Q4 2020 Reinsurance Group of America Inc Earnings Call
[music].
Good day and welcome to the reinsurance group of America of fourth quarter 'twenty 'twenty 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. Wilson.
Thank you.
Good morning, and the welcome to Rga's fourth quarter 2020 conference call.
With me this morning on the call is Anna Manning, Rga's, President and Chief Executive Officer.
Our line Mimi Chief operating officer.
Leslie Barbie Chief investment Officer.
Jonathan Porter, Chief risk Officer, and Jeff Hopson, the head of.
The Investor Relations.
Okay.
We will discuss the fourth quarter results after the.
A quick reminder, about forward looking information.
Non-GAAP financial measures.
Following our prepared remarks, we'll be happy to take your questions.
Okay.
Some of our comments or answers to your questions may contain forward looking statements.
Actual results could differ materially from expected results.
The refer to the earnings release, we issued yesterday.
Well the 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 may include non-GAAP financial measures.
Please see our earnings release.
The presentation.
The financial supplement.
The website for a discussion of these terms and reconciliations to GAAP measures.
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 Hope you were all remaining safe and staying healthy.
The loss and anxiety caused by the pandemic is extraordinary and on behalf of everyone at Archie a.
Like to express profound appreciation for those on the front line in the fight against the pandemic and offer our deepest sympathies to those who have lost loved ones.
Through these tough times I remain incredibly proud of the role that RGA has played in an industry that helps to safeguard the financial futures of millions of families and the.
Unforeseen tragedies of life.
Our purpose has never been made clear the during this past year.
Let me now move to our results.
Last night, we reported adjusted operating EPS of the dollar 19.
Which we consider another solid quarter in the context of the pandemic.
And this quarter, we were able to absorb estimate of total COVID-19 related claim costs of $300 million globally.
And the liver profitable earnings due to the underlying strength in many of our businesses.
These include our Asia business, our U S group and individual health operations, and our U S asset intensive business.
Additionally, excluding the impact of claims attributed to COVID-19, our U S. Individual mortality experience was again favorable this quarter.
The reported premium growth was strong driven by results in EMEA and Asia, We completed a number of transactions in the quarter and deployed approximately $100 million of capital.
Transaction pipeline is very good overall and include the opportunities in all our regions.
Our investment portfolio held up well and we ended the year with a strong balance sheet and excess capital of $1.3 billion.
Our approach the capital deployment during this crisis remains prudent.
The planned and balanced.
If I step back and consider our full year results.
We reported adjusted operating EPS of $7.54.
This includes absorbing estimate of total COVID-19 related claim cost of debt.
$720 million globally.
And when adjusted for Covid, 19 related offsets, including longevity and reduced expenses.
We estimate the full year impact of COVID-19 to be roughly $6.80 on adjusted operating EPS.
I'm encouraged by the fact that our underlying fundamental performance and client relationships remain strong.
It speaks to the resilience of our global franchise, the benefits of our diversified business and to the success of our client focused strategy.
As we look forward. It is clear that COVID-19 remains both the global health and economic challenge.
We expect to see a meaningful level of claims in the first half of 'twenty 'twenty one.
But we believe that the impact will be manageable, given our strong balance sheet and our underlying earnings engine.
We are optimistic that we will begin to see the benefits from the global vaccination programs as we move into the rest of the year.
After which we expect to see some normalization of results.
In the meantime, we will continue to remain focused on protecting our employees.
Serving our clients and supporting the industry and our communities.
The quality strength and resilience of our business give us confidence that day.
We will emerge from the pandemic positioned to take advantage of the opportunities of Fad and continue to build on our long track record of value creation.
Thank you for your interest in RGA and I Hope you all continue to remain safe and well.
Let me now turn it over to Todd to go over the detailed financial results.
Thanks Anna.
Beginning with consolidated premiums from the quarter, we reported premium growth of approximately 9%.
The higher than recent quarters as we saw good business broke in some areas. In addition to some client catch ups that benefited the reported premiums.
The effective tax rate on pretax adjusted operating income of 18, 3% for the quarter.
The below the expected range of 23% to 24%.
As a result of utilizing foreign tax credits and tax benefits associated associated with differences in bases and foreign jurisdictions.
Turning to the segment results listed on slides eight nine and 10 of the earnings presentation.
The U S and Latin America traditional segment reported pretax adjusted operating loss of $89 million in the quarter.
Our individual mortality experience for the quarter, excluding the estimated COVID-19 grain cost.
Were favorable.
Let me provide a little more detail.
Approximately $230 million of claims are attributed to COVID-19.
Including the $100 million of IV of <unk> claims.
The approach used to attribute of COVID-19 claims is consistent.
With that used in the second and third quarter, which continues the track quite well.
We also continue to see excess mortality in the quarter consistent with CDC reporting the <unk>.
Net levels in the general population.
Although we believe a portion of this is likely related to COVID-19.
We have chosen not to include it in our <unk>.
Estimated COVID-19 claim costs.
Overall, when we simply adjust for COVID-19 specific debt.
Our experience this quarter would have been favorable primarily due to lower large claims.
I would also note that our 1999 to 2000 and for business.
Excluding COVID-19.
Tim used to perform in line with our mortality expectations as we set back in 2015.
Also our group and individual health business performed well in the quarter.
Our asset intensive business reported a good result of the fourth quarter.
Benefiting from higher variable investment income and strong equity markets.
U S capital solutions reported fourth quarter pre tax adjusted operating results that were better than our expectations of.
The decrease against the strong prior year period.
Moving to Canada the.
Traditional segment fourth quarter results were in line with our expectations.
It reflected modestly unfavorable individual mortality experience.
Primarily due to the the impact from COVID-19.
Offset by favorable underwriting experience in other lines of business.
Our financial solutions segment performed well in the quarter, reflecting favorable longevity experience.
In the Europe, Middle East and Africa segment.
The traditional business fourth quarter results reported unfavorable mortality experience partially explained by COVID-19.
The COVID-19 claims were concentrated in South Africa, and the U K.
Additionally, as we've seen in the U S, where a significant level of excess mortality experience from the population in South Africa.
Over and above the reported COVID-19.
And then the financial solutions business fourth quarter results from flat to modestly unfavorable longevity experience.
Turning to our Asia Pacific traditional business and the.
The fourth quarter Asia had a favorable underwriting experience across most of the region.
While we did see some COVID-19 related impacts these were offset by favorable non COVID-19 experience as well as from data catch ups from client reported.
Yeah.
Australia experienced the loss of approximately $26 million.
This reflects the number of one offs, including an increase in reserves to reflect the recently updated industry table.
And an IV NR for estimated COVID-19 claims.
Without these one off we would have the near breakeven for the quarter.
For the year, we saw a much improved results over 2019.
And when excluding the Q4 of one offs.
Have reported a small profit this year.
While there remains some uncertainty in the Australian market.
Saw progress from 2020, and we continue to be prudent about new business and focused on actions to improve results.
Our Asia Pacific Financial solutions business continued to produce good results in the fourth quarter.
Benefiting from the growth of business in Asia.
The corporate and other segment reported a pretax adjusted operating loss of $24 million relatively in line with the average run rate.
Moving to investments the non spread portfolio yield for the quarter was four 2%.
A significant improvement relative to that in the third quarter.
Merrily due to above the average run rate for variable investment income.
As we experienced a high level of commercial mortgage prepayments income realizations in our various private partnerships.
We believe our portfolio of defensively positioned coming into the crisis.
Credit performance continues to benefit from diligence security selection.
Well the economic reopening Inc.
Policy responses.
Our portfolio of average quality of Ey was maintained.
Credit impairments were minimal in the quarter.
As shown on slide 13 of our presentation materials.
The capital position at the end of the quarter was approximately $1 $3 billion.
Arguably the leverage ratios remained stable at the end of the year.
So far in the second quarter senior debt issuance and our liquidity remains strong with cash and cash equivalents of $3 $4 billion.
Looking forward, we expect to see some level of the ongoing COVID-19 impacts that will negatively affect our earnings until this crisis is involved.
However, we continue to view this as manageable and believe that our strong balance sheet. The power of our earnings engine and the benefits of our global franchise.
Positions us to emerge from the pandemic in good shape to continue the produced attractive returns to our shareholders overtime.
I'd also like the comment on slide 15 of the earnings materials.
As you know we are very proud of our track record of book value per share growth over the years.
While 2020 with the difficult years result of the pandemic, we have every confidence.
For the that we will continue creating value for our shareholders.
I also want to comment on the topic of financial guidance. We have historically provided intermediate term financial guidance in conjunction with our fourth quarter results.
However, given the near term uncertainty surrounding the COVID-19 pandemic, we have decided not to provide guidance at this time.
I will now turn the call over to Jonathan Porter, our Chief risk Officer, who will provide some thoughts and updates on COVID-19.
Thanks Todd.
The 19 mortality claim costs for Q4 continue to be towards the lower end of our model expectations relative to general population reported COVID-19 deaths and the continued to see lower insured mortality relative to the general population the.
The U S still accounts for the majority of our estimated COVID-19 claim costs.
Our ongoing mortality model updates did not result in any material changes in the quarter. So we are reiterating our mortality rules of thumb for our major markets as shown on slide 14.
Overall longevity experience was modestly favorable in the quarter, but less of the prior quarter run rate.
Lower offset was expected due to lower longevity of sorry, due to longer longevity of reporting lag and differences in country specific mortality rates over the period.
We expect elevated claim cost to continue in the first half of 2021 based on the level of ongoing COVID-19 gaps in the general population.
The uncertainty exists and the ultimate impact of COVID-19 variance. It is good to see some recent positive signs as well.
These countries are experiencing decreases of new case counts.
And gaps from the peak of the holiday season of waves and the preliminary data from the global rollout of vaccines looks promising.
We expect the vaccines will have the material beneficial impact on general population mortality in particular those that are most vulnerable to the severe outcomes are vaccinated.
Figure to closely monitor all of these developments and would expect to update our views if needed as new data emerges.
I'll hand, it back to Todd.
Well, thank you Jonathan.
That concludes our prepared remarks.
We'd now like the open it up to you for your questions.
Thank you, ladies and gentlemen, she would like to ask the question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.
We will now take our first question from Humphrey Lee of Dowling and partners. Please go ahead.
Good morning, and thank you for taking my questions. I think you mentioned that you continue to see the difference between the insurer and general population will tell the experience.
Since many of the primary companies solve worsening results, especially on the group side I was wondering if that kind of insured versus general population mortality difference remains kind of the same compared to the early stages or if you've seen any kind of convergence between the two.
Good morning, Thank you Humphrey.
Yeah, maybe I address that question to Jonathan.
Yeah, Hi, Humphrey.
Our results they've been somewhat consistent over the quarter from the obviously there is some ups and downs, but the difference between insured in general population with respect of her claims has been relatively the same.
And that's kind of evidenced by the fact that we are at the lower end of our rules of thumb, so sort of expectations are being maintained.
Okay. That's helpful.
And then in terms of of the non U S. COVID-19 claims they seem to be weaker than the guidance, what the guidance implies, especially because they they are coming from countries that you don't really have much exposure can you provide some colors in terms of what you saw in the quarter.
Oh, Todd May I ask who did respond and address that question.
Yeah, Hi, Humphrey.
So it was sort of spread around.
A little bit so for the quarter and these are estimated.
Numbers I would tell you the COVID-19.
The impact for South Africa was around $13 million.
For.
The around 19.
But.
Canada, and the U K about $6 million each.
Australia of an estimated $8 million.
And U S U S group business about 13.
Okay.
Yes, Todd this is Jonathan maybe I'll just add on to that you know over the course of the year. So in any one quarter results could go up and down but when you look at the full year results, it's pretty close to what we expected. So about 80% of our claim costs are in the U S about 10% in the UK and Canada and about 10 per cent everywhere else.
Thank you, we'll now take our next question from Andrew Klingaman.
Of credit Suisse. Please go ahead.
Thank you good morning.
So two questions. So the first one.
Some of the accounting standpoint in all states recent life and annuity blocks of business divestiture side of it.
The L. D. G I impacts would have been accounted for half of the book value and instead the shows to divest. It. If we are the request of $1 billion of loss.
No I know allstate's business mix is different versus the <unk>.
Yes.
What might make us comfortable that RGA wont take a similar magnitude of charges, especially on terminal business.
It's more of a accounted for under Fas 61.
One L. DTI does come into play in 'twenty, three and if possible maybe discuss the different lines of business and the potential impacts.
With the.
May I ask you to address that question.
Sure Hi, Andrew.
Well yeah.
And the sports standard was.
The deferred again.
In another year into 2023.
Well, we're certainly working through everything that we need to do the implement.
The standard four.
The existing the called the Fas 60.
Our business the one thing that I would point out the.
The overall economics of the underlying business.
Haven't really changed with the new accounting standard is just the how the financial reporting world.
We will look like as we.
Now I'll go through implementation of men, we're counting under the new standard as we.
Go forward it would be premature for us to provide.
Any.
From the numerical information at this point, because we're still looking at the various assumptions.
Your line some of the interpretations that we need to make the median.
Insurance companies as well as time goes on.
We are further along in the implementation.
We'll start sharing.
<unk> from information, but at this point, it's sort of difficult.
The comment on any.
Correct.
Got it okay. Thank you and interest with guar Andrew.
Sorry, right now so I'll share.
And the additional perspective and that is we have business around the globe.
Yeah. So R R.
Our book is.
Different than the book that you referenced.
We also had a very long history of performance on on mortality global of mortality business as well as our.
GFS business line and all of our other businesses. So I would offer that up for some context as well.
Got it got it thank you Anna.
And then my other question I, just have three data points upfront to the question.
I'll get to it so the first in in <unk> 2015.
Rga's CEO, Greg we're doing the acknowledged the mispricing of the 90.
98, two old Ford business, I think Todd you mentioned, a little earlier in the closet, it's performing in line.
The time, Greg had decided that.
RGA Wood wood and then in line with expectations, Greg had said that it would probably lose about $60 million of year over several years.
In the second point is that in each of the three years before COVID-19, RGA has posted greater than a 10% return on equity and then the third point is that in contrast, and life reinsurance two of your free leading global reinsurance competitors.
Our targeting mid to high single digit returns and the other is targeting 10% to 12%, but off of we have taken a sizable charges on the 98 two old four blocks. So my question is.
How is the 60 million of the year evident in your past 10, plus all of <unk> and your targeted 10% to 12% because of its just not appearing.
I'm hearing the evidence.
I the Alaska.
And that's hard to address the aspects of.
That question, Andrew Todd Atlanta from Dan. Thank you.
Sure Todd maybe I'll start.
Hi, Andrea.
You know as you are.
Referenced we did mentioned debt that block of business was underperforming.
I think perhaps when Greg made those comments there was.
Since that debt block was going to get smaller over time, I think that that is happening.
I would say that the mortality as Todd alluded to has been performing in line with our reset expectations, certainly, though we've probably been facing from additional.
Interest rate headwinds as we have on the whole of our traditional block of business.
Don't know that we necessarily break up the blocks of business to look at the actual Roe.
But I'll, let Todd comment on sort of ROE from the totality of our business.
Yeah, so yeah, a lot of ways.
Certainly we've produced both the ROE overall from the enterprise.
The perspective, theres going to be from lines are above some lines that are below the overall, we've been able to deliver the level Roe.
All of us comparing to.
Competitors.
There's different accounting.
And what are you doing.
And then the whole directly comparable to ours, so I'm not sure if I can directly.
And the <unk>.
And part of the two.
The other thing the other thing maybe Andrew sort of element again, just to add and you know we've talked in the past the boat.
Taking the long view of our client relationships and certainly looking at the totality.
And then the Zane we have I'll say work to identify where there are material imbalances and look to restore of better balanced with those with those clients.
You referenced our competition on some of the charges and some of the actions they've taken I think we've been pretty clear, we don't have a broad based rate action strategy.
But that doesn't preclude the possibility of Te.
Taking were having taken rate actions, where appropriate we just prefer to work through those types of issues with clients directly.
Okay.
Thank you we will now take our next question of Eric Bass of Autonomous Research. Please go ahead.
Hi, Thank you I'm in EMEA can you talk about results from the financial solutions business this quarter and the level of Covid impacts from the longevity business and then given the delays in reported and you talked about are we more likely to see the surgeon population deaths that occurred in December show up in your first quarter results.
Eric. Thank you for the question I think that debt that's true that's directed senior Todd and the perhaps Jonathan.
Yeah.
Yes, we get the split isn't mentioned slightly.
<unk> longevity in the quarter and also in the quarter.
We have pluses and minuses.
When we get data.
Catch up reporting from our clients and that was it.
A little bit.
Net not negative, but not as much as we would've expected.
In the quarter of just due to the what information we received I think.
The step back.
Given the block we still view it a very positively and would expect that to continue to perform well on average as you can kind of perform.
Historically, which is quite well.
Yeah. This is Jonathan maybe just to talk about the the lag in reporting so the I mean, you're right. The there are longer lags and longevity reported which means the results that we're seeing in Q4, although we can't predict the exact timeframe just given it's a bit variable depending on the tree is really moving more reflective of the summer level of mortality that we saw.
And those.
Those rates were generally quite a bit lower than we saw both in Q2 and in Q4 ex U.
Particular of issue for the U K, which is where most of our longevity business is concentrated the was very little of excess mortality actually in the summer months.
So we do expect this to be lumpy quarter to quarter.
And do the timing as well and by geography.
The start of our rule of thumb and everything thinking about longevity business that which is around 10% of ultimately.
The kinds of mortality, we still feel is a reasonable estimate.
And thank you that's helpful. And then maybe sticking with EMEA can you provide some more color on a couple of the recent larger block deals that you've done in the region and does this change your view of the normal quarterly earnings run rate for that business going forward.
And I think the debt so.
If you could address.
The transactions and saw that in the run rate.
Sure.
The transactions are very much in line with what we've done previously sort of longevity.
What type of transactions.
We've done some.
Finished solution type of transactions as well outside of EMEA.
But in the enemy is mainly longevity.
Yeah, and as far as the cost savings run run rate.
Eric I don't have any one of the one at this point, but certainly it's good to see the couple of nice deals close there.
Thank you, we'll now take our next question from Jamie pull all of the P. G. Morgan. Please go ahead.
J P. Morgan I apologize. Please go ahead.
No that's okay.
So first I just sort of question on the ease of business and specifically on the Australia. If you could talk about what the specifically it was the caused the loss this quarter.
Any new developments that you've seen in that market.
Yes.
Again, I think are the first the taught them down the question.
Question on the market to Orlando.
Yes, so Jimmy there was the.
A new.
The industry table that was published during the year the the.
The regulators expect the companies to adopt and the provided some updated information on some of the disability income the.
The termination rates and that type of thing.
Once we looked at that.
Cable and it provides some experience from the longer duration type of claim.
Client claims or let me stay on claim for a while until the once we took a look at that we did have an increase of our <unk>.
Reserve levels and then we also set up from IV in all of our claim.
Claims related to COVID-19 from.
And some of that was partially offset by some of them.
The changes that went the other way, but the.
The table was the.
The big driver along with the the COVID-19 did you did you back out those one offs as I mentioned in my comments it was right around the breakeven.
The quarter.
And is there any ongoing impact from the new data or the just to catch up in the month.
I would view of the.
Regardless of the table of more of a catch up true.
Sure.
Okay, and then if you're thinking about the orders up.
You had given sensitivity on Covid claims in the U S and each of the last two quarters. Your actual results have been better any thoughts you've given to sort of reassessing that sensitivity or because it does seem like and thats. The only two quarters, but it seems a little bit overly conservative.
Yeah.
Uh huh.
Some of them May I ask you the address that question.
Yeah Yeah.
I'll take that and then maybe Atlanta, if you want to talk about the marketing of Australia again.
Yeah, No you're right I mean, we've we have.
The obviously tracking that and we continue to come out towards the lower end I think exactly what you said, though it's a couple of quarters. You know there is some variability obviously that we would expect to see in the future. So I think we just feel the appropriate position us to meet the same for now and reassess as we do regularly each quarter.
The change is required or not going forward.
And Jamie this is the lenses that Jonathan back to back to the Atlanta to Kid address the question on the Australian market share.
Thanks Anna.
You know the.
Well, we've talked in the patch in the about the need for the industry to work through some issues I think it gets one positive development is that.
The regulator has announced.
The announced new DIY product requirements that need to be in place in October of this year with the aim of making disability income products more sustainable so I think the industry moving in the right direction. There is still obviously some stress.
Stress on the financial results across the industry and I think in that light, we're pretty pleased with.
Our results for the year, which is slightly slightly positive when you back out the.
The industry table in the Covid.
Accrual, maybe just a little bit more on the industry table that really was an attempt for the the industry to bring into line.
I would say the eye.
Termination.
The assumptions in the later durations, where there's less information so to Todd's point I think.
Comfortable this is a catch up in sort of a very comfortable of the balance sheet moving forward.
Yeah.
Thank you we'll now take our next question from Dan Bergman of Citi. Please go ahead.
Thanks, Good morning.
I guess at the start of as we start thinking about the first quarter of that that's definitely when we'd see a seasonally high level of flu related mortality in the U S and it's really the theory of <unk> results will be significantly pressured by Covid, but I just wanted to see of yet any high level comments on how we should be thinking about how there are the other non COVID-19 mortality factors specifically on the one hand, the he hasn't been pressure in recent quarters.
By the excess population mortality not directly in line if I just go over the he called out price on the other hand, it sounds like factors like masking of social distancing under the <unk>.
All of them make the flu season, the lesser of ear. The typical just any thoughts on those two opposing trends what you're seeing in really anyhow, just thinking about that directional net impact would be helpful.
Thank you Dan.
I think of very low flu season would obviously be very welcomed but I think any relief from the flu season would be modest in the context of our pandemic God I'll I'll ask Jonathan maybe to provide little bit more color in terms of the relative.
Sizes of of those pluses and minuses Jonathan.
Yeah. Thanks, Anna I mean, you're right I mean really of what we're seeing in the flu data is quite incredible and so far as you know with essentially zero and that's you know that.
What do the lack of testing in fact, you can see places where testing of its actually even higher.
So it really is.
Quite amazing food with the slow.
When you think of the flu season, and the impact of asset and I'll talk to the focus on the U S. Here, usually you would see about 15000 to 60000 general population deaths in the typical flu season from the range is obviously based on severity.
But so you can kind of.
Think of that level of general population deaths relative to the amount of COVID-19 deaths that we would incur plus the excess cash that you mentioned the would you expect that.
Those will continue as well interest based on what we've seen so far in 2020.
So from that level of off debt if the flu is.
Really no of close to zero would be somewhere in probably the middle of that range of 15 to 16.
Got it.
Very helpful. Thank you.
And then maybe just now switching gears a little bit out of a further end of the pandemic I just wanted to see if there's any update you can provide on life reinsurance.
Current market conditions, you already seeing any impact from COVID-19 on the session rates or the demand for life reinsurance anyway.
He noticed any change in competitive conditions and how you.
The industry is.
The whole or thinking about mortality pricing in light of Covid.
Okay.
Perhaps I'll turn that one of its true John.
Jonathan.
What do you think the AD sales team.
Free.
Sure. Thanks Anna.
I think from the let me start maybe with just life insurance I think certainly.
The pandemic has triggered increase the awareness.
In the population of the need for reinsurance protection. There's few studies out there from limb ran it might be the show that.
The the desire or the thinking about buying insurance is the quite substantially. So for example, there's about 30% of consumers that were surveyed that are likely to buy insurance in the next 12 months, that's probably a few months dated now.
Search traffic for life insurances is quite a bit up on Google search traffic. So.
From a consumer perspective, we're certainly.
Hopeful that that's going to get traction.
Companies of accelerated investments in digital effort to try and reach those consumers. So I think the.
The outlook I would say is pretty good from a direct insurance standpoint from a reinsurance standpoint, I would say we haven't seen much in the way of.
Ups or downs I think it continues to progress.
Along the lines that it has over the last.
A few years.
Certainly I think as reinsurers, we demonstrated value by working with clients to adapt to the.
The changing conditions through the pandemic and I think thats generally been.
Well regarded.
The transactional activity continues to be good.
I think when one thinks of consumer needs and.
Sort of the.
Of the producing different products or product development areas is quite strong and so I think we can play an important part of that.
But I think all of that to say.
Reinsurance demand I think continues pretty much as it has.
Thank you we'll now take our next question from Tom Gallagher of Evercore. Please go ahead.
You would mention net.
<unk>.
I'm getting some selective rate increases, but not something that you had implemented.
In the broader way.
Across your business.
Would you say the it is a lot of that related to the early to mid two thousands blocks.
In terms of the rate increases you've gotten and would you say those are largely done or are those still ongoing.
Oh line I.
China has found that the tool.
Yeah no.
Look I would say, Tom we're continually evaluating the <unk>.
The ability of our different businesses and the the relationships with clients and the the balance or imbalance there on I.
I would say for.
For the most part of our underperforming business has been very much isolated to the 90 904 block.
I'd say, it's of continuing activity to monitor and manage that business.
The way, we believe it should be managed.
So is there.
I guess, just a follow up on that did you.
Would you say generally broadly like you're closer to the end of the re pricing or is that just in the ongoing.
Adjustment that you think might continue for free.
For over a series of years, if you were able to answer it that way.
I would say very much part of our ongoing management of our business.
Okay.
Thank you, we'll now take our next question of Orion from from VW. Please go ahead.
Hi, good morning, the the last couple of quarters, you've had favorable large claim experience in U S. Mortality I was wondering if you've got that was actually related at all to COVID-19 or if it's just.
A more random result that you kind of the last couple of quarters.
Yeah, well, we've had this the internal conversation on volume or Oh from fourth.
The fourth quarter and the third quarter by I think you can appreciate that it is very difficult true true.
And like any definitive statements about whether it is the restaurant, but perhaps I'll I'll ask Jonathan to share some of that some of the observations or some of the opinions Oh.
Or at least what we're thinking about in respect of that.
One of them.
Yeah. Thanks Anna.
At this point.
Do we believe it's more of just a part of the fluctuations inherent in our business. So these adjustments can go both directions. So you know in the.
As we've noted we have seen adverse large claims experience you know its nice to see a couple of quarters now.
Positive large claims experience, but I wouldn't.
<unk> seen the trend of anything that we can tie back to Cytase just part of the the fluctuations we would expect to see quarter to quarter in our underlying business.
Got it and then one more in on U S traditional D.
There's obviously a lot of they were all of the moving parts of that visits in 2020 of the I didn't know if they'll continue to the impacts from COVID-19, but this year.
Your view of the underlying earnings power of that business. Once we get out of the pandemic. There wasn't that 300, the 320 kind of looks like out of there Andrew.
The annual earnings range.
And if I could ask keeps the address that question.
With the energy.
Todd.
Yeah, sorry.
[laughter] cut out of a little bit of.
Yeah. So that's something certainly well, we'll take a take a look at as you know and Alan mentioned earlier, we do have some inc.
Interest rates.
Headwinds of course.
For some of the.
The book there, but we'll.
We'll see you know certainly.
It's going to be.
Pressure, but overall the other than the U S mortality markets the group and the long term care of business has been performing.
You know quite well so.
I don't have a direct answer for all of it will reassess it as we are.
Go through the next quarter or two Wouldnt have a clearer view of the end of the pandemic and the impact will depend on it.
Thank you.
Thank you, we'll now take till the next question from John Barnidge of Piper Sandler. Please go ahead.
Thank you Israel's within the country, that's been most aggressive in their vaccination program do you see any markers early on in the week since it's begun that suggests any insight to how we should be thinking of maybe COVID-19.
The axiom programs globally impacting of tapering off of the deaths.
Yeah.
Jonathan I think it's nice to you.
Yeah Yeah.
No I mean I think the short answer is we are very encouraged seeing the relative to the vaccine is happening around the world.
One of the things that's starting to emerge and data as you know you mentioned of Israel, specifically as well is that just the real world validation that the vaccines are showing the same level of efficacy that they did in the clinical trials. So that's positive.
In Israel, there are data points that we've looked at which showed a free individuals' then.
Had enough time elapsed since receiving the full vaccine that there are clear indications of a significant reduction in both cases of COVID-19, but all sorts of reduced severity and hospitalization. So I think both of these if they continue should heather.
Meaningful impact on the reduction in general population mortality, which you can translate true.
Of course, she assured mortality of one of the other things to keep in mind with vaccination programs with that many governments are targeting the most vulnerable groups first of which.
Should accelerate the benefit of mortality. So you know when you think of the extent of the 80 20 rule.
20, or 25 per cent of the population probably accounts for a large portion of the deaths related to COVID-19. So it draws population groups of get vaccinated faster than mortality should should also reduce sort of out of ethane peso. So I think the signs youre seeing out early but kind of the economy.
Yeah.
That's great and the soundness.
If I could.
Sorry, John if I could just out of comments perhaps.
A longer term perspective, the optimism about the longer term and that's in respect of the.
New technologies that underpin some of these vaccines.
You know were cautiously optimistic that this isn't going to be of one and done that theres been a lot of money put into the development and that they could be used potentially for other diseases, perhaps like the flu or perhaps cancers. So I I want to also leave you with that the longer term.
Observation I'm I'm, sorry, I I did you have a follow up as well.
I did in the it's nice to have some optimistic the news too part of it.
How do you I ask this question with all of a serious is how do you view cryptocurrencies within the investment portfolio we've had.
And S&P 500 company come out and say, it's part of your cash and cash equivalents. We now have other public companies micro strategy overstocked debt had allocations to the debt and their cash. So I was wondering how argued uses as well.
At the ask you to address please.
I'm, sorry, I didn't quite catch the first part of your question.
How do you view cryptocurrencies I E did point of digital gold as a part of your investment portfolio of cash and cash equivalents as public companies now allocating a portion of the cash and cash equivalents for the investment portfolio of two bitcoin or other cryptocurrencies. Okay. Thanks, Thanks for repeating.
Well.
Well from my perspective, and maybe I'll, let Leslie chime in and I haven't been in a lot of conversations around.
The thing in that.
And that so you know from IP.
So again sitting here I haven't had much of the way of any discussions.
The thing I don't know if you guys have looked at it at all.
Sure Hi, this is lots of Oh, yeah.
<unk>.
So where we're not currently investing in crypto currency I think if when you looked at it you would think about it is the currency we tend of more kind of match our business currency exposure.
And you know I don't think I'd think of it.
It is the cash that you've got you have currency exposure, if youre not doing business in the crypto. So I'd think of me with that and as well that my understanding is currently the accounting is different than other.
Currency anything from create more volatility. So we're not currently doing it and we keep our minds open of looking at all different things, but definitely currently said our currency framework.
Thank you we'll now take our next question from Brian Meredith of please go ahead.
Okay.
Thanks, guys. This is Mike on for Brian.
Just following up on the <unk> 98 to one four blocks. So there's clearly a lot of investor interest of almost concerned about the euro. So I'm, hoping you can maybe share some more details, but just from my perspective, the three key things to note.
One of your retro seated at I think 35 per cent of the block in 2014.
Two I think youre actually known as the high price to reinsure during that period, particularly relative to your European counterparts, and then sort of I think it's conceivable that COVID-19 is actually accelerating maybe some of that roll off of mortality. So maybe if you could of if you agree with any of these or if you could add anything I think it would be helpful for <unk>.
Or just because you know when there's sort of a lack of information people tend to assume the negative bias.
Yeah.
Thank you for that question, Mike a London, Jonathan would you place the drafts.
Yeah sure as the Alan and the.
I guess, what I would say couple of things first off.
The 90 904 block probably represents a boat of our quarter of R.
Our U S individual block today, it's declining.
Over time the older issue ages.
In that block of probably about 4% of the whole so it's.
The block that is slowly running off.
I think in terms of weather.
Whether were of high price reinsurer or not.
I would say.
The.
It's a good solid competitive environment I think that comment probably draws from the fact that during that period of time, our market share would've dropped so.
Whether we were of high priced or whether we are perhaps.
Saw some of the risks or felt that the pricing environment was maybe a little bit too sharp.
I don't know Thats, the sort of a long time back, but I think we tend to look at it in the context of our overall block of business.
And when one considers the age of that block.
And.
The the impact of Covid on our different age groups I think it is.
Quite possible to think debt.
Some of those people are.
Perhaps dying off a little bit more quicker than.
We might have expected.
I don't I think it's probably too early to draw any kinds of conclusions but.
I'll kind of leave it at that I don't Jonathan if you want to add anything.
Yeah, just on the acceleration piece of it I mean, you read of it it's difficult.
We don't have current underwriting information to otherwise project, how people who will have died from COVID-19, and how long they would have liked.
I think you know again, it's it's reasonable I believe the expected it will be some benefit.
And at this point I think of we show what it'll be.
A modest tailwind for us.
Yeah.
Thanks, guys.
Thank you, we'll now take our next question from Tom.
Okay.
Hi, Hi, Thanks for the follow up just a few.
Detailed question John the.
The U S and Latam traditional what exactly is your Latin American exposure.
You are not providing any sensitivity so I assume it's not very tied to some of the countries that have been hit hard.
Yeah.
Yeah. This is Jonathan.
Yeah, Yeah, sorry net.
About at risk exposure in Latin America, it's about one percentage of our total net amount of risk. So it is very modest I mean, it's also a mix of both the morbidity and mortality risks.
Got you and then the follow up is.
Hum.
I assume the favorable health with long term care of this quarter. What's the portion of your earnings in that segment is coming from the long term care.
Yeah.
Yeah.
Bob.
Yes, the long term care it from.
Right and just what I'm trying to think how best to answer as far as the percentage of of a total of given the unusual totals this year.
Many of the best way the Spa.
Is that the when the long term care business, which in the U S and as individuals.
<unk> of what we call the individual health.
Yeah, we our expectations would be.
Around the $100 million.
Pre tax income on that on an annual basis.
That's that so that's the that's a normal under normal condition. So I assume that's running better than that.
Currently is that a fair way to think about it.
Yeah, It did run better than that.
The expectation this year, yes so.
That's like over a quarter of your U S.
In Latam traditional earnings I didn't I didn't realize what is that high.
Yeah.
And it's been about that level of the last the couple.
A couple of years, there's a lot of so it's not growing significantly.
Significantly just given the.
There's not a lot of new business activity and that line of business.
Okay. Thank you.
Yeah.
Yeah.
Thank you no further questions at this time I would like to turn the conference back over to the speakers for any additional or closing remarks. Thank you.
Okay, well, thank you everyone for.
Joining us today and your continued interest in <unk>.
<unk> and I hope, everyone and their families stay safe. Thank you very much.
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