AXA Equitable Holdings, inc (EQH) Q2 2021 Earnings Call Transcript

AXA Equitable Holdings, inc (EQH 1.68%)
Q2 2021 Earnings Call
Aug 6, 2021, 10:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and thank you for standing by. Welcome to the Equitable Holdings Second Quarter Earnings Conference Call. At this time all participant lines are in listen-only mode. After the speakers' presentation, we will have a question-and-answer session. [Operator Instructions] Now I would like to hand today's conference over to Head of Investor Relations, Isıl Muderrisoglu. Please go ahead.

Isıl Muderrisoglu -- Head of Investor Relations

Thank you. Good morning and welcome to Equitable Holdings Second Quarter 2021 Earnings Call. Materials for today's call can be found on 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 refer you to the Safe Harbor Language on slide 2 of our presentation for additional information.

Joining me on today's call is Mark Pearson, President and Chief Executive Officer of Equitable Holdings; Robin Raju, our Chief Financial Officer; Nick Lane, President of Equitable Financial; and Ali Dibadj, AllianceBernstein Chief Financial Officer and Head of Strategy. 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, reconciliation 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 Robin for their prepared remarks.

Mark Pearson -- Chief Executive Officer and President

Thank you, Isil, good morning, and thank you for joining our Second Quarter Earnings call. While there have been some signs of returning to normalcy, of course this pandemic is not over and we all know we need to be vigilant and especially, watch the Delta variant. That said, the consistently strong results we have delivered over the last 18 months, including those of the second quarter, we will present today were made possible by the extraordinary efforts of our Equitable team and our continued economic management of the business.

Turning to Slide 3, there are four points which highlight our results for the quarter. Firstly, strong results supported by robust net flow. Our second quarter non-GAAP operating earnings of $758 million or $1.71 per share were up 74% on a year-over-year share basis, driven by strong performance from both Equitable and AllianceBernstein. Assets under management increased 22% year-over-year to $869 billion driven by strong net flows of $6.1 billion attributable to robust first year premiums and another quarter of strong inflows at AllianceBernstein, as well as positive equity markets. These comparisons to a year ago are flattening because we are in the middle of the COVID lock-down this time last year. Perhaps it is more meaningful to look at the momentum from Q1 this year. Operating earnings are up 26% quarter-over-quarter and assets under management are up 6% this quarter.

Second highlight, we continue to optimize shareholder returns. We were very pleased to announce the close of our Landmark Variable Annuity reinsurance transaction with Venerable in June. As a reminder, this transaction significantly de-risked our balance sheet. Reducing CTE98 capital by more than 64% and unlocking $1 billion of economic value. Our relationship with AllianceBernstein also provides us with an opportunity to optimize risk-adjusted returns. We have committed a further $10 billion of our general account to AB's illiquid platform to help them build out private placement bonds and private alternative investments. This provides a number of benefits. First, additional yield for the general account which will boost EQH earnings and second, AB will receive incremental uplift in fee revenue and we'll use this capital to attract other third-party investors and build higher multiple businesses for shareholders. Thirdly, Regulation 213. Understandably we have received questions on the impact of this regulation. At Equitable, our economic risk management framework remains the cornerstone of how we manage the business. REG 213 does not impact the economic solvency of the business at all.

However, RBC solvency ratio and the amount of dividend we can return to shareholders is driven by statutory reserving. And as we are domiciled in New York, REG 213 applies to these measures and could have the unintended consequence of requiring us to hold redundant reserves and would not be required if we were domiciled outside of New York State. We've been working closely with the New York DFS. They've been very responsive to address this issue, and I'm pleased to tell you we have received the permitted practice. The permitted practice defers the impact over five years. Our RBC at the end of the second quarter allowing for this committed practice and net management actions like corporate restructuring stands at approximately 450%. And combined with further management actions we can take in the future, and our strong capital position of $2.5 billion at holdings, we can maintain cash flows and continue to deliver on our 50% to 60% payout ratio during this 5-year committed practice period. This period enables us to continue to work with the DFS and take other management actions such as reinsurance to permanently reduce redundant reserves. I want to emphasize, any actions we pursue on REG 213 will not impair our economic balance sheet to solve this uneconomic statutory accounting issue, and we will continue to manage the business on an economic fair value basis. Robin will provide more details shortly.

And the final highlight is our announcement of new targets to drive long-term value. With our agile workforce and technology-enabled capability, we feel comfortable to deliver an incremental $80 million of expense savings by 2023. With the move to more illiquid asset classes in AB, we target an additional $180 million of incremental investment income by 2023. These new targets combined with our shift towards a more capital-resilient business mix and leveraging synergies with AB give us confidence in our ability to achieve 8% to10% EPS growth while delivering on our mission help clients secure their financial well-being so they can pursue long and fulfilling lives.

Turning to slide 4, I would like to highlight our main strategic initiatives and differentiate us that give us confidence that we can continue to drive long-term shareholder value. The strength of our distribution model with more than 4,000 Equitable advisors and over 1,000 third-party relationships, continues to distinguish us as a leader in target markets where we have competitive advantages. As the number 2 variable annuity provider, we continue to focus on bridging the retirement gap and are the number one Raila [Phonetic] provider posting record SCS first year premiums of $1.9 billion in the second quarter as clients continue to look to the buffered annuity market for accumulation solutions.

In our Group Retirement Business, we are the number one provider of supplemental retirement solution in the educators' K through 12 market, and our business now has $45.9 billion of assets. Gross premiums were $928 million in line with pre-pandemic levels as our advisors continue to leverage digital capabilities to engage with teachers and other clients in this remote environment. In addition to his contributions as a strategic partner, AB continues to produce solid results with another strong quarter of positive flows, including its 17th consecutive quarter of positive, active equity net flows in their retail channel. Second quarter net flows were $6.2 billion positive in each channel, driven primarily by retail of $5.2 billion, institutional of $0.9 billion and private wealth of $0.1 billion. Net flows were primarily driven by active equities, multi assets, and municipals.

Importantly, 70% of AB's U.S. rated assets and 54% of Luxembourg rated asset were full or 5-star rated by Morningstar. We also continue to focus on growing our nascent business search and I would like to highlight the continued momentum in our Wealth Management business this quarter. Assets under advice is up 41% supported by positive net flows and equity markets and we continue to see strong engagement between our advisors and their clients as they seek financial planning and advice. As I referenced last quarter, we believe a critical component of delivering shareholder value is bridging profits with progress. In July, we announced the close of our inaugural sustainable financing transaction. This offering allowed us to strengthen the impact of our investment portfolio on society, delivering additional yield for our investment portfolio and contributes to the work our teams are doing to ensure that Equitable remains a force for good.

Turning to slide 5, I would like to take a few moments to talk about our synergies with AllianceBernstein. Managing $121 billion of the separate account and general account assets, Equitable and AB create opportunity for each other, ultimately driving enhanced value for shareholders. At the time of our IPO, we announced a target of $160 million of incremental income as we've shifted our portfolio from U.S. treasuries to public corporates, to better align with our USPs. We achieved this target ahead of schedule in 2019, with an additional $80 million achieved in 2020 as we opportunistically manage the portfolio during the market dislocation we saw last year. We continue to utilize our economic risk management framework to further optimize our investment portfolio. Leveraging AB's investment capabilities, we look to capture illiquidity premium by shifting from public corporates to private credit, structured assets and alternatives without sacrificing the quality of our book. As a result of these efforts, we are targeting a $180 million of incremental income by 2023 to further general account optimization and FABN issuances.

In addition, we are committing $10 billion of general account assets to help build out AB's higher multiple businesses and attract additional third-party capital, in turn, driving greater earnings potential for AB and EQH. As evidenced by an initial commitment of $5 billion, which has since grown 4 times to over $21 billion today, AB has a proven track record of growing its private alternatives platform. Looking ahead, we will continue to leverage the unique synergies of our AB relationship to drive value for shareholders. I'll now pass it to Robin to walk through our second quarter results. Robin.

Robin Raju -- Chief Financial Officer

Thank you, Mark. Turning to slide 6, I will review our consolidated results for the second quarter before providing more detail on segment results, the Capital Management program and update to REG 213. Non-GAAP operating earnings were $758 million for the second quarter, up 68% from $451 million in the prior year quarter. Non-GAAP operating earnings per share increased by 74% to $1.71 per share, primarily driven by strong net investment income attributable to strong performance from our alternative investment, higher prepayments, increased fee revenue on higher asset and share repurchases from our buyback program. The strong performance for the quarter reflect notable positive one-time impact of $100 million or $0.23 per share, resulting from prepayments and alternatives. The strong performance for the quarter reflect a notable positive one-time impact of $100 million or $0.23 per share, resulting from prepayments and alternatives. Normalizing for these items, non-GAAP operating earnings were $658 million in the second quarter or $1.48 per share, benefiting from strong new business flow, growth in our general account and continued focus on expense management.

Keep in mind, going forward, we will have an annual impact of $180 million per annum resulting from the Venerable deal or approximately $45 million per quarter, which we expect to decrease over time due to claims patterns of the business. The Venerable deal unlocked $1 billion in economic value for us, but has a negative short-term impact on GAAP. AUM in the quarter increased to $869 billion, supported by strong equity market and positive net flows of $6.1 billion, increasing 22% versus the prior year quarter.

Moving to GAAP results. We reported a $123 million gain in the quarter, which is primarily driven by the asymmetry in accounting between our economic hedging and GAAP liability. With the close of our legacy variable annuity reinsurance transaction we expect a reduction in its 8th inventory from hedging up $300 million annually through a range of $700 million to $1 billion per annum. Additionally, our option budget-related to our static hedge program decreased by $50 million to approximately $150 million to $200 million per annum. In the quarter our hedging program performed as expected with 95% effectiveness. As a reminder, we've managed on a fair value basis which means we did not take back on interest rate and hedge to our full economic liabilities.

Moving to the business segment, I'll begin with Individual Retirement on Slide 7. Non-GAAP operating earnings of $414 million were up 18% versus the prior year quarter, driven by the higher net investment income from prepayment and alternatives and higher fee revenue on higher account value. This is slightly offset by the lower earnings resulting from the Venerable transaction, which closed on June 1st. While there is limited impact this quarter, we expect $180 million of earnings impact per annum related to transaction as I mentioned earlier. The higher guidance is driven by stronger equity markets observed over the last year. In the segment, first year premiums improved 69% versus the prior year quarter, driven by record sales of $1.9 billion in structured capital strategies. This is our strongest quarter of first year premiums for the segment in over a decade, reflecting the breadth and depth of our distribution and continuous innovation.

Net inflows of $752 million on our current product offering attributable to record sales were offset by expected outflows from our capital intensive fixed rate loss of $940 million, which is in line with our expectation and further de-risk our in-force. On an annual basis, we expect net flows to improve by approximately $1.3 billion following the Venerable transaction. The Venerable transaction validated our economic-reserving and should give investors comfort on the quality of earnings in this segment. Combined with our differentiated distribution, we remain well-positioned to deliver protected equity and secure income solutions for our clients.

Turning to Group Retirement on Slide 8, we reported operating earnings of $171 million, up 90% versus the prior year quarter, driven by higher net investment income from prepayments and alternatives and higher fee revenue at higher account values. Account values increased by approximately $8.9 billion year-over-year due to market appreciation. Net flows increased to $68 million, led by continued positive net inflows in our forward rebate business, an improvement from net outflows experienced in the first quarter. Gross premiums remain strong at $928 million, in line with pre-pandemic levels highlighting the resilience of our business model. We continue to see an increase in renewal contributions, up 9% year-over-year, demonstrating the strength of our advisor relationships with our clients.

Now turning to AllianceBernstein on slide 9. In the second quarter, operating earnings were $126 million, up 37% year-over-year, primarily driven by higher base fees on higher average AUM, a 1% year-over-year increase in the fee rate and lower operating expenses. AB generated net flows of $6.2 billion in the quarter, attributable to positive flows across all 3 distribution channels, including $6.7 billion of active net inflows and gross sales of $45 billion. It will be AB's 7th straight quarter of positive active equity net inflows. Strong net inflows were led by the retail channel, which reported a second strongest sales quarter-to-date with $5.2 billion of net inflows and the 17th consecutive quarter of active equity net inflows in the channel. In AB's institutional channel, the pipeline grew to a record $17.8 billion, up 17% sequentially, primarily driven by a large $8 billion customized retirement mandate in addition to concentrated global growth and global core mandate. AB continues to deliver strong performance with 2/3 or more fixed income and equity assets outperforming on a three and five-year basis.

Total assets under management at the end of the second quarter with $738 billion, up 23% from the prior year quarter, attributable to strong market performance and positive net flows. Both of these factors contributed to a strong adjusted operating margin in the quarter, up 31.7%, As Mark mentioned, we like the synergies between the insurance company and the asset management company. As we commit $10 billion of capital to grow AB's higher multiple businesses and deliver better risk-adjusted general account yield for Equitable.

Moving to Protection Solutions on Slide 10. We reported operating earnings of $63 million, up from the $12 million loss in the prior year quarter primarily driven by higher net investment income and higher fee revenue on higher account value. We had improved mortality experience compared to the prior year with limited impact related to COVID-19 in the quarter. We continue to monitor conditions though as they evolve, particularly in light of the Delta variant and maintain our prior guidance of $30 million to $60 million per 100,000 U.S. deaths. Gross premiums increased to $748 million, up 8% from the prior year quarter. This was primarily driven by strong growth in our Employee Benefit business, up 34% year-over-year and our Variable Universal Life product, which is up 20% year-over-year.

Highlighting our shift to less interest-sensitive products, we continue to see strong growth in our Employee Benefits business. With year-to-date sold premium already exceeding full-year 2020 results and approximately 536,000 enrollees. Further, average premium per enrolled employees is up 13% year-over-year at $413 per employee compared to $366 per employee in the prior year quarter. While we expect some volatility in this segment, we continue to guide toward approximately $50 million in operating earnings per quarter.

Turning to slide 11 we, remain in a strong capital position. We closed the quarter with $2.5 billion of cash and liquid assets at the Holding Company, well above our $500 million minimum target. As a reminder, the reinsurance transaction with Venerable which closed on June 1, significantly de-risked our balance sheet and unlocked approximately $1 billion of economic value. Also as part of the transaction, we acquired a 9% equity stake in Venerable's parent holding company for a purchase price of $185 million, which allows us to have a seat on the Venerable Board. We continue to return capital to shareholders and in this quarter we have returned $355 million, including $240 million of residual shares held by AXA after the settlement of their mandatory exchangeable bond in May.

Additionally, we accelerated $300 million of share purchases in July. We remain on track to deliver our 50% to 60% payout ratio target this year, plus the additional $500 million as part of the Venerable transaction. As Mark said earlier, we have received the Permitted Practice from the New York DFS on REG 213 Redundant Reserves, which allows us to continue delivering on our target payout ratio. I'll share more detail on the final slide. Finally, we closed the second quarter with a combined RBC ratio of approximately 450%, inclusive of the initial REG 213 impact which is above our minimum part of range of 375% to 400%.

Turning to slide 12, I would like to provide an update on our plan to mitigate the on economic impact of REG 213. An unintended impact of the regulation creates the need for us to hold redundant reserves that will not be required if we're domiciled outside of New York State. This has no economic impact on our business and it's purely a statutory Redundant Reserve. We received the Permitted Practice from the New York DFS that offsets the initial impact and allows us to phase in approximately $2 billion of Redundant Reserves over 5-years, thus mitigating the impact to our dividend capacity from our operating subsidiaries. As a result, there is a minimal impact in the second quarter from REG 213 and with our strong cash position of $2.5 billion at the Holding, we have sufficient capital to maintain our payout ratio through 2022 without any management actions.

Looking ahead, we have begun internal restructuring, targeting an increase of unregulated cash flow from 35% up to approximately 50% by year-end, which will decrease our reliance on dividends from our New York subsidiary. To date, about half of the internal restructuring is complete with an increase in unregulated cash flows of approximately $100 million per annum through internal finances. So currently we are working on internal and external reinsurance solution that we can implement over the next few years, which will accelerate the release of Redundant Reserves. We are also utilizing our non-New York insurance entities to distribute business outside of New York with a target of approximately 90% of products sold through this 49-month structure by the end of 2022, mitigating any impact of Regulation 213 going forward on our new business.

Although we are not pleased with the Redundant Reserves the New York DFS requires, we are pleased the Department reacted quickly for our needs for Permitted Practice as we continue to advocate for more economic reserving framework. As we work toward additional management actions, our core principles remain unchanged. We will continue to manage the business on an economic basis, deliver on our 50% to 60% payout ratio in the shareholder and focus on long-term economic value generation. I'll now pass it back to Mark.

Mark Pearson -- Chief Executive Officer and President

Thank you, Robin. Before opening up the line for your questions, I would like to reiterate some highlights from our second quarter results. First we have delivered another strong quarter driven by solid performance and new business flows. Second, in alignment with our strategic priority to optimize shareholder returns, we are proud to have closed our landlocked VA reinsurance transaction, which meaningfully strengthens our balance sheet. We all continue to build upon synergies between Equitable and AllianceBernstein with a further $10 billion commitment to AB strive higher earnings potential for both companies. Third, the Permitted Practice for REG-213 Redundant Reserves along with our strong capital position and management actions allows us to reaffirm our target payout ratio. And lastly, we are continuing to execute on our strategy to drive long-term growth supported by our shift to capital resilient businesses and new GA and expense targets. With that I'd like to open the line for your question.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question will come from the line of Elyse Greenspan with Wells Fargo.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Hi, thanks. Good morning. My first question is on the capital side, so I just wanted to get an update guys also since the Venerable deal spoken about looking at M&A as well. Just an update on what you're seeing on the deals side of things over the last quarter or so.

Mark Pearson -- Chief Executive Officer and President

Good morning. Elyse, it's Mark here. So, thank you for the question. Obviously a lot of activity in the marketplaces is behind your question. We like the possibility of bolt-on deals as a way to accelerate growth and add capabilities. So we remain open to M&A. But in consistent with our strategy, areas of interest for us would be employee benefits and wealth management and obviously supporting the build out of alternatives on the AP side. So we continue to look, we have nothing to brief you on today but always with us, I think you can be assured it would need to complement our existing strategy, make economic sense and most importantly provide long-term value creation for our shareholders. That's really our position.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

And then I was hoping to get just some additional color, just the SCS sales are really strong in the quarter, what are you seeing from the competitive environment there? How do you think sales should trend over the balance of the year, even our initial thoughts on 2022 as well.

Mark Pearson -- Chief Executive Officer and President

Nick, do you want to take that?

Nick Lane -- President

Sure. Thank you. As Mark and Robin stated, we saw record sales in the quarter, led by our $1.9 billion of SCS sales. We continue to see strong consumer demand out there. We expect the pie to continue to grow. We believe competitors entering the space is a net positive because it validates the asset class demand for advisors and given our strong distribution network, we are continued to be well-positioned and it allows us to focus on profitable growth going forward.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Okay, thanks for the color.

Operator

And our next question will come from the line of Nigel Dally with Morgan Stanley.

Nigel Dally -- Morgan Stanley -- Analyst

Great. Thanks and good morning. So with the uncertainty of REG 213 now resolved, or at least in the process of being addressed, the natural question is, why not be more aggressive with buybacks? It seems like you're still sitting on a large amount of excess capital yet, the incremental buybacks is only half of the economic capital which we released from the Venerable transaction. Wouldn't it make sense to return a little more of that back to shareholders now the REG 213 has been resolved?

Robin Raju -- Chief Financial Officer

Thank you, Nigel for your question, it's Robin here. You know, most importantly for us is continue to manage on an economic basis and consistently deliver 50% to 60% payout to shareholders. As you know, this year, we committed on top of our normal 50% to 60% payout, $500 million more on top of that as a result of the Venerable deal. And over time as capital gets freed up will continue to return capital to shareholders.

Nigel Dally -- Morgan Stanley -- Analyst

Just a follow-up on that, you're getting the Permitted Practice is encouraging, but the best outcome would have been a change in the regulation? Is that still a possibility or I think it's a fundamental differences in your view of economic capital relative to DFS that’s what are appropriate reserves for your VA block.

Mark Pearson -- Chief Executive Officer and President

So I think -- we think the DFS was well intention with REG 213. However, it clearly had unintended consequences and has been economic. And we don't see any other reserve that's comparable in any other state. Overall, the relationship with the DFS, good, it proved the Venerable deal and it's Permitted Practice all through health time in that pandemic. They have indicated throughout that the staff level that they don't intend to turn REG 213 now. So we'll continue to work with them on a more economic reserving framework in the future. But I think most importantly, with the $2.5 billion of cash, 450% RBC and the permitted practice it's enabled us to keep our payout ratio for shareholders over short, medium and long-term.

Nigel Dally -- Morgan Stanley -- Analyst

That's great. Thanks, Robin.

Operator

And our next question will come from the line of Jimmy Bhullar with J.P. Morgan.

Jimmy Bhullar -- J.P. Morgan -- Analyst

Hi, good morning. So, I had a question on the Group Retirement business and I think through most of the last few years, your loans have actually been much more stable and healthier than most of your peers and I understand the make-up of the business is different, given the teachers' exposure, but they've been fairly weak this year and they're down through in both quarters of the year versus last year. So, I think last quarter you mentioned you have seen some weakness because of small businesses, but just if you could talk about what's going on there and what's your outlook as for the business.

Nick Lane -- President

Great. Thanks, Jimmy. This is Nick. As we reported, we saw $119 million improvement in net flows in Group Retirement quarter-to-quarter in our tax-exempt business, which is our teacher, we saw strong renewals, up 9%. That sector continues to be resilient, teachers are busier than ever and I think we're well-positioned given our investment and remote technologies to continue to go deeper and broader across our 800 plus thousand clients. In the corporate segment, which is our SME, we did see an improvement in surrenders. Last quarter, we had some expected planned de-conversions, we saw improvement there. So we look at our business, I think our core tax-exempt is strong, we see digitals is giving us an opportunity for the future and we're continuing to penetrate the SME space.

Jimmy Bhullar -- J.P. Morgan -- Analyst

Okay. And on the 213 resolution with New York, the initial impact that you're talking about, phased in over the next few years, is that on the overall in-force and should that impact increase as you're still selling some business through New York or is that already taken into account?

Robin Raju -- Chief Financial Officer

Hey, Jimmy. Yes, that's already take into account, but as I mentioned in the presentation, we have plans in place to write about 90% of our business outside of New York next -- by the end of 2022. So we remain well-positioned on a new business perspective and on the import, as I mentioned earlier the Permitted Practice along with our strong capital position sets us up here to continue to deliver capital to shareholders.

Jimmy Bhullar -- J.P. Morgan -- Analyst

And some capital obviously it's still is by then tied up because of it and then it increases over time. But if you are able to find a solution, then that gets released but barring a solution then more capital gets tied up because of the differences in regulations between states.

Robin Raju -- Chief Financial Officer

That's right.

Jimmy Bhullar -- J.P. Morgan -- Analyst

Okay, thank you.

Operator

And our next question will come from the line of Suneet Kamath with Citi.

Suneet Kamath -- Citi -- Analyst

Thanks. Maybe circling back to REG 213 to start. So Robin, can you just talk about the outlook for dividends from your New York sub over the next couple of years. Of those strategies that you mentioned, I guess, on Slide 12, how long is it going to take to execute against some of these things. Is this a 2021 and 2022 event or could it take longer than that?

Robin Raju -- Chief Financial Officer

Sure. Thanks, Suneet. I think the key is, historically we've always -- as a holding company received $1.5 billion of upstreams from our subsidiaries, we continue to expect that from the subsidiary but expect it to be shifted as we'll have more unregulated cash flows as a result of some of the management actions that we're taking, and that should position us well for the future. The management actions from the 35% to 50% or unregulated cash flows should be completed by year-end any of the reinsurance transaction, if they make economic sense we will look at in 2021-2022 time period.

Suneet Kamath -- Citi -- Analyst

So just to be clear, you're still focused on the $1.5 billion on an annual basis.

Robin Raju -- Chief Financial Officer

Correct.

Suneet Kamath -- Citi -- Analyst

Got it. And is there any earnings impact from any of these actions that you're taking, or is it sort of earnings neutral?

Robin Raju -- Chief Financial Officer

Now, I mean if Redundant Reserve that REG 213 is purely statutory, no impact on GAAP or the economics and all the actions that we take will not impair any of our management of the stated balance sheet on an economic basis.

Suneet Kamath -- Citi -- Analyst

Okay, got it. And then my second question, I guess for either Mark or Ali or both. So clearly, you guys have done a lot with the Equitable-AllianceBernstein partnership in terms of managing the general account, but one of the things that you've talked about is trying to scale up Equitable advisors and obviously AB has a private client business. Is there any way to think about using those two business to scale the wealth management of both operations or are they're just so different that you can't really think about some combination of the two. Thanks.

Mark Pearson -- Chief Executive Officer and President

Ali, do you want to have a go of that? [indecipherable].

Ali Dibadj -- Head of Finance and Strategy

Sure. So. Okay. I think there are couple of things to think about. One is, it is a complementary client set on average. There is certainly some overlap but it is a little bit complementary in terms of what products are being served and the clients are being served, that's one thing. On the one hand, that offers the opportunity to progress the client perhaps across income levels or life stages and that's something that we're certainly thinking through and trying to capitalize on. On the other hand, the second point is that the products are also different. And so something that you'd offer perhaps ultrahigh net worth client, which is a little bit more intune to what we do at the AllianceBernstein private wealth side is going to be different than what might happen on the Equitable adviser side. That doesn't mean there aren't any to your point opportunities there. It's something that the two firms are working more and more cohesively on and thinking through from a client segmentation perspective, from a model of portfolio perspective etc. There are opportunities, but we haven't quite capitalized on those at this point. So the short answer is, yes, there is opportunity but we haven't quite fleshed it out and it's something we're looking forward to trying to do going forward.

Suneet Kamath -- Citi -- Analyst

Okay. Thanks.

Operator

Thank you. And our next question comes from the line of Ryan Krueger with KBW.

Ryan Kreuger -- Keefe, Bruyette, & Woods -- Analyst

Hey, good morning. Could you provide any more detail on I guess what you're doing specifically to increase the unregulated cash flow.

Robin Raju -- Chief Financial Officer

Sure. Ryan. It's been a key focus for us since IPO on increase in unregulated cash flows. You saw us do it in the past by upstreaming the AB unit for the Hold Co. and now we're taking that next step and specifically what we're doing, we're providing administrative services for our mutual fund in the insurance separate account from another subsidiary in the Hold. Co. This enables us to service both the business outside of New York, but also the new business that we'll be selling outside of New York going forward. So specifically there's Service Administration contract that we're providing for the mutual funds underlying our separate accounts and they were approved by the independent Board at the mutual funds in the second quarter.

Ryan Kreuger -- Keefe, Bruyette, & Woods -- Analyst

Got it, thanks. And then in terms of potential internal and external reinsurance, would this be more focused on the annuities or could this be on the Life Block?

Robin Raju -- Chief Financial Officer

I think in anything that we do, will be on an economic basis, number one. The second aspect, we're going to look at all blocks from an in-force perspective, life and annuity and if something makes economic sense that impact the Redundant Reserves related to REG 213, we'll take a serious look and consider options.

Ryan Kreuger -- Keefe, Bruyette, & Woods -- Analyst

Thanks. Just one quick, I may have missed it but do you still expect corporate segment annual office to be around $300 million a year?

Robin Raju -- Chief Financial Officer

That's right. That's our expectation. There is obviously some seasonality that we saw in this quarter, but $300 million on an annual basis for corporate and other.

Suneet Kamath -- Citi -- Analyst

Great, thank you.

Operator

And our next question will come from the line of Thomas Gallagher with Evercore.

Thomas Gallagher -- Evercore ISI -- Analyst

Good morning. Just, some questions on this REG 213. The 5-year Permitted Practice from the NY DFS that was already, I guess on the books in early 2021, is that just you, requesting to use the 5-year phase-in or is there something different? And apart from that, that was granted to Equitable.

Robin Raju -- Chief Financial Officer

Sure. Tom, it's part of the Venerable transaction, it unlocked $1 billion of economic value, significantly reduced the risk in the Company but accelerated the REG 213 reserve as it wasn’t aligned for economic hedging. So the Permitted Practice allowed us to defer that acceleration and align it better through our interest rate hedging specifically on an economic basis and as we get to phase in those Redundant Reserves over a 5-year period as a result.

Thomas Gallagher -- Evercore ISI -- Analyst

Okay and so Robin, the 450% RBC would reflect what 20% of the initial impact of this so far then, would that be about $400 million or the $2 billion is reflected in your 450% RBC at this point?

Robin Raju -- Chief Financial Officer

No, it did minimal impact of the REG 213 reserve at the past year because of the Permitted Practice we receive due to the increase, as a result of the Venerable transaction but minimal impact from REG 213 at of half year.

Thomas Gallagher -- Evercore ISI -- Analyst

Got you. So that's going to be a year-end event when you start to see the impact coming through.

Robin Raju -- Chief Financial Officer

Correct. That will be a part of the $2 billion [Indecipherable]

Thomas Gallagher -- Evercore ISI -- Analyst

Okay. And then the $1.5 billion of annual dividends from subs that you said you still expect to get. I presume 2021 is still going to be only AB and then would you expect to get the full be back to $1.5 billion by 2022 or how would you expect the timing of that to look. And is the plan to still just to draw down on the excess at the Holding Company for 2021?

Robin Raju -- Chief Financial Officer

That's right. As you remember, last year we took 2 dividends out of the Life Company in New York. And as a result this year the upstream are mainly coming from AllianceBernstein. And then going forward in 2022, we still expect upstream about $1.5 billion, but more unregulated cash flows as a result of the management actions that we're taking. The exiting strong cash position at $2.5 billion is there to support our consistent payout ratio for our shareholders.

Thomas Gallagher -- Evercore ISI -- Analyst

But Robin, do you think you'll be in a position where you're back to getting a $1.5 billion up to the Holding Company. I know where they come from is probably going to change based on some of the structuring, but would you expect normal dividend flows of $1.5 billion or so to be back in 2022 or is it potentially going to take a bit longer?

Robin Raju -- Chief Financial Officer

Under normal market conditions, all else equal, I'd expect to have $1.5 billion in 2022 but more unregulated cash flows to providing more certainly as well.

Thomas Gallagher -- Evercore ISI -- Analyst

Got you. Thanks. And then just one final one, if I could. The AB announcement, is there anything when I think about the $10 billion of redeployed investments, is the way this is going to work that you would potentially sell public corporate bonds and then buy less liquid higher-yielding securities. And if so, is that going to result in you crystallizing gains on your current portfolio, will that have any statutory impacts, if that's the way it's going to work.

Robin Raju -- Chief Financial Officer

So as Mark mentioned and Ali as well, on AB Earnings Call, we're really pleased with the synergies between the firms and this is one of the major areas. And it enables us to enhance risk adjusted returns for the Equitable Insurance Company and AB goes out and builds higher multiple building -- businesses with this $10 billion that we gave them. The majority of the $10 billion is a reallocation from public corporate into illiquid private credit and also alternatives that AB can build upon with third-party funds as well and expect that to be completed by 2023.

Thomas Gallagher -- Evercore ISI -- Analyst

Okay, thanks.

Operator

And our last question this morning will come from the line of Tracy Benguigui with Barclays.

Tracy Benguigui -- Barclays -- Analyst

Good morning. Look, your VA in-force, most of that was written out of your New York entity, can you share with us what percentage of your VA reserves within Equitable Financial Life Insurance Co. is for New York policies versus non-New York policies.

Robin Raju -- Chief Financial Officer

We haven't -- we haven't shared that split, but the majority in the Life Company is from non-New York policy as it sits today, but we haven't shared the exact split of that.

Tracy Benguigui -- Barclays -- Analyst

Okay. And I guess it dovetails to my next question. I want to make sure I'm thinking about this correctly. You mentioned internal reinsurance. So how feasible is it to reinsure non-New York policies that was written at New York entity to your Arizona entity under a captive structure?

Robin Raju -- Chief Financial Officer

I think we're looking at both internal and external reinsurance as I mentioned. I don't want to go into specific details on any one that we're evaluating, but everything that we do will be judged against our economic basis, ensuring that we can deliver long-term shareholder value, while addressing the Redundant Reserves in New York.

Tracy Benguigui -- Barclays -- Analyst

Okay. And then I guess just maybe one quick follow-up there, just looking at external reinsurance, should we think about a block side similar to your Venerable deal or could that differ?

Robin Raju -- Chief Financial Officer

It could be similar, it could differ. It depends always on the economic value that we receive for any block that we cut out.

Tracy Benguigui -- Barclays -- Analyst

Thanks for taking my questions.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Isıl Muderrisoglu -- Head of Investor Relations

Mark Pearson -- Chief Executive Officer and President

Robin Raju -- Chief Financial Officer

Nick Lane -- President

Ali Dibadj -- Head of Finance and Strategy

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Nigel Dally -- Morgan Stanley -- Analyst

Jimmy Bhullar -- J.P. Morgan -- Analyst

Suneet Kamath -- Citi -- Analyst

Ryan Kreuger -- Keefe, Bruyette, & Woods -- Analyst

Thomas Gallagher -- Evercore ISI -- Analyst

Tracy Benguigui -- Barclays -- Analyst

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