Principal Financial Group Earnings Call Insights: Chile Update and Encaje
Seth Weiss – Bank of America Merrill Lynch: You mentioned that you think the political pressure out of Chile or the political reforms out of Chile will be beneficial for the pension system. The Chilean public pension providers have declined in market cap since those reports came out last month. Maybe you could just help us think about the pressure on fees versus what you see as an expanding pie of pension assets?
Larry D. Zimpleman – Chairman, President and CEO: Sure. This is Larry, Seth. I’ll comment, and I know Luis will want to add some comments as well. Let me just make a few comments. Luis and I spent considerable time down there about a month ago and had an opportunity to meet with many of the regulators, in particular, who have been very involved in this. First, I’d say a few things. First of all, the AFP system is very, very well accepted as an important element of the Chilean economy. It’s been around over 30 years, and I’ve not seen any indication, there’s any intent in any way, to sort of unwind the AFP system. Now the problems that they’re trying to solve, I would say are twofold. One is that the contribution rate is currently being made into the AFPs is too low. If you look at the replacement ratio that’s produced by those contributions, it’s about half of what it needs to be in order to provide a full replacement of preretirement income. The second problem they have is a problem that exists all over the world, which is trying to get the lower middle income and those who have a more in-and-out employment record into the system, so that they’re going to end up with some amount of retirement savings. So discussion – the reason I say all that Seth, is because the discussion is really about improving the system, whether it’s higher contribution rates or other ways to get the lower income in. It’s not about in any way, shape, or form sort of rewinding the system. Last thing I’ll say before asking Luis to comment is, I think as it relates to many of the other AFPs, part of the reason that you’re maybe seeing some decline there is because at the end of the day, I think if you’re going to be a leader in this Chilean retirement system not just the AFP, but also the voluntary system, you’ve got to have a very sort of coordinated and integrated platform that you can use not only for the AFP side, the mandatory side, but our mutual fund platform and other products that you can capitalize on for the voluntary side. As you know, Cuprum, as well as Principal prior to the acquisition had really – have been the leaders in the voluntary portion. And that’s where you’re going to see most of the growth in the Chilean contributions going forward. There is going to be some growth in the AFP, but most of it’s going to come in the voluntary. And given our leadership position there, I think, we’re going to be in the strongest position to benefit as these changes may take place. But Luis, additional comments?
Luis Valdes – President, Principal International: The main issue here is that actually, the system and its replacement ratio is going kind of well below expectations. But mainly about what Larry said due to a 10% contrition rate, which is kind of low and insufficient in order to get this kind of 75%, 85% replacement ratio. So, that 10% completion rate is coming from 1982 when the system was designed and since then, what the Chileans have seen is a dramatic improvement in their longevity and also a very important drop in their interest rates. So that is essentially the two factors that are driving this kind of low replacement ratios right now and we think that there’s a great opportunity in order to really, really improve the system going forward. The pressure on fees is not exactly the point here because it’s a little bit confusing for the Chilean system. Fees are being charged on flows, not over AUMs. If everyone is making a kind of very simple math in order to calculate how much you’re charging over AUMs, the Chilean system is a very efficient one and has a very, very, very, I would say, very appropriate charges on – over AUMs for the entire system.
Sean Dargan – Macquarie: As I look at the encaje slide that you provided, I was just wondering, if you could tell us about the composition of the assets in Mexico and Chile, I guess the relative proportion of fixed income versus equity in there?
Larry D. Zimpleman – Chairman, President and CEO: Yes. This is Larry, Sean, that’s a very good question and perhaps something that as we go forward, we can provide you a little bit more insight on in general. In general, what I would say is that the Mexican encaje is predominantly a fixed income investment. So to think 80%, 85%, 90% fixed income. So that’s why you saw the negative impact as interest rates in Mexico rose about 150 basis points, pretty much right at the end of the quarter. Again, that’s a positive in the long term, but it’s a negative in the very, very short term, which is why you see that adjustment. The Chilean encaje is a broader basket. It’s a broader basket of fixed income and equity, and even within the equity component, it has some element of, if you will, non-Chilean or more global equities as well as Chilean equities. So, think more balanced fund when it comes to the Chilean encaje. But we’ll try to perhaps get you more information as to what that make up is, Sean.
Sean Dargan – Macquarie: Just one additional question. As we think of how we are modeling margins going forward, was there any change in transfer pricing between FSA and PGI?
Larry D. Zimpleman – Chairman, President and CEO: The answer is no.
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