Q3 2020 Reinsurance Group of America Inc Earnings Call

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Good thing are currently on hold to that reinsurance group of America third quarter 2020 results call. At this time, we are assembling today's audiences will be underway in just a few moments. We thank you for your patience and ask that you. Please remain on the line.

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Please standby we're about to begin.

Good day and welcome to the reinsurance group of America third quarter 2020 results Conference call. Today's call is being recorded at this time I would like to introduce Mr., Todd Larson Senior Executive Vice President and Chief Financial Officer, and Ms., Anna Manning, President and Chief Executive Officer.

Please go ahead Mr. Larson.

Thank you.

Good morning, and welcome to argue your third quarter.

Oh, No 20 conference call.

This morning on the call and then art <unk>, President and Chief Executive Officer, Alain you need.

Operating officer.

Lastly, Barbie Chief investment Officer, Jonathan Order Global Chief Risk Officer, and Jeff Hopson head of Investor Relations.

We will discuss the third quarter results. After a quick reminder, about forward looking information.

Non-GAAP financial measures.

In our prepared remarks, we'll be happy to take your questions.

I hope 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 or a list of important factors that could cause actual results to differ materially from expected results.

Additionally, during the course of this call information we provide they include non-GAAP financial measures.

What do you see our earnings release.

Earnings presentation.

Quarterly financial supplement and website for a 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, everyone and thank you for joining our call today I.

I hope you all remain safe and stay healthy.

Let me begin by saying that I'm extremely proud of the tissue merits NPL it but our employees have demonstrated throughout this crisis.

Well being remains our top priority because of their efforts our global business operations have continued to lunch Smith. Please and we have continued to provide superior level of support and thought leadership that our clients have come to expect and rely upon.

Important part of our purpose is to help support the needs of families throughout the world core software. It is due to an unexpected illness or death of a loved ones.

Everyone at our G.A. extremely proud of the role we play in helping families and they need it most.

Turning to the third quarter results last night, we reported adjusted operating E. P S a $3 and 51, which.

Which is a very strong performance, especially in the context of this global pandemic. This.

This quarter further demonstrated the resilience of strategic value of our global platform.

He had an early invention that is well diversified by which can geography that continues to deliver substantial value as we saw this quarter looks favorable performance for many of our key segments and businesses, including a new idea he shot newest asset intensive and a modest profit in Australia.

Included in our consolidated results for the quarter were total global cold It might change the latest claim cost estimated at $140 million, which is at the low end of our models expected range and approximately 30 million of favorable longevity experience.

A 140 million claim costs.

Hundred million Wendy, yes, individual mortality business, if the remaining 40 million spread amongst our other global businesses.

Mortality performance in our U.S. individual business, excluding told my team was better than our expectations. This quarter due to very favorable large claims experience.

And outside the U.S. overall performance of our traditional business was better than expected, even after including the impact of the pandemic.

We will provide additional information on the pandemic later in the call.

Think about people, who are delaying you know visiting their doctor or delaying going into hospitals. So.

So although.

They are being reported as excess non coated related I, you know I wouldnt be cautious in interpreting that.

Jonathan is there is there anything else that you'd like to add.

Your your middle just talk about what we might expect to see.

Yeah, I mean, I agree it's hard to determine.

What level of excess this will continue in the future you know there definitely seems to be you can see this on the graph I think that we provided from CDC correlation between the level of coated.

Denoted deaths and the excess deaths, which I think could lead you to the conclusion that some of these are definitely related to prove it I think as I said, it's likely in the short term that we would continue to see therefore, some excess deaths.

Yes.

But you know we are looking at data in other countries too. So we've seen you know specifically for example to UK access that has it reversed.

You know post the source like some cause of mortality. So you know it is not clear I guess to what extent these may or may not continue in the future, but you know based on other countries information on certain things have turned around.

Thanks, Todd just quickly just an estimate of how much the ongoing impact will be on the topline from a higher level of mortality claims I would assume that does have some impact on premiums.

Thanks Todd.

Oh yeah.

Yeah, Yeah, I think you know that in the near term, we'll see some impact on the.

On the top line as we go through this I don't have a specific estimate of how much.

It could be it's sort of hard to the estimate.

Okay. Thanks.

Well next go to Ryan Krueger with KBW.

Hi, Good morning, when you are in the whole blood sensitivity that you provided does that include anything for covidien related but not reported I guess excess mortality that you're being made now or is that just very specific to togut deaths.

As Jonathan mentioned in his prepared remark. It is specific to death that are coded as coal bed and he asked me well eventual decode it has come as a cause of death I conclude it does not include any.

Ah access sequencing of a of what's being recorded as non coal that that Jonathan hi by how by accurately describes what we've included in our you know estimates.

Yeah, Yeah, that's exactly right and I. So as an example of 100 million contributed to covert in the U.S., we'll just be looking at coated reporting as opposed to including a an amount for the extra stuff as well.

Thanks, I mean, there's another way to think about it that I guess, so far so good that seem to be trending toward the low end of the sensitivity. We're getting these additional bad debt or not quoted as Tobin and but maybe when you add the two together, it's still so somewhere in the range that you've given.

Yeah, Yeah, I mean, I think it depends who uses the denominator right in that calculation and what's really going on there had to be lighter. So if you include a what we think excess claims might be coming in because of these excess deaths, but I think we still would be at the low end of the range, but if you you only take the.

Fire claims figures only to covert reported.

Then you might be higher wage expenses.

Okay. Thanks, and then just one last one on excess capital increased 300 million in the quarter you would get earnings obviously, but that seems like a pretty big increase of any more color on much of that.

Uh huh.

I'm actually increased by probably 100 million from 1.4 to 1.5.

Building and it was primarily because the earnings generation in the quarter, the net earnings in the quarter or less from deployment into organic.

Our business growth and then you know the the amount of dividends we paid out.

Got it and then number thanks.

Our next step is to John Barnidge with Piper Sandler.

Thank you very much now that you're a couple of quarters into this pandemic. How do you think about growth is in the winter.

Are you seeing any signs that there's a secular tailwind emerging for demand of life products and then on the flip side primary life insurers wanting to utilize more reinsurance to have less exposure. Thank you.

Yeah. So.

So so sure.

Sorry, Hello.

Hello.

There go ahead [laughter].

Oh right. Thank you I think I'll turn that over a child like to provide some comments on what we're seeing in the various markets around the globe.

Sure. Thanks, Anna certainly I think that you're seeing direct companies talk about a higher sales and I think that's natural to think or to see given the slowdown that we've seen through close it I think the big question is.

How much of that will persist.

Once we get through what I'll call the catch up.

I think there is certainly a a hope and a belief in the industry that as digital takes hold.

You will see more of.

Sales in the in that in that underserved middle market people will wake up and realize that they need insurance.

So I'd like to think that a that will persist, but I think it's probably a little too early to tell.

In terms of the use of more reinsurance or less I don't think we're seeing any particular change yet.

You know, there's nothing significant that happened in terms of any of our reinsurance pools or anything like that over the course of the last few months and I wouldn't anticipate than anything material would happen certainly seen quite a bit of activity on the transactional side.

As companies look and try to manage their own balance sheets as we talked about earlier, but that there is an element of lumpiness to that.

Oh, great. Thank you very much I could have just one other spot.

One other thought as a as economies recover and would expect to see growth in some of the credit based products that that would naturally follow and those are very popular products in many parts of Europe, and the UK and what I mean, I guess problem ability comes back in Asia would expect.

Sales of protection products and markets like Hong Kong to that effect.

And finally, I see a you know the potential for opportunities for growth opportunities on the organic side around designing consumer products that are better suited for this flow and likewise low I long interest rate environment, a product opportunity for simple on the.

Fundable products for the consumer that better align with their needs and with their resources. So I think product innovation will accelerate as a result of the higher sand and product innovation that something where we're already doing and where there are good.

Next I'll move to Dan Bergman with Citi.

Oh. Thanks, Good morning, I guess first could you provide a little more color on on favorable variable investment income in the quarter comps kind of what were the drivers and how much impacted corporate versus the other segments I'm just given.

Marketing are pretty volatile lately, just any updated thoughts on how.

Ah, yes, Fortunately definitely commit trend into the fourth quarter and Uh huh.

Right why don't I, Oh, why don't I ask Todd to address your first that's the first part of your question, which is with God our experience in the first quarter in the fourth third quarter, sorry, and then ask lastly to provide some thoughts on the go forward environment.

Yeah Dan.

Look at the third quarter and look at a sort of a historical run rate for the variable investment income, which it does bounce around a little bit we were probably.

Approximately 14 million off pretax, okay or you don't.

Historical more recent.

<unk> run rate.

That helps put it a little bit in context for it and that was primarily in the traditional segment and some in corporate.

Hey, Dan This is finally, Oh, sorry [laughter].

[laughter] they often have so dan thank you for that and.

So the looking at the go forward, what's important to know I think is that our underlying asset. They said creates affairs on that income is still there and it is still expected to be a pretty it's the type of returns that we have overtime at that run rate it's hard.

It puts it in shorter periods of time, but given that our activity in those markets has picked up again overall I think people will start to see a trend back toward.

Our run rate and hopefully in the fourth quarter.

And Dan maybe I'll just add one more point you know we feel most of the real value is still there. It's more a timing. We've we account for most of these alternative investments on a cost basis. So we only realized a recognized the income and they actually realizes they all the underlying.

Venture property in overseas market in the market you know each quarter. So you feel most of the value. So there are going to be more of a timing issue.

Got it.

That's really helpful phone number.

I guess maybe a.

Moving to corporate just given all the recent moving pieces like the debt issuance and the impact of the pandemic on their expense levels things like that I. Just wanted to see if you had any update on how we should be thinking about you know where that corporate lost my trend over next couple of quarters.

Yeah, Yeah, we had been indicating that you know that on average the 25 million.

Loss range, which is still a pretty good place to start and then maybe you know at N. I'm simply Brady for you know proceeds back in June we haven't fully invested those longer term. So there is a little bit of a drag here on the from the interest expense.

No on that that's what's going to be probably a little bit elevated good that's a couple of quarters or so and then we'll provide you with.

A better more up to date guidance as we do every year, but in the early part of next year.

Got it thanks, so much.

And next we'll hear from Brian Meredith with Qbs.

[laughter] [noise]. Thanks.

Thanks, guys. This is Mike Ward on for Ryan. So I appreciate the commentary about the potential for deploying capital into some block transactions going forward, but I was just curious you know with your stock trading at about 20% discount to book value. Currently just wondering if there are certain hurdles, we need to cross with respect to cope with mortality or even the economy.

Before you might consider resuming some of the repurchases.

Yes.

So you know he halted our share buyback program in the second quarter and we like to see increased clarity, we'd like to see a reduction in the level of uncertainty on the virus Friday and on the economic front.

Let's get through the next quarter to try to kill the winter months will remain focused on maintaining our financial strength and flexibility through that period.

And well address a share buybacks, that's part of our capital management strategy. That's the framework will use to make decisions well well look at that specific opportunities. We'll look at returns a other potential uses of our capital, including you know that the opportunities in the pipeline.

Dividends share buybacks I framework I think over time has been it's all good and I'm very good balance between the point back into the business and then returning that to shareholders through dividends and share buybacks and we'll continue to use that strategy in that framework going forward.

But as I said, we'd like to see the uncertainty of reduction and a material reduction in the uncertainty and clarity as to I'm going to guess crisis.

Thanks, That's really helpful. And then just a quick one on operating expenses are consolidated Gionee, if I'm recalling correctly I think lower expenses last quarter contributed about 50 cents for the quarter. This quarter, maybe it looks like it was a little bit around half of that so just wondering if you could comment at all on your expectations.

Any forward has it been opportunities you've taken maybe to keep some of those expense savings ongoing.

You know what the Todd what you're talking about yeah.

Sure, Yes look it's all in there and the second in the second quarter was no. Given you know the impact was colder et cetera, we did have some material.

True ups to.

Incentive comp both short term and the long term programs and then.

Oh saw some savings on travel and entertainment.

What we saw this quarter was more related to travel and entertainment they banned some savings on.

We're bringing on new employees, and maybe delayed project activity and that type of thing I think it's probably reasonable to assume that as we go through the next couple of quarters or so that you know certainly the travel and entertainment expenses will continue to stay at lower levels given nobody's.

Really you know.

Traveling.

Exactly so they will continue to see some savings, but it won't be as materials. What you saw in the second quarter and it's probably more similar to what we saw in this quarter.

HM Okay, and maybe longer term I know, it's not unreasonable to expect that some of those traveling entertainment costs will become permanent savings I also think we're learning a lot and its virtual working environment, Ken and we might.

See some Ah you know nine proving kopsak crimes around our real estate, where we're looking at all elements of our operating model and I would expect that what Oh, you know what we're seeing some of that will come back, but oh there.

I suppose any permanent changes.

Yeah, and maybe if there's an order.

In this quarter to just the size I would size. The so the savings that at least maybe look at it was more in the say the 15 to 15.

10, or so million range unless I'm not sure what number you quoted for the quarter, but I try to get more developed 50 million 15 million plus or minus.

Thank you.

And that will conclude the question and answer session. At this time I would like to turn the call back over to Mr. Larson for any additional or closing remarks.

Okay. Thank you well. Thank you everyone for your continued support.

Interest and RJ and I will conclude the call. Thank you very much.

And that will conclude today's call. We thank you for your participation.

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