Good day and welcome to the Reinsurance Group of America Third Quarter 2015 Results Conference Call. This call is being recorded. At this time, I would like to introduce the President and Chief Executive Officer, Mr. Greig Woodring; and Senior Executive Vice President and Chief Financial Officer, Mr. Jack Lay. Please go ahead, Mr. Lay.

Okay. Thank you. Good morning to everyone and welcome to RGA's third quarter 2015 conference call. Joining me in St. Louis this morning is Greig Woodring, our Chief Executive Officer. Greig and I will discuss the third quarter results after a quick reminder about forward-looking information and non-GAAP financial measures. Following our prepared remarks, we will be happy to take to your questions. To help you better understand RGA's business, we will make certain statements and discuss certain subjects during this call that will contain forward-looking information including, among other things, investment performance, statements relating to projections of revenue or earnings, and future financial performance and growth potential of RGA and its subsidiaries. Keep in mind that the actual results could differ materially from the expected results. A list of important factors that could cause actual results to differ materially from expected results is included in the earnings release we issued yesterday. In addition, during the course of this call, we will make comments on a pre-tax and after-tax basis for operating income, which is considered a non-GAAP financial measure under SEC regulations. We believe this measure better reflects the ongoing profitability and underlying trends of our business. Please refer to the tables in the press release and quarterly financial supplement for more information on this measure and reconciliations of operating income to net income for our various business segments. These documents and additional information may be found on our Investor Relations website at rgare.com. With that, I'll turn the call over to Greig for his comments.

Thank you, Jack, and good morning, everyone. Thanks for joining us. I will provide some general overview comments on the quarter and Jack will go over the financial results, then finally we will open it up for Q&A. Let me start by saying that we had a disappointing third quarter due to three issues in particular, higher taxes, the strengthening U.S. dollar and higher claims in the U.S. I'll expand on those in a moment. Before I do, let's put the first three quarters of the year into some perspective for you. If foreign currency effects and the impact of any tax rate anomalies associated with the Active Financing Exception were culled out of the results, year-to-date operating EPS were slightly ahead of 2014. 2014 turned out to be a pretty strong year. Back to the third quarter, our operating EPS were $1.90 compared to $2.31 a year ago. Like the second quarter, our third quarter results included a higher than expected effective tax rate that reduced earnings by $0.15 per share. Additionally, foreign currencies weakened further and had an adverse effect of about $0.15 per share. Our International segments produced solid results, GFS continued its strong momentum across all geographies, and our Canadian operation had a very good quarter on further improvement in mortality experience. Despite the strength in those areas, the overall results this quarter were below our expectations due to the high level of claims in our U.S. individual mortality business. For the U.S. mortality business, it was disappointing to have another weak quarter, especially in a period when we tend to expect some seasonal recovery, where experience was driven almost entirely by large claims with the total amount of those large claims also up due to a few maximum loss claims in the quarter. Overall frequency…

Thanks, Greig. We reported operating income of $127 million this quarter, or $1.90 per diluted share. As Greig mentioned, the third quarter results were hampered by the effective tax rate and foreign currencies. Reported net premiums totaled $2.1 billion, down 4% quarter-over-quarter. When removing the effects of last year's fourth quarter retrocession agreement and the foreign currency headwinds, the premiums would have increased about 8%. Our investment portfolio continues to grow, while feeling the effects of the ongoing low interest rate environment. Our average portfolio yield, excluding spread businesses, was 4.66% this quarter, about 14 basis points lower than the third quarter of last year. I'll remind you that last year's third quarter yield was boosted by a significant amount of commercial mortgage loan prepayments. Our current new money yield is slightly over 4%. On a capital management front, our balanced strategy continues to play out well as we continue to deploy excess capital into block transactions and return capital via dividends and buybacks. We repurchased about $71 million of shares during the quarter, and now we have approximately $126 million in repurchase capacity under the current authorization. Our current excess capital position is approximately $700 million. In the quarter, we announced several in-force block transactions. The pipeline and outlook remain healthy and we will continue to consider optimal deployment strategies for our excess capital. Now turning to the segment results, the U.S. and Latin American Traditional business reported pre-tax operating income of $55 million, a disappointing quarter reflecting the adverse individual mortality experience that Greig described earlier. Premium growth was strong, but due to the effect of the retrocession transaction in the fourth quarter last year, premiums were off 2%. Ignoring that, transaction premiums would have been up 8% quarter-over-quarter. Our Asset-Intensive business in the U.S. continued its strong…

We'll take our first question from Erik Bass with Citi.

Good morning. Thank you. Can you just walk through how you're arriving at your estimate of roughly $60 million drag on higher claims from the U.S. Traditional block?

Yeah, Erik, it's a process of looking over an extended period of time, four or five years, and looking at results. In particular, from quarter to quarter, it's always a different part of the business that looks like it's doing worse or better than expected. You have to get the perspective of a considerable amount of time and data. Whether or not it comes from lack of mortality improvements at old ages, whether it comes from just poor underwriting during that particular era or not, the difference between expected claims and actual claims in that particular era is, if you spread it out, about $60 million a year going forward and that's how we come up with that number.

Got it. Thank you. And are you seeing any impact outside of that sort of 1999 through 2004 vintage range, or does your analysis suggest that the impact is really just concentrated in those years?

Well, that's where it's concentrated. If you go to 2005, the year 2005, you pick up a little bit more. You go beyond that, you get a little bit better. And so, yeah, there's other pockets. And like I said, every quarter is different, too. The fact is that you're not going to see this particular block underperform every quarter. It's going to be up and down. Some quarters it might even be better than expected. But you look at it over enough time, you begin to draw some conclusions; and I think that's where we're at today. We're beginning to get enough information on longer-term trend to draw some conclusions.

Got it. Thank you.

We'll take our next question from Jimmy Bhullar with JPMorgan.

Hi. Good morning. The first question just on the $60 million, if we think about that as a percentage of your earnings, that's about, I guess, 6% to 7%, depending on someone's estimates. As you look at how the other businesses have performed through this year, whether it's Canada or some of the other International businesses, and also the deals that you've done, how much of an offset to the 6% to 7% do you see from those factors, if any? And then related to that, how does the $60 million trend over time? Is it – does a part of it go away in the next 3 years to 5 years, or is it longer than that just given the age of the block and the pace at which its shrinking?

Jimmy, this is Jack. Let me respond to that. Yeah, we don't look at it as we've got a $60 million hole expected in earnings going forward and there are no offsets. We've got other parts of the business, as I said earlier, that are outperforming and you can really see that in the year-to-date numbers so far in 2015. We're not – even though we've had a, one could argue, a very poor result in the U.S. Traditional Mortality market, we're not that far off where we expected to be at this point in terms of our operating plan, in part because other parts of the business have been outperforming, so to speak. So, yeah, there are a number of offsets against that, which is another reason that we're trying to caution in terms of any guidance that we would issue next year or beyond that we don't necessarily expect any kind of dramatic change in the guidance that we'll be issuing. Now, back to the second part of your question in terms of the trend over time, that $60 million is a pretty good estimate for the next several years. In other words, it's not expected to change dramatically for several years. And then, after, I think, four to five years it'll start trending off subtly. Hopefully, that helps.

Yeah. And then, secondly on capital, you've been buying back stock on a regular basis. You've still got a decent amount of excess capacity based on your assumptions. So how should we think about the timing of the completion of your – I think there's $126 million remaining on your share buyback authorization. Do you expect to complete that over the next year or so, or is it a longer-term timeframe that you have? Assuming no deals, obviously; if you do deals, then that uses up capital as well.

Yeah, as you state, it's always against the backdrop of what other opportunities do we have in terms of block M&A transactions. So certainly that influences the extent to which we will be in the market buying back our shares. I think we will look selectively. As was indicated, we did buyback $70 million or so of shares in the third quarter. We likely will be in the market to some extent in the fourth quarter. That's not a foregone conclusion, but we may take advantage of any opportunities there. But, yeah, over time I think you can look back at the last three years or so and get a feel for a pattern of buybacks within – I would characterize it as reasonably aggressive last year and this year. And then going forward, I think buybacks are still a part of our capital management strategy and it remains to be seen as to whether we'll be quite as aggressive, but certainly we would expect to continue to be in the market periodically buying back our shares.

Much will, of course, depend upon how many opportunities we have in terms of large block activity.

And just to clarify on the earnings impact, because I think this is one of the first times where you've had a disappointment on earnings and at least you've tried to quantify the impact so a lot of people are going to be trying to guess or get to how much they should be looking at reducing the earnings expectations. Of the $60 million or so that you mentioned, was some of that already in your results in 2014, 2013 because we had seen the benefit ratio in the U.S. Traditional business go up a little bit or is that all incremental from 2014 onwards?

No. Think of this as, yeah there was some in prior years. Think of this as sort of a run-rate that we have been experiencing and have come to experience. It doesn't appear every quarter and you might go several quarters without any negatives or positives the other way, but this is the...

But that's your expectation versus what you would have expected the block to earn over time in the normal environment?

Yeah. Correct.

Not necessarily $60 million, $70 million worse than 2014?

Correct.

Okay. All right. Thank you.

We'll take our next question from Ryan Krueger with KBW.

Hi. Thanks. Some more follow-ups on the older issue age mortality. I guess, first is it something you're seeing as kind of a widespread industry issue that's pretty spread out among carriers and your clients? Or is it mainly term life or is it also on non-term life business as well?

It's both term and non-term. When you talk about older issue ages, most of those issues are to permanent policies. In terms of clients if you – again it depends quarter-to-quarter. You're going to get hit by some clients in some quarters and then they are going to have good experience in other quarters. We don't see anything that causes us to take dramatic action at the moment but we are flagging some things that on a client basis look like pockets over a long periods of time, but too hard to draw conclusions at this stage.

Okay. And if we think about this older issue age block, I guess specifically from the early 2000 period, I mean is that block of business making money or is it in an actual loss position at this point?

Ryan, I'll take that. The older age large case business that we've identified as being problematic is actually at this point returning a modest loss, a modest negative margin.

Got it. And then just lastly you did the retrocession to Pac Life and part of it was this block, is there any risk you see in terms of them trying to put that back to you or do you feel comfortable with that at this point?

I think their experience so far is pretty much what they expected it to be. And again we're talking about long-term trends not a particular quarter.

Hey, Ryan, we wouldn't expect any impact associated with that retrocession transaction.

Okay. Thanks.

We'll take our next question from Humphrey Lee with Dowling & Partners.

Good morning. Just want to follow up on the mortality experience. So you mentioned year-to-date is $140 million, is that all for the large claims?

Yeah. That's for the first nine months of the year.

Okay. And so, basically when we think about your $60 million kind of run rate going forward, so we should naturally see a little bit better loss ratios compared to what we've been seeing in 2015?

Yeah. Obviously what we're saying is that's $80 million worse than we would expect the run rate per year to be. There's clearly some mortality that was consistent with flu that started in December and ran through April of last year that was in some of the same high age buckets but clearly consistent with flu, a lot more incidents than severity.

Okay. And then, just to kind of frame the size of that block a little bit better, so you mentioned right now for that block is roughly 5% of your premiums. But we're thinking about in terms of in-force, how should we think about that's relative to your current reinsured in-force size?

Yeah. Humphrey, I can take that. Relatively – if you look at the entire in-force portfolio it's between 1% and 2% of the portfolio if you just look at it with that metric.

Okay. And then, the ones that you already have claims since last April through year-to-date, what would that be accounted for of that 1% to 2%? And I guess what I'm trying to get is you mentioned kind of $60 million drag for the next four to five years and then kind of tailed off after that, but I guess I just kind of want to get a sense of how much longer, kind of even with the tailing off can this be?

Well, that will depend on the lapse rates of the business and the sort of diminution of that business which has tended to persist a little bit longer than we would've expected when it was issued too. But it will fade off after a reasonably short period of time to a small bit of the expected claims.

Okay. Got it. Just one, I'd sneak one more question. On the Canadian mortality you mentioned turning better and it was affected by large claims earlier this year but saw a good quarter, two consecutive quarters. Do you see kind of like any issues there? Or is the current turn around would be more on a more sustainable basis?

Well we don't know exactly what the future is going to be, Humphrey. We certainly are happy with the fact that mortality has been very good in Canada especially in this third quarter. But we don't know what the future is going to hold. We went from high incidence of large claims to low incidence of large claims. It looks a lot like the run we had of several good years back 4 or 5 years ago. But we can never be sure what the future will hold in that business and we could see large claims coming in the fourth quarter for all we know.

Yeah. I guess what I'm trying to get is do you see any kind of similar trait as the U.S. block that you're seeing in the Canada block? Or is this just...

No. No.

Okay. All right.

No, the competitive environment was quite different. The old age issues were quite different. We didn't have anywhere near the same phenomenon in Canada. It has its own dynamics as a market.

Okay. Got it. Thanks.

We'll take our next question from John Nadel of Piper Jaffray.

Hey, good morning. I'm thinking about the $60 million that you're identifying here and I know it's for just a few years, but I've always thought of your U.S. business being really the biggest generator of your free cash flow and the International businesses really being using their own earnings to fund a faster rate of growth. Maybe I've got that wrong in sort of the way I'm thinking about it, but the question is do you, should we consider the $60 million – and I assume that's a pre-tax number. Should we consider that as a dollar-for-dollar impact to your free cash flow?

John, this is Jack. I'll take that. Yeah, I think you can look at it that way, but then you have to also consider what other parts of the business are actually generated, generating excess cash flows. So it kind of gets back to when you take a step back, what's the overall earnings capacity annually and, therefore, our free cash flow generation of the broader enterprise. And by the way, the way you characterized the capital generation attributes of the U.S. operation in part funding some of the development of the International business is accurate. That's much the way we look at it as well.

And just real quick, the $60 million again, just to clarify, that is pre-tax, correct?

Yeah. That's a pre-tax number, that's right.

Okay. And then the second question, very much unrelated, but there was a comment in the release that talked about executive costs being borne by the Corporate segment in the quarter. Is that a change in allocation of costs that we should expect is going to be an ongoing change? And if that's the case, which segments sort of benefit from a reduction in that expense that I assume would be offsetting?

Yeah, well that is accurate. It's kind of hard to indicate exactly which segments. I mean, it's all the segments to some degree. What underlies that change in allocation methodology is we went through a process to fine tune our unit cost allocation methodology. And you can think of it as kind of a more a backroom standard cost exercise. But the result was we end up, in our view, with a little more accurate cost allocation, but it ends up shifting some costs around a little bit and it had a little more dramatic effect in the third quarter than you normally would expect. I think if you take a step back, you can think of the corporate segment not ultimately having a much different sort of earnings, or in this case, loss pattern than we've had in the past, but expect probably annually $40 million to $45 million of loss borne by that Corporate segment.

Okay. And I assume part of the reason third quarter was elevated is – well, I'll let you say it, but did the third quarter essentially represent a catch up of the first nine months on this new allocation?

A little bit, but nothing dramatic. It wasn't a situation where that's three quarters worth of catch up; a little bit, not much.

And then, just a bigger picture question, Greig. So if the industry is dealing with higher claims levels on – I assume a lot of this was the STOLI business or at least similar to it. If the industry is dealing with this industry-wide – I guess, is it having any impact at all on the competitive environment for new business written today? I assume the answer is no to that, but maybe just an overall what (33:17) of the competitive environment.

I think the answer is no, John. The fact is we had said early on we don't want any STOLI business. We tried to push it all away, but in reality I'm sure we got some that we don't know about.

Yeah.

I'm not sure we can ever separate any STOLI mortality from other mortality because we have no – our supposed exposure is near-zero. But like I said, I'm sure we got some because there was some issued in the industry and we took some. So it's very hard to tell to what extent that weighs into our results or anybody else's results, but it's always difficult.

But just in general, your view of the environment today?

Yeah. What happened in that competitive era doesn't have any effect on the pricing of business today, in our opinion. The environment is okay. It's not the best competitive environment and, certainly, not the worst competitive environment we've seen.

Okay. Thank you.

We'll take our next question from Steven Schwartz with Raymond James & Associates.

Hey. Good morning, everybody. I was actually about to ask about the competitive environment. But I do want to follow up on John's statement with regards to STOLI. If I remember correctly, the issue with STOLI was the lack of lapsation. Is there any reason to assume that STOLI would cause a problem with mortality?

To the extent that underwriting was compromised, potentially, but you could also argue the converse, to the extent that those issue-ages were mispriced, potentially, by the industry at large; but it's always hard to say.

Okay.

But yeah, clearly excess persistency can mean that the true mortality effects will show out in the long run.

Okay. Can you talk maybe – going back to the competitive environment, maybe, in some of the other areas? I'm thinking, in particular, Asia and the UK.

In terms of mortality?

No, no, in terms of the competitive environment.

Oh, competitive environment. Well, the UK is always a tough environment. It's a little bit different competitive dynamic there. It seems to be, again, moderating a bit now in our opinion, but still very difficult environment. Asia, competition is based not so much on price, although that certainly is a large component, but a lot of it's based on know-how and innovation and product development and other services that go into generating business out of Asia.

And then, Jack, tax rate in the fourth quarter assuming the active finance income exemption is passed by Congress, what should we be looking for?

Yeah. Our expectation really in any quarter is somewhere in the 33% to 34% range. So that would be our going-in assumption.

There'd be no catch-up driving that lower?

I'm sorry. That's ex any effect of AFE. So, yeah, to the extent there is an extender package passed, yeah, it would drive down that rate considerably would be our expectation, because we would reverse the impact that we've accrued over the first three quarters.

I'm trying to get that number, Jack.

Well, $0.35 a share, so I'd say $23 million or so was the additional accrual that we had set up.

Okay. All right. Thank you, guys.

We'll take our next question from Sean Dargan with Macquarie. Sean Dargan - Macquarie Capital (USA), Inc. Thank you. In Asia Pac Traditional, you called out a modest loss in Australia. I was wondering if you could quantify what that was.

Yeah. That was roughly $5 million. Sean Dargan - Macquarie Capital (USA), Inc. All right. And do you have any update in how that's trending, that business?

Well, it's hard to trend. It's been relatively volatile as you've seen over the last three quarters and...

It was a tough quarter for individual disability in Australia this third quarter. Sean Dargan - Macquarie Capital (USA), Inc. Okay. Then I just have one more question. Greig, you've been the only CEO since RGA has been a public company. Do you have a change in control clause in your employment agreement?

Well, first of all, I don't have an employment agreement, nor do most anybody at RGA have an employment agreement. Sean Dargan - Macquarie Capital (USA), Inc. Okay. Okay. Is there...

Just no. Sean Dargan - Macquarie Capital (USA), Inc. Okay. All right. Thank you.

We'll take our next question from Daniel Bergman with UBS.

Hi. Good morning. Just following up on the earlier questions, I just wanted to see if there's additional guidance you can provide to help us think about the expected go-forward earnings run rate for the U.S. Traditional business based on your updated expectations. I mean is it fair, could we just take the year-to-date segment earnings, add back I think it was $140 million of worse than expected year-to-date mortality and then subtract the run rate implied by the $60 million of higher older issue age claims you now expect? Is that the way to think about the math? Or are there other judgments we need to make, for example, to account for seasonality or a better way to think about this? Any color would be helpful.

Yeah, Dan. At a high level, what you described is a very reasonable way to look at it. It's kind of our thinking currently that there's a lot of volatility and some years you're going to have that. But there's also a component that we expect to be persistent with that $60 million. So I would agree with the way you laid it out.

There is seasonality. The first quarter is typically harder. The winter months are harder mortality months.

Okay. That's helpful to confirm. Thank you. And then maybe switching gears, I wanted to see if you gave any update on the block acquisition pipeline and level of activity in the market? And then, I guess, was the uptick in share buybacks this quarter at all related to any incrementally negative view of the deal pipeline? Or just big picture, is there any change in your thinking? Or are you still optimistic about the level of deal flow you're seeing?

I think we're looking at the deal flow as very good right now. We don't have, I wouldn't say a lot of blockbuster size transactions, but we've got a lot of medium and smaller transaction. We expect good activity in the fourth quarter. We've got good activity so far this year and we're happy with the way everything has developed. There seems to be an abundance of opportunities in the world of in-force blocks.

Dan, on your question on the buybacks, I wouldn't read too much into the – every quarter it's going to be more or less than the prior quarter. Obviously, we started off fairly aggressively early in the year but I wouldn't read the volume of buybacks in the third quarter as any real indication of other deal opportunities.

Okay. Great. Very helpful. Thank you.

We'll take a follow-up question from Humphrey Lee with Dowling & Partners.

Thank you, guys. Just wanted to quickly follow up on John's question regarding your capital generation. So I think you used to talk about your capital generation pretty stable on a year-in, year-out basis, but how much of that kind of capital generation was supported from the U.S. side? And on top of that, how much the capital is coming from these kind of like a large claims or older blocks? And so, with the expectation for that block to be weaker, would it substantially affect your kind of capital generation at least in the near term, all else equal, before you grow other part of your business to compensate that?

Yeah. It's a shifting mosaic. The capital generation of that U.S. mortality block was the biggest driver of capital generation of 1 point and there's a lot of places in the organization now that are generating capital above and beyond the requirements and as one falls off another has taken its place. I think it's easier to look at the overall capital generation of the organization which has been quite strong over the last several years and believe that it's going to continue that way.

Humphrey, this is Jack. Another way to look at it is that $60 million after taxes, call it $40 million or so. And we have indicated in the past that we expect to generate $300 to $350 million of excess capital in a typical year. So if you isolate just that underperforming piece of business and its relative impact on capital it's insignificant. And then, by the way there's other parts of the business that are really outperforming. So another way of saying it is we don't suggest that you look at that as having significant influence on the amount of capital we'll have available.

Okay. Got it. Thanks.

It appears there are no further questions at this time. I'll turn it back over to our speakers for any additional or closing remarks.

Okay. Thanks to everyone for joining us today. We appreciate your interest and with that we'll end our third quarter conference call. Thanks, again.

Once again, that does conclude today's conference. Thank you for your participation.