Daniel Houston: I think it’s another example of where Principal focuses on that SMB marketplace, where we still see growth and strong, vibrant SMB place in which we do business. Do you want to go ahead and cover that, Amy?
Amy Friedrich: A couple of questions embedded in there, kind of what’s going on on that line and then let’s look at it sort of sequentially. And the answer actually to both of those questions kind of comes back to the same product. One of the newer products in that group, and keep in mind when we look at group disability, we’re going to have long-term disability, short-term disability, and then paid family medical leave is going to be on that line. One of the things we’ve seen happen is that markets state by state have kind of been opening up with paid family and medical leave products. So, we participate in that marketplace. There’s markets that we participate in, Massachusetts, Connecticut, Oregon, Colorado. And one of the things you’re seeing flowing through those sales results is when you open up a state and when basically you say we have put a product in front of the state, they’ve qualified that product, say it’s an approved private plan carrier, and helped meet the state-driven mandate for meeting that coverage, when you’re part of that grouping, then those new products all kind of come in at the same time.
So those have been a little bit lumpier. What you’re seeing in fourth quarter last year for PFML was one of the states that opened up that came in that quarter, and then you’re seeing that again in first quarter. Actually, the one that came in fourth quarter last year on that line item was even a little bit larger than what we saw in first quarter. But it’s a good explainer for why that’s moving up. When I look at short-term disability and long-term disability, those are growing in ways we expected them to grow. So we’re seeing more like that 3% to 5%, 3% to 7% growth in some of those products in terms of new sales.
Operator: The next question is coming from John Barnidge of Piper Sandler.
John Barnidge: Maybe if we could stick with that strong specialty benefit sales in the quarter, can you maybe talk about growth from pricing versus employee count? It seems like there’s pretty strong growth outside of just the paid family leave expansion.
Amy Friedrich: Yeah, I’m happy to talk about that. One of the things that we always keep track of because we want to make sure that what’s happening with our growth – and again, we’re really pleased with the growth we’re seeing. We like the growth rates we’re seeing across our specialty benefits lines. But one of the things we look at consistently is what’s coming from what we would consider net new business versus what’s coming from that employment or wage growth and then what’s coming from rate action. When we divide that up in this quarter, we’re getting about 55% of our premium growth from that net new business. So by far the biggest number in there is that net new business. So that’s going to be new business we brought on minus any of the lapses that happened.
40% is going to be from a combination of employment growth and wage growth. The bigger driver there is still employment growth. And then 15% is going to be from rate actions. So in that employment growth picture, we are still seeing the smaller market be the driver of that employment growth. So if you’re an employer that has under 200 folks, that’s been the strongest employment growth that’s still happening. What we would consider mid-market, 200 to 500, has seen good growth as well. Our block, over 500 lives, is the place where that growth in terms of employment growth is really moderating.
John Barnidge: My follow-up question, you have a term capital allocation to strategic M&A in the presentation. With the change in non-compete laws, how does that impact maybe how you approach recruitment in asset management?
Daniel Houston: Yeah, great question. And frankly, we don’t use a lot of employment agreements here at Principal. I’d like to think that the culture that we’ve built allows us to attract, retain talent for the organization. Within asset management, we’re paying competitive fees, we have a lot of flexibility, and we’ve had frankly not a lot of turnover. So in the grand scheme of things, I don’t really anticipate that that’s going to alter Principal’s ability to attract, retain talent. As it relates to our clients in terms of opportunity, we know from the studies that go out there that employee benefits matter, strong retirement plans, health care, specialty benefits. So we actually think it plays to the strength of making sure that the employment environment is healthy and people want to be part of that.
The other thing, as you very well know, is we’re a big player in the non-qualified deferred compensation space, which is another one of those areas where you think about locking in talent and having the proper plan designed. We do a lot of work with employers in designing ways to retain talent. Having said all of that, I’ll see if Kamal has anything as it relates to anything within asset management.
Kamal Bhatia: John, just to add on. Dan has covered it very well. I think you’ll remember that we are one of those firms that continues to get year over year the reward for being best places to work in money management. And one of the reasons for that is the culture we’ve created in our investment management or asset management division. And two of those reasons are obviously the investment culture that really encourages independent thinking and independent growth, which is what the top-tier investment talent always looks for. We don’t have a top-down view. And our view is you can create an environment where the best investors can do their best work without having a big legal structure around it. And so, I would just point to that as the additional data point.
Operator: The next question is coming from Wilma Burdis of Raymond James.
Wilma Burdis: Just talking about the specialty benefits loss ratio, it appeared to be a little bit favorable despite the seasonal impacts. Could you talk about some of the repricing and should we expect it to continue throughout 2024?
Amy Friedrich: Yeah, so it is looking favorable. What I would say is we continue to reiterate that that long-term range that we have is – we’re going to be probably towards the lower end of that range. We have definitely seen the market as well as our portfolio do a little bit of repricing. What I would say is, though, that’s not been in one consistent direction. So some of the things we’ve had to do with our pricing to realign the experience we’re seeing emerging in dental means we did a little bit of that rate increase action. Some of the things we were seeing in some of our disability block has meant that we’ve taken that down. So in sum total, what we see is that we think the rate actions that we’re taking, the rate environment, the competitive environment that we’re seeing is going to mean we’re still going to sit towards that lower end of the range.
