Market for These Annuities Looks 'Exceptionally Robust': Equitable

Robin Raju is helping a company that has been a pillar of the U.S. life insurance industry get its fame back.

Raju is the chief financial officer at Equitable Holdings, the New York-based company founded in 1859 that operated relatively quietly from 1992 through 2018, when it was controlled by AXA of Paris.

AXA began to separate from Equitable through an initial public offering in May 2018. Over the past five years, the company has gotten its New York Stock Exchange listing back and started to get more attention. Its stock recently joined the S&P MidCap 400 Index.

One focus has been Equitable’s role as a creator of the modern market for registered index-linked annuities, or RILAs.

A RILA contract is an index-linked annuity that’s registered with the U.S. Securities and Exchange Commission as a security. Because a RILA can expose the contract owner to investment-market-related loss of account principal, the issuer and the buyer can decide just how much of the investment risk the issuer will absorb.

Marketwide RILA sales have grown from zero in 2010 to $34 billion in the first three quarters of this year. In those three quarters, Equitable accounted for $8.2 billion in RILA sales.

Raju oversees the financial machinery behind Equitable’s RILA products, its other annuities, its traditional life insurance products and its AllianceBernstein asset management business.

Since he became the CFO, in 2021, he has helped Equitable prepare for major new benefits value accounting rule changes that took effect this year and navigated the company through the COVID-19 pandemic.

Raju is especially conscious of the role that Equitable’s investment portfolio plays in supporting the promises the company makes to its clients and the returns the company can provide for shareholders.

“We maintain a high-quality investment portfolio with strong credit ratings to ensure that we can deliver on our long-term commitments,” Raju said in an email interview.

Raju has a bachelor’s degree from the University of Scranton. He was working as a municipal bond trader when he began working for Equitable in 2004. Before he became the company’s CFO, he was head of individual retirement.

He recently answered questions, via email, about how he sees the RILA market, the lingering effects of the pandemic on mortality and investment market trends.

The interview has been edited.

THINKADVISOR: What do you think about the registered index-linked annuity market?

ROBIN RAJU: RILAs allow investors to participate in market upside while providing a cushion against some losses.

The competitive dynamics of RILAs continue to be positive, and we welcome competition.

Given the strong demand from consumers, I see the possibility of new entrants in 2024, but, at this moment, pricing in the market remains exceptionally robust.

How does U.S. mortality look?

We are seeing the effects of COVID-19 as it moves from pandemic to endemic, with mortality above pre-pandemic levels.

As a result, we have seen a pull-forward in mortality recently and expect it to continue over the next few quarters.

Last year, we adjusted our statutory assumptions to account for the increased COVID-19 endemic-related mortality, which means that our cash flows already reflected the increased mortality.

How did the 2023 insurance portfolio investing environment compare with what you expected?

At the start of the year, investors were worried that labor markets could weaken, and inflation would stay stubbornly high, potentially causing a recession.

In reality, it appears the economy has been relatively resilient.

Fundamentals also held up through the year; while rates were volatile, spreads did not widen as much as anticipated, especially in higher beta sectors, like U.S. high yield.

We navigated a complex investment environment and found pockets of opportunity in investment-grade asset classes.

We continue to emphasize quality and diversification as the credit environment softens.

Also, there has been an increased emphasis on the private market that was not expected at the outset of this year, primarily as a result of disruption in the banking space (i.e., the fallout of Silicon Valley Bank).

As banks continue to de-risk balance sheets, it allows insurers, as natural providers of liquidity, to step in and fill those voids.

The Fed’s benchmark rates seem to have stabilized. What’s happening to the rates that Equitable is really getting on the investment-grade corporate bonds that make up the bulk of its portfolio?

Yields remain elevated and attractive for income-focused investors.

Spreads moved wider on the back of the Silicon Valley Bank fallout this year, but otherwise have not widened as much as originally anticipated — some of this can be attributed to lower issuance year-over-year, which has been met by positive demand.

Higher rates have been an opportunity for us as we focus on companies with resilient balance sheets.

We remain disciplined by avoiding sectors likely to shift into cyclical downturn in the next 12 months and issuers at risk of negative credit rating migration.