Reinsurance Group of America Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 2, 2024

There are 14 speakers on the call.

Operator

Welcome to the Reinsurance Group of America 4th Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's prepared remarks, there will be an opportunity to ask Also, please limit yourself to one question and one follow-up. 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.

Speaker 1

Thank you. Welcome to RGA's Q4 2023 conference call. I'm joined on the call this morning with Tony Chang, RGA's President and Chief Executive Officer Leslie Barbee, 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.

Speaker 1

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 discussion of these terms and reconciliations to GAAP measures. Throughout the call, we will be referencing slides from the earnings presentation, which again is posted on our website.

Speaker 1

And now I'll turn the call over to Tony for his comments.

Speaker 2

Good morning, everyone, and thank you for joining our call. Last night, we reported adjusted operating earnings for the Q4 of $4.73 per share and for the full year of $19.88 per share. Our adjusted operating ROE excluding notable items was was 14.4 percent for the year. The quarter included favorable investment and very strong GFS results, along with strong organic new business and in force transaction volumes. Our underlying underwriting Experience was in line with expectations across the enterprise.

Speaker 2

This capped off a very strong year. We are excited with the great momentum in our business with our global platform positioning us for continued growth and success. We entered 2023 with the priorities of delivering on earnings and ROE targets, as well as accelerating our new business growth, all while taking an active and balanced approach to capital management. We have delivered on all these three priorities. Firstly, we produced record EPS and strong ROE results.

Speaker 2

2nd, as measured by our internal metrics, we produced a record level of new business value, which was up significantly from 2022. You will also see on Slide 17 in the earnings presentation that the value of business subject to LDTI increased by more than $3,000,000,000 in 2023, primarily attributable to new business won during the year. In addition to the volume, I am also very pleased with the breadth and quality of the new business we delivered. We had strong results across many of our businesses and geographies with a significant percentage of our new business under exclusive arrangements. These types And the 3rd priority we delivered on was our active and balanced capital management.

Speaker 2

During the quarter, we deployed $346,000,000 of capital into in force transactions, bringing the year to date total to a record $933,000,000 We were active across the globe with the U. S, Asia and EMEA all contributing to our in force transaction success. In addition to supporting our clients Through deploying capital into our business, we also returned $419,000,000 to shareholders via dividends and buybacks during the year. Finally, we launched Ruby Re, further diversifying our sources of capital to fund our exciting future growth. Our optimism for the future is fueled by our continued success in our four areas of notable growth that we have previously communicated, starting with our longevity and PRT business.

Speaker 2

In the U. S. PRT market, we closed our 3rd transaction. In a very short period of time, we have Established ourselves as an active and key player in this market, and we are optimistic about our prospects going forward. In the U.

Speaker 2

K. Longevity space, where RJ is a clear market leader, the team has had an outstanding year, innovating in various segments of the longevity market. Based upon the current environment for global longevity business, We expect 2024 to be another very active and productive year. In our Asia Traditional segment, We continue to see positive results, bringing product development and underwriting solutions to our clients to help fuel their growth and share in their success. In China, in the Q4, we launched a simplified issue medical product with a major insurer to complement the successful critical illness product we spoke about during Investor Day.

Speaker 2

In Hong Kong, we launched This supports our purpose of making financial protection accessible to all whilst furthering our business strategy. In our 3rd area of notable growth, the asset intensive business in Asia, we executed transactions that combined our strength Our product development with coinsurance and continued to innovate across the region to support a very active transaction pipeline. And finally, in U. S. Traditional, we closed some nice in force blocks in Q4 and also partnered with our clients and distribution entities to drive profitable new business growth.

Speaker 2

As announced, we also made an investment to further our capabilities to support clients in digital underwriting and fulfill their purpose of closing the protection gap in the middle market. I would be remiss not to also mention the collective group of all our other businesses where we have incredibly For example, we were able to finalize an attractive asset intensive transaction in the U. S. Due to our long term client relationship and reputation for execution certainty. In addition, we announced yesterday an asset transaction in Belgium, and we are hopeful of seeing other transactions across Europe similar to what we have seen in Asia and North America.

Speaker 2

As proud as I am about all these accomplishments, I am even more excited about the future, building on our strong foundation created by the talent, expertise and integrity of all our people around the world. Reflecting this positive outlook, we have updated our financial targets as shown on Slide 18. We have provided new earnings run rates and reiterated our intermediate EPS growth targets on this higher base. In addition, we increased our expected ROE range to 12% to 14%. I am clearly confident in our ability to continue to deliver growth at attractive returns to our shareholders for many years to come.

Speaker 2

Our growth prospects are built on our core principles of strong risk management combined with our entrepreneurial spirit to create new innovative solutions and share with our partners in their success. Thank you for your interest in RGA. I will now turn it over to Todd to discuss the financial results.

Speaker 1

Thanks, Tony. Moving to the quarterly results, RGA reported pre tax adjusted operating income of $386,000,000 for the quarter and adjusted operating earnings per share of $4.73 For the full year, we reported record adjusted operating earnings per share of $19.88 For the year, adjusted operating return on equity, excluding notable items, was 14.4%. We are very pleased with the strong results as well as very strong new business volumes and capital deployment. Investment results for the quarter remained favorable. Reported premiums were up 19.2% for the quarter.

Speaker 1

For the year, premiums totaled $15,100,000,000 representing an increase of 16.3% on a constant currency basis. The increase includes $500,000,000 in premium from a U. S. PRT transaction in the 4th quarter. PRT and expect to continue to see attractive premium growth over time.

Speaker 1

The effective tax rate for the quarter was 18.2% on pre tax adjusted operating income, below the expected range, primarily due to the distribution of earnings across the globe and generation of certain tax credits. The effective tax rate for the full year was 21.5% on pre tax adjusted operating income. Turning to the quarterly segment results starting on Slide 7 in our earnings presentation. The U. S.

Speaker 1

And Latin America traditional segment results reflected favorable group and individual health experience and slightly unfavorable claims experience and client reporting adjustments in Individual Life, which had a larger financial impact due to the mix of experience between capped and uncapped cohorts. As we've previously discussed under LDTI, experience on capped cohorts is reported in the current period. For uncapped cohorts, a portion of the underlying mortality experience is reported in the current period earnings and the remaining experience is spread into On a year to date basis, the underlying experience in the Individual Life business was favorable. The U. S.

Speaker 1

Asset intensive business results were strong, reflecting higher investment spreads, including those on floating rate securities. And our capital solutions business continues to perform in line with our expectations. The Canvat traditional results reflected unfavorable group claims experience and impact from a one time item of approximately $8,000,000 The Financial Solutions business reflected favorable longevity experience. In the Europe, Middle East and Africa segment, The traditional business results reflected unfavorable mortality experience, most of which was recognized in the current quarter. This was partially offset by a positive impact from new business in Continental Europe.

Speaker 1

The EMEA Financial Solutions business results reflected favorable longevity and other experience, including improvements in reporting. Turning to our Asia Pacific Traditional business, results reflected favorable underlying claims experience, a small portion of which was recognized in the current period. Asia Pacific Financial Solutions business reflected favorable investment spreads and strong new business. The corporate and other segment reported a pre tax adjusted operating loss of $23,000,000 Less than the expected quarterly range, primarily due to higher investment income. Moving on to investments on Slides 10 through 13, The non spread portfolio yield for the quarter was 4.86%, reflecting higher yields.

Speaker 1

For the non spread business, our new money rate rose to 6.65 percent, reflecting a higher allocation to private assets in the quarter. Credit impairments were minimal and we believe the portfolio is well positioned as we move through ongoing economic uncertainties. Related to capital management, as shown on Slides 1415, our capital and liquidity positions remain strong. We ended the quarter with excess capital of approximately $1,000,000,000 In the quarter, we deployed $346,000,000 of capital into in force transactions, bringing the year to date total to a record $933,000,000 In the quarter, we also returned a total of $106,000,000 of capital to shareholders through $50,000,000 of share repurchases and $56,000,000 in dividends. We expect to remain active in deploying capital into attractive growth opportunities In our organic flow and in force block transactions and returning excess capital to shareholders through dividends and share repurchases.

Speaker 1

As Tony previously mentioned, during the quarter, we successfully launched Ruby Re, a Missouri domiciled third party reinsurance company. Alternative Capital has been part of RGA's capital management strategy for a long time and Ruby Re is another source of capital to support our growth. As part of the launch, RGA executed an initial retrocession of $2,500,000,000 of existing liabilities. During the year, we continued our long track record of increasing book value per share. As shown on Slide 16, Our book value per share excluding AOCI increased to $144 which represents a compounded annual growth rate of 10.4% since the beginning of 2021.

Speaker 1

A metric I want to highlight is the value of business subject to LDTI as presented on Slide 17. This represents expected unrealized underwriting margins, which demonstrates the long term value of this business. We introduced this metric back in June at our Investor Day. The unrealized underwriting margin is calculated as expected present value of our future premiums, Less present value of claim benefits and treaty allowances for the part of our business with reserves subject to LDTI financial reporting. These values are derived from the cash flows used to determine reserves, which are based on current expectations and are reviewed as part of the annual audit.

Speaker 1

During 2023, this value increased to approximately $27,000,000,000 up $3,000,000,000 or 15 percent from the end of 2022. The primary driver was the strong new business written during the year. To summarize based on our current expectations, over $27,000,000,000 of pre tax unrealized underwriting margin exists for the business that is already on our books. While these margins don't consider investment income or general expenses, they are expected to significantly contribute to future earnings. I want to emphasize again the current measure only contains business subject to LETI, but it and excludes certain asset intensive and short duration As we've discussed, 2023 was very strong for RGA and results were ahead of The intermediate term financial targets and run rates provided at our Investor Day.

Speaker 1

The primary drivers of the outperformance for favorable impacts of higher interest rates, strong new business and favorable experience. Considering these dynamics and the continued strength of our underlying business, we have updated our current run rates and reiterated our intermediate growth targets shown on Slide 18. We have also increased our intermediate return on equity target range to 12% to 14%. These updated run rates now represent the base from which we expect to achieve our intermediate growth targets. We believe these updates appropriately reflect our strong momentum and earnings power as we look to the future.

Speaker 1

We continue to see good opportunities across our geographies and business lines, and we are well positioned to execute on these opportunities and our strategic plan. We are very excited about the future and expect to deliver attractive returns to our shareholders. This concludes our prepared remarks. And we now would now like to open it up for questions.

Operator

We will now begin the question and answer session. Please limit yourself to one question and a single follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from Jimmy Bhullar with JPMorgan, please go ahead.

Speaker 3

Good morning. So I had a couple of questions. First on Just the difference between net and operating income, I think you had a decent amount of derivative losses and losses on sales of investments. So if you could just give us some color on what really drove each of those items?

Speaker 1

Yes. Jimmy, it's Todd. One item is, I think what we refer to as B36 of the embedded derivatives, that's on the funds withheld Type reinsurance treaties that we've had over the years. So that had part of the impact. And then some of the derivatives that we use In some of our currency investment strategies, had a negative impact and then we had some capital losses as well.

Speaker 3

Okay. And the losses on Sales, are those related to repositioning of the portfolio on deals and stuff? Or is it just normal sales because of credit deterioration?

Speaker 4

Hi, it's Leslie. Yes, on the unrealized losses, it was Things like extension trades, normal trading cash management, relative value. There was a few specific Credit exposures you managed, but it's predominantly just normal course decisions and portfolio repositioning.

Speaker 1

Thank you.

Speaker 4

And as you know, the portfolio market values are still somewhat below book values for people generally just because Interest rates had risen so much in 2022 and into 2023.

Speaker 3

Okay. And then just on the If I look at your new money yield, it was already pretty good. It went up even more in 3Q. And I think you're almost 300 basis points above where a And your treasury yield is, so you mentioned private that you're doing a lot more private, but the yield seems very high. So just talk about What it is that you're investing in and your comfort with the credit quality?

Speaker 3

And what's really driving the increase in new money yields?

Speaker 4

Sure. No, thanks for the question. So there we in this quarter, not every quarter is exactly our Target asset allocations over time, but there were some great opportunities in private. So disproportionately, we had more this Quarter, that explained really the full change quarter over quarter. But if you look at underlying still investment grade corporates were the largest allocation and We had covered a bit in Investor Day.

Speaker 4

I know we normally don't spend a lot of time talking about investments, but we have a very broad platform. So we do have an excellent Mix of opportunities across both public and private. And so there's a lot of premium we can add Over just straight publics, we're investing. And on top of that, so there's some areas like CMLs, where there's still very good opportunities because there's probably more interested borrowers than lenders given banks backing out of there and we had Really good opportunities there in REITLAC, so that's some of it.

Speaker 3

Thank you.

Operator

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

Speaker 5

Good morning. Thank you for the opportunity. As we think about new business generation And I'm just trying to think about how much of that is now coming from more boutique one to one solutions than just winning on price, Maybe leveraging the data and solutions you have to really grow that volume in the flywheel.

Speaker 6

Thank you.

Speaker 2

Let me take that, John. Good morning and thank you for the question. Really, I just want to firstly just reiterate Our strategy, which hasn't changed, which is, we as I mentioned in my comments, we've got this incredible risk management and pricing capability. And when you combine it with the entrepreneurial spirit, the collaboration between our great people, this leads to innovation, leads Growing market share and as I said during Investor Day, it's very important for our growth to continue to grow reinsurance markets and grow underlying insurance markets. So To answer your question, I'm really delighted with the proportion of our new business that came from what we call Creation Re.

Speaker 2

Broadly, it's really pursuing exclusive transactions where we're able to provide the idea, provide the innovative Solution, hopefully, give the partner that we partner with an edge to create greater value for that company and we share in that value. What I'd say, I'm not going to give you a specific number. We set a target. We well exceeded that target during the year. We'll obviously up our targets internally For 2024, but really delighted with how that's going.

Speaker 2

And it really shows The strength of our strategy, the strength of our people and really the excitement within the organization.

Speaker 5

That's very helpful. Thank you. My follow-up question, variable investment income has been rather relatively strong. Can

Speaker 4

Yes. So we had a very good a solid quarter there on variable investment income. It was Modestly above what we expected. I think if you think about the composition of our portfolio that drives that, which We have been strategically building over the last 10 years. We get sort of balanced sourcing from private equity and real estate.

Speaker 4

I would say that generally in the market, obviously, with 2023 not an amazing year for M and A and things that Tends to drive less activity of realizations in the private equity portfolio. And on the real estate Those investments were the ones that are thinking about when is the best time to sell them. So I'd say part of 2023, certainly there was Probably in the marketplace in general, still a separation between buyers and sellers. I think there's Some more activity picking up there, but for us it's really about the specific holdings that we have and what makes the best Sense about when to sell those. So I think we'll continue to have a probably similar Year in 2024 in terms of total VII possibly a touch Lighter, but we had a couple of years of really, really robust.

Speaker 4

This environment is a little less robust, but we're still moving around that Long term average return that we communicate at Investor Day of 10% to 12%.

Speaker 6

Thank you. Appreciate it.

Operator

The next question comes from Joel Herwitz with Dowling Partners. Please go ahead.

Speaker 7

Hey, good morning. So I appreciate the updated disclosure on the unrealized under margins.

Speaker 6

Can you just take me

Speaker 7

through the moving pieces of the $3,000,000,000 growth? I think you mentioned $2,000,000,000 is new business. I guess what is the other $1,000,000,000 is there net Favorable experience that flows through that?

Speaker 1

This is Todd. I'll start and others can chime in. But yes, so The big portion of that $3,000,000,000 as you referred to the about $2,000,000,000 is due to the value added from the strong business Growth throughout 2023. Then the additional $1,000,000,000 is really a combination of Sort of experience assumption adjustments and how they impact the future margins offset a little bit by just runoff, natural runoff of the in

Speaker 7

Okay, helpful. And then just in terms of Current quarter experience in U. S. Individual mortality,

Speaker 6

can you just give a

Speaker 7

breakout of what you saw in the impact between capped and uncapped Cohorts?

Speaker 1

Yes. So I'll start out. This is Todd again. For the individual life portion of U. S.

Speaker 1

Trad, We saw adverse claims of about $20,000,000 I would say, mainly related to elevated Large claims. And as we mentioned, a lot of the unfavorable experience was in the capped cohorts. There was some offsetting favorable claims experienced in some of the uncapped cohorts. So the net financial reporting statement impact for the income statement Income statement impact was about $40,000,000 negative for the Individual Life in the quarter.

Speaker 2

Okay, helpful.

Speaker 6

Thank you.

Speaker 8

Yes. Hi. And sorry, this is Jonathan too. Just to add in, if you take a step back and look at the year to date results For U. S.

Speaker 8

Individual Life, our overall our underlying claims experience was favorable for the year, as we mentioned in the prepared remarks, about $40,000,000 favorable For Individual Life on its own, and again, we had some cohort distribution impacts, which resulted in not being a headwind over the course of the year, but our underlying experience was favorable.

Speaker 2

And sorry, Joel. And let me just add a few more comments on your first question. Thank you for asking the question around long term value from ODTI. I'll state the obvious. That is only the business that's under LDTI.

Speaker 2

There is a significant proportion of our business that is not covered under LDTI at the moment.

Speaker 7

Got it. Thanks.

Operator

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

Speaker 9

Good morning. Just first question on the updated run rate earnings guidance. Is that Should we view that as normalized 'twenty three run rates or exit rate? And so when we think about 2024, should we be growing that by your high single digit rate? Or should we think about that more as a run rate for 2024?

Speaker 1

Hi, Tom. Thanks. Yes. So, we did look at 2023 on a sort of on a more normalized basis As we built up our projections going forward and developing our financial plan, that type of thing for 2024. So you could look at the updated run rates, more of our expectation of the run rates for 2024.

Speaker 9

Got you. So there's some embedded growth expectation in those ranges. Is that fair, Todd?

Speaker 1

Yes, fair. Yes.

Speaker 9

Okay, great. My follow-up, Tony, I was interested in your comment about a greater percentage of your business coming from

Speaker 10

Can

Speaker 9

you not that I'm looking for a history lesson, but just can you provide some perspective On how that's trended over time, like historically as most of your reinsurance you've written been done with pools of other reinsurers, What does that look like now? Is it different between U. S. And Asia?

Speaker 2

Yes. Thanks for the question. I mean, I'd say, We haven't kept track of those numbers necessarily. I mean, it's always been part of our culture really from day I would say it has broadly directionally increased over time. And as you allude to, it may differ in different geographies around the world and business units.

Speaker 2

Now what really delighted me is As the messaging within the organization under Anna and now myself got stronger, just The belief in the teams that perhaps were not pursuing that as vigorously, we obviously ask That's the direction, give it a try. And there's nothing more fulfilling for any leader to see teams Seed in that raised their own self belief that, hey, this we can do this. And therefore, that's why we're so excited about our prospects and seeing some of the And seeing some of the flywheel of the virtuous cycle really kicking off.

Speaker 9

And Tony, just one follow-up. Is the punch line there that the margins are I presume the margins are a lot better when you do exclusive deals instead of like, You know, call it the pool deals, is that do you think that's fair?

Speaker 2

Yes. No, I mean, definitely the margins are better, but obviously It's a win win with us and our clients, right? I mean, we're truly able to give them something that they're willing to commit an exclusive to. So it must be of great value, Usually first to market or innovative and then it's a greater value created for us and our partner and obviously we're able to share some of that value.

Speaker 9

Okay. Thanks.

Operator

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

Speaker 11

Thanks. Just wanted to follow-up on Tom's question, just so I understand the run rate guidance and all that stuff. So if I look at Slide 8, I It shows that on a normalized basis, you did call it $1,700,000,000 of pretax earnings in 2023. And if I take the midpoint of the range in terms of the run rate, that's also around 1.7%. And I think what you said, Todd, is that's Probably a good indication of 2024.

Speaker 11

So is that right? I mean, basically what you're saying is 2024's Pre tax earnings should be in line with 2023 normalized?

Speaker 1

Yes, normalized. And we've in 2023, we would As we've talked about, very strong year, very solid underlying earnings. But when we came up with the 2024 run rates, we did look at we would view some And sort of not unusual items, but some one off type items that we don't expect to repeat and add to the ongoing Run rate, that could be some of the impact of the in force actions or some client reporting adjustments, Sometimes some related to experience that kind of thing.

Speaker 11

Okay, got it. And then I guess On capital, just maybe if I could just parse it into 2 pieces. The $933,000,000 deployed in 2023, Like how quickly should that kind of earn in? Is that will that take kind of will that earn in over the course of 2024 or Just because it seems like a lot of that was back end loaded in terms of the 3rd Q4. So just curious about that.

Speaker 11

And then somewhat relatedly, in terms of your excess capital, Right. Like if I think about what you're earning on that, it would I would guess that the drag on ROE is probably like 100, 150 basis points, something like that. So when you say excess of $1,000,000,000 is your view that that is fully deployable and that you will take that down over time or is a portion of that sort of walled off for just risk management? Thanks.

Speaker 3

Yes. So, I'll take the

Speaker 1

latter part of your Second question first. We're comfortable taking that excess capital level down. What we talked about in the past, down to the $700,000,000 range we're comfortable with. We do want to keep some level of cushion. But all that being said, we've done quite a bit of work over the years developing alternative forms of capital that we You can access fairly quickly, for example, the Ruby Re transaction that Tony and I mentioned.

Speaker 1

So for the right transaction, the right underlying return profile, strategic profile, that kind of thing, we would be willing to dip down into that excess Capital level when we're confident that we can replenish it fairly quickly. And then on the As we deployed the $933,000,000 of capital throughout the year, the profits on that returns tend to ramp up Over time, depending on the type of underlying business, so there will be some contribution in 2024, but it will be increasing over time.

Operator

Next question comes from Ryan Krueger with KBW. Please go ahead.

Speaker 12

Hey, good morning. My first question was on individual life mortality in the U. S. I heard your comments That 2023 in total was a bit favorable. I guess in the overall population, it seems like it's been consistently Running unfavorable still to pre pandemic level.

Speaker 12

So I was interested in your thoughts on why you think you're seeing that type of The divergence between insured experience versus population experience at this point?

Speaker 8

Yes. Hi, Ryan. It's Jonathan. I mean, as you mentioned, there is a difference in the populations that we're talking about. So that could be some of why we're It is also relative to the expectations that you set as well.

Speaker 8

So if you recall, over the last couple of years, we have been including excess mortality Expectations include our best estimate of what we think that excess mortality will be. And as you said, the results are coming in a little bit favorable relative to those expectations.

Speaker 12

Okay, thanks. Makes sense. And then can you give any rough sensitivity on your exposure to Floating rate assets, either just the amount of floating rate assets that you have or the potential impact to earnings from, Let's say, a 25 basis point change in short term rates.

Speaker 4

Sure. Thanks. This is Leslie. So floating rate overall, I will first say that obviously some decline in rates has been expected for Quite a while and so we already have assumptions in the run rate guidance that are similar to where the market is currently. So you're starting from a fine point there.

Speaker 4

And then we have taken actions over 2023, as we thought we were near those peak short term rates to do some floating to fixed Swaps on some of the floaters and net in the portfolio with less than 4% of the total exposure. Sure. So you're talking on the order of under $10,000,000 over the course of the year for a 50 basis Point move, but again, the forwards that already predict moves down in interest rates this year are already in our guidance.

Speaker 12

Great. Thanks a lot.

Operator

Our next question comes from Wilma Burdiss with Raymond James. Please go ahead.

Speaker 10

Hey, good morning. I guess, could you talk a little bit about the unfavorable experience in the capped cohorts, specifically if there were any trends you noticed there? And somewhat related to that, Could you talk about any mortality trends you're seeing in this kind of winter flu and COVID season? Thank you.

Speaker 8

Yes. Thanks, Wilma. This is Jonathan. So for the quarter, when we looked at our experience, we did see some adverse experience in older And again, most large policies can be volatile period over period just to the nature of the business. We did Our experience overall was favorable or in line with other age groups and sizes though.

Speaker 8

When we think about the Flu, I think so far based on data that we've seen this year, flu is expected to be It's a little earlier than what a sort of a typical season would be, but not nearly as significant as what we saw last year. Based on the trending, it looks like it's probably going to be an average flu season this year, maybe a little bit below average or a little bit better What we'd see in a typical year based on deaths and hospitalizations observed so far. And that's pretty consistent with what we've seen around the globe as well.

Speaker 10

Anything to note on COVID?

Speaker 8

Yes. I mean COVID is really Difficult to get an accurate count of COVID on its own, so which is why we look at it more from a total excess mortality perspective. But Based on the data we are able to observe, I think our expectation is there's no sign of a major fall or winter surge. But it's again, it's difficult to parse out the COVID based on the reporting quality these days.

Speaker 10

Got you. And then just one more, if you guys could talk a little bit about how you're thinking Longevity exposure going forward, I know that's something that you used to kind of give some targets around increasing longevity exposure. Just maybe you can give us an update there.

Speaker 8

Yes. Hi, this is Jonathan. Again, I'll go first and others can add on. I think our expectation is the We would have shared before at Investor Day. We do expect to see our proportion of longevity Risk as a percentage of our overall biometric risk increase over the next few years.

Speaker 8

We expect our mortality and our morbidity business to grow, but we just think is a great opportunity on the longevity side. So we do think it will increase it. It's going to be moving from more like a 10% to 15% of our total biometric risk to 20% to 25%, so something of that magnitude. So we'll still be more weighted towards mortality, but just a little bit more balanced, which is a positive from a diversification perspective, obviously.

Speaker 2

Yes. Perhaps let me just add and I was just going What Jonathan said on diversification, so obviously, we will The mortality long for quite a period of time, but the longevity adds some diversification. But just to Get a bit more finer. Yes, our mortality block tends to be higher socioeconomics and younger age. Our longevity block obviously tends to be blue collar and retirees.

Speaker 2

So with medical advances that we would Expect to continue to see, as we've always seen, in a way, it favors the mortality block more so than The negative on the longevity

Speaker 10

block. Thank you.

Operator

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

Speaker 6

Hi, good morning. First one I had for you is on the regulatory front. I know in Bermuda, I think you guys don't use the scenario based approach and Your U. S. Taxpayer is a little less applicable to you, but I guess you just said just in the broad update, are you seeing it affect the competitive environment At all, for some of the relationships and transactions you have, I mean, any kind of price sensitivity change related to it?

Speaker 2

Thanks, Alex. Thanks for the question. I think we've previously shared, We have anecdotally seen some impact on the competition. There was a previous quotation where Due to an announcement in Bermuda overnight, the number of competitors on a certain individual quotation dropped dramatically. We obviously are very mindful of regulations around the world, Bermuda, the U.

Speaker 2

S, Even Europe and U. K, we're seeing obviously some discussions. We're not overly Concerned by that, we always continue to focus on what we're doing. And in some sense, That's why we're very delighted with the Belgium transaction that we did. There is a lot of discussion on regulatory issues in the continent, But we were very delighted with that transaction.

Speaker 2

We believe it can open up further opportunities in Belgium and broader throughout the continent.

Speaker 6

Got it. Very helpful. And I guess for For a second question, could you just kind of give us a feel for how fashion rates are trending in the U. S. Market, something I don't You didn't track quite as closely, so I'd just be interested if you have an update on sort of where things are moving there?

Speaker 2

Yes, maybe I'll take that one. I mean, I think directionally, it's in a positive direction. Our job is always As I mentioned earlier, continue to innovate, find new ways to have a win win with our partners, so they have a Strong compelling reason to reinsure. I would say session rates is that usually tracked is on new business. What we have seen increasing Interesting, as some of the clients move towards a more capital light derisking They're in force blocks of business.

Speaker 2

That creates greater opportunities for us on an in force perspective, you know, re ensuring mortality on back books and so

Speaker 6

on. Got it. Very helpful. Thank you.

Operator

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

Speaker 13

Thanks, guys. Good morning. So we have the new run rate guidance And there's the 8% to 10% earnings growth, which I think is for dollars of earnings and EPS. So I'm just Kind of wondering, is there a component that you with the 8% to 10%, is there a component in there from Just improved new money yields or just NII in general growing?

Speaker 1

Hey, Mike, it's Todd. I'd just start out by saying, the increase in the overall run rates that we provided last night compared to the Investor Day back in June. There's really 3 components I would say. There's the Higher investment yields, and then there's the good experience on the in force Book overall across the diversified platform and then there's the added Margin for the strong new business volumes that we've been able to achieve during the year.

Speaker 4

And Todd, the only thing I'll add, I know the print for new money rate is particularly high this quarter. That isn't What is assumed for the full year, the assumptions about how much money we'll have put To work and where it will go is more consistent with current market conditions than that particular print in the 4th quarter.

Speaker 13

Okay. Thanks. And then maybe on just on capital return, Does the 8% to 10% kind of assume an ongoing, call it, dollars 200,000,000 of annual buybacks going forward?

Speaker 1

Yes. I would say it really considers our continued sort of active and balanced capital management As we've been very consistent over the years, we really like deploying the capital into the transactions that make good returns for the risk Return, no profile keeping the healthy dividend and then balancing out with the share repurchases. So it's really the continued No assumption of that active and balanced approach to the capital management.

Speaker 13

Okay. Thank you.

Operator

Our next question comes from Jimmy Bhullar with JPMorgan. Please go ahead.

Speaker 3

Hey, I just wanted to see if just to follow-up to see if you could give us some color on what's going on in the Australia business and just How the block performed this quarter and how much of the problematic vintages are already on your books and just your overall comfort level with the reserves for that book?

Speaker 1

Yes. So for the quarter, we had a modest loss in Australia, continuing We'll monitor the business and overall market conditions seem to be okay, but We'll continue to keep a close eye on the overall block. But overall, our reserves for most of that business are under LDTI, so we're required The holding best estimate reserves on the balance sheet.

Speaker 2

Yes, Jimmy, as we've probably shared previously, Australia Somewhere we pay very close attention to. I guess it was my first time. Really, we as you would The regulatory environment and the market has improved over time. We, as you'd expect from RJ, retain our incredibly strong discipline. Like I mentioned, it's really that combination of the risk management along with the entrepreneurial spirit, but absolutely The discipline, and Australia is part of our Asian business, relatively minor part of the Asian business.

Speaker 3

Thank you.

Operator

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

Speaker 2

Thank you everyone for your questions and sincere thanks for your continued interest in RJ. This was a very it was a strong quarter, but really completing a very, very strong year. It further demonstrates our substantial Earnings power is in our business. I think you've seen all the time the incredibly diverse platform we have, whether it's Experience, whether it's geography, whether it's our business strategy, and that's really fueling, we feel, a very strong pipeline that we obviously have visibility So we really remain very well positioned to capitalize on the many growth opportunities ahead. We're absolutely confident in our ability to continue to deliver attractive returns to our shareholders and benefit all our stakeholders.

Speaker 2

So thank you once again.

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Earnings Conference Call
Reinsurance Group of America Q4 2023
00:00 / 00:00