Q1 2021 Reinsurance Group of America Inc Earnings Call
[music].
Please standby we're about to begin.
Good day and welcome to the reinsurance group of America first quarter 2021 results Conference call. Today's call is being recorded at this time I'd like to true introduce Mr. Todd Larson Senior Executive Vice President and Chief Financial Officer, and Anna Manning.
President and Chief Executive Officer. Please go ahead Mr. Larson.
Thank you.
Good morning, and welcome to Rga's first quarter of 2021 conference call with me. This morning on the call is Anna Manning, Rga's, President and Chief Executive Officer Alain Naomi.
Chief operating officer, Leslie Barbie, our Chief Investment Officer, Jonathan Porter, Chief Risk Officer, and Jeff Hopson head of Investor Relations.
We will discuss the first quarter results. After a quick reminder, about forward looking information and non-GAAP financial measures.
Following our prepared remarks.
We will be happy to take your questions.
Some of our comments of answers to your questions may contain forward looking statements.
Actual results could differ materially from expected results.
Please refer to the earnings release, we issued yesterday for a list of important factors that could cause actual results to differ materially from expected results.
Additionally, during the course of this call information we provide may include non-GAAP financial measures.
Please see our earnings release earnings presentation quarterly.
Quarterly financial supplement and our 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.
Last night, we reported a loss of of dollar 24 in adjusted operating EPS, which included $474 million and COVID-19 impacts or $5.31 per share.
In the context of the quarter, that's sort of pandemic related deaths reached their highest peak in some of our markets. This was obviously a challenging quarter for us but.
But if I take a step back our core business performed well overall and we consider this as another solid quarter further demonstrating the resilience of the global business platform and franchise.
Both our Asia traditional and financial solutions businesses had excellent results.
U S group and individual health performed well and Australia was breakeven.
During the quarter, we completed a number of in force transactions deploying $100 million capital, which will further add value to our underlying earnings engine.
The transaction pipeline remains very good with opportunities in all our regions.
Our approach the capital deployment during this crisis remains balanced and disciplined as we seek opportunities to deliver long term value.
I'm also proud to announce that for the 10th consecutive year RGA has been ranked number one for the business capabilities on a global basis by LNG and their Twenty-twenty Global reinsurance report.
Leveraging our capabilities and being a trusted partner as well as the thought leader has allowed us to deliver value to our clients throughout the past year of point of personal pride in this organization and a tribute to all our employees and our culture of client Centricity.
The result in our U S mortality business were significantly impacted by the share COVID-19 claims seen in the first three months of the year.
Considering the elevated level of population deaths. These results are not unexpected.
Our large claims experience was in line this quarter after being very favorable in the previous two quarters.
And our mortality performance over the past 12 months after adjusting for COVID-19 claims has been in line with our expectations.
Todd and Jonathan will provide additional information on COVID-19 impacts for all of our businesses.
As we look forward, there's reason for optimism of increasing vaccination rates in the U S U K and Canada should reduce the level of COVID-19 deaths for the lumi.
<unk> of the year.
And other markets should follow as vaccine availability continues to expand.
Rga's business fundamentals are strong our business prospects are robust and we are taking appropriate actions to protect our business and position <unk> for profitable growth.
As a final point it is worth reflecting that's for the end of the first quarter RGA has incurred over $1.2 billion in COVID-19 claims since the pandemic began.
Our ability to absorb these claims is a testament to our financial strength, but it also serves as a reminder of the important purpose that our industry and RGA play in helping millions of families around the world who have been affected by this pandemic.
Thank you for your interest in RGA and I Hope you all remain safe and stay well, let me now turn it over to Todd to go over the detailed financial results.
Thanks Anna.
<unk> reported a loss for the quarter of $115 million on a pretax adjusted operating basis.
Adjusted operating EPS was the loss of $1 24 per share.
Which includes COVID-19 impacts of the $5.31 per share.
Our trailing 12 month adjusted operating ROE was.
It was three 7%, which was reduced by COVID-19 impacts of eight 8%.
Reported premiums increased 3% in the quarter.
Growth was 5%, excluding the premium decline in Australia, reflecting our continued caution in that market.
The effective tax rate on pretax adjusted operating loss was 26, 9% for the quarter.
Above the expected range of 23% to 24%.
Two of the geographical mix of the earnings.
Turning to the segment results that are represented on slide seven and eight of our earnings presentation.
Gaining with the U S. The U S and Latin America traditional segment reported pretax adjusted operating loss of $344 million in the quarter Inc.
Including COVID-19 claim cost of $358 million.
Let me spend a minute, providing a little bit more detail.
For individual mortality approximately $340 million of claim costs are attributed to COVID-19.
The approach used the estimate COVID-19 claims is consistent with that used throughout 2020.
We also experienced some excess mortality claims in the quarter that is likely directly or indirectly related to COVID-19.
Which is not unexpected given the excess mortality experience that has been observed in the general population throughout the pandemic.
It is important to note that our mortality experience over the past 12 months, excluding COVID-19 was in line with our expectations.
Our group and individual health business, both performed better than our expectations in the quarter.
Variable investment income was strong in the quarter as the limited partnership investment performance was favorable.
Our asset intensive business reported result modestly below the expected run rate due to some unfavorable policyholder experience.
U S capital solutions reported results that were in line with our expectations.
Moving to Canada. The traditional segment first quarter results reflect the COVID-19 claim cost of approximately $26 million.
Our financial solutions segment performed well in the first quarter, reflecting favorable longevity experience, which we attribute the COVID-19.
Okay.
In the Europe, Middle East and Africa segment, our traditional business.
<unk> reflected a meaningful level of COVID-19 claims in both the U K and South Africa.
We estimate the COVID-19 claim costs for the EMEA traditional segment in the quarter with $98 million.
Emea's financial solutions business results reflect the negative effects of model updates.
And the longevity offset from COVID-19 was lower than expected as a result of longer reporting legs.
But we expect debt that benefit to come through in future periods.
Turning to our Asia Pacific traditional business in the first quarter Asia had favorable underwriting experience across most of the region.
While we while we did see some COVID-19 related impacts they were modest and within our expectations.
Australia results were breakeven for the quarter.
While there remains some uncertainty in the Australian market.
We are continuing to see progress and remain prudent in our approach to new business and focused on actions to improve results.
Our Asia Pacific Financial solutions business continued to produce good results in.
In the first quarter benefiting from organic growth and favorable.
Sirius on existing treaties.
The corporate and other segment reported pretax adjusted operating income of $94 million.
As mentioned in our press release.
And slide 18 of our earnings presentation.
The quarter reflected a one time adjustment of $92 million to correct accounting for equity method limited partnerships.
Adjusting for that the results were better than expected from our run rate and reflected lower overall expected expenses.
Going forward there is the potential for additional volatility and variable investment income from.
From the change in unrealized gains and losses on our equity method investments.
Moving onto investments the non spread portfolio.
Yield for the quarter was 567%.
Reflecting strong variable investment income.
Excluding the previously mentioned the accounting correction the yield was $4 five 2% because we had strong contribution this quarter from the limited partnership investments.
Our overall investment portfolio average quality of Ey was maintained and credit impairments were negligible.
Yeah.
As shown on slide 11 of our earnings presentation materials, our excess capital position at the end of the quarter was approximately $1.2 billion.
We continue to have ample liquidity as we continue to prudently manage capital during the remainder of the pandemic.
Rga's global platform.
Strong balance sheet and of.
<unk> capital management strategy have been vital to RGA success during this pandemic.
While we expect to have some additional COVID-19 claims in 2021.
We feel confident about rga's ability to produce the attractive financial results in the future.
I will now turn the call of the Jonathan Porter, our Chief risk Officer, who will provide some thoughts and updates on COVID-19.
Thanks, Todd as Anna mentioned Q1, COVID-19 general population deaths were at their highest levels in many countries, notably the U S and the U K.
Our models continue to track well to actual results and our overall COVID-19 mortality claim costs, which only include claims that we believe will ultimately be reported with the COVID-19 caused the deaths were within our expected range based on the level of general population deaths for you.
<unk> continues to be the driver of a mortality claim costs accounting for 74% of our global total.
This was approximately $17 million per 10000 U S general population deaths at the lower end of our model estimates and very consistent with the prior quarter.
Both of the U K and Canada had Q1, COVID-19 mortality claim costs in excess of them all of the ranges, which we are attributing primarily to short term volatility.
But you can't Canada had a greater number of larger COVID-19 claims in the quarter relative to what we saw in 2020.
After considering this quarterly volatility we are reiterating our previous rules of thumb for claim cost estimates in these markets as shown on slide 12.
All other markets combined accounted for approximately 10% of our COVID-19 mortality claim costs in line with our expectations with the majority of the is coming from South Africa, consistent with the high level of general population deaths the experienced this quarter.
The accounted for less than 1% of our COVID-19 claim costs in the quarter.
Countries had experienced a significant level of excess mortality beyond what is being reported in general population of COVID-19 figures much of which we believe is likely COVID-19.
Since the beginning of the pandemic over the last 12 months South Africa has accounted for approximately 5% of of COVID-19 mortality claim costs in India approximately 2%.
Turning to longevity.
Our experience was positive in the quarter driven by higher overall general population mortality in the U K.
The majority of our Q1 longevity experience is based on reporting from Q4 2020, and the significant increase in the U K General population mortality in Q1 of 'twenty 'twenty. One is not yet reflected on our results. We do expect to see this impact over the next several quarters as reporting has received.
Going forward the ultimate the longevity offset to our global mortality claim costs may be lower than our 10% rule of thumb given our concentration of this business in the U K and the success of the vaccination efforts to date.
The significant reduction in general population mortality rates as vaccination levels rise in the U S. The U K and Canada is expected to reduce our COVID-19 mortality claim costs over the remainder of 2021 at the same time, we continue to closely monitor the impact of the pandemic variants are having and countries that are at earlier stages of vaccine Rollouts were higher.
Mortality could persist for a longer period of time.
Let me hand, it back to Todd.
Thank you Jonathan.
That concludes our prepared remarks.
We'd now like the open it up for your questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're 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. Please also allow one.
Question and one follow up question and we'll pause for just a moment to allow everyone the opportunity to signal for the question.
And our first question is Jimmy Buhler with J P. Morgan. Please go ahead.
Hey, I just had a question first on your margin.
Margins, especially in the European business, and I guess in the U S and some of the other regions the.
It wasn't the.
The claims were sort of within the or close to the range is that you'd outlined before obviously worse than in 2020, but not that surprising Europe of.
The claims seemed a lot higher than what it what they had been.
Over the past year, even if you adjust for the higher level of debt. So can you talk about what it is that you saw there.
It both in the us of the.
UK and outside of the UK and then what your expectations are.
And why is it for that market and why is it that you're not adjusting your range higher in terms of your sensitivity to COVID-19 deaths for the for that region.
Hi, Jamie This is Jonathan let me, let me take that question.
So for the U K as I mentioned I think we believe that the primary increase this quarter is caused by larger.
The face amount claims for COVID-19 related deaths.
So the definitely we definitely saw an increase in that in Q1 versus prior quarters. If you look at if you kind of normalize for that difference and you look at sort of in aggregate across four quarters was the kansas be volatility quarter to quarter. We are at the high end of our range or maybe slightly over but still not materially. The other thing to keep in mind is that when we set those ranges.
FX rates have moved in the U S dollar has weakened somewhat.
By about 10% I guess versus the British pound, so thats, probably causing a little bit more of the increase too.
For as far as.
The rest of our of the EMEA, primarily South Africa this quarter.
The result of really consistent with what we're seeing in the general population. There. So the severity of the pandemic in South Africa has been a quite high and again there are issues with reporting of COVID-19 deaths. We believe so the actual number of COVID-19 deaths in the general population in South Africa as you know in the order of magnitude of probably three times higher than what's being ripped.
<unk>.
Just look at excess debt data, which again is a little bit spotty to get.
But that's really what's driving our results in that market is just the the impact of COVID-19. The if you look sort of at results after Q1 for South Africa.
Even mortality so far in Q2, and we're almost halfway through the quarter is really running much lower than what we saw in Q1. So there is no no no current search happening in South Africa.
General population deaths are lower which bodes well for the quarter.
And you mentioned this a little bit but is it pretty much of a given that the higher deaths in Europe would help the longevity. The results in the second quarter or are there some other potential factors that'll.
Sort of go in the other direction.
Yeah, No. We do think we do expect to see a benefit for them whichever the as I mentioned reporting is lag there. So if you think about it you know our longevity business.
We've seen reported public stand even a little bit this quarter. So you know we're kind of talking four to five months on average of of putting life. So the what's being reflected in our financials. At this stage is really going back probably on average November of last year.
So and the this large spikes we saw in the U K and mortality really started to happen around that time and extended into Q1. So that's why we think there is we do expect to see of benefits, but it will occur over the next couple of quarters. One other thing to keep in mind too in the U K.
Is beyond COVID-19 mortality general population excess mortality has actually been.
Good ex COVID-19.
That is potentially reducing the aggregate mortality sort of beyond what you just see in the COVID-19 numbers.
Okay.
Okay and our next question is from Ryan Krueger with K B W. Please go ahead.
Hi, Thank you.
Could you give us any.
The more perspective on the magnitude of non COVID-19 mortality.
In the quarter.
And then I guess the second parts of that I know, there's the difficult question to answer but as you study some of the underlying data on what you think might be driving.
Non COVID-19 mortality, how do you think that may play out as we as the emerge out of out of COVID-19.
Ryan. Thanks, Ellen you May let me start I think just a little on our quarter and then maybe Jonathan can fill in some of some points on COVID-19 specific mortality I think if you if you back out non COVID-19.
Sorry, COVID-19 mortality from our quarter, we think generally speaking of our quarter was.
In line with our expectations now I will say.
Say as I think it was talked about in the script, we have seen a normalization.
<unk> of large claims in the quarter in the U S. So we had very good large large claims volatility of the last couple of quarters. That's the normalized this quarter. We've also seen some level of excess claims which isn't.
Inconsistent with what we've seen throughout the pandemic. So we've got you know COVID-19 specific Mark claims and then you've got.
And excess amount that likely is directly or indirectly related to that so we've seen some of that and then given the the spike in claims towards the end of last year. I think we also saw some claims come into this quarter. So.
I think when you back all of that out though.
We're feeling pretty good about the underlying business and I would say certainly over the last year and even this quarter. Our results are very much in line with what we would've expected.
And then maybe out of.
Out of land just specific more specific the COVID-19 itself. So we talked about.
So of South Africa already but you know again similar phenomenon, we're seeing it with significantly lower general population deaths.
In the.
Quarter over quarter in the U S.
In the U K for sure is also just the U K has had about lesson of housing I think as of yesterday, our COVID-19 Mark the deaths in Q2, and that's versus 53000 net happened.
So we are seeing a reduction of some of our larger markets, which is which is good news.
Thanks.
Follow up I think generally the prevailing thought was that after a pandemic general population of mortality.
It would improve for some period of time, given the pull forward of debt seems like theres more uncertainty. This time around given some of the other effect that maybe COVID-19 and putting up.
The doctor visits and things like that could have.
One of your latest thoughts on on that on that topic.
Yeah, I mean, I think you're exactly right, there's some pluses and minuses and it's really not clear at this point yet what that effect will be so you know as you mentioned you know one of the potential negatives as people delaying diagnosis of the.
I'm not going to the doctor and being diagnosed with conditions at a later stage, which could be more severe.
The other hand.
You also mentioned the acceleration effect, which we do think it will have some beneficial impact potentially modest but it'll be positive. Then you also think about things like vaccine technology developments.
Peoples just behavior of social distancing, we saw that in the flu season. This year. So some of those could also be positive, but I think it will take some time for the data the plant.
And if you find that your question has been answered you may remove yourself from the queue by pressing star too. Our next question is Humphrey Lee Dowling and partners. Please go ahead.
Good morning, and thank you for taking my questions. My first question is just to follow up on the the non COVID-19 U S. Mortality piece you talked about there's a reporting lag and then I assume there may be some adverse development can you size the impact for this quarter.
Yes sure.
In terms of the question sort of reporting like and adverse impacts I think it's more just a little bit of reporting lag and that's largely a re.
Related to the.
The the big flux of claims are a big influx of claims that we saw towards the end of last year.
In terms of size get tens of millions.
Thereabouts.
Okay. Yeah, you did put up sorry, because.
Because you did put up of IV and a reserve of 100 million at the end of the quarter loss I mean last quarter. So clearly the blue task that so that's the driver and I guess, maybe exiting first quarter, where do you stand in terms of IV in our reserves.
Go Humphrey.
Go ahead Doug.
Don't forget the thought hi, yeah, Yeah, we did set up the night of IV or at the end of the year.
Took the best information that we had I made that the.
Best estimate that we had in the reasonable we thought at the time of just as Alan mentioned, there was a pretty significant acceleration of the debt.
The deaths the towards the end of the year as we all saw so that we missed it by a little but that's not unusual you know the the quarterly IV and are either.
Are the lower above where you need to be and that's just an ongoing.
All of fact and again given the volume of.
Deaths that were out there towards the end of the year, we just understated a little bit.
And then again for first quarter, we again looked at the information that we had available to us and reset what we thought the appropriate IV in our AR balance is for the.
For the end of the first quarter now it would have come down a little bit given the.
The number of.
That's the if you will has come down since the low as you got towards the end of the quarter.
Got it.
The second day Humphrey sorry, yes, it's Anna if I can it kind of I wanted to step back for a minute and I want to make sure that what when we talk about our performance over the last 12 months, our adjusted for COVID-19.
And and it's been in line that we appreciate what that includes so so in the last 12 months in the U S. There have been approximately 550000 deaths reported COVID-19 deaths reported but in addition to those deaths.
There's been roughly 100 of 50000 excess deaths.
Not specifically identified as COVID-19 now we believe those access are likely.
The COVID-19 related directly or indirectly and likely temporary in nature as we come out of the pandemic. When we say we adjust our ex we adjust our business where all of the adjusting for the impact of the 515000 of specific deaths that means our business is.
Wearing the other 150000 deaths.
I just wanted to make sure. The that's clear so to me that's the that's a signal of yeah credit performance over the course of the last 12 months.
Got it appreciate that color.
My follow up question is are you.
You talked about in the prepared remarks, you talked about the exposure to India and it has the only being a 1% of up 2% of your claim costs to date.
Given the the spike in deaths over there and I recall, you had a $20 million.
Impact in the fourth quarter like how should we think about that going into the second quarter given indeed, the much worse the numbers that's coming through right now.
Yeah Humphrey this is Jonathan.
So it's the first I mean, let me just caveat with coming up with the claims costs sort of the estimate for India just given.
The other situation was sort of the availability of data as well as just the very.
You know kind of current nature of what's happening in the in.
The country with respect to the surge of happening it's difficult.
Since that since that information is still developing.
And considering what's happened to us in the past I think if we had to put a number of range on it we're thinking of it sort of in the $50 million to $100 million pre tax range, but again, there's a very wide range of of.
Of.
Our funnel of doubter Kona debt around those numbers just given the situation of it helps for the opening.
Okay.
Yeah.
And our next question is from Erik bass of Autonomous Research. Please go ahead.
Hi, Thank you.
You ended the quarter with $1 2 billion of excess capital and you sound pretty optimistic of.
The returned to profitability in the kind of good.
Our improving performance going forward so just.
But wanted to get a sense of how youre thinking about the level of excess capital and your comfort level in drawing that down and.
Going forward, whether it's for block M&A or at some point potentially returning to shareholders.
Hey, Eric It's Todd Yeah.
We continue to prudently manage the cash.
Capital throughout the pandemic.
No I think as you've seen historically, we have balanced deployment and of the transactions, where we've kind.
Kind of obtained good returns and we like the underlying the risk profile of the dividend level and then also done some share repurchases over time.
I think we still need some more time the pass here for more.
For certainty the cause.
Come into view of but.
But we'll continue to follow of prudent and balanced capital management approach we did.
Deploy $100 million of capital in the first quarter as Anna mentioned in her.
Her comments and we were comfortable with that you know it was the.
It was the very.
Nice underlying profile of liabilities in a very stable long term low cash flows. It was a follow on transactions with the with an important client and Asia that had some other benefits as well. So I think we will continue to be prudent as we will continue to work through this pandemic.
Period.
But we'll continue to evaluate what the best.
Alternatives and the opportunities are for the capital deployment.
Thank you.
And then we've seen a surge in demand for term life, particularly in the middle market in recent quarters. I'm. Just wondering are you capturing much of this business and really how are you seeing the growth outlook in U S traditional kind.
Kind of for this year and as we move past the pandemic.
Yeah, Hi, Eric it's Alan.
No you're quite right I think we are seeing some very good production fact interestingly.
Maybe I think just came out with some statistics that show a record level of application activity.
In the month of margin very strong Q1 results and that's not just over the last year, but over you know pre pandemic type quarter. So.
I think thats wonderful to see we've talked about in the past.
The an expectation maybe of hope to some extent, but an expectation that we would see a resurgence in.
The desire or thinking about life insurance.
From.
From people in the general population. So we're certainly seeing that now I would say as we look ahead.
It's difficult to say, whether this is call it of new sustained level of business or whether it's maybe a little bit of catch up a little bit of return to normalcy.
So clearly we will follow that along but as we've talked about as well previously.
The company's direct companies have invested significantly accelerated the investments in digital efforts.
And distribution efforts to try and get to that middle market. So it seems to be paying dividends and were certainly.
Quite excited by what we're seeing.
And our next question is Andrew. Please go ahead with credit Suisse.
Hey, good morning, everyone.
Sorry to continue on this.
Non COVID-19 question help me out of a little bit on the math, because it's not clear to me.
So ex.
Ex COVID-19 of stacks in U S and Latam.
You would have been negative.
5 million.
If life were normal.
It's not.
I'd say, we'd be the base.
You know maybe of 170, <unk>, maybe 110 of $120 million of earnings. So what that tells me is that the.
What you May you may believe to be non COVID-19.
But indirectly related.
Is has the level of.
Of the COVID-19 claims and then I'm looking at and that was very helpful and that is 150000.
Yes against the total of 50 and its much smaller so I guess, maybe could you help the help think through this issue was it a frequency issue. This quarter was it a severity issue this quarter and ultimately what should the run rate earnings be.
The assuming none of this challenging very difficult situation with COVID-19, we're of course.
Andrew I guess.
Here I'll I'll take.
A stab at this first couple of comments to make I think first of all backing out COVID-19 claims and then looking at the rest I think I'd start by saying there is certainly some impact from.
Non COVID-19 label.
But likely.
Related type claims that'd be number one we have had some slippage as I mentioned from last quarter into this quarter.
And then maybe the only other thing I would say it is very difficult to talk about a run rate on any one quarter certainly when we look back.
Over.
The last number of years, we see.
Certain level of seasonality in our business.
Just because we have a lower flu season doesn't necessarily mean that all of that seasonality goes away because of seasonality has to do with weather.
Whether time of year as well as some input from.
From from the flu so.
Look I would say I think we're probably around <unk>.
Call it $300 million annually on traditional.
But as we look at.
This quarter of difficult to talk about a run rate for first quarter, but certainly.
I would say when we look at the underlying business.
We're pretty happy with what's transpired this quarter.
Got it and then just maybe I think Todd was was was touching on Australia being breakeven, but then he said there is still some uncertainty. So just wanted to make sure I understand what that potential uncertainty might be.
So look it's Alan again.
I think.
If I look back over the last few years.
We certainly talked about some issues in the underlying market with respect to terms and conditions.
The level of competitiveness of new business and so I think you wouldn't be surprised that we've seen our business volumes come down and in fact, when we look at this.
This quarter over.
First quarter last year, we're seeing a significant reduction in premiums that has to do with too.
Yes.
Super Fund.
Reinsurance treaties that we had.
Of that are no longer on our books one of which.
Just as a matter of interest of the underlying client.
Wood of loss, but the other one we couldnt come to terms on.
On the reinsurance business is it came for renewal. So we're continuing to be cautious I think when we talk about.
A certain level of uncertainty it has a lot to do with the fact that we're looking at products and terms and conditions of new products and we're looking to see them get back to a level of normalcy that we'd like to see.
I think I talked last quarter about individual die.
The standards coming into play as regulated by the regulator in October So I think that'll be good news.
But I think some of it also has to do when we look back over the last year, we've been more or less right around breakeven every quarter, which I think is certainly an improvement over prior of couple of years.
There's still some maybe caution around.
Disability claims and potential mental illness, now Australia has had.
The results with respect to the pandemic.
But they've also had more shutdown. So I think it's I think the type of thing, we're simply just being cautious about.
And in all of our markets, but I would say, we're feeling better about our Australia business for sure the.
Next step, though is to see new products get to a point, where we get excited about them and then potential.
Of potentially start to put new business back on but for now we're still that cautious approach Todd was alluding to I.
I hope that answers your question.
And our next question is Dan Bergman with Citi. Please go ahead.
Thanks, Good morning, I guess the start maybe just following up on excess capital. It looked like your excess capital of only declined by around $100 million in the first quarter versus the year end 2020 level. Despite.
Absorbing.
Almost $500 million of COVID-19 claims and deploying $100 million in the block deals. So I was hoping you could give some more color on the offset that allowed for that strong result, and if there was any benefit in your capital model from that accounting change on the LP investments and maybe just finally on that going forward with COVID-19 claims seemingly likely to decline.
Materially post the first quarter of should we be expecting an inflection on the capital side with excess capital likely starting to build from here before factoring in capital deployment block deals for purchases et cetera.
Dan It's Todd.
We actually have.
Positive net income for the for the quarter it was around $139 million.
So we actually net added the capital from that perspective, we had some.
The capital gains in that number for repositioning some.
Some of the investment portfolio.
Also as you mentioned, we did have some the positive impact in there from the correction for the accounting for the the limited partnerships. So that's where.
Even though we deployed some capital that's still overall net declined by about 100 million for the.
For the quarter and then we continue to evaluate the what should that level of excess b as we emerge.
From from COVID-19, and we're still you know.
Looking through that but I do feel that we will be at a place where it will be.
Finally in the fall away very effective and balanced approach to how we over time manage the capital base I think of as you know we true it up each quarter quarter to quarter. We do look at it more of a longer period of time, given the nature of our long term business.
Got it that's helpful. Thanks, and then I know you reiterated your prior COVID-19 claim sensitivity guidance, but I wanted to see if there are any additional thoughts you can provide around.
How the vaccination program might impact of COVID-19 claims of sensitivities going forward you know for example should.
Should we be expecting a material difference in vaccinate vaccination rates between the general and ensured populations and then also just for the timing of older high risk populations generally getting the vaccine the earlier.
Could that impact near term claims trends or sensitivities.
Some of the mortality over the next couple of quarters be skewed towards younger individuals versus what we've seen early in the pandemic, maybe a little bit of a broad question, but any thoughts on that would be great.
Yeah, Hi, Dan it's Jonathan.
So just kind of true.
Could you give a couple of points on this.
So I think generally speaking we would expect our rules of thumb to still be applicable as of <unk>.
Explanations programs are rolled out so as general population mortality declines are insured population will decline and that's not going to be a perfect match.
But.
At the macro level I think it will sort of track reasonably well and you know as we see data emerge obviously, we'll update all of those rules of thumbs.
As required I think to your point about kind of what would be more of mortality in the different age groups.
The I kind of think of it as you know, we're essentially eliminating mortality and some age groups. So sort of by definition that means it'll be more proportionate in the groups that have not had the full vaccinations. So so it's not really a shift in my mind. It's more just we're getting rid of some excess mortality for those age groups.
People that have been vaccinated, which and the residual mortality will still be there for the other age groups. So that we might see something that looks a little different by population components, but but again overall I think it's because aggregate mortality is going down and our rules of thumb.
Some of them.
It would suggest that total see the same results on our books.
Yes.
And our next question is from John Barnidge with Piper Sandler. Please go ahead.
Thank you very much can you talk about directionality of session rates broadly that you see maybe across geographies I asked that because the traditional business got some top line growth in the quarter. Thank you.
Sure Jon Al in the May Oh.
I would say generally speaking we haven't seen any movement on session rates per se. So.
Our business volumes have very much been driven by the level of.
New business at the direct company level, and we've seen our share of reinsurance come in now I say that recognizing that with every market and every client and each of those markets. There are reinsurance pools and we participate on some not all in with varying degrees of.
The percentages per pool of those typically will fluctuate year to year as new products come out but.
But generally speaking I would say.
Understand your question correctly the level of session rates generally stayed the same in all of the market and our positioning has remained quite consistent.
Thank you and then a follow up.
The excess mortality just briefly is it one of these things where it was the COVID-19 claim they didn't make it to the hospital or is it similar to the flu and that the flu was the first step that started the decay process into debt Sadly I'm just trying to dimension between those two.
Look I would say very tough to tell.
This early on I think I mean, Jonathan may have a little bit more information than I, but these are in many cases hot off the press.
Already for for.
COVID-19 type debt, we're needing to I'll say average up from the perspective that our cause of death reporting.
Isn't yet complete this early after our quarter end.
So when we talk about excess deaths were really.
Relating it to what we're seeing in the general population relating it to what we've seen in the last few quarters.
But it's difficult I think for my perspective to get that granular, but I don't know if.
On a couple of any one of my colleagues I think to add to that.
Yes, I mean, I think Atlanta, you're right. When you when we look back sort of over time, where the data is more complete I mean, clearly we saw excess mortality beyond what was explained by COVID-19 in the U S. Specifically I'm talking about now.
In 2020.
So it's not unreasonable to expect that it would continue clearly flu deaths had been.
The minimal or almost zero.
So that would be an offset to that but the net of the of the two still seems to be a drag.
And our next question is Mike Ward with UBS. Please go ahead.
Thanks, guys. Good morning, I'm, just trying to think about high level earnings power.
As you've touched on the average <unk> earnings for U S and Latam I think is basically breakeven over the last several years because of that <unk> more towers seasonality.
If we're thinking post COVID-19 2022, and not asking for guidance, but at a high level. If you think about your kind of earnings power for 'twenty, two and beyond today versus before COVID-19.
Anything really changed at all.
Hey, Mike It's Todd.
No that's sort of a.
The way I was going to sort of a frame of you go back the pre COVID-19.
We have a very diversified both globally and product wise earnings profile were no.
It's call it half came from our traditional business as far as Bottomline and half from the global financial solutions and throughout COVID-19.
The global financial solutions business is continuing to perform very well.
So as we emerge post COVID-19 and things get back to the I'll call it more normal.
Very confident of our underlying business, if you will and our relationships with our clients and so on it it's still very much intact. So we would be.
<unk> that we can get back to those pre COVID-19.
The earnings levels than the end.
And then continue on as we were pre COVID-19.
Thanks, and then just to expand on the capital discussion I guess, if theres going to be a fraction of global COVID-19 deaths. This quarter in <unk> and COVID-19 really is close to being fully in the rearview mirror and you did an equity raise last year for COVID-19. Your stock is of course pretty.
<unk>, So I guess, what would be stopping you from really ramping up the capital return in the bigger way. Thanks.
Yes.
The go back of my comments Bill.
The earlier were going to prudently manage the capital so that we don't have to raise.
No capital in the future as well so we're going to keep a close eye on it and look at what opportunities are out there from the.
The business perspective and.
What type of Oh attractive returns on the underlying.
Transaction types of potentially are and as we did pre COVID-19 weigh that against the various alternatives as we look at how we want to deploy capital going forward.
So that one I don't think we want to get too far out ahead of ourselves.
And our next question is for Tom caliber with Evercore. Please go ahead.
Hi.
Appreciated the color on the the.
The India sensitivity.
My question is are there any other countries in particular youre, keeping a closer eye on where mortality is worsening right now.
Like Brazil, or I don't think you have much exposure there, but I'm just trying to get a sense of are there any other areas that we should be considering here.
Yes, Hi, Tom This is Jonathan.
So obviously as you say, it's a pretty dynamic situation.
We're monitoring all of our business clearly.
Given the current circumstances. So there is nothing significant from what we've already talked about so outside of India. All of the pandemic in Asia of the pandemic is still being very well controlled I think in those markets in Australia.
Latin America I think the way you characterize it is correct. You know there are some global hotspot issues in Latin America, but based on the size of our business, which is quite modest and the nature of it so it's almost.
Entirely annually renewable business and all sorts of very large health component.
And the relatively limited impacts we've seen there to date. So Latin America. In total is represented about one percentage of our inception to date mortality and morbidity impacts we don't have a specific concern about those markets right now.
Got you okay.
And then.
How much I b.
Just a follow up question on <unk>, how much <unk> did you book as a percentage of your total claims for COVID-19 in Q1, if you could quantify that.
Okay.
Oh, yes, so ex satisfy it's Jonathan again.
So what you.
I can think of it it's really a balanced correct. So there is movement in the quarter, So as Todd mentioned earlier.
Because of the.
Mortality rates came down in Q1 for what we saw in Q4 all of our balance actually decreased over the course of the quarter. If you look at our COVID-19 specific IV in our that we still have on our books.
It's probably in the order of magnitude for both of mortality and morbidity of about 120 million U S dollars give or take that's in addition to all of our regular IV and oral we would hold for our normal course business.
It appears that there are no further questions at this time, Mr. Todd Larson I'd like to turn the conference back to you for any additional closing remarks.
Well, thank you and thank you everyone for participating on our first quarter earnings call. We appreciate that and we also appreciate your continued.
Tristan RGA. So thank you very much.
And this concludes today's call. Thank you for your participation you may now disconnect.
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Yes.