Q4 2022 American Equity Investment Life Holding Co Earnings Call
Yeah.
Yeah.
Welcome to American equity investment life, holding company's fourth quarter 2022 conference call at this time for opening remarks, and introductions I would now like to turn the call over to Julie Hineman coordinator of Investor Relations.
Good morning.
American equity investment life, holding company's conference call to discuss fourth quarter 2022 earnings our earnings release.
Well that can be found on our website at www Dot American equity Dot com.
non-GAAP financial measure discussed on today's call and reconciliations of non-GAAP financial measures comparable GAAP measures can be found in those documents or elsewhere on our investor relations portion of our website.
On today's call are enough, our chief Executive officer, and so on.
Gray Chief Financial Officer.
Some of our comments will contain forward looking statements, which refer or relate to future results many of which we have identified in our earnings release.
Our actual results significantly differ many risks, including the risk factors in our SEC filings.
Audio replay will be made available on our website. Shortly after todays call. It is now my pleasure to introduce not fallen.
Thank you Julie good morning, and thank you all for your interest in American equity.
The fourth quarter of 2022 gaps a successful year for the ongoing advancement of our Eagle two point on strategy as we can.
And clearly execute against the four key pillars.
In investment management, we originated $5 billion.
<unk> sold assets at an expected return greater than 6%.
We expanded our primary focus from residential real estate in 2021.
For a more diversified portfolio in 2022, covering a variety of factors, including infrastructure middle market credit and commercial real.
Real estate equity.
Across sectors, we have a disciplined and deliberate focusing on underlying assets with a resilient cash flow profile, where the majority of the return is largely delivered by the underlying operating performance.
And where there is an advantage for an insurance balance sheet to own the assets.
With fixed income spreads widening throughout most of the year we.
We see this additional optionality to increase exposure in our core fixed income bucket, while being more selective in our private asset strategies.
And go to market, we substantially revamped pricey procedures.
Affording us optionality to reprice products quickly as markets change.
To put this in perspective, we.
Historically reprice, new products once or twice per year.
Thanks to the changes we made to improve these processes we.
<unk> successfully delivered in excess of 50 product and rate changes in 2022.
Our pricing has become more nimble.
Targeted and responsive to market changes, which is important to generate growing sales.
Any attractive double digit <unk> on total sales volume.
We also refreshed our distribution incentive and loyalty programs and continue to assess ways to further differentiate our service offerings to produce it built.
Building on our number one ranking for customer satisfaction for annuity providers by J D power and associates.
In this area.
We'll be revamping, our new business processes and technology to improve efficiency as we grow.
And our capital and reinsurance pillar.
We achieved nine $6 billion of fee generating reinsured balances and generated over $50 million in revenues in 2022.
This included new business you did during the year of $1 3 billion to Brookfield.
And $3 $8 billion of imports to 'twenty six north effective October <unk>.
Additionally, the new reinsurance agreement with $26 three resulted in a capital release of $260 million to fund the growth in excess capital.
Supports the continued migration to privately sourced assets and capital return to shareholders.
As a result of these transactions.
We are as a lot of this transaction, we also reduced the sensitivity of our GAAP financial results to equity index credits.
We're also pleased to announce that we started Florida insurance on traditional fixed rate annuities with 26, North III effective February eight.
During the year, we repurchased $14 8 million shares more than offsetting the dilution for the follow on offering to Brookfield.
And returned an additional $307 million to shareholders.
Combined with dividends paid in the fourth quarters of 2021 and 2022, we have returned $369 million of capital to shareholders in the last five quarters.
In 2023, we intend to return at least $380 million to shareholders.
Comprising of $130 million remaining from our planned return in 2022.
And at least $250 million for 2023.
This is well within our remaining authorization of $569 million in it.
Testament to the board and management's belief in our long term potential to generate sustainable and growing value for shareholders.
While it's not front and center, we continue to invest in enhancing our fourth pillar the foundational capabilities to support a higher trajectory of growth and widening of our liability aperture while maintaining explains this.
<unk> discipline.
We have implemented you investment accounting and investment management systems.
Implementing a new general ledger system.
Yeah.
Turning to the fourth quarter.
In the investment area, we saw many unique opportunities.
In private assets during the fourth quarter as markets continue to reprice across most sectors.
In the quarter, we booked $1 $4 billion to work in private assets.
Total private assets at the end of the year were almost $11 billion, bringing our allocation to 22% of the investment portfolio at year end.
Of this amount approximately $7 billion of close to two times.
In real estate loans comprising of $2 $9 billion of residential loans.
$3 $4 billion of commercial mortgage loans.
Zero point $6 billion up.
Cultural norms.
Beyond mortgage loans.
Private asset portfolio consists of middle market private credit of $1 $2 billion or 2% of the portfolio.
Middle market credit consist primarily of senior secured loans to small and medium sized companies with strong lender protections.
Portfolio is well diversified across borrower and markets is mostly floating in nature and offers.
Better structured and high yield public credit markets.
Majority of this portfolio is managed by item Street partners and some more details on this was presented at our Investor Symposium in December .
Additionally outside of credit.
The single largest sector in our private asset portfolio is our approximate $1 billion portfolio of single family residential rent rental homes.
We've been a big believer in this asset class.
Over the past two years have built a portfolio that is geographically diversified and locations.
<unk> strong growth in population and associated wage income growth.
We look to benefit from both long term appreciation of housing stock and rental growth.
Okay.
The macro dynamics for rental housing is strong and partnering with the nation's leading platforms operated by our asset management partner practice.
Is a compelling differentiator for aes.
Finally.
Private assets portfolio comprises of a 1% allocation each to infrastructure debt and specialty credit and a smaller allocation to commercial real estate equity, which along with infrastructure equity should grow over time.
We have negligible exposure to traditional private equity and no exposure to hedge funds.
During the quarter.
Over $800 billion to work in the real estate sector.
Primarily residential nonqualified mortgages.
Residential transitional role loans and single family real estate.
Average expected return of over six 4%.
We remain bullish on rental housing demand continues to significantly outpace supply.
Residential real estate loans remain attractive.
Underwriting standards tightening still produced expected returns north of 6%.
In addition, we see attractive risk adjusted yields.
In directly originated middle market credit rather than directly sourced opportunistic specialty credit and real assets.
One of the real estate investments made in the quarter was our first equity investment in the ultra luxury luxury hospitality sector.
Partnering with a world class hotel owner and operator.
This is part of the hospitality sector.
Proving to be more resilient to economic cycles.
It's still a newer and growing segment within the United States.
Earlier this week American equity life Insurance company co invested alongside an ice square capital fund in the Whistler pipeline.
The Whistler pipeline is a leading U S core LNG infrastructure system connect.
Connecting the Permian basin growing natural gas supply to LNG, Mexico and Gulf Coast demand.
We still will have direct connections into LNG facilities in the Corpus Christi area.
Nearly all current capacity is contracted under long term fixed fee minimum volume commitments, primarily with investment grade Counterparties.
We see increasing long term demand for natural gas across the U S. Gulf coast due to the growth in LNG liquefaction capacity being constructed in the region as well as growing demand from Mexico.
Sure this detail because it is an example.
Asset that offers a rare combination of strong free cash flow high quality contracts and operating rights on highly strategic natural gas infrastructure.
The management team of the acid will retain a significant portion of equity in the business has established a reputation for growing contracted cash flows to developing and operating greenfield projects and have identified several initiatives to further grow this platform.
We are also strategic and purposeful and seizing the opportunities arising from broader public market dislocation.
For example, during the fourth quarter, we added over $1 billion of high quality almost entirely AAA and double a rated structured securities we'd expected return above 6%.
All of this points to the value we have delivered.
Through our investment management area, where we are balanced from a risk return point of view between public markets and private assets.
In the go to market area. We saw we saw a fourth quarter increase in sales of fixed index annuities up 7% compared to the third quarter.
We saw very strong sales gains at Eagle life in both accumulation and income products, which would be expected given the rapid response nature of the bank and broker dealer channels to pricing changes.
At American equity life, we continue to see drawing momentum for sales.
Income shares which were up 8% from the third quarter and increased 29% from the comparable period a year ago.
Accumulation product sales in the independent agent channel saw declines due to relative attractiveness of more commoditized S&P cap rates.
Effective November 30.
We are well positioned competitively and entered 2023 with strong momentum.
Through February 15th.
We have sold approximately $460 million of fixed index annuities.
We are very well positioned to continue to seize opportunities and be competitive in the marketplace and our confidence in and energized about our plan to deliver superior value in the long term.
Now I'll turn the call over to Axel to go over earnings with excellent. Thank.
Thank you announced.
Extend my appreciation to all of you attending this call.
For the fourth quarter of 2022, we reported non-GAAP operating income of $67 9 million or <unk> 79 per diluted common share compared to non-GAAP operating income of $75 8 million or <unk> 81 per diluted common share for the fourth quarter of 2021.
Excluding notable items operating income for the fourth quarter of 2021 was $97 $1 million or dollar and <unk> <unk> per diluted common share. There were no notable items in the fourth quarter of 2022.
The quarter included included $21 million of revenues from reinsurance agreements up from $11 million in the third quarter of 2022.
Noticed that we changed the presentation in our financial supplement to show account values, rather than cash surrender values as we had previously done.
The cash surrender value is no longer a common metric for the calculation of fees on all account value ceded going forward. The change in account value line will include new business ceded offset by decrements in certain business units.
Average yield on invested assets was four 3% in the fourth quarter of 2022 compared to $4 four 8% in the third quarter.
The sequential decrease was primarily attributable to returns on partnerships and other mark to market assets, which returned nine basis points less than expected returns in the fourth quarter compared to 22 basis points over expected returns in the third quarter.
Partly offset by a 15 basis points benefits on the portfolio from the increase in short term rates on our floating rate assets.
The average adjusted yield excluding non trended both prepayments was 429% in the fourth quarter of 2022 compared to $4 four 5% in the third quarter of 2022.
While partnerships and other mark to market assets, which are reported primarily on a one quarter lag basis had a positive contribution to investment income well within the expected range of variance the contribution was $11 million or nine basis points of yield less than the assumed rates of returns for us in our investment process for the fourth quarter of 2022.
As broader context, the contribution of partnerships and mark to market assets to net investment income for 2022 was $200 million.
Which is $87 million or 16 basis points more than the assumed rate of return investment process.
Enforce reinsurance reduced investments by $3 8 billion and reported net investment income by $45 million for the fourth quarter in 2022.
We invested $2 5 billion at a yield of 681% included including one $4 billion of private resource assets at an expected return of seven 2% in the fourth quarter.
Our allocation to privately sourced assets was 22% of invested assets as of quarter end compared with 18 portfolio as of September 18, 4% as of September 30.
Since quarter end, we have continued to put money to work in private E source asset sectors, where we have conviction as well as in core sectors, where we have seen attractive opportunities to support our strategic initiatives.
As of December 31, two points in time yield on our investment portfolio was four 4% compared to 422% as of September 30th.
Afflicting the benefit from the increase in floating rate indices, and increasing yields on our public asset portfolio, reflecting portfolio management trades and further increasing our allocation to property sourced assets.
For the first quarter.
2023, we expect an additional benefit of roughly seven basis points in yield reflecting the increase in short term rates on our $6 billion of floating rate assets.
Yeah.
The aggregate cost of money for annuity liabilities.
Was 176% in the fourth quarter up from 175% in the third quarter the cost of money in both quarter reflected near zero hedge gains the.
The increase in the cost of money, primarily reflects the higher cost of options purchased in the fourth quarter of 2022 compared to the run off of the lower cost options purchased in the third quarter of 2021.
And higher renewal rates on annual resets of traditional fixed annuities offset in part by the slightly higher cost of money on account that you ceded to $26 three.
Cost of options in the fourth quarter of 2022 averaged 161% compared to one 5% to 8% in the third quarter.
Investment spread in the fourth quarter was $2 five 4% compared to $2, 73% in the prior quarter.
Excluding prepayments income and hedging gains adjusted spread was 253% compared to $2 seven 1% in the third quarter, reflecting the sequentially lower returns on partnerships and lots of market assets and a slight increase in custom money.
Deferred acquisition cost and deferred sales inducements amortization totaled $139 million in the fourth quarter compared to $145 million into the third quarter, excluding the effect of actuarial assumption changes.
Fourth quarter amortization was $8 million greater than modeled expectation post the enforce reinsurance transaction.
Primarily due to lower than modeled index credits and higher surrenders than expected offset in part by lower than modeled option budget and credibly crediting rates.
The change in the liability for guaranteed lifetime income benefit payments decreased $5 million this quarter compared to the third quarter, excluding the effects of actual assumption changes.
The fourth quarter increase in the liability for guaranteed lifetime income payments was $37 million more than models posted the enforce reinsurance transaction.
Primarily to the near zero level of index credits, which increased the reserve by $18 million.
Lower than modeled cost of money and other experience true ups, each added $8 million to expense above expectations.
For the first quarter, we would expect amortization of the deferred acquisition costs and sales in Houston assets under Fas 97.
$126 million and an increase in the Sop <unk>, one reserves for guaranteed lifetime income benefit payments of.
$60 million on current in force before adjusting for actual experience.
As a reminder, the lack of index credits could add up to an additional $10 million to DAC amortization and another $20 million to the ESOP results.
Outflows in the quarter totaled $1 2 billion.
From $1 1 billion into third quarter, driven by increased surrenders.
While we have only limited information on how such disbursements are used we have seen an increase in section 235 exchanges to other carriers of in force policies, mostly out of and near the end of surrender charge periods.
Other operating costs and expenses were $62 million in the fourth quarter up to $2 5 million from the third quarter, bringing the full year right in line with expectations.
For 2023, we expect other operating costs and expenses to be in the $250 million range for the full year.
At December 31.
Cash and equivalents at the holding company.
We're at $531 million, reflecting a $325 million dividend from American equity life to the holding company.
As of year end, the estimated risk based capital ratio for American equity life was 413% compared to 400% at the end of 2021.
Our internal estimates show that we have excess capital at year end relative to rating agency models of approximately $650 million.
Yes.
Book value ex OCI.
At year end 2022 was $54 52 per share on a pre <unk> basis.
Consistent with our prior messaging on the impact of <unk>, we would estimate.
<unk> book value ex Aoc at year end 2022 to be north of $60 per share on a post <unk> basis.
We will report our first quarter results in early May on a post <unk> basis, and expect to publish a restated financial supplements prior to the call presenting our results on a post <unk> basis.
Directionally, we expect our run rate operating income to be favorably impacted by the change to hei primarily.
Primarily reflecting lower reserve accretion for labor for living benefits.
The lifetime income.
Benefits under the market risk benefit framework than under the <unk> framework as well as more predictable Petronas back amortization going forward due to its becoming not sensitive to actual to expected volumes and investment spread under the new LTI framework.
With that thank you for your attention and I'll turn it over to the operator to begin Q&A.
And thank you.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, we ask that you limit yourself to one question and one follow up if you have any additional questions. Please jump back in the queue and one moment for our first question.
And our first question comes from Dan Bergman from Jefferies. Your line is now open.
Thanks, Good morning, I guess first I just wanted to see if there was any update you can give around the outlook for <unk>.
Index annuity sales in 2023, I think in the past you would use an assumption of about $4 billion for.
The 2023 sales if I heard the numbers in the prepared remarks correctly. It sounded like the first six weeks production would imply a run rate near that 4 billion level, but just given that would be a big step up from the.
$3 2 billion you did this past year I just wanted to get a sense of your thought that $4 billion range is achievable for 2003 or just how youre thinking about it.
I think you're thinking about it the right way than we've had a strong start to the earnings feel good about what we said earlier.
Got it.
That's helpful. Thanks, and then.
It looked like surrenders and withdrawals saw another sequential increase thing to about one two to $1 3 billion of versa.
Closer to $1 billion quarterly range, and they've been traveling and earlier in the year.
Even though I guess, the enforce book was down somewhat due to the reinsurance I just wanted to see if you can give an update on what youre seeing.
Being there and whether those higher withdrawals have been concentrated in any particular product types or vintages and if it is just driven by the higher interest rate environment should we expect this.
Higher level of surrenders to remain in place for the foreseeable future.
Yes. Thank you for your question this is <unk>.
Yes, so we saw higher surrenders in the fourth quarter was $1 2 billion versus the $1 one in Q3.
We see that those surrenders primarily across.
Vintages.
Essentially reaching the end of the surrender charge period or.
Either are out of surrender or just reaching at end of surrender charge period.
We expect that wave.
The stabilization of the interest rate environment.
That's.
Yes.
The increase in surrenders, its probably going to stabilize.
But of course this is one of the behavior that we observe closely and from a.
From a rate setting perspective.
We look at we look at that.
On a regular basis and we take appropriate action as we see fit and the only thing I'll add to that thanks actual is.
Having a big book really helps we are focused on in force management.
See how they stay around this area that probably we expect it to stay in this area.
We also have a very liquid asset portfolio and that's one of the reasons that drive that extra detail on the private assets private assets are very high quality.
Short term in nature any liquid fireball, if you think about $7 billion of those are loans real estate loans, we have access to liquidity facilities. So we feel very good about the liquidity profile of the portfolio.
I want to make sure you all understood that because people don't always understand what private assets.
And we are going to grow or not having to shrink which is why our efforts are not just on sales primarily sales, but also in force actions at <unk>.
Got it that's really helpful. Thank you.
And thank you and one moment our next question.
And our next question comes from Ryan Krueger from <unk>. Your line is now open.
Hi, Thanks, good morning.
It looks like you've seen some.
Higher product.
Volume from traditional fixed annuities in both the fourth quarter and what you commented on in the early part of the year are you is it.
Do you expect there to be.
I know youre more focused on FIA, but would you anticipate might be a more regular contributor to sales going forward.
Hi, Ryan Good morning, Yes short answer, yes, we really focus on our branded embargo would unify.
My guess is.
Additive leap rice to deliver returns we have their reinsurance arrangement in place now with our reinsurance partner.
And it will be because because as we grow eagle it becomes reality, especially in the bank channel and we're making sure we're writing good irr's mechanisms.
Got it thanks and then.
Actually I believe you gave numbers for expected DAC amortization and Liberty's, there Hey Guy.
I missed the number I was hoping you could repeat them and then.
Related to that where those.
The prior GAAP accounting or are those numbers.
Yes.
Let me go through the numbers again on.
On a pre <unk> basis.
I mentioned that DAC DSI amortization.
The expectation modeled expectation is $126 million.
Whereas for the Sop <unk>.
<unk> one reserve the expectation is $60 million for next quarter.
As a reminder, both of these expectations include expected index credits should index credits in fact be zero in the first quarter. It would add an additional $10 million to DAC DSI amortization and another $20 million to S&P reserve accretion.
Well they will under L. DTI will there there'll be that similar type of sensitivity index credits or that be more limited.
So I am going to comment on <unk> really on the next earnings call.
But.
Consistent with the Rollouts of the new framework. We are also adjusting our definition of operating income to reflect what we believe in the long term underlying core operating earnings of the company and so in that light we aim to adjust.
Adjust for volatility that is.
Expected to be nonrecurring and non directional.
So certainly some adjustment for the networks.
Market volatility equity or interest rate related.
It would be part of that again more to come on that in the future through our restated financial supplements that can come out ahead of the Q1 earnings call and then the Onyx point itself.
Okay, great. Thank you.
Hey, Ed Thank you.
And one moment our next question.
And our next question comes from John Barnidge from Piper Sandler Your line is now open.
Thank you very much and good morning, I appreciate the opportunity.
My first question the 250 million of operating expense guidance I know you'd previously talked about working to complete a sidecar 23 does that operating expense guidance.
Include the assumption that that is completed this year.
Yes.
Hi, John .
Great. Thank you and then the move to private assets of 22% from I believe it was 18% last quarter do you anticipate hitting that low end of the 30% to 40% target in 'twenty three.
And then Jim Matthew the short answer is no not in 'twenty, two Brian let Jim add some more color to it Jim.
Yes.
Jim Hamilton.
I think I think that number is probably more likely.
Out a little further than 2023.
Our goal is to continually source assets.
Through the cycles, and so that will get us certainly be closer at the end of the year than we are now but.
<unk> takes us into next.
Next year.
Thank you very much.
Ed Thank you.
And one moment our next question.
And our next question comes from Erik Bass from Autonomous Research. Your line is now open.
Hi, Thank you.
Given the increase in surrenders that youre seeing how are you thinking about renewal rate increases and whether it makes sense to give up some spread to retain more business and I guess related to that how should we think about the cost of money going forward.
I can start and I'll, let Axel Latin America.
<unk>.
We are looking at it I think <unk> is an interesting consideration for us in that perspective, as well as actions that we'll talk more about <unk> going forward.
Net debt really on deferring the FIA business. So if you think of do we redeploy some of those earnings into in phosphate management is do we I'm really thinking about it right now.
Because candidly this is going to be a very very good year for us.
Year on year profitability point of view personnel DTI.
But you also see what Bang for Buck you again I.
I go back to the liquidity profile of the balance sheet and the private asset strategies are very liquid viable.
And Jim and team are doing a good job managing that so even though.
Lenders are.
Modestly up.
Looking at which blocks, you're losing in which blocks you want to keep and things like that and we feel good about it. So it's a rather long winded answer, but I tried to give it an framework sense we've got.
Balance sheet that can handle a little high elevated lapses.
We actually are okay with these lapses and we wanted to write new business. So that we can invest it.
And higher returns versus just given where the profitability.
Yes, I would just add to that just reminding you.
When we talk about a third quarter 2022 assumptions unlocking the assumptions the spread assumptions are embedded nacho models, we talked about the cost of money.
Near term cost of money being around one 7% ultimately growing to the long term.
<unk> long term customer money of two 4%. So our models already kind of anticipate some of that increase.
To your question is tiny.
Thank you that's helpful. And then switching gears I was hoping you could comment a little bit on the <unk> proposed changes to capital charges for CLO is it private credit volumes, maybe if they are adopted what impact that could have on your portfolio and the capital requirements for your private credit assets.
Great question as always you're keenly tuned into what's going on in the market.
It's less of an impact for US is the short answer because we didnt backup the truck on CLO and things like that we actually agree with the direction of travel with the FDIC, there and frankly, we would prefer if everyone is super transparent on the store stuff and how it's structured and want to do it we've been middle of the fairway in the way of <unk>.
<unk> approach private assets, that's why it's had like $7 billion of bad loans, even though private credit strategies.
So too early to see what our final proposal Saar and then likely get implemented in 25 from what I'm hearing not 25.
But we're not confirm that backed up the truck CLO structured credit and got cute about it.
Respect to all of my competitors, who did so we feel pretty good about it.
Got it thank you.
Thank you.
And one moment our next question.
Okay.
And our next question comes from Bill Novartis from Raymond James Your line is now open.
Hey, good morning, I guess first any uptick.
R&D you mentioned, it's kind of in the budget this year, but any any updates.
Yes.
Hi, good morning.
No new update I think at the last call I said, we're looking at in the third quarter timeframe obviously.
Good progress.
On it.
We are working with our banking partner in the market talking to Counterparties with like the initial response, we've got from.
Really pristine counterparties that were brought into this.
In them and we're focused on executing it and moving forward I am very much focused with the leadership team here on growing our AUM.
And having the right mix of spread and fee related earnings and so we will get executed over the course of the year and then we don't really want to.
Continue to focus on growing.
That being you will get executed and then refocusing growing sales and growing AUM and great.
Mix of earnings.
Got you. Thank you and then maybe a little bit of color on the buybacks ballpark huge.
We're a little bit lower.
Yes, Hi, this is <unk>.
In the fourth quarter, we repurchased a little bit over 1 million shares.
Close to $40 million.
So we set out we set a grateful buyback with kind of a reset degree at every quarter. After after the earnings call.
Of course, we did not anticipate.
The events of Middle December , which resulted in the stock price and im jumping up to $45 and above so it's just a function of video of how the great West set ahead of ahead of that.
We ended up being up market for a portion of the of the quarter.
But as an outsider.
We remain buyers of our stock and we intend to complete the <unk>.
2022 share buyback program between 'twenty, three so thats, the $130 million that remains and.
At least $250 million between 'twenty three.
Yes, maybe I'll just add.
There's a little noise around our name in the quarter as you are well aware, so thats quite a bit in the way of us being able to buy stock on a regular basis, we hope to be.
Refresh our buying grades and you know how those tend to be five unplanned and all those things work well so that we should be back in the market pretty soon here.
Okay. Thank you.
Okay.
And thank you and one moment our next question.
And our next question comes from Mark <unk> from RBC capital markets. Your line is now open.
Yes, good morning.
You mentioned, the new flow reinsurance agreement with 26, North effective during February could you just comment a little bit more on sort of which assets are being seeded under that and if you have any kind of general targeted range of how much flow is expected to go across that.
Sure Yes.
<unk>.
So flow reinsurance there are no assets transferred right. What happens is new business that we issue to the premium cash cash basically gets transferred to the reinsure. There is no time for HCP invested in transfer and so it's really that the reinsurers use risk and invest at least two well tobacco liabilities to consume.
I misspoke, what I meant was premium not not assets.
Right. So so we float we flow.
Flow reinsurance premium comes in premium premium goes back out to the reinsurance was directly.
It's really that simple.
And in terms of your other part of your question outstanding.
It's $525 million a year.
I mentioned this in the last call that the size of the market actually with them and Thats, what we would expect it to be.
Got it.
Throw it open for.
Okay. The second question that I had is with respect to the various.
Real estate loans and private assets that you have is there anything that youre doing from kind of a hedging standpoint and as that.
Cost.
Run rate than what we're normally used to.
Hi, This is Jim again.
In terms of private assets.
My question is are we putting them on the books and that hedging those assets.
That is we are not doing that and so from a progress perspective.
Looking for long term returns on these assets.
Over time, both in terms of loans and in terms of.
Of equity investments.
So I think that answers what you're.
Your question was but let me know if it doesn't.
No.
Does it I mean.
I'm sure that the quality of these are very high and you mentioned the liquidity but.
Historically, that's always been the case until it isn't.
That's why I was asking the question.
When you think of our liquidity to just a little stepping back just a bit on liquidity our entire investment plan is focused around the liabilities the characteristics, including projections of liability outflows. That's all built into what we're doing and the liquidity as part of the considerations that we make so we're very much focused on.
Thinking about liquidity and what our needs could be beyond <unk>, our expectations even so.
We don't we don't put assets on the books, assuming that we're going to have to liquefy those assets and drive liquidity. They are it is available in some cases, but we certainly don't don't buy private assets, assuming that that's part of the base case assumption.
Okay. Thanks, Thanks for thanks for your input.
Ed Thank you.
And if you would like to ask a question that is star one one again, if he would like to ask a question that is star one one and one moment our next question.
One moment.
And our next question comes from Pablo <unk> from Jpmorgan. Your line is now open.
Hi, Thank you.
Actual just given your comments about interest rates stabilizing do you think the competitive environment has stabilized as well are our insurer. So trying to pass on higher rates to customers at this point that I realized it's not one for one right.
I think in terms of we're making excess spread but just wanted to get a sense of.
However rates are filtering into the competitive environment.
Hi, good morning, Thanks for the question.
Yes, I think we're starting to see that starting to see some stabilization in the competitive environment as well.
Even so we saw some some competitors will take their rates down.
So I think yes, this stabilization rationalization.
I think as enough mentioned looking at our fourth quarter sales looking at the trajectory and the momentum first quarter to date sales I think that all points to do that all points to that is essentially stabilization rationalization.
Good positioning.
Positioning within that.
Yes.
Good.
Ill add one thing as I look historically <unk> has led with service.
And an okay product.
What we've done with the product changes we have done because we have the juice. If I may use that expression on the asset side Theres. No reason, we kind of have a top five product our top three product in terms of rate and features so it's a combination of service ease of doing business and compelling not the hottest by a top five product if youre not a pie, we're not going to sell.
A market reality.
We can meet our five given our investment views.
Yeah got it that makes sense. Thank you for that the second question I had was.
A numbers question.
So I'm curious on average how much capital do you have to hold against the dollar private assets and how does that compare against your typical public fixed income asset just trying to get a sense of the capital consumption against your capital generation and I think the excess capital you have which I think was 650 was as you mentioned, but.
Any color there.
Yeah, I'll start it varies right I mean, not to give you a non answer but it varies because if you look at resi loans.
Less than Triple B public corporate securities and fixed income.
RBC factors like six partially the NTIC to is 1%.
If you look at real estate equity, obviously, 20% capital charge.
And the team looks at our capital charge.
The most important thing is we have significant amount of excess capital.
Looking at what's the ROE.
And we are delivering on the private assets and is it well not of the ROE trajectory of our business and therefore that value. So.
And having a portfolio of $11 billion of private assets when loans are a big portion of it and then buying real assets, which you can finance between loans and equity gives us a capital charge, which even though higher.
Then public fixed income is going to be in that range now excellent Jim Madden anything to that and I think what I was looking for and what number to put in this model and I don't know if you can give them that.
Yes, exactly I don't think it's a straightforward number with two points.
The way we look at it is in the context of a financial plan and the excess capital that we have and putting that money to work consuming some of that excess capital over time, ensuring that we are we are getting the return and we are delivering returns.
For shareholders as we do that.
Yes. This is Jim again, one thing I would add is our investment plan. Our long term projections are based are.
Our fed into the corporate model to ensure that the capital consumption that we have still enables the company to deliver shareholder.
Our capital to shareholders and so it's all integrated it's all part of our process.
So we're thinking about that as we look at when we say, 30% to 40% private assets.
We have actually made sure that.
Thats feasible under the construct that we're there we're making investments and allows us to return capital to shareholders as we hoped.
We have indicated in the past a good way to think about that probably if you wanted just just to add to what the guys set as we've always said this business is very much sustainable as we also have the position of our side cars with.
With 15 as to one leverage which is has a mix of 30, 40% private assets and the rest public. So you can back into the math that way if youre Levered <unk> up to 15 is two one.
Net.
Capital charge basis means youre running the business at like 7% capital.
Because that helps yep Yep. That's helpful. Thanks, and then the last one for me.
Just any high level comments, you can give on stat earnings for 'twenty, two and 'twenty, three which as you guys ultimately drive capital generation and what I'm thinking about here is the drag from low index credits or I could better spreads and fee income as offsets I think in the past presentation. You had mentioned distributable distributable cash flow of about $150 75.
For 'twenty two.
Is that all funded by Stat earnings or is there some takedown of capital involved there. Thank you.
Yes, Thanks, Ben for the question, Yes, I would exactly I would refer back to in the investment symposium, we kind of laid that out essentially what are the distributable earnings from spread related business and then adding on top of that fee related earnings which are basically by definition all distributable.
Yes. The number that you mentioned there are in line with what we talked about then I would also point you to kind of the proof is in the pudding. So this year. We took I just mentioned, we took a $325 million dividends from the operating company to the holding company at the end of the year.
Thank you for your answers.
And thank you.
And I am showing no further questions I would now like to turn the call back to Julie <unk> for closing remarks.
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This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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Isn't lower Johan during Q&A, you can dial star one one.
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