The following is excerpted from the question-and-answer section of the transcript.
(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)
Question: Alex Scott - Barclays - Analyst
: Hi, good morning. First question I wanted to ask is just on the strong statutory earnings this quarter, and I think there was part of it that was
nonrecurring, and you all have been pretty clear about the expectation there. But I wanted to understand like how much of an offset do you exact
from growing the business, just acknowledging the strength in RILA sales and so forth? Like how much sort of net uplift RBC that is more readily
available to send to the holding company do you expect to have annually?
Question: Alex Scott - Barclays - Analyst
: Okay. Second one I have is on Brooke Re and I know there's a little bit of noise just around the hedging this quarter, but as we think through that
structure, I think over time, you guys have said there is positive margin between the fees and the cost of hedging there on these riders, what point
would you have the confidence to actually take a common dividend and have that help the overall cash flow of the company. And I appreciate
you said it up recently, but I'm just sort of interested in the more medium and long term there.
Question: Suneet Kamath - Jefferies - Analyst
: I just wanted to talk about the capital generation. Your comment that you're running over $1 billion year-to-date. But if we look at the holdco
dividends, they're about half that level. And I know 2024 is a little bit of an odd year because of the whole setup of Brooke Re. But is your expectation
that in a normal year over a 12-month period, you would send $1 billion to the holding company?
Question: Suneet Kamath - Jefferies - Analyst
: Okay. Got it. And then I guess my other question was -- and I think you hit on this in your prepared remarks, but when you price and hold capital
for RILA, are you holding capital sort of on a stand-alone basis? Or are you embedding that diversification benefit that you get with the traditional
VA business?
Question: Suneet Kamath - Jefferies - Analyst
: Got it. And if I could just sneak one more in. One of your competitors earlier this year has talked about pretty sizable basis risk year-to-date, I guess,
just given how skewed the S&T's performance has been from a handful of stocks. Are you seeing any of that in your results?
Question: Ryan Krueger - Keefe, Bruyette, & Woods - Analyst
: First one was on for Brooke Re. Can you provide us a little more color on or at least quantification on how the capital has moved at Brooke Re on
Question: Ryan Krueger - Keefe, Bruyette, & Woods - Analyst
: Okay. Got it. And then when I look at the market risk benefits roll forward, it looks like there's been a fairly consistent amount of negative impact
from actual policyholder behavior versus your expectation at $514 million year-to-date. Can you give some additional info on what is driving that?
And how to think about that as we go forward?
Question: Ryan Krueger - Keefe, Bruyette, & Woods - Analyst
: Just one quick follow-up to that. Is this -- is what's happening currently mostly lower-than-expected lapse rate? Has that been the short-term
deviation?
Question: Tom Gallagher - Evercore ISI - Analyst
: A few questions. First, just on the hedging. The -- I guess, excluding the equity vol which you -- it's excluded for purposes of Brooke Re capital. It
looks like you had about $130 million of hedging losses in the quarter. Just curious what caused the hedging losses, which factors?
And how big of a loss when we think about hedging in Brooke Re? How big of a loss or how much of breakage would you need to see before there
would be some capital implications? It sounds like you have a pretty big buffer there, but just want to get a broad sense for what that would look
like.
Question: Tom Gallagher - Evercore ISI - Analyst
: That's helpful, Don. So as a bright line test with the $700 million of hard assets that you funded with initially, if that if you went through that, would
that be one way to think about it? Because I know you have other equity, but the rest of the equity that's been created there which is essentially
an embedded gain from the embedded derivatives doesn't really feel like real equity. I mean, I don't know if the regulator views it that way.
But just curious like how you -- is that a reasonable initial level to think about if you depleted that $700 million, which obviously you're way away
Question: Tom Gallagher - Evercore ISI - Analyst
: Got you. And then just the.
Question: Tom Gallagher - Evercore ISI - Analyst
: Got you. And then I just -- my follow-up is just on sales. The big ramp-up in fixed and FIA sales in Q3. I heard your comments about -- I think you
said probably not going to stay at that level. But I guess my question is that's probably the most competitive part of the life insurance market. That's
where all the alternative managers are operating.
How do you think about stand-alone ROEs? Like I heard everything you said about diversification. That all makes sense. But I can't imagine these
are particularly high return sales like RILA, in my view, probably a much better quality sale for you.
So why like enter into that market in such a big way if that's, in fact, where most of the competition is intense in pricing, I don't know that's a bit of
a rambling question, but what kind of returns do you think you're actually getting on those product sales?
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