Elias Habayeb: Hi, Joel, it’s Elias. We have not given any quantification, but here’s what I’ll tell you. We’re very disciplined with how we manage the balance sheet. And we’re very proactive with how we manage the balance sheet. During 2023, we grew our RBC from 411% at the beginning of the year and where we’re ending between 420% and 430%. At the same time, the insurance company has distributed about $2 billion of dividends, and that was about 50 RBC points, and we had a record sales period, and we were able to kind of deliver through that. And my expectation is the discipline we’ve demonstrated from a capital perspective is that’s kind of core to us, and we’re going to continue that going forward.
Joel Hurwitz: Okay. I guess just sticking on that, so $2 billion again in distributions from the insurance subs. I guess how do you see that growing, right? Your earnings have grown quite significantly, particularly this year and should be pretty solid moving forward. How do you see that $2 billion growing in and supporting your payout ratio over the medium term?
Elias Habayeb: Well, we do see — given the growth in earnings and the strength of the balance sheet, we expect the dividends from the insurance companies over time to grow in line to fund us at the 60% to 65% payout ratio. And if you look at the track record of our insurance companies, they’ve distributed over $2 billion a year. And we’ve got strong parent liquidity and a strong balance sheet. So sitting here today as the CFO, I feel confident in our ability to deliver on the 60% to 65%.
Joel Hurwitz: Okay. Great. Thank you.
Operator: Our next question is from Jimmy Bhullar from JPMorgan. Please go ahead.
Jimmy Bhullar: Hi. Good morning. So first, just a question on spreads in the Group Retirement business. So they’ve expanded this year versus last year, and I’m talking about the base spread. But if we look sequentially, they’re down each of the last two quarters. So clearly, they’re at very attractive levels. But assuming interest rates stay where they are right now, would you expect further improvement in spreads? Or are they to a point where any future benefits on yields are going to be offset by just competitive conditions and you having to raise crediting rates as well as we’ve seen in the last couple of quarters?
Kevin Hogan: Yes. So thanks, Jimmy. There’s a number of dynamics in Group Retirement that, I think, have reflected with respect to that trend that you observed there. And part of it is that the age of the — let’s first talk about the implant part of the business, right? I mean there’s customers, as Elias pointed out to, that are at that retirement age that are moving from accumulation to decumulation. And sometimes those customers, as you would expect, have larger account values but also higher guaranteed minimum interest rates. And these are the areas where we’re seeing the net outflows. It’s in the younger customers that are earlier in their savings periods that we’re actually seeing offsetting positive inflows, and of course, those come along with lower guaranteed minimum interest rates.
And so the effect that you’re seeing there with a little bit of spread compression is in part an outcome of this dynamic between the older and the younger customers. But the other part of the Group Retirement business that I would — I’d point to is the out-of-plan business. This is where we have the fixed annuities, indexed annuities as well as the advisory and brokerage platform, which actually has $42 billion in assets under management today and is growing. And the total assets under management in the Group Retirement business are also growing. It reached $122 billion today. And as Elias pointed out, the earnings have been consistent in that business for the last number of years. And there’s a strong balance between spread income and fee income in Group Retirement.
So the spread income is one dynamic, but the growth in the fee income base is another dynamic, and we see upside opportunities across this business.
Elias Habayeb: And if I can add, Jimmy, if you look at the numbers, while base spread income came down, fee income went up 7% year-over-year. And then the advisory and brokerage net flows are not included in our net flows. So if you adjust that, actually, the net outflows would be less.
Jimmy Bhullar: Yes, yes. And then maybe one on individual life. If we look at your margins over the course of this year, they’ve fluctuated, like last quarter was better than normal, this quarter seemed like it was worse than normal. Is that just sort of aberration and normal volatility? And do you view this — the year as a whole, 2024 as a whole or 2023 as a whole sort of a good level to use for margins in individual life going forward?
Kevin Hogan: Yes. Thanks, Jimmy. In the universal life, it still has sort of the volatility effect. I mean LDTI did not necessarily change the reporting basis for the UL business. And in mortality, there is expected volatility. As you pointed out, the fourth quarter was a little bit high for us, but the previous couple of quarters were actually well within expectations. And as we look at the full year, just within UL, that remained within our expectations and across the entire mortality portfolio was within our expectations. And so we do view it as a full year level, and we haven’t seen anything in the data that suggests any change to our long-term assumptions.
Jimmy Bhullar: Thank you.
Operator: Our next question is from Tom Gallagher from Evercore ISI. Please go ahead.
Thomas Gallagher: Good morning. Just a follow-up on Ryan’s question. Given that you’re going to be setting up the Bermuda captive, are you more likely to consider internal reinsurance as your primary option to optimize capital? Or are you also strongly considering external potential risk transfer as well?
