Good day and welcome to the Reinsurance Group of America Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [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 Third Quarter 2023 Conference Call. I'm 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. 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 discussion of these terms and reconciliations to GAAP measures. And now I'll turn the call over to Anna for her comments.

Thank you, Todd. Good morning. Thank you for joining our call today. Last night, we reported third quarter adjusted operating earnings of $5.57 per share and the trailing 12-month adjusted operating ROE of 14.7% or 14% excluding notable items. This quarter's results included very good performance in many of our regions and business lines, continuing to show the strength of the large 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 touch on a few of the many highlights in the quarter, which include a continuation of new business momentum in our organic flow business with a measurable pickup in Asia. Underwriting results were favorable overall and in particular, we saw very favorable mortality experience in our US individual business as well as favorable experience in our US group and individual health businesses. In Asia, the traditional business also delivered favorable underwriting results. Our Global Financial Solutions business had another strong quarter with contributions from both investment spreads and favorable longevity experience. This story is a familiar one as the GFS business has consistently produced excellent results over a number of quarters and years. Investment performance in the quarter was good as new money rates continue to rise and are at levels well above our portfolio yield. Variable investment income was in line with our expectations, while impairments were low. We believe our investment portfolio is well positioned to withstand ongoing economic uncertainties. We deployed $203 million of capital into in-force and other transactions in the quarter, bringing the year-to-date total to $587 million. This means that in just the first three quarters, we have already exceeded the total amount of capital deployed in each of the last two years, which were…

Good morning, everyone. Let me start by thanking Anna for her leadership and immense contributions to RGA. There is no question in my mind that Anna leads behind a company that is stronger than ever. Our excitement and optimistic future are very much due to her leadership over the past seven years. Turning to this quarter's performance. I am enthusiastic to share these excellent results. Yes, the industry dynamics are very favorable, but this is just part of the picture. RGA has a very strong franchise and an incredibly talented team to capitalize on this environment. We provide innovative solutions that help solve some of the life and health industry's biggest challenges. These challenges become our clients' greatest opportunities and we have always been very focused on helping them succeed and growing alongside them. Thus, there are many opportunities for RGA to grow our business and support our clients all around the world. This is another excellent. This is another quarter in which we have demonstrated our ability to execute on the growth strategy, deliver attractive returns for shareholders and built upon our future earnings power. As previously shared, we have highlighted four areas of notable growth, global PRT and longevity, Asia traditional, US traditional and the Asia asset-intensive business. Based upon another strong quarter of new business wins and the deployment of capital into transaction, there is little doubt that we are firing on all cylinders. Our internal measure of new business and better value shows we are well ahead of our targets in the year ago period. As important as the quantity of new businesses, so is the breadth and the quality. We see the breadth by virtue of the fact that all our businesses across the company are contributing strongly to our success. In terms of the…

Thanks, Tony. RGA reported pre-tax adjusted operating income of $481 million for the quarter and adjusted operating earnings per share of $5.57, which includes a foreign currency tailwind of $0.01 per share. Trailing 12-month adjusted operating return on equity was 14.7%. Excluding the assumption changes under LDTI, referred to as notable items, trailing 12-month adjusted operating return on equity was 14%. We are pleased with the strong quarterly results as well as new business volumes, capital deployment and investment results. I did want to make a few comments on the assumption changes that occurred in the quarter. Our annual review of reserve assumptions resulted in a net positive financial impact of $3 million pre-tax to consolidated results. In the specific geographic segments and various business lines, the net impacts were modest with many natural offsets. Thinking about this from a high level, this shouldn't be a surprise given our diversified platform, both geographically and by products, with mortality and longevity the most obvious. The UK is a good example, where we reflected our expectation of some level of continued excess mortality that we have been seeing in the population and in our results. This has had an unfavorable impact to the traditional line and a favorable impact on our longevity business. Turning to financial results. Reported premiums were up 31% for the quarter. This quarter's increase includes more than $800 million in premium from our second US PRT transaction this year that Tony mentioned earlier. Also, as Tony and Anna mentioned, we have strong momentum in new business activity and expect to continue to see attractive premium growth over time. As we move to the quarterly segment results, starting on slide six of the earnings presentation, I would like to note that we are discussing results that exclude the impact…

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Ryan Krueger with KBW. Please go ahead.

Hi. Good morning. Todd, in the things you just went over in terms of the drivers of the strong year-to-date results, it seems like the new business growth, interest rates and in-force management would all have ongoing recurring benefits and the one that might not be as recurring would just be the favorable underwriting experience. So I was hoping that you could -- are you able to give us any color on quantification of just how favorable the year-to-date results have been from an underwriting perspective relative to your expectations?

So I can give you I have it in my hand the current -- I was going to size just from an underwriting perspective, for the current quarter, I'd size it at around what went through the income statement around $60 million roughly. Now remember under LDTI, that's the portion that was recognized currently. Overall, underwriting for the quarter was probably closer to $150 million or so.

Perfect. Okay. So $60 million came through the actual income statement though?

In the quarter.

Yes, in the quarter. Okay. Got it. And then separately, you had done the second PRT transaction, I think it's with a different partner than the first one. Are you able to tell us who the partner is? And then, I guess, on a go-forward basis, are there built-in arrangements in terms of jointly bidding? Or is it deal specific?

Yes, Ryan, let me take that. To start with on the PRT business, as we've shared, look, we think there's great opportunities in this market. And we are very excited with our successes to date. As we've previously shared, we feel we're one of the natural homes for longevity risk, given we have such a big book of mortality business as well as our capabilities and our data that we've built up over many, many years on the mortality side as well as the longevity side in Europe. To answer your question, yes, I can't share the second partner and that partner is prudential. And to answer your other question, the different partnerships have clear guidelines on the type of pension funds we will consider with each partner. We price the transactions obviously independently but coordinate closely on the presentations of our offer as a combined package.

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

Hey, good morning, and first, I just wanted to say congrats Anna and best wishes for your retirement. I think, Todd, you mentioned a onetime favorable item in Asia. Would you be able to give us some additional color on that?

Yes, the size, it was around $10 million in the quarter. And it's $10 million to $12 million, if I remember correctly. And related to just some way we classified as underlying treaty in the way that the financial reporting work for that. So sort of a reserve adjustment true-up but then going forward, it will be more of a normal pattern. So it really was sort of an isolated onetime item for the quarter.

Got it. Thanks. And maybe a higher-level question. But have you guys given any thought to the advancement of the GLP-1 drug? And could that have an impact on RGA's results over the longer term as the cost issues are dealt with and adoption becomes more widespread?

Hi, Wes, this is Jonathan. Yes, so you're referring to drugs that are used to manage obesity. I think it's probably too early to tell what the long-term impact is. But certainly, we're encouraged by the potential benefits to both mortality and morbidity and as you mentioned specifically, as the cost comes down and they become more widespread, I think it's something that we're keenly following.

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

Good morning and thank you very much. You had talked about the main drivers of better earnings kind of walk through. When you talk about in-force management, can you maybe talk about how much of that in-force has been re-pricing actions and the pipeline for more of that prospectively? Thank you.

Thanks, John. Let me take that one. Look, our stands on in-force management hasn't changed. I mean we do not hesitate to exercise our rights in the treaty. But we've been very focused as with pretty much everything we do on a partnership approach. So that involves, obviously, being very holistic and considering the whole relationship across the world consider with that client considering future opportunities for partnership in new business and so on and so forth. So I would say -- we've sort of covered a lot of the low-hanging fruit, for lack of a better word. But we continue very focused on this strategy to find any ways where, once again, from a partnership perspective, there's opportunities for win-win situations between ourselves and our partners.

Thank you for that. My follow-up question. You hear more and more carriers talking about automating your underwriting. And you have the data to power that. When you think about from a primary perspective within the US life insurance market, how much of that is automated. And what's the hurdle there and opportunity? Thank you.

What's the hook and opportunity, sorry?

What's the hurdle for some of these primary carriers from implementing it today and because we've seen a number of them talk about doing more automated underwriting within their portfolio. Thank you.

Look, automation of underwriting, obviously, is a theme very big in the US and across the globe. In each of our clients obviously work very closely with us on that. Our focus is a broad range of underwriting capabilities. So we absolutely work very closely with our clients to automate as well as provide the facultative as well as a multitude of services in between. So I'd say the hurdles really depends on client by client, obviously, size and scale, but it's clearly a strong trend that we're very much partnering with our clients and the industry to facilitate them further.

Next question comes from Joel Hurwitz with Dowling & Partners. Please go ahead.

Hi. Good morning. I want to start on the interest rate tailwinds. Can you provide some color on the level of incremental benefits versus what's in your guidance if new money yields stay around current levels?

Yes. Thanks. This is Leslie. And I think maybe it's helpful if I just compare this quarter to last quarter. So if you focus in on our Non-Spread business, the incremental difference from higher yield has been about $5 million on the quarter. That is sustainable if we stay at the deal levels that we had at quarter end and they moved up a bit. And there will actually probably be a little additional tailwind in the fourth quarter because as you now the yields really moved up sharply towards the end of the quarter. So saying these levels, the $5 million and maybe a little bit more in the fourth quarter.

Okay. Very helpful. And then just shifting to the in-force activities. Obviously, year-to-date capital deployment is very strong there. I guess, do you see this level persisting over the intermediate time? And then can you just talk about where you see the strongest opportunities? I know much of the activity has been in GFS, but are you seeing more opportunities with the traditional business?

Yes. Let me take that one. The growth in our deployment, as Anna mentioned, the growth in our deployment of capital into the business, we've already surpassed all of last year. And we have obviously very strong momentum, and we have no reason to believe that won't continue across the globe. Obviously, with regards to our four major areas of notable growth. Asia, the asset-intensive business. We've already discussed a bit on the PRT in the US, which is also asset involves asset intensity and other parts of the world. So the prospects are very strong on both the GFS as well as the traditional business. We do time to time see in-force opportunities arising, particularly in the US. And I want to also say, we spoke earlier about in-force management. Our ability to partner with clients when we have to discuss with them in-force actions. And there how can I put it their experience when they work with us on that sort of differentiates us so that when they have other blocks of business, they're more prone to work with us on those opportunities.

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

Good morning. Todd, I just wanted to come back to your response to Ryan's question. The favorable underwriting this quarter. Overall, I think you said was around $150 million, $60 million of which actually came through in the quarter. Do I have that right?

Yes. And that's specific to the claim's activity. That's right. And that's on both traditional and GFS.

Got you. And so Todd, the right way to think about this, that the $90 million that is deferred is going to come through very slowly in the future that will get amortized in future periods over, I don't know, 10 years? Is there a way -- how should we think about that $90 million?

Yes, that's right. It'll be amortized in over time in the future. And depending on which cohort is in and the underlying product and on the duration of the underlying liability. It probably is 10 years or longer on average.

The next question comes from Jamminder Bhullar with JPMorgan. Please go ahead.

Good morning. First, maybe for Leslie, on the new money yield, obviously, you're benefiting from the rise in interest rates. I think you highlighted that the yields also benefited from a shift in allocation to private and to structured investments. Did you highlight that you sort of imply that maybe this quarter, the new money yield is trending above what it normally would have trended because you opportunistically increase allocations there? Or -- and should we expect it to maybe not be as high? Or was that just -- were the allocation still normal versus where you expect them to be going forward?

Thank you. I'm glad you asked that if that wasn't clear. I think the comment really about the select opportunities was to make it clear, I guess, that we have a broad platform and we're actively selecting and not everything is driven by just interest rates that show up on our doorstep. But actually, the allocation of private is a little bit less than the second quarter. In the second quarter, I think I had noted we had a bit higher allocation. So that shift in mix was actually a bit of a negative on the quarter. But generally, we're at very healthy yield levels because of our broad platform.

So nothing to suggest that if rates go up more, your yield shouldn't incrementally improve from even the high levels that it was at in 3Q.

Yes, correct. In fact, as you know, rates went up much more towards the end of the quarter. So if you're going from the 930 level, that would be supportive going forward.

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

Thank you. Have a very basic question. So you could do a US PRT transaction jointly with an insurer partner or you could do some type of PRT reinsurance. I'm wondering which path has greater earnings potential?

It would be the path that we've pursued. So the side-by-side partnership with PRT insurers.

Okay. Perfect And because you also have a presence in Bermuda, I'm wondering if you had any early views on the consultation paper that's out there, particularly on the scenario-based analysis.

Yes. Tracy, it's Todd. Yes, we have been monitoring that. You're correct, we do have a company or companies in Bermuda. Based on our analysis for RGA, we don't expect a material impact. We actually do not use the scenario-based approach. So that those -- the changes to that will not impact us directly.

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

Thanks. Good morning. Your interest rate leverage seems like it's coming in much stronger than I think we expected. Is there a way to help us think through how much of that is due to sort of the long end of the curve versus the short end of the curve?

Hi. It's Leslie. I would say the beat the numbers I was quoting for the change quarter-over-quarter are really, I would say, half and half, sort of the short end of the curve still and then we have done a nice job over this period of higher interest rates and doing some extension trades and locking the entire yields for longer. So it's kind of half and half.

Okay. That's helpful. And then I guess for Tony, I think you had mentioned in your prepared comments embedded value or value of new business is much higher on the stuff that you've added recently. Is there a way to think about that from an ROE perspective? In other words, what are the returns that you're getting on sort of the new business that you've been adding relative to that, I guess, 11% to 13% ROE target that you always talk about.

Thanks for the question. Yes. As you mentioned, I mean, the new business is coming in strong, the breadth, the quality and the volume. To add further to that, we're very pleased with the returns on the new business. And that's why we've mentioned a few times the exclusivity is because when you are able to sort of grow the pie for you and your partner, then both partners benefit from that. So 11% to 13%, our pricing targets are higher than that. And once again, we're just very pleased with the returns we're seeing on the new business.

The next question comes from Mike Ward with UBS. Please go ahead.

Thanks. Good morning and congratulations, Anna, maybe just to expand on Wes' question on the GLP-1s. A number of years ago, you guys sort of shared this high-level hypothetical type of sensitivity to a one-year extension of life expectancies. I was just wondering if you could help us think through that hypothetical again, just given your mix and whatnot.

Yes. Mike, it's Jonathan. Yes, I don't have sort of a number at the top of my head to be able to provide you. But I mean, I guess you can think of it maybe in the context of, again, this super high level. If you were to push out everyone's death by one more year, we basically would collect an extra year of premium. So that's maybe some way to give you a very high-level context for that but let me take that away and see if there's kind of a different way to think about it, and maybe we can look to provide some further information at Investor Day next year or something.

Awesome. That sounds great. And then I was just wondering if there's any sort of update on the third-party capital vehicle strategies, specifically the revamped Langhorne.

This is Todd. Alternative capital remains important strategically for us. Before I answer your specific Langhorne question. We have been active in alternative capital around things like embedded value securitization, surplus notes and some strategic retro session. So it's not just the third-party capital elements that we include in sort of our alternative capital considerations. But as far as the successor to Langhorne, we did -- we have taken the lessons that we've learned from Langhorne and have been developing sort of the next-generation version of your lower structure. We're pretty far along on execution and hopefully, we'll execute here in the near future as far as closing that one out.

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

Hi. First question for you is just a follow-up on the Bermuda regulatory changes. I wanted to, I guess, ask if you if what you're seeing in some of those regulations and how it's impacting the market there, would actually go as far as to impact the competitive environment. Certainly, you guys aren't necessarily competing directly with the private equity-backed companies on every deal. But where you do overlap with them? Are you seeing any signs of an easing competitive environment related to this?

Yes. Thank you. No, obviously, it's anecdotal, we look at every deal. But now, we have started seeing some signs in the Bermuda regulator changes or speaks of changes, then the competitive environment does change. And as Todd mentioned, given our practices, that's only favorable for us.

Second question I had is a little more broad for you, Tony. I wanted to ask, as we think through 24' first full year as CEO, what are the -- what's the short list of things that you're most focused on? And I know that's broad, and this has been in the works for a while, but I was just interested in hearing your part on that.

Yes. Thanks for the question. Look, our strategy is only two years old and really the focus is very much on execution. We feel we've got, obviously, incredibly many, many opportunities across the globe. We're firing on all cylinders right now. The past 12 months has been really the only period post COVID when the world has fully opened up. So it's all about focus and execution and delivery. And teams are energized and excited, strong balance sheet, incredible brand, all the positives there. And it's now up to us to continue to focus and execute and deliver.

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

Hey, thanks for taking my follow-up. I had a question on the US Traditional segment. I think we saw in the financials a re-measurement gain and you said mortality experience, I think, was favorable. So -- are you seeing anything new there? Or is that maybe just more quarterly volatility?

Yes, for the quarter for -- in the U.S. mortality markets, as I mentioned in my comments, we saw some very favorable mortality and primarily due to frequency. I don't think we saw anything unusual is pretty much widespread as far as the favorable experience there.

And I guess, Todd, what I'm trying to kind of get at is, are you still kind of expecting excess mortality continues into 2024? Or are you kind of changing your thinking at all from your outlook at Investor Day.

Yes. Maybe I'll take that one, Wes. So it's Jonathan. Yes, we do -- our outlook is still pretty much consistent with what we thought at Investor Day. So we're pleased to see some of the trends where excess mortality in the population is coming down. I think now it's around 1% to 2% if you look at the most recent couple of quarters. But we still believe that excess mortality will continue in the intermediate term. And of course, that's reflected in our assumptions that we've got in our business and in our reserves. We haven't, at this point, changed our expectation for long-term mortality improvement.

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

Thanks for taking the follow-up. Just a question on Asia. What's driving the -- such a good level of favorability in the traditional business, is it life insurance underwriting? Is it critical illness? Is it both? Because I'm guessing if it's critical illness there might be something that's a little more sustainable to that. But just curious if you -- how you're seeing that.

Maybe I'll take that one. Really, there's a number of drivers in Asia that we're very happy with. Part of it is the fact that we feel being a US company with obviously strong Asian presence and strong teams allows us to leverage off a sweet spot we have, which is being able to create new products with liabilities such as critical owners and mortality, but also connect that with the ability to reinsure on the asset side of the balance sheet. So that's a pretty unique attribute out there in Asia. So that's what's driving most of the performance is that ability to gain those exclusives and create more value for ourselves as well as our partners to share in. Like you mentioned, I mean, critical illness is one of the major risks there, more so than mortality, but it's something that we've been doing in Asia and the rest of the globe for probably about 25 years now.

Okay. Thanks.

The next question comes from Jamminder Bhullar with JPMorgan. Please go ahead.

Hey, I just wanted to follow up on the Asia business and specifically on Australia on how that's been performing over the last few quarters because I think you've obviously had charges there in the past, but I'm assuming that it's doing better given results in the Asia division overall.

Jimmy, it's Todd. Yes. So for the quarter for Australia, I think excluding notable items, there was a modest profit. And I think year-to-date, we're -- it's profitable. It's still not back to the level that we would like to see it at. But it's moving in the right direction is the best way. We have been cautious there the last several years as far as new business.

So going forward, things are, I think, heading in the right direction.

Yes. And Jimmy, just strategically, I mean, it is a strong example of the optionality we have across the world. I mean, we able to assess the risk return of many, many blocks and businesses across the world. And when they meet the market, the market provides a risk/return trade-off that we like and we're able to pursue it. But the discipline we've shown over the number of years as well as the repricing of in-force blocks there has held us in good stead, as Todd said, in terms of the financial.

And fair to assume that as part of LDTI, you would have looked at reserves and taken experience into sort of account for reserves in Australia as well.

Yes. For any of the business subject to LDTI, we had to update all of our best estimate assumptions.

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

Well, thank you all for your questions and continued interest in RGA. On behalf of all the employees of RGA, I would love to congratulate Anna on her upcoming retirement. This was a very strong quarter, further demonstrating the substantial earning power in our business. We remain very well positioned to capitalize on the many growth opportunities. We are firing on all cylinders, and we are confident in our ability to continue to deliver attractive returns to our shareholders. So thank you and this concludes our third quarter call.

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