Good morning, and welcome to the Principal Financial Group Second Quarter 2020 Financial Results Conference Call. There will be a question-and-answer period after the speakers have completed their prepared remarks. [Operator Instructions] I would now like to turn the conference call over to John Egan, Vice President of Investor Relations.

Thank you and good morning. Welcome to Principal Financial Group’s second quarter 2020 conference call. As always, materials related to today’s call are available on our website at principal.com/investor. Similar to last quarter, we posted an additional slide deck on our website with details on our U.S. investment portfolio. Following the reading of the safe harbor provision, CEO, Dan Houston; and CFO, Deanna Strable, will deliver some prepared remarks. Then we will open up the call for questions. Others available for the Q&A session include Renee Schaaf, Retirement and Income Solutions; Tim Dunbar, Global Asset Management; Luis Valdés, Principal International; and Amy Friedrich, U.S. Insurance Solutions. Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company’s most recent annual report on Form 10-K filed by the company with the U.S. Securities and Exchange Commission. Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures may be found in our earnings release, financial supplement and slide presentation. Our 2019 corporate social responsibility report was released a few weeks ago. Learn more about how we are working to build a more inclusive, resilient and sustainable global community by reading the report on principal.com. Dan?

Thanks, John, and welcome to everyone on the call. I hope you’re all well and have found some sense of normalcy during these unprecedented times. This morning, I’ll provide an update on how Principal’s responding to the COVID-19 pandemic and its impact on our global economy, our strong financial position, key performance highlights for the second quarter and how we are well positioned for long-term growth. Deanna will follow with additional details on our capital and liquidity position and our investment portfolio as well as impact from COVID and our second quarter financial results. The safety of our employees and our customers continue to be top of mind as the vast majority of our employees continue to work remotely. Our previous investments in technology and our accelerated digital investments have enabled us to rapidly meet the challenge of a changing operating environment. Our ability to communicate effectively with our employees, distribution partners and customers has allowed us to minimize disruption and service to our 32 million global customers. Consistent with our core values and mission, we continue to help our customers and communities through this pandemic. Since announced in April, The Giving Chain powered by Principal has provided more than 50,000 meals for more than 120 businesses and over 30 communities around the world. And we continue to focus on reducing the financial burdens that our customers may be facing by waiving certain fees for participants taking COVID-related withdrawals and loans from their retirement accounts. We’re also working closely with plan sponsors and group employer customers to maintain their retirement and protection plans. This pandemic has certainly created some challenges for Principal to overcome, but our diversified business model has been resilient. I’m confident that we’re in the right businesses with the right teams in place and we’ll continue to…

Thanks, Dan. Good morning to everyone on the call. I hope you are all staying safe and healthy. This morning, I’ll discuss our current financial position, details of our investment portfolio, impacts from COVID-19 and the key contributors to our financial performance for the quarter. We remain committed to helping and protecting our customers through this pandemic. COVID has certainly impacted where and how we do business, and we’ve included additional details in our conference call presentation to highlight the various impacts many of which have yet to fully materialize. While there is continued uncertainty on how COVID and the related market impacts play out over the next 12 to 18 months, I’m pleased that many of the metrics we’re tracking are trending better than we expected they would a quarter ago. As shown on Slide 8, our capital and liquidity position remains strong. At the end of the second quarter, we had $3 billion of available cash and liquid assets at the total company, and we have $800 million of untapped revolving credit facilities available for liquidity purposes. We had $2.3 billion of excess and available capital at the end of the quarter. This includes nearly $1.6 billion at the holding company, almost $750 million higher than our target of approximately $800 million to cover the next 12 months of obligations, $400 million of available cash in our subsidiaries and $340 million in excess of our targeted 400% risk-based capital ratio at the end of the quarter estimated to be 422%. The RBC ratio is higher than our target due to uncertainty in the timing and impact credit drift and credit losses could have on the rest of 2020 and beyond. Over time, we expect the RBC ratio will trend down to our targeted 400%. Our excess capital at…

[Operator Instructions] And the first question will come from Suneet Kamath with Citi. Please go ahead.

Thanks. Good morning. First question on RIS-Fee. Just looking at Slide 15, it looks like your net revenues increased about 19%, but the earnings, whether reported or sort of normalized, were down kind of 8% to 12%. So I’m just trying to understand what the disconnect is between revenue growth and earnings growth.

Yes. Thanks, Suneet, for the question. I’ll just ask Renee to respond to that. Renee?

Yes, absolutely. Suneet, thank you for that question. I think in order to understand the results that we’re seeing here, it’s important to look at both the legacy business as well as the IRT business. And first off, if you look at the legacy business, as Deanna indicated in her remarks, we are seeing the pretax return on net revenue remained very consistent in second quarter of 2020 over second quarter of 2019, about 33%. When we look at the IRT block of business, there’s a couple of things to keep in mind. First off, you will see that the integration expenses will be – will create some noise and some volatility from quarter to quarter. And so it’s important to adjust your model for that. Second, as also pointed out in the comments, we are seeing pressure from the IOER rates. And then last of all, I would remind you that as the IRT block of business transitions from Wells Fargo to Principal, there will be a lag between when we see the expenses begin to decline along with the decline in the business. So we will see necessarily some lag there. And when you take all those things into consideration, that creates the difference. Does that help?

It does. I mean it sounds like – just looking at the income statement, it sounds like the compensation and other line was the one that really increased year-over-year. Is that where most of that impact was?

Yes. So the comp and other line is going to reflect the TSA expenses. And that’s the portion that’s going to have the most noise as we begin to migrate the business over and incur integration expenses.

One of those classic examples of SME, where we’re getting the expenses front-end loaded as we nearly have to double up to get the business successfully transition, let alone all the resources going into programming and application development and the transitioning of the services. Did you have a follow-up, Suneet?

I did. Just sticking with RIS-Fee. On the comment about releasing the earnout liability. Is that because the macro environment changed? Or did that earnout assume like lapses would be lower than what has actually occurred?

Renee, please.

Yes. So Suneet, the earnout was based on a revenue retention target that was actually higher than what we had assumed in our valuation. So what the release of this liability suggests is that the revenue retention did not meet the earnout requirements, but I’m very happy to say that when we look at overall client retention and revenue retention, we are right on track, and we’re very pleased with the results that we’re seeing and it’s consistent with our modeling.

Another way of saying that, Suneet, is I believe that our initial analysis of what we thought the value of the business was we are correct because that additional lump sum payout would have been conditional on something that was above what our modeling would have produced. And so it’s nearly coming in on what we thought the value of the business was. And again, I would give a lot of credit to Renee and her team for successfully working through a very, very large transaction. So thanks for the question, Suneet.

Yes. Thanks, Dan.

The next question will come from Ryan Krueger with KBW. Please go ahead.

Hi. Good morning, everyone.

Hi, Ryan.

Can you help us think a bit more about your dental expectations for the second half of the year? And I guess more specifically, I know you’re not expecting it to be nearly as good as the first half, but I guess, would you expect dental to still be favorable to your normal expectations in the back half of the year? Or would you actually expect it to be somewhat unfavorable because of some of the rebates type of activity?

Yes, Ryan, great question. I’m only laughing because I hadn’t been to the dental office for six months. I went two weeks ago for the first time and I have to go back tomorrow. So one way or another, they’re going to extract their value from Dan at least. So Amy, you want to help us work through the profile of the dental business.

Yes, Ryan. Let me go back to your actual question and gets you kind of a little bit – take you back a little bit what happened, what we saw happen in second quarter. April was very low utilization. Around the nation, the provider offices, many of them were closed and only providing emergency services. We saw that kick back up in May. And then in June, in some geographic areas, some regions, we even saw what I would consider some pent-up demand; more procedures, some higher dollar procedures and even higher kind of utilization than we would see on a normal full month in some regions of the country for June. And so the wildcard here really is with sort of an unknown amount of virus activity, an unknown, I would call it, patient comfort with how and when they seek care, particularly in those areas that are seeing a little bit more activity. I think our assumption is the dental offices will stay open in the second half of the year. Our assumption also is that there will continue to be a little bit of pent-up demand probably play through the rest of the year. And if we’re going to see a quarter where we see some of that pent-up demand, we’ll probably see that during third quarter. So third quarter is probably the one that I would point back to being probably closer to what our seasonal lower points are in a normal year. Does that help, Ryan?

It does. Thank you. And then…

Hey, Ryan, one thing I’d add to that is our premium credits actually have a full impact in the third quarter and only had one month of impact in second quarter and one month of impact in fourth quarter. So that’s going to play into the third quarter result as well.

Can you quantify how the magnitude of the premium credits and the in-network refunds?

Well, I think on the premium credits, it isn’t a 10% reduction, and we do give you a premium on the supplement page. I’ll let Amy talk about the in-network credit.

Yes. And so by magnitude basis, the premium credits are, by far, the larger thing that you’ll see flowing through, and that will go through our premium line. And again, as Deanna noted, that will be a full impact in all three months of third quarter. We saw one month of that influencing the results in second quarter, and we’ll see one month of that in fourth quarter. And again, I’ll let you do the math against the premium numbers that we put out there. The protective equipment that credit we’re giving in terms of PPE for the dentist, that is in order of magnitude, much smaller than the premium credit in terms of how it will impact. But I do want to point out that will be full year. So that will be third quarter as well as fourth quarter, and that will impact the claims line as opposed to the premium line. So much, much smaller impact, but that will be coming through a different line.

Ryan, the one thing I’d say is I think like all medical offices, they’re figuring this out, and so we would anticipate over a period of time here that this gets sort of back to normal. They’ve got the proper PPE, people are taking appropriate precautions. And so this is probably a two or three quarter anomaly. And then we’re right back to what I’d consider our traditional run rates for procedures for the dental offices. So thanks for the questions.

Thank you.

The next question will come from Humphrey Lee with Dowling & Partners. Please go ahead.

Good morning and thank you for taking my questions. Just to follow up on the dental piece. So in the supplement, I think the dental and vision premiums was $240 million in the second quarter. Can you give us the breakdown between dental and vision for your block of business so that we can think about the 10% premium credit?

Yes. This is Amy. Happy to jump in and answer that. The breakdown on that is really probably think of dental as the vast majority of that. So think of it as 90% to 95% of that. Vision is going to be significantly less.

Okay. That’s helpful. And then shifting gear, in terms of PGI, can you talk about your net flow expectation and the impact of the lower transaction fees? I think Tim said in last quarter that the expectation is third quarter will remain challenged. And then hopefully, fourth quarter will be back to normal. Is that still the expectation?

Tim, do you want to please take that?

Sure. When it comes to transaction fees, there, we’re mostly talking about commercial real estate. And so I think what you’ve seen so far this year is first two months were strong. Then as COVID started to hit, transaction started to wane, and they’ve continued to be below expectations for the – our original expectations for the first half of the year. So just to give you some perspective, transaction volume is down about 33% from 2019. What we have started to see is that the markets are starting to evolve a little bit. People are finding ways of getting out and seeing properties. We’re certainly seeing that on the commercial mortgage loan portfolio. And then we’re starting to see more transactions. Now the transactions done right now have typically been worked on prior to COVID. And we’re still seeing a lot of price discovery going on between investors and sellers. So we’d hope that, that starts to pick up as people are able to travel, maybe a little bit more, maybe able to physically inspect some of those properties or find ways to do that virtually. But right now, I think we expect that third quarter will be lighter. And then as we said, hopefully, in fourth quarter, things will get back to a more normal pace.

Do you have a follow-up, Humphrey?

Yes. Is there any way to think about the impact, so you called out, it was $5 million lower relative to last year’s second quarter. But should we kind of expect something in that magnitude for the third quarter and then maybe a little bit better in the fourth quarter?

Yes. So on sort of a normal run rate basis, I would think that we would see a little bit lighter in third quarter. So we’re probably coming in $2 million to $3 million lighter in the third quarter and then hopefully back to normal in fourth.

Got it. Thanks.

Thanks, Humphrey.

The next question will come from Andrew Kligerman with Credit Suisse. Please go ahead.

Hey. Good morning. With regard to your capital deployment, you indicated $800 million to $1 billion for the year. Just assuming the normal run rate of dividends that would leave you, if you were to do $1 billion close to $200 million to deploy, what type of opportunities might be out there other than buybacks for use of that capital? And what do you think the probability of using the capital for buybacks might be? And when might we do so this year?

Just tell me how the COVID is going to go from here, and I can respond to that question. This is a really important question, Andrew, and one that we talk about a lot. It’s one of the reasons why we had the issuance of $500 million that Deanna mentioned at such favorable terms. It’s why we have been so aggressive in managing our expenses. We’ve maintained the dividend payout in spite of the fact it’s above the 40% targeted range to support shareholder support and provide continuity. We do, as Deanna said in her comments, have over $800 million of authorized share buyback still out there. We have frequent conversations with the Board. And we’ll look for the right way to go about deploying that remaining excess portion of the capital, whether it’s organic, whether it’s if a property were to become extremely distressed in the marketplace, M&A may be an option, but still, we look at share buyback as a good tool to provide good value for long-term shareholders. Deanna, I don’t know if you have anything else you’d like to say on that?

Yes. Just a few comments. Obviously, the math you did was correct. At the low end, we basically have no additional external deployments, assuming that we kept the dividend flat at the high end or closer to $200 million. I’d say for the next quarter, we’re going to continue to stay on the sidelines, and we’ll ultimately probably start having more discussions on this as we get towards the back half of the – or the back quarter – last quarter of this year, into 2021. Really what we want to see is more clarity. And even though we have some additional clarity given one quarter of experience behind us, I’d say relative to the path forward, especially around the pandemic, I’m not sure we have any more clarity sitting here today than we did a quarter ago. And so again, like we said, the debt issuance is a help, but we obviously just didn’t do the debt issuance to turn around and buy back shares. It’s there to really help us in case things start to deteriorate more than we are. And we really have to see much more clarity until we start to deploy unless an opportunistic M&A came to us that we really wanted to look at. As we’ve talked about M&A, obviously, the pace of activity is lower. But there could be a small number that had started discussions prior to this crisis that if those came to fruition, that could be another opportunity as we go into fourth quarter into 2021.

Andrew, a follow-up?

Yes, sure. And that makes a lot of sense. So with regard to life insurance, your sensitivity went from, as you said earlier, $20 million per 100,000 lives down to $10 million. What was it about your or what is it about your insured population that differs from what you were thinking three, four months ago, allowing you to change up the sensitivity, geography-wise, age-wise or what have you?

Yes. I’ll take the first stab at is since it does impact a number of our different businesses beyond just USIS and then I’ll see if Amy has anything to add to that. Obviously, when we were sitting here a quarter ago, we had to take a guess with absolutely no experience about how the total population incidence of COVID death would translate into our insured population. And again, we did the best guess based on our analysis as far as – and third-party analysis that had been developed. But again, we had no real experience to look at. Obviously, now three months later, it’s not totally credible experience that we’ve seen. But we do have a lot of claims, about 150 on the insurance side that have come through during the quarter. That we’re better able to just look at the nature of those claims, whether it be age, whether it be face amounts, whether it be size of the annuity products, and we’re just better able to update how that translation happens between the general population experience and the experience of our insured population. And so that did cause us to cut in half our sensitivity. I think the good news of that is probably the estimated number of deaths has probably more than doubled. Our impact of that is less – is cut in half. And so ultimately, feel good about the – how we are able to manage that going forward. I do want to make sure you’re aware that, that does consider all life and disability claims in USIS. It’s also offset by benefits that we see in our annuity businesses, both here in the U.S. and outside of the U.S., but it doesn’t contemplate any indirect claim impacts due to office closures or lower elective procedures on our Specialty Benefit business. So I’ll see if Amy has anything to add, but I also think that rule of thumb held pretty close as we looked at our second quarter experience.

No, Deanna, you’ve covered it really well. I think that you’ve covered that it’s an aggregate number that kind of crosses multiple businesses. And I think the good news there is we’re seeing good protective value. We do certainly – our group life block is a working-age population, faired relatively low, again, given the markets we’re in fairly low face amounts and so you have to have quite a few claims for those to add up significantly. Our Individual Life is holding up well in terms of the protective value of the underwriting we do and the types of business we put on the books. Keep in mind, we have probably a disproportionate amount of working-age populations even in our Individual Life insurance coverage because of our business market focus.

Thanks, Amy. Thanks, Deanna. Thanks, Andrew, for the question. Next?

The next question will come from John Barnidge with Piper Sandler. Please go ahead.

Thank you. I want to go back to dental for a second. Obviously, the first half of the year had low claim activity because people aren’t going or couldn’t go. There could be a catch-up in the third quarter. But I’m more thinking about renewal and pricing as you prepare for open enrollment season to 2021 because obviously, there’s a cohort of people that aren’t going to the dentist at all this year, that probably have pent-up issues that are probably more serious than what Dan has to go back into for a couple of good points. How do you square the lack of activity in 2020 with pricing and renewal and potential pent-up demand for 2021?

Amy, please?

Yes. John, these are good questions you’re asking. And so one of the things we’ve been doing is sort of refreshing our claims studies with respect to dental and looking at them a little bit more closely than we more frequently than we have in the past. So what we know is that keep in mind with this footprint that is primarily for our group benefits business, a lot of smaller cases. Some of that big push towards annual enrollment is not as marked as you’d see in some of the larger case business. So you spread it out amongst 80,000 or 90,000 of those smaller cases. And so what we’re watching and what we are seeing is a little bit more usage on what we would consider kind of higher dollar procedures. If that continues, then we’ll watch and continue to price for what we think could happen in 2021. Now keep in mind, there’s some natural plan provisions that kind of dictate a little bit how many dental coverages you can seek in a given year or procedures you can have in a given year. So you’re going to have some – one preventative care visit in six, two and 12. And those are going to provide some natural protections. But more importantly, there are restarts for the next year as we kind of restart our pricing.

Excellent, thank you. Do you have follow-up, John?

Yes, sure. How do have changes in the health and rate environment kind of change how you’re approaching the upcoming actuarial assumption.

Yes. Deanna, you want to walk us through that.

Yes. So obviously, in a volatile environment like this, we have to think of this over the long term, which rather than adjusting to short-term volatility. And again, we’re trying to predict what 10-year treasuries and spreads are going to be 10 years from now. And obviously, you can’t overreact to kind of pressure that we have. But having said that, obviously, the pressure that we’re in the sustained low interest rate environment is something that we have to contemplate. As we go through our third quarter process, and also, we have to look not just at interest rates, but all of the other policyholder and actuarial behavior assumptions that we have in that, we have not made any decisions at this time. We continue to evaluate it based on our own analysis, also take into account other people’s thoughts on that trajectory as well. But I would tell you, as we sit here and manage capital and think about capital scenarios, we are incorporating impacts if we do make a reduction to that interest rate assumption and how that would flow through our capital position. So again, no decisions have been made, but I think we’re being prudent as we analyze the different capital scenarios to make sure that we feel good about our capital position.

Thanks John for the questions. Excellent.

Thank you.

The next question will come from Erik Bass with Autonomous Research. Please go ahead.

Hi, thank you. I have a couple of questions around the expense savings. First, do you have a new full year target for the corporate loss? And then at the business level, is the goal, I guess, to still be able to achieve the target margins you provided at the beginning of the year despite the revenue pressures?

Yes. So – and I’m going to throw this to Deanna quick. I just want to go on the record with regards to our approach to expenses. And you can go back for as long as I can ever remember, and I’ve been here a long time, we have always looked at the revenue that we’re able to generate and then adjust our expenses accordingly. And there are certain points in a volatile economy where there’s these inflection points where you have to go above and beyond. And you are trying to anticipate. Deanna outlined very carefully for you in her prepared comments, those areas that will likely bounce back and those that will continue to manage in accordance to the business. But one of our objectives has been to stay as closely aligned with the margin expectations that we have framed with you, framed for you previously and not making any adjustments to those. But it’s one of those approaches that we’ve always taken that I would describe as surgical as opposed to across the board, and we have not had any broad-based significant reductions in force which is why we are still able to maintain very strong customer service scores, get the work done, while at the same time, adjust these expenses accordingly. Deanna, do you want to provide some additional insight there?

Yes, I’ll first take your quick question on our corporate results. And what I would say there is there’s always volatility in that line of business. But as I think about the second half of the year, we’re going to continue to benefit from the expense management efforts that we have underway and how that flows through the corporate results. Offsetting that partially, that we’ll see some added debt expense due to our recent issue in debt. What I would say is, if you average the first quarter and the second quarter, I think that’s a good proxy for the second half of the year relative to corporate. Moving on to expenses. I think Dan made some great comments. And obviously, I frame that within the prepared remarks. But let me just try to give you a little bit more color. And I think your comment on margins probably more aligns to how we think about 2021. I think in 2020, obviously, the efforts that we made were really across all of the businesses, pretty indiscriminate of what revenue pressures they’re seeing. And so we didn’t tell Amy because she’s having good dental claims experience that she could spend a lot of money. And on the flip side, we didn’t tell Luis that’s being pressured by FX, we had to take additional cuts. And so when I looked at the $75 million that we talked about for the second quarter alone or the $250 million that we’re talking about for the full year, and I think about each of the businesses, the percent change is pretty similar for all of the businesses. And so again, your models may show one business or another. But when I look at it, I’d say the percent reduction is in a pretty narrow range across all of those businesses. As we think about 2021, I think that’s when the more comments around margins come into play because again, this was tightening our belt given the environment that we’re in and basically looking at all of our expense items, some that naturally came down such as travel, but also being very, very disciplined on hiring and staffing costs and some of that’s going to start to normalize as we go into 2021. For example, our incentive compensation is all reset at the beginning of the year. And so even though that’s helping our expense base this year, those will again kind of come back to a normal level. And then other items, I’d say, will still be lower than what we would have anticipated pre-COVID, but we will see some gradual increase as we move forward. Travel could be an example of that, staffing, salary cost could be an example of that as well. And so I think that’s when you start to see us making sure that our expense levels are leading to our targeted margins by business as we move into 2021. Hopefully, that helps.

Yes, that’s very helpful. Thank you. And then if I could ask one follow-up just on RIS-Fee. I think your guidance implies expecting organic growth at the low end of the 1% to 3% target range. And I assume that’s just for 2020, and that kind of implies breakeven flows for the remainder of the year. So I was just hoping you could talk a bit more about the dynamics there and how you see both sales activity and recurring deposits trending over the next few quarters?

If you’ve captured that well, Renee, do you have quick comments, please.

Yes. Absolutely. So Erik, when we think about net cash flow for 2020, you’re correct that we do believe that we will come in at the low end of the 1% to 3% of beginning of the year average account values. And it’s being driven by several things. First off, when you look at the sales environment that we’re currently in – due to the pandemic, we do see that our sales are pressured. We’re seeing some recovery in the pipeline in June, which is really good news. And we are also seeing a portion of the decrease in sales being offset by an improved level of contract termination. So there’s kind of two sides of the same coin there. From a recurring deposit perspective, I think the thing to note there is that we do have a level of resilience in our block of business because of the nature of industries that our customers are engaged with. And we show that to you in the slides that we’ve provided. We are seeing pressures, but they are manageable. So if you look at recurring deposits, we see about a 1.5% increase in recurring deposits over second quarter 2019. And if you drill down a little bit deeper, what you’ll see is we are seeing a decline in the number of deferring participants. We saw the trough of that decline in May. In June, we saw a little bit of an uptick in the number of participants that we’re making deferrals. The deferral rate throughout this whole time period has remained steady from 2019. So that’s good news. And we also have seen about only 1% of employers have either reduced or eliminated their match. So they’re applying a great deal of discipline in how they’re approaching, their retirement plans and understanding the value that, that brings to their workforce. Turning very quickly to participant withdrawals. In the last earnings call, I framed for you that to put a little bit perspective here, in the 2008, 2009 crisis, we saw participant withdrawals reach about 11%. And while certainly, participant withdrawals have been pressured, we’re not reaching that same level in the second quarter. With that said, though, we did see about 2% of participants take COVID-related withdrawals. But I would remind you that those are going to be low balance, typically low balances. And so if you express that, as of the withdrawals that we see as a percent of beginning of year account values, it’s about 0.3%. So all of those things taken into consideration does lead us to the guidance of 1% to 3% with 1% being – we think we’re going to come in at the lower end of that range. And all of this is contingent upon market performance and what happens with the economy in a pandemic.

Erik, hopefully, that additional detail was helpful. Thank you.

Yes, thank you.

The final question is from Tom Gallagher with Evercore. Please go ahead.

Hi, just a follow-up question on RIS-Fee related to also retention. So your – if I look at the planned breakout by number of lives to 1000 and larger lives plans declined by 16 sequentially, that’s the biggest drop I can remember in quite some time. Is that normal Wells-related attrition that you’ve been expecting? Or would you call out anything else in particular that’s happened in the large end of the – of your – of the market?

Do you want to identify that, Renee?

Absolutely. So Tom, thank you for that question. And I’d remind you that when you’re looking at the number of plans in the supplement, that’s going to exclude the IRT block of business. So – and if you look at the number of plans in total, you’ll see that our plan count is down slightly from second quarter 2019. And the primary driver of that is that sales are down. And so when you – we simply don’t have that sales engine putting new plans on the book at the same pace that it was. When we look at the large plan market in particular, we’re actually very pleased with the performance of our large plan block of business. We’re seeing really good pipeline. We saw really strong sales and you saw that come through in 2019 and the first quarter of this year, and retention remains strong across the block. So it’s really reflecting sales.

But I guess just a follow-up on that. I presume those plans are not going away. Would you have lost 16 plans quarter like versus the end of the first quarter? And is competition somehow intensifying, I would have expected movement among carriers to actually be down. So I was a little surprised to see that many plans.

Yes. In that large piece of market, a lot of that is we’re on the losing end of some merger and acquisition where there was an even larger company bought it. We don’t have that broken out with a lot more detail. But each one of those plans are priced individually. They’re not priced in aggregate. So if there is a lapse and we lost it, there are some instances where we perhaps would have wanted to retain it because of profitability expectations. But more times than not, it would have been a plan that was acquired by a much larger plan and the plan services went to the acquirers’ record keepers as opposed to Principal. I do think in this environment, there has been – it is increasingly challenging to have those sorts of discussions when you’re on the – being on the bought end of that. Renee anything else you want to add?

No, I think that’s very well said. We did see maybe a little bit of volatility in the larger plan market, but our model is working really well, and we see nothing that gives us concern moving forward.

Tom, do you have a quick follow?

I do. Yes, Dan. Just a quick one on individual disability benefit ratio being elevated. And I think you called out a $19 million unfavorable earnings issue. What’s your level of conviction that this won’t recur? And I don’t – and I asked that because in prior economic cycles, when we’ve seen unemployment go up a lot, you have seen some elevated disability claims. So do you believe this is really a nonrecurring issue? Or are you still kind of waiting to see how this plays out?

We think we’ll be nonrecurring. But Amy, you want to provide some additional sights?

Sure. Tom, thanks for the question. So a couple of thoughts go into this. I think, number one, in 2019, we were really seeing some good – really good claims performance for our individual disability block. And so just given the natural claims volatility of the segment, seeing a little bit of a blip in a quarter is not totally unexpected, especially on kind of an incidence basis. So the other thing I would tell you is that typically, if we were seeing something that was going to be a disability, macroeconomic conditions starting to affect disability, we would have seen it emerging in group disability as well. So to see it kind of emerge a little bit differently in individual disability, has given us a little bit of comfort that we’re probably seeing something that’s closer to a volatility issue and not necessarily a precursor to what we might see in the future. Now even having said all that, we’ve talked a lot today on the call about uncertainty, we will continue to watch this block. If we see incidents emerge in areas or patterns that indicate to us, it’s a macro, kind of a leading macro, we’ll certainly let you know that.

Tom, thanks for the questions. Appreciate it.

We have reached the end of our Q&A session, Mr. Houston, your closing comments, please.

So we’re slightly over the hour here, but – so I’ll be quick. And the first thing I want to say is we feel as much conviction today as ever about the diversified and integrated business model, the fee, the spread and the risk businesses. We like what portfolio we have, and we’ll continue to build upon it. Although Luis didn’t get any questions asked today, these international markets, they are volatile, but they will enjoy long-term growth. It’s where the middle class is coming. And so again, we feel very good about the international. I think you saw firsthand how resilient, small-to-medium size employers are. Hopefully, you had a chance to dig in through some of the detail in the slide deck because, again, it is a good proof point that they are very adapting to the marketplace. Expense management philosophy is to be smart, thoughtful aligning expenses and revenues. We continue to make that a priority. The IRT integration is on track, and we feel good about its ability to provide long-term value. I feel bad for Tim, he didn’t get asked questions about the great investment performance for PGI two back-to-back quarters of plus $7 billion in sales in our mutual fund franchise, which is in this day and age in active strategies, that speaks volumes about the durability. And I’d also be remiss if I didn’t call out the 33-year anniversary for Spectrum Asset Management. And they’ve done a great job in that preferred space, adding a lot of value and Mark Lieb and his team have just done a superb job leading that franchise. So I wish I could say we’d come out and see you in person, but I’m afraid it’s going to be on video conference, but we very much look forward to any follow-ups that are on the call today. Have a great day. Thank you.

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