Dan Houston: There was a fitting way to end this call and have it go to the one person retiring who has probably the most knowledge of any person I know around commercial real estate. It’s Pat. So, Pat, can you provide us with your insights on this one?
Patrick Halter: Yeah. Thanks for the question, Alex. Obviously, real estate and office in particular is under the radar screen and we are absolutely laser focused on our portfolio and ensuring it’s being valued, it’s being underwritten and it’s being monitored and managed appropriately. Just to level set a little bit, Alex, we have about $3 billion remaining in our overall commercial mortgage loan portfolio that’s in office. High quality office, Class A predominantly, 60% loan-to-value, and then office portfolio, that’s where the 30% reduction already in valuations. As you know, we appraise, and Deanna highlighted this earlier, we appraise our office portfolio on a quarterly basis. So, that’s a current loan-to-value, 2-point time — 2.6 times debt service coverage and that portfolio is 89% occupied currently.
Specifically, to your question, Alex, we have 11 loans that are maturing in 2024 in the office category, and as highlighted earlier, one of those loans already has paid off. But we really are going into that portfolio with a very strong position. The remaining 10 loans, 66% loan-to-value. But what I really want to highlight are three things; one is the debt service coverage ratio, which is 3.8; secondly, it’s 94% occupied in terms of that portfolio; and thirdly, the lease term is 5.6 years remaining in that office portfolio. So that $440 million remaining that is expected to mature for the remaining part of 2024, three of those loans are under $6 million in loan balance. So that remains seven loans, of which, as I think Deanna highlighted, 80% of those loans are going to be maturing in the second half of the year.
As I mentioned, we do intensive underwriting each one of those loans. Of those seven loans, we don’t see any sort of issues at this point in time relative to any credit losses and they are all current and paying, we have a lot of institutional investors in some of those loans. Again, high quality loan portfolio and with the sort of going in debt service coverage ratio occupancy and the long-term lease is still remaining in that overall portfolio, we continue to feel fairly good about the portfolio as we move it forward into the year. We’ll continue to monitor that very closely. The last thing you highlighted, Alex, was there are, I think, we provided in the deck, there’s a small portion of our overall portfolio. I think it’s about 1.5% of our overall portfolio, about 6.7% of the office portfolio, so about $200 million.
That equates to about $200 million. That’s in four loans. We continue to monitor those very, very carefully. We see probably one stress point in one of those loans today. So we could see a minor loss reserve in one of those loans as we look forward in the next quarter. But that’s all we see at this point in time, but we’ll continue to monitor those loans also. But the portfolio is in a very good place, it’s in a good shape right now, but clearly we have to be respectful of the challenges in the marketplace and the liquidity and the headwinds that continue to remain probably for the next couple quarters. Thanks for the questions, Alex.
Alex Scott: Thanks.
Operator: Thank you. Our last question is from Josh Shanker with Bank of America. Please proceed with your question.
Josh Shanker: Yeah. Thanks for fitting me in. I guess this one’s for Amy. Looking at the long-term guidance range around the benefit — medical benefit ratio around 60% to 65%, you guys did 61% this year. A lot of other companies in the space are reporting a much wider variance from the long-term expected average, 6 — midpoint of the range, 62.5%. You’re not that far away right now. Is dental providing some sort of balance that’s more normal compared to some other things or should we think that there’s something different in the portfolio at Principal that’s basically causing the normally good results as opposed to usually outsized good results in the benefits?
Dan Houston: Amy, please.
Amy Friedrich: Yeah. You’ve hit it right in mentioning dental. A lot of the other — when I look across the industry, a lot of the other changes that I’m seeing happen are with portfolios that are either primarily or solely kind of that life and disability portfolio. And again, when I look across our results for life and disability, I feel really comfortable that we’re setting ourselves up with a loss ratio range that’s going to give us both the right appropriate growth prospects and profitability. Dental does have — it’s a more highly utilized product. It does tend to have a different rhythm to the business. I think the great news there is that third quarter and fourth quarter, we continue to see a moderation of that loss ratio for us.
So we’re seeing sort of heading back into more normal cycles for dental and that does fuel some of our confidence in the ranges that we’re giving. Now, what I would say is, I’d just reiterate that Deanna mentioned in her earlier comments, we do expect 2024 loss ratios to be in that lower end of the range. So I feel really good about those comments, and the beginning of the year experience on those products looks strong.
Josh Shanker: And is that lower end life and disability driven or it’s the whole kit and caboodle is going to be at the lower end?
Amy Friedrich: Well, to use your technical term, the whole kit and caboodle is going to be at the lower end. So that is a full portfolio comment that I’m giving you.
Josh Shanker: Okay. Thank you.
Dan Houston: Appreciate that question, Josh.
Operator: Thank you. We have reached the end of our question-and-answer session. Mr. Houston, your closing comments, please.
Dan Houston: Yeah. Appreciate that. And thank you for your time today on the call. As you can tell, we’re very confident about our go-forward strategy and the value we’re able to create for our customers and our shareholders. Once again, Pat, thank you for your 40 years of service. You may have a significant contribution — you’ve made a significant contribution to the company’s success and for our customers, and for that, we’re quite grateful. With that, have a great day. Thank you for taking the time to be part of this call.
Operator: Thank you. This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.
