Equitable Faces Derivatives Valuation Noise: Earnings

Equitable Holdings Inc. posted a $937 million net loss for the fourth quarter of 2019, and Wall Street yawned.

The New York-based life insurer reported that loss on $1.7 billion in revenue, compared with $1.9 billion in net income on $5.2 billion in revenue for the fourth quarter of 2018.

The net loss was due mainly to Equitable adding the change in the value of the derivatives used to hedge annuities against investment market volatility to its net results. The company recorded a $1.7 billion loss on the current market value of the derivatives for the latest quarter, compared with a $2.1 billion gain for the year-earlier quarter.

Resources

Links to documents and other resources related to Equitable’s earnings, including a recording of the earnings call, are available here.
An article about the possible effects of the Covid-19 on insurers is available here.

Excluding the effects of “mark to market” accounting on the value of the derivatives, the company’s earnings increased to $598 million in the latest quarter, from $504 million.

The Details

Equitable’s individual retirement unit is reporting $391 million in operating earnings on $1.1 billion in revenue, compared with $348 million in operating earnings on $1.2 billion in revenue for the year-earlier quarter.

Spending on commissions and other-distribution-related payments increased to $72 million, from $70 million.

First-year premiums increased 12%, to $2.2 billion.

The protection solutions unit is reporting $128 million in operating earnings on $848 million in revenue, compared with $37 million in operating earnings on $853 million in revenue.

The Earnings Call

Company executives mentioned the net loss today during a conference call they held to go over the results with securities analysts. When the securities analysts had a chance to ask questions, they focused on topics such as the state of the individual and group annuity markets, and the possibility that Equitable could come up with cash for investors by selling its stake in AllianceBernstein, a big money manager.

Mark Pearson, the company’s chief executive officer, said that sales of the company’s buffered annuity — which protects the holder against a limited amount of loss of contract value in severe investment market downturns — were 31% higher in the latest quarter than in the year-earlier quarter.

Equitable has been letting assets flow out of older annuity contracts that offer benefits guarantees, Pearson said.

“So, you’ve got the new business coming in, offset by some of the legacy outflows,” Pearson said.