So what I would say though is, it does take a little bit of time for that to catch up. You do some things differently with your in-force block versus your new business pricing. So I would guess as we come out through ‘23 and into 2024, you would still see even us slowly kind of moving that into our in-force or new case pricing. But it will – I mean in a well-run business, it will get back into pricing so that it can benefit the growth of the whole industry. The other point I would say, though, is that, you do – it does matter the composition of your block. So for example, our block is about 70% what we would consider knowledge workers. So those knowledge workers are going to have really great options in terms of when you think of claims recovery in terms of hybrid or remote working options.
So if you’ve got more of your block of business in those knowledge industries, your ability to consistently move that into your block, the benefits of that into your pricing and into your results are going to be higher than if you have a lot more in like retail or manufacturing sectors. So the composition of your block matters, the reratable nature whether you’ve locked in multiyear rate guarantees matters, and it’s going to factor into everybody’s ability to grow.
Dan Houston: That helps, Suneet?
Suneet Kamath: It does. Thank you so much.
Dan Houston: Appreciate the question.
Operator: Our next questions come from the line of Alex Scott with Goldman Sachs. Please proceed with your questions.
Alex Scott: Hi. I wanted to see if you could talk a bit about the margins and just the sustainability of margins that are running at a pretty nice level just partly probably driven by the recovery in some AUM over the last couple of quarters or a few quarters. And how should we think about your ability to hold on to some of that and kind of keep the flexibility versus some of the pressures from inflation, obviously, ongoing and so forth. Any way to think through that in terms of the more short-term targets that you guys communicated?
DanHouston: Yeah, Alex, it was a little garbled there towards the end. But certainly, I appreciate the question around margins, our ability to maintain those margins. And the first thing I’ll say before handing it over to Deanna is, we have an ongoing vigilance around aligning our expenses with our revenues to make sure that we’re protecting margin for our investors. In extreme markets, it’s more challenging. But again, we do try to anticipate this to some degree and to make sure that we are again, being focused appropriately on growing our businesses and making the appropriate investments while at the same time taking out unnecessary expenses. So Deanna, maybe you can sort of anticipate frame the margins on a go-forward basis.
Deanna Strable: Yeah. I’ll frame it in total. And then Alex, if you have some specific businesses that you want to go into a little bit deeper, you can bring that up and we can pass on to the appropriate President. It was a very strong margin quarter across almost all of our businesses. I’d say we obviously were benefiting relative to outlook from some of the early in the year market strength. And as you know, some of that did retreat as we went through the third quarter and in the fourth quarter. The other thing I would say is that, we did mention on the prepared remarks that we do have some seasonality in our expenses. We do expect that to be less than typical, but you will see some impact on fourth quarter margins from that as well.
That does impact all businesses with a slightly larger impact in our retirement business. But I think the good news is bringing us back to the full year, we do still feel really good about our targeted margins. And ultimately, we will be laying out kind of our expectations for 2024 in the February outlook call. But we continue to be very targeted and focused on maintaining those margins and doing what we need to do to keep us in those levels.
Dan Houston: You have a follow-up, Alex?
Alex Scott: Yeah. The follow-up I had is on PGI. I wanted to ask about just the broad industry pressure that active asset management is facing. And what are the strategies that you all are deploying to be able to sort of resist some of those pressures? And anything nuance that you’re working on there to help flows?
Dan Houston: Well, one thing we all know, Alex, is, there’s no shortage of challenges out there in terms of geopolitical risk and economic volatility and extreme interest rates and certainly inflation. And I think the right person to tackle this one is Kamal. So Kamal, do you want to provide some insights, please?
Kamal Bhatia: Sure. Thanks, Dan. Thanks, Alex. Yeah. I’ll give you a perspective, Alex, on where we see client engagement and client sentiment, because that’s the best measure of where we see the industry going. I would probably highlight for you two dimensions here. One, I think, as Dan talked about, most investors have been very well rewarded and they’ve been smart, particularly when it comes to achieving their goals by taking less risk and focusing on coupon yields. As you know, we are getting a lot of interest on our specialty income capabilities. And the reason we are seeing more and more of that recently is, because a lot of investors are now focusing on total return solutions rather than simply looking at the coupon yield.
Most of these institutions and including some of our wealth management partners really realize that we are probably at an early dawn of a long cycle with a total return capability would probably benefit them, and that is certainly something we have great performance and great capability on. The second piece, as you’ve seen is, we continue to do extremely well in our real estate franchise, but we tend to have a lot more conversations on private markets. And one of the things that’s driving that continued engagement and our confidence in future success is, we have some very, very long tenured strategic relationships. And as we go through this market cycle where there is a desire to work with partners that have experienced through transition and discovery, Principal Asset Management is well positioned and there are a couple of reasons for it.
One is, we have this amazing capability to work across public and private markets, which is important during these times. We also have a true understanding between debt and equity, and we can offer a full service solution to them. And I would highlight that we have had a continuing excellent culture of client service with some of these large relationships that continues to benefit us. So as you highlighted, the active management space is stressed, but we do have some capabilities that give us high confidence from that perspective.
Dan Houston: That help, Alex?
Alex Scott: Yeah. Thank you for all the detail.
Dan Houston: Appreciated. Thank you.
Operator: Thank you. Our next questions come from the line of Wilma Burdis with Raymond James. Please proceed with your questions.
Wilma Burdis: Hey, good morning. Could you discuss the favorable impact of mortality on the pension risk transfer business in the quarter? And whether this is something you would expect to continue?
