Tom Gallagher: Good morning. I wanted to circle back on the experience gains in life insurance. I must be doing something wrong when I’m calculating this because at least the way I’m trying to understand this, it looks to me like your mortality experience is favorable, probably as good, if not better than pre-pandemic levels. But just so if you could help correct the math here or at least explain the proper way to think about it, if I followed the logic on the experience gains in mortality for the quarter, I would have gotten $3 million negative for the assumption review for life, which would mean the $11 million gains would have been $14 million of experience gains. Is that – am I thinking about that part of it correctly?
Tom Kalmbach: Yes. It was $2 million for life. So it would be $13 million of favorable experience in the third quarter for life.
Tom Gallagher: Okay. And then is the way – is the $13 million representative of around 30% of the experience and then 70% gets capitalized and amortized? Is that still a proper way to think about the smoothing aspect to this or no?
Tom Kalmbach: No. That is a smooth number. So that’s 1.7% impact as a percent of premium to the obligation ratio. And what I’d say is third quarter was very favorable from a mortality perspective across each of the distribution channels. So that’s something we’re keeping an eye on to see if that continues or not, or whether it was just some timing. But yes, it wasn’t favorable quarter from a mortality perspective.
Tom Gallagher: Okay. So I’m not misunderstanding that if I just isolated Q3 and I looked at the claims experience, this to me looks like the best quarter you’ve had, I don’t know, in three or four years. Is that fair?
Tom Kalmbach: And if you look back to, I mean, it’s relatively assumptions that we have underlying it, but if you look back to like second quarter, the re-measurement gain on life was favorable by $2.4 million. That seems more normal to me. So that’s why third quarter was particularly favorable. And in the first quarter of 2023, it was $2.6 million. So again, really indicative of a third quarter that’s quite favorable.
Tom Gallagher: Okay. And again, not to get too in the weeds on this, but am I thinking about it correctly? If I was to say, what was the actual experience? Would I – would it be around $45 million of favorability on the total claims, but the majority of that gets smoothed? Or like, is that the gross claim number that would be favorable that I should be thinking about here?
Tom Kalmbach: That’s a lot along the lines of our rule of thumb, right, which is we said 25% of volatility comes through, but there’s quite a bit of, it really – there’s quite a bit of really, it depends on where that experience emerged as far as what the impact is in the quarter. So that’s a rule of thumb, but I think there’s devil in the details as we dig deeper into that. So I wouldn’t jump to that conclusion.
Tom Gallagher: Okay. All right. Yes. So suffice to say though, if you had a repeat of this quarter for a while, then there would be probably some consideration giving to changing future assumptions.
Tom Kalmbach: Agreed.
Tom Gallagher: Okay.
Tom Kalmbach: And I think that that’s right. That’s where you’d want to look and say, what is that long-term trend, you see in that many quarters in a row, and that would really be more indicative of something in the – that were – that the assumptions aren’t quite in line.
Tom Gallagher: Okay. All right. Thanks for the help.
Operator: The next question comes from the line of Wes Carmichael from Wells Fargo. Please go ahead.
Wes Carmichael: Hey, good morning. And sorry, I guess I got disconnected earlier, but I wanted to kind of still follow-up on the mortality trend question and I’m serious. And to Tom’s point to it was a good quarter favorable, but what do you – what are you thinking for 2024 in terms of assuming excess mortality? Is that just informed by the pandemic or are you expecting COVID deaths going forward or any other cause of death that you might be able to help us with in your expectation?
Tom Kalmbach: Yes. The excess death assumption that we have that underlies our assumptions grade off over time, over the next few years. So in 2024, we expect excess mortality to grade off be lower than this was in 2023 to be lower in 2024. And then again, we’d expect to be a little bit lower in 2025 as well. So we are kind of underlying thought here is that it’s just going to take some time to go back to more normal mortality levels.
Wes Carmichael: Got it.
Frank Svoboda: And then what I would – so that if our – if actual experience ends up being as Tom said that, you have that basic assumption that’s underlying our 2024 projections. And if actual experience does continue to be more favorable than that, then that is what will pop out then in those future quarters in revaluation gains. And again, to keep it in a little bit of perspective, keep in mind that, our life obligations are between $300 million and $400 million on a quarterly basis. So you’re looking at – if we’re looking at $2 million, $3 million of fluctuation in a particular quarter, that’s not a real high level of difference between those expectations.
Wes Carmichael: Understood. And then a different question, but to the extent, and I know you don’t really expect this, but to the extent you see any additional credit losses or ratings drift, would you let the RBC ratio fall below your 300% low end, or would you expect to kind of temper the buyback program to kind of maintain the capital themselves?
Tom Kalmbach: We would not let it drop below 300%. That would not be our plan. We would probably use some short-term financing to shore up capital levels at the subsidiaries.
Frank Svoboda: Yes. I would say that, you think of it at that point in time, if we were – we would make the commitment to maintaining that minimum level of RBC, but then we would think of it as a financing transaction at that point in time. How do we finance that? What’s our best way of doing that? We would look to alternative sources, more cheaper sources, if you would rather than the buybacks. And those would be our first line sourcing. And only if we weren’t able to find alternative sources, we then do know that we have the buybacks available to us, so we’re not concerned on our ability to do so. But we would seek to use other sources of financing before using the buyback.
Wes Carmichael: Got it. And maybe on the financing topic, any updates to your expectation for issuing debt? I think you said, previously you might do $300 million or maybe a little bit more in 2024.
Tom Kalmbach: Yes. I haven’t really solidified or around an amount, but again, would confirm we’d probably do at least $300 million to be index eligible. And we’ll just continue to look at market environments and when the best time to do that is.
Wes Carmichael: Thank you.
Operator: [Operator Instructions] The next question comes from a line of Suneet Kamath from Jefferies. Please go ahead.
Suneet Kamath: Yes. Thanks. Good morning. So just going back to the last quarter, I think you guys talked about a stress test of $25 million to $50 million of potential credit losses. I don’t recall hearing an update there, so I just wanted to see if there was one. And then somewhat related to, I think, Wes’ question, what are you building in for potential investment losses as we think about 2024?
