Ryan Krueger: Hi. Thanks. Good morning. I had a question on expenses. So you had the Spark initiative in place, which you previously detailed the potential benefits from — you didn’t directly reference that when you were talking about evaluating expenses. So my question is, are you looking at expense actions that would be different and above the Spark initiative? Or you are — you kind of doing a full new analysis on how to think about expenses?
Ellen Cooper: So Ryan, thank you for this question. So we are first of all, as it relates to Spark, which we have talked about previously, and is an enterprise-wide expense initiative. We are on track, and we are going to continue to execute on everything that we’ve talked about previously. And so the expectation here is that we will get to an expense a run rate benefit by late 2024 of about $260 million to $300 million. And just as a reminder, for this year, that net save is more in the range of about $60 million to $100 million. So incremental improvement along the way. Now the Spark initiative has really been focused on the modernization of technology of putting applications, legacy applications onto the cloud of reengineering processes and improving automation — and so it’s definitely giving us a lift.
We see an opportunity to your exact question that is bigger and broader and in addition to incremental to Spark that we are examining right now, and we’ll be able to update you further in the beginning of the year. So the expense pressures, obviously go above and beyond the scope of the Spark initiative and we have every plan to take action to address them and identify the opportunities and be back to you as soon as we can with more on that early next year.
Ryan Krueger: Great. Thanks. That’s helpful. And then just on Linbar, the $50 million, any sense of used to take, I guess, $100 million, $125 million a year. Do you think that’s kind of the right way to think about what the eventual run rate could be again? Or is it too soon following the changes to the hedging program? .
Chris Neczypor: Ryan, thanks for the question. I think that it’s early, right? We’re nine months into the year. I would say we feel comfortable given that third quarter, we saw some volatility and some downward moves in the markets. And so you got to see how the hedge program did with a little bit more choppy waters. Fourth quarter looks to be a little bit of a continuation of the same. So I think we felt good taking 50 out in the quarter. We obviously didn’t take anything out in the previous quarter as it relates to what the long-term run rate is. I think it’s a little bit too early. So we feel good about the program, it’s doing better than expected, but we’d like to get a little bit more time built before we make any long-term decisions.
Ryan Krueger: Got it. Thank you.
Operator: Your next question is from Mike Ward of Citi. Please go ahead. Your line is open
Mike Ward: Hi, guys. Thank you. I was just curious about the assumption review. If you could help us sort of characterize the changes in assumptions as whether is it more just prescriptive under LDTI or is it more new behavior information or just a rightsizing of prior assumptions.
Chris Neczypor: Sure. Mike, thanks for the question. So look, just to step back, it’s a significant process that we undertake every year, right? We look at over $100 billion of reserves. We reviewed the key assumptions around mortality, policyholder behavior or capital markets across all our major business lines. So it is a comprehensive review LDTI, non-LDTI all four businesses. And so for this quarter, I would say we had a number of pluses and minuses. I’ll just walk you through maybe at the segment level. So Life had $156 million of unfavorable that was a mix of adjustments across a number of different assumptions and really looking at the entirety of the UL block. So $145 million of that was from policyholder behavior. And there, really, we just had another year of experience as well as another year modeling improvements.
$20 million was due to mortality where we’ve seen some weaker older age mortality, I think, similar to the rest of the industry. Annuity had $12 million of unfavorable there, that was also mostly around mortality, although $12 million relative to the size of that block is somewhat immaterial. Group actually had a positive unlocking driven by a more favorable view around our LTD claim termination rate and look, net-net, there wasn’t one large assumption change that drove the aggregate charge. I do think that when you take into account that we had new leadership basically across the board as it relates to this process, we feel really good about where we landed in the validation of the assumptions. So there’s always going to be some probability pluses and minuses as you move forward when you’re throwing up experience, but we feel pretty good where we landed.
Mike Ward: Got it. Okay. So then is there any change in the run rate sort of earnings profile go forward for Life or Group? .
Chris Neczypor: Not for Group. For Life, there will be about a $5 million per quarter run rate impact negative. Although one of the things to look at when you see the queue, post the Fortitude deal the run rate from a GAAP perspective. So no change to the economics, but from a GAAP perspective, the run rate would actually get a little bit less onerous, so a little bit less of a negative as basically we’ve had to write down some of the assets over the past two quarters, and then you basically have less of a loss to amortize that over time. So the net of those two things will probably be about a wash from a run rate perspective. But to answer your question specifically, as it relates to the unlocking for Life, it will be about a $5 million run rate impact, largely offset by slightly better expectations from a GAAP perspective as it relates to the deal.
Mike Ward: Thank you.
Operator: Your next question is from John Barnidge of Piper Sandler. Please go ahead. Your line is open.
John Barnidge: Thank you very much. Appreciate the opportunity. Can you talk about the legal accrual? Other companies with retirement businesses have reported accruals for electronic communications. Thank you.
Chris Neczypor: So John, what I would say is we’re not going to comment on legal accruals. I would refer you back to the language in the 10-K, where we put in disclosures what we can. So I wouldn’t — we’re not going to comment on legal accurals.
John Barnidge: Okay. I appreciate that. And then as we think about the opportunity for expense reductions above and beyond the Spark initiatives, is there an opportunity to create an offshore captive for parts of that? Thank you.
Ellen Cooper: So John, as we mentioned, as it relates to the broader expense initiative, we are in the process of evaluating, and we view very much not only is this a top priority, but a real opportunity for is as we move forward. So just stay tuned. We will be back to you in the beginning of the year, and we’ll be able to provide you additional detail on where we’re headed on the strategy around it and how we also believe that an expense reduction program will support our future goals as it relates to improving ongoing earnings, free cash flow, capital, et cetera, but also the efficiency and effectiveness of the Group and expansion of talent as well.
John Barnidge: Appreciate that. Thank you.
Operator: Your next question is from Jimmy Bhullar of JPMorgan. Please go ahead. Your line is open.
