10-Q: Equitable Holdings Reports Q2 Loss Amid Market Volatility

Equitable Holdings, Inc. reported a net loss for the second quarter and first half of 2025, primarily driven by increased net derivative losses and the novation of legacy variable annuity policies, despite positive operating earnings.

Summary

• Net loss attributable to Holdings was $(349) million for the three months ended June 30, 2025, a significant decrease from $428 million net income in the prior year period.
• Year-to-date net loss attributable to Holdings was $(286) million for the six months ended June 30, 2025, down from $520 million net income in the prior year period.
• Non-GAAP Operating Earnings decreased to $352 million in Q2 2025 from $495 million in Q2 2024, and to $773 million year-to-date 2025 from $972 million year-to-date 2024.
• Total revenues decreased to $2,362 million in Q2 2025 from $3,507 million in Q2 2024, but increased year-to-date to $6,938 million from $5,737 million.
• Net derivative losses increased by $1.2 billion in Q2 2025 compared to Q2 2024, mainly due to higher equity market appreciation.
• The company completed the novation of certain legacy variable annuity policies on January 17, 2025, resulting in a $499 million pre-tax net income loss and a total impact loss of $236 million.
• Equitable Holdings increased its economic interest in AllianceBernstein (AB) to approximately 68.6% as of June 30, 2025, following the purchase of 19.7 million AB Holding Units for $758 million on April 3, 2025.
• The company issued $500 million in Junior Subordinated Debt Securities due 2055 and used proceeds to redeem $279 million of Series B Preferred Stock.
• Total Assets increased to $303.09 billion as of June 30, 2025, from $295.73 billion at December 31, 2024.
• Total Equity attributable to Holdings decreased to $1.15 billion as of June 30, 2025, from $1.57 billion at December 31, 2024.

Sentiment

Score: 4

Explanation: The company reported significant GAAP net losses due to market-driven accounting volatility from derivatives and a one-time novation loss. While Non-GAAP Operating Earnings remain positive, they also declined. Strategic actions like the RGA reinsurance and AB unit acquisition are positive long-term moves, but the immediate financial results are unfavorable, indicating challenges in the current market environment.

Positives

• Net investment income increased by $188 million in Q2 2025 and $226 million YTD 2025, driven by higher average asset balances and alternative investments.
• The company increased its economic interest in AllianceBernstein to approximately 68.6%, indicating a strategic investment in its asset management segment.
• The $500 million Junior Subordinated Debt issuance and subsequent redemption of $279 million in preferred stock demonstrate active capital management.
• The company continues its share repurchase program, with $1.5 billion remaining capacity as of June 30, 2025, signaling confidence in its valuation or a commitment to shareholder returns.
• Net inflows in the Individual Retirement segment were $1.7 billion in Q2 2025 and $3.1 billion YTD 2025, indicating continued customer engagement.
• Group Retirement segment operating earnings increased by $5 million YTD 2025, supported by higher average Separate Account values from market appreciation.
• Wealth Management segment operating earnings increased by $7 million in Q2 2025 and $10 million YTD 2025, driven by higher advisory fees and distribution revenue from increased retirement sales.
• The RGA Reinsurance Transaction, which closed on July 31, 2025, cedes 75% of the in-force individual life insurance block, potentially reducing risk exposure.

Negatives

• Net income attributable to Holdings experienced a significant decline, reporting a loss of $(349) million in Q2 2025 and $(286) million YTD 2025, compared to positive income in prior periods.
• Non-GAAP Operating Earnings decreased by $143 million in Q2 2025 and $199 million YTD 2025, indicating a decline in core profitability.
• Net derivative losses increased by $1.2 billion in Q2 2025, primarily due to higher equity market appreciation, which negatively impacted hedging results.
• The novation of legacy variable annuity policies resulted in a $499 million pre-tax net income loss in Q1 2025.
• Policyholders benefits increased by $120 million in Q2 2025 and $202 million YTD 2025, mainly due to higher net mortality in the Protection Solutions segment.
• Interest credited to policyholders account balances increased by $197 million in Q2 2025 and $296 million YTD 2025, impacting profitability.
• Investment losses increased by $55 million in Q2 2025, mainly due to fixed maturity sales and mortgage valuation losses.
• Total Equity attributable to Holdings decreased to $1.15 billion as of June 30, 2025, from $1.57 billion at December 31, 2024.
• The Protection Solutions segment reported an operating loss of $(58) million in Q2 2025 and $(75) million YTD 2025, a significant decline from prior year earnings.

Risks

• Conditions in the financial markets and economy, including geopolitical conflicts, changes in tariffs, equity market declines, and interest rate fluctuations, can significantly impact results.
• Operational factors, such as reliance on subsidiary dividends, protection of confidential information, operational failures, potential strategic transactions, changes in accounting standards, and catastrophic events, pose risks.
• Credit, counterparty, and investment risks include counterparty default on derivative contracts, failure of financial institutions, defaults by third parties, and economic downturns affecting investments.
• The effectiveness of reinsurance and hedging programs relies on complex models and assumptions, carrying basis, credit spread, and volatility risk.
• Variable annuity guaranteed benefits features and variations in statutory capital requirements can impact financial strength and claims-paying ratings.
• Estimates, assumptions, and valuations, including potential inadequacy of reserves, experience differing from pricing expectations, and accuracy of financial models, introduce uncertainty.
• The Asset Management segment faces risks from fluctuations in assets under management and the industry-wide shift from actively-managed to passive services.
• Recruitment and retention of key employees and experienced financial professionals are critical for business continuity.
• Legal and regulatory risks include federal and state legislation affecting financial institutions, insurance regulation (e.g., NAIC rules on CLOs, reinsurance, RBC), and tax reform.
• Information systems failing or being compromised, and protecting intellectual property, are general risks.
• Uncertainty regarding the U.S. Department of Labor's (DOL) new definition of fiduciary and related litigation could impact the sale of insurance products to retirement investors.
• New NAIC interim rules raising capital requirements for CLO holdings may impact statutory capital.
• A new actuarial guideline subjects certain offshore reinsurance transactions to enhanced asset adequacy testing, potentially leading to additional reserve requirements.

Future Outlook

The company's business and consolidated results are significantly affected by economic conditions, consumer confidence, global capital markets, and interest rates. Management monitors customer behavior and other factors to ensure products remain attractive and profitable. Financial performance can be adversely affected by market volatility and equity market declines. Regulatory developments, including new NAIC rules on CLOs, reinsurance, and the DOL's fiduciary rule, could impact statutory reserves, capital requirements, and profitability. The company is preparing to comply with new guidelines for offshore reinsurance.

Management Comments

• We benefit from our complementary mix of businesses. This business mix provides diversity in our earnings sources, which helps offset fluctuations in market conditions and variability in business results, while offering growth opportunities.
• Our hedging program is designed to hedge the economics of our insurance liabilities and largely offsets Reg 213 and NAIC framework reserve movements due to interest rates and equities.
• We believe this program will continue to preserve the economic value of our variable annuity contracts and better protect our target variable annuity asset level.
• Management believes that neither the outcome of pending litigation and regulatory matters, nor potential liabilities associated with other loss contingencies, are likely to have such a material adverse effect upon the Company’s financial position.

Industry Context

The financial services industry is currently navigating significant macroeconomic uncertainties, including geopolitical conflicts, inflation concerns, and evolving fiscal and monetary policies. The company's performance reflects these broader trends, particularly the impact of equity market volatility and interest rate fluctuations on its market-sensitive products and hedging programs. Regulatory bodies like the NAIC and SEC are actively refining capital requirements and introducing new standards for structured securities (CLOs) and reinsurance, which will increase compliance burdens and potentially impact capital. The ongoing debate and litigation surrounding the DOL's fiduciary rule also highlight a shifting regulatory landscape for investment advice. The industry-wide shift from actively-managed to passive services continues to influence the Asset Management segment.

Comparison to Industry Standards

• The company's hedging program targets an asset level for variable annuity products at or above a CTE98 level, a statistical measure of tail risk widely used in the insurance industry to quantify total asset requirements.
• The company's statutory RBC (Risk-Based Capital) standards are aligned with NAIC requirements, which are minimum capital requirements used by state insurance departments.
• The company's Reg 213 reserves were 100% phased-in as of September 30, 2022, and as of June 30, 2025, there are $111 million Reg 213 redundant reserves over the US RBC CTE 98 TAR, indicating a conservative reserving approach compared to the US RBC standard.
• The company's average Loan-to-Value (LTV) ratio for commercial mortgage loans was 67% at June 30, 2025, which is generally considered a conservative lending practice in the commercial real estate industry.

Corporate Governance

Legal Proceedings

• The company is a defendant in various litigation matters, including sales practices, agent misconduct, contract administration, product design, COI increases, death benefits, unclaimed property, breach of fiduciary duties, and mismanagement of client funds.
• As of June 30, 2025, the aggregate range of reasonably possible losses in excess of accrued amounts for these matters is estimated to be up to approximately $100 million.
• The company periodically receives informal and formal requests for information from state and federal governmental agencies and self-regulatory organizations in connection with inquiries and investigations.

Related Party Transactions

• The company's economic interest in AllianceBernstein (AB) was approximately 69% as of June 30, 2025, and 62% as of December 31, 2024, leading to consolidation due to the General Partner of AB being a wholly-owned subsidiary.
• Holdings purchased 19.7 million AB Holdings Units for $758 million on April 3, 2025.
• On July 10, 2025, AB and Holdings entered into an Amended and Restated Master Exchange Agreement, and Holdings exchanged 19.7 million AB Holding Units for limited partnership interests in ABLP.
• ABLP is required to distribute all of its Available Cash Flow to holders of AB Units and the General Partner (a wholly-owned subsidiary of the company).
• Inter-segment investment management and other fees of $44 million (Q2 2025) and $86 million (YTD 2025) are included in Asset Management segment revenues for services provided to the company.
• Inter-segment distribution fees of $222 million (Q2 2025) and $440 million (YTD 2025) are included in Wealth Management segment revenues.
• The company uses captive reinsurance companies (wholly-owned subsidiaries) to manage reserves and capital and assume business from affiliates.
• AB has a $900 million committed, unsecured senior credit facility (EQH Facility) with EQH, with $650 million outstanding as of June 30, 2025.
• AB has a $300 million uncommitted, unsecured senior credit facility (EQH Uncommitted Facility) with EQH, with no amounts outstanding as of June 30, 2025.

Stakeholder Impact

• Shareholders are negatively impacted by the net loss and decreased equity, but may benefit from ongoing share repurchases and strategic acquisitions aimed at long-term value.
• Policyholders are impacted by changes in policyholder benefits and interest credited to account balances, with significant changes to underlying policy structures and risk management due to the novation of legacy VA policies and the RGA reinsurance transaction.
• Employees see increased compensation and benefits expenses, indicating continued investment in human capital, and management trading plans are disclosed.
• Creditors face increased long-term debt, but the company remains in compliance with debt covenants and maintains stable credit ratings.
• Customers continue to be offered products and services, with the company focusing on ensuring their attractiveness and profitability.

Next Steps

• The RGA Reinsurance Transaction closed on July 31, 2025, with AB managing approximately 70% of assets supporting the ceded policies.
• AB and Holdings entered into an Amended and Restated Master Exchange Agreement on July 10, 2025, to increase AB Units available for exchange.
• The company entered into a new $1.0 billion five-year senior unsecured revolving credit facility on July 29, 2025.
• The company is preparing to comply with a new actuarial guideline for offshore reinsurance, with reporting required for reserves as of December 31, 2025.
• The NAIC's Financial Committee (E) Committee approved the formation of three new working groups in July 2025 to assist with implementing enhancements to the framework for regulating insurer investments.
• The NAIC's Risk-Based Capital Model Governance (EX) Task Force is charged with completing a comprehensive gap analysis by year-end 2025.
• Mark Pearson (CEO) and Jeffrey Hurd (COO) have Rule 10b5-1 trading plans for stock sales scheduled to start on August 15, 2025.

Key Dates

Recommendation

Equitable Holdings reported a substantial GAAP net loss for the quarter and year-to-date, primarily driven by non-cash, market-related accounting adjustments from derivatives and a one-time loss from the novation of legacy variable annuity policies. While Non-GAAP Operating Earnings, which provide a clearer view of core business performance, also declined, they remain positive. The company is actively managing its capital structure through debt issuance, preferred stock redemption, and a significant share repurchase program, signaling management's confidence. Strategic moves like increasing its stake in AllianceBernstein and the RGA reinsurance transaction are aimed at optimizing the business mix and risk profile for long-term value. Given the mixed financial signals—strong underlying strategic activity and positive operating earnings offset by significant GAAP losses due to accounting volatility—a 'Hold' recommendation is appropriate for a seasoned investor. This allows for observation of how these strategic initiatives translate into improved GAAP profitability and how the company navigates ongoing market and regulatory challenges.

Keywords

Financial Services, Insurance, Variable Annuities, Asset Management, Wealth Management, SEC Filing, 10-Q, Quarterly Report, Financial Results, Net Income, Operating Earnings, Derivatives, Hedging, Reinsurance, Capital Management, Share Repurchase, AllianceBernstein, Market Risk Benefits, Policyholder Liabilities, Investment Portfolio, Regulatory Compliance, Risk Factors, Corporate Governance