Elyse Greenspan: Thank you.
Operator: Your next question is from the line of Ryan Krueger with KBW. Please go ahead.
Ryan Krueger: Thanks. Good morning. My first question was on AB margins. The 200 to 250 basis point uplift from the SocGen transaction. Is that, should we start with the 1Q margin that was more around 28% if you back out the onetime expense benefit?
Robin Raju: Jackie I’ll pass it to you.
Jackie Marks: Thanks Robin. Yeah, so starting with the 1Q margin included obviously the onetime benefit, which if you back out is the starting margin before we factor in the removal of the full Bernstein research services from Q2 onwards. That’s where you factor in the annualized 200 and 250 basis point benefit.
Ryan Krueger: Okay. Got it. That would imply like a low 30% margin as the starting point all else equal?
Jackie Marks: Yeah, that’s correct.
Ryan Krueger: Okay. Got it. Thanks. And then it looked like you had $106 million cost of insurance litigation impact in the quarter at least on a GAAP basis. Was that — did that have an impact to your statutory capital? Or was there already a reserve that was established for that?
Robin Raju: Sure. Thanks Ryan. I’ll take that. So just on the cost of insurance just, we raised COIs in 2016 on policies that had over $1 million face amount and issue age with 70 and older. Those are policies that were issued between 2004 to 2007. The total value of that increase for Equitable was $1.3 billion. So pretty sizable. Over the last few years, we’ve made accruals during the litigation process that we have and we expect to get back roughly half of the value that we’ve obtained and we don’t expect any additional accruals at this time and no impact to our go-forward guidance.
Ryan Krueger: Okay. Great. Thank you.
Operator: Your next question is from the line of Jimmy Bhullar with JPMorgan Securities. Please go ahead.
Jimmy Bhullar: Thanks. Good morning. Robin just to clarify the $106 million is that a stat impact as well? Or did you say that there was not — I understand you said nothing go-forward, but thus far is it in stat as well? Or is it not a stat impact?
Robin Raju: It is. It’s accrued under stat as well the $106 million, but also the value that we obtained through the policies of $1.3 billion to the total increase that’s reflected in our balance sheet as well.
Jimmy Bhullar: Got it. And then just on the Group Retirement business. Can you talk about the drivers of the weak close there and what’s going on and then also the related impact that you expect of that on your future revenues and margins?
Nick Lane: Great. This is Nick. To start our Group Retirement business is comprised of three worksite line: tax-exempt, corporate and institutional which is reported in that segment. In our tax-exempt business as Mark referenced we’re the number one provider in K-12 supplemental retirement plans with slots in 9,000 school districts and serving over 900,000 teachers with 1,100 advisers. The teachers that work with advisers have 70% higher contribution levels resulting in strong consumer value and barriers to entry. In tax-exempt in the first quarter we saw a first year premium up 50% with positive flows in that line based on the activity from last year when schools fully reopened post COVID. So we would expect steady consistent organic single-digit growth with solid margins continuing in that area.
Similar to the industry higher interest rates have had an impact on net flows. Within the broader Group Retirement market we saw higher outflows primarily coming from our corporate line and discontinued other, higher account balances driven by higher equities and then older-aged clients that had asset concentrations in the general investment options sleeve which receives guaranteed rates. I would note that within the outflows 25% of the outflows were participant driven from clients using the products as intended for retirement income. And of the remainder roughly 50% are being retained within Equitable advisers in other product lines as their needs change under a fiduciary standard. So finally, we remain confident in the organic growth of our tax-exempt.
And we would expect to see new flows emerge in the institutional business line given our partnership with AB and BlackRock that Mark referenced earlier in the call.
Jimmy Bhullar: And then just lastly, are you able to comment on the impact of the DOL rule on your business? I realize majority of your products weren’t affected. But any sort of positives and/or negatives from the rule?
Nick Lane: Sure. While the rule had some minor adjustments there were no material changes. So as a result our views on the impact haven’t changed. As you mentioned we see the biggest impact on companies that sell non-registered products through non-registered distribution channels. At Equitable we focus on registered securities through registered broker-dealer channels. Currently, Equitable advisers already operates under the SEC Reg BI fiduciary standard and PTE 2020-02. So we don’t see a material impact. With that said, the broader industry has concerns on the process and the impact to consumers. So we expect there to be litigation going forward and we’ll continue to monitor the situation.
Jimmy Bhullar: Thank you.
Operator: Your next question is from the line of Tom Gallagher with Evercore ISI. Please go ahead.
Tom Gallagher: Good morning. First question is just on this BlackRock LifePath Paycheck rollout. Should we expect this to move the needle on group retirement flows in 2Q? Or is this going to be more modest and incremental?
Mark Pearson: Thanks Tom, it’s Mark Pearson. Look we’re very bullish on this part of our business, the in-plan guarantee opportunity. As you know the SECURE Act makes it easier for sponsors to add a decumulation option in there. And it’s going to give us significant long-term growth potential in there. We’re very bullish. We’ve already received flows from the BlackRock partnership we have. We will start to report those at the end of Q2. And we know that BlackRock have been out there and told the market they have commitments from 14 plans with over $25 billion of AUM in target-date funds. So, of those plans, we will start to receive an allocation the remainder of this year for clients aged 55 and above. So, I think it will be meaningful on net flows. It will take a little bit of time to come through as a meaningful contribution to earnings though. But in terms of flows, we’ll start to see it this year and we’re very bullish on it.
Tom Gallagher: That’s good color. Thanks Mark. And then Robin I just wanted to come back as a follow-up to Ryan’s question on the cost of insurance charges. So, I just want to make sure I understood it. So, $1.3 billion was the ultimate benefit you got from the repricing on that block you’re referencing and you said you expect — you gave half of it back. So, have we seen cumulative COI litigation charges of $600 million or something like that related to the 2016 repricing of the COI? Like — and has all of that already hit? Or can you just provide a little bit of clarity for the two pieces? Thanks.
