Equitable Holdings, Inc. (NYSE: EQH), the leading financial services holding company encompassing Equitable, AllianceBernstein, and Equitable Advisors, has recently announced a significant reinsurance agreement with RGA Reinsurance Company (RGA). This strategic move involves reinsuring 75% of Equitable's individual life insurance block, which is projected to generate over $2 billion of value for the company, accompanied by a positive ceding commission and capital release.
The transaction signifies more than just numbers on paper; it involves RGA taking on approximately $32 billion worth of insurance products, consisting of nearly $18 billion from general account reserves and $14 billion from separate account reserves. RGA will deploy $1.5 billion of capital at the transaction's closing, which is expected to contribute around $70 million of adjusted operating income before taxes for 2025.
Equitable Holdings' President and CEO, Mark Pearson, expressed enthusiasm about the deal's potential benefits, stating, "We are very pleased to have reached agreement with RGA on this transaction, which creates compelling strategic and financial value for Equitable, is accretive to our 2027 financial targets, and is a good outcome for our policyholders.”
The approval from Equitable Holdings' Board of Directors has already been secured, and the agreement is anticipated to close by mid-2025, contingent on standard conditions, including regulatory approvals. Financial advisory services are being provided by Barclays, with legal counsel from Willkie Farr & Gallagher LLP. Oliver Wyman has stepped up as the actuarial advisor for Equitable, ensuring all financial moves are well-calculated and leveraged for growth.
A key motive behind this agreement is to align Equitable’s focus on high return on capital businesses, namely retirement, asset management, and wealth management, where they have established significant growth prospects. Pearson added, "The transaction enhances our focus on Retirement, Asset Management, and Wealth Management, which are high return on capital businesses with attractive growth prospects where we have a clear right to win.”
Further underlining this commitment to growth, Equitable Holdings has unveiled plans to increase its ownership stake through a $1.8 billion tender offer for units of subsidiary AllianceBernstein, which is expected to manage approximately 70% of the general account assets involved in the reinsurance agreement.
On the other side of the deal, RGA’s Chief Financial Officer Axel André noted, "We anticipate raising capital in connection with this transaction through the issuance of long-term debt," reflecting RGA’s strategy to maintain prudent capital management amid new opportunities arising from this partnership.
The financial impact of this arrangement will be closely monitored as RGA reported $148 million available to shareholders for the fourth quarter of 2024, showing some decrease from $158 million year-over-year. The full-year income for RGA also experienced decline, decreasing to $717 million from $902 million the previous year. Such figures paint a complex picture of the financial environment both companies are operating within.
Equitable's strategic shift is not merely about bolstering its balance sheet; it signifies the combining of insurance capabilities with asset management prowess. This aligns neatly with industry trends where integrated financial solutions are becoming the norm, allowing companies like Equitable to capture greater synergies and offer enhanced value to their customers.
With the transaction poised to reshape Equitable Holdings' operational dynamics, the company plans to balance its immediate financial goals with long-term strategic outcomes. The reinsurance agreement with RGA not only frees up capital for Equitable but also reinforces its position as a player aiming for leadership across various sectors.
The transaction is underpinned by financial prudence and strategic foresight, illustrating the potential of reinsurance agreements to create value beyond mere policy adjustments. Both Equitable and RGA are set to reap benefits from this forward-thinking arrangement, as they navigate through their established markets and explore new avenues for growth.
The excitement surrounding this deal resonates both within the companies and their stakeholders as they look to the future. With the expected closing of the agreement in mid-2025, both organizations are poised to build upon their capabilities, marking this agreement as more than just another transaction but as part of their broader strategic vision.
Overall, this reinsurance agreement highlights how aligning strategic goals between insurance and asset management can lead to fruitful short-term gains and long-term stability, positioning both Equitable Holdings and RGA for sustained success in the financial services domain.