Wilma Burdis: Okay. Thank you. And then I just want to confirm, I know you guys sort of said it but I just want to make sure that I understand. In the reinsurance deal that you just recently completed, you freed up around $900 million of capital, and it sounds like that could either be used to reinvest or maybe ultimately for shareholder returns.
Max Broden: Yeah. Obviously, our priorities with all the capital that we have is always to deploy it into writing new business and use it in our operating entities. That is where we get generally the best IRR on that capital. If we cannot deploy it in our operating entities, then it will flow up to the holding company.
Wilma Burdis: But it was around $900 million is what you freed up for that?
Max Broden: Yeah, that is our estimate, yes.
Wilma Burdis: Okay. Thank you.
Operator: Our next question will come from Josh Shanker with Bank of America. You may now go ahead.
Josh Shanker: Yes. Thank you. When I think about the commercial loan portfolio, are the properties most at risk, those that have been more recently loaned to or the ones that have a longer vintage in terms of when they were established? And along those lines, when did you cool the deployment of new investment flows into commercial loans?
Brad Dyslin: Sure. Thank you, Josh. The loans that we’re dealing with now that are on the watch list are those that were made a couple of years ago. The transitional real estate book is our biggest focus area, and that differs from a more traditional CML book in that the maturities are much shorter. They tend to be three-year fixed maturities with options to extend up to five, in some cases, up to seven years based on certain thresholds and the operating metrics being met. So what we’re dealing with now are those maturities predominantly in 2023 and a few in 2024 as obviously, the maturity is coming up and when those loans need to be addressed, either being repaid or if that is not an option, then we get into the workout discussions.
We have really substantially reduced our deployment into the asset class this year. Part of that is the market — well, not part of it, it is frankly driven by the market. Very much a lack of activity. We’re seeing a large bid ask between buyers and sellers. The increase in rates has really put valuations upside down. Buyers are trying to get — take advantage of the current levels. Sellers are trying to get yesterday’s prices, and we’re just not seeing a lot of good, solid transactions, and there’s a lack of liquidity in the market. So that’s really limited our opportunities. And of course, we always adjust our underwriting standards to the current experience, to the current market. So we’re being a little bit more difficult in our terms and conditions as well.
Josh Shanker: And then related, is there any way you can frame the capital consumption or rating agency charge for those two properties? What was it before they were converted into wholly-owned properties and what is it now?
Max Broden: Yeah. So when they move from being a CML to real estate owned, there is a significant uptick in terms of the capital charge associated with that. For us, it’s still very small. So if you think about RBC points, it’s very — I would estimate it to be low single-digits. And as it relates to SMR, the same applies. When you then think about the — you generally should think about the distribution on what balance sheet or capital base if they go into as follow it the same way the size of the investment portfolio is between the two segments, i.e., roughly 85% falls into Japan and 15% falls into the US.
