Q3 2023 Principal Financial Group Inc Earnings Call

October 27, 2023

Good morning, and welcome to the principal financial Group third quarter 2023 financial results Conference call.

There will be a question and answer period. After the speakers have completed their prepared remarks.

If you would like to ask a question at that time simply press Star and then the number one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

We would ask that you'd be respectful of others and limit your questions to one and a follow up so we can get to everyone in the queue.

I would now like to turn the conference call over to Humphrey Lee Vice President of Investor Relations.

Thank you and good morning, welcome to principal financial group's third quarter 2023 conference call.

As always materials related to today's call are available on our website at investors Dot principal dot com.

Following a reading of our safe Harbor provision.

Oh, Dan Houston, and CFO, Deanna Strabo will deliver some prepared remarks.

We will then open up the call for questions.

Other members of senior management will also be available for Q&A.

Some of the comments made during this conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act.

The company does not revise or update them to reflect new information subsequent events or changes in strategy.

Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company's most recent annual report on Form 10-K filed by the company with the U S Securities and Exchange Commission.

Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures.

Reconciliations of the non-GAAP financial measures to the most directly comparable U S. GAAP financial measures maybe found in our earnings release.

Financial supplement and slide presentation.

We will be hosting a combined fourth quarter 2023 earnings in 2024 hour call on February 13th.

We will share more details earlier next year.

Dan Thanks, Humphrey and welcome to everyone on the call.

This morning, I'd like to share key aspects of our third quarter financial results and some notable performance highlights Deanna will follow with additional details and an update on our current financial and capital position.

Our diversified and increasingly integrated business model as well as our leading and differentiated position in the U S. Small to mid size business market contributed to a strong quarter.

Across the enterprise, we continue to balance investing for growth in our businesses with disciplined expense management, starting on slide three healthy sales growth across our businesses and strong underwriting results drove reported non-GAAP operating earnings of $420 million or $1 72 per diluted share in the third quarter.

<unk>, excluding significant variances earnings per share increased 14% over the third quarter of 2020 to the.

The synergies between our businesses increasingly integrated offering and the value of our distribution and joint venture partnerships continue to unlock value for our customers and shareholders.

During the quarter, we delivered on our capital deployment strategy investing for growth in our businesses and returning more than $350 million of capital to shareholders through share repurchases and common stock dividends.

Our strong capital position enabled us to complete $200 million of share repurchases in the third quarter and to increase our dividend.

After a strong start to the year equity markets retreated in August and September foreign currency tailwind in the first half of the year reversed in the third quarter as the U S dollar strengthened on growth and higher yields in the U S outpacing much of the rest of the world.

These macroeconomic dynamics impacted our total company managed AUM, which ended the quarter over $650 billion total company managed net cash flow improved from the second quarter benefiting from strong net cash flow in principal international improved institutional flows in principal global investors and strong general account.

Operator: Good morning and welcome to the Principal Financial Group third quarter, 2023 Financial Results Conference call. There will be a question and answer period after the speakers have completed their prepared remarks. If you would like to ask a question at that time, simply press star and then the number one on your telephone key pack. A confirmation tone will indicate your line is in the question queue.

Flows.

With $2 $1 billion of net outflows in the quarter, we performed better than many active asset managers as a percentage of beginning AUM.

Operator: We would ask that you be respectful of others and limit your questions to one and to follow up so we can get to everyone in the queue.

The current volatile markets are a challenge for the asset management industry and the aggressive interest rate hikes over the last 18 months have continued to make cash and money market funds highly attractive.

Humphrey Lee: I would now like to turn the conference call over to Humphrey Lee, Vice President of Investor Relations. Thank you and good morning. Welcome to Principal Financial Group's third quarter, 2023 Conference call. As always, materials related to today's call are available on our website at investors.principote.com. Following a reading of a safe harbor provision, CEO Dan Houston and CFO Deanna Strable will deliver some prepared remarks. We will then open up the call for questions.

This is evidenced by the nearly one trillion dollars of industry flows into money market funds year to date and approximately seven trillion dollars of AUM in money market funds across the industry.

We're well positioned and have the right strategies as interest rates stabilize and investors reallocate back into risk based assets like our specialty income solutions.

Despite continued pressure in the real estate sector, we generated $800 million of positive real estate net cash flow in the quarter as institutional investors are starting to put money to work in select real estate strategies.

Humphrey Lee: Other members of senior management will also be available for Q&A. Some of the comments made during this conference call may contain forward looking statements within the meaning of the private securities litigation reform act. The company does not revise or update them to reflect new information, subsequent events or changes in strategy. Risk and uncertainties that could cause actual results to different materially from those expressed or implied are discussed in the company's most recent annual report on form 10K filed by the company with the U.S. Securities and Exchange Commission.

This was nearly double our real estate flows in the first half of the year and demonstrates the confidence our clients have in our differentiated capabilities in this asset class.

We have several real estate opportunities boosting our optimism for the coming quarters, we expect additional funding in the fourth quarter and our new data Center fund and our China Real estate joint venture as discussed last quarter, we have a strong pipeline of committed yet unfunded real estate mandates currently over $6 billion that will put to <unk>.

Work Opportunistically.

Humphrey Lee: Additionally, some of the comments made during this conference call may refer to non-gap financial measures. Regencillations of the non-gap financial measures to the most directly comparable U.S, gap financial measures may be found in our earnings release financial supplement and slide presentation. We will be hosting a combined fall quarter 2023 earnings and 2024 outlook call on February 13th.

Looking at asset management in total we are aware of two large institutional outflows of similar size that will impact net cash flow by approximately $5 billion. In total one client is planning to take the funds in house, while the others moving to a passive option. We expect one of the outflows to occur in the fourth quarter and the <unk>.

Other early in the first quarter of 2024 and principal International we ended the quarter with $168 billion of total reported AUM. This reflected strong retirement net cash flow in Latin America, including $1 billion in Brazil.

Unknown Executive: We will share more details early and next year.

Daniel Houston: Dan, thanks Humphrey and welcome to everyone on the call. This morning I'd like to share key aspects of our third quarter financial results and some notable performance highlights. Dan will follow with additional details and an update on our current financial and capital position.

Brazil proud of our joint venture with Banco do Brazil remains the market leader in both AUM and deposits with nearly 30% market share.

As a reminder, net cash flow in Brazil tends to be seasonally stronger in the first and third quarter each year.

Daniel Houston: Our diversified and increasingly integrated business model, as well as our leading and differentiated position in the U.S, small to mid-size business market, contributed to a strong quarter. Across the enterprise, we continue to balance investing for growth in our businesses with disciplined expense management. Starting on slide three, healthy sales growth across our businesses and strong underwriting results drove reported non-gap operating earnings of $420 million or $1.72 per diluted share in the third quarter.

We continue to have great confidence in the global asset management opportunity and our ability to deliver global and local investment capabilities and client support across more than 80 markets.

As part of our efforts to invest for growth. We have added two new highly regarded investment leaders George Marris from Janus Henderson CIO of equities and Michael Goose egg from Goldman Sachs as CIO of fixed income both our proven investment leaders with specialized global expertise that complements our robust investment.

Daniel Houston: Excluding significant variances, earnings per share increased 14% over the third quarter of 2022. The synergies between our businesses increasingly integrated offering and the value of our distribution and joint venture partnerships continue to unlock value for our customers and shareholders. Partners. During the quarter, we delivered on our capital deployment strategy, investing for growth in our businesses and returning more than $350 million of capital to shareholders to share repurchases and common stock dividends.

Cities and we'll further build upon our experienced team of nearly 900 investment professionals. We will also be announcing a new leader of Latin America in the coming days to drive our businesses across Brazil, Chile and Mexico.

Turning to U S retirement account value net cash flow was positive in the third quarter.

Total <unk> sales grew 30% and fee based transfer deposits increased 78% compared to a year ago. We.

Daniel Houston: Our strong capital position enables us to complete $200 million of share repurchases in the third quarter and to increase our dividend. After a strong start to the year, equity markets retreated in August and September, foreign currency tailwinds in the first half of the year are reversed in the third quarter as the US dollars strengthened on growth and higher yields in the US outpacing much of the rest of the world. These macro economic dynamics impacted our total company managed AUM, which ended the quarter over $650 billion.

We had two large retirement plan sales in the quarter, which contributed $3 billion to sales and transfer deposits.

As a reminder, sales and lapses in large planned segment can impact net cash flow significantly quarter to quarter.

Total reoccurring deposits increased over the third quarter of 2022, driven by a 7% increase in the SMB segment. This was partially offset by the impact on deposits from large plan lapses earlier this year as well as lower defined benefit plan deposits given the full funding status of these plans.

Daniel Houston: Total company managed net cash flow improved from the second quarter, benefiting from strong net cash flow and Principal International, improved institutional flows and principal global investors and strong general account flows. With $2.1 billion of net outflows in the quarter, we perform better than many active asset managers as a percentage of beginning AUM. The current volatile markets are a challenge for the asset management industry and the aggressive interest rate hikes over the last 18 months have continued to make cash and money market funds highly attractive.

<unk> segment continues to be strong and has proven resilient as employment and wages remain healthy looking ahead, we expect elevated lapses and negative net cash flow in the fourth quarter.

Consistent with historical trends, we typically see plans change providers at year end, while we generally onboard new plans in the first quarter.

Daniel Houston: This is evidenced by the nearly $1 trillion of industry flows into money market funds year to date and approximately $7 trillion of AUM and money market funds across the industry. We're well positioned and have the right strategies as interest rate stabilized and investors reallocate back into risk-based assets like our specialty income solutions. Despite continued pressure in the real estate sector, we generated $800 million of positive real estate net cash flow in the quarter as institutional investors are starting to put money to work and select real estate strategies.

On a full year basis, we expect sales and transfer deposits would be higher than 2022 levels and we have good momentum heading into 2024.

We remain focused on driving profitable growth in RIS, leveraging our leading market position and full suite of retirement and workplace solutions and specialty benefits strong sales retention employment and wage growth contributed to an 8% growth in premium and fees over the third quarter of 2022.

Attractive segments within the SMB market remains Underpenetrated and we are confident in our ability to target these segments with a meaningful value proposition to aid and continuing to deliver above market growth in life. Our strategy is working as a business market premium and fees grew 24% over the third quarter of 2000.

Daniel Houston: This was nearly double our real estate flows in the first half of the year and demonstrates the confidence our clients have in our differentiated capabilities in this asset class. We have several real estate opportunities boosting our optimism for the coming quarters. We expect additional funding in the fourth quarter and our new data center fund and our China real estate joint venture. As discussed last quarter, we have a strong pipeline of committed yet unfunded real estate mandates currently over $6 billion that we'll put to work opportunistically.

And 'twenty, two and outpaced the run off of the legacy business I'm excited about the growth opportunities across the enterprise and confident that our focus on high growth markets combined with our integrated product suite.

And distinct set of distribution partnerships will continue to drive value for our customers and our shareholders at our core we are focused on providing individuals businesses and communities and markets with access to financial tools and products and guidance and today, we know the demand for this kind of knowledge and support is significant.

Daniel Houston: Looking at asset management in total, we are aware of two large institutional outflows of similar size that will impact net cash flow by approximately $5 billion in total. One client is planning to take the funds in-house while the other is moving to a passive option. We expect one of the outflows to occur in the fourth quarter and the other early in the first quarter of 2024. In principle international, we ended the quarter with $168 billion of total reported AUM.

To stay in touch with customer trends around the globe, we regularly take a step back and consider the state of the foundation upon which our industry has built.

One example of trends, we're seeing comes to life in the global financial inclusion index, a global study sponsored by principle.

The state of financial inclusion worldwide.

We released our second you're finding earlier this month.

Identifying a continued and persistent need for financial service companies employers and governments to continue to work together to help more people feel prepared to fully participate in building long term financial security.

Daniel Houston: This reflected strong retirement net cash flow in Latin America, including $1 billion in Brazil. Brazil, proud of our joint venture with Banquet of Brazil, remains the market leader in both AUM and deposits with nearly 30% market share. As a reminder, net cash flow in Brazil tends to be seasonally stronger in the first and third quarter each year. We continue to have great confidence in the global asset management opportunity and our ability to deliver global and local investment capabilities and client support across more than 80 markets.

Before turning it over to Deanna I like to highlight some recognition we recently received.

Forbes recently recognized principal on its list of best employers for women in the U S and one of America's most cyber secure companies. We also achieved the top score on the 2023 disability equality index from disability in.

And in Chile, most innovative companies are local innovation consulting group recently awarded Cooper them and principle as the most innovative company in both the AFP and asset management categories.

Daniel Houston: As part of our efforts to invest for growth, we have added two new highly regarded investment leaders, George Maris from Janice Henderson as CIO of equities, and Michael Goose from Goldman Sachs as CIO fixed income. Both are proven investment leaders with specialized global expertise, that complement our robust investment capabilities and will further build upon our experienced team of nearly 900 investment professionals.

Recognition like this helps us benchmark progress attract and retain talent and stand out in the marketplace Diana.

Thanks, Dan Good morning to everyone on the call. This morning, I'll share the key contributors to financial performance for the quarter details of our current financial and capital position and an update on our commercial mortgage loan portfolio.

Daniel Houston: We'll also be announcing a new leader of Latin America in the coming days to drive our businesses across Brazil, Chile, and Mexico. Turning to U.S, retirement, account value net cash flow was positive in the third quarter. Total RIS sales grew 30% and fee-based transfer deposit to increase 78% compared to other years ago. We had two large retirement plan sales in the quarter, which contributed $3 billion to sales and transfer deposits. As a reminder, sales and lapses in large plan segment can impact net cash flow significantly quarter to quarter.

We reported net income of $1 $2 billion in the third quarter, reflecting more than $700 million of income from exited businesses.

This benefit was primarily due to a change in the fair value of the funds withheld embedded derivative, which doesn't impact our capital our free cash flow and can be extremely volatile quarter to quarter excluding.

Excluding the income from exited businesses net income was $544 million with minimal credit losses of $6 million. We also had minimal impacts from credit drift in the third quarter year to date total credit drift and losses were a manageable $41 million, which is better than our expectation at the begin.

Daniel Houston: Total reoccurring deposit increased over the third quarter of 2022, driven by a 7% increase in the SMB segment. This was partially offset by the impact on deposits from large plan lapses earlier this year, as well as lower defined benefit plan deposits given the full funding status of these plans. The SMB segment continues to be strong and has proven resilient as employment and wages remain healthy. Looking ahead, we expect elevated lapses and negative net cash flow in the fourth quarter.

Of the year.

Excluding significant variances third quarter non-GAAP operating earnings were $446 million or $1 83 per diluted share.

EPS increased 14% over the third quarter of 2022, demonstrating the strength and resiliency of our diversified business model.

On a year to date basis EPS, excluding significant variances has increased 5% over 2022 compared to our 3% to 6% guided range.

Daniel Houston: Consistent with historical trends, we typically see plans change providers at year end, while we generally onboard new plans in the first quarter. On a full year basis, we expect sales and transfer deposits to be higher than 2022 levels, and we have good momentum heading into 2024. We remain focused on driving profitable growth in RIS, leveraging our leading market position and full suite of retirement and workplace solutions. In specialty benefits, strong sales, retention, employment, and wage growth contributed to an 8% growth in premium and fees over the third quarter of 2022.

As detailed on slide 11 significant variances impacted our third quarter non-GAAP operating earnings by a net positive $40 million pre tax and net negative $27 million after tax and 11 cents per diluted share.

This significant variances included impacts from the actuarial assumption review lower than expected variable investment income in our U S life and corporate as well as impacts in principal international including lower than expected <unk> performance and better than expected impacts of inflation there.

Daniel Houston: Attractive segments within the SMB market remain under penetrated, and we are confident in our ability to target these segments with a meaningful value proposition to aid in continuing to deliver above market growth. In life, our strategy is working as business market premium and fees grew 24% over the third quarter of 2022, and outpace the runoff of the legacy business.

The assumption review had a net positive $63 million impact on pre tax operating earnings. This is primarily driven by experience adjustments in our asset and specialty benefits, including updates to PRT mortality assumptions group and individual disability morbidity assumptions as well as model refinements in life.

Daniel Houston: I'm excited about the growth opportunities across the enterprise, and confident that our focus on high growth markets combined with our integrated products suite and distinct set of distribution partnerships will continue to drive value for our customers and our shareholders. At our core, we're focused on providing individuals, businesses, communities, and markets with access to financial tools, products, and guidance, and today we know that demand for this kind of knowledge and support is significant.

The after tax impact was a negative $6 million as a pre tax benefit was more than offset by a one time tax impact, resulting from our PRT tax reserve methodology change.

Alright, Sun lifes third quarter pre tax operating earnings excluding significant variances reflect the run rate impacts from the assumption review.

There are no material run rate impacts in specialty benefits.

Daniel Houston: To stay in touch with customer trends around the globe, we regularly take a step back and consider the state of the foundation upon which our industry is built. One example of trends we're seeing comes to life in the global financial inclusion index, a global study sponsored by principal, assessing the state of financial inclusion worldwide. We released our second year finding earlier this month, identifying a continued and persistent need for financial service companies, employers, and governments to continue to work together to help more people feel prepared to fully participate in building long-term financial security.

In total variable investment income was positive for the quarter and improved from the first half of the year, but it was lower than our run rate expectation, while VII benefited from improvement in real estate sales and alternative investment returns and prepayment fees remain immaterial.

Looking at macroeconomics in the third quarter. The S&P 500 daily average increased 6% from the second quarter and 12% from the third quarter of 2022 benefiting third quarter results in our fee based businesses.

Daniel Houston: Before turning it over to Deanna, I'd like to highlight some recognition we recently received. Forbes recently recognized Principal on its list of best employers for women in the U.S. And one of America's most cyber secure companies. We also achieved the top score on the 2023 Disability Equality Index from Disability Inn. And in Chile, most innovative companies, a local innovation consulting group, recently awarded CUPROM and Principal as the most innovative company and both the AFP and asset management categories. Recognition like this helps us benchmark progress, attract retain talent, and stand out in the marketplace.

The daily average increased markets retreated in the second half of the quarter. The S&P 500 closed nearly 4% lower than the second quarter and fixed income returns were negative as well this impacts revenue earnings and margins for our fee based businesses.

Exchange rates were a slight headwind on a quarterly basis relative to the second quarter.

A slight tailwind compared to the third quarter of 2022 and immaterial on a trailing 12 month basis.

And I asked benefits from strong expense management as well as favorable equity market performance and higher interest rates were partially offset by fee compression.

Excluding significant variances net revenue increased 4% compared to a year ago and margin was strong at 39%.

Deanna Strable: Deanna? Thanks Dan, good morning to everyone on the call.

Deanna Strable: This morning I will share the key contributors to financial performance for the quarter, details of our current financial and capital position and an update on our commercial mortgage loan portfolio. We reported net income of $1.2 billion in the third quarter, reflecting more than $700 million of income from exited businesses. This benefit was primarily due to a change in the fair value of the funds withheld embedded derivative, which doesn't impact our capital or free cash flow and can be extremely volatile quarter to quarter.

P. G I benefited from real estate performance fees in the quarter driving a 6% increase in revenue over the third quarter of 2022 and improve the margin to 39%.

Specialty benefits pre tax operating earnings excluding significant variances increased 32% over the year ago quarter.

This was fueled by growth in the business strong long term disability underwriting experience and lower group life mortality.

The third quarter adjusted margin was strong at over 17%, which was more than 300 basis points higher than the third quarter of 2022.

Deanna Strable: Excluding the income from exited businesses, net income was $544 million with minimal credit losses of $6 million. We also had minimal impacts from credit drift in the third quarter. Year to date, total credit drift and losses were a manageable $41 million, which is better than our expectation at the beginning of the year. Excluding significant variances, third quarter non-gap operating earnings were $446 million, or $1.83 per diluted share. EPS increased 14% over the third quarter of 2022, demonstrating the strength and resiliency of our diversified business model.

As we look to the fourth quarter I want to remind you that our enterprise compensation and other expenses are typically higher due to the seasonality of certain expenses.

We expect less of an impact thus far is carter than the typical 7% to 10% as we're focused on managing expenses in the challenging and volatile macro environment.

Shifting to our investment portfolio. It remains high quality aligned with our liability profile and well positioned for a variety of economic conditions.

We revalued the office real estate portfolio again in the third quarter.

Deanna Strable: On a year-to-date basis, EPS excluding significant variances has increased 5% over 2022 compared to our 3-6% guided range. As detailed on slide 11, significant variances impacted our third quarter non-gap operating earnings by a net positive $40 million pre-tax, a net negative $27 million after tax, and $11 cents per diluted share. The significant variances included impacts from the Actuarial Assumption Review, lower than expected variable investment income in RIS Life Incorporate, as well as impacts in Principal International, including lower than expected in CAHAPE performance, and better than expected impacts of inflation.

The commercial mortgage loan portfolio remains healthy the current loan to value and debt service coverage ratios are strong at 47% and two and a half times.

Specific to our office exposure in the CML portfolio all year to date maturities are resolved and we are confident in the outcome of the one small remaining office loan maturing in the fourth quarter.

Looking ahead to 2020 for office maturities the underlying metrics are strong with a 63% loan to value and debt service coverage ratio of three eight times.

We are confident in the outcome of the 11 maturities in 2024 of which only three are slated for the first half of the year.

Turning to capital and liquidity, we are in a strong position with $1 $4 billion of excess and available capital, which reflects the benefit of negative IMI and includes approximately $940 million at the holding company, which is above our $800 million targeted level $360 million.

Deanna Strable: The Assumption Review had a net positive $63 million impact on pre-tax operating earnings. This was primarily driven by experience adjustments in RIS and specialty benefits, including updates to PRT mortality assumptions, group and individual disability morbidity assumptions, as well as model refinements in life. The after-tax impact was a negative $6 million as the pre-tax benefit was more than offset by a one-time tax impact resulting from a PRT tax reserve methodology change. RIS and Life's third quarter pre-tax operating earnings, excluding significant variances, reflects the run rate impacts from the Assumption Review.

Our subsidiaries and $50 million in excess of our targeted 400% risk based capital ratio.

We returned more than $350 million to shareholders in the third quarter, including $200 million of share repurchases and $156 million of common stock dividends.

Last night, we announced a 67 common stock dividend payable in the fourth quarter. This is a two cent increase and aligns with our targeted 40% dividend payout ratio.

Deanna Strable: There are no material run rate impacts and specialty benefits. In total, variable investment income was positive for the quarter, and improved from the first half of the year, but it was lower than our run rate expectation. While Vi benefited from improvement in real estate sales and alternative investment returns, prepayment fees remain immaterial. Looking at macroeconomics in the third quarter, the S&P 500 daily average increased 6% from the second quarter and 12% from the third quarter of 2022.

Given our current capital position and strong free capital flow, we are increasing our full year share repurchase expectation to approximately $700 million $100 million higher than previously expected.

Combined with common stock dividends, we now expect to return $1 $3 billion of capital to shareholders for the full year.

We remain focused on maintaining our capital and liquidity targets at both the life company and the holding company and will continue our balanced and disciplined approach to capital deployment.

Deanna Strable: Benefiting third quarter results in our fee-based businesses. While the daily average increased markets retreated in the second half of the quarter, the S&P 500 closed nearly 4% lower than the second quarter and fixed income returns were negative as well. This impacts revenue earnings and margins for our fee-based businesses. Foreign exchange rates were a slight headwind on a quarterly basis relative to the second quarter, a slight tailwind compared to the third quarter of 2022 and immaterial on a trailing 12 month basis.

We are committed to maximizing our growth drivers of retirement global asset management and benefits and protection, which will continue to deliver long term growth for the enterprise and long term shareholder value.

This concludes our prepared remarks, operator, please open the call for questions.

Thank you at this time I would like to remind everyone that to ask a question press Star and then the number one on your telephone keypad well pause for just a moment to compile the Q&A roster.

Deanna Strable: In RIS, benefits from strong expense management as well as favorable equity market performance and higher interest rates were partially offset by fee compression. Excluding significant variances, net revenue increased 4% compared to a year ago and margin was strong at 39%. PGI benefited from real estate performance fees in the quarter, driving a 6% increase in revenue over the third quarter of 2022 and improved the margin to 39%. Especially benefits pre-tax operating earnings excluding significant variances increased 32% over the year ago quarter.

Our first questions come from the line of Ryan Krueger with <unk>. Please proceed with your questions.

Hey, Thanks. Good morning. My first question was on real estate and you mentioned a couple of real estate opportunities that you have some visibility on that.

I guess my question is you did $800 million in real estate flows in the quarter do you think that type of pace.

More reasonable now as we move forward or can you give any more color on your expectations there.

Yes, Ryan good morning, Thanks for the question I'm going to have Pat respond to that and just in just a minute here, but I also wanted to let everyone know that we have invited <unk> to join us for our Q&A combo as global head of investments for principal asset management, who reports directly to Pat who will also participate in responding to questions on pgi on.

Deanna Strable: As we look to the fourth quarter, I want to remind you that our enterprise compensation and other expenses are typically higher due to the seasonality of certain expenses. We expect less of an impact this fourth quarter than the typical 7% to 10% as we're focused on managing expenses and the challenging and volatile macro environment.

Earnings calls going forward, so with that Pat which I can take that question. Please yeah. Ryan. Thanks for the question as you highlighted the third quarter. We did have a $800 million net cash flow in real estate that was from predominantly institutional marketplace and that was double the prior quarter in terms of net cash flow.

To your question, we continue to see a an active pipeline and an active opportunity to selectively deploy the $6 billion of committed.

Deanna Strable: Shifting to our investment portfolio, it remains high quality, aligned with our liability profile and well positioned for a variety of economic conditions. We re-value the office real estate portfolio again in the third quarter. The commercial mortgage loan portfolio remains healthy. The current loan to value and debt service coverage ratios are strong at 47% and two and a half times. Specific to our office exposure in the CML portfolio, all year-to-date maturities are resolved and we are confident in the outcome of the one small remaining office loan maturing in the fourth quarter.

Capital that has not been invested yet in our pipeline.

As we look forward and I would expect in the fourth quarter to continue to see a very consistent pace like we saw in the third quarter in terms of the real estate net cash flow Ryan.

Great. Thanks, and then on the two outflows totaling $1 billion that you mentioned.

What type of funds or what type of it.

Asset classes are those days.

Yeah. Thanks, Brian.

As Dan mentioned, we do have to two large one time outflows that we expect to see in the late fourth quarter of 2023.

And in the early first quarter of 2020 for the first one is a preferred securities mandate.

Deanna Strable: Turning to capital and liquidity, we are in a strong position with $1.4 billion of excess and available capital, which reflects the benefit of negative IMR and includes approximately $940 million at the holding company, which is above our $800 million targeted level. $360 million in our subsidiaries and $50 million in excess of our targeted 400% risk-based capital ratio. We return more than $350 million to shareholders in the third quarter, including $200 million of sharey purchases and $156 million of common stock dividends.

Who is with a large client who is merging northwest strategies into one larger sort of portfolio.

The second is a very large.

Large cap equity mandate.

With a client that has opted to move to a passive strategy.

Just in terms of probably the natural question is what is the sort of the combined combined earnings loss impact of these two large mandates it's approximately $10 million without offsetting these expense adjustments, we considered as we go forward.

We've also taken a look Ryan at our just overall portfolio. If there are any other one time, how close would we expect as we.

Deanna Strable: Last night we announced a 67-cent common stock dividend payable in the fourth quarter. This is a two-cent increase in aligns with our targeted 40% dividend payout ratio. Given our current capital position and strong free capital flow, we are increasing our full-year sharey purchase expectation to approximately $700 million, $100 million higher than previously expected. Combined with common stock dividends, we now expect to return $1.3 billion of capital to shareholders for the full year.

We look forward into 2024, and we have not noted any other ones at this point in time.

As we reviewed the overall portfolio and our client base.

So Ryan and pass the only thing I might add to that for sure.

Preferred securities mandate, they took that in house in spite of very strong performance from our preferred spectrum asset management. So again as it was a tough loss gross especially considering the strong performance.

Deanna Strable: We remain focused on maintaining our capital and liquidity targets at both a life company and the holding company, and we'll continue a balanced and disciplined approach to capital deployment. We are committed to maximizing our growth drivers of retirement, global asset management, and benefits and protection, which will continue to deliver long-term growth for the enterprise and long-term shareholder value.

Next question operator.

Thank you our next questions come from the line of Jimmy <unk> with J P. Morgan. Please proceed with your questions.

Hey, good morning, So first part that at Pgi performance. These are very strong in the third quarter and if you could just give us some color on what drove that and what your outlook is.

Either over the next quarter or over the next two years, because I would've thought that performance.

Unknown Executive: This concludes our prepared remarks.

Operator: Operator, please open the call for questions. Thank you.

Suffered in this type of an environment, but obviously the quarterly number was very good.

Operator: At this time, I would like to remind everyone that to ask a question, press star and then the number one on your telephone's keypad. We'll pause for just a moment to compile the Q&A roster.

Thanks, Jimmy for the question.

Jamie Thanks for the question is as you've heard me in prior comments, we always have a large pipeline of different investments that are at different stages of maturity in terms of harvesting gains.

Our performance fees and as you can imagine for pharmacies are relatively lumpy, depending on market conditions and when we can optimize the actual sort of.

Ryan Krueger: Our first questions come from the line of Ryan Krueger with KBW. Please proceed with your questions.

Patrick Halter: Hey, thanks good morning. My first question was on real estate, and you mentioned a couple real estate opportunities that you have some visibility on. I just, if my question is, you did $800 million in real estate flows in the quarter. Do you think that type of pace is more reasonable now as we move forward? Or can you give any more color on your expectations there? Yeah, Ryan, good morning. Thanks for the question.

Hopefully alpha generation that we see in the real estate portfolios that we're managing we did have a $22 million gross performance fee in the third quarter.

That was in two different.

Transactions.

As we as we look forward.

Do you think that the first half of the year, where we saw performance fees, which are muted, we'll probably see that in the fourth quarter, but I would suggest to you that as we look into 2024, if the market conditions.

Patrick Halter: I'm going to have Pat respond to that in just a minute here, but I also want to let everyone know that we've invited Kamil Bakia to join us for our Q&A Kamil as global head of investments for principal asset management. He reports directly to path and will also participate in responding to questions on PGI, on earnings calls, going forward. So with that, Pat, would you like to take that question please? Yeah, Ryan, thanks for the question.

<unk> an opportunity for us we still have confidence that as we've indicated in past discussions that we should expect performance fees to be in the 30 plus million dollars range, which has been a consistent guidance and a consistent realization of where we've seen performance fees.

Patrick Halter: As you highlighted, third quarter, we did have a $800 million net cash flow in real estate. That was from, for now, the institutional marketplace, and that was double the prior quarter in terms of net cash flow. To your question, we continue to see an active pipeline and an active opportunity to selectively deploy the $6 billion of committed capital that has not been invested yet in our pipeline as we look forward. And I would expect in the fourth quarter to continue to see a very consistent pace like we saw in the third quarter in terms of real estate net cash flow, Ryan.

Probably in the second half of 2024 versus the first half of 2024, but we continue to believe we have a diverse portfolio of different investment strategies that can be harvested in the future years.

Okay. Thanks, and then secondly on R. I S.

Net flows into fee business.

You saw some higher lapses this quarter I think you mentioned large that lapses.

The wealth platform you bought.

The acquisition happened several years ago, So I would've thought that by now the shock lapses would've been over.

Is that part of that or is it is it competition, what's really causing the big flows in the fee based business.

Patrick Halter: Great. Thanks. And then on the two outflows, totaling $5 billion that you mentioned, what type of funds or what type of asset classes are those days? Please, Pat. Yeah, thanks, Ryan. As Dan mentioned, we do have two to large one time all flows that we expect to see in the late fourth quarter of 2023 and in the early first quarter of 2024. The first one is a preferred securities mandate, who is with a large client who is merging multiple strategies into one larger sort of portfolio.

Jimmy Let me make just a couple of really quick comments before handing it over to Chris first thing I wanted to do is thank Chris for his leadership and advancing our domestic retirement strategy. It's a challenging environment out there has done an amazing job recruiting channel from the industry and leveraging our existing talent our focus still remains on small mid.

And large plans each one of those have different characteristics that can be it can be volatile, but most importantly, our continued doubling down on our abilities to create a unique trs solution for defined benefit defined contribution Aesop and nonqualified and certainly we've seen some volatility in these businesses.

Patrick Halter: The second is a very large large cap equity mandate with a client that has opted to move to a pass as a strategy. Just in terms of how the natural question is, what is the sort of the combined earnings loss impact of these two large mandates? It's approximately $10 million without offsetting any expense adjustments we consider as we go forward. We've also taken a look right at our just overall portfolio. If there are any other one time all flows that we expect as we look forward into 2024 and we have not noted any other ones at this point in time as we reviewed the overall portfolio in our client base.

I'd like to think that in large part the integration has taken place and Christmas are growing at Premier. So Chris can you. Please respond.

Yeah no. Thanks for the question Jami I think.

So I think what you have to keep in mind is that as a result of that.

The pandemic and some of the market volatility that has probably dampened some of the bid activity and we certainly have seen an uptick in bid activity across the industry as we've as we've gotten into 'twenty three so I don't think it's.

Something that's going to continue to create a lot of pressure and in fact, we see a very significant and meaningful moderation in contract lapses heading into 'twenty four.

Patrick Halter: So Ryan and Pathy don't think I might add to that, on that preferred securities mandate they took that in house in spite of very strong performance from our preferred spectrum asset management so again as it was a tough loss for us, especially considering the strong performance.

But yes, we definitely are working through that I mean from a from a perspective of flows, but we had a positive quarter and we are.

Starting to see the pickup in sales and transfer deposits me. If you look at 78% increase in transfer deposits in the quarter SMB was up mid double mid double digits. All of that is really positive and we continue to see those trends continuing in the fourth quarter. So.

Operator: Next question operator.

Jimmy Boulard: Thank you, our next questions come from the line of Jimmy Boulard with JP Morgan. Please proceed with your questions. Hey, good morning.

I think yes, we are seeing some lag from more pandemic activity in some of the market volatility that it's really hard to move plans when the market is really volatile.

Patrick Halter: So first for Pat at PGI performance fees are very strong in the third quarter and if you could just give us some color on what drove that and what your outlook is either over the next quarter or over the next year because I would have thought that performance would have suffered in the type of an environment, but obviously the quarterly number was very good. Excuse me for the question, Pat. Thanks for the question as you've heard me in prior comments, we always have a large pipeline of different investments that are different stages of maturity in terms of harvesting gains or performance fees.

So I think that's going to pretty much sort out here over the next quarter or so.

Thank you.

Thanks, Jamie.

Thank you our next questions come from the line of Sunni come off with Jefferies. Please proceed with your questions.

Thanks, Good morning, just for Dana to start on the assumption review.

Any sort of ongoing GAAP impacts that we should expect and then similarly is there any sort of either statutory impact from the review or implications from for taxes based on.

Patrick Halter: And as you can imagine, performances are relatively bumpy depending on market conditions and when we can optimize the actual sort of hopefully alpha generation that we see in the real estate portfolios that we're managing. We didn't have a $22 million gross performance fee in the third quarter. That was in two different transactions. As we as we look forward, we probably think that the first half of the year where we saw performance fees which were muted will probably see that in the fourth quarter.

That that negative items that showed up in the tax rate.

Yeah, Thanks, Amit for the question.

From a run rate perspective, it does cause a slight benefit in RIS, a slight pressure and life.

No impact in SPD I think it is of note, though that those would be reflected in the third quarter run rate.

Operating earnings that we gave you on a pre tax basis. So those have all been.

Patrick Halter: But I would suggest to you that as we look into 2024, if the market conditions provide an opportunity for us. We still have confidence that as we've indicated in past discussions that we should expect performance fees to be in the 30 plus million hour range, which has been a consistent guidance and a consistent realization of where we've seen performance fees. Probably in the second half of 2024 versus the first half of 2024. But we continue to believe we have a diverse portfolio of different investment strategies that can be harvested in the future years.

Kind of factored in as we move to capital.

The tax item did cause a capital hit.

Unknown Executive: Okay, thanks.

So that wasn't known and we had slightly positive offsetting modest.

Positive capital impact that offset a portion of that from the AAR.

But ultimately those would be the moving pieces from a tax perspective, no ongoing impact that was a one time impact that really.

Chewed up and reverse some credits that we had taken in previous years and so no impact as we go forward.

Got it okay. Thanks, and then I guess, maybe for Amy on the disability business. We continue to see really good results not only from from you guys, but other companies and I guess I'm, just trying to understand or like to understand how quickly you think this.

Christopher Littlefield: And then secondly on RIS net flows in the fee business. You saw some high lapses that go to I think you mentioned large gap lapses on the wealth platform you bought. The acquisition happened several years ago. So I would have thought that by now those shock lapses would have been over. But is it part, is it bad or is it, is it competition? What's really causing the week flows in the fee business?

These strong results will be sort of factored into pricing.

I would imagine that would occur at some point, but I just want to get a sense of from a timing perspective, what the glide path looks like thanks.

Jamie Please yeah, yeah. So let me I'll give you my perspective on this and it's going to vary a bit by kind of the how your block is made up but if you have most.

Christopher Littlefield: And Jimmy, let me make just a couple really quick comments before handing it over to Chris. First thing I want to do is thank Chris for his leadership and advancing our domestic retirement strategy. It's a it's a challenging environment out there. He's done an amazing job recruiting talent from the industry and leveraging our existing talent. Our focus still remains on small mid and large plans each one of those have different characteristics that can be can be volatile.

Most of your block, which we do and an ability to kind of annually right.

I think that those re ratable nature of that business is going to mean that we pass on that good performance relatively quickly I will say, we're pretty committed to making sure that when we've got good performance, we're putting that back into our rates. We know that that's good for our customers. We know more income protection products.

Christopher Littlefield: So the most importantly are continue doubling down on our abilities to create a unique TRS solution for define benefit, define contribution, ESOP and not qualified. And certainly we've seen some volatility in these businesses, but I'd like to think that in large part the integration has taken place and Chris is growing it from here. So Chris, can you please respond? Yes, no, thanks for the question, Jimmy. I think I think which has to keep in mind is that as a result of the pandemic and some of the market volatility, that has probably dampened some of the bid activity.

Out there in the industry and the economy are good for the economy, and we know that it's good for our future growth rates. If we continue to put that in so what I would say, though is it does take a little bit of time for that to catch up you do some things differently with your in force block versus your new business pricing. So I would guess as we come out through 'twenty.

Three and into 2024, you would still see even us.

Slowly kind of moving that into our in force or new case pricing, but it will I mean in a well run business. It will get back into pricing so that it can benefit the growth of the whole industry.

Christopher Littlefield: And we certainly have seen an uptick and bid activity across the industry as we've, as we've gotten into 23. So I don't think it's, you know, something that's going to continue to create a lot of pressure. And in fact, we see a very significant and meaningful moderation and contract lapses heading into 24. But yeah, we definitely are working through that. I mean, from a, from a perspective of flows, we had a positive quarter and we're starting to see the pickup and sales and transfer deposits.

The other point I would say, though is that you do it doesn't matter the composition of your block. So for example, our block is about 70% what we would consider knowledge workers. So those knowledge workers theyre going to have really great options in terms of when you think of claims recovery in terms of hybrid or.

Christopher Littlefield: I mean, if you look at 78% increase in transfer deposits in the quarter, SMB was mid double, mid double digits, all of that is, is really positive. And we continue to see those trends continuing to the fourth quarter. So, you know, I think yes, we are seeing some lag from more pandemic activity and some of the market volatility that's really hard to move plans when the markets really volatile. So, you know, I think we're, that's going to pretty much sort out here over the next quarter or so.

Unknown Executive: Thank you. Thanks, Jeffrey.

Working option. So if you've got more of your block of business in those knowledge industries your ability to consistently move that into your block the benefits of that into your pricing and into your results are going to be higher than if you have a lot more than like retail or manufacturing sectors. So the composition of your of your bill.

Matters, the ratable nature, whether you've locked in multi year rate guarantees matters, and it's going to factor into everybody's ability to grow that helps any.

It does thank you so much.

Suneet Kamath: Thank you. Our next questions come from the line of Suneet Kamath with Jeffries. Please proceed with your questions. Thanks, good morning. Just for Deanna to start on the assumption review, any sort of ongoing gap impacts that we should expect. And then similarly, is there any sort of either statutory impact from the review or implications from for taxes based on that negative item that should have been the tax rate? Yeah, thanks, Suneet, for the question.

Appreciate the question.

Thank you our next questions come from the line of Alex Scott with Goldman Sachs. Please proceed with your questions.

Hi.

Wanted to see if you could talk a bit about the margins and just the sustainability of margins that are running at a pretty nice level, just partly probably driven by the recovery in <unk> over the last couple of quarters or few quarters.

And.

How should we think about your ability to hold onto some of that and kind of keep the flexibility of our some of the pressures from.

Suneet Kamath: You know, from a run rate perspective, it does cause a slight benefit in RIS, a slight pressure in life, no impact in SDD. I think it is of no so that those would be reflected in the third quarter run rate operating range that we gave you on a pre-tax basis, so those have all been kind of factored in. As we moved to capital, the tax item did cause a capital hit. And so, you know, that was a known and we had slightly positive offsetting modest positive capital impact that offset a portion of that from the AAR.

Inflation, obviously ongoing and so forth.

The way to think through that in terms of the more short term targets.

Did you guys communicated.

Yes, Alex it was a little garbled there towards the end, but certainly I. Appreciate the question around margins our ability to maintain those margins in the first thing I'll say before handing it over to.

Diana is we have an ongoing vigilance around aligning our expenses with our revenues to make sure that we're protecting margin for our investors and extreme markets, it's more challenging but again, we do try to anticipate.

Suneet Kamath: But ultimately, those would be the moving pieces from a tax perspective, no ongoing impact. That was a one time impact that really screwed up and reversed some credits that we had taken in previous years and so no impact as we go forward. Got it. Okay, thanks. And then I guess maybe for Amy on the disability business, you know, we continue to see really good results not only from you guys, but other companies.

Some degree to make sure that we are again being.

Focused appropriately on growing our businesses and making the appropriate investments while at the same time, taking out unnecessary expenses. So Dan maybe you can sort of anticipate frame the margins on a go forward basis, Yeah I'll frame. It in total and then Alex if you have some specific businesses that you want to go into a little bit deeper you can bring that up and we can pass on to the.

Suneet Kamath: And I guess I'm just trying to understand or like to understand how quickly you think this strong results will be sort of factored into pricing. I would imagine that would occur at some point, but I just want to get a sense of from a timing perspective what the glide path looks like. Thanks. Amy, please. Yeah, yeah. So let me, I'll give you my perspective on this and it's going to vary a bit by kind of the how your block is made up.

Appropriate president.

It was a very strong margin quarter across almost all of our businesses.

I'd say, we obviously, we're benefiting relative to outlook from some of the they are the early in the year markets.

Suneet Kamath: But if you have most of your block, which we do an inability to kind of annually re-rate, I think that those the re-rateable nature of that business is going to mean that we pass on that good performance relatively quickly. We're I will say we're pretty committed to making sure that when we've got good performance, we're putting that back into our rates. We know that that's good for our customers. We know more income protection products out there in the industry and in the economy are good for the economy, and we know that it's good for our future growth rates if we continue to put that in.

Our strength and as you know some of that did retreat as we went through the third quarter and in the fourth quarter.

The thing I would say is that we did mentioned on the prepared remarks that we do have some seasonality in our expenses, we do expect that to be less than typical but you will see some impact on fourth quarter margins from that as well that does impact all businesses with a slightly larger impact in our our retired retirement business, but I think the good news.

Is is is bringing us back to the full year, we do.

Still feel really good about our targeted margins.

And ultimately we will be laying out kind of our expectations for 2024, and our February outlook call, but we continue to be very targeted and focused on maintaining those margins and doing what we need to do to keep us in those levels.

Suneet Kamath: So what I would say, though, is it does take a little bit of time for that to catch up. You do something differently with your enforce block versus your new business pricing. So I would guess as we come out through 23 and into 2024, you would still see even us, you know, slowly kind of moving that into our enforce or new case pricing. But it will I mean in a well run business, it will get back into pricing so that it can benefit the growth of the whole industry.

Okay, a follow up Alex.

Yeah. The follow up I had is on Pgi I wanted to ask about just the broader industry pressure that active asset management facing and what are the strategies that you all are deploying to to be able to sort of resist some of those pressures.

Suneet Kamath: The other point I would say though is that you do it does matter the composition of your block. So for example, our block is about 70% what we would consider knowledge. Workers. So those knowledge workers are going to have really great options in terms of when you think of claims recoveries, in terms of hybrid or remote working options. So if you've got more of your block of business in those knowledge industries, your ability to consistently move that into your block, the benefits of that into your pricing and into your results are going to be higher than if you have a lot more in like retail or manufacturing sectors.

Anything nuance that you're working on there to.

Suneet Kamath: So the composition of your of your of your block matters, the re-radable nature, whether you've locked in multi your rate guarantees matters, and it's going to factor in to everybody's ability to grow. Thank you. Our next questions come from the line of Alex Scott with Goldman Sachs. Please proceed with your questions. Hi, I wanted to see if you could talk a bit about the margins and just the sustainability of margins that are running at a pretty nice level, just partly driven by the recovery in some AUM over the last couple quarters or few quarters.

It helped close.

Well one thing we all know Alex says Theres no shortage of challenges out there in terms of geopolitical risk and economic volatility and extreme interest rates and certainly inflation and I think the right person to tackle. This one as Congress will come when you want to provide some insights. Please sure. Thanks.

Thanks, Alex.

Yes, I'll give you a perspective, Alex on where we see client engagement and client sentiment because thats the best measure of where we see the industry going I would probably highlight for you two dimensions here, one I think as Dan talked about.

Most investors.

Have been very well rewarded and they've been smart.

Particularly when it comes to achieving their goals by taking less risk and focusing on coupon use.

As you know we are getting a lot of interest on our specialty income capabilities.

Suneet Kamath: And, you know, how should we think about your ability to hold on to some of that and, you know, kind of keep the flexibility or some of the pressures from, you know, inflation, you know, obviously ongoing and so forth. Any way to think through that in terms of the more short term targets that you guys communicate. Yeah, Alex, it was a little garbled there towards the end, but certainly appreciate the question around margins, our ability to maintain those margins.

And the reason we are seeing more and more of that recently is because a lot of investors are now focusing on total return solutions rather than simply looking at the coupon yield.

Most of these institutions and including some of our wealth management partners really realize that we are probably at an early dawn of a long cycle, but our total return capability with broadly benefit them and that is certainly something we have great performance and great capability on the.

The second piece.

You have seen is we continue to do extremely well in our real estate franchise, but we tend to have a lot more conversations on private markets and one of the things that are driving that continued engagement and our confidence in future success is we have some very very long to newer strategic relationships and.

And as we go through this market cycle.

Suneet Kamath: And the first thing I'll say before handing it over to Deanna is, you know, we have an ongoing vigilance around aligning our expenses with our revenues to make sure that we're protecting margin for our investors and extreme markets. It's more challenging, but again, we do try to anticipate this to some degree to make sure that we are, again, being focused appropriately on growing our businesses and making the appropriate investments while at the same time taking out unnecessary expenses.

The higher the work with partners that have exceeded through transition and discovery.

Also have a true understanding between debt and equity and we can offer a full service solution to them and I would highlight that we are continuing.

Continuing excellent culture of client service with some of these large relationships that continue to benefit us. So as you highlighted the active management space is.

Suneet Kamath: So the enemy you can sort of anticipate frame the margins on a go forward basis. Yeah, I'll frame it in total. And then Alex, if you have some specific businesses that you want to go into a little bit deeper, you can bring that up and we can pass on to the appropriate president. You know, it was a very strong margin quarter across almost all of our businesses. You know, I'd say we obviously were benefiting relative to outlook from some of the early in the year market strengths.

<unk> is a <unk>.

But we do have some capabilities that give us high confidence from that perspective.

I would hope Alex Thank you.

Thank you for all the detail.

Okay. Thank you.

Thank you our next questions come from the line of well my Burtis with Raymond James. Please proceed with your questions.

Hey, good morning could you discuss the favorable impact of mortality on the pension risk transfer business in the quarter.

Suneet Kamath: And as you know, some of that did retreat as we went through the third quarter and into fourth quarter. The other thing I would say is that we did mention on the prepared remarks that we do have some seasonality in our expenses. We do expect that to be less than typical, but you will see some impact on fourth quarter margins from that as well. That does impact all businesses with a slightly larger impact in our retirement business.

And whether this is something you would expect to continue.

Yeah, I'll have Dan I'll take that one yeah.

Yeah.

So you know obviously over the past few years, we went through the Covid, where we did see some benefit of mortality.

But ultimately as we do every third quarter, we stepped back and we look at all of our actuarial assumptions and make sure that we are.

Suneet Kamath: But I think the good news is is, you know, bringing us back to the full year. We do still feel really good about our targeted margins. And ultimately we will be, you know, laying out kind of our expectations for 2024 and the February outlook call. But we continue to be very targeted and focused on maintaining those margins and doing what we need to do to keep us in those levels. Yeah, the follow up I had is on PGI.

Reflecting that in our in our in our reserve levels, New this year under L. DTI is the fact that this annual actuarial review also applies the fastest fast 60 products, which includes our pension risk transfer products and so again that wouldn't have been something we would have reflected historically in our AAR.

But now are reflecting that one of the things that we have seen is that ultimately we are not seeing the expected mortality improvement that we had factored into our assumptions and so we true that up and ultimately then increase the mortality expectations on those PRT lives and that.

Suneet Kamath: I wanted to ask about just the broad industry pressure that activates that management's facing and what are the strategies that you all are deploying to be able to resist some of those pressures and anything nuance that you're working on there to help close. Well, one thing we all know, Alex, there's no shortage of challenges out there in terms of geopolitical risk and economic volatility and extreme interest rates and certainly inflation and I think the right person to tackle this one is commas, so commonly you want to provide some insights please.

Led to that or slightly over $50 million benefit in the PRT.

We arent changing our future mortality assumptions there is a slight benefit in the run rate expectations for AAR, but that was really the driver of what happens.

Okay. Thank you and then the adjustment benefit ratio in specialty benefits of 58%, which was better than your targets and improved four points year over year.

Suneet Kamath: Thanks, Alex. I'll give you a perspective, Alex, on where we see client engagement and client sentiment because that's the best measure of where we see the industry going. I would probably highlight for you two dimensions here. One, I think as Dan talked about most investors have been very well rewarded and they've been smart, particularly when it comes to achieving their goals by taking less risk and focusing on coupon yields. As you know, we are getting a lot of interest on our specialty income capabilities and the reason we are seeing more and more of that recently is because a lot of investors are now focusing on total return solutions rather than simply looking at the coupon yield.

It sounds like the group disability could continue to outperform in the near term, but could you go into the other drivers and what we should expect in the coming quarters.

Excellent thanks, while Miami please yeah.

And as you've noted the.

Group disability, one it's probably.

One of the bigger drivers, that's giving us that overall result, and.

And again as we've talked a little bit about some of that will continue I do think that third quarter.

Not repeatable in terms of when you adjust out the E. R Youre looking at that.

46% loss ratio, that's not something that will continue but we will see some improvement from those historical levels.

So I'd say its group life is continuing to perform really really well I made a point in an earlier question to talk a little bit about our focus on those knowledge industry I do think that tends to have a little bit of impact in group life as well. So the type of business that you've built over time and the type of patterns you see against that business really do matter and so I will.

Suneet Kamath: Most of these institutions and including some of our wealth management partners really realize that we are probably at an early dawn of a long cycle where a total return capability would probably benefit them and that is certainly something we have great performance and great capability on. The second piece as you've seen is we continue to do extremely well in our real estate franchise but we tend to have a lot more conversations on private markets and one of the things that's driving that continued engagement and our confidence in future successes, we have some very, very long-term strategic relationships and as we go through this market cycle where there is a desire to work with partners that have experienced through transition and discovery, principle asset management is well positioned and there are a couple of reasons for it.

I'd expect group life to continue to perform pretty well dental has been one that we have been seeing a little bit more utilization and severity over the last year year and a half since COVID-19. It's been one of those we're trying to kind of find that next normal pattern I do see it beginning to kind of slowly return to those patterns.

That we used to see prior to Covid, we're always willing to make some modest pricing adjustments to make sure. We're continuing to be good stewards of that line of business, but I would expect to see that to continue to have probably even a little bit better performance than we saw in the trailing 12 months number from that and then our <unk>.

Suneet Kamath: One is we have this amazing capability to work across public and private markets, which is important during these times. We also have a true understanding between debt and equity and we can offer a full-service solution to them and I would highlight that we have had a continuing excellent culture of client service with some of these large relationships that continue to benefit us. So as you highlight a active management space is stressed but we do have some capabilities that give us high confidence from that perspective.

Supplemental health line.

I would continue to expect to see the type of performance that we've seen from that in the past and then individual disability could also see some of those benefits we've talked about but I would continue to see it performing consistent with some of those historical levels.

Hopefully that helps.

Yes. Thank you.

Yes.

Thank you our next questions come from the line of Westlake Carmichael with Wells Fargo. Please proceed with your question.

Suneet Kamath: And hope Alexing. Yep, thank you for all the detail. Thank you. Our next questions come from the line of Wilma Bertis with Raymond James. Please proceed with your questions. Hey, good morning. Could you discuss the favorable impacts of mortality on the pension risk transfer business in the quarter and whether this is something you would expect to continue? Yeah, and I'll have Deanna take that one. Thanks. Yeah. So, you know, obviously over the past few years, you know, we went through the COVID where we did see some benefit of mortality.

Hey, good morning, So last quarter I think you talked about you expected variable investment income to be a little bit below normal levels for the remainder of 2023.

You're still expecting that into the fourth quarter and maybe just if you can.

That could persist into 2024, when do you expect that turnaround.

Thanks, Wes I'll have Dan I'll take that one yeah I think when you look at <unk> relative to what we saw in first quarter and second quarter. The real improvement came because we did see some real estate sales in the quarter that then transferred into that variable investment income.

As I look forward to the fourth quarter I think you probably you know it is hard to predict, especially given the volatile market that we have but probably expect to see fourth quarter be closer to <unk> levels. As we sit here today for 2024, I'll defer to more detail on the February out.

Suneet Kamath: But ultimately, as we do every third quarter, we step back and we look at all of our actuarial assumptions and make sure that we are reflecting that in our reserve levels. New this year under LDPI is the fact that this annual actuarial review also applies to fast 60 products, which includes our pension risk transfer products. And so again, that wouldn't have been something we would have reflected historically in our AAR, but now are reflecting that.

<unk> call, but I do think it is obvious to understand that as interest rates continue at this high level, we're going to continue to see ongoing pressure from Prepays and it's really the all other all center and real estate that can be volatile quarter to quarter.

Suneet Kamath: One of the things that we have seen is that ultimately, we are not seeing the expected mortality improvement that we had factored into our assumptions. And so we true that up and ultimately then increase the mortality expectations on those PRT lives. And that led to that slightly over $50 million benefit in the PRT. We aren't changing our future mortality assumptions. There is a slight benefit in the run rate expectations for AAR, but that was really the driver of what happened.

Okay, Thanks, and maybe as a follow up in the individual life business. It seems like that maybe came in a little bit below your expectations, maybe over the last couple of quarters or so so just wondering if there is an <unk>.

<unk> related to mortality or what's driving a little bit of the pressure there.

Yeah. The only thing I just wanted to say before Amy delves into this is what an outstanding job. She and her team have done in pivoting from that retail franchise with the divested businesses the reinsurance agreements.

There is going to be a little volatility there, but this business owner executive solutions in Q business has really been powerful for the organization and really complementary to the entire platform, but Amy you want to take on the loss ratios were yes, Dan you've hit one of the points I would make about that is that I would say that.

Suneet Kamath: Thank you. And then the adjusted benefit ratio and specialty benefits of 58%, which was better than your targets and improve four points year-a-rear. It sounds like the group disability could continue to outperform in the near term, but could you go into the other drivers and what we should expect in the coming quarters? Excellent, thanks. Well, my name is please. Yeah, so well, as you've noted, the group disability one is probably one of the bigger drivers that's giving us that overall result.

Life business sort of refocus has been.

Meeting or exceeding our expectations in terms of getting ourselves focused on those business owners really meaningful business owner relationships about 50% of the business that we do in nonqualified in any given quarter is going to be tied into the life insurance business now and when you look at those business owner offering they tend to not only.

Suneet Kamath: And again, as we've talked a little bit about, some of that will continue. I do think that third quarter is not repeatable in terms of when you adjust out the AAR, you're looking at that, you know, almost 46% loss ratio. That's not something that will continue, but we will see some improvement from those historical levels. The other piece I'd say is group life is continuing to perform really, really well. I made a point in an earlier question to talk a little bit about our focus on those knowledge industries.

Suneet Kamath: I do think that tends to have a little bit of impact in group life as well. So the type of business that you've built over time and the type of patterns you see against that business really do matter. And so I would expect group life to continue to perform pretty well. Dental has been one that we have been seeing a little bit more utilization and severity over the last year, year and a half since COVID.

Purchased life insurance products, but they tend to deepen that relationship across our retirement and asset management franchise as well and so there's a really nice small business relationships for us to be building you've hit the point in terms of the question, which is there have been some things in the last couple of quarters in terms of.

Mortality that we've seen a little bit more it's not on the incident side, we're not seeing.

But we're not seeing that the number of claims but the severity has been running a little bit hotter than we've seen historically, but that really does attribute the whole difference that is the severity.

Thank you. Thank you.

Thank you our next questions come from the line of Tom Gallagher with Evercore ISI. Please proceed with your questions.

Suneet Kamath: It's been one of those we're trying to kind of find that next normal pattern. I do see it beginning to kind of slowly return to those patterns that we used to see prior to COVID. We're always willing to make some, you know, modest pricing adjustments to make sure we're continuing to be good stewards of that line of business. But I would expect to see that to continue to have probably even a little bit better performance than we saw in the trailing 12 month number from that.

Yeah.

Good morning few questions on the RIS for me Dan you'd highlighted.

You expected net outflows and <unk> in Q4, and I think part of that just seasonal.

The way the business works now last year, you guys had outsized I think it was $7 billion of outflows in Q4 I just wanted to make sure. We're all level set here would you expect another outsized quarter directionally similar to $7 billion or just.

Suneet Kamath: And then our supplemental health line, I would continue to expect to see the type of performance that we've seen from that in the past. And then individual disability could also see some of those benefits we've talked about. But I would continue to see it performing consistent with some of those histories for a while. Thank you. Our next questions come from the line of Wesley Carmichael with Wells Fargo. Please proceed with your questions.

More more down something a lot better than that still outflows, but.

Not not some of the unusual large jumbo outflows.

Yeah, Tom I appreciate the question I'll have Chris take that one yes, thanks, Tom So again.

We've seen in the third quarter, we're seeing really good quality pipeline and well positioned for a strong double digit growth in sales and transfer deposit growth across smbs and large throughout the full year, but as Dan mentioned, we do expect to see some elevated loss activity I think the hard part about the fourth quarter, it's really difficult to.

Suneet Kamath: Hey, good morning. So last quarter, I think you talked about you expected variable investment income to be a little bit below normal levels for the remainder of 2023. Are you still expecting that into the fourth quarter and maybe just if you think that could persist in the 2024 when you expect that to turn around. Thanks Wes, I'll have Deanna take that one. Yeah, I think when you look at 3Q relative to what we saw in first quarter and second quarter, the real improvement came because we did see some real estate sales in the quarter that then transferred into that variable investment income.

Predict Tom it's an active quarter for planned transitions and plan lineup changes and Youre going to plans transition move from December to January So, it's really hard for us to give a lot.

Of clear guidance on that but we expect it to be negative, but we do expect it to be less negative than the year ago. Both in terms of dollars and in terms of the withdrawal percentages.

Suneet Kamath: As I look forward to the fourth quarter, I think you probably, you know, it is hard to predict, especially given the volatile markets that we have. But probably expect to see fourth quarter be closer to 1Q and 2Q levels as we sit here today for 2024. I'll defer to more detail on the February outlook call. But, you know, I do think it is obvious to understand that as the interest rates continue at this high level, we're going to continue to see ongoing pressure from prepays.

So again that would give you some directional view on as we continue to look forward into the fourth quarter and first quarter. We continue to see strong transfer deposits solid recurring deposit growth and a meaningful moderation in our contract lapse rate.

All consistent with how we're really managing the business, which is for profitable growth.

And despite all of this activity, we expect to be within our guidance range for revenue for the full year and in the upper half of margin for the full year. So you have some pressure, but certainly don't see as much as we did year ago.

Suneet Kamath: And it's really the other all in the real estate that can be volatile quarter to quarter. Now, thanks. And maybe as a follow up in the individual life business, it seems like that maybe came in a little bit below your expectations, maybe for less couple of quarters or so. So just wondering if there's, you know, an impact related to mortality or what's driving a little bit of the pressure there. Yeah, you know, the only I just want to say before Amy Dells into this is what an outstanding job she and her team have done and pivoting from that retail franchise with the devastated businesses and reinsurance agreements.

Tom.

That's helpful, Chris and Dan Thanks.

My follow up is <unk>.

Just a fee question on RIS.

Hi.

The calculation I'm doing is probably overly simplified but.

If I look at the average increase in monthly assets of 3% to 4% and you should've gotten an extra fee day in Q3.

Suneet Kamath: And there is going to be a little volatility there, but this business owner executive solutions and NQ business has really been powerful for the organization and really complimentary to the entire platform. But, Amy, you want to take on the the loss ratio? Yeah, Dan, you've hit one of the points I would make about that is that I would say the life business sort of refocus has been meeting or exceeding our expectations in terms of getting ourselves focused on those business owner really meaningful business owner relationships about 50% of the business that we do in non qualified in any given quarter.

And then I look at essentially flat fees for the quarter in Q3 versus <unk>.

That would suggest I would say somewhat higher than normal fee compression or fee pressure.

Sure.

Are you seeing more fee pressure than normal or maybe something with the calculation that we need to adjust thanks.

No. Thanks, and thanks, Tom again, I think throughout the year, we've definitely benefited from equity markets that pushed our fee rate.

Round 40 bps, the last few quarters, but as we're seeing the compression emerge it's emerging in line with our guidance. We've historically guided that we expect fee compression annual lead to be at sort of the two to three bps reduction a year, which was driven by competitive market dynamics, both acquiring new business retaining existing customers, having higher price plans labs.

Suneet Kamath: It's going to be tied into the life insurance business now. And when we look at those business owner offerings, they tend to not only purchase life insurance products, but they tend to deepen the relationship across our retirement and asset management franchise as well. And so there's a really nice small business relationships for us to be building. You've hit the point in terms of the question, which is there have been some things in the last couple quarters in terms of mortality that we've seen a little bit more.

Versus in newer ones coming in at lower fee rates. So that's the the compression that we sort of put in that two bps to three bps of your reduction. This year. This quarter was about two bps versus versus a year ago.

Suneet Kamath: It's not on the incident side. We're not seeing we're not seeing that the number of claims, but the severity has been running a little bit hotter than you've seen historically, but that really does attribute the whole difference that is the severity. Thank you. Thank you, Wes. Thank you. Our next questions come from the line of Tom Gallagher with Evercore ISI. Please proceed with. Thank you for your questions. Good morning. A few questions on RIS for me.

So thats, what youre seeing and while the fee revenue rate is down a bit but keep in mind. The how we manage this business. We also have lower expenses and we're delivering higher margins consistent with how we are really managing this business for the future Christian one thing I might add to that list is also the investment management shift so to the extent theres more money that goes to a passive option is.

Those two active you're going to see a negative impact on the on the revenues as well.

That makes sense, thanks, guys I.

Suneet Kamath: Dan, you had highlighted, you expected net outflows in RIS and Q4, and I think part of that just seasonal the way the business works. Now, last year, you guys had outsized, I think it was $7 billion of outflows in Q4. I just want to make sure we're all level set here. Would you expect another outsized Q4, directionally similar to $7 billion or just more down something a lot better than that still outflows, but not some of the unusual large combo outflows.

Appreciate it Tom.

Thank you. Our next question is coming from the line of Tracy Bengie with Barclays. Please proceed with your questions.

And Kim.

Your office CML Ltvs, albeit.

At 63%, but it's worse than 57% last quarter.

I feel like office pressures will take time to materialize. How do you see your office came out LTV trending going forward is it too simplistic to think about low to mid single digit deterioration every quarter I'm just wondering if theres a certain level, where you feel less comfortable.

And any insights here, yes. Thanks for the question Tracy So as Dan mentioned, we actually do.

Suneet Kamath: Yeah, Tom, appreciate the question. I'll have Chris take that one on. Yeah, thanks, Tom. So again, as we've seen in the third quarter, we're seeing really good quality pipeline and well positioned for a strong double digit growth in sales and transfer deposit growth across S&Bs in large throughout the full year. But as Dan mentioned, we do expect to see some elevated last activity. I think the hard part about the fourth quarter is it's really difficult for to predict how it's an active quarter for plan transitions and plan line up changes.

Rewriting on our office portfolio on a quarterly basis and just a reminder, again, we have about $3 $1 billion worth of our office in our general account.

57% loan today at two six times debt service coverage, it's 89% occupied 75% of buildings, we consider to be class, a really strong high quality buildings.

Sort of a quality in terms of our sort of expectation on the rating performance.

Suneet Kamath: And you're going to plan transition move from December to January, so it's really hard for us to give a lot of clear guidance on that, but we expect it to be negative, but we do expect it to be less negative than the year ago, both in terms of dollars and in terms of the withdrawal percentages. So again, that would give you some directional view on, you know, as we continue to look forward into the fourth quarter and first quarter, we continue to see strong transfer deposit, solid recurring deposit growth and a meaningful moderation in our contract last rate all consistent with how we're really managing the business, which is for profitable growth.

But we do every quarter analysis of the cash flow streams of each office property the terminal cap rates to discount rates that we want to apply to come up with a valuation and I think one of the things I really think it's important that we have been very aggressive on adjusting our cap rates on a quarter to quarter basis to make sure we are.

Staying abreast of what we're hearing what we're seeing in terms of industrial expectations in terms of where trades are being.

Consummated in a marketplace and I would suggest to you that our cap rates continue to be significantly conservative relative to <unk>, which is the index at most institutional investors look at it in the private market space and our cap rates for office are 17% higher so we're very conservative relative to where nacreous cap rates are.

Suneet Kamath: And despite all of this activity, we expect to be within our guidance range for revenue for the full year and in the upper half of margin for the full year. So yeah, some pressure, but certainly don't see as much as we did year ago. That's helpful, Chris and Dan, thanks. My follow-up is just a fee question on RIS. If I, the calculation I'm doing is probably overly simplified, but the, if I look at the average increase in monthly assets, it's 3 to 4%, and you should have gotten an extra fee day in Q3.

Cap rates just came out last day and so we continue to be very.

<unk> about market conditions, reflecting those market conditions, and our quarterly assessments and so we want to make sure. We're giving you real time data and real time expectations as to where we see those debt service coverage and loan to values.

And then help Tracy.

So it helps for sure because it feels like that in your LTV is probably more realistic and less scale than maybe what others report given that diligence, but just wondering where that 63% could go from here.

Suneet Kamath: And then I look at essentially flat fees for the quarter in Q3 versus QQ. That would suggest I would say somewhat higher than normal fee compression or fee pressure. Is there, are you seeing more fee pressure than normal or is there maybe something with the calculation that we need to adjust? Thanks. No, thanks. Thanks, Tom. No, you know, again, I think throughout the year, we've definitely benefited from equity markets that pushed our fee rate, you know, around 40 bips to the last few quarters.

If I look at the next few quarters I see I'm not sure what were the 63% is I actually think that's the loan to value on our 24 maturities. So the actual total office portfolio is what Pat mentioned is 57 and then the other thing I would make note of on that 24 months maturities is even though the.

L. T V is 63% the debt service coverage at three eight and we have a 94% occupancy. So ultimately for those loans that are maturing in 'twenty four we feel good that those are attractive loans that will be maturing next year.

Suneet Kamath: But as we're seeing the compression emerge, it's emerging in line with our guidance. If historically guided, that we expect to see compression annually to be at sort of the 2 to 3 bips reduction a year, which is driven by competitive market dynamics, both acquiring new business, retaining existing customers, having higher price plans, laps versus and newer ones coming in at lower fee rates. So that's the compression that we sort of put in that 2 bips to 3 bips a year reduction this year, this quarter is about 2 bips versus versus year ago.

Got it.

You know, we're seeing traditional life and annuity insurers borrowing a page from the playbook of alternative asset managers in a create any side cars in Bermuda.

Looking at equity stake alongside consortium of investors as a way to accumulate assets and earn a fee income I'm wondering what your thoughts are given you do have a large asset management capabilities.

Yes, it really came in garbled Tracy on your question, but I believe it's whether or not there is an offshore solution that would help and capital relief for some of our <unk>.

Suneet Kamath: So that's what you're seeing. And while the fee revenue rate is down a bit, keep in mind how we manage this business, we also have lower expenses, and we're delivering higher margins consistent with how we're really managing this business for the future. Chris, the only thing I might add to that list is also the investment management shift. So to the extent there's more money that goes to a passive option as opposed to active, you're going to see a negative impact on the on the revenues as well.

Spread businesses, Dan do you want to frame that for us.

That's crazy good question.

We always evaluate opportunities to create value for our customers and opportunities and look at what our competitors are doing relative to that.

We have been exploring whether we should set up our Bermuda entities, specifically focused on PRT in term our focus will be on new sales as we go forward.

Suneet Kamath: That makes sense. Thanks guys. Appreciate it Tom. Thank you. Our next questions come from the line of Tracy Ben Gigi with Barclays. Please proceed with your questions. Thank you. Your office, CMLLTV, it's 60% but it's worse than 57% last quarter. I feel like office pressures will take time to materialize. How do you see your office, CMLLTV trending going forward? Is it too simplistic to think about load amid single digit deterioration every quarter?

And we won't.

We arent considering a sidecar arrangement relative to that one given the size of our portfolio the size of our new sales and our ability to manage that in house.

Relative to that so there'll be more to come on that as we go forward, but I always want to be mindful to make sure that we are being as capital efficient as we can and creating value for our shareholders.

Thank you.

Thank you our last question will come from the line of Josh Shanker with Bank of America. Please proceed with your questions.

Suneet Kamath: I'm just wondering if there's a certain level where you feel less comfortable. Well, adding the answer. Yeah, thanks for the question, Tracy. So as Deanna mentioned, we actually do rewriting on our office portfolio on a quarterly basis and just remain again. We have about $3.1 billion worth of office in our general count. That's a 57% loan today at 2.6 times debt service coverage at 89% occupied 75% of buildings we consider to be class A really strong high quality buildings, sort of a quality in terms of our sort of expectation on the rating performance.

Yes. Thank you so the timing of the <unk> dip in rates also comes in concert with $100 million increase in the buyback expectation.

It seems that you were a bit surprised by just how much cash flow you're generating or to what extent are you is that a number that should generally.

B Forecastable for you over time and can you go through some of the history. When you did the <unk> deal, but how much it reduced your cash flow by and when you recovered to the levels, where youre going to be raising dividends again.

Suneet Kamath: But we do every quarter a analysis of the cash flow streams of each office property, the terminal cap rates, the discount rates that we want to apply to come up with evaluation. I think one of the things that I really think is important that we've been very aggressive on adjusting our cap rates quarter to quarter basis to make sure we're staying abreast of what we're hearing, what we're seeing in terms of investor expectations.

Yes, it's a good question and the first thing I would say is you have to look at the last two years for principal and know that forecasting. Some of these has been challenging given some of the some of the changes. We've made we do have very strong capital position, we anticipated that in the post strategic review when we were doing our.

Suneet Kamath: In terms of where trades are being consummated in a marketplace. And I'll suggest to you that our cap rates continue to be significantly conservative, rather relative to Naprief, which is the index that most institutional investors look at in the private market space. And our cap rates were office are 17% higher. So we're very conservative relative to where Naprief cap rates are and those Naprief cap rates just came out last day. And so we continue to be very thoughtful about market conditions, reflecting those market conditions and our quarterly assessments.

Analysis, we wanted to use a fair amount of judgment of not having perfect clarity to what this might look like but as we said during the strategic reviews outcome. We're committed to returning capital through both share buyback through increased dividends and targeting our 40% payout ratio, but also investing in these.

Organic businesses, knowing that most of those businesses deployments would be in our fee businesses and having said that we still look for opportunities and spread where it's where it's appropriate but I will have DNA add some additional comments, yes. Thanks, Josh for the question.

Suneet Kamath: And so we want to make sure we're giving you real time data and real time expectations as to where we see those debt service covers and loan values. Does that help Tracy? So it helps for sure because it feels like then your LTV is probably more realistic and less stale and maybe what others report given that diligence. But just wondering where that 63% could go from here. If I look at the next few.

We came out of the strategic review and really committed to that 75% to 85% free cash flow ratio and we manage to make sure that we're within that we were happy to be able to raise our dividend once that last quarter into.

This quarter and as you are aware of that has been on pause since our strategic review as we wanted to understand the impact on our earnings level and then as you know also in 2022, the markets were pretty negative and so we needed to understand how we can get through that as well.

Suneet Kamath: Tracy, I'm not sure what where the 63% is. I actually think that's the loan to value on our 24 materities. So the actual total office portfolio is what Pat mentioned is a 57. And then the other thing I would make note of on the 24 materities is even though the LTV is 63%. The debt service coverage is 3.8 and we're have a 94% occupancy. So ultimately for those loans that are maturing in 24, we feel good that those are attractive loans that will be maturing next year.

We did have a few one timers in the quarter that did help our our or free capital flow. They netted to about a 100 per $100 million positive impact. The two most notable one is the admittance of the negative INR, but that was partially offset by the tax impact that we talked about and so again.

Feel really good about the ability to increase our common stock dividend increase our share buyback expectations and put us on track for a $1 3 billion dollar of capital return to our shareholders for the full year of 2023, I don't think what we're seeing this year is an anomaly and ultimately still stay focused on that.

Suneet Kamath: Got it. You know, we're seeing traditional life and annuity insurers barring the page from the playbook of alternative asset managers in the creating these side cars and permuda by making an equity stake alongside consortium investors as a way to accumulate assets and earn fee income. I'm wondering what your thoughts are given you do have a large asset management capability. Yeah, it really came in, Garvel Tracy on your question, but I believe it's whether or not there's an offshore solution that would help in capital relief for some of our spread businesses, Deanna, you want to print that for us?

75% to 85% free cash flow conversion.

And if I think in a lot of times people think that equity markets are equity businesses compounded of seven 8% annual compounded rate.

If I apply that to our growing your cash flow I assume you don't think things are going to be worse than I know things don't move in a straight line, but it's not unreasonable I guess to think about that.

Suneet Kamath: Yeah, Tracy, good question. You know, we always evaluate opportunities to create value for our customers and opportunities and look at what our competitors are doing relative to that. You know, we have been exploring whether we should set up a bermuda entities specifically focused on PRT and term. Our focus will be on new sales as we go forward. And we won't, we aren't considering a side car arrangement relative to that one given the size of our portfolio.

In most quarters, we should see a dividend hike if if if if if things are working the way you are hopefully well that is that a wrong way to think about things.

Yeah, I mean, obviously the markets can have some fluctuation on that but I think you can even go back to prior to the transaction and look at our trend of dividend increases and we did have a consistent pattern of increases.

The other thing I would say is we have high growth operations and our specialty benefits business, we have high growth expectations in our international business and I come back to the fact that we have we think we can deliver 9% to 12% EPS growth.

Suneet Kamath: The size of our new sales and our ability to manage that in-house relative to that. So there'll be more to come on that as we go forward. But I always want to be mindful to make sure that we are being as capital efficient as we can in creating value for our shareholders. Thank you. Our last questions will come from the line of Josh Shanker with Bank of America. Please proceed with your questions.

That won't always be up at that level there'll be some yes.

Here's where it's slightly lower some years, where you might benefit more from macro but again I come back to strong free cash flow.

We are committed to being a growing company and we are committed to returning that grows back to our shareholders and ultimately and pressured time because of our diversified model relative to peer asset managers were actually able to have consistent dividends versus a lot of volatility so.

Suneet Kamath: Yeah, thank you. So the timing of the two cent dividend raise also comes in concert with a hundred million dollar increase to the buyback expectations. It seems that you're a bit surprised by just how much cash flow you're generating. To what extent are you, is that a number that should generally be forecastable for you over time? And can you go through some of the history when you did the tail cut deal about how much it reduced your cash flow by and when you recovered the levels where you're going to be raising dividends again?

The pattern and the consistency and as you say over the long term you are right, we should be able to increase that dividend and return to our shareholders. Thanks for the questions Josh.

Thank you we have reached the end of our Q&A Mr. Houston Your closing comments please.

Suneet Kamath: Yeah, so it's a good question. The first thing I would say is you have to look at the last two years for principle and know that forecasting some of these has been challenging giving some of the rain, some of the changes that we've made. We do have a very strong capital position. We anticipated that in the post strategic review when we were doing our analysis, we wanted to use a fair amount of judgment of not having perfect clarity to what this might look like.

And I apologize it sounds like we may have a bad line here you. All these questions didn't come in perfectly clear today, but just a reminder, on something Humphrey had mentioned, which is we will have a combined earnings call.

In 2024 on February the 13th will also include the outlook at that point in time.

No shortage of macroeconomic or geopolitical geopolitical risk out there today. It remains top of mind for us as we continue to keep our customers and line of sight or individual employer and institutional customers. We want to continue to align our expenses with our revenues, while also investing and innovating to better meet the needs of our customers to Bottomline ice.

Suneet Kamath: But as we said, during the strategic reviews outcome, we're committed to returning capital through both share of buyback, through increased dividends and targeting our 40% payout ratio, but also investing in these organic businesses knowing that most of those businesses deployments would be in our fee businesses. And having said that, we still look for opportunities in spread where it's where it's appropriate, but I'll have to add some additional comments. Yeah, thanks Josh for the question.

Still remain very optimistic about our ability to create value for our customers and shareholders on a go forward basis I appreciate your time today.

Thank you.

Thank you. This does conclude today's conference call you may disconnect. Your lines at this time and we thank you for your participation.

Suneet Kamath: You know, we came out of the strategic review and really committed to that 75 to 85% free cash flow ratio and we managed to make sure that we're within that. You know, we were happy to be able to raise our dividend one cent last quarter and two cents this quarter and as you're aware that has been on pause since our strategic review, as we wanted to understand the impact on our earnings level.

[music].

Suneet Kamath: And then as you know, also in 2022, the markets were pretty negative and so we needed to understand how we could get through that as well. You know, we did have a few one timers in the quarter that did help our our free capital flow. They netted to about a hundred hundred million dollar positive impact. The two most notable one is the admittance of the negative IMR, but that was partially offset by the AR tax impact that we talked about.

Yeah.

Yes.

[music].

Yeah.

[music].

Suneet Kamath: And so again, you know, feel really good about the ability to increase our common stock dividend increase our share by back expectation and put us on track for a $1.3 billion of capital return to our shareholders for the full year of 2023. I don't think what we're seeing this year is an abnormally and ultimately still stay focused on that 75 to 85% free cash flow conversion. And if I think, you know, a lot of times people think that equity markets or equity businesses compounded at 78% annual compounding rate.

Yes.

Yeah.

Yes.

[music].

Yes.

[music].

Suneet Kamath: If I apply that to growing your cash flow, I assume you don't think you're going to be worse than that. I know things don't move in a straight line, but it's not unreasonable, I guess, to think about that in most quarters, we should see a dividend hike. If things are working the way you hope they will, is that a wrong way to think about things? Yeah, I mean, obviously the markets can have some fluctuation on that, but I think you can even go back to prior to the transaction and look at our trend of dividend increases, and we did have a consistent pattern of increases.

Suneet Kamath: You know, the other thing I would say is we have high growth operations in our specialty benefits business, we have high growth expectations in our international business. And, you know, I come back to the fact that, you know, we have, we think we can deliver nine to 12% EPS growth. That won't always be at that level, there'll be some years where it's slightly lower, some years where you might benefit more from macro.

Suneet Kamath: But again, I come back to strong free cash flow, we are committed to being a growing company, and we are committed to returning that growth back to our shareholders. And ultimately in pressured time, because of our diversified model, relative to pure asset managers, we're actually able to have consistent dividends versus a lot of volatility. So I like the pattern and the consistency, and as you say over the long term, you're right, we should be able to increase that dividend and return to our shareholders.

[music].

Good morning, and welcome to the principal financial Group third quarter 2023 financial results Conference call.

There will be a question and answer period. After the speakers have completed their prepared remarks.

If you would like to ask a question at that time simply press Star then the number one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

Ask that you'd be respectful of others and limit your questions to one and a follow up so we can get to everyone in the queue.

I'd now like to turn the conference call over to Humphrey Lee Vice President of Investor Relations.

Thank you and good morning, welcome to principal financial group's third quarter 2023 conference call.

As always materials related to today's call are available on our website at investors principal dot com.

Following a reading of our safe Harbor provision.

Oh, Dan Houston, and CFO, Deanna <unk> will deliver some prepared remarks.

We will then open up the call for questions.

Other members of senior management will also be available for Q&A.

Some of the comments made during this conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act.

The company does not revise or update them to reflect new information subsequent events or changes in strategy.

Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures.

Reconciliations of the non-GAAP financial measures to the most directly comparable U S. GAAP financial measures maybe found in our earnings release.

Financial supplement and slide presentation.

We will be hosting a combined fourth quarter 2023 earnings and 2024 hour call on February 13th.

We will share more details early in next year.

Dan Thanks, Humphrey and welcome to everyone on the call.

Our diversified and increasingly integrated business model as well as our leading and differentiated position in the U S. Small to mid size business market contributed to a strong quarter.

<unk>, excluding significant variances earnings per share increased 14% over the third quarter of 2020 to the.

The synergies between our businesses increasingly integrated offering and the value of our distribution and joint venture partnerships continue to unlock value for our customers and shareholders.

Our strong capital position enabled us to complete $200 million of share repurchases in the third quarter and to increase our dividend.

Suneet Kamath: Thanks for the questions, Josh. Thank you. We have reached the end of our Q&A, Mr. Halson, your closing comments, please. And I apologize, it sounds like we may have a bad line here. All these questions didn't come in perfectly clear today, but just a reminder on something Humphrey had mentioned, which is we will have a combined earnings call in 2024 on February the 13th will also include the outlook at that point time.

Which ended the quarter over $650 billion total company managed net cash flow improved from the second quarter benefiting from strong net cash flow in principal international improved institutional flows in principal global investors and strong general account flows.

With $2 $1 billion of net outflows in the quarter, we performed better than many active asset managers as a percentage of beginning AUM.

This is evidenced by the nearly one trillion dollars of industry flows into money market funds year to date and approximately seven trillion dollars of AUM in money market funds across the industry.

Suneet Kamath: There's no shortage of macroeconomic and geopolitical risk out there today. It remains top of mind for us as we continue to keep our customers in line of sight, our individual employer and institutional customers. We want to continue to align our expenses with our revenues, while also investing and innovating to better meet the needs of our customers. The bottom line I still remain very optimistic about our ability to create value for our customers and shareholders on go forward basis. Appreciate your time today. Thank you. This does conclude today's conference call. You may disconnect your line at this time, and we thank you for your participation. [inaudible] . .

Unknown Executive: Good morning and welcome to the Principal Financial Group, 3rd, quarter, 2023 Financial Results Conference Call. There will be a question and answer for you after the speakers have completed their prepared remarks. If you would like to ask a question at that time, simply press star and then the number one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. We would ask that you be respectful of others and limit your questions to one and a follow-up, so we can get to everyone in the queue.

We're well positioned and have the right strategies as interest rates stabilize and investors reallocate back into risk based assets like our specialty income solutions.

Unknown Executive: I would now like to turn the conference call over to Humphrey Lee, Vice President of Investor Relations. Thank you and good morning. Welcome to Principal Financial Group's 3rd, quarter, 2023 Conference Call. As always, materials related to today's call are available on our website at investors.principote.com. Following a reading of a safe harbor provision, CEO Dan Houston and CFO Deanna Strable will deliver some prepared remarks. We will then open up the call for questions.

This was nearly double our real estate flows in the first half of the year and demonstrates the confidence our clients have in our differentiated capabilities in this asset class.

As discussed last quarter, we have a strong pipeline of committed yet unfunded real estate mandates currently over $6 billion that we will put to work opportunistically.

Looking at asset management in total we are aware of two large institutional outflows of similar size that will impact net cash flow by approximately $5 billion in total.

One client is planning to take the funds in house, while the others moving to a passive option. We expect one of the outflows to occur in the fourth quarter and the other early in the first quarter of 2024 and principal International we ended the quarter with $168 billion of total reported AUM. This reflected strong retire.

Unknown Executive: Other members of senior management will also be available for Q&A. Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Security's litigation reform act. The company does not revise or update them to reflect new information, subsequent events, or changes in strategy. Risk and uncertainties that could cause actual results to different materially from those expressed or implied are discussed in the company's most recent annual report on Form 10K filed by the company with the U.S. Securities and Exchange Commission.

Net cash flow in Latin America, including $1 billion in Brazil.

Unknown Executive: Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures. Regulations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures may be found in our earnings release, financial supplement, and slide presentation.

<unk>, our joint venture with Banco do Brazil remains the market leader in both AUM and deposits with nearly 30% market share as a reminder, net cash flow in Brazil tends to be seasonally stronger than the first and third quarter each year.

Deanna Strable: We will be hosting a combined fourth quarter 2023 earnings and 2024 outlook call on February 13th. We will share more details earlier next year. Then, thanks, Humphrey, and welcome to everyone on the call. This morning I'd like to share key aspects of our third quarter financial results and some notable performance highlights. The Anna will follow with additional details and an update on our current financial and capital position. Our diversified and increasingly integrated business model, as well as our leading and differentiated position in the U.S, small to mid-sized business market, contributed to a strong quarter.

We continue to have great confidence in the global asset management opportunity.

And our ability to deliver global and local investment capabilities and client support across more than 80 markets.

Deanna Strable: Across the enterprise, we continue to balance investing for growth in our businesses with disciplined expense management. Starting on slide three, healthy sales growth across our businesses and strong underwriting results drove reported non-GAAP operating earnings of $420 million or $1.72 per diluted share in the third quarter. Excluding significant variances earnings per share increased 14% over the third quarter of 2022. The synergies between our businesses increasingly integrated offering and the value of our distribution and joint venture partnerships continued to unlock value for our customers and shareholders.

As part of our efforts to invest for growth. We have added two new highly regarded investment leaders George Marris from Janus Henderson CIO of equities and Michael Goose <unk> from Goldman Sachs as CIO of fixed income both our proven investment leaders with specialized global expertise that complements our robust investment.

And we will further build upon our experienced team of nearly 900 investment professionals. We will also be announcing a new leader of Latin America in the coming days to drive our businesses across Brazil, Chile and Mexico.

Deanna Strable: Partners. During the quarter, we delivered on our capital deployment strategy, investing for growth in our businesses and returning more than $350 million of capital shareholders to share repurchases and common stock dividends. Our strong capital position enables us to complete $200 million of share repurchases in the third quarter and to increase our dividend. After a strong start to the year, equity markets retreated in August and September, foreign currency tailwinds in the first half of the year reversed in the third quarter as the US dollars strengthened on growth and higher yields in the US, outpacing much of the rest of the world.

Turning to U S retirement account value net cash flow was positive in the third quarter.

Total <unk> sales grew 30% and fee based transfer deposits increased 78% compared to a year ago. We.

We had two large retirement plan sales in the quarter, which contributed $3 billion to sales and transfer deposits.

As a reminder, sales and lapses in large planned segment can impact net cash flow significantly quarter to quarter.

Deanna Strable: These macro economic dynamics impacted our total company managed to AUM, which ended the quarter over $650 billion. Total company managed net cash flow improved from the second quarter, benefiting from strong net cash flow and principal international improved institutional flows and principal global investors and strong general account flows. With $2.1 billion of net outflows in the quarter, we perform better than many active asset managers as a percentage of beginning AUM. The current volatile markets are a challenge for the asset management industry and the aggressive interest rate hikes over the last 18 months have continued to make cash and money market funds highly attractive.

<unk> segment continues to be strong and has proven resilient as employment and wages remain healthy looking ahead, we expect elevated lapses and negative net cash flow in the fourth quarter.

System with historical trends, we typically see plans change providers at year end, while we generate onboard new plans in the first quarter.

Deanna Strable: This is evidenced by the nearly $1 trillion of industry flows into money market funds year-to-date and approximately $7 trillion of AUM and money market funds across the industry. We are well positioned and have the right strategies as interest rates stabilize and investors reallocate back into risk-based assets like our specially income solutions. Despite continued pressure in the real estate sector, we generated $800 million of positive real estate net cash flow in the quarter as institutional investors are starting to put money to work and select real estate strategies.

On a full year basis, we expect sales and transfer deposits would be higher than 2022 levels and we have good momentum heading into 2024.

Deanna Strable: This was nearly double our real estate flows in the first half of the year and demonstrates the confidence our clients have in our differentiated capabilities in this asset class. We have several real estate opportunities boosting our optimism for the coming quarters. We expect additional funding in the fourth quarter and our new data center fund and our China real estate joint venture. As discussed last quarter, we have a strong pipeline of committed yet unfunded real estate mandates, currently over $6 billion that we'll put to work opportunistically.

22% and outpaced the run off of the legacy business IMAX.

Im excited about the growth opportunities across the enterprise and confident that our focus on high growth markets combined with our integrated product suite and.

And distinct set of distribution partnerships will continue to drive value for our customers and our shareholders at our core we are focused on providing individuals' businesses communities and markets with access to financial tools from products and guidance and today, we know the demand for this kind of knowledge and support is significant.

Deanna Strable: Looking at asset management in total, we are aware of two large institutional outflows of similar size that will impact net cash flow by approximately $5 billion in total. One client is planning to take the funds in-house while the other is moving to a passive option. We expect one of the outflows to occur in the fourth quarter and the other early in the first quarter of 2024. In principle, international, we ended the quarter with $168 billion of total reported AUM.

To stay in touch with customer trends around the globe, we regularly take a step back and consider the state of the foundation upon which our industry has built one example of trends we're seeing comes to life in the global financial inclusion Index, a global study sponsored by principal assessing the state of financial inclusion worldwide, We released our second year.

Finding earlier this month identifying a continued and persistent need for financial service companies employers and governments to continue to work together to help more people feel prepared to fully participate in building long term financial security.

Deanna Strable: This reflected strong retirement net cash flow in Latin America, including $1 billion in Brazil. Brazil, Proud, our joint venture with Banquet of Brazil, remains the market leader in both AUM and deposits with nearly 30% market share. As a reminder, net cash flow in Brazil tends to be seasonally stronger in the first and third quarter each year. We continue to have great confidence in the global asset management opportunity and our ability to deliver global and local investment capabilities and client support across more than 80 markets.

Before turning it over to Deanna I'd like to highlight some recognition. We recently received Forbes recently recognized principal on its list of best employers for women in the U S and one of America's most cyber secure companies. We also achieved the top score on the 2023 disability equality index from disability in.

And in Chile, most innovative companies are local innovation consulting group recently awarded Cooper them in principle as the most innovative company in both the AFP and asset management categories.

Deanna Strable: As part of our efforts to invest for growth, we have added two new highly regarded investment leaders, George Maris from Janice Henderson as CIO of equities and Michael Goose from Goldman Sachs as CIO fixed income. Both are proven investment leaders with specialized global expertise, that complement our robust investment capabilities and will further build upon our experience team of nearly 900 investment professionals. We'll also be announcing a new leader of Latin America in the coming days to drive our businesses across Brazil, Chile, and Mexico.

Recognition like this helps us benchmark progress attract and retain talent and stand out in the marketplace Dana.

We reported net income of $1 $2 billion in the third quarter, reflecting more than $700 million of income from exited businesses.

Deanna Strable: Turning to U.S, retirement, account value, net cash flow, with positive in the third quarter. Total RIS sales grew 30% and fee-based transfer deposit to increase 78% compared to year ago. We had two large retirement plan sales in the quarter, which contributed $3 billion to sales and transfer deposits. As a reminder, sales and lapses in large plan segment can impact net cash flow significantly quarter to quarter. Total reoccurring deposits increased over the third quarter of 2022, driven by a 7% increase in the SMB segment.

Excluding the income from exited businesses net income was $544 million with minimal credit losses of $6 million. We also had minimal impacts from credit dressed in the third quarter year to date total credit drift and losses were a manageable $41 million, which is better than our expectation at the beginning.

Deanna Strable: This was partially offset by the impact on deposits from large plan lapses earlier this year. As well as lower defined benefit plan deposits given the full funding status of these plans. The SMB segment continues to be strong and has proven resilient as employment and wages remain healthy. Looking ahead, we expect elevated lapses and negative net cash flow in the fourth quarter. Consistent with historical trends, we typically see plans change providers at year end while we generally onboard new plans in the first quarter.

Of the year.

Excluding significant variances third quarter non-GAAP operating earnings were $446 million or $1 83 per diluted share.

<unk> increased 14% over the third quarter of 2022, demonstrating the strength and resiliency of our diversified business model.

On a year to date basis EPS, excluding significant variances has increased 5% over 2022 compared to our 3% to 6% guided range.

Deanna Strable: On a full year basis, we expect sales and transfer deposits to be higher than 2022 levels, and we have good momentum heading into 2024. We remain focused on driving profitable growth in RIS, leveraging our leading market position and full suite of retirement and workplace solutions. In specialty benefits, strong sales, retention, employment, and wage growth contributed to an 8% growth in premium and fees over the third quarter of 2022. Attractive segments within the SMB market remain under penetrated, and we are confident in our ability to target these segments with a meaningful value proposition to aid in continuing to deliver above market growth.

The significant variances included impacts from the actuarial assumption review lower than expected variable investment income in RIS life, and corporate as well as impacts in principal international including lower than expected <unk> performance and better than expected impacts of inflation.

The assumption review had a net positive $63 million impact on pre tax operating earnings. This is primarily driven by experience adjustments in RIS in specialty benefits, including updates to PRT mortality assumptions group and individual disability morbidity assumptions as well as model refinements in la.

Deanna Strable: In life, our strategy is working as a business market premium and fees grew 24% over the third quarter of 2022 and outpace the runoff of the legacy business. I'm excited about the growth opportunities across the enterprise and confident that our focus on high growth markets combined with our integrated product suite and distinct set of distribution partnerships will continue to drive value for our customers and our shareholders. At our core, we're focused on providing individuals, businesses, communities, and markets with access to financial tools, products, and guidance, and today we know that demand for this kind of knowledge and support is significant.

Life.

The after tax impact was a negative $6 million as a pre tax benefit was more than offset by a one time tax impact, resulting from our PRT tax reserve methodology change.

Alright, awesome life's third quarter pre tax operating earnings excluding significant variances reflect the run rate impact from the assumption review.

There are no material run rate impacts in specialty benefits.

Deanna Strable: To stay in touch with customer trends around the globe, we regularly take a step back and consider the state of the foundation upon which our industry is built. One example of trends we're seeing comes to life in the global financial inclusion index, a global study sponsored by principal assessing the state of financial inclusion worldwide. We released our second year finding earlier this month, identifying a continued and persistent need for financial service companies, employers, and governments to continue to work together to help more people feel prepared to fully participate in building long term financial security.

Deanna Strable: Before turning it over to Deanna, I'd like to highlight some recognition we recently received. Forbes recently recognized Principal on its list of best employers for women in the US and one of America's most cyber secure companies. We also achieved the top score on the 2023 Disability Equality Index from Disability Inn. And in Chile, most innovative companies, a local innovation consulting group, recently awarded Cooperum and Principal as the most innovative company in both the AFP and asset management categories. Recognition like this helps us benchmark progress, attract, retain talent, and stand out in the marketplace.

Exchange rates were a slight headwind on a quarterly basis relative to the second quarter.

A slight tailwind compared to the third quarter of 2022 and immaterial on a trailing 12 month basis.

And I asked benefits from strong expense management as well as favorable equity market performance and higher interest rates were partially offset by fee compression.

Excluding significant variances net revenue increased 4% compared to a year ago and margin was strong at 39%.

Deanna Strable: Deanna? Thanks, Dan. Good morning to everyone on the call. This morning, I will share the key contributors to financial performance for the quarter, details of our current financial and capital position, and an update on our commercial mortgage loan portfolio. We reported net income of $1.2 billion in the third quarter, reflecting more than $700 million of income from exited businesses. This benefit was primarily due to a change in the fair value of the funds withheld embedded derivative, which doesn't impact our capital or free cash flow and can be extremely volatile quarter to quarter.

<unk> benefited from real estate performance fees in the quarter driving a 6% increase in revenue over the third quarter of 2022 and improve the margin to 39%.

Specialty benefits pre tax operating earnings excluding significant variances increased 32% over the year ago quarter.

This was fueled by growth in the business strong long term disability underwriting experience and lower group life mortality.

The third quarter adjusted margin was strong at over 17%, which was more than 300 basis points higher than the third quarter of 2022.

As we look to the fourth quarter I want to remind you that our enterprise compensation and other expenses are typically higher due to the seasonality of certain expenses.

We expect less of an impact this fourth quarter than the typical 7% to 10% as we're focused on managing expenses in the challenging and volatile macro environment.

Shifting to our investment portfolio. It remains high quality aligned with our liability profile and well positioned for a variety of economic conditions.

We revalued the office real estate portfolio again in the third quarter.

Deanna Strable: On a year-to-date basis, EPS excluding significant variances has increased 5% over 2022 compared to our 3-to-6% guided range. As detailed on slide 11, significant variances impacted our third quarter non-gap operating earnings by a net positive $40 million pre-tax, a net negative $27 million aftertax, and 11 cents per diluted share. The significant variances included impacts from the Actuarial Assumption Review lower than expected variable investment income in RAS Life Incorporate, as well as impacts in Principal International, including lower than expected in Cahay Performance and better than expected impacts of inflation.

The commercial mortgage loan portfolio remains healthy the current loan to value and debt service coverage ratios are strong at 47% and two five times.

Looking ahead to 2024 office maturities the underlying metrics are strong with a 63% loan to value and debt service coverage ratio of three eight times.

We are confident in the outcome of the 11 maturities in 2024 of which only three are slated for the first half of the year.

Turning to capital and liquidity, we are in a strong position with $1 $4 billion of excess and available capital, which reflects the benefit of negative INR and includes approximately $940 million at the holding company, which is above our $800 million targeted level $360 million.

Deanna Strable: The Assumption Review had a net positive $63 million impact on pre-tax operating earnings. This was primarily driven by experience adjustments in RAS and specialty benefits, including updates to PRT mortality assumptions, group and individual disability morbidity assumptions, as well as model refinements in life. The aftertax impact was a negative $6 million as the pre-tax benefit was more than offset by a one-time tax impact resulting from a PRT tax reserve methodology change. RAS and Life's third quarter pre-tax operating earnings, excluding significant variances, reflect the run rate impacts from the Assumption Review.

Our subsidiaries and $50 million in excess of our targeted 400% risk based capital ratio.

We returned more than $350 million to shareholders in the third quarter, including $200 million of share repurchases and $156 million of common stock dividends.

Last night, we announced a 67 common stock dividend payable in the fourth quarter. This is a two cent increase and aligns with our targeted 40% dividend payout ratio.

Deanna Strable: There are no material run rate impacts and specialty benefits. In total, variable investment income was positive for the quarter and improved from the first half of the year, but it was lower than our run rate expectation. While VI benefited from improvement in real estate sales and alternative investment returns, prepayment fees remain immaterial. Looking at macroeconomics in the third quarter, the S&P 500 daily average increased 6% from the second quarter and 12% from the third quarter of 2022, benefiting third quarter results in our fee-based businesses.

Combined with common stock dividends, we now expect to return $1 $3 billion of capital to shareholders for the full year.

Deanna Strable: While the daily average increase markets retreated in the second half of the quarter, the S&P 500 closed nearly 4% lower than the second quarter and fixed income returns were negative as well. This impacts revenue earnings and margins for our fee-based businesses. Foreign exchange rates were a slight headwind on a quarterly basis relative to the second quarter, a slight tailwind compared to the third quarter of 2022 and immaterial on a trailing 12 month basis.

We remain focused on maintaining our capital and liquidity targets at both the life company and the holding company and we will continue our balanced and disciplined approach to capital deployment.

We are committed to maximizing our growth drivers are retirement global asset management and benefits and protection, which will continue to deliver long term growth for the enterprise and long term shareholder value.

This concludes our prepared remarks, operator, please open the call for questions.

Thank you at this time I would like to remind everyone that to ask a question press Star and then the number one on your telephone keypad.

Pause for just a moment to compile the Q&A roster.

Deanna Strable: In RIS benefits from strong expense management as well as favorable equity market performance and higher interest rates were partially offset by fee compression, excluding significant variances net revenue increased 4% compared to a year ago and margin was strong at 39%. PGI benefited from real estate performance fees in the quarter, driving a 6% increase in revenue over the third quarter of 2022 and improved the margin to 39%. Specially benefits pre-tax operating earnings, excluding significant variances increased 32% over the year ago quarter.

Our first questions come from the line of Brian Kruger with K VW. Please proceed with your questions.

Hey, Thanks. Good morning. My first question was on real estate and you mentioned a couple of real estate opportunities that you have some visibility on.

I guess my question is you did $800 million in real estate flows in the quarter do you think that type of pace.

More reasonable now as we move forward or can you give any more color on your expectations there.

Yes, Ryan good morning, Thanks for the question I'm going to have Pat respond to that in just a minute here, but I also wanted to let everyone know that we have invited <unk> to join us for our Q&A combo as global head of investments for principal asset management, who reports directly to path and we will also participate in responding to questions on pgi on.

Deanna Strable: This was fueled by growth in the business, strong long-term disability underwriting experience and lower group life mortality. The third quarter adjusted margin was strong at over 17%, which was more than 300 basis points higher than the third quarter of 2022. As we look to the fourth quarter, I want to remind you that our enterprise compensation and other expenses are typically higher due to the seasonality of certain expenses. We expect less of an impact this fourth quarter than the typical 7 to 10% as we're focused on managing expenses in the challenging and volatile macro environment.

Earnings calls going forward, so with that we'd like to take that question. Please yeah. Ryan. Thanks for the question as you highlighted the third quarter. We did have a $800 million net cash flow in real estate that was from predominantly institutional marketplace and that was double the prior quarter in terms of net cash flow.

To your question, we continue to see a an active pipeline and an active opportunity to selectively deploy the $6 billion of committed cap.

Capital that has not been invested yet in our pipeline.

As we look forward and I would expect in the fourth quarter to continue to see a very consistent.

And pace like we saw in the third quarter in terms of the real estate net cash flow Ryan.

Great. Thanks, and then on the two outflows totaling $5 billion that you mentioned.

What type of funds or what type of it.

Asset classes are those days.

Deanna Strable: Looking ahead to 2024 office maturities, the underlying metrics are strong with a 63% loan to value and debt service coverage ratio of 3.8 times. We are confident in the outcome of the 11 maturities in 2024 of which only three are slated for the first half of the year. Turning to capital and liquidity, we are in a strong position with $1.4 billion of excess and available capital which reflects the benefit of negative IMR and includes approximately $940 million at the holding company, which is above our $800 million targeted level.

Yes, Thanks, Brian.

As Dan mentioned, we do have two large one time outflows that we expect to see in the late fourth quarter of 2023 and in the early first quarter of 2020 for the first one is a preferred securities mandate.

Who is with a large client who is merging multiple strategies into one larger sort of portfolio.

The second is a very large.

Large cap equity mandate with a client that has opted to move to a passive strategy.

Deanna Strable: $360 million in our subsidiaries and $50 million in excess of our targeted 400% risk-based capital ratio. We return more than $350 million to shareholders in the third quarter, including $200 million of sharey purchases and $156 million of common stock dividends. Last night, we announced a 67-cent common stock dividend payable in the fourth quarter. This is a two-cent increase in aligns with our targeted 40% dividend payout ratio. Given our current capital position and strong-free capital flow, we are increasing our full-year sharey purchase expectation to approximately $700 million, $100 million higher than previously expected.

Just in terms of probably the natural question is what is the sort of the combined combined earnings loss impact of these two large mandates.

Proximately $10 million without offsetting expense adjustments, we considered as we go forward. We've also taken a look Ryan at our just overall portfolio. If there are any other one time, how close that we expect.

We look forward into 2024, and we have not noted any other ones at this point in time.

We reviewed the overall portfolio and our client base.

So Ryan and perhaps the only thing I might add to that I don't that pressure on that preferred securities mandate. They took that in house in spite of very strong performance from our preferred spectrum asset management. So again as it was a tough loss gross especially considering the strong performance.

Deanna Strable: Combined with common stock dividends, we now expect to return $1.3 billion of capital to shareholders for the full-year. We remain focused on maintaining our capital and liquidity targets at both a life company and the holding company, and we'll continue a balanced and disciplined approach to capital deployment. We are committed to maximizing our growth drivers of retirement, global asset management, and benefits and protection, which will continue to deliver long-term growth for the enterprise and long-term shareholder value.

Yeah.

Next question operator.

Thank you our next questions come from the line of Jimmy <unk> with J P. Morgan. Please proceed with your questions.

Hey, good morning, so first per berth.

<unk> performance. These are very strong in the third quarter and if you could just give us some color on what drove that and what your outlook is.

Either over the next quarter or over the next year, because I would've thought that performance fee.

Operator: This concludes our prepared remarks. Operator, please open the call for questions. Thank you. At this time, I would like to remind everyone that to ask a question, press star, and then the number one on your telephone's keypad. We'll pause for just a moment to compile the Q&A roster.

Suffered in this type of an environment, but obviously the quarterly number was very good.

Thanks, Jimmy for the question.

Jamie Thanks for the question is as you've heard me in prior comments, we always have a large pipeline of different investments that are at different stages of maturity in terms of harvesting gains.

Our performance fees and as you can imagine for pharmacies are relatively lumpy, depending on market conditions and when we can optimize the actual sort of.

Ryan Krueger: Our first questions come from the line of Ryan Krueger with KBW. Please proceed with your questions. Hey, thanks good morning. My first question was on real estate, and you mentioned a couple real estate opportunities that you have some visibility on. I just guess the question is you did 800 million in real estate flows in the quarter. Do you think that type of pace is more reasonable now as we move forward? Can you give any more color on your expectations there?

Hopefully alpha generation that we see in the real estate portfolios that we're managing we did have a $22 million gross performance fee in the third quarter.

That was in two different.

<unk> transactions.

As we as we look forward.

We probably think that the first half of the year, where we saw performance fees, which are muted, we'll probably see that in the fourth quarter, but I would suggest to you that as we look into 2024, if the market conditions.

Ryan Krueger: Yeah, Ryan, good morning. Thanks for the question. I'm going to have Pat respond to that in just a minute here, but I also want to let everyone know that we've invited Kamal Bakeda to join us for our Q&A Kamal as global head of investments for, first of all, asset management reports directly to Pat, and we'll also participate in responding to questions on PGI, on earnings calls, going forward. So with that, Pat, would you like to take that question, please?

Provide an opportunity for us.

Still have confidence that as we've indicated in past discussions that we should expect performance fees to be in the 30 plus million dollars range, which has been a consistent guidance and a consistent realization of where we've seen performance fees.

Ryan Krueger: Yeah, Ryan, thanks for the question. As you highlighted, third quarter, we did have a $80 million net cash flow in real estate. That was from, for now, the institutional marketplace, and that was double the prior quarter in terms of net cash flow. To your question, we continue to see an active pipeline and an active opportunity to selectively deploy the $6 billion of committed capital that has not been invested yet in our pipeline as we look forward.

Probably in the second half of 2024 versus the first half of 2024, but we continue to believe we have a diverse portfolio of different investment strategies that can be harvested in the future years.

Okay. Thanks, and then secondly on RIS.

Net flows into fee business.

You saw some higher lapses this quarter I think you mentioned large surplus lapses.

The wealth platform you bought the acquisition happened several years ago. So I would've thought that by now the shock lapses would've been over but is.

Ryan Krueger: And I would expect in the fourth quarter to continue to see a very consistent pace like we saw in the third quarter in terms of real estate net cash flow, Ryan. Great, thanks. And then on the two outflows, totaling $5 billion that you mentioned, what type of funds are, or what type of asset classes are those days? Please, Pat. Yeah, thanks, Ryan. As Dan mentioned, we do have two large one-time all flows that we expect to see in the late fourth quarter of 2023 and in the early first quarter of 2024.

Is that part is it that or is it is it competition, what's really causing the leak.

The clothes in the fee based business.

And large plans each one of those have different characteristics that can be can be volatile, but most importantly, our continued doubling down on our abilities to create a unique trs solution for defined benefit defined contribution Aesop and nonqualified and certainly we've seen some volatility in these businesses.

Ryan Krueger: The first one is a preferred securities mandate, who is with a large client who is merging multiple strategies into one larger portfolio. The second is a very large capital equity mandate with a client that has opted to move to a pass of strategy. Just in terms of the natural question is, what is the combined earnings loss? In fact, are these two large mandates? It's approximately $10 million without offsetting any expense adjustments we consider as we go forward.

I'd like to think that in large part the integration has taken place and crushers are growing at Premier. So Chris can you. Please respond.

Yes, no. Thanks for the question Jami I think.

I think what you have to keep in mind is that as a result of that.

Ryan Krueger: We've also taken a look right at our overall portfolio. If there are any other one-time all flows that we expect as we look forward into 2024, and we have not noted any other ones at this point in time, as we reviewed the overall portfolio and our client base. So Ryan and Pathy don't think I might add to that. I'll not prefer, you know, not prefer securities mandate. They took that in-house in spite of very strong performance from our preferred spectrum asset management. So again, as it was a tough loss for us, especially considering the strong performance.

Patrick Halter: Next question operator. Thank you.

Something that's going to continue to create a lot of pressure and in fact, we see a very significant and meaningful moderation in contract lapses heading into 'twenty four.

But yes, we definitely are working through that I mean, it from a from a perspective of flows, but we had a positive quarter.

Starting to see the pickup in sales and transfer deposits I mean, if you look at 78% increase in transfer deposits in the quarter SMB was up mid double mid double digits. All of that is really positive and we continue to see those trends continue into the fourth quarter. So.

Jimmy Boulard: Our next question has come from the line of Jimmy Boulard with JP Morgan. Please proceed with your questions. Hey, good morning. So first for Pat at PGI performance fees are very strong in the third quarter. And if you could just give us some color on what drove that and what your outlook is. Either over the next quarter or over the next year because I would have thought that performance would have suffered in this type of an environment, but obviously the quarterly number was very good.

I think yes, we are seeing some lag from more pandemic activity in some of the market volatility that it's really hard to move plans when the market is really volatile.

So I think that's going to pretty much sort out here over the next quarter or so.

Thank you.

Thanks, Jamie.

Thank you our next questions come from the line of Sunni come up with Jefferies. Please proceed with your questions.

Jimmy Boulard: Excuse me for the question, Pat. Thanks for the question. As you heard me in prior comments, we always have a large pipeline of different investments that are different stages of maturity in terms of harvesting gains or performance fees. And as you can imagine, performances are relatively bumpy, depending on market conditions. And when we can optimize the actual sort of hopefully alpha generation that we see in the real estate portfolios that we're managing.

Thanks, Good morning, just for Dana to start on the assumption review.

Any sort of ongoing GAAP impacts that we should expect.

And then similarly is there any sort of either statutory impact from the review or implications from for taxes based on.

That that negative items that showed up in the tax rate.

Yeah, Thanks, Amit for the question.

Jimmy Boulard: We did have a $22 million gross performance fee in the third quarter. That was in two different transactions. As we as we look forward, we probably think that the first half of the year where we saw performance fees which were muted, we'll probably see that in the fourth quarter. But I would suggest to you that as we look into 2024, if the market conditions provide an opportunity for us, we still have confidence that as we've indicated in past discussions that we should expect performance fees to be in the 30 plus million hour range, which has been a consistent guidance and a consistent realization of where we've seen performance fees.

From a run rate perspective, it does cause a slight benefit in RIS, a slight pressure and life.

No impact in SPD I think it is of note, though that those would be reflected in the third quarter run rate.

Operating earnings that we gave you on a pre tax basis. So those have all been.

Kind of factored in as we move to capital.

The tax item did.

Cause a capital hit.

And so that was a known and we had slightly positive offsetting modest.

Positive capital impact that offset a portion of that from the AAR.

Jimmy Boulard: Probably in the second half of 2024 versus the first half of 2024. But we continue to believe we have a diverse portfolio of different investment strategies that can be harvested in the future years. Okay, thanks. And then secondly on RIS net flows in the fee business, you saw some high lapses that go to I think you mentioned large gap lapses on the wealth platform you bought the acquisition happened several years ago.

But ultimately those would be the moving pieces from a tax perspective, no ongoing impact that was a one time impact that really.

Crude up and reverse some credits that we had taken in previous years.

And so no impact as we go forward.

Got it okay. Thanks, and then I guess, maybe for Amy on the disability business. We continue to see really good results not only from from you guys, but other companies.

And I guess I'm, just trying to understand or like to understand how quickly you think this.

Jimmy Boulard: So I would have thought that by now those shock lapses would have been over. But is it part is it that or is it is a competition what's really causing the week flows in the fee business. And Jamie, let me make just a couple really quick comments before handing it over to Chris. First thing I want to do is thank Chris for his leadership and advancing our domestic retirement strategy. It's a challenging environment out there.

Strong strong results will be sort of factored into pricing.

And that would occur at some point, but I just want to get a sense of from a timing perspective, what the glide path looks like thanks.

Amy Please yeah, yeah. So let me I'll give you my perspective on this and it's going to vary a bit by kind of the how your block is made up but if you have them.

Most of your block, which we do and an ability to kind of annually re rate.

Jimmy Boulard: He's done an amazing job recruiting talent from the industry and leveraging our existing talent. Our focus still remains on small mid and large plans, each one of those have different characteristics that can be can be volatile. But most importantly are continuing doubling down on our abilities to create a unique TRS solution for define benefit, define contribution, ESOP and not qualified. And certainly we've seen some volatility in these businesses, but I'd like to think that in large part.

Out there in the industry and the economy are good for the economy, and we know that it's good for our future growth rates. If we continue to put that in so what I would say, though is it does take a little bit of time for that to catch up you do something differently with your in force block versus your new business pricing. So I would guess as we come out through 'twenty.

Jimmy Boulard: The integration has taken place and Chris is growing it from here. So Chris, can you please respond. Yeah, no, thanks for the questions. I mean, I think I think which has to keep in mind is that as a result of the pandemic and some of the market volatility, that has probably dampened some of the bid activity. And we certainly have seen an uptick and bid activity across the industry as we've gotten into 23.

<unk> and into 2024, you would still see even us.

Slowly kind of moving that into our enforced or new case pricing, but it will I mean.

In a well run business it will get back into pricing so that it can benefit the growth of the whole industry.

Jimmy Boulard: So I don't think it's something that's going to continue to create a lot of pressure. And in fact, we see a very significant and meaningful moderation in contract lapses heading into 24. But yeah, we definitely are working through that. I mean, from a from a perspective of flows, we had a positive quarter. And we're starting to see the pickup and sales and transfer deposits. I mean, if you look at 78% increase in transfer deposits in the quarter, SMB was mid double, mid double digits.

The other point I would say, though is that you do it does matter the composition of your block. So for example, our block is about 70% what we would consider knowledge workers. So those knowledge workers theyre going to have really great options in terms of when you think of claims recovery in terms of hybrid.

Note working options. So if you've got more of your block of business in those knowledge industries your ability to consistently move that into your block the benefits of that into your pricing and into your results are going to be higher than if you have a lot more than like retail or manufacturing sectors. So the composition of your of your block.

Jimmy Boulard: All of that is really positive. And we need to see those trends continuing to the fourth quarter. So, you know, I think yes, we are seeing some lag from more pandemic activity and some of the market volatility that's really hard to move plans when the markets really volatile. So, you know, I think we're that's going to pretty much sort out here over the next quarter or so. Thank you.

Christopher Littlefield: Thanks, Jimmy. Thank you.

Matters, the ratable nature, whether you've locked in multi year rate guarantees matters, and it's going to factor into everybody's ability to grow that helps any.

It does thank you so much.

Suneet Kamath: Our next questions come from the line of Suneet Kamath with Jeffries. Please proceed with your questions. Thanks. Good morning. Just for Deanna to start on the assumption review, any sort of ongoing gap impact that we should expect and then similarly, is there any sort of either statutory impact from the review or implications from for taxes based on that negative item that showed up in the tax rate? Yeah. Thanks, Suneet, for the question.

I appreciate the question.

Thank you our next questions come from the line of Alex Scott with Goldman Sachs. Please proceed with your questions.

Hi, I wanted to see if you could talk a bit about the margins and just the sustainability of margins that are running at a pretty nice level, just partly probably driven by the recovery in <unk> over the last couple of quarters or few quarters.

<unk>.

How should we think about your ability to hold onto some of that and kind of keep the flexibility of our some of the pressures from.

Suneet Kamath: You know, from a run rate perspective, it does cause a slight benefit in RIS, a slight pressure in life, no impact in SPD. I think it is of no though that those would be reflected in the third quarter run rate operating arrangements that we gave you on a pre-tax basis so those have all been kind of factored in. As we move to capital, the tax item did cause a capital hit. And so, you know, that was a known and we had slightly positive offsetting modus positive capital impact that offset a portion of that from the AAR, but ultimately those would be the moving pieces.

<unk>, obviously ongoing and so forth and any way to think through that in terms of the more short term targets.

Did you guys communicate.

Yes, Alex.

It was a little garbled there towards the end, but certainly I. Appreciate the question around margins our ability to maintain those margins in the first thing I'll say before handing it over to.

Suneet Kamath: From a tax perspective, no ongoing impact. That was a one time impact that really screwed up and reversed some credits that we had taken in previous years. And so no impact as we go forward. Got it. Okay. Thanks. And then I guess maybe for Amy on the disability business, you know, we continue to see really good results not only from you guys, but other companies. And I guess I'm just trying to understand or like to understand how quickly you think this strong, these strong results will be sort of factored into pricing.

Some degree to make sure that we are again being.

Focused appropriately on growing our businesses are making the appropriate investments while at the same time, taking out unnecessary expenses. So Dan maybe you can sort of anticipate trim. The margins on a go forward basis, Yeah I'll frame. It in total and then Alex if you have some specific businesses that you want to go into a little bit deeper you can bring that up and we can pass on to the.

Appropriate president.

It was a very strong margin quarter across almost all of our businesses.

Suneet Kamath: I would imagine that would occur at some point, but I just want to get a sense of from a timing perspective what the glide path looks like. Thanks. Well, Amy, please. Yeah. So let me, I'll give you my perspective on this. And it's kind of very a bit by kind of the how your block is made up. But if you have most of your block, which we do an inability to kind of annually re rate.

I'd say, we obviously, we're benefiting relative to outlook from some of the early in the year market.

The strength and as you know some of that did retreat as we went through the third quarter and in the fourth quarter.

Other thing I would say is that we did mentioned on the prepared remarks that we do have some seasonality in our expenses, we do expect that to be less than typical but you will see some impact on fourth quarter margins from that as well that does impact all businesses with a slightly larger impact in our retire retirement business, but I think the good news.

Suneet Kamath: I think that those the re rateable nature of that business is going to mean that we pass on that good performance relatively quickly work. I will say we're pretty committed to making sure that when we've got good performance, we're putting that back into our rates. We know that that's good for customers. We know more income protection products out there in the industry and in the economy are good for the economy. And we know that it's good for our future growth rates if we continue to put that in.

Is is is bringing us back to the full year.

We do.

Still feel really good about our targeted margins.

And ultimately we will be laying out kind of our expectations for 2024, and our February outlook call, but.

Suneet Kamath: So what I would say though is it does take a little bit of time for that to catch up. You do something differently with your enforced block versus your new business pricing. So I would guess as we come out through 23 and into 2024, you would still see even us, you know, slowly kind of moving that into our enforce or new case pricing. But it will, I mean, in a well run business, it will get back into pricing so that it can benefit the growth of the whole industry.

We continue to be very targeted and focused on maintaining those margins and doing what we need to do to keep us in those levels.

Okay, a follow up Alex.

Yes, the follow up I had is on Pgi I wanted to ask about just the broader industry pressure that active asset management facing and what are the.

Our outages that you all are deploying too to be able to sort of resist some of those pressures.

Suneet Kamath: The other point I would say though is that you do, it does matter the composition of your block. So for example, our block is about 70% what we would consider knowledge. Workers. So those knowledge workers are going to have really great options in terms of when you think of claims recoveries, in terms of hybrid or remote working options. So if you've got more of your block of business in those knowledge industries, your ability to consistently move that into your block, the benefits of that into your pricing and into your results are going to be higher than if you have a lot more in like retail or manufacturing sectors.

Anything nuance that you're working on there to.

Suneet Kamath: So the composition of your of your of your block block matters, the re-radable nature, whether you've locked in multi-year rate guarantee matters, and it's going to factor in to everybody's ability to grow. Help Suneet? It does. Thank you so much. Appreciate the question.

Help close.

Yes, I'll give you a perspective on where we see client engagement and client sentiment because that's the best measure of.

Where we see the industry going.

I would probably highlight for you two dimensions here, one I think as Dan talked about.

Most investors.

Have been very well rewarded and they're being smart.

Clearly when it comes to achieving their goals by taking less risk and focusing on coupons.

As you know we are getting a lot of interest on our specialty income capabilities and the reason we are seeing more and more of that or are you simply is because a lot of investors are now focusing on total return solutions rather than simply looking at the coupon yield.

Alex Scott: Thank you. Our next questions come from the line of Alex Scott with Goldman Sachs. Please proceed with your questions. Hi. I wanted to see if you could talk a bit about the margins and just the sustainability of margins that are running at a pretty nice level, just partly driven by the recovery in some AUM over the last couple quarters or a few quarters. And, you know, how should we think about your ability to hold on to some of that and, you know, kind of keep the flexibility or some of the pressures from, you know, inflation, you know, obviously ongoing and so forth.

Most of these institutions and including some of our wealth management partners really realized that we are probably at an early Don know for long cycle.

Total return capability with broadly benefit them and that is certainly something we have great performance and great capability on.

The second piece.

You have seen as we continue to do extremely well in our real estate franchise, but we tend to have a lot more conversations in private markets.

Alex Scott: Any way to think through that in terms of the more short-term targets that you guys communicate? Yeah, Alex, it was a little garbled there towards the end, but certainly appreciate the question around margins our ability to maintain those margins. And the first thing I'll say before handing it over to Deanna is, you know, we have an ongoing vigilance around a lining our expenses with our revenues to make sure that we're protecting margin for our investors in extreme markets.

And one of the things that are driving that continued engagement and our confidence in future successes, we have some very very long term strategic relationships.

And as we go through this market cycle.

The higher the work with partners that have exceeded through transition and discovery.

<unk> asset management is well positioned and there are a couple of reasons for it. One is we have this amazing capability to work across public and private markets, which is important during these times. We also have a two understanding between debt and equity and we can offer a full service solution to them and I would highlight that we have.

Alex Scott: It's more challenging, but again, we do try to anticipate this to some degree to make sure that we are again being focused appropriately on growing our businesses and making the appropriate investments while at the same time taking out unnecessary expenses. So the enemy, you can sort of anticipate frame the margins on a go-forward basis. Yeah, I'll frame it in total. And then Alex, if you have some specific businesses that you want to go into a little bit deeper, you can bring that up and we can pass on to the appropriate president.

Continuing excellent culture of client service with some of these large relationships that continue to benefit us. So as you highlighted the active management space.

<unk>.

The stress, but we do have some capabilities that give us high confidence from that perspective.

Alex Scott: You know, it was a very strong margin quarter across almost all of our businesses. You know, I'd say we obviously were benefiting relative to outlook from some of the early in the year market strengths. And as you know, some of that did retreat as we went through the third quarter and into fourth quarter. The other thing I would say is that we did mention on the prepared remarks that we do have some seasonality in our expenses.

And I hope Alex.

Yes, thank you for all the detail.

Okay. Thank you.

Thank you our next questions come from the line of well my Burtis with Raymond James. Please proceed with your questions.

Hey, good morning could you discuss the favorable impacts of mortality on the pension risk transfer business in the quarter.

And whether this is something you would expect to continue.

Yes, I'll have Dan I'll take that one.

Alex Scott: We do expect that to be less than typical, but you will see some impact on fourth quarter margins from that as well. That does impact all businesses with a slightly larger impact in our retirement business. But I think the good news is is bringing us back to the full year. We do still feel really good about our targeted margins. And ultimately we will be laying out kind of our expectations for 2024 in the February outlook call. But we continue to be very targeted and focused on maintaining those margins and doing what we need to do to keep us in those levels.

Yeah.

So obviously over the past few years, we went through the Covid, where we did see some benefit of mortality.

But ultimately as we do every third quarter, we step back and we look at all of our actuarial assumptions and make sure that we are.

Reflecting that in our in our reserve levels, New this year under LD Ti is the fact that this annual actuarial review also applies the fastest fast 60 products, which includes our pension risk transfer products and so again that wouldn't have been something we would have reflected historically in our AAR.

But now are reflecting that one of the things that we have seen is that.

Kamal Bhatia: Yeah, the follow up I had is on PGI, I wanted to ask about just the broad industry pressure that activates that management's facing and what are the strategies that you all are deploying to be able to resist some of those pressures and anything nuance that you're working on there to help close Well, one thing we all know, Alex, there's no shortage of challenges out there in terms of geopolitical risk and economic volatility and extreme interest rates and certainly inflation and I think the right person to tackle this one is commas. So Kamala, you want to provide some insights please?

<unk>, we are not seeing the expected mortality improvement that we had factored into our assumptions and so we true that up and ultimately then increase the mortality expectations on those PRT lives.

And that led to that slightly over $50 million benefit in the PRT.

We arent changing our future mortality assumptions there is a slight benefit in the run rate expectations for AAR, but that was really the driver of what happens.

Okay. Thank you.

The adjusted benefit ratio in specialty benefits was 58%, which was better than your targets and improved four points year over year.

Kamal Bhatia: Thanks, Alex. I'll give you a perspective, Alex, on where we see client engagement and client sentiment because that's the best measure of where we see the industry going. I would probably highlight for you two dimensions here. One, I think as Dan talked about most investors have been very well rewarded and they've been smart particularly when it comes to achieving their goals by taking less risk and focusing on coupon yields. As you know, we are getting a lot of interest on our specialty income capabilities and the reason we are seeing more and more of that recently is because a lot of investors are now focusing on total return solutions rather than simply looking at the coupon yield.

Sounds like the group disability.

Continue to outperform in the near term, but could you go into the other drivers and what we should expect in the coming quarters.

Excellent thanks, while Miami please yeah.

And as you've noted.

Group disability, one is probably.

One of the bigger drivers, that's giving us that overall result.

And again as we've talked a little bit about some of that will continue I do think that third quarter.

Repeatable in terms of when you adjust out the AAR youre looking at that.

46% loss ratio, that's not something that will continue but we will see some improvement from those historical levels.

So I'd say group life is continuing to perform really really well I made a point in an earlier question to talk a little bit about our focus on those knowledge industry I do think that tend to have a little bit of impact in group life as well. So the type of business that you've built over time and the type of patterns you see against that business really do matter and so I.

Kamal Bhatia: Most of these institutions and including some of our well-management partners really realize that we are probably at an early dawn of a long cycle with a total return capability would probably benefit them and that is certainly something we have great performance and great capability on. The second piece as you've seen is we continue to do extremely well in our real estate franchise but we tend to have a lot more conversations on private markets and one of the things that's driving that continued engagement and our confidence in future successes, we have some very, very long tenured strategic relationships.

Good.

Group life to continue to perform pretty well dental has been one that we have been seen.

Little bit more utilization and severity over the last year year and a half since COVID-19. It's been one of those we're trying to kind of find that next normal pattern I do see it beginning to kind of slowly return to those patterns that we used to see prior to Covid, we're always willing to make some modest pricing adjustments to make sure. We're.

Kamal Bhatia: And as we go through this market cycle where there is a desire to work with partners that have experience through transition and discovery, principle asset management is well positioned and a couple of reasons for it. One is we have this amazing capability to work across public and private markets which is important during these times. We also have a true understanding between debt and equity and we can offer a full service solution to them.

Continuing to be good stewards of that line of business, but I would expect to see that to continue to have probably even a little bit better performance than we saw in the trailing 12 months number from that and then our supplemental health line.

Kamal Bhatia: And I would highlight that we have had a continuing excellent culture of client service with some of these large relationships that continue to benefit us. So as you've highlighted, the active management space is stressed but we do have some capabilities that give us high confidence from that perspective. And hope Alexing. Yep, thank you for all the detail. Thank you.

Okay. That's helpful.

Thank you.

Thank you our next questions come from the line of Wesley Carmichael with Wells Fargo. Please proceed with your questions.

Hey, good morning, So last quarter I think you talked about you expected variable investment income to be a little bit below normal levels for the remainder of 2023.

Wilma Burdis: Our next questions come from the line of Wilma Bertis with Raymond James. Please proceed with your questions. Hey, good morning. Could you discuss the favorable impacts of mortality on the pension risk transfer business in the quarter and whether this is something you would expect to continue? Yeah, I'll have Deanna take that one. Thanks. Yeah. So, you know, obviously, over the past few years, you know, we went through the COVID where we did see some benefit of mortality.

Are you still expecting that into the fourth quarter and maybe just if you think that could persist into 2024, when do you expect that turnaround.

As I look forward to the fourth quarter I think you probably it is hard to predict, especially given the volatile market that we have but probably expect to see fourth quarter be closer to <unk> levels. As we sit here today for 2024, I'll defer to more detail on the February outlook.

Wilma Burdis: But ultimately, as we do every third quarter, we step back and we look at all of our actuarial assumptions and make sure that we are reflecting that in our reserve levels. New this year under LDPI is the fact that this annual actuarial review also applies to fast, fast 60 products, which includes our pension risk transfer products. And so, again, that wouldn't have been something we would have reflected historically in our AAR, but but but now are reflecting that.

But I do think it is obvious to understand that as interest rates continue at this high level, we're going to continue to see ongoing pressure from Prepays and it's really the all other all center and real estate that can be volatile quarter to quarter.

Wilma Burdis: One of the things that we have seen is that ultimately, we are not seeing the expected mortality improvement that we had factored into our assumptions. And so, we true that up and ultimately then increase the mortality expectations on those PRT live. And that led to that slightly over $50 million benefit in the PRT. We aren't changing our future mortality assumptions. There is a slight benefit in the run rate expectations for AAR, but that was really the driver of what happened.

Impact related to mortality or what's driving a little bit of the pressure there.

Yeah, the only thing I just.

I want to say before Amy delves into this is what an outstanding job she and her team have done in pivoting from mass retail franchise with the divested businesses the reinsurance agreements.

There is going to be a little volatility there, but this business owner executive solutions in Q business has really been powerful for the organization and really complementary to the entire platform, but Amy you want to take on the loss ratios here, yes, Dan you've hit one of the points I would make about that is that I would say that life business sort of refill.

Wilma Burdis: Thank you. And then the adjusted benefit ratio and specialty benefits of 58 percent, which was better than your targets and improve 4.0 every year. It sounds like the group disability could continue to outperform in the near term, but could you go into the other drivers and what we should expect in the coming quarters? Excellent. Thanks, Wilma. Amy, please. Yeah, so Wilma, as you've noted, the group disability one is probably one of the bigger drivers that's giving us that overall result.

<unk> has been meeting or exceeding our expectations in terms of getting ourselves focused on those business owners really meaningful business owner relationships about 50% of the business that we do in nonqualified in any given quarter is going to be tied into the life insurance business now and when we look at those business owner offers.

Wilma Burdis: And again, as we've talked a little bit about, some of that will continue. I do think that third quarter is not repeatable in terms of when you adjust out the AAR, you're looking at that, you know, almost 46 percent loss ratio. That's not something that will continue, but we will see some improvement from those historical levels. The other piece I would say is group life is continuing to perform really, really well.

They tend to not only purchased life insurance products, but they tend to deepen that relationship across our retirement and asset management franchise as well and so there's a really nice small business relationships for us to be building you've hit the point in terms of the question, which is there have been some things in the last couple of quarters in terms of.

Wilma Burdis: I made a point in an earlier question to talk a little bit about our focus on those knowledge industries. I do think that tends to have a little bit of impact in group life as well. So the type of business that you've built over time and the type of patterns you see against that business really do matter. And so I would expect group life to continue to perform pretty well. Dental has been one that we have been seeing a little bit more utilization and severity over the last year, year and a half since COVID.

Mortality that we've seen a little bit more it's not on the incident side, we're not seeing.

We're not seeing that the number of claims but the severity has been running a little bit hotter than we've seen historically, but that really does attribute the whole difference that is the severity.

Thank you. Thank you.

Thank you our next questions come from the line of Tom Gallagher with Evercore ISI. Please proceed with your questions.

Wilma Burdis: It's been one of those we're trying to kind of find that next normal pattern. I do see it beginning to kind of slowly return to those patterns that we used to see prior to COVID. We're always willing to make some, you know, modest pricing adjustments to make sure we're continuing to be good stewards of that line of business. But I would expect to see that to continue to have probably even a little bit better performance than we saw in the trailing 12 month number from that.

Yeah.

Good morning few questions on the RIS for me Dan.

<unk> highlighted.

As expected net outflows and <unk> in Q4, and I think part of that just seasonal.

Wilma Burdis: And then our supplemental health line. I would continue to expect to see the type of performance that we've seen from that in the past. And then individual disability could also see some of those benefits we've talked about. But I would continue to see it performing consistent with some of those historical levels. Thank you.

Just more more down something a lot better than that still outflows, but.

Not not some of the unusual large jumbo outflows.

Yeah, Tom I appreciate the question I'll have Chris take that one on yes. Thanks, Tom So again as we've seen in the third quarter, we're seeing really good quality pipeline and well positioned for a strong double digit growth in sales and transfer deposit growth across smbs and large throughout the full year, but as Dan mentioned, we do expect to see some elevated loss activity.

Amy Friedrich: Our next questions come from the line of Wesley Carmichael with Wells Fargo. Please proceed with your questions. Hey, good morning. So last quarter, I think you talked about you expected variable investment income to be a little bit below normal levels for the remainder of 2023. Are you still expecting that into the fourth quarter and maybe just if you think that could persist in the 2024 when you expect that to turn around?

I think the hard part about the fourth quarter, it's really difficult to predict Tom it's an active quarter for planned transitions and plan lineup changes and Youre going to plans transition move from December to January So, it's really hard for us to give a lot of clear guidance on that but we expect it to be negative, but we do.

Amy Friedrich: Thanks, Wes, I'll have Deanna take that one. Yeah, I think when you look at 3Q relative to what we saw in first quarter and second quarter, the real improvement came because we did see some real estate sales in the quarter that then transferred into that variable investment income. As I look forward to the fourth quarter, I think you probably, you know, it is hard to predict, especially given the volatile market that we have, but probably expect to see fourth quarter be closer to 1Q and 2Q levels as we sit here today for 2024.

It would be less negative than the year ago, both in terms of dollars and in terms of the withdrawal percentages.

Amy Friedrich: I'll defer to more detail on the February outlook call, but you know, I do think it is obvious to understand that as the interest rates continue at this high level. So we're going to continue to see ongoing pressure from prepays, and it's really the other all sender and real estate that can be volatile quarter to quarter. Thanks, and maybe as a follow up in the individual life business, it seems like that maybe came in a little bit lower expectations, maybe for less couple of quarters or so, so just wondering if there's, you know, an impact related to mortality or what's driving a little bit of the pressure there.

All consistent with how we're really managing the business, which is for profitable growth.

Tom.

That's helpful, Chris and Dan Thanks.

My follow up is <unk>.

Just a fee question on RIS if I.

The calculation I'm doing is probably overly simplified but.

Amy Friedrich: Yeah, you know, the only I just want to say before Amy Dells into this is what an outstanding job she and her team have done and pivoting from that retail franchise with the devastated businesses and reinsurance agreements and there is going to be a little volatility there, but this business owner executive solutions and NQ business has really been powerful for the organization and really complimentary to the entire platform. But Amy, you want to take on the loss issues here.

If I look at the average increase in monthly assets of 3% to 4% and you should've gotten an extra fee day in Q3, and then I look at essentially flat fees for the quarter in Q3 versus <unk>.

That would suggest I would say somewhat higher than normal fee compression or fee pressure.

Sure.

Amy Friedrich: Yeah, Dan, you've hit one of the points I would make about that is that I would say the life business sort of refocus has been meeting or exceeding our expectations in terms of getting ourselves focused on those business owner really meaningful business owner relationships about 50% of the business that we do in non qualified in any given quarter is going to be tied into the life insurance business now. And when we look at those business owner offering they tend to not only purchase life insurance products, but they tend to deepen the relationship across our retirement and asset management franchise as well.

Are you seeing more fee pressure than normal or maybe something with the calculation that we need to adjust thanks.

No. Thanks, Thanks, Tom again, I think throughout the year, we've definitely benefited from equity markets that pushed our fee rate around 40 bps last few quarters, but as we're seeing the compression emerge it's emerging in line with our guidance. We've historically guided that we expect fee compression annual lead to be at sort of the two to three bps reduction a year, which is <unk>.

Driven by competitive market dynamics, both of acquiring new business retaining existing customers, having higher price plans lapsed versus and newer ones coming in at lower fee rates. So that's the the compression that we sort of put in that two bps to three bps of your reduction. This year. This quarter was about two bps versus versus a year ago.

Amy Friedrich: And so there's a really nice small business relationships for us to be building. You've hit the point in terms of the question, which is there have been some things in the last couple quarters in terms of mortality that we've seen a little bit more. It's not on the incident side. We're not seeing we're not seeing that the number of claims, but the severity has been running a little bit hotter than we've seen historically, but that really does attribute the whole difference that is the severity. Thank you. Thank you, Wes.

So thats, what youre seeing and while the fee revenue rate is down a bit keep in mind that how we manage this business. We also have lower expenses and we're delivering higher margins consistent with how we are really managing this business for the future Christian one thing I might add to that list is also the investment management shift so to the extent theres more money that goes to a passive <unk>.

Wesley Carmichael: Thank you. Our next questions come from the line of Tom Gallagher with Evercore ISI. Please proceed. Thank you for your questions. Good morning. A few questions on RIS for me. Dan, you had highlighted, you expected net outflows in RIS in Q4 and I think part of that just seasonal the way the business works. Now last year you guys had outsized, I think it was $7 billion of outflows in Q4. I just want to make sure we're all level set here.

Option as opposed to an active you're going to see a negative impact on the on the revenues as well.

That makes sense thanks, guys.

Thank you Tom.

Thank you our next questions come from the line of Tracy Bengie with Barclays. Please proceed with your questions.

And Kim.

Office CML Ltvs.

At 63%, but it's worse than 57% last quarter.

Wesley Carmichael: Would you expect another outsized Q4, directionally similar to $7 billion or just more down something a lot better than that still outflows but not some of the unusual large combo outflows. Yeah, Tom, appreciate the question. I'll have Chris take that one on. Yeah, thanks, Tom. So again, as we've seen in the third quarter, we're seeing really good quality pipeline and well positioned for a strong double digit growth and sales and transfer deposit growth across the S&Bs and large throughout the full year.

And any insights here, yes, thanks for the question Tracy so.

And I mentioned, we actually do.

Rewriting on our office portfolio on a quarterly basis and just a reminder, again, we have about $3 $1 billion worth of our office in our general account.

That's a 57% loan today at two six times debt service coverage to 89% occupied 75% of buildings, we consider to be class, a really strong high quality buildings.

Wesley Carmichael: But as Dan mentioned, we do expect to see some elevated last activity. I think the hard part about the fourth quarter is it's really difficult for to predict how it's an active quarter for plan transitions and plan line up changes. And you can have plans transition move from December to January. So it's really hard for us to give a lot of clear guidance on that, but we expect it to be negative.

Sort of a quality in terms of our sort of expectation on the rating performance.

But we do every quarter analysis of the cash flow stream. So each office property the terminal cap rates to discount rates that we want to apply to come up with a valuation and I think one of the things I really think it's important that we have been very aggressive on adjusting our cap rates on a quarter to quarter basis to make sure we're <unk>.

Wesley Carmichael: But we do expect it to be less negative than the year ago, both in terms of dollars and in terms of the withdrawal percentages. So again, that that would give you some directional view on, you know, as we continue to look forward into the fourth quarter and first quarter, we continue to see strong transfer deposit, solid recurring deposit growth and a meaningful moderation in our contract last rate all consistent with how we're really managing the business, which is for profitable growth.

Staying abreast of what we're hearing what we're seeing in terms of industrial expectations in terms of where trades are being.

Wesley Carmichael: And despite all of this activity, we expect to be within our guidance range for revenue for the full year and in the upper half of margin for the full year. So yeah, some pressure, but certainly don't see as much as we did year ago. I hope so. That's helpful, Chris and Dan. Thanks. My follow up is just a fee question on RIS. If I, the calculation I'm doing is probably overly simplified, but the, if I look at the average increase in monthly assets, it's three to four percent.

Cap rates just came out last day.

So we continue to be very.

Thoughts about market conditions, reflecting those market conditions, and our quarterly assessments and so we want to make sure. We're giving you real time data and real time expectations as to where we see those debt service coverage and loan to values.

And then help Tracy.

Wesley Carmichael: And you should have gotten an extra fee day in Q3. And then I look at essentially flat fees for the quarter in Q3 versus 2Q. That would suggest I would say somewhat higher than normal fee compression or fee pressure. Are you seeing more fee pressure than normal or maybe something with the calculation that that we need to adjust? Thanks. No, thanks. Thanks. No, you know, again, I think throughout the year, we've definitely benefited from equity markets that pushed our fee rate, you know, around 40 bits, the last few quarters.

If I look at the next few quarters Tracy I'm not sure what were the 63% is I actually think that's the loan to value on our 24 maturities. So the actual total office portfolio is what Pat mentioned is 57 and then the other thing I Wouldnt make note of on that 24 months maturities is even though the.

LTV is 63% the debt service coverage is three eight and we have a 94% occupancy. So ultimately for those loans that are maturing in 'twenty four we feel good that those are attractive loans that will be maturing next year.

Wesley Carmichael: But as we're seeing the compression emerge, it's emerging in line with our guidance. We've historically guided that we expect fee compression annually to be at sort of the two to three bits reduction a year, which is driven by competitive market dynamics, both acquiring new business, retaining existing customers, having higher price plans. Last versus and newer ones coming in at lower fee rate. So that's the compression that we sort of put in that two bits to three bits, a year reduction this year, this quarter is about two bits versus versus year ago.

Got it.

We're seeing traditional life and annuity insurers borrowing a page from the playbook of alternative asset managers and accrete any side cars in Bermuda.

And equity stake alongside consortium of investors as a way to accumulate assets and earn fee income I'm wondering what your thoughts are given you do have a large asset management capabilities.

Yes, it really came in garbled Tracy on your question, but I believe it's whether or not there is an offshore solution that would help and capital relief for some of our <unk>.

Wesley Carmichael: So that's what you're seeing. And while the fee revenue rate is down a bit, keep in mind how we manage this business, we also have lower expenses and we're delivering higher margins consistent with how we're really managing this business for the future. Christian, I think I might add to that list is also the investment management shift. So to the extent there's more money that goes to a passive option as opposed to active. You're going to see a negative impact on the on the revenues as well. That makes sense. Thanks, guys. Appreciate it, Tom.

Spread businesses, Dan do you want to frame that for us.

Tracy good question.

We always evaluate opportunities to create value for our customers and opportunities and look at what our competitors are doing relative to that.

We have been exploring whether we said setup, our Bermuda entities, specifically focused on PRT in term our focus will be on new sales as we go forward.

Tom Gallagher: Thank you. Our next questions come from the line of Tracy Bengeegi with Barclays. Please proceed with your questions. Ian Kim, your office CMLLTV is 60% but it's worse than 57% last quarter. I feel like office pressures will take time to materialize. How do you see your office CMLLTV trending going forward? Is it too simplistic to think about load amid single digit deterioration every quarter? I'm just wondering if there's a certain level where you feel less comfortable.

And we won't.

We arent considering a sidecar arrangement relative to that one given the size of our portfolio the size of our new sales and our ability to manage that in house.

Thank you okay. Thank you.

Thank you our last question will come from the line of Josh Shanker with Bank of America. Please proceed with your questions.

Tom Gallagher: Well, adding the answer. Yeah, thanks for the question, Tracy. So as Deanna mentioned, we actually do rewriting on our office portfolio on a quarterly basis and just remind her again, we have about $3.1 billion worth of office in our general account. That's 57% low in the value of 2.6 times debt service coverage at 89% occupied 75% of buildings we consider to be class A really strong high quality buildings, sort of a quality in terms of our sort of expectation on the rating performance.

Yes. Thank you so the timing of the <unk> rates also comes in concert with a $100 million increase from the buyback expectation. It seems that you were a bit surprised by just how much cash flow you're generating or to what extent are you is that a number that should generally.

B Forecastable for you over time and can you go through some of the history. When you did the <unk> deal about how much you reduced your cash flow by.

Tom Gallagher: But we do every quarter a analysis of the cash flow streams of each office property, the terminal cap rates, the discount rates that we want to apply to come up with evaluation. And I think one of the things that I really think is important that we've been very aggressive on adjusting our cap rates on a quarter to quarter basis to make sure we're staying abreast of what we're hearing, what we're seeing in terms of investor expectations.

And when you recovered to the levels, where youre going to be raising dividends again.

Yes, it's a good question. The first thing I would say is you have to look at the last two years for principal and know that forecasting. Some of these has been challenging giving some of the some of the changes. We've made we do have very strong capital position, we anticipated that in the post strategic review when we were doing our.

Tom Gallagher: In terms of where trades are being consummated in a marketplace. And I'll suggest to you that our cap rates continue to be significantly conservative, rather relative to na creep, which is the index that most institutional investors look at in the private market space. And our cap rates were office are 17% higher. So we're very conservative relative to where na creep cap rates are. And those na creep cap rates just came out last day.

Organic businesses, knowing that most of those businesses deployments would be in our fee businesses and having said that we still look for opportunities and spread where it's where it's appropriate but I'll have dean I add some additional comments, yes. Thanks, Josh for the question.

Tom Gallagher: And so we continue to be very thoughtful about market conditions, reflecting those market conditions and our quarterly assessments. And so we want to make sure we're giving you real time data and real time expectations as to where we see those debt service covers and loan values. Does that help Tracy? So it helps for sure because it feels like then your LTV is probably more realistic and less stale and maybe what others report given that diligence, but just wondering where that 63% could go from here.

This quarter and as Youre aware that has been on pause since our strategic review as we wanted to understand the impact on our earnings level and then as you know also in 2022, the markets were pretty negative and so we needed to understand how we can get through that as well.

Tom Gallagher: But look at the next few. Tracy, I'm not sure what where the 63% is. I actually think that's the loan to value on our 24 materities. So the actual total office portfolio is what Pat mentioned is this 57. And then the other thing I would make note of on the 24 maturity is even though the LTV is 63% the debt service coverage is 3.8 and we're have a 94% occupancy. So ultimately for those loans that are maturing in 24, we feel good that those are attractive loans that will be maturing next year.

We did have a few one timers in the quarter that did help our our our free capital flow. They netted to about a 100 <unk> hundred million dollars positive impact. The two most notable one is the admittance of the negative INR, but that was partially offset by the AAR tax impact that we talked about and so again.

Tom Gallagher: Got it. You know, we're seeing traditional life and annuity insurers barring a page from a playbook of alternative asset managers in the creating these side cars and permuda by making an equity state alongside consortium investors as a way to accumulate assets and earn fee income. I'm wondering what your thoughts are given you do have a large asset management capability. Yeah, it really came in, Garvel Tracy on your question, but I believe it's whether or not there's an offshore solution that would help in capital relief for some of our spread businesses, Deanna, you want to print them for us?

75% to 85% free cash flow conversion.

And if I think in a lot of times people think that equity markets are equity businesses compounded of 7% to 8% annual compounded rate.

If I apply that to.

Drawing your cash flow I assume you don't think things are going to be worse than I know things don't move in a straight line, but it's not unreasonable I guess to think about that in most quarters, we should see a dividend hike. If if if if if things are working the way you are hopefully well that is that a wrong way to think about things.

Tom Gallagher: Yeah, Tracy, good question. You know, we always evaluate opportunities to create value for our customers and opportunities and look at what our competitors are doing relative to that. You know, we have been exploring whether we should set up a Bermuda Entity specifically focused on PRT and term. Our focus will be on new sales as we go forward. And we won't, we aren't considering a side car arrangement relative to that one given the size of our portfolio, the size of our new sales and our ability to manage that in-house relative to that.

Another thing I would say is we have high growth operations and our specialty benefits business, we have high growth expectations in our international business and I come back to the fact that we have.

Tom Gallagher: So there'll be more to come on that as we go forward, but I always want to be mindful to see what we can do. I want to make sure that we are being as capital efficient as we can in creating value for our shareholders. Thank you.

We think we can deliver 9% to 12% EPS growth that won't always be up at that level there'll be some.

Years, where it's slightly lower some years, where you might benefit more from macro but again I come back to strong free cash flow.

Tracy Ben Gigi: Our last questions will come from the line of Josh Shanker with Bank of America, please proceed with your questions. Yeah, thank you. So the timing of the two cent given rates also comes in concert with a hundred million dollar increase to the buyback expectations. It seems that you're a bit surprised by just how much cash flow you're generating. To what extent are you, is that a number that should generally be forecastable for you over time?

We are committed to being a growing company and we are committed to returning that grows back to our shareholders and ultimately and pressured time because of our diversified model relative to peer asset managed of ours, we're actually able to have consistent dividends versus a lot of volatility so.

Like the pattern and the consistency and as you say over the long term you are right, we should be able to increase that dividend and return to our shareholders. Thanks for the questions Josh.

Tracy Ben Gigi: And can you go through some of the history when you did the tail cut deal about how much it reduced your cash flow by and when you recovered the levels where you're going to be raising dividends again? Yeah, so it's a good question. The first thing I would say is you have to look at the last two years for principle and know that forecasting some of these has been challenging giving some of the rain, some of the changes that we've made.

Thank you we have reached the end of our Q&A Mr. Houston Your closing comments please.

Tracy Ben Gigi: We do have a very strong capital position. We anticipated that in the post strategic review. When we were doing our analysis, we wanted to use a fair amount of judgment of not having perfect clarity to what this might look like. But as we said during the strategic reviews outcome, we're committed to returning capital through both share of buyback, through increased dividends and targeting our 40% payout ratio, but also investing in these organic businesses knowing that most of those businesses deployments would be in our fee businesses.

In 2024 on February the 13th we will also include the outlook at that point in time.

No shortage of macroeconomic and geopolitical geopolitical risk out there today it remains top of mind for us as we continue to keep our customers.

Line of sight or individual employer and institutional customers, we want to continue to align our expenses with our revenues, while also investing and innovating to better meet the needs of our customers. The bottomline I still remain very optimistic about our ability to create value for our customers and shareholders on a go forward basis I appreciate your time today.

Tracy Ben Gigi: And having said that, we still look for opportunities in spread where it's where it's appropriate, but I'll have DNA and some additional comments. Yeah, thanks Josh for the question. You know, you know, we came out of the strategic review and really committed to that 75 to 85% free cash flow ratio and work. We managed to make sure that we're within that, you know, we were happy to be able to raise our dividend.

Thank you.

Thank you. This does conclude today's conference call you may disconnect. Your lines at this time and we thank you for your participation.

Tracy Ben Gigi: And then one cent last quarter and two cents this quarter. And as you're aware that has been on pause since our strategic review, as we wanted to understand the impact on our earnings level. And then as you know, also in 2022, the markets were pretty negative. And so we needed to understand how we could get through that as well. You know, we did have a few one timers in the quarter that did help our our free capital flow.

Tracy Ben Gigi: They netted to about a hundred hundred million dollar positive impact. The two most notable one is the admittance of the negative IMR, but that was partially offset by the AR tax impact that we talked about. And so again, you know, feel really good about the ability to increase our common stock dividend, increase our share by back expectation and put us on track for a $1.3 billion of capital return to our shareholders for the full year of 2023.

Tracy Ben Gigi: I don't think what we're seeing this year is an abnormally and ultimately still stay focused on that 75 to 85% free cash flow conversion. Information. And if I think, you know, a lot of times people think that equity markets or equity businesses compounded a 7-8% annual compounding rate. If I apply that to growing your cash flow, I assume you don't think you're going to be worse than I know things don't move in a straight line, but it's not unreasonable, I guess, to think about that in most quarters, we should see a dividend hike.

Tracy Ben Gigi: If if if if if things are working the way you hope they will. Is that a wrong way to think about things? Yeah, I mean, obviously the markets can have some fluctuation on that, but I think you can even go back to prior to the transaction and look at our trend of dividend increases. And we did have a consistent pattern of increases. You know, the other thing I would say is we have high growth operations in our specialty benefits business.

Tracy Ben Gigi: We have high growth expectations in our international business. And you know, I come back to the fact that, you know, we have we think we can deliver 9 to 12% EPS growth. That won't always be at that level. There'll be some years where it's slightly lower, some years where you might benefit more from macro. But again, I come back to strong free cash flow. We are committed to being a growing company and we are committed to returning that growth back to our shareholders and ultimately in pressured time because of our diversified model relative to pure asset managers, we're actually able to have consistent dividends versus a lot of volatility.

Tracy Ben Gigi: So, I like the pattern and the consistency. And as you say over the long term, you're right, we should be able to increase that dividend and return to our shareholders. Thanks for the questions, Josh. Thank you.

Daniel Houston: We have reached the end of our Q&A, Mr. House, your closing comments, please. And apologize. It sounds like we may have a bad line here. All these questions didn't come in perfectly clear today, but just a reminder on something Humphrey had mentioned, which is we will have a combined earnings call in 2024 on February the 13th will also include the outlook at that point time. There's no shortage of macro economic and geopolitical risk out there today.

Daniel Houston: It remains top of mind for us as we continue to keep our customers in line of sight, our individual employer and institutional customers. We want to continue to align our expenses with our revenues while also investing and innovating to better meet the needs of our customers. The bottom line I still remain very optimistic about our ability to create value for our customers and shareholders on a go forward basis. Appreciate your time today.

Operator: Thank you. This does conclude today's conference call. You may disconnect your line at this time and we thank you for your purchase.

Q3 2023 Principal Financial Group Inc Earnings Call

Request a DemoDemo

PFG

Principal Financial

Earnings