So, given the improvements that we’re seeing in the underlying business, we do believe this is a necessary part of our strategy and is going to significantly improve net income next year. Also, what you’re seeing in terms of OIE this quarter is an increase in acquisition costs. So, as we’re paying commissions on our embedded partnerships, and as we’re deploying marketing spend, which does run through the sales and marketing line item, as we’re deploying that marketing spend, that is resulting in an increase in underwriting costs, which also flow through the OIE line item.
Tommy McJoynt: Thanks. And just to clarify, you did mention earlier that the one-time reinsurance cost on the commutation was $6 million, and that’s what flew through this line?
Megan Binkley: Yes, that’s flowing through this line. So, essentially, it’s primarily related to the commutation. So, that’s representative of the unwind of deferred ceding commission revenue that we don’t expect to earn in.
Tommy McJoynt: Okay, got it. And then just my second question is, as you ramp up premium growth, both on a gross basis and then effectively on a net basis as well, since you’re increasing your retention, can you talk about how much statutory capital you have and how much net written premium that allows you to write?
Megan Binkley: Yes, thanks, Tommy, for the question. I mean, as we sit here today, we’ve got about a half a billion and unencumbered capital, plus surplus across our insurance subsidiaries, supporting roughly $600 million of trailing 12 months gross written premium. That premium is and continues to be supported by our volatility covers, which protect us from large losses and tail events. I want to make sure it’s clear that we’ll continue to purchase those covers going forward. We believe we’re in a good capital position. Our regulated insurance companies are more than adequately capitalized. Our subs continue to exceed the minimum required capital levels, and we are monitoring these capital levels constantly. Of course, growth does require capital, and our first priority is maintaining capital adequacy.
Second priority is driving the business to profitability, and our third priority is growth. And those are our priorities in order. We believe that we are on the path to execute on all three of these priorities. We have put in significant work over the past 18 to 24 months to really right-size the business, execute on pricing and underwriting improvements, and execute disciplined expense management initiatives. So, you’re seeing that really reflected in our year-over-year operating improvement. I think it’s also important to note that the majority of the business that is returning to us net from the commutations that we executed this quarter, is really seasoned renewal business that has more favorable loss ratios, and also business that we’ve underwritten recently with improved pricing and segmentation.
So, we’re ready and able to take this profitable business back onto our books. We believe that the strategy further supports our underwriting profitability over the long term. You also mentioned growth in your question, so I also want to make sure it is clear that the capital that we are deploying right now for growth, that is purposeful. We are attracting business that we believe is accretive to our long-term profitability and goals for scale. Again, incremental growth does require capital, but our capital requirements are also contemplating the favorability that we’ve seen in the loss ratio and the expense ratio. So, we’re constantly modeling these capital needs and we do not intend to sacrifice capital adequacy and profitability for growth.
Tommy McJoynt: Thank you.
Operator: The next question is from Yaron Kinar with Jefferies. Your line is open.
Unidentified Analyst: Hi guys, good morning. This is Charlie on for Yaron. I recognize that this is going to be a bit of a generalization, but could you guys just discuss in a little bit more detail what the risk profiles of the customers coming through D to C look like relative to your embedded partnerships?
