quarter, I'm pleased to report that we've successfully early adopted the NAIC VA reform at the year-end. We believe that this framework, while not fully market-based, moves statutory accounting closer to an economic basis, which is how we manage our business. And under this framework, statutory cash flows will be better aligned with economics, and our hedging program will be fully reflected in statutory reserves.

As of year-end, our new RBC ratio under the new formula was approximately 500%, well in excess of a new minimum target RBC of 375% to 400%. Under the old NAIC capital and reserving standards, this minimum translates to CTE98 for VAs and 350% to 400% for non-VA business lines. And finally, rounding out our balance sheet and capitalization story, we opportunistically raised $800 million in preferred stock during the fourth quarter, further optimizing our capital structure and providing the holding company with additional liquidity and flexibility going forward. Turning now to slide four, and a summary of our strong financial performance in 2019. On a full year basis, non-GAAP operating earnings were $2.2 billion, excluding notable items, or $4.40 on a per share basis. This growth was driven by continued execution against our strategic priorities, significant growth in assets under management and the impact of our capital management program. Supporting these results was sustained momentum across each of our business segments.

In Individual Retirement, we grew sales by 12% year-over-year, led by 31% growth in our buffered annuity SCS product and supported by the strength of our distribution where we deepened existing relationships throughout the year and maintained leading positions across our focused distribution channels. In Group Retirement, 2019 marked the seventh consecutive year of positive net flows, as we continued to leverage our worksite advice model and leadership position in the K-12 market to help teachers achieve their financial goals and secure their retirement. At AllianceBernstein, assets under management grew by $107 billion, supported by strong markets, and over $25 billion of broad-based net inflows, reflecting strength across asset classes, distribution channels and geographies.

Lastly, our Protection Solutions business delivered strong earnings upside throughout the year and is generating encouraging top line momentum in our nascent employee benefits business. Overall, across these businesses, we continue to drive success by focusing on markets where we have scale and competitive advantages, and can get attractive return on capital invested. On this point, we generated a non-GAAP operating ROE of 16.4%, excluding notable items. And as of December 31, total company assets under management stood at $735 billion, an increase of $116 billion in the trailing 12 months. In conclusion, it was another strong year for Equitable Holdings. We are delivering on our commitments and enter 2020 from a position of strength and confidence in our ability to continue to create value for our clients, communities, partners and shareholders over the long term.

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

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Thank you, Mark, and good morning, everyone. On slide five, I will review our consolidated results for the fourth quarter before providing more detail on our segment results, capital management program and financial outlook. This quarter, we reported non-GAAP operating earnings of $652 million, up from $504 million in the prior year quarter. Driving this result was higher net investment income as well as an increase in fee-type revenue due to higher separate account balances and significant AUM growth. Also contributing to this quarter's result was the continued execution of our strategic priorities. To year-end, we've achieved a net savings run rate of $53 million, placing us on track to deliver on our $75 million target by the end of 2020. Additionally, as we announced last quarter, we've completed the execution of our GA rebalance one year ahead of schedule. And this quarter's results reflect the cumulative benefit of $152 million through 2019.

Finally, impacting earnings this quarter was net favorable notable items of $54 million, including favorable mortality and the reserve release in our Protection Solutions segment. I will provide additional detail on the segment pages. Normalizing for these items, non-GAAP operating earnings was $598 million in the fourth quarter, or $1.26 per share. Moving to GAAP results. We reported a net loss for the quarter of $937 million. As with prior quarters, this result was driven by noneconomic impacts from nonperformance risk and hedging results, which again performed in line with expectations. On that point, and in light of recent rate movements and equity market volatility, I'd like to reiterate that under our economic framework, our hedging program continues to protect our balance sheet and performed as expected with a 96% effectiveness.

To protect our balance sheet from further interest rate declines, we have significant interest rate hedges in place, fully duration matched, and we reprice our products on a regular basis to stay economic with current conditions. Moving to the segment slides. I will begin with Individual Retirement on slide six. Operating earnings increased from $348 million to $391 million, primarily driven by higher net investment income on higher general account balances and higher fee-type revenue on separate account balances. Also impacting results was $11 million of notable items related to higher net investment income in the current quarter. Overall, we continue to drive sales momentum throughout the quarter, with first year premiums up 12% year-over-year. Supporting this growth was another quarter of record SCS sales, which improved 31% from the prior year quarter, as we continue to deepen our relationships with existing distributors. Account values over the trailing 12 months grew by over $14 billion, driven by positive market performance.

And finally, our flows improved year-over-year, as consistent outflows from our pre-2011 block were partially offset by $842 million of net inflows on our current product offering. Turning to Group Retirement on slide seven. We reported operating earnings of $110 million, up from $102 million in the prior year quarter, primarily due to higher fee-type revenue and higher separate account balances. Results also benefited from $10 million of notable items related to higher net investment income in the quarter. Account values increased by approximately $5.5 billion year-over-year due to market appreciation and the seventh straight calendar year of positive net flows. Net flows in the fourth quarter also improved by $75 million versus the prior year period, driven by gross premium growth in both tax exempts and corporate markets. In total, gross premiums improved 10% year-over-year, including 20% growth in first year premiums.

Now turning to Investment Management and Research or AllianceBernstein on slide eight. Operating earnings increased 22% to $131 million from $107 million in the prior year quarter, primarily driven by higher performance fees and base fees on higher AUM and fairly stable fee rates. $6.5 billion of inflows marked the sixth straight quarter of positive net flows and were led by active inflows of $8.1 billion. For the full year, active net inflows were $29.7 billion, translating to 6.5% organic growth and reflecting broad strength across global fixed income, equity and alternative platforms. AB has continued to generate consistent results across asset classes and distribution channels. In retail, record gross sales of $75 billion for the full year drove active net inflows of $27 billion, translating to 20% organic growth. Moreover, 33 AB funds across asset classes, each had more than $100 million in net inflows during 2019. In institutional, active equity gross sales of $9.2 billion reached its highest level since 2008, and net inflows of $2.9 billion drove 9% organic growth.

Finally, AB's adjusted operating margin for the full year was 27.5%, down from 2018 due to one-time 2018 performance fees and Nashville relocation expenses. Looking ahead, we remain confident that the 30% margin target is achievable long term, particularly as AB continues to execute on strategic initiatives such as the relocation to Nashville and the further scaling of its offering. Moving to Protection Solutions on slide nine, where we reported operating earnings of $128 million, up from $37 million in the prior year quarter. As with the prior two quarters, we had favorable notable items this quarter, which post results above prior guidance. Specifically, operating earnings included notable items of approximately $58 million, primarily related to favorable mortality and a reserve release. Normalizing for these items, operating earnings would have been approximately $70 million in the quarter, which is on a full year basis translates to an 8.8% non-GAAP operating ROC. From a sales perspective, gross written premiums increased 3% year-over-year, primarily driven growth in renewal premiums.

Further, annualized premiums increased 5% year-over-year, driven by continued growth in our employee benefits business. I would now like to highlight our capital management program and capital position outlined on slide 10. In 2019, we returned over $1.6 billion to shareholders in the form of quarterly dividends and share repurchases. During the fourth quarter, we returned $633 million, which included $523 million of repurchases from AXA as part of its sell down in November. This completed our 2019 capital management program as well as $400 million of our 2020 program, which was accelerated into 2019, prior to the November secondary offering. Looking ahead, our Board of Directors has authorized a new $600 million share repurchase program, supported by strong sustainable upstream distributions from our operating entities.

In addition, we intend to increase our quarterly dividend by $0.02 to $0.17 per share payable in the second quarter, subject to Board approval. We believe these actions further demonstrate the company's earnings power and financial strength, and enable us to continue delivering on our target 50% to 60% payout ratio. As an update to our discussion last quarter, we have now successfully early adopted the new NAIC standards, which we believe better aligns with economics and fully reflects our economic hedging in statutory reserves. As Mark mentioned, under the new NAIC formula, we have established a new minimum capitalization target of 375% to 400% RBC. And as of year-end, our new combined RBC ratio was approximately 500%.

And finally, we continue to enhance our capital structure in the fourth quarter, opportunistically raising $800 million of preferred stock. The proceeds have been used to retire our term loan and will provide additional financial flexibility as we aim to further optimize our capital position going forward. We ended the year with a debt-to-capital ratio of 24.5%. Before turning the call back to Mark for his closing comments, I would like to provide an update on our strategic priorities and financial targets on slide 11. As you know, FASB target improvement standards are set to be implemented in 2022. And therefore, we plan to host an Investor Day mid-year 2021 with more detail around our longer term financial targets and strategy going forward.

For 2021, you should expect us to carry forward with the existing plan; growing EPS 8% to 10%, returning 50% to 60% of operating earnings to shareholders, generating a mid-teens ROE and targeting a 30% plus operating margin for AB. As a reminder, our new minimum target RBC of 375% to 400% translates to CTE98 for VAs and 350% to 400% for non-VAs under the old NAIC capital and reserving standards. As always, our risk culture permits everything we do and is at the core of all decisions that govern how we manage the business. We believe this is a key differentiator for Equitable, and it provides us with confidence in the strength and stability of our balance sheet and our ability to enhance and protect economic value for shareholders.

With that, I will turn the call back to Mark for closing remarks.

Mark Pearson -- Chief Executive Officer and President Equitable Holdings

Thanks, Anders. Before opening up to questions, I'd like to close by reiterating a few key messages. As you can see, 2019 was another remarkable year for our company. We generated strong performance and growth across the business, while successfully and consistently executing on our strategic priorities. As a result, we are returning meaningful levels of capital to shareholders with $1.6 billion in dividends and share repurchases in 2019, further supported by the strength of our balance sheet and robust cash flows. Overall, Equitable Holdings continues to deliver on the shareholder commitments articulated at the time of our IPO, and we maintain high conviction in our ability to continue generating value for shareholders. Looking ahead, we are operating from a position of strength as we again find ourselves in exciting and historic new territory. I look forward to the progress we will continue to make as Equitable.

With that, I'd like to open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Elyse Greenspan from Wells Fargo. Your line is open.

Elyse Greenspan -- Wells Fargo -- Analyst

Hi, thanks. Good morning. My first question. Late last year, you guys had entered into a small transaction with your closed block. And I guess if you can just kind of provide a little bit of a thought around the transaction that you announced late last year. And then also just thinking forward, we've heard a lot about interest within blocks within the life insurance space. Can you just provide a little update on other transactions that you might consider? And if that's a route you might want to go to free up a good amount more capital potentially for incremental share repurchase?

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Yes, good morning, Elyse. Thanks for your question. Look, I think we announced end of last year the transaction about USFL and MLICA. I think I see that more as a cleanup transaction for noncore businesses that we have. I think they are small, they are run off. But I think they actually helped the Protection Solutions segment to improve its performance. So really, you should see that as a cleanup transaction that helps us to simplify the structure and then and going forward, yes. Your question about everything else, you can expect us to continue to do this kind of small transaction. And they're helping us and our operational performance. But we also always look at any other ways to optimize the shareholder value.

Elyse Greenspan -- Wells Fargo -- Analyst

Okay, great. And then my second question. So the 8% to 10% earnings CAGR for 2021, that's a little bit higher, right, than kind of the 5% to 7% that you guys have been pointing to on through 2020? So is it just kind of more of the same? Or as we think about getting to 2021, should we think about incremental expenses that you're looking to pull out? Or is this more about just core business growth and continued capital return to drive you kind of an 8% to 10% EPS growth?

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Yes. Oh, maybe just to clarify that. I think when we came out on the IPO, we actually had earnings growth. And now we translate to what is market practice, EPS growth. So you should see that as a continuation of our strategy going forward.

Elyse Greenspan -- Wells Fargo -- Analyst

Okay. Thank you.

Operator

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

Jimmy Bhullar -- JPMorgan -- Analyst

Hi, good morning. I had a couple of questions. First, just on the retirement business. Your flows improved sequentially and versus last year. But if you look over the past few years, they've been fairly modest, I think less than 1% of your assets. So I just wanted to get an idea on what your outlook is? And do you feel that this is a level you'll sustain? Or can you get a little bit higher than that? Because many of your peers have actually, at least in the 401(k) market, done a little bit better.

Mark Pearson -- Chief Executive Officer and President Equitable Holdings

Jimmy, it's Mark Pearson. If you look at the flows on the Individual Retirement side, it's made up of two sources really, flows and new business, principally today through our SCS product, which is going very, very well. So on those on the new core business, net flows in the quarter of $842 million, and that's been offset by outflows on the old legacy GMxB business. So not a surprise to us, feel very good about the sales performance of the Individual Retirement business. I think I'm right, fifth consecutive quarter of record sales on the SCS side. So you've got the new business coming in, offset by some of the legacy outflows. That's going to help us on an ROE basis, as you know. And then on the Group Retirement side, which is the other part of our retirement business, seventh year of net positive flows, $267 million in the year, nice earnings quarter. So overall, we're doing well on our top lines and feel very good about it.

Jimmy Bhullar -- JPMorgan -- Analyst

And are you seeing any fee pressure in the teachers market? And do you expect any changes in practices business practices in the and the teachers market, just given the regulatory inquiries?

Mark Pearson -- Chief Executive Officer and President Equitable Holdings

Yes. Look, we're very proud of where we are on the teachers market. We have more than one million educators that would make us number one in the U.S. on the K-12 teachers market. And yes, we have been contacted by the regulators. They are doing a sweep off of practices. And obviously, as the number one player, we would be included in that. In terms of the fee pressure, no, no signs hitting our business there. But I would point out to analysts that the fees we collect there through the product are really rewarding us for the great advice we give. The teachers have a very complex retirement situation. They need to understand social security, the defined benefit schemes. And our teams come in and advise them on the supplementary retirement side as well as, of course, investment in asset allocation. So no pressure on the fees, and we feel very good in terms of the service we give. I mean the average teacher is paying about $25 to $35 a month for the advice, the asset allocation and the product service that we give.

Jimmy Bhullar -- JPMorgan -- Analyst

Thank you.

Operator

Your next question comes from the line of Ryan Krueger from KBW. Your line is open.

Ryan Krueger -- KBW -- Analyst

Hi, good morning. You had previously indicated that you are investing a strategic review of the AllianceBernstein stake. Can you give an update on your thinking as well as when you may disclose to us what you conclude on?

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Good morning, Ryan. I think as we talked before, the particularly your question about AllianceBernstein is the ownership. And I think we told you before, the ownership percentage of 65% is by history. Having said that, I think we feel very comfortable having AB as part of the group. I think we feel very comfortable from a cash flow standpoint. But we were still evaluating there if this is something we should change, if this is something we should keep, and we will come back later in the year to you.

Ryan Krueger -- KBW -- Analyst

Okay, thanks. And then I guess just on the RBC of 500% relative to the 375% to 400% target, I mean that should we think about this as something you may consider looking to drawdown? Or is it more of a function of, you're kind of managing a cushion above CTE98 and the target that we should really just expect ongoing cash flow to come out of the sub, but not for the RBC ratio to actually be worked down toward the target?

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Yes. Look, I think one thing that's very important. And overall, we managed the total company related to our economic model to make sure that we are available here to basically pay our duties to policyholders and to shareholders. That's why we feel very confident. For the insurance entity, we really laid out the RBC target, the 375% to 400% as a minimum target, making sure that we are well solvent above that, and are actually able to pay out the annual dividend from the operating entity up to the holding company. So I think to answer your question, this is a minimum target. You never want to be at the minimum. So you want to have enough cushion to pay out the dividend and to pay it in a sustainable way. So I think that's where we feel very confident.

Ryan Krueger -- KBW -- Analyst

Understood. Thank you.

Operator

Your next question comes from the line of Suneet Kamath from Citi. Your line is open.

Suneet Kamath -- Citi -- Analyst

Thanks, good morning. The first question on the 8% to 10%, effort 2021. I guess I'm struggling with what's the underlying base that we should be using in terms of that growth because, obviously, we just finished 2019, but we don't have a sense of where you're going for 2020. And obviously, there's a normalization factor as well. So can you just help us bridge from kind of where we are today? And what we should expect for this year? And then how we get to the 8% to 10% for next year?

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Yes. So look, I think when we had the IPO, we laid out the plan. So basically, gave you guidance that if everything works well, markets perform as expected, we're going to be somewhere between $2.2 billion, $2.3 billion in operating earnings. That's an underlying growth CAGR of 5% to 7%. This included the rebalancing of the general account, which had an impact of about $160 million in totality. As we told you, this program has concluded. So it's fully in effect. So we have the full impact by 2020. On the expense side, I think we are also on track to get the full impact of $75 million by 2020. So I think these are two initiatives that kind of amplified the underlying growth of the business. We're going to continue to work on efficiency. We're going to continue to work on the general account. I think that's our duty.

Don't expect it at the same pace, but still expect that to have a meaningful impact. In addition, we obviously work on the underlying business, as you just heard from Mark. I mean we see constant inflow on the Group Retirement business, which helps the underlying business. And I think also the other businesses are performing along that path. So I think you should continue to see good solid growth, supported by the initiatives I just mentioned.

Suneet Kamath -- Citi -- Analyst

Okay. I guess my second question for Mark on the AB stake. It's a question that we get quite often. With all the consolidation in asset management, how are you thinking about participating in that with respect to AB? Are you sort of actively managing that or having conversations? Or do you sort of let AB kind of operate on its own? And if something comes up and it comes to you then that's something that you'll think about. Just wondering how we should think about that.

Mark Pearson -- Chief Executive Officer and President Equitable Holdings

Yes. I think, as Anders said, we're very happy with our investment in AB. It's low capital intensive. The business is performing extremely well. I mean six consecutive quarters of funds growth, $25 billion net flows in the year. And AB, of course, has a unique franchise with its strong Asian operations and really growing alternates business. So the business is performing well. We're aware of the big transactions. I mean I think it's to be seen whether scale is the answer, but we don't feel in any desperate situation to do anything like that. The business is performing well. We're very happy with it. Seth and the team are outperforming their competitors. So we feel very, very good about it. As Anders said, we look at it from time to time, 65% is a it is an odd number. It's a number we are used to, and we will consider going forward, but don't expect anything imminent from us. Something we'll consider it.

Suneet Kamath -- Citi -- Analyst

Thanks.

Mark Pearson -- Chief Executive Officer and President Equitable Holdings

Will consider. Okay.

Operator

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

Thomas Gallagher -- Evercore -- Analyst

Good morning. Just a few more detailed questions about capital. So Anders, the do you have an estimate for total adjusted statutory capital at year-end that you could share with us? I think using the TAC from 3Q, I was solving for about $1.8 billion of capital above your minimum target. I want to know is that a proximal is that a good ballpark number to start with? And then relatedly, can you share how much cash and liquid assets you have at the holding company? It just says above $500 million, can you quantify that?

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Yes. So I think two very good questions. So I think just let's start with the excess capital in the insurance company. We laid out a 500% RBC we have under the new framework. That's meaningfully above our minimum target, and this translates in a $1.5 billion to $2 billion number. So that's pretty much as you expected. I think the holdco cash, I think you're going to get that number this morning when we file the K, so no surprises there later in the day. But right now, I can't give you that number, but expect it to be at a good level. Yes, I think that's where we are. Very solid.

Thomas Gallagher -- Evercore -- Analyst

Okay. And then my follow-up is, the $1 billion of quarterly outflows on the pre-2011 variable annuity business, can you quantify how much of those would be partial withdrawals, which you are utilizing or at least preserving the underlying living benefit or death benefit guarantees? And how much you would put in the category of more economically favorable, whether that's full withdrawals or not like efficiently utilizing the underlying guarantees?

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Yes. So we don't give the split of that. You can imagine that there's both components in it. In the outflows, I think there's natural outflows that people utilize it because they retire and they want to take the money, and then there's people because they need the money and they want to lapse the policy. But we don't give the split here.

Thomas Gallagher -- Evercore -- Analyst

Okay. Is that something you'd consider disclosing because I think that is pretty important from a risk reduction standpoint?

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Yes. So yes, I think look, I think what is important for you to know is it's really in line with our assumptions that we have. And on an annual basis, we update the assumptions. But what we see here is really in line with the assumption we put in our reserves.

Thomas Gallagher -- Evercore -- Analyst

Okay, thanks.

Operator

Your next question comes from the line of Alex Scott from Goldman Sachs. Your line is open.

Alex Scott -- Goldman Sachs -- Analyst

Hey, good morning. I just had a follow-up question on the holding company cash and just the preferred equity that you did. You mentioned paying down the term loan. I mean should we think about that as there is maybe some need to reduce leverage? So I guess, is that another way you are comfortable around, like the 25% debt-to-cap you're at right now?

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Yes. So I think the question is, we have the preferred that we raised at the end of Q4. We used some of the proceeds to pay back the term loan that would have matured, I think, in 2021. I think the leverage ratio we have, we are very comfortable with. So I think we really take that as an opportunity to just optimize our capital structure because right now it's very attractive to go out with preferred. So we use that as yes, really opportunistically to optimize our structure, but always have an eye on the leverage ratio. Obviously, something that we want to keep in the mid-20s.

Alex Scott -- Goldman Sachs -- Analyst

Got it. And then maybe one follow-up on sort of the excess capital. I guess I wanted to, a, confirm if the $600 million repurchase assumes any drawdown of excess at all? And then secondly, I just wanted to get an update on high level, how you think about it? If you do have some excess, whether it's the opco or holdco to use, what's sort of the priority checklist for you in terms of how you would look to use it?

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Yes. So the $600 million repurchase that we just announced assumes that we get another dividend out of the operating entity and later in the year, I think we made it always very clear. That's also where we're going to use, let's say, exercise the most of the buybacks in the later half of the year once we have the cash from the opco. Look, I think what I can tell you really from a guidance and particularly in our 2021, I think we're going to continue to pay out between 50% and 60%. I think that's a really good ratio really good payout ratio, obviously, managing the capital accordingly. As I said before, it's really the economic model that drives that, but we feel very comfortable that we can continue to pay out that range in a very consistent basis.

Alex Scott -- Goldman Sachs -- Analyst

And I guess just maybe one quick follow-up on that. Paying out 50% to 60% in a normal market environment, would you think that actually is drawing down excess? Or is that just kind of keeping the excess steady state?

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Yes, I think the way I look at it, it takes some of the excess down and then you generate new excess by just having the business. And one thing, this is important. I mean we talk about the normal market environment here. I think from a obviously, it's the equity market that drives the fees interest rates. I think we're totally immunized right now. We're really hedged, so the interest rate impact and the changes we see in the last few weeks and days have no impact on it. It's really on the equities where obviously the fees are dependent on how much you get. But we feel very comfortable there.

Alex Scott -- Goldman Sachs -- Analyst

Got it. Okay, thanks.

Operator

[Operator Instructions] Your next question comes from the line of Ian Ryave with Bank of America. Your line is open.

Ian Ryave -- Bank of America -- Analyst

Hey, good morning. My first question was just on the 8% to 10% EPS growth target. I may have missed it, but what are you assuming for interest rates? And if interest rates stay kind of where they are right now, the 1.3% on the 10-year treasury, what happens to that growth rate? Are we kind of toward the bottom end of that range?

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Yes. I think it's a really excellent question. I think, as I said before, we are very we are basically immunized on the interest rates. We have actually ALM-matched on interest rates. So we're not sensitive to interest rates on our balance sheet. For the new business, it's only 15% of the new business that actually has an interest rate component, and we reprice that on a regular basis. And so I think the interest rate impact is basically not there. Equity markets, as I said before, is obviously something that drives the fees of the underlying funds. And that's where we basically ride the market up and down. But interest rates, we are hedged economically on that.

Ian Ryave -- Bank of America -- Analyst

Great. And then just a question on the SCS. So most of the products have been sold in a generally rising equity market. And equity markets have been choppy, at least in the last week or two. I know that's not much of a time period. But how do you think philosophically? Distributors will think about this product if it only absorb some of the products only absorb the first 10% loss of principal. When we get kind of choppy markets like this, are they having different conversation with their clients? Just kind of want to get some understanding behind that.

Mark Pearson -- Chief Executive Officer and President Equitable Holdings

Ian, it's Mark. Obviously, as you know, SCS is a sort of medium-term duration. We're looking at five years, six years, 10 years out. So that's the first thing that conversation has. When the markets are choppy and a bit nervous, actually consumers value the downside protection and are prepared to give up some of the upside for precisely that for that reason. The other thing we're looking at, at the moment is designed concepts around there to adjust to the market. So as I mentioned earlier, Ian, it's our fifth consecutive quarter of record sales in SCS. I think it was up 30% or something. So the product is really meeting a need out there. And with the choppy markets, consumers will continue to be drawn toward some downside protection. We'll need to keep looking at the design. As Anders mentioned, we like the fact that this is not an interest-sensitive product. We can match on duration, which is what we do. So it's a very good product for shareholders and for our policyholders and selling very, very well.

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Yes. And maybe just to chime in. I mean there's the interesting piece is actually when you have higher volatility in the market, it makes the product more attractive. So the caps actually go up because of the way it's hedged. So this product becomes more attractive for policyholders in choppy markets. And we actually, in addition to the 10% downside, you also have a 20% to 30% buffer if consumers like that.

Ian Ryave -- Bank of America -- Analyst

Great, thank you.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Jessica Baehr -- Head of Investor Relations

Mark Pearson -- Chief Executive Officer and President Equitable Holdings

Anders Malmstrom -- Chief Financial Officer Equitable Holdings

Elyse Greenspan -- Wells Fargo -- Analyst

Jimmy Bhullar -- JPMorgan -- Analyst

Ryan Krueger -- KBW -- Analyst

Suneet Kamath -- Citi -- Analyst

Thomas Gallagher -- Evercore -- Analyst

Alex Scott -- Goldman Sachs -- Analyst

Ian Ryave -- Bank of America -- Analyst

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