Ramy Tadros: Sure, Ryan. It’s Ramy here. Good morning. I would say, in terms of our view of the competitive dynamics of the group business, it really hasn’t changed. I mean, we’ve always talked about this as a competitive marketplace. And one, because of the short-tail nature of this business is on the whole rationale. And we also think and see that this is a market where there are many avenues for differentiation beyond price. And look, if you have the scale to invest in the business, you can create true differentiation in this market and grow profitability – and grow profitably. So the price, while important, becomes one out of multiple factors in the consideration set. So with that background, we’re very pleased with our growth in sales this year.
You saw a 25% increase in sales year-over-year. I should note that the strength of that momentum was across the board. So life, disability, dental as well as our voluntary suite of products. And from a pricing perspective, we’re very pleased with the rate adequacy we got for that new business. And we’re also very pleased with the rate increases that we got on renewals that were commensurate with our targets. So it’s not a pretty solid picture, both in terms of the growth, persistency as well as the pricing and the rate increases.
Ryan Krueger: Great. Thanks a lot.
Operator: Next, we move on to Wes Carmichael with Autonomous Research. Please go ahead.
Wes Carmichael: Hey, good morning, and thanks for the question. I had a question on pension risk transfer. I know you guys didn’t have any deals in the quarter. But there were some deals that were done that were reasonable size and Petersen [ph] has plenty of capital to support this marketplace right now. And there’s actually another ongoing call right now that one of your peers are saying that PRT is not that good of a business this year, there’s not as much spread. So I’m just wondering if pricing is getting more competitive there, if there’s any dynamics changing in the marketplace.
Ramy Tadros: Thank you. It’s Ramy here, again. Look, the – we’re coming off a very successful 2023 year in terms of PRT, we wrote five cases totaling more than $5 billion in premium, and that was off the back of a record year in 2022, where we wrote more than $12 billion of premiums. This business is lumpy. So I would remind you, we did not win any deals in Q1 of 2023 either, and we did not win any deals in Q1 of 2024. But having said that, we continue to see a very robust pipeline ahead of us, particularly for the jumbo end of the market, where we focus. And this is not surprising. We’ve got very healthy funding levels of defined benefit plans and the desire for large plan sponsors to derisk. And we see this trend continuing for many, many years, and we’re well positioned to win our fair share of the market here.
From a pricing perspective, I would just emphasize what we’ve always said is that we look at these jumbo PRT deals with an M&A lens, and you kind of need to do that given the large quantum of capital that any given deal can consume. And we’re very disciplined to ensure that we deploy that capital to its best and highest use. So we evaluate each transaction carefully. We will only deploy capital if the risk-adjusted returns are healthy and the ROEs are aligned with our enterprise targets. And as you look forward, we still see this as a large profit pool, a big opportunity and one where we’re going to get our fair share.
Wes Carmichael: Thanks, Ramy. And Michel, I think you talked about higher rates increasing the attractiveness of your products. Just wanted to get a little perspective on capital deployment and how you’re thinking about allocating capital towards growth in capital-intensive businesses where you can generate good IRRs versus buying back more stock, which continues to be pretty strong.
Michel Khalaf: Yes. Sure, Wes. Thanks for the question. So our philosophy and approach is that we want to support organic growth. We’ve been doing so consistently. And you can see from our VNB disclosures the returns that we’ve been able to generate high teens and paybacks in the sort of mid-single digits. We like a good balance in terms of supporting organic – deploying capital in support of organic growth. We continue to be in the flow looking at potential M&A transactions. We consider M&A to be a strategic capability here, but we’re extremely disciplined when it comes to strategic set and sort of a consistent basis globally by which we look at M&A transactions. And then excess capital, as we’ve said, belongs to our shareholders.
We want to continue to have an attractive dividend yield, and you can see that we increased our dividend by 4.8%. And then share repurchases, it’s also sort of part of the equation. And so it’s that balance that we like to maintain. And – but we’re certainly very keen on continuing to deploy capital in support of organic growth at attractive returns.
Wes Carmichael: Thank you.
Operator: And next, we move on to Jimmy Bhullar with J.P. Morgan. Please go ahead.
Jimmy Bhullar: Hi, good morning. So first on the question for John on your spreads in RIS healthy overall, but we saw a sequential decline in spreads, excluding variable investment income. And I think you attributed that to the expiration of some of the interest rate cap. So I’m wondering if you could give us some idea on the trajectory of that? And should we assume sort of a similar level of an impact from caps that are expiring in the next few quarters? And when should we assume that dynamic is going to be over.
John McCallion: Good morning, Jimmy. Thanks for the question. Yes, I think it’s pretty much in line in terms of the roll off of the – given the roll-off of the cap. So in terms of XVI, that was generally in line. I think VII came in better than we expected. As you recall, we talked about a 115 to 140 spread range for the segment. So the middle of the range was 127 for the year. We still think that’s the right answer. And the way we got there was that we have a kind of a quarterly roll off of these interest rate caps. Remember, we bought these back a while ago when there wasn’t a risk of rising rates, but is to protect against a short-end rise fairly quickly so that it allows the long end to kind of emerge in over time.
It’s basically worked as planned. But they all effectively roll off for the most part throughout this year. So in terms of expectations, we will see another – so I think it was 10 bps maybe decline between 4Q and 1Q. I think 8% to 10% next quarter is not a bad estimate. It will depend on what VII does next quarter. We still think VII has kind of a reemergence to occur. So we had a good quarter this quarter, but that can gradually grow throughout the year, probably a bigger growth in the second half. And then probably have one more quarter of 8 to 10 bps occurring, and it flattens out between third and fourth quarter, basically, it’s minimal, if not immaterial roll off. So that’s how to think about the roll off, and that’s how we get to the midpoint of that range when we gave the guidance.
