So that’s a key point to make, I think. Just generally about the ins and outs, first of all, I would say that I was saying for 50 basis points next year on the mean reversion point. I would be assuming something north of $400 million. I thought you might have just said 300 million. But it was something north of 400 million. Maybe I just misheard you. The other thing I’d say, sorry, no, go ahead.
Suneet Kamath: No, go ahead. You’re right. I’ll keep up. Okay,
Edward Spehar: Okay, so the other thing I’d say about the RBC ratio, right, we talk about our RBC ratio target in normal markets. And, obviously what you had occur in the third quarter, I would suggest is not a normal market with the 10-year Treasury yield up 70 or 80 basis points. I mean, I think if you look at history that would be considered somewhat of a low — very low probability event. And obviously, we had the impact on the hedge portfolio as a result. Just generally, though, when we think about our RBC target, there are a few things that we would consider. We think about our position from a hedging standpoint, I would argue that we are in a much better position today from a hedging risk management standpoint than where we were at separation.
We — as you know, we de-risked the equity hedging position, de-risked the equity hedge risk back in late 2019-2020. We made a significant change in the risk profile and interest rates in 2022. And so that makes us think about our capitalization a little differently. The mix shift, obviously is a big one. As we continue to move toward a lower risk company, I think you could assume over time that there’s an argument to be made for potentially having a lower RBC ratio. Another consideration, and I’m bringing these up because obviously we’re talking about now in RBC ratio, where we gave you a range of 400 to 420, you see some of the ins and outs, and in the fourth quarter I would — north of a $300 million dividends or expectation and $200 million positive from the reinsurance.
And you see where we’re starting from. So I’m just giving you some context here. First of all, we’re managing this over a multiyear, multi-scenario framework. We think we have a de-risk balance sheet from a hedging standpoint. We continue to see a mix shift that would suggest lower not higher capital requirements over time. Another factor to consider is, depending on the scenarios that you are in or the environment that you’re living, you might have more of your risk reflected in reserves than capital. And while there is a mechanism that helps to neutralize the RBC impact from that, it’s not perfect for a company that’s not a pure VA company. So to the extent you had more of your risk reflected in reserves, you could argue that you would have to hold less capital and vice versa.
And then the final thing you have to consider, I mean, we didn’t get any questions on it today but obviously it’s very important to talk about is the holding company position, and not just the fact that we’ve got $900 million of cash, but that we also have a reasonable level of debt, and that we have that debt termed out long-term, given the actions we took when rates were low. So these are all things to think about when you’re looking at our RBC ratio.
Suneet Kamath: Got it, okay, that’s helpful. Maybe just switching gears, just curious if you guys have any initial thoughts on the DOL proposal that came out, I guess it was last week?
Eric T. Steigerwalt: Hi Suneet, it is Eric. As you’ve heard others say it’s over 500 pages, it’s pretty complicated. You know, we’ve been pretty thoughtful about this stuff if we think it can affect Brighthouse in the past, and I’ll be thoughtful here. We don’t know where this is going to end up but there could be consumer and business impacts if this proposal is finalized. I don’t know what’s actually going to happen. The trade groups are all over this, as I’m sure you know. I’m on the Board of the ACLI, Myles is on the Board of IRI. They do a fantastic job in these situations and them and numerous groups are already opposing this regulation similar to 2016. So we’ll learn more, we’ll understand the framework better here in the coming weeks and months. But that’s sort of an initial reaction.
Suneet Kamath: Okay, thanks.
Operator: And thank you. And one moment for our next question. And our next question comes from John Barnidge from Piper Sandler. Your line is now open.
John Barnidge: Good morning. Appreciate the opportunity. Thank you very much. A few quarters ago you had talked about the outflows and what you kind of expected versus surrender activity had let it to be slightly higher than that. Are you in a position to maybe update those comments today, based on the experience you’ve had so far in 2023? Thank you.
David Rosenbaum: Hey, John. Good morning. This, David. So I think you’re right in your comments that in the first quarter we talked about based on our expectation for this year, based on where interest rates were and are and the timing of business coming out of surrender that we expected flows to be higher or outflows to be higher than what we have seen historically. And that is playing out and really in line with our pricing assumptions. So I think those comments still do hold. Myles talked a little bit about sales. So when you think about outflows in the quarter surrenders were up on Shield. But if you think about the offset or the impact from higher sales, net flows from a VA and a Shield perspective, we’re flat — essentially flat sequentially.
Myles talked also about fixed sales, which were down sequentially. And you saw an uptick in fixed flows. Now they’ve been elevated this year relative to where they were last year. And you know, just as an example of the business coming out of surrender, you may remember in 2020 we sold a meaningful amount of fixed rate annuity business. And that business, a three-year portion of that business is up for surrender. And we saw an impact of that in the third quarter and expect to see an impact of that also in the fourth quarter.
John Barnidge: That’s very helpful. Thank you. And then my follow-up question is sticking with annuities, maybe on distribution. If I look at like Shield as a percent of total VA or Shield as a percent of overall sales, it’s 92% of VA sales, 70% of overall sales roughly looks like is that a high watermark or should we assume a reasonable waiting to sales compensation in the near-term for that?
Myles J. Lambert: Hey, John it’s Myles, I’ll take that. It’s about in the range that we’ve seen in the past, it might be a little bit higher but it’s generally in the range on the higher end as we’ve seen it in the past.
John Barnidge: Great, thank you very much for the answers.
Operator: And thank you. And I am showing no further questions. I would now like to turn the call back over to Dana Amante for closing remarks.
Dana Amante: Thank you, Justin and thank you everyone for joining the call today. Hope you have a great day.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
