Gary Bhojwani: Yes. Wilma, if I can jump in, I just want to add a couple of perspectives. So you would expect I 100% agreement with Paul. I would also say like Paul, that we’re not going to provide a specific guidance at this stage. But what I do want you to hear from me is we have line of sight on the ability to improve our ROE. We know we can drive this higher. Number two, we know we need to drive this higher. We absolutely have to get the ROE more in line with industry peers. And so that’s a significant point of focus for us. And we expect to deliver against that, we absolutely do.
Wilma Burdis: Just a quick follow-up on that. Could you identify a couple of the things that could help toward that goal?
Paul McDonough: Sure. I can give you just kind of in broad strokes, the kinds of things that you would expect we’d be looking at number one, expenses is obviously a lever that we can pull, and that’s something that we’re looking at. There are things that we can do with the in-force book to influence policyholder behavior. There are some things we can do with pricing. There are obviously things we can do with pricing with new business. There are things that we can do that impact the denominator in the equation. So that’s not a comprehensive list, but that’s the kinds of things that we’re looking at.
Gary Bhojwani: Wilma, I’d like to add a perspective on that in terms of the sequencing. At least in my view, it was really critical to get the sales engine firing first. We had a fair bit of momentum going into COVID and then obviously, COVID wasn’t unique to us, of course. It’s screwed up a lot of things for a lot of different folks, and it slowed us down. We felt it was absolutely impaired to get that sales engine firing again to get our recruiting where we need it to be, to get our new product launches where they need to be to get our agent offerings to where they need to be. I think we’ve got a fair bit of momentum now. Now that we’ve got the sales and in the top line, if you will, I think firing in a consistent and sustainable way, now it’s time to make it more efficient.
There was a sequencing on our part. This was a – it’s not that we are just realizing that the ROE needs to improve. It was a conscious choice on our part to first focus on getting that top line momentum going, getting it sustainable and now we need to turn our attention to making the machinery more efficient, and that’s what we’re focused on next.
Wilma Burdis: Thank you. And then could you talk about the opportunities to acquire distribution? You probably felt that Globe did not complete the distribution deal in 1Q, but it seems like there’s some possible targets in the market?
Gary Bhojwani: Yes. We’ve seen targets over the years. We’ve looked at quite a few. As you know, we’ve done two rather small acquisitions over on the worksite side. At least on the consumer side, most of the acquisition opportunities we’ve seen, I just couldn’t get my head around the valuations. They might be able to work for others. I just – I couldn’t get there on the math. But we’re open to it. I want to send the signal that we definitely would consider the right opportunities. But at least if I think about the candidates we’ve looked at over the last three to four years, I just – I couldn’t make the numbers work on the valuation side. Paul, you obviously looked at that stuff pretty carefully. Paul and Eric, Eric runs Corporate Development for us. I don’t know if you guys want to add any comments.
Paul McDonough: I think it captures okay.
Wilma Burdis: Okay. Thank you.
Gary Bhojwani: Thank you.
Operator: The next question comes from Nicolas Lu of Evercore ISI. Your line is now open. Please go ahead.
Nicolas Lu: Hi. I think it’s for Tom Gallagher. But my question is, Paul, for the full year 2024 guide, are you’re using $0.52 that you reported in operating as the Q1 earnings number or the normalized backing out the adverse alternatives of $0.79. I just want to make sure I’m understanding that correctly?
Paul McDonough: Hey, Tom, we’re using $0.52 as reported.
Nicolas Lu: Got you. And then that being the case, that’s a $0.27 delta. It’s actually, to me, you’re, I guess, slightly raising to above the range, our underwriting expectations considering that alternative adjustment. So if that’s true, what – when you assess the businesses, what’s outperforming or at least performing at the top end of the range from an operating standpoint? And what is not like when you just assess the various businesses and what you’re seeing in Q1 so far?
Paul McDonough: Sure. So Tom, I make two points. Number one, yes, I think you’d expect that when we initially put our guidance out, we were kind of solving for the midpoint. And as I mentioned in the context of the first quarter, you’d expect that we’d be – there’s a higher probability, we end up lowering the range. So I encourage you to factor that into your thinking. And then in terms of what else might be better than previously contemplated. A part of the dynamic is better run rates in certain products in the wake of the fourth quarter unlocking, which wasn’t fully contemplated and baked into the initial guidance.
Nicolas Lu: Got you. That makes sense. Sorry go ahead. Anything else you would add to that, Paul?
Paul McDonough: No, I just was going to ask if you were following that logic.
Nicolas Lu: I am, yes. Just a question on the statutory earnings in the quarter, they were a bit soft, and I think there’s normally some seasonal weakness in Q1. But what drove the weaker stat earnings in the quarter, and how were the LTC stat earnings relative to GAAP because I saw a GAAP obviously was pretty favorable on long-term care. Did you see a similar benefit in statutory?
Paul McDonough: Yes. So a few things I think worth noting there, Tom. Number one, Q1 is seasonally lower, as you mentioned. And then with respect to long-term care, there’s pretty significant first year sales strength given the growth in long-term care. So there’s a pretty significant GAAP to stat difference there. So that’s all pretax. And then the other thing to point out is that the taxes are quite high. So we had $23 million of pretax stat income and then $27 million of taxes resulting in the $4 million stat tax loss. And on the taxes, there are really two things that are driving what appears to be an elevated level of taxes. One is that you have increased taxable income relative to the stat earnings for our FIA business.
And that’s in the context of favorable equity market movements which increased the stat reserves more than the tax reserves. So that’s a big driver. And then the second is the fact that our U.S. OpCos are now paying the U.S. Holdco for use of NOLs, which at the OpCo level were fully utilized as of 3Q of last year. So those are the primary things that I would emphasize as you think about the stat results.
Nicolas Lu: That’s helpful. And then a final question for I guess it would be, Eric, just on the investment portfolio. So about the third of your alternative investments are in commercial real estate. And just given I would say, the ongoing pressure on that asset class, would you expect to have results for the year that come in below plan? And I asked that because you do have some peers like MetLife that have lowered their return expectations in that asset class this year.
Gary Bhojwani: Yes. Tom, good morning or good afternoon almost at this point. So as I think about things and the first quarter, I think we’re trending toward normalized results in our PE allocation, which on a total return basis was probably in the hands – in the kind of mid-single digits in the quarter at private credit, very similar outcome, mid – kind of mid-single digits on the quarter and stabilizing in a reasonable way, infrastructure the same and all of which offset by excuse me, the institutional funds on the real estate side produced a marginally positive return on the quarter. And looking back over the trailing quarters I think that allocation is moving toward a more normalized result also. And so really, it’s just this one particular $80-ish million piece of the alts allocation that produced a materially negative and outside our expectations to return on the quarter.
That’s obviously not going to replicate itself every quarter. So I think as we particularly look toward the trailing part of the year, part of the year ahead of us. I have every reason to think that we’re looking toward normalized returns. Now nothing is for sure and markets are just have an inherent uncertainty, which you know as well with eye. But the trends we are seeing subject to us that – and the actions we’re taking in developing the portfolio. As you know, we, for example, completed 100 million [ph] ICOLI with the and largely EPA allocation, the tail end of next year. And that will – we think we’ll have a good influence as we get past the J curve in that later this year. So I look forward to future earnings calls where I don’t have to talk about this because it’s producing the results.
But it’s – that it expects to. And I think that day I can foresee readily.
Nicolas Lu: Okay, thanks for the color.
Gary Bhojwani: You’re welcome.
Operator: As there are no additional questions waiting at this time. I’d like to hand the conference call back over to Adam Auvil for closing remarks.
Adam Auvil: Thank you, operator, and thank you all for participating in today’s call. Please reach out to the Investor Relations team if you have any further questions. Have a great rest of your day.
Operator: Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines.
