Ed Spehar: Well, I can give you — I guess I would reiterate what I said last quarter because I think it still stands. We gave you the impacts if you look back, and then I said we didn’t give you anything as of the third quarter, but I said given where rates were we expected. I can’t remember, substantial improvement, significant, whatever word I used. That still applies as of year-end. And just a reminder, remember, we had said that at 12,31,21 that the range was $6 billion to $8 billion to total equity and $3 billion to $4 billion equity ex AOCI. So the application of substantial improvement is relative to those numbers.
Operator: And it comes from the line of Alex Scott with Goldman Sachs. Please proceed.
Alex Scott: First one I had is just on the drag on new business. When I look at like overall flows and the organic growth rate. It seems like maybe there’s probably a bigger drag that’s not being released on the legacy products and when do we get to more of a per state where if you’re deploying capital behind new business in a bigger way where it’s actually pushing your organic growth up, I mean is that years away? Is it — does that start to unfold more medium term? How do we think about that?
Ed Spehar: Alex, it’s Ed. So let me see if I can help out a little bit. If you look at our TAC and our RBC this year, right, because I think you’re getting to — well, you’re using up, it seems a lot of capital to fund growth and where — when are you releasing capital from other products. I think the numbers this year mask what’s going on a bit here, okay? If you look at our TAC, it was down from $9.4 billion to $8.1 billion year-over-year, right? So of that $1.3 billion decline, I would say $1.2 billion of that would be nontrendable items. And I would say that a good portion of those we would expect to reverse over time. So specifically, the DTA write-down was about $400 million. We fully expect to utilize our tax attributes over the long term.
Second, the MRP impact was $250 million to $300 million negative in 2022. And not only is that reversing, but as I said, it’s going in the other direction as we get 25 basis points up in the first quarter of this year and another 50 basis points to 75 basis points in ’24 and ’25. And then third, we had some AAT reserves this year that was around $200 million. And in this instance, I consider those reserves to be equity. I don’t believe we’re going to need them. So I think you’re going to see that reverse over time. So you’re talking about a very significant amount of tax that I don’t deem to be really representative of the economics of what’s going on at the company. Putting that into RBC terms, right, RBC ratio for the year went down from $500 to $440 million.
Of that 60-point decline, approximately 50 points, I would think, reverses over time. The DTA impact is over a longer period of time. The MRP impact is happening now and the AAT TBD. So when you’re trying to get to what actually was going on here at the company, you had 30 points that was used for growth. You had about 75 points that I would say would be nontrendable items and you had about 45 points of core capital generation
Alex Scott: Second one I had is just on the system conversion. I mean it seems like as it relates to RBC, that was a reasonably good outcome getting through all of that. As we think about the next piece of information that’s going to potentially be impacted by the distributable earnings tables. Do you expect to have much of an impact there? I’m just thinking about the point is obviously a tailwind, but does that system conversion materially change the way you project your cash flows into the future?
