Q4 2019 Earnings Call
Good day, everyone welcome to the reinsurance group of America fourth quarter 2019 results Conference call today's call is being recorded.
At this time I would like to introduce Mr., Todd Barson Senior Executive Vice President and Chief Financial Officer, Ms., Anna Manning, President and Chief Executive Officer. Please go ahead Mr. worsen.
Thank you.
Good morning, everyone and welcome to RG <unk> fourth quarter 2019 conference call.
With me this morning in Saint Louis is Anna Manning, RG, <unk>, President and Chief Executive Officer.
And I will discuss the fourth quarter results. After a quick reminder, about forward looking information and non-GAAP financial measures.
Well, we're not prepared remarks, we'll be happy to take your questions.
To help you better understand or juice business will make certain statements and discuss certain subjects. During this call that will contain forward looking information, including among other things investment performance statements relating to projections of revenues premiums or earnings and future financial performance and growth.
That's what RJ and its subsidiaries.
Please keep in mind that actual results could differ materially from expected results.
List of important factors that could cause actual results to differ materially from expected results is included in the earnings release, we issued yesterday.
In addition, during the course of this call will make comments on pretax and after tax adjusted operating income, which is considered a non-GAAP financial measure under FCC regulations.
We believe this measure better reflects the ongoing profitability and underlying trends of our business.
Please refer to tables in the press release in quarterly financial supplement for more information on this measure and reconciliations of net income to adjusted operating income for various business segments.
These additions these documents in additional information may be found on our Investor Relations website at RG, a or eat dotcom.
Now I'll turn the call over to Anna for her comments.
Thank you Todd and good morning as indicated in our press release last evening, we reported adjusted operating E. P. S. A $3.43 for the quarter compared to $3.46 a year ago, well the quarter was modestly below expectations the full year exceeded.
Patients.
Overall strengthen the underlying business combined with strong organic growth an active capital deployment contributed to the full year growth in adjusted operating eat P.S. of over 10%.
Highlights for the quarter include strong overall results in EMEA excellent results from our financial solutions businesses across all geographies and our U.S. group business performance continued its rebound from 2018 and exceeded expectations.
These areas of straight partly offset a loss in Australia and unfavorable U.S. individual mortality experience.
And we'll have additional comments regarding the corridor, but let me step back and provide some broader thoughts.
You asked individual mortality was unfavorable in the quarter in for the full year, primarily due to a higher volume of large claims.
Our ongoing evaluation of the performance of this business leads us to believes that the majority of the unfavorable experience can be attributed to volatility, especially at the larger policy size amounts absorbing short term claims volatility is a key component of the value that we provide to our clients.
And the impact on our financial results tends to smooth out over longer periods of time.
As mentioned previously we also expect that there's likely some influence from the slow down in mortality improvements that we have seen in the U.S. population statistics in the last few years, although we expect that the impact to our portfolio of reinsured lodge shouldn't be less than what has been observed in the general population.
In the current quarter and for the full year. We believe the main driver of the excess claims is random volatility with some lower more moderate contribution from slower mortality improvement we remain bullish on mortality trends over the longer term and continue to believe that medical in that sense provide a nice.
Tailwind that will help deliver favorable mortality improvement in the future.
Turning to Australia, it wasn't on favorable quarter for us with a loss that was about equal to the loss in the third quarter.
We are focused on remediating, our business and continue to move forward with rate actions as appropriate.
Has been reported be Australia, Prudential regulation authority has implemented regulatory actions in regard to the individual disability business that is intended to spur changes in products terms and conditions to make for a more sustainable market.
We view this as a good start and a positive sign.
Turning back to the full year results. We had we had very strong performance in 2019, and many of our business lines, particularly U.S. asset intensive and U.S. capital solutions, our overall Canadian business, both segments in EMEA under Asia financial solutions business.
This gained considerable momentum.
In addition, we were pleased with the rebound in our U.S. group business.
In Asia topline growth remained strong and profits were in line with our expectations.
We continued to be optimistic about the growth potential in this region based upon the underlying market dynamics RG <unk> differentiated position and with a very good momentum on our hybrid solutions, which are levering, our leveraging our expertise in both financial and traditional risk solutions.
Looking forward, we have a strong and resilient global platform, our business is well diversified by geography product and risk.
This diversification helps us absorb volatility that is inherent in our business. Our global platform allows us to remain flexible in markets as opportunities or market conditions change invariably there are some segments of our business that will perform better or worse than others for a variety of reasons at any given.
Hi.
2019, again demonstrated the resilience of our business as we delivered another year of record earnings despite having underperformance in some areas.
As we look ahead to 2020 , we see a number of challenges facing the global life insurance industry, but each challenge also creates opportunities for reinsure like RJ, we have a proven strategy and a long track record of creating and delivering solutions to address many of our clients challenges are busy.
This outlook remains favorable and we're well positioned to continue to deliver on our strategy and to continue to deliver attractive financial results with that I'll hand, it back to talk to provide more detail on our results.
Thanks, Dan a.
Touched on a few financial metrics and provide.
Highlight of our segment results <unk> first a quick comment just wanted to mention that we did change.
The name of our U.S. and Latin America financial reinsurance business to U.S. in Latin America Capital solutions are this is just a name change that better aligns the product offerings within this business and it doesn't affect a any previously reported results.
Our adjusted operating return on equity for the full year was 10.5%, which is within our guidance range of 10% to 12%.
Net foreign currency fluctuations were relatively small for the quarter.
Having an affair favorable effect of one cents per share on earnings as compared with the prior year.
However for the full year net for foreign currency fluctuations were more meaningful with an adverse effect of 18 cents per share on earnings.
Our topline premium growth was 7% for the year, it's organic growth was strong at approximately 8%.
Our strategy, providing broad based solutions to our clients through our risk and capital expertise continues to do deliver.
We deployed approximately 465 million of capital into transactions for the year exceeding the strong results in 2018.
The transactions, we executed in 2019 were diverse both by product type and by region.
We ended the period with an excess capital position of approximately $900 million.
The pipeline remains active and we're optimistic about opportunities to continue to deploy capital into transactions in 2020.
The effective tax rate on pre tax adjusted operating income was 23.1% for the quarter for the full year was 22.4% within the expected range of 21% to 24%.
Moving onto investments the average investment yield excluding spread business was 4.55% up 11 basis points from a year ago.
Primarily due to higher variable income this quarter.
Our new money rate was 3.7% down from 3.8% in the third quarter.
Now turning to our segments.
The U.S. in Latin America traditional business reported pretax adjusted operating income of $83 million compared to $92 million a year ago.
Results reflect above the average variable investment income and favorable group experience.
This was offset by unfavorable individual mortality experience driven by large claims.
Reported premium growth was up 4%.
Our asset intensive business reported pretax adjusted operating income of 65 million this quarter.
Above the expected range benefiting from the effects of new transactions favorable equity markets and stable investment spreads.
Our capital solutions long reported pretax adjusted operating income of $26 million this period.
Up over the prior year quarter, primarily due to the impact of new business.
Moving to Canada. The traditional segment was down over the prior year quarter with pretax adjusted operating income of $27 million results. This quarter reflected modestly unfavorable individual mortality experience due to large claims.
A year ago period reflected favorable individual mortality experience and the contribution of income from enforced transactions written during that year.
Premiums were up 3% on a reported and constant currency basis.
Canada Financial solutions reported pretax adjusted operating income of $7 million compared to 2 million a year ago with the current period, reflecting income from a new fee based transaction.
And the Europe Middle Eastern Africa segment, our traditional business reported pretax adjusted operating income of 23 million, reflecting favorable underwriting experience across the region.
Reported premiums totaled 368 million up 4% on reported basis versus a year ago and up 5% on a constant currency basis.
Let me as financial solutions business, which includes asset intensive longevity and fee based transactions reported pretax adjusted operating income of 73 million compared with last year's $45 million.
Reflecting continued favorable longevity experience.
Including positive contributions from data catch ups and the recapture fee.
Turning to our Asia Pacific business.
Pretax adjusted operating income totaled $12 million compared to 34 million in the prior year period.
This quarter reflects results in Asia that were relatively in line with our expectations offset by a loss in Australia of approximately $23 million.
The year ago period had favorable underwriting experience in Asia, and a smaller loss in Australia.
We are disappointed with the loss in Australia.
The individual business improved compared to the third quarter reporting the small loss.
We saw some adverse experience primarily in two of our group treaties, but rate action has been taken most we will see their come through in the early part of 2020.
As Anand mentioned, our efforts remain focused on remediation of the existing business, we consider the earnings headwind to be manageable.
Reported Asia Pacific traditional premiums were up 7%.
Reflecting 18% growth in Asia, offset by a decline in Australia.
Our Asia Pacific Financial solutions business reported pretax adjusted operating income of $8 million up from 2 million in a year ago quarter, reflecting new business in Asia, where we continue to provide broad based solutions to our clients by combining our capabilities and product development and financials.
Solutions.
We continue to see growth opportunities in Asia, and these solutions generated 38 million a premium in the current quarter.
The corporate segment reported pretax adjusted operating loss of $40 million higher than they expected run rate, primarily due to the costs related to higher incentive based compensation and higher costs related to strategic initiatives.
We have historically provided intermediate term guidance at this time of year.
With that in mind, we expect over the intermediate term growth in adjusted operating income per share to be in the range of 5% to 8%.
And adjusted operating return on equity of 10% to 12%.
We expect our effective tax rate to be approximately 23% to 24% up from the previous expected range of 21% to 24%.
As you can see from our 2019 results there can be volatility.
In our various segments of our business.
However, we as we mentioned earlier, we feel we can absorb this volatility and still achieve our financial objectives.
You mentioned, a few things to consider.
For our U.S traditional segment with the continuing negative influence from low interest rates in fun and some likely negative effects from the recent slowdown in mortality improvements.
We now expect a current annual run rate for this segment at approximately $325 million.
However, we do anticipate some volatility around this number.
In addition, as our U.S. block ages.
We expect an increase in seasonality. However, this is just a timing issue with Q1 being the seasonably weak this quarter.
Considering the strong ongoing capital deployment that we have achieved.
The earnings run rates for various segments continue to improve.
For U.S. asset intensive segment.
We believe in appropriate quarterly run rate for this segment is approximately $60 million to $62 million.
For our media segment in total we expect a quarterly run rate at approximately 60 to 65 billion.
For the corporate segment.
We expect no change to the average quarterly run rate of $25 million.
In conclusion.
We view this is a good year with many positives to highlight.
We have continued to deliver strong organic growth and have successfully executed on enforced transactions.
We're very pleased with the higher level of capital deployment for the year.
Our bottom line continues to benefit from a diversity of earnings both by geography and by products.
Based on the strong business fundamentals and despite some ongoing headwinds and challenges we expect to continue to deliver attractive financial results over time.
We thank you and appreciate your support and interest in RJ and now are open the call for questions.
Thank you, ladies and gentlemen, if he would like to ask a question. Please press star and then one at this time.
In the interest of time, we would request that you limit yourself to one question and one follow up question.
Once you have done that you may reenter the queue.
If your question has been answered you may remove yourself on the Q by pressing star too.
We'll take our first question from Humphrey Lee with Dowling and partners.
Good morning, Thanks for taking my questions.
Appreciate the color in terms with the U.S. multifamily and the sounds on Rins earnings expectation.
Again, we're looking at five quarters in the rules.
But.
Well I understand it is a long tail business you have to look at the performance over an extended period of time because anything you can share in terms of why do you think this is the trend.
Why do you feel like the.
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Comfortable.
Yeah for its I'll, let me start out no what we've.
Seen especially in the second half of the.
The year was an elevated number it's really a small number.
I should say a small number of larger claims and when I say larger claims this time sort of in excess of five between five and $8 million. So a very small number of claims above our expected in the second half a year.
Really.
Resulted in some of that volatility we saw in the third in the fourth quarter.
Then if I take a step back and why are we comfortable over the longer term.
No. We do have a lot of information and data given our history of being in the business.
We do continue and extensive analysis on our experience studies go by clients and by era et cetera. So if you take maybe just take a quick step back.
A if you look at you know 2017.
I would say that year performance was in line with our expectations, if not maybe slightly favorable.
And then if you look at 2000 then.
18, we commented that in total for the full year, we were off about $30 million on a $30 million on claims experience on a on a base of benefit payments has over $4 billion. So then turning then to 19 here are you know we're not.
Happy to see the four quarters or Roe of.
Unfavorable experience again, when we look at it there was some slight misses in the first and second quarter, but really the the big deviation came in the second half of the year and based on all the analysis that we've been able to do it most of that fall does come down the volatility in the number of these small number of these larger.
Claims.
And how for you if I may add a comment.
Recall that our recent Investor day, we shared some CDC data with you that showed a return to positive improvements in 2018 in the general population.
We're also seeing early CDC data through the middle of 2019 that are showing an acceleration in those improvements and we're viewing this as a positive indicator of in the U.S.
That's helpful.
Shifting gear to Australia, So I understand that you are looking at though.
Creases to remediate the both either glip and individual blocks off but looking at just that the earnings for this year. If my math its core nights I think Australia also wall. So it's kind of over 60 million for the full year.
I think the original guidance from Nike, what's kind of breakeven maybe a slight positive. So as you think about 2020 like what is your slippage from Australia, given the pricing.
I would expect maybe elevated losses to carry forward for maybe the first half defaulted rate increases to benefit the kicking.
Yeah. Your first couple of your math is pretty close it was around about a 60 million pre tax loss for the for the year.
And yes. So we do have some rate actions that'll be coming online they're really between March in July I think of of next year. So that's going to the should be positive to the overall all results.
Giving you a sort of the exact or.
Solid prediction for where next year will come out as sort of difficult as we still sort through the experience on on some of the no older business, but we are again repricing as quickly as we can on any of the open treaties both on the the group side and on the the individual side. So.
So I would suspect will come in.
Below the current year 2019 lost of about 60 million hopefully substantially better, but it's really hard to give you an exact figure.
Got it thank you.
And we'll take our next question from Andrew Clean Berlin with Credit Suisse.
Good morning.
Yeah.
Yes.
The deployment.
Yeah.
You said, you're going to deploy suite of 400 million of excess capital on average.
And then I will get the fourth quarter no share repurchases.
So looking out to 20 twond.
Do you think that.
The.
Spins.
The excess capital, mostly on transactions and potentially not buying shares back.
And with that question what transactions are you seeing that that are most likely and maybe just type like going into it as well I know, that's not going beyond balance sheet, but.
As well.
Andrew Yeah first no we would like to continue to deploy the capital generation back in two transactions and again its transactions that the fit our sweet spot in that we can get what we view as an appropriate level of return.
So I don't see any significant change in our approach to the extent that we don't think we're gonna be successful on transactions were counterbalance that with looking at share repurchases and we may look at share repurchase as well as part of the the overall overall mix. So again, we're pause.
The than we would like to re.
Deploy the capital back into nice transactions like we've been doing the last few years.
On the pipeline question Andrew.
We have a an active pipeline and all of our regions.
Yeah, it's particularly active with respect to Oh.
Pension risk transfer and asset intensive opportunity so longevity type opportunities, we spoken about the momentum in Asia Pacific, We're seeing a good pipeline for asset intensive and for financial reinsurance opportunities in part I think driven by the.
Impact on flow rates, the continuing impact of low rates on the company's local statutory balance sheets, Canada. Good pipeline good demand for light cat type solutions.
In the U.S. I think we mentioned in the third in the third quarter and we're seeing it again in the fourth quarter a bit of a pause on the medium to larger asset intensive opportunities. We think this is more a temporary law, but as we look at our pipeline. It's a very good pipeline and it's also.
Hey, good pipeline for the larger transactions that would be directed at Langhorne. So a continuation I would say generally continuation from the third quarter.
Okay.
Got it and then just.
Clearly a lot of.
Interest in the Corona virus and I'm curious about how our G.H. thinking about that turns its exposure and.
Anything else you might add.
Yeah, well, it's it's too early to provide much in terms of the virus itself, what we can share and what will share. His some high order estimates of our exposure. So obviously, our primary exposures associated with our traditional mortality business.
And Ah, we estimate that the approximately 12% of our global pandemic exposure is in Asia.
That's a we have a very small operation in China, So about 12%, we estimate 1% to 2% would be in China. The remainder of our global pandemic exposure that would be just over 50% in the U.S. 35% between.
Canada in EMEA and then the rest of the small residual in all of our other operations.
Thank you.
And we'll take a question from Jamie bolstered with JP Morgan.
Hi, first a question on just.
Yeah business.
The results in the past couple of quarters affected your views on what Youre losses or earnings are going to be for that business.
Especially in the short term over.
Over the coming here.
[noise], but certainly the last couple quarters, Oh, we saw a little bit of deterioration on the.
On the group business, but again as I mentioned earlier are those the ones that were we've already taking some.
I'm rate action on so I would say nothing that's happened last couple of quarters that materially changes.
Our view of the numbers I talked about earlier, you know going into 2020, but certainly we will continue the as Adam mentioned as I mentioned in my comments do whatever we can to remediate the the enforced block.
And I think you lost about 45 million in Australia, and the second half of the or.
A drag from the business for for all the money 19.
[noise] for Australia.
Yeah.
Yeah. The total pre tax law for Australia for the year was right around 63 or 60 to 64 million.
Okay.
Then it seems like the commentary in the press sort of suggests that's a snow season is shaping up to be worse than the last few years abuse or sort of a third quarter have you seen any indication of that as it relates to your one key results.
Yeah.
We've seen similar reports in the press and and they're generally based on earlier activity a increased earlier activity then in the prior periods.
It's too early to predict what that means from a mortality impacts for the season.
Interestingly, we did see something similar in the Australias flu season. It also began earlier, but it ended up fairly quietly and and with what is an average mortality season. So.
Got caught a lot of attention as well hopefully the U.S. will have a similar mortality outcome, but much too early to say and Ah we wouldn't expect to have seen much impact in our for Q mortality results from the flip.
And then just lastly.
It seems like competition for block transactions and picking up a little bit you, obviously haven't been active into langhorne, JV, but what sort of.
Any comments you have on competition.
For blocks and then also on the ongoing little business on the reinsurance line.
Why don't I start with a competition and he organic been and the flow business.
And I'll start in the U.S. there was an awful lot of re quoting activity in 2019 on no open treaties and it was driven in large part because of the need to Ah Ah reprice because of changes to PBR and the new mortality.
Tables, I would say the competition was robust a wouldn't expect to see a lot of change in the overall market share positions Ah so continuing rationale robust competition and not Canada, EMEA and Asia, our organic competition remains strong.
But recall our strategy, especially in Asia is really to try to limit competition or eliminate competition through our product development services and now we're combining that product development with capital management.
And you can see the results of that the and the growth rates that we're enjoying in our organic business.
So overall I would say on the organics thought on the organic side, we're in good shape against the competition and Ah, we expect to see continuing growth in a that traditional business now on a on the transaction side.
Yeah competition is very strong on the transaction side and there's also continuing interest from new players. So not only are there are lots of competitors, but increasing number of competitors.
And we're seeing them both from established companies and and relatively recent new players.
There's a lot of interest on this part of our business. There are lots of large opportunities, but we continue to be successful on and in large part because of the package that we are providing this package of technical risk skin structuring expertise the relationships or exit.
Houston counterparty, we're holding our own and if I look at capital deployment levels. In 2019, we had a very strong year. We ended the year deploying a $465 million into these enforced block.
Transactions and that followed what I thought was a strong year in 2018, where we deployed a just a slightly south of 400 and a 50 million. So so you know we're doing we're doing we're getting our fair share of those transactions.
Thank you.
And all move onto our next question from Erik bass with Autonomous research.
Hi, Thank you want to go back to U.S. mortality and just given the trend in results have you brought in any outside experts are done anything else to take a fresh look at the data to make sure that trust in claims are just volatility and not part of a more systemic trend and I know you mentioned that in the second half of your it was really around.
Few larger claims but are there any specific data points that you could share with us just to support the conclusion, that's just volatility.
Well the specific answer to your question as it relate area as it relates to the fourth quarter, we have not had outside expertise look at our fourth quarter, Herzog, but but having said that.
We our experts are in constant communication with industry colleagues day. They participate in many of the industry groups, we have a outside experts medical doctors come in it to speak to our medical doctors.
As we build out our views on mortality, so I would say.
No the answer that I, just say that specific answer to your question about fourth quarters, no, but generally we do take advice and we do.
Use outside experts in addition to what we think are very strong and and and and a very expert teams with NRG.
Got it then.
Any specific data you can give on just kind of number of particularly large claims or was it a case of a few I'm kind of near Max claims or anything else that just kind of supports the volatility chase.
Yeah. It was probably in the second half of the.
Year on there's probably an extra handful of claims each quarter in that five to 8 million dollar range. As you know our maximum retention is 8 million food, but in that.
Five to.
$8 million range I'd call it better handful on average over the last two quarters.
Got it. Thank you and then shifting to Asia ex Australia can you just talk about how the results there compare versus your assumptions and maybe how should we should think about the run rate for that business and the seasonality as well.
Yes, so for Asia ex Australia on the traditional side, you know for for the quarter and I would say for the full year. It was right around our expectations across the.
For the segment so good to see there.
The average quarterly run rate for the traditional segment in Asia, I'd put that it between 40 and 45 million.
So.
Got it and is there any material seasonality in that but maybe a little bit where you'd see that first quarter in the fourth quarter be a little bit softer than the middle two quarters.
Got it thank you.
We'll take our next question from Dan Bergman with Citi.
Thanks, Good morning.
Press release, the I believe you commented that full year 2019 results were somewhat above expectations I just wanted to see what do you think about that 5% to 8% medium term you guess growth guidance. The $13.35 that you reported in 2019, a good baseline to grow off of or should we be thinking.
About a materially different starting point into the any thoughts about would be helpful.
It's probably not a bad you know starting point you know there's again as you know the pluses and minuses, though in our business and all that was exceeded our real plan.
By by a little bit somewhat driven by the lower tax rate, but overall, it's not a bad place to start because they can fine tune. It all you want but it's a it was a pretty good result.
Great. Thanks, and then maybe just moving to a U.S. group business I just wanted to see if you could quantify how favorable results.
Occasions, and it a little bit of color on kind of the main driver lines of business.
And should we be thinking about this is likely back to full margins in 2020 or that are a little bit further out.
Yeah, So getting we're pleased with Oh, the group business rebounded in 2019.
For the quarter, there was about probably about 5 million.
Head of expectations, and a little bit more than that for the with a full year.
So it all the business has been a repriced at this point that we have talked to you know that we had talked about throughout the course of last year that we're going to go go through you know repricing.
Hurts you know most of the lines within the U.S. group business performed.
Pretty well or exceeded expectations like there was one line that was a little bit below expectations.
And I think we've commented before 30 or 35 ish or maybe a little bit higher run rate that full profitability is about right for that line depending on how much.
We retain and renewals and so on but you know we would expect based on what we saw in 2019.
And as we've talked about you know previous quarters that 2020 should be back to our expected margins.
Great. Thank you.
Well take our next question from rain coming from KBW.
Hi, good morning.
In terms of of the larger transaction in the pipeline that would be more likely to go to the langhorne is there a particular regional concentration on those larger potential transactions.
I would I would say that the AMEA region would be a region that has some attractive opportunities for langhorne.
And we are also seen a few opportunities.
That are not necessarily you know focused on the P.R.T. type risks, but are focused on on different a underlying biometric risks. So so.
Generally I would point to the EMEA region for these larger transactions and and you've likely seen the press release. This morning, a about one of is one of the PRT deals that has been announced I'm not an R.J. deal, but whatever that PRT deals that has been announced in the market.
Thanks, and then.
You asked a mortality I guess outside of the large claims.
You did talk about some headwind from [noise].
Slowdown in mortality improvement in the U.S. recently and that does that make I just have you we thought at all your.
Yeah.
Going back to that.
Seating to renegotiate some of the poorly performing experience from the 99, though for block I guess as more experience has emerged that perhaps a bit worse than it had been before.
Yeah.
Hi, I as we've as we've discussed in the past. We this is long term business and we have long term relationship. So what we do a from a a repricing strategy as we look at these balance of relationships with our clients across all of their business.
It is in across excuse me and across all of their countries over.
Long period of time, which news that's short term volatility.
And so as we look at Das a we wouldn't Nate we wouldn't expect to change or take short term or take actions because of these on short term results.
Got it thank you.
And ladies and gentlemen, as a reminder, that is star one if he would like to enter into Q and if you find your question has been answered you can press star to to be removed well move on to Alec Scott from Goldman Sachs.
Hi, a first question I had was just kind of housekeeping item, but on the on the tax rate guide going up a little bit at the low end to the range could provide any commentary on kind of what's driving that.
Sure Yeah, no and guys, we've gotten a little bit more familiar and as the you know regulations from the original tax reform or.
I have come out <unk> again, as we better understand eminent as we look at our you know mix of business operations around the World and then no wonder tax reform there can be some moving parts you don't use of the foreign operations with some of the unique aspects of the tax reform, but again you know based on.
And everything that we can see and project, we think the 23% to 24%.
Rate is more you know realistic for or for RG, a and our overall business profile, hopefully, we'll be able to manage below that 23% rate, but we think again. The 23 to 24 is probably the most appropriate range to guide you too.
Okay.
Maybe a follow up question on the Australia business I mean it.
[noise] data, 8% drag on earnings now hours I was just hoping maybe you could provide.
Or any kind of yukos around.
To the level of disability claim reserves that we should be considering in terms of.
The reserves that are experiencing some unfavorable development.
The amount of opened treaties that you have out there and disability you know how much in premiums are coming from that.
Any anything that would be useful for us to sort of box and.
What what do you.
You know what the negative valuation is every should be associating with this issue because you know I think just looking at earnings I don't like it's eight per se.
This is a good way to think about unnecessarily, but at the same time I don't I don't really have any of the details around that business because of the disclosure in a box.
Yeah.
So yeah. The individual died business in Australia as is the worst performing.
Business and you know one point is that we're not quoting on new business in that product line. We are just no we're working through the treaties.
That we that we have some most of that said sort of.
Close off as far as any new business goes as far as the actual no reserve numbers, that's not something that we.
Have necessarily it'll shared maybe we'll take that away to give some.
A lot to but the overall, it's Andrew I think you are pressing me a little bit if I add to the sit here and give you what we think the.
Impact on earnings could be and 2020, I would say, it's called a loss of Fortyish million dollars pretax again coming in.
Better than what we experienced in 2019 of 64 million dollar loss and then hopefully keep literally in a way and reducing that as we know go forward in time.
Got it okay.
And then maybe one or more on U.S. mortality just just thinking through are you said about the CDC data you know mortality.
Yeah.
As a beauty you're getting a little better for the overall population in 19 and you know your take away on the results is that it is sort of random volatility to some degree.
I guess, what what was the underlying drivers and the of taking the 350 or run rate Guy down to 325, because it's just.
You know there there is some element that is sort of normal or how should I interpret that.
And just as a quick reminder, that.
That's for the entire U.S. traditional segment I'm. So it's the U.S. mortality markets the individual health the group business and then a.
Relatively small operation and a Latin America.
<unk>.
Probably the primary drivers of of reducing well from but we had been at the 350 run rate down to.
Slide 25, one again, there's going to be volatile around that number that's really a combination of the continued.
Headwinds from the lower interest rates as well as.
No there isn't impact from the the slow down the mortality improvements more recently.
Gotcha.
Okay.
Thanks very much.
And our next question comes from Thomas Gallagher with Evercore ISI.
Good morning, and it just a follow up on Jimmy's question from earlier, you would said there was a real pick up and re quoting activity in Fourq you due to PBR and the new mortality tables, <unk> did with that pickup in requests.
Turning to prices go up or down stay flat can you get some perspective on what those what those changes meant for the re quoting.
Ah, Yes, and Doug just to clarify that the activity was throughout 2019 at wasn't necessarily focused.
Exclusively in the fourth quarter.
And it was a recording of open treaties.
In terms of price if prices I thought that's a difficult.
A question to answer because there was so much activity so in some cases.
You know you wouldn't be surprised to see some rate increases in other cases, depending on the underwriting performance and the quality of the of of the business it could trend down.
Well, what I can say universally though is that we were pricing business with our margins. We've we've repricing business to achieve our overall margins.
Okay. So there wasn't any based on the PBR and new mortality tables, there was no.
Meaningful obvious change in either direction. It really would have been depended on on each contract is that fair way to describe it.
They would have been PBR the impact of PVR and the impact of the new mortality tables would've been elements of part of the elements, but there were other elements that were involved and is this a this exercise as well.
Okay, and then just a kind of a broader question on on your comments from earlier.
About the slowdown in in the mortality improvement so if we.
If you if you did end up or I guess determining that that was sort of a permanent trend.
We'd be talking about not an earnings impact would there would it be a reserve balance sheet impact is there anyway to kind of dimension based on the trend.
Okay, I guess, the broader population trends that you've seen to last few years, if you extrapolate that and I know I know, you're not assuming that now but.
Just to dimension it a bit if if if you work to with that if that were to be determined. The trend are we talking about a big balance sheet adjustment or a I don't know she can get some perspective on that.
I guess it would depend on how long do you assume that this trend continues and how long it would take for the trend to potentially reverse and and what your view is on a long term mortality improvement I'm not trying to.
I'm not trying to not answer your question I just think it's a question that is very complicated to answer I will say that we have a lot of.
Provisions are a lot of margins in our balance sheet reserves for mortality business. We've we've demonstrated that every time that we that we provide or that we do our asset adequacy casting or cash flow testing. So there's a lot a room in those reserves.
For something like a a long term trend or us sorry, a short term slow down would ah with yet.
Yeah. This is Todd I would echo that it's really in the near term. We're looking at it is or the earnings headwind not any type of for the balance sheet issue and and I just want to reiterate we aren't we are bullish on long term improvements and and we've stated and I'll repeat I did you know we're bullish because of up.
Ah future medical advancements and new treatments and technologies and things like new cholesterol medications and news drug treatments and Ah you know personalized medicine from genomics anti aging set so I view hasn't changed in terms of the.
The long term mortality improvement.
Gotcha, and then just one final one if I could just I and I presume your comments around the mortality improvement was in part maybe driven by the society of Actuaries study at anyway. It was what I'd read and had talked about how the I guess from two.
Thousand nine to 2016 or 2017.
The pace of mortality improvement was running about full percentage point less than it wasn't a decade before is that because that kinda that the the the study that you were addressing or is it something else that you were looking at.
My comment was with respect to what we call the route or whats called the rapid release CDC data through on the second quarter of 2019.
Got you okay. Thank you.
Our next question comes from Avon and <unk> with Barclays.
Please check your mute function. So we're unable to hear you.
[noise] and hearing no response will move onto Peter do each with fidelity investments.
Hi, guys. Good morning, just wanted to ask the question about how you think about your pandemic PML site I know kind of let standards stress test since it was too.
And then the house additional deaths per thousand lives. So just trying to think.
You know what that means for your block of business have you had I thought I would be extreme example, but.
No just based on what you said you said, how you're listening to the U.S. I thought just on pop back have you had.
Oh petroleum in the house.
You know mortality exposure so.
If you had that level of.
Excess deaths, what we'd be looking at like a four and a half billion dollar PML or.
How should we think about that.
So we think of our stress scenarios as a one and 200 year events.
And Ah, they're not too far from the 1.5 extra death that you've just a you've just mentioned you're correct a of our total global mortality or a amounts half or in the U.S. and so we have 3.3 trillion globe.
Only one let's call it 1.2 trillion in the U.S. and so.
Last multiplication absolutely would would your rough math is correct is what I'm trying to get at before those are you know pretax and before a any benefit from diversification.
Okay, and then does I mean I you know when you think about your stress test you you would in terms of according to you would address that.
Wow.
Yeah, it's part of our.
Enterprise risk management framework, we would look at.
And do look at you know pandemic different endemic type no scenarios and make sure that we're comfortable that we would have the amount of liquidity on hand or access to liquidity to support that type of scenario overtime yeah.
Okay.
And that does conclude today's queuing they session I would like to turn the conference back over to our speakers for any concluding remarks.
Thank you yeah. Thank you everyone for joining our call today and your continued support for our Jay Thank you very much.
Once again, ladies and gentlemen that concludes today's conference. We appreciate your participation today.
Hmm.