So this has to correct. In terms of the price changes. Now, these really aren’t a typical negotiation. The state governments set the rates. Now they certainly listen to the input of the contractors, and there are many contractors, not just dental, but medical as well, and we’re not the only dental contractor. We certainly provide input and data where we can, but ultimately, the states set those rates. Now the reason we’re confident that they will reset the rates to the appropriate level is there’s a more than 20-year history here of the state setting the rates very fairly and within a very narrow range of what’s needed. This is obviously a shock event that’s never happened before. The states really — even though I think they anticipated some of this impact, did not anticipate this big of an impact on the average utilization and the loss ratio as they disenrolled the non-utilizers or the lower utilizers.
So the states have the programs properly funded. That’s a long history, and we fully expect that they’ll put the rates back at acceptable and appropriate levels. But they do that as per their natural schedule. So that’s why we talk about — we’ve — there’s actually 18 major contracts that constitute the 83% of the business that should be fully repriced by November. And so far, we’ve gone through eight of those contracts, and seven of them have repriced at/or better than the rates that we think are needed based on the emerging experience. So far, so good, but we have a ways to go as well.
Doug Young: Okay. Perfect. And then just, Kevin, I know I think I’ve asked you this before, but I’ll throw it out here again. You have this in-force management business from time to time, it gives you a little volatility this quarter. I think it was on the credit side. And I guess the argument about not needing the capital and it generating a nice earnings and ROE. But again, it puts up volatility from time to time. At what point do you pull the trigger and reinsure that business? And what would be the driver to do that?
Kevin Strain: So there’s a number of things. That business continues to hit our hurdle rates for ROE and how we think about it. It’s also a good provider of cash flow back into SLC. If you think about a lot of SLC’s competitors in the US, they’re buying closed blocks of business because they like the cash flow. So that — those would both be parts of us factoring into our thinking. We’re always looking for different solutions to make it more capital efficient. So we would, time to time, see different things and assess them. But at this point, the combination of the results and also the cash flow into SLC, we think, is important. Kevin wanted to add a comment.
Kevin Morrissey: Yeah, Doug, it’s Kevin Morrissey. The only thing I wanted to add there is on the credit side. What you’re seeing in that credit line is the losses that we experienced in the quarter and the release of the provisions is in the expected investment earnings. So on a net basis, we actually have a net gain. So if you look at credit, with large from an overall perspective on that block, it was a net positive contributor to underlying earnings.
Doug Young: Kevin, I understand. But can you tell us, maybe at the consolidated level, what is the typical annual release of the credit provision? And then in the credit line, like typically, what would you expect? Like would you expect between the net — between the two to kind of be breakeven? Like can you kind of talk a bit about that?
Kevin Morrissey: Sure. I can give you a kind of a high level. We see a release in the expected investment earnings of about $35 million per quarter. And so you can see that, that’s a net positive. Longer term, that’s our expectation, right? So we would expect to see kind of that largely neutral, that has an expected component and a risk margin. So maybe over time, we’d expect to see a slight positive from that in terms of net release of those risk margins. But that give you a sense for kind of what we would expect longer term.
Doug Young: Appreciate the color. Thank you.
Operator: The next question is from Gabriel Dechaine with National Bank Financial. Please go ahead.
Gabriel Dechaine: Yeah. Good morning. First question, just on the CRE stuff, both in the — on the investment experience and it sounds like at SLC. I heard the negative investment experience in CRE mostly was tied to industrials this quarter. And then in addition to that, there is seed capital losses or no gains, whatever, in an industrial front? Is that the — what I’m hearing?
Randy Brown: Hi, Gabriel, it’s Randy Brown. So thank you for the question. Yeah, the losses that we saw in CRE this quarter, I’ll talk about the overall level. And then if Steve wants to comment on SLC. So we were down about 1% total rate of return. So despite the headlines and everything we read about the disaster in real estate, portfolio is actually faring quite well, really benefiting from the restructuring that I talked about in the past. The valuation drop was mostly industrial, but also office. On industrial specifically, the valuation changes, Steve touched on it, were really based on a couple of factors. For us, for the general accounting was primarily in the Inland Empire, Inland from LA, so it’s services support. We had seen outsized gains there in prior quarters.
This quarter, we had a cap rate in yield decompression, which we expect, but also a drop in the achievable rents. So there had been very strong development completions and extensive growth in that specific area throughout the pandemic, which led to an oversupply bubble that’s putting downward pressure on rents. So it’s not only cap rates decompressing. You saw forward rent growth expectations drop. Now that oversupply, we expect to be temporary as industrial completions dropped to the lowest level in 14 years there. Overall, that being said, our portfolio there, 100% occupied, strong tenants, extended lease terms. So doing quite well. Office continues to experience negative valuation changes again as the market seeks a floor. But we’ve seen the pace of those drops slowing down.
Gabriel Dechaine: Yeah. So it sounds like a temporary supply issue, not a secular type thing we’re seeing in office.
Randy Brown: Yes, completely.
Gabriel Dechaine: Okay. And moving on to this DentaQuest stuff. This is my question, I mean a silly one, but were you caught off guard by this — the redetermination impact and then the kind of the claim dynamic where the coverage that was trimmed or purged had lower utilization rates because — I mean, it certainly caught me off guard and because this is the year where we were expecting to hit that $100 million of earnings contribution and that, I guess, is getting pushed back to next year, right?
