I will now hand the conference over to Erik Bass, Chief Strategy Officer and Head of Investor Relations. Erik, please go ahead.
Thank you. Good morning, and welcome to Equitable Holdings Third Quarter 2026 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 differ materially from those expressed in or indicated by such forward-looking statements. Please refer to the safe harbor language on slide two of our presentation for additional information. Joining me on today's call are Mark Pearson, President and Chief Executive Officer of Equitable Holdings, Robin Raju, our Chief Financial Officer, Nick Lane, President of Equitable Financial, Seth Bernstein, Chief Executive Officer of AllianceBernstein, and Tom Simeone, Chief Financial Officer of AllianceBernstein.
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 and in our earnings release, slide presentation, and financial supplement. We will also refer to the pending transaction with Corebridge. Any statements about the transaction made during this call are not an offer of securities. A registration statement containing a prospectus will be filed with the SEC in connection with the transaction. I will now turn the call over to Mark.
Good morning, and thank you for joining today's call. Equitable's third quarter results highlight the company's strong momentum heading into the merger with Corebridge, as we delivered double-digit growth in earnings per share and positive organic growth across all businesses. The current macro environment and population demographics underscore the need for the financial advice and product solutions we provide, as our customers face rising costs, higher interest rates, and limited options for guaranteed retirement income. As we build a New Equitable and leverage our scale, distribution breadth, and complementary product offerings, we see tremendous opportunity to reach more customers, expand our business, and deliver value for shareholders. Starting on slide four, I will provide a few highlights from the third quarter. We reported non-GAAP operating earnings per share of $2.13, or $1.98 excluding notable items, which is up 19% year-over-year.
Through the first three quarters of the year, EPS excluding notable items has increased 22% from 2025, consistent with our guidance for greater than 15% growth in 2026. We ended the quarter with $1.2 trillion of assets under management and administration, up 4% year-over-year, driven by positive net flows and uplift from favorable equity markets. We returned $320 million of capital to shareholders during the quarter, which equates to a 59% payout ratio. Year to date, we have a payout ratio of 66%, consistent with our 60%-70% target range. Organic growth trends remain solid across our businesses. In retirement, we had total net inflows of $1.1 billion, driven by 14% growth in overall sales. This includes record RILA sales, and we continue to see strong demand for our protected equity and retirement income solutions.
We also had $500 million of spread lending net issuance, which is not included in net flows. Turning to wealth management, we continue to see strong new business momentum, with record $2.7 billion of advisory net inflows. Advisor productivity increased 14% on a trailing 12-month basis. Finally, AllianceBernstein reported total net inflows of $6.6 billion, with strength in institutional offsetting outflows in retail and private wealth. AB's private markets AUM ended the quarter at $105 billion, up 33% year-over-year, and above the $90 billion-$100 billion target level. During the quarter, AB expanded its private markets platform by enhancing its commercial mortgage loan capabilities and onboarding $12 billion of loans from Equitable. These assets will begin to generate fees in the fourth quarter, and more importantly, AB now has a more robust offering to win mandates from third-party clients.
This is another example of the flywheel benefits between Equitable and AB. We also completed the sale of our employee benefits business to The Hartford effective October 1st. While we like the employee benefits market, we lack the scale to effectively compete and grow the business to a meaningful level of earnings. Lastly, we continue to make progress in establishing the operating model for New Equitable. During the quarter, we selected the board of directors for the new company, and we have named the top 500 leaders for the organization so that we can hit the ground running in January. Regulators have begun to sign off on the merger, and we expect to receive all required approvals in the fourth quarter so that we can close at year-end.
Moving to slide five, I want to spend a minute discussing the industry backdrop and why we see tremendous growth opportunity for New Equitable. U.S. retirement represents one of the most attractive markets for financial services that I have seen anywhere in the world. The total U.S. retirement asset pool has grown 7% annually over the past 10 years and now exceeds $50 trillion, representing 65% of global retirement assets. More than half of these assets sit in IRAs or defined contribution plans, where individuals control the funds and bear the investment risk. As a result, there is an incredible need for financial advice and solutions to help Americans manage market risks and ensure they have sufficient retirement income. Demographic factors have further crystallized this need, with over 4 million Americans turning 65 each year.
This baby boomer retirement wave creates significant money in motion, with nearly $1 trillion of IRA rollover activity each year, and the life insurance industry is well-positioned to capture significant inflows. We see rising demand from customers and advisors for protected equity solutions, like RILAs, and the guaranteed retirement income that our industry is uniquely positioned to provide. Annuity sales have increased at a 16% CAGR over the past five years and are approaching $500 billion annually. Higher interest rates enhance the consumer value proposition of annuities, providing another tailwind for sales moving forward. In addition, the inclusion of guaranteed income allocations within target date funds expands access to a broader pool of customers and creates a sizable new market. Finally, demographics will drive significant wealth transfer activity, shifting assets to the next generation and underscoring the need for personalized financial advice.
As a result, we review retirement savings, decumulation, and wealth management as secular growth opportunities, and meeting this need is central to Equitable's mission and business model. As highlighted on slide six, the New Equitable will be very well-positioned to capture the U.S. retirement growth opportunity and deliver attractive returns to shareholders. On a trailing 12-month basis, Equitable and Corebridge have generated over $48 billion of combined annuity sales, which is over $10 billion higher than the next largest competitor and represents approximately 10% market share. New Equitable will be the only company with a top five position in each major product category, and this breadth makes us critical to distribution partners. It also provides flexibility to adapt to changing customer demand trends and pricing conditions.
Importantly, our size also shows up in higher earnings, with Corebridge and Equitable generating over $4 billion of combined operating income in 2025. Our superior scale will drive multiple competitive advantages. Our differentiated ability to source liabilities, coupled with partnerships with leading asset managers, including AB, BlackRock, and Blackstone, will enable us to access more directly originated assets and achieve higher risk-adjusted yields.
We also expect to have lower average cost of funds, driven by our strong multi-channel distribution network, which includes over 5,000 Equitable and Corebridge advisors. As alluded to earlier, the breadth of our retail and institutional product offering will give us flexibility to adjust to market conditions and allocate capital where we see the most attractive returns. In addition, our size should yield superior operational scale and lower expense ratios, allowing more of the spread and fee income we generate to fall to the bottom line.
Finally, our business model means that we capture the full value chain by acting as a manufacturer, distributor, and asset manager. This gives us multiple sources of revenue on each transaction, including high multiple distribution and asset management fees. Putting it all together, we expect New Equitable to have lower average unit costs than peers, allowing us to provide attractive consumer value while also delivering compelling growth and returns for our shareholders. This is a key strategic benefit from the merger, and it gives us a clear right to win in the large and growing U.S. retirement market. As this becomes clear to investors, we see meaningful potential upside in our valuation. I will now turn the call over to Robin to discuss our financial results in more detail.
Thank you, Mark. On slide seven, I will provide more detail on our third quarter results. On a consolidated basis, non-GAAP operating earnings were $595 million, or $2.13 per share, while net income was $1.1 billion, or $4.05 per share. Excluding notable items, non-GAAP operating earnings per share was $1.98, up 19% year-over-year. Notable items in the quarter included our annual assumption review, which had a $28 million favorable impact on operating earnings, a model update benefit of $11 million, and a legal reserve accrual of $15 million. We also called out a $37 million out-of-period reinsurance benefit in our individual life business, which, while one-time in nature, effectively offset some of the adverse mortality reported in prior periods. Finally, we reported $20 million of below-plan alternative investment returns.
Our alternatives portfolio represents about 3% of our total general account and produced an annualized return of 5% in the quarter. This was at the upper end of our 4%-5% guidance range, but below our long-term expectation of 8%-12% returns. Higher interest rates pressured real estate returns for the quarter and will likely remain a near-term headwind. We currently forecast a low single-digits return in the fourth quarter. Our consolidated tax rate was 20% for the quarter, consistent with our guidance. Putting it all together, we are pleased with the company's earnings momentum. As Mark mentioned, non-GAAP earnings per share, ex-notable items, is up 22% year to date, putting us well on track to achieve our guidance of greater than 15% growth for the full year. Turning to slide eight, I will provide some further details on our segment-level earnings drivers.
In retirement, third-quarter earnings, excluding notable items, were $409 million. Net interest margin, or NIM, increased 12% year-over-year and 5% sequentially, helped by growth in general account assets and higher returns in our alts portfolio. If you exclude the impact of alternatives, core spreads slightly decreased by 5 basis points sequentially, which we attribute primarily to timing factors. This quarter, spreads declined, but due to higher cash balances and crediting rates for our one-year RILA contracts, which reset more quickly than floating-rate asset yields. We expect to see some noise in quarterly spreads, particularly during periods of volatile interest rates, and continue to forecast go-forward spreads to be roughly stable with the level from the first half of 2026. Fee-based revenues rose 1% sequentially and 16% year-over-year, driven by strong separate account returns.
On the expense side, DAC amortization increased $18 million sequentially, which reflects both growth in the block and an assumption update capturing higher lapse rates. We view this level as a good baseline for the fourth quarter. Turning to asset management, AB reported earnings of $152 million, roughly flat year-over-year. Total AUM ended the quarter at $900 billion, down slightly from the second quarter, as positive net flows were offset by negative fixed income returns. The average base fee rate of 37.1 basis points declined modestly due to mix shift and timing, as the new $12 billion commercial mortgage loan mandate will begin to accrue fees in the fourth quarter. While some of the recent large institutional wins have a lower base fee rate, they generate an attractive incremental margin on new revenues, and AB's adjusted margin increased 50 basis points sequentially.
We also raised our guidance for the full year performance fees to $135 million-$150 million, which implies a range of $62 million-$77 million for the fourth quarter. Moving to wealth management, this business reported exceptionally strong third-quarter earnings of $75 million, up 27% year-over-year. This reflects robust organic growth momentum, with advisory assets up 22% year-over-year and a 14% increase in advisor productivity. Results also benefited from a one-time payment related to the Stifel acquisition, which effectively offset some expenses accrued earlier in the year. Looking forward, we view $70 million as a good baseline expectation for fourth-quarter earnings. Finally, corporate and other reported a loss of $82 million after adjusting for notable items. Results this quarter benefited from improved mortality experience and lower expenses.
In addition, we moved results from the exited employee benefits business, which generated a small loss in the quarter below the line. The year-to-date corporate and other loss, adjusting for notable items, is $286 million, and we continue to forecast a loss of $350 million-$400 million for the full year. Turning to slide nine, we returned $320 million of capital to shareholders during the quarter, including $238 million of share repurchases. Our payout ratio was 59% for the quarter and has been 56% year to date, putting us on track for our targeted 60%-70% payout ratio for the full year. We ended the third quarter with $900 million of cash and liquid assets at the holding company, up from $800 million.
We also brought a portion of our approved insurance subsidiary dividend to the Holdco in the third quarter, and we continue to project full-year 2026 cash generation of $1.8 billion. Adjusted book value per share ex-AOCI, with our AB ownership stake at market value, was $34.25, yielding an adjusted leverage ratio of 25.5%. As a reminder, at the close of the merger with Corebridge, our GAAP shareholders' equity will be reset to reflect the fair value of assets and liabilities. This will result in a more meaningful book value, return on equity, and leverage ratio. Overall, we feel good about the financial momentum across the company and will enter the merger from a position of strength. We are also making good progress on integration planning and expense synergies, and we have good line of sight into revenue synergies, which will be quantified at Investor Day.
As a proof point, we have identified over $100 million of run rate expense savings that will be recognized in the first half of 2027. This puts us well on track to achieve the targeted $150 million of run rate savings in the first year post-merger. We remain confident in achieving at least $500 million of run rate savings by the end of 2028. Since this will likely be Equitable Holdings' last earnings call prior to the merger, I want to take this opportunity to thank Mark Pearson for his leadership at Equitable since 2011 and the personal mentorship he's provided to me over the years. I am equally excited to work with Mark in his Executive Chair role and Marc Costantini as the CEO of the New Equitable in delivering on the promise of this merger. I will now pass the call back over to Mark.
Thanks, Robin. With the merger expected to close by year end, this will be my last earnings call as Equitable CEO before handing the reins to Marc Costantini and assuming the role of executive chairman. As I reflect on Equitable's journey, I am proud of the actions we have taken to strengthen our balance sheet, shift our business mix, and enhance returns while delivering on our mission to help Americans secure their financial well-being and retire with dignity. Thank you to all our employees and advisors who have worked so hard to get us to this point. Looking forward, I am incredibly excited about the opportunity for New Equitable as we complete the merger with Corebridge, and I look forward to working with Mark and the board to deliver on the opportunity in front of us.
We will have the platform, capabilities, and talent needed to win with customers and secure our place as the largest and most profitable U.S. retirement, protection, asset, and wealth management company. We now look forward to taking your questions.
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Suneet Kamath from Jefferies. Your line is open. Please go ahead.
Thanks. Good morning. First, congratulations and best of luck to Mark. Thanks for all of your help over the years.
Thank you, Suneet.
I wanted to start with Sure, of course. I wanted to start with the higher interest rate environment. Obviously, we spiked in the quarter and then things have come back. Are you seeing anything in terms of policyholder behavior, whether it relates to lapses or even product design as it relates to annuity competition? We haven't seen rates this high and move this quickly in a while, so I just want to make sure we're not seeing sort of any unintended consequences. Thanks.
Sure. Suneet, I can start, and thanks for your question. Look, overall, we think the high interest rate environment is good for our business. Across the retirement business, you saw us have positive net flows of $1.1 billion, record sales in RILA, but with that also comes some higher lapses that you saw as well. So there is a balance that you see in these specific scenarios, but nothing that we see that would cause concern at this point in time. Higher interest rates mean more options for consumers, and annuities are a good place to have, whether it be FIAs or RILA products as well. Some pressure on AB assets on the fixed income side with higher rates, as higher rates brought that AUM down, but we think as rates stabilize, that asset class is differentiated with AB's strong performance in that category as well.
The only thing I highlighted on the call was on the alternative side, higher rates have a negative impact on the real estate equity exposure, so that's why we guided to a lowered single-digit return for the fourth quarter. That's the only other thing that we're seeing at this time. But overall, we think higher interest rates are a good position to be in. Remember our interest rate sensitivity that we disclose to the market, for every 50 basis points, it's about $40 million of operating earnings as well.
Okay, got it. That's helpful. I guess on the New Equitable, as we think about liability generation of $70 billion-$80 billion a year, how much of that could AllianceBernstein effectively manage? Are there asset classes or investment strategies that you guys at AB need to build up, like you did the CML portfolio, in order to take advantage of getting a greater share of that $70 billion-$80 billion? Thanks.
Yeah, so let me start, and I'll pass it over to Seth. Look, across the New Equitable, we're going to write $70 billion-$80 billion of new liabilities every year, so we're going to need world-class asset managers, and we have that with AllianceBernstein and also the partnerships with Blackstone and BlackRock as well. As you saw with AB over the years, they've built up many asset capabilities to support Equitable in their expansion in private markets, which is over $100 billion now, and we'd expect that to continue to build with new asset class capabilities and expansion on origination. But let me pass it over to Seth to provide some more information. Seth?
Thank you, Robin. I think you put it well. We continue to react to the opportunities that we see, and to the extent the liability needs are different for the New Equitable, we are already focused on what particular areas, notably in private credit and elsewhere, to address that. So whether that's infrastructure or other capabilities, we're looking actively at it and will pursue it if it makes sense for the broader entity.
I think if I could add something, Suneet, it's Mark Pearson here. I mean, one of the things you will see is that Corebridge's liabilities are longer in duration than Equitable's, and that opens up for different type of assets to back those longer liabilities as well, and which, as Seth said, AB are looking at, will develop. The plus for us as well, of course, is that means that AB have an even more robust offer to be successful in the insurance space, which they've shown great progress in the last couple of years. So, it's a nice opportunity for us, both in terms of supporting New Equitable, but also in opening up new markets for AB.
Okay. Thanks very much.
Your next question comes from the line of Joel Hurwitz with Dowling & Partners. Your line is open. Please go ahead.
Hey, good morning. Robin, first, just on the net interest margin retirement, you provided some good color on the drivers of the lower underlying results in the quarter, and I think you said you expect that to return more towards half one levels. Would you expect that for the fourth quarter? Do you think the cash drag and that floating rate reset will normalize in time for Q4 results?
Sure, Joel. Yes. The short answer to that is yes. It is a function of timing. I think if you take a step back, though, NIM in dollar amounts was up 12% year- over- year, and don't forget fee-based revenue in the retirement business as well was up 15% year- over- year. So we're getting good growth on the revenue side. There are some timing elements when you look at basis points quarter to quarter.
Yes, we had higher cash, and then with the spike in rates, we saw some of the liabilities reset faster than the assets, but that all should normalize. Overall, we're quite pleased with the results and the growth in the retirement business, and we expect to continue to grow NIM, specifically as the general account book value grows, and then also fee-based revenues as the separate account grows as well on the retirement side.
Got it. That is helpful. Then just on the assumption review, could you unpack the moving pieces in retirement in the quarter? Was it benefit in the quarter, but looks like it is having a negative go-forward impact on DAC amortization?
Sure. So, two things. I think overall, and you will see this, I think, across the industry, as everybody updates their lapse assumption, which is a good thing, you are moving to current experience, you are going to see some acceleration of DAC amortization, but that is a non-cash item. Just keep that in mind. Overall, our assumption update was positive in the quarter. There are always ins and outs in an assumption update, but most importantly, it is around a narrow range that we see those outcomes now, and that has been consistent over the years for Equitable.
Got it. Thank you.
Your next question comes from the line of Tom Gallagher from Evercore ISI. Your line is open. Please go ahead.
Good morning. Can you unpack a bit what happened to retirement flows this quarter? They decreased from $1.7 billion in 2Q to $1.1 billion. There was some movement between separate account and general account, which was, I think, a little confusing. Can you talk more at the product level? What are you seeing? Is RILA still holding up well? Maybe something's happening on the group retirement side. Any color there would be helpful. Thanks.
Yeah, sure. This is Nick. First, as a reminder, our retirement segment now encompasses both our individual retirement and our group retirement business. As you highlighted, it generated healthy flows of $1.1 billion. Breaking it down, in individual retirement, we generated $1.5 billion of net flows, driven by record sales of $5.5 billion, and $4.2 billion of RILA sales. We continue to see strong demand and have the edge to deliver on it. In group retirement, we saw strong top-line growth, but as you'll recall and remember, flows are traditionally softer in the third quarter as teachers aren't working in the summer months, they don't get paid, and therefore, they don't make payroll contributions. Going a little bit deeper in tax-exempt, the strong fundamentals are there. We're the number one player in K through 12.
We have over 1,000 advisors that serve that space, and we saw first-year premium grow at 16% year-over-year. In institutional, which is also in that segment, as we said, it's going to be lumpy. We had a strong second quarter, as you'll remember. Third quarter was a little bit more muted. We only onboarded one BlackRock plan, but I'd note the business has generated over $2.4 billion in assets since we launched it and has a solid pipeline going forward. Last, we do continue to see some outflow pressure in our corporate block. This is our older vintage, lower margin 401(k). It represents less than 15% of our segment account value. As a reminder, about 20% of the tax-exempt outflows are participant-driven. Of the remainder, we're able to capture 50% within Equitable Advisors, speaking to the benefits of our flywheel.
We see upside in that, translating these best practices to Corebridge post-merger. Looking forward, we continue to expect to generate positive flows and believe we've got a competitive edge.
Gotcha. That was helpful color, Nick. Thanks. My follow-up is just on this $37 million prior period adjustment for reinsurance on the life insurance side. Should we view that as an economic adjustment where you got a better reimbursement from some prior periods with your reinsurance partner, or is this really just an accounting-only adjustment on the EQH side, so no change for your reinsurance partner? Just want to get a sense for what actually happened here.
Yeah, Tom, thanks for the question. It is really an accounting change on our side. From a reinsurance standpoint with our partners, nothing has changed. It is timing of recognition in the accounting. Some of it should have been trued up earlier, and we caught it this period, and that is why we are calling it as an out-of-period benefit.
Thanks, Robin.
Your next question comes from the line of Ryan Krueger from KBW. Your line is open. Please go ahead.
Thanks. Good morning. My first question was on wealth management. You've certainly had strong flow trends, but it seems to be mostly productivity-driven. Your advisor count, though, has come down the last couple of quarters, so just hoping to get a little bit more detail on what you're seeing there from kind of an advisor headcount, recruitment, and retention standpoint.
Yeah, thanks for the question. As you highlighted, we're very pleased by the momentum in the business as our value proposition is resonating with clients and advisors, $2.7 billion in net new assets with an 11% organic growth rate. We see continued momentum in the underlying growth drivers. As you highlighted, productivity is up 14%. We think we bring a distinct edge in our planning process, given our holistic life planning that serves a broader part of the portfolio, and continue to be focused on building wealth managers that get a deeper share of wallet. There's a robust pipeline to continue to grow that. At year-end last year, we highlighted that we have 922 wealth planners, which is up 11%. That continues to grow, and we have a healthy pipeline of over 2,000 advisors that we think we can continue to train and develop.
Headcount has been flat, but we think we have an edge given our model out in the space. We're one of the few that continues to bring in new people into the industry. That allows us to continue to refresh and rejuvenate our pipeline. I would highlight the average age in the industry is 57. Our average age is 10 years lower, so it's more robust and I think more durable. Finally, the Corebridge acquisition's going to add $20 billion of assets and advisors, and we think there's opportunity to continue to apply our best practices to further drive productivity. So net, net, net, very bullish on the future, strong momentum, and would expect to continue to see that going forward.
Thank you. Then a quick one on AB and the fee rate. Should we expect some uptick in the fourth quarter fee rate as you start earning in fees from the Equitable CML portfolio, or is that going to be offset by just the general trend of somewhat lower fee new inflows?
It is going to be mix-dependent, but Q3 is abnormally low just because of the $12 billion CML assets that we had that weren't attracting any revenues. So the decline from Q2 to Q3 is largely driven by that. So absent that, we would have been pretty much flat versus Q2 2026. So it really is just going to be as mix and market-dependent from here.
Thank you.
You're welcome.
Your next question comes from the line of Wes Carmichael from Wells Fargo. Your line is open. Please go ahead.
Hey, thanks. Good morning. I just wanted to come back to the interest rate question, maybe from a different angle, not so much about unintended consequences, but maybe opportunity. I guess with higher risk-free rates, do you see industry retail annuity sales continuing to really accelerate from the, call it, $465 billion level in 2025? What do you think really gets overall sales to take another leg up from here?
Yeah, so look, I would first and foremost point to the demographic tailwinds that Mark highlighted. Some things you can't predict, but you can predict demographics. Baby boomers are moving to their next stage, and they are looking for both more secure retirement solutions as well as advice, and we are uniquely positioned to capture both of that. We would expect the momentum to continue to continue based on the core fundamentals out there.
Got it. Thanks. Just switching gears, on alts returns, I think, Robin, you were talking about higher rates are a headwind for real estate equity. It seems like maybe perhaps we haven't seen as much on the monetization or realization side of private equity portfolios, at least in the news. Just curious, if rates are going to remain in these zip codes, do you kind of expect lower-than-expected returns in 2027 and beyond that? Are there any levers that you'd like to pull if those returns are going to remain a little bit more subdued?
Yeah, sure. Just keep in mind, the total alts portfolio is about less than 3% of the total general account. For Equitable, that's below industry average. As we don't have many long-dated liabilities, that's decreased over time, just a function of our liability profile. The alts returns in the quarter were about 5%, good in buyout, but negative on real estate equity. Real estate equity is about 20% of the alts portfolio, and so that will remain a headwind. So, I won't forecast into 2027 yet. I just guide to what I mentioned for the fourth quarter at this time, and then we'll update again in our first quarter call for the New Equitable.
Thank you.
Your next question comes from the line of Alex Scott from Barclays. Your line is open. Please go ahead.
Hey, good morning. I wanted to see if you could give us some higher-level color on the competitive environment that's out there, and just seeing that some of the credit rates being offered look like they've gotten a little more aggressive relative to risk-free rates and so forth. I just wanted to understand the supply of capital and just understand, you're making the point about demand, but what is the supply of capital coming from maybe some of the private equity-backed companies doing to the competitive environment?
I'll start. Look, overall, we had a record quarter in sales and values. We highlighted up 11% and $1.5 billion of net flows, translating to a 5% trailing 12-month organic growth rate. From a competitive standpoint, we see no real change in the RILA space. We haven't seen a new entrant since the first quarter of 2025, and the alternative players have been in for a while.
We're very mindful of competitive trends on pricing, and our focus on Equitable continues to be on profitable growth. Looking forward, as you highlighted, we continue to see strong demand, but believe we've got a durable edge. The key to being successful in this market is generating attractive risk-adjusted returns, and we have that through AB and our line of sight there. I would also highlight we have differentiated distribution with Equitable Advisors and shelf space on third-party networks, which attracts lower-cost liabilities.
As Mark highlighted, we have deep relationships and scale, which we expect to further extend given our merger with Corebridge. We believe we are in a privileged position to capture a disproportionate share of the value that is emerging in that space.
Great. Thank you. A follow-up question I had was on the $100 million of expense synergies that have been identified. I wanted to see if you could shed a little more light there and then timing when that will begin to emerge.
Sure, Alex. As we mentioned at the merger announcement, we expect to realize $500 million in total synergies as a function of the merger. This is going to come from four main areas: duplicate roles within the organization, IT systems, third-party vendors, and real estate. What I mentioned on the call today and what we are announcing today, both Equitable and Corebridge, is through the actions that we have taken, mostly related to headcount, through the first wave of leadership announcements, the over 500 people that Mark highlighted earlier, we have achieved $100 million of run rate saves that will come through in the first half of the year, and that puts us on track to $150 million of year one saves.
We feel very confident, and this should give you confidence in our ability to deliver on the thesis of the merger and the expense synergies that were recognized.
This is just the first element we have seen very early on. I think also taking a step back, I think both companies are in a unique position considering the development of technology around us, and being able to leverage AI as we integrate in this merger is going to enable us to have a better customer experience coming out of this. It also enables us to have more productivity and build a bigger scaled organization as a result of leveraging these technologies around us. I think that is something unique around this merger that others do not have before. It is about making us bigger and stronger and leveraging technology that we will do as well as part of the merger.
Thanks.
Your next question comes from the line of Pablo Singzon from JPMorgan. Your line is open. Please go ahead.
Hi. Good morning. I wanted to pop on the higher DAC amortization you are assuming for individual retirement, and I recognize it is non-cash and it will sort of be written off once the merger is effective. Does that reflect a decrease in persistency ultimately, right, and fundamentally? If that is the case, does that have any impact on how you price your annuity business?
Sure, Pablo. Yes. So higher DAC amortization, the result comes from some higher lapses that we reflected in our current assumption update. You should keep in mind, from a pricing standpoint, we have priced at economic realities of the products. So, we are assuming customer efficiency in our pricing. So, the returns that we price to are stable and ones that we expect and what we have realized over time. But as experience emerges, we want to reflect that in our GAAP assumptions as well, and that is what you see come through into DAC amortization.
Thanks, Robin. The second question I had was about traditional VAs in retirement. So sales there have been growing faster than RILAs, and I think that has been true not only for you, but for the market at large. So the question is, can you talk about what is driving the trend there, and just remind us what type of VAs you are selling to the universe that you had placed in the runoff block? Thanks.
If I think I understood your question, what is happening in the traditional VA versus the RILA space, look, we see continued opportunity there. There is a demand for secure income, and our Retirement Cornerstone product meets that demand in a very well-constructed way. We also see enhanced demand for, I would say, the benefits annuities provide for tax deferral relative to accumulated savings. So, we think about the income benefits, we think about the death benefits, and we think about the tax deferral, and we have got a suite of products that meet those needs to respond to different environments and serve customers based on their best interests and their desires.
Your next question comes from the line of Jack Matten from BMO. Your line is open. Please go ahead.
Hey, good morning. Just had one on the retirement business. Over the past few years, we have seen the net interest margin grow faster than operating earnings. I guess, is there a point now where you would expect the growth rate in DAC and commission expense to slow, or should we expect to continue seeing that trend if Equitable continues to put up fairly robust sales growth?
Look, I think part of the robust sales growth as we attract more customers into our business and as we continue to grow our retirement business, that does put on more DAC onto balance sheet as it relates to GAAP. So that is something you should see continue. I think where you will see us focus on is continuing delivering strong spread-based earnings and strong fee-based earnings. You saw both up 12% and 15% year-over-year overall. Then with the merger with Corebridge, you are going to see lower unit costs come through in our retirement business as well, which should accelerate growth for both retirement businesses on a go-forward basis. But DAC is not always a negative thing. It means we are attracting more customers and we are bringing them on to our book, and I view that as a good thing.
Thank you.
Your next question comes from the line of Mark Hughes from Truist. Your line is open. Please go ahead.
Hi. Thank you. This is Maxwell on for Mark. You had highlighted the institutional pipeline at AB, but what are you seeing in private wealth and the retail channels, and how would you expect flows to trend there?
Thank you. In private wealth, we are seeing renewed demand and pretty good flows. Our outflows in September were in part reinvested in October. So we're on a more normalized track, and we're happy about that. Institutional, we continue to see strong interest in fixed income, third-party fixed income interest from insurance clients as well as other clients. We are seeing more equity search activity, which is promising, but there's nothing to report there. In retail, we have a continuation of the general trends we've seen with respect to large cap growth and equities and so forth. But recent performance has improved, so I don't have anything to report, but I think it's a better trend line.
And I guess my final comment to you is our backlog remains quite healthy. I am putting aside the $100 billion that we are anticipating receiving from New Equitable following the merger.
Very good. Thank you.
Your next question comes from the line of Tracy Benguigui from Wolfe Research. Your line is open. Please go ahead.
Thanks, and congrats to Mark, and best of luck to you. I am curious how your RILA sales trended up until September when we saw rates move up, and how the sales trends were thereafter. Was pricing more attractive before September? I am also curious if you saw more demand starting September. And also, what rate assumptions support your view that spreads stay roughly stable with the first half of 2026 levels?
Sure. I'll start. As a pioneer in launching RILA over a decade ago, we see the core consumer valuation resonating, which is a protected equity story with upside potential. We see that demand continuing to grow. We haven't seen any month-to-month changes given those core fundamentals versus movements from that standpoint. The pricing gets priced every 2 weeks. It's reflective of volatility and interest rates. We're able to align delivering that value proposition with very disciplined ALM matching. It's a great product for the need. It's a great product that resonates in different environments.
Yeah, and historically, we haven't seen RILA sales impacted by level of interest rates. When interest rates have declined in different periods, we've seen actually increases in RILA sales because, as Nick mentioned, it's more of an equity-oriented participation for retirees. It's less interest rate sensitive from what we offer to the client. From a return standpoint, as Nick mentioned, we price in current activity in all markets and what we offer to clients. We see our differentiator continues to be distribution. On a spread basis, we're not assuming any increase in spreads from the first half of the year. We're assuming that we'll come back to that first half of the year level in spreads after some of the timing gets normalized in the fourth quarter.
Thank you. That's very helpful. Also curious what quarters your $37 million after-tax reinsurance true-up represented, that you were underestimating that reinsurance relief. Was this from RGA or another reinsurance partner?
It goes back over a few periods. It is from the RGA transaction, but it doesn't impact what I mentioned earlier. It's not an impact from RGA. I think what was ceded and settled was correct. It's our internal accounting that there was a true-up bond for this, which was a catch-up for the prior periods.
Okay, so it won't be an actual cash flow, just an accounting recognition?
Correct. It's an accounting item.
Thank you.
Your next question comes from the line of Yaron Kinar from Mizuho. Your line is open. Please go ahead.
Thank you. Good morning, everybody, and congratulations to Mark as well on a wonderful run. My first question just goes back to interest rates, and maybe a slightly different angle here. If they continue to rise, at some point, concerns around CRE starts building. At what point do you think that becomes a legitimate risk to the balance sheet, and what actions can the company take to mitigate that?
Sure. Thanks, Yaron. Look, again, I think overall, if you take a step back, high interest rates are good for our business. And what we see is consumers in the U.S. continue to remain strong, and that should help the economy be resilient even in a high interest rate environment. So, under that sense, as long as we still see good, strong trends of the U.S. consumer, I'd expect the overall credit situation and equity market should be stable from that standpoint. The CML portfolio that we have is high quality, the LTVs are strong, and we've been able to refi those as planned. So, sure, there's always risk in a high interest rate environment, but I think it goes back to what's happening in the economy to the U.S. consumers.
As long as that strength is there, I think that's a big protection against any credit or CML actions that may be. But it's always important that we underwrite the securities properly, both credit and CMLs, and we make sure we do stress tests. We've disclosed our stress test earlier this year. You saw us disclose in a credit environment, our RBC will still remain above 430%, which means the way we're positioned to balance sheet, we can absorb credit stress, still write good new business, and still distribute cash flows to shareholders.
Thank you. And then my second one, just a quick confirmation. I think on the last quarter's call, you had said that you expected to deploy the funds received from the employee benefit sale to The Hartford to building up at-scale businesses. I just want to confirm that that was still the case, that you had no intent to deploy some of those funds towards buybacks.
Yeah, we closed the transaction this quarter. We remain on track to our $1.8 billion of cash flows for this year. Expect us to remain our 50%-70% payout and use the nominal proceeds that we have to help support growth in this robust environment.
Okay. Again, just to confirm that that $1.8 billion target would not include The Hartford funds?
Correct.
Okay. Thank you.
Your next question comes from the line of Wilma Burdis from Raymond James. Your line is open. Please go ahead.
Hey, good morning. Are you seeing more rational competition in the annuity space? There has been a little bit more regulatory action there with two of the top 20 fixed annuities de-risking their portfolio. The NAIC is putting in place some rules limiting offshore activity and investments in certain asset classes. Are you seeing any evidence that any of these are working? Thanks.
Thanks for the question. I would go back and say, look, we view competitive activity as being constant for the last 12 months. As you highlighted, I do think there is a focus on quality of those people that are running disciplined, have strong balance sheets, are delivering consumer value through the distribution and strong relationships. But overall, we think that the fundamental drivers continue to focus on demand and competitive activity. We have not seen a material change recently.
I think as well, Wilma, it is Mark. Moves to strengthen the governance and the disclosure in the industry, we welcome. I think moves that actually show the value of a trusted brand over a long, long period will play to New Equitable's strengths. So these are things that we observe in the marketplace, and we think it is net positive for us.
Okay, thank you. Could you talk a little bit about the other alternatives? Is that driven by VC? Noticed you have had a couple good quarters there. Just curious if you have an outlook there. Then if you could give us a little bit more color on your data center and AI investments, which I realize you call out are very small, but a little bit more color would help. Thanks.
Yeah, I think we shared in the earnings presentation, Wilma, the returns by the different sub-sectors that we have on the alt portfolio as well. Again, I think with the high interest rates, real estate equity is what is the biggest input into our fourth quarter guidance. It is still early with funds reporting, so we will continue to provide updates as we get more information overall. Yeah, and we did disclose the hyperscalers and data centers. It is a little bit more than 1% of the general account, so it is very small. A lot of in the big high-quality names, and then where we have private ABS, it is more short duration, good quality that we are comfortable with. So, small part of the overall general account there.
Thank you.
This concludes the Q&A session and also concludes today's call. Thank you for attending. You may now disconnect.