EQH

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How EQH rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

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New in FY2025

The Russian invasion of Ukraine, hostilities in the Middle East, and the ensuing conflicts and the sanctions and other measures imposed in response to these conflicts, as well as tariff and trade disputes, have significantly increased the level of volatility in the financial markets and have increased the level of economic and political uncertainty.
Some of our retirement products and certain of our investment products, and our investment returns, are sensitive to interest rate fluctuations, and changes in interest rates and interest rate benchmarks may adversely affect our investment returns and results of operations, including in the following respects: • changes in interest rates may reduce the spread on some of our products between the amounts that we are required to pay under the contracts and the rate of return we are able to earn on our General Account investments supporting the contracts; • when interest rates rise rapidly, policy loans and surrenders and withdrawals of annuity contracts and life insurance policies may increase, requiring us to sell investment assets potentially resulting in realized investment losses, which could reduce our net income; • a decline in interest rates accompanied by unexpected prepayments of certain investments may result in reduced investment income and a decline in our profitability.
We have implemented a formal, risk-based data security program, including physical, technical, and administrative safeguards; however, failure to implement and maintain effective data protection and cybersecurity programs that comply with applicable law, or any compromise of the security, confidentiality, integrity, or availability of our information systems, or those of our vendors, the cloud-based systems we use, or the sensitive information stored on such systems, through cyber-attacks, employee error or malfeasance, system degradation, or for any other reason that results in unauthorized access, use, modification, disclosure or destruction of personally identifiable information, customer information, or other confidential or proprietary information, or the disruption of critical operations and services, could damage our reputation, deter people from purchasing our products, subject us to significant civil and criminal liability and require us to incur significant technical, legal and other expenses any of which could have a material adverse effect on our business, results of operations or financial condition.
Moreover, while we maintain cyber incident liability insurance, it may be insufficient to cover all costs and liabilities associated with a cyber incident, or we may be unable to retain or obtain such insurance in the future on commercially practicable terms.
Any catastrophic event, terrorist attacks, accidents, floods, severe storms or hurricanes, pandemics and other public health issues, cyber-terrorism, or the failure of telecommunications or other critical infrastructure could have a material and adverse effect on our business.
If economic conditions worsen as a result of a catastrophe, pandemic or other public health issue, companies may be unable to make interest and principal payments on their debt securities or mortgage loans that we hold for investment purposes.
Accordingly, we may still incur significant losses that can result in a decline in net investment income (“NII”) and/or material increases in credit losses on our investment portfolios.
Misconduct and excessive or inappropriate risk taking by our employees, financial professionals, agents, intermediaries, representatives of our broker-dealer subsidiaries, or employees of our vendors could result in public reporting, regulatory enforcement proceedings, regulatory sanctions or serious reputational or financial harm, as well as significant technical, legal and other expenses.
Certain types of violations may result in our inability to act as an investment adviser or broker-dealer or to represent issuers in Regulation D offerings by acting as placement agent, general partner or another role.
In addition, these transactions, if undertaken, may involve a number of risks; present financial, managerial and operational challenges; require us to increase our leverage; or, if we issue shares to fund an acquisition, dilute the holdings of the existing stockholders.
We hold certain investments that may lack liquidity, such as privately placed fixed maturity securities, mortgage loans, commercial mortgage backed securities and private alternative investments.
For further discussion, see “—Risks Relating to Estimates, Assumptions and Valuations—Our risk management policies and procedures.” Our reinsurance arrangement with affiliated entities.
Affiliated Captive The reinsurance arrangement with EQ AZ Life Re (the “Affiliated Captive”) provides important capital management benefits to Equitable Financial.
Under applicable statutory accounting rules, Equitable Financial is currently, and will in the future be, entitled to a credit in its calculations of reserves for amounts reinsured to the Affiliated Captive, to the extent the Affiliated Captive holds assets in trust or provides letters of credit or other financing acceptable to the domestic regulator of Equitable Financial.
Increasing reserve requirements may necessitate that additional assets be placed in trust or additional letters of credit secured, which could impact the liquidity of the Affiliated Captive.
Offshore Affiliate The reinsurance arrangement with Equitable America and Equitable Bermuda (the “Offshore Affiliate”) provides important capital management benefits to Equitable America.
Under applicable statutory accounting rules, Equitable America is currently, and will in the future be, entitled to a credit in their calculations of reserves for amounts reinsured to the Offshore Affiliate.
However, if the Offshore Affiliate loses its reciprocal jurisdiction reinsurer status in Arizona, the Offshore Affiliate will have to maintain collateral equal to the U.S. statutory accounting reserve for Equitable America to retain this credit.
We cannot be certain that the Offshore Affiliate will be able to maintain this collateral.
For further information on the NAIC review of the RBC treatment of certain complex assets in which insurers have invested during recent years, see “Business—Regulation—Insurance Regulation—Risk Based Capital.” Additionally, state insurance regulators have significant leeway in how to interpret existing regulations, which could further impact the amount of statutory capital or reserves that we must maintain.
AB derives most of its revenues from investment advisory and services fees that vary based on the type of service, account size, and total assets managed for a client, and that are typically calculated as a percentage of the value of AUM on a specified date, or as an average over a billing period.
Several factors can adversely affect the market value and composition of AB’s AUM, including market factors, client preferences, AB’s investment performance, investing trends, service changes and interest rate changes.
A decrease in the market value or amount of AB’s AUM, an adverse shift in the composition of AUM, or a reduction in AB’s fee levels would negatively impact AB’s revenues and, without a corresponding decrease in expenses, would adversely affect AB’s and our operating results.
AB sometimes charges performance-based fees, which include a base advisory fee plus an additional fee based on investment results.
Failure to meet performance targets means no performance-based fee for that period.
Performance-based fee arrangements can also have a high-watermark provision, meaning that an underperforming client account must recover losses before AB can earn future performance-based fees, which can impair future fee earnings.
Creating new products and services, including those focused on specific industries, sectors, or criteria, requires continuous innovation and significant time, resources, and ongoing support.
AB has a seed investment program to build track records and support marketing for its new products, but that is subject to market risk.
AB’s risk management team oversees a seed hedging program to minimize this risk.
Not all seed investments are hedged, and AB’s hedges are imperfect, leaving some market risk.
AB may also face basis risk as it cannot always precisely hedge its market exposure, leading to potential relative spreads between market sectors.
Furthermore, using derivatives, such as futures, forwards, swaps, and options introduces counterparty risk (the risk of credit-related losses if counterparties fail to perform, regulatory risk (e.g., short selling restrictions) and cash/synthetic basis risk (the risk that underlying positions do not move identically to related derivatives).
AB has procedures for pricing and valuing securities and other positions in client accounts and for company investments.
AB’s Valuation Committee oversees a consistent framework of pricing controls and valuation processes for the firm and its advisory affiliates.
Improper valuation of securities, which can result from factors such as extraordinary market volatility, liquidity constraints and failure to consider all factors when determining fair value can result in inaccurate AUM figures, incorrect NAVs for company-sponsored funds, and inaccurate financial reporting.
Incorrect valuations can harm AB’s clients, create regulatory issues and damage AB’s reputation.
Due to the complexity and data dependency of these models, errors may occur, resulting in client losses and reputational damage, and AB’s controls might fail to detect the errors.
AB must increasingly manage actual and potential conflicts of interest.
Failure to manage conflicts appropriately could harm AB’s reputation, operations and business prospects, cause clients to be less willing to engage with AB, and lead to litigation or regulatory enforcement actions.
In recent years, insurance regulators and the NAIC have been focused on enhancing regulatory oversight of insurers’ investments in complex assets, such as leveraged loans and CLOs, the use of AI technologies and “big data,” and the management of climate risk.

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Gone since FY2024

The Russian invasion of the Ukraine, the Israel-Hamas war and broader Middle Eastern hostilities, and the ensuing conflicts and the sanctions and other measures imposed in response to these conflicts, as well as the U.S. presidential administration’s threats of tariffs, and retaliatory tariffs in response, have significantly increased the level of volatility in the financial markets and have increased the level of economic and political uncertainty.
Some of our retirement and protection products and certain of our investment products, and our investment returns, are sensitive to interest rate fluctuations, and changes in interest rates and interest rate benchmarks may adversely affect our investment returns and results of operations, including in the following respects: • changes in interest rates may reduce the spread on some of our products between the amounts that we are required to pay under the contracts and the rate of return we are able to earn on our General Account investments supporting the contracts; • when interest rates rise rapidly, policy loans and surrenders and withdrawals of annuity contracts and life insurance policies may increase, requiring us to sell investment assets potentially resulting in realized investment losses, which could reduce our net income; • a decline in interest rates accompanied by unexpected prepayments of certain investments may result in reduced investment income and a decline in our profitability.
In the U.S., the continued disagreement over the federal debt limit and other budget questions threatens the economy.
Failure to resolve these issues in a timely manner could result in a government shutdown, erratic shutdown in government spending or a default on government debt, which could result in increased market volatility and reduced economic activity.
We have implemented a formal, risk-based data security program, including physical, technical, and administrative safeguards; however, failure to implement and maintain effective data protection and cybersecurity programs that comply with applicable law, or any compromise of the security, confidentiality, integrity, or availability of our information systems, or those of our vendors, the cloud-based systems we use, or the sensitive information stored on such systems, through cyber-attacks or for any other reason that results in unauthorized access, use, modification, disclosure or destruction of personally identifiable information, customer information, or other confidential or proprietary information, or the disruption of critical operations and services, could damage our reputation, deter people from purchasing our products, subject us to significant civil and criminal liability and require us to incur significant technical, legal and other expenses any of which could have a material adverse effect on our business, results of operations or financial condition.
Any catastrophic event, terrorist attacks, accidents, floods, severe storms or hurricanes, pandemics and other public health issues, or cyber-terrorism, could have a material and adverse effect on our business.
If economic conditions worsen as a result of a catastrophe, pandemic or other public health issue, companies may be unable inability to make interest and principal payments on their debt securities or mortgage loans that we hold for investment purposes.
Accordingly, we may still incur significant losses that can result in a decline in net investment income and/or material increases in credit losses on our investment portfolios.
Misconduct by our employees, financial professionals, agents, intermediaries, representatives of our broker-dealer subsidiaries - or employees of our vendors could result in obligations to report such misconduct publicly, regulatory enforcement proceedings and, even findings that violations of law were committed by us or our subsidiaries, regulatory sanctions or serious reputational or financial harm.
Certain types of violations may result in our inability to act as an investment adviser or broker-dealer or to represent issuers in Regulation D offerings by acting as placement agent, general partner or other roles.
If our employees or financial professionals take excessive or inappropriate risks, those risks could harm our reputation, subject us to significant civil or criminal liability and require us to incur significant technical, legal and other expenses.
In addition, these transactions, if undertaken, may involve a number of risks and present financial, managerial and operational challenges.
Furthermore, strategic transactions may require us to increase our leverage or, if we issue shares to fund an acquisition, would dilute the holdings of the existing stockholders.
Losses due to defaults by third parties and affiliates, including outsourcing relationships.
We depend on third parties and affiliates that owe us money, securities or other assets to pay or perform under their obligations.
Defaults by one or more of these parties could have a material adverse effect on our business, results of operations or financial condition.
Moreover, as a result of contractual provisions certain swap dealers require us to add to derivatives documentation and to agreements, we may not be able to exercise default rights or enforce transfer restrictions against certain counterparties which may limit our ability to recover amounts due to us upon a counterparty’s default.
We rely on various counterparties and other vendors to augment our existing investment, operational, financial and technological capabilities, but the use of a vendor does not diminish our responsibility to ensure that client and regulatory obligations are met.
Disruptions in the financial markets and other economic challenges may cause our counterparties and other vendors to experience significant cash flow problems or even render them insolvent, which may expose us to significant costs and impair our ability to conduct business.
We are also subject to the risk that our rights against third parties may not be enforceable in all circumstances.
The deterioration or perceived deterioration in the credit quality of third parties whose securities or obligations we hold could result in losses or adversely affect our ability to use those securities or obligations for liquidity purposes.
We hold certain investments that may lack liquidity, such as privately placed fixed maturity securities, mortgage loans, commercial mortgage backed securities and alternative investments.
For further discussion, see “—Risks Relating to Estimates, Assumptions and Valuations—Our risk management policies and procedures.” Our reinsurance arrangement with an affiliated captive.
The reinsurance arrangement with EQ AZ Life Re Company (the “Affiliated Captive”) provides important capital management benefits to Equitable Financial and Equitable America (collectively, the “Affiliated Cedants”).
Under applicable statutory accounting rules, the Affiliated Cedants are currently, and will in the future be, entitled to a credit in their calculations of reserves for amounts reinsured to the Affiliated Captive, to the extent the Affiliated Captive holds assets in trust or provides letters of credit or other financing acceptable to the respective domestic regulators of the Affiliated Cedants.
Increasing reserve requirements may necessitate that additional assets be placed in trust or securing additional letters of credit, which could impact the liquidity of the Affiliated Captive.
The completion of the reinsurance transaction with Reinsurance Group of America is subject to several conditions, including the receipt of consents and approvals from government entities, which may impose conditions that could have an adverse effect on the expected economic and non-economic benefits to the Company or could cause the proposed transaction to be abandoned.
Subsequent to December 31, 2024, our subsidiaries, Equitable Financial, as well as our subsidiaries Equitable America and Equitable L&A, entered into a master transaction agreement with Reinsurance Group of America (“RGA”) on February 23, 2025 pursuant to which at closing and subject to the terms and conditions set forth in such agreement, RGA would enter into reinsurance agreements, as reinsurer, with each such subsidiary, as ceding company, to reinsure 75% of such ceding companies’ in-force individual life insurance block on a pro-rata basis (the “RGA Reinsurance Transaction”).
The completion of the RGA Reinsurance Transaction, and entry into the reinsurance agreements contemplated thereby, is subject to several conditions, including, among others, the receipt of approvals from certain U.S. insurance regulators, including the New York Department of Financial Services, the Arizona Department of Insurance and Financial Institutions and the Missouri Department of Commerce & Insurance, as well as the Bermuda Monetary Authority.
The Company cannot provide any assurance that either it or RGA will obtain the necessary approvals.
In addition, regulatory entities may impose certain requirements or obligations as conditions for their approval or in connection with their review.
The master transaction agreement may require the Company (including its applicable subsidiaries) or RGA to accept certain conditions or limitations or modification to the transaction document from these regulators that could adversely effect the expected economic and non-economic benefits of the RGA Reinsurance Transaction to the Company or could cause the proposed transaction to be abandoned.
The parties are not required to accept conditions that would or would reasonably be likely to have a Burdensome Condition (as defined in the master transaction agreement), which assessment will be made at or prior to closing, and the Company cannot provide any assurance that any required conditions, limitations or modification will not, individually or in the aggregate, have such an effect.
Furthermore, it could take longer to receive the requisite governmental consents and approvals than currently anticipated, and any such delay could cause the Company to fail to realize the benefits it currently expects to receive from the RGA Reinsurance Transaction or result in the abandonment of the transaction.
On February 24, 2025, Holdings commenced a cash tender offer (the “Offer”) to purchase up to 46 million AB Holding Units at a price of $38.50 per unit, less any applicable tax withholding, for an aggregate purchase price of $1.8 billion.
The Offer will expire on March 24, 2025 unless extended or earlier terminated.
Holdings expects to fund the Offer from available cash and cash equivalents and the Term Loan described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources— Holdings Credit Facilities .” In the event the RGA Reinsurance Transaction is significantly delayed or fails to close, and the Company does not receive the expected economic benefits, the use of cash and cash equivalents, along with a draw under the Term Loan, could have a material adverse effect on our business, results of operations, liquidity or financial condition, including the ability to meet our 2027 financial targets.
For further information on the NAIC review of the RBC treatment of certain complex assets in which insurers have invested during recent years, see “Business—Regulation—Insurance Regulation—Surplus and Capital; Risk Based Capital.” Additionally, state insurance regulators have significant leeway in how to interpret existing regulations, which could further impact the amount of statutory capital or reserves that we must maintain.
State insurance laws limit the ability of our insurance subsidiaries to pay dividends and other distributions to Holdings.
The payment of dividends and other distributions to Holdings by its insurance subsidiaries, including its captive reinsurer, is regulated by state insurance laws and regulations.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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