Good day and welcome to the Reinsurance Group of America Inc. Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Todd Larson, Senior Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you. Welcome to RGA’s second quarter 2023 conference call. I am joined on the call this morning with Anna Manning, RGA’s Chief Executive Officer; Tony Cheng, President; Leslie Barbi, Chief Investment Officer; and Jonathan Porter, Chief Risk Officer. As a quick reminder, before we get started regarding forward-looking information and non-GAAP financial measures. Some of our comments or answers to your questions may contain forward-looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ materially from expected results. Additionally, during the course of this call, the information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation and quarterly financial supplement, all of which are posted on our website for a further discussion of these terms and reconciliations to GAAP measures. And now, I will turn the call over to Anna for her comments.

Thank you, Todd. Good morning and thank you for joining our call today. Last night, we reported second quarter adjusted operating earnings of $4.40 per share. This was a strong quarter with many regions and business lines performing very well. There’s also another quarter demonstrating the power of the underlying earnings engine in our business as well as the ongoing success of our growth strategy that is adding meaningful long-term value to that engine. Let me turn to a few of the highlights in the quarter, which include favorable mortality experience in our U.S. individual business as well as favorable performance in our U.S. group and individual health businesses. Our Asia traditional business also benefited from favorable claims experience as well as higher yields. Our Global Financial Solutions business had another strong quarter with contributions from both spreads and favorable longevity experience, continuing the trend of excellent performance over a number of years. Investment performance in the quarter was good as new money rates remained attractive and impairments were minimal. We believe our investment portfolio is well positioned to withstand any ongoing economic uncertainties. And strong new business momentum in our organic business continued through the quarter and notably picked up in Asia. In a few minutes, Tony will expand on the quarter’s activities and on our future growth opportunities. We added another very successful quarter on the capital management front, deploying $190 million into in-force and other transactions, bringing the year-to-date total to $384 million of capital put to work. I am pleased with the start of the year and with the state of our transactions pipelines, which are at very healthy levels with opportunities across many geographies and risks. In the quarter, we also repurchased $50 million of shares, bringing the year-to-date total to $100 million in share…

Thank you. As Anna mentioned, we see favorable industry dynamics, and we are well positioned to benefit from these many opportunities. During our recent Investor Day, we highlighted 4 areas with particularly good growth opportunities. These four areas are longevity and PRT, Asia traditional, Asia asset-intensive and our U.S. traditional business. We are seeing strong success across all four in 2023. Our longevity business is experiencing strong volumes in Europe and we are delighted with the announcement earlier this week of the £5 billion longevity swap transaction. We continue to see a strong pipeline of business in the region. Our U.S. PRT business continues to gain momentum, and we are increasingly confident of our prospects in this sizable and growing market. In Asia, there is a strong recovery in economic activity driving the demand for new products we have launched with our partners. We see strong momentum in all our businesses with particular success this quarter in South Korea. During Investor Day, we spoke of a new product we launched in China in late 2022. We are pleased with the reception of this product in the market and are actively working with other market-leading insurers on similar product ideas. And our Hong Kong business has the additional tailwind in of the rebound of mainland Chinese visitors to closer to pre-pandemic levels. These visitors are a material source of business for the Hong Kong insurance market. These new product initiatives are very much examples of how we grow by partnering with clients to help grow the underlying insurance market. For the Asia asset-intensive business, we are partnering with multiple clients to optimize their risk and capital management. This is best exhibited by another important transaction this quarter in Japan with the new client. A number of our previous coinsurance transactions were…

Thanks, Tony. Turning to the quarter’s results, RGA reported pre-tax adjusted operating income of $376 million for the quarter, and adjusted operating earnings per share of $4.40, which includes a foreign currency headwind of $0.07 per share. The trailing 12 months adjusted operating return on equity was 10.9%. Excluding the 2022 assumption changes referred to as notable items, the trailing 12-month adjusted operating return on equity was 13%. We are pleased with the strong quarterly results as well as new business production, capital deployment into in-force and other transactions and investment results. Reported premiums were up 3.3% for the quarter. After adjusting for adverse foreign currency impacts, premiums were up 4.7% in the quarter and 7.7% year-to-date, both on a constant currency basis. As Tony and Anna mentioned, we have strong momentum in the business activity, and we expect this to continue to contribute to premium growth over time. Turning to the quarterly segment results on Slide 6 in our earnings presentation that can be found on RGA’s Investor Relations website. The U.S. and Latin America Traditional segment reflected favorable mortality experience in our individual mortality business. Good results in group and individual health, partially offset by some onetime items of approximately $12 million. The favorable individual mortality experience is widespread and driven by lower large claims and better-than-expected older age mortality. This experience occurred in both our capped and uncapped cohorts. As we previously discussed, under LDTI, current period mortality experience has a modest impact on the bottom line on the untapped cohorts as part of the results are spread into the future. And that is what we saw in this quarter. The favorable mortality results were spread into the future periods. The onetime items reflect certain actions that together had an adverse impact in the second quarter, but…

[Operator Instructions] Our first question comes from Jimmy Bhullar with JPMorgan. Please go ahead.

Hey, good morning. I had a couple of questions. First, on your new money yield. It went up a lot faster than it’s gone up in the past several quarters at slightly over 50 basis points. And by a greater magnitude that I think what lies in interest rates would suggest. So just wondering if you think that this is a normal level to think about as we think about your investment income? Or was it mostly allocations into certain securities that lifted it beyond what it would have normally been this quarter? And then…

Sorry, go ahead.

Why don’t you go ahead, and then I’ll ask the other question later.

Then I don’t have to remember both. Okay. Yes. Thanks for the question, Jimmy. It’s Leslie Barbi. Yes. So the new money rate did go up quite a bit. As you know, market yields went up. I think the investment grade index is up 31 basis points. We did have some mix shift because we had some very attractive opportunities in select private assets and structured securities. So there is a sum of both. But I think that 6% ballpark is not a bad expectation. So it will come off a little bit, but it’s going back to the normal mix, we send it down tremendously.

Okay. And then just on the tax rate, it was lower than it normally has been and what we had expected. What was – were there any one-timers there? And what’s your expectation for the tax rate going forward?

No, the tax rate will move around a little bit quarter-to-quarter. But what we saw this quarter was one where the mix of earnings emanated from, from around the world and how that translated in the taxes. And also, this is the time of the year when we have filed various tax returns and we true up provisions to the tax return filing and that resulted in a positive to the reduction to the tax rate, I should say.

Okay, thank you.

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

Good morning, thanks for the opportunity. Can you talk about the investment yield ex VII? I know it’s a gross figure, so there may be some expenses, but maybe talk about the roll-off to portfolio yield gap a little bit.

Sure. Thaks. This is Leslie again. So on the portfolio yield, you’re right, the – it came off a little bit ex VII, and that was really due to some expense timing in the quarter that tends to vary. So all things equal, we expect the portfolio yield to continue to rise versus things that are rolling off we’re probably picking up about 150 basis points right now. So the new money rates will continue to be additive to the portfolio yield.

Thank you, very much. And my follow-up question. EMEA mortality has had a bit of an unfavorable tail. I know that NHS is challenged in that country. Is that a repricing opportunity? Or is that something that need some structural addressing to improve profitability. Thank you.

Yes. John, it’s Jonathan here. Yes, certainly, we are reflecting our current expectations for the tightened mortality environment in the UK and our pricing. So I think we have taken appropriate action there from a new business perspective. Just a reminder that we do have a very sizable longevity book of business as well in the UK. So the higher general population mortality, although it’s providing a headwind to the mortality business, which we’ve accounted for. It’s also providing a tailwind to the longevity business, and we saw that come through our results in the current period, too, where our longevity gains in our Financial Solutions line, actually a little bit more than offset the mortality drags in the traditional business.

Thanks for the answer.

The next question comes from Wes Carmichael with Wells Fargo. Please go ahead.

Hi, good morning. Just hoping you guys could provide some color on the pipeline and the outlook for pension risk transfer transactions in the U.S. I was just kind of wondering what’s kind of your sweet spot in terms of size and maybe timing of the risk of 2023, what that’s looking like? Thank you.

Thanks, Wes. This is Tony. As we’ve shared previously, look, we’re very pleased with the progress that we’re making in the PRT of the market. And we’re actively quoting and there is a very strong pipeline of opportunities. We strategically know that we are the natural home for longevity given our very, very sizable block of mortality and we’ve got the expertise now in the U.S. that we’ve exported from other parts of the world. In terms size, we tend to focus on the upper end of the market in partnership because we feel there is less competition in that area. So unfortunately, we haven’t closed the transaction this quarter with – closed the transaction earlier this year and we’re eagerly anticipating future transactions in the future.

Thanks, Tony. And I’m just wondering, did you have any impact in the quarter from in-force pricing actions. I think there was a little bit of maybe benefit in the first quarter results. So just wondering if there was any of that that came through in the second quarter results.

Hi, this is Todd. As far as actual repricing activity, not really anything in this quarter. We had talked about the activity in the first quarter, but nothing this quarter.

Thank you.

The next question comes from Tracy Benguigui with Barclays. Please go ahead.

Thank you. I realize that you’ve seen favorable mortality. I’m wondering on the margin, are you seeing any adverse for VUL any pull forward, at least that’s a comment made by ceded we gather that information from reinsurance.

Yes. Hi, Tracy, it’s Jonathan. I won’t comment specifically at the product level, like once you start to really drill down and parse the in-force book of business. The credibility falls quite a bit. But in total, as was mentioned sort of in our prepared remarks, we have seen favorable experience this quarter for sure. It’s mostly driven by fewer large claims in the current period. and it is concentrated more in the older ages, where it’s been more favorable for us. And most of our get a reminder for VUL, specifically, we reinsure the mortality risk on that book of business, again, to [indiscernible].

Yes, I totally get. I was just asking about the margin. Last quarter, you shared that you’ve done some repricing efforts. Was that done this quarter as well?

Todd, do you want to take that?

Hi, Tracy, it’s Todd. Yes. No, we did do some repricing activity in the first quarter. But as I mentioned a little while ago during the second quarter, there was not any specific new repricing activity.

Thank you.

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

Hi, thank you. Relative to the guidance you provided at Investor Day, Asia earnings this quarter came in well above expectations. Was this just favorable experience this quarter whereas the earnings power improved given the business growth and the macro environment you’re seeing?

Hi, Erik, it’s Todd. Yes, we’ve provided the updated financial targets and run rates back at Investor Day mid-June. So we’re not updating any of that at this point. It’s great to see the results that we’ve seen in the segment, especially in the second quarter, and a lot of that was favorable experience that came through in the current quarter.

Got it. And then maybe can you provide some more color on – sorry?

I was going to just add, I mean, just strategically, in Asia, we’re obviously very bullish about both the traditional and the asset-intensive business, the pipelines are very, very full. And as I mentioned earlier, is not just the volume of business we’re seeing, but just the breadth across the region and to be honest, across the globe, as well as the number of exclusives. So there are very good signs that our strategy is working in many, many places, and that obviously makes us more – more and more positive about the future.

Thank you. And maybe just a follow-up on that. Can you provide a little bit more color on the premium growth drivers in Asia and sort of how much is coming from new business versus block deals.

I’d say our focus, I mean, the best measure for growth in – when we look at growth in Asia, and it’s really the traditional business or the organic business when we look at premium growth that we focus more on. So for block transactions, sometimes premium is not the best indicator. I would say just in general, we’re seeing great growth opportunities across both lines of businesses for different reasons. But the driver of the premium we focus on is mainly on the organic side on the traditional.

Got it. Thank you.

Our next question comes from Suneet Kamath with Jefferies. Please go ahead.

Thanks. Tony, you mentioned a deal that you did with a traditional Japanese insurance company, and it sounds like this is the first of that type of transaction. Just any color in terms of what the motivation was for the seed in there? And are you expecting that ESR, I know it’s a couple of years away. Is that going to create some additional opportunities for you guys?

Yes. Let me take – answer that. I mean, yes, absolutely. This was a very important transaction, as I mentioned in the prepared remarks. Japan as many markets once you sort of get a breakthrough of sorts then others follow. So this one is – I can’t go into too much detail, but is important because there was with the domestic, and we would anticipate other domestics are watching very carefully and hopefully following suit. ESR is a very big driver of the opportunities we’re seeing in Japan. So absolutely on the capital management side, companies even though it’s out to 2025, companies are obviously very much preparing for it. And just listening to some of the other calls that you’ve been part of in the last few days, you can see the intersection that say, of new products and the growth in Japan, but maybe a potentially having an adverse effect on the capital side of that. So we’re perfectly positioned to solve both problems, which is obviously new product development and combining that with capital solutions, and that’s absolutely why we are very focused on that intersection of those two strong capabilities that we have.

Got it. Makes sense. And then I guess for Todd, is the $50 million pace of share repurchases that we saw in the quarter, should we sort of think about that as a run rate going forward? Or are you expecting that to change?

Hi. So we will continue to manage capital over time. I think as we’ve talked about, we sort of have this three levers. One is we like deploying the capital back into the business and the transactions where we get a good return for the risk that we’re taking, maintaining our dividend, and then we – over time, we’ve balanced it out with share repurchases. And so I think you’ll see us continue to be active in managing the capital levels, and we like our current position because I think we’re in a position to capitalize on opportunities that we see in a very healthy pipeline. And if those don’t develop, then we will certainly continue to manage with the other levers. So I think we don’t have an actual a stated program for share repurchase in place, but I think you’ll see us continue to use that as one of the levers of how we effectively manage the capital level.

Okay, thanks.

The next question comes from Ryan Krueger with ABW. Please go ahead.

Hey. Good morning. Could you provide some more quantification on the stable U.S. mortality experience in the quarter, perhaps the actual to expected results because I think under LDTI, it’s a little bit more challenging to kind of quantify, how favorable mortality is given this moving impact.

Hi Ryan, it’s Todd. Yes. LDTI, I guess it has made it a little bit more difficult to see the actual underlying experience. As a reminder, for the capped and forward contracts under LDTI, the experience flows through in the current quarter and for uncapped cohorts some comes through currently and some is spread out into the future. Specifically for U.S. mortality in the quarter and a good way to think of it is that the underlying experience was favorable by around $25 million based on our expectation and about $5 million of that came through in the second quarter and then the remaining $20 million will be spread going into future periods.

Great. Thanks. That’s very helpful. And then on the large European longevity transaction, can you give a reference of how much capital that will deploy in the quarter?

We normally don’t provide specific transaction capital numbers.

Okay. Got it. Thank you.

Our next question comes from Tom Gallagher with Evercore. Please go ahead.

Good morning. Can you square the $24 million re-measurement loss in the quarter for U.S. traditional with the comments of favorable mortality, what drove the re-measurement loss?

Hi. This is Todd again. Yes, so the numbers I provided were related to claims experience. In the re-measurement gain or loss, that includes more than just claims activity. It can be adjustments to expected premium. It could be anything that impacts future cash flows. And usually, a lot of the impact that comes through in that re-measurement gain or loss relates to lost on forward contract, and it relates – and it doesn’t – it mainly relates to the impact of any changes in experience or cash flows, premiums, that type of things from the transition date or the treaty inception date to the current period, it’s not including sort of all the future impacts that you would take into account.

Okay. And how was the underlying within the U.S. traditional business, how is long-term care performing. I think some peers had experienced some elevated claims. Did you see the same?

Sure. This is Todd again. Just maybe take a step back, as a reminder, our long-term care block is relatively recent block, it was not in the era that’s, I guess considered some of the legacy blocks, a lot of ours was issued like 2009 onwards. So, it’s the underlying product terms, I think are much more fair the way I always describe it, fair between the policyholder and the insurance company versus some of the older type long-term care. You might hear a little bit more about the elevated claims or reserve strengthening and that type of thing. But we are seeing continued performance within our expectations on our block. I would say no concerns at this point based on the experience that we have been seeing. So, we are happy with our specific block.

Got it. And then just final one, the $12 million of one-time items in U.S. tread that you mentioned were negatively affecting earnings this quarter. Can you elaborate a little bit on that? What were those? And why is it going to improve future cash flows or earnings?

Sure. Yes. So, we had some recapture of some retro sessions on that – where we had retroceded business. We added some recaptures and then we had a recapture on from our client perspective. And so when we recaptured the retro treaties, we had to reestablish some reserves on that business. So, that primarily created the loss of the adverse impact in the current quarter. But we would expect that to produce positive impacts going forward. And I would size it about positive impact of around $4 million on an annual basis, amortizing down over time. So economically, it was a good decision to make. And like everything we are constantly managing our overall in-force book, and this was what we viewed as a good decision to make from an overall economic perspective.

Got it. So, that $4 million should be additive, I presume to the segment’s guidance when we think about – I mean it’s small, but it’s a modest upward adjustment, is that fair?

That’s fair. There is always things that go both ways. But yes, it should be a positive over time.

Thank you.

Our next question comes from Alex Scott with Goldman Sachs. Please go ahead.

Hi. I guess a lot of my questions have been answered, but I thought I would ask about the transaction volume we have seen in the U.S. year-to-date and just what you take is on the competitive environment. So, we didn’t see RGA participate in some of those bigger deals that were announced some of the counterparties involved, not quite as well known as RGA. So, what was your perspective on that? And how do you see that pipeline through the end of the year?

Yes. Thanks Alex. We absolutely are still very active in this market, and we pick our spots and the transactions that we feel we can add the most value to. So, that pipeline, that’s probably the area of our company that gain the most attention with regards to competition. But we are very confident we have got all the capabilities to assess the block in an appropriate manner and then be ready to pounce when the opportunity arises. So, there are meaningful opportunities in the pipeline in that area and we are optimistic of closing transactions. I want to say when these big transactions get announced, we do participate at times around the edges that are still very meaningful. At times, it could be a YRT mortality transaction, at times, there could be a capital financing part of a transaction, and they are very meaningful transactions for us. So, I just wanted to share that color also.

Got it. Very helpful. And then maybe just going back to net investment income, I mean can you talk at all about how much you all benefited from – in the floating rate portfolio you do have. And I guess I am just thinking through the lift in NII yield that it’s probably been had there, but that may slow down is rates potentially are not raised as much the Fed funds level...

Hey Alex, it’s Leslie. Yes. So, on the benefit to NII, the benefit we had in the quarter was really a combination of things, extension trades and other relative value transactions and there has still been a little bit of boost from cash and floating. But when you look at the non-spread in total of the assets that are net of floating liabilities, we have actually hedged some of that risk out from flowing to fix. So, there is really not much impact left there. There is still a little bit more in the spread business. So, we keep an eye on that, whether it’s – if we thought rates were going to fall more than the forwards, we may hedge some more. But certainly, the total sensitivity has been coming down as we have done extension trade and some hedging.

Got it. Thank you.

Our next question comes from Mike Ward with Citi. Please go ahead.

Thanks guys. Good morning. I don’t know if you would quantify this, but wondering if you could help us kind of size favorability in Asia in a similar way as you did for the U.S.

Hi Mike, this is Todd. I guess the best way to respond to that right now is that as you look in the aggregate across the rest of our business segments, most of the favorable experience in the quarter did come through in the second quarter, very little of it was deferred into the future or spread into the future.

Okay. So, I think – so the U.S. traditional, you mentioned it was like $25 million favorable. Do you have that for Asia?

No. Maybe one way to put it is if you look at Asia, the entire Asia Pacific segment, most of the, I would say, the favorable variance to the range of run rates. A lot of that was due to some experience and some other treaty true-ups.

Okay. And then back on the recapture activity. Just wondering if you can sort of help us understand what’s driving that and if we should expect more impact going forward?

No, it’s just part of our ongoing overall management of our business and where we see there is appropriate opportunities to take some actions. We will do that. So, there is really no way for me to sort of quantify any future activity.

Okay. Thanks guys.

Our next question is a follow-up from Wes Carmichael with Wells Fargo. Please go ahead.

Hey. Thanks for taking my question. I have one housekeeping item. I think on corporate, you guys mentioned that there might be some expense timing. So, I just wanted to kind of confirm, like do you think corporate, the loss there should tick back to kind of that $30 million to $35 million, $35 million to $40 million loss range from the $55 million in the second quarter?

Yes. So, what we saw in the second quarter, there was some higher financing costs and some timing of some general expenses. If you look year-to-date for corporate, we are pretty much on the run rate. What I would probably maybe suggest or point to that as we go forward, we are probably might be towards the higher end of the run rate for corporate. Hopefully, we can manage that as tightly as possible, but maybe that’s the best guidance or information I can give for that…

And just on excess capital, it did tick down a bit to $1.2 billion. I just wanted to get your view on should we expect you to kind of manage that lower? And it seems like transaction volume has been pretty healthy, and it seems like it will continue into the second half of the year, so just kind of any view on where we should think about excess capital going forward?

Sure. Yes. No. As we mentioned earlier, we like our position currently because I think we are in a good position to take advantage of some of the healthy pipeline transactions that we are seeing across the various geographies. And we are very comfortable bringing that excess capital level down, again, through transactional activity or other ways to return capital to shareholders. So, yes, $1.2 billion at the end of the quarter, but comfortable bringing it down and look forward to pointing into some good transactions.

Thanks very much.

This concludes our question-and-answer session. I would like to turn the conference back over to Anna Manning for any closing remarks.

Thank you. Thank you for your questions and for your continued interest in RGA. This was another strong quarter, further demonstrating the substantial earnings power in our business, we are a global leader. We are very well positioned to capitalize on the many growth opportunities ahead and that you have heard about through the course of the last hour, and we are confident in our ability to continue to deliver attractive returns to our investors. So, thank you everyone and that concludes our second quarter call.

The conference has now concluded. Thank you for attending today’s presentation. You may all now disconnect.