Q3 2021 Reinsurance Group of America Inc Earnings Call
Okay.
Yeah.
Good day and welcome to the reinsurance group of America third quarter 2021 results conference call.
Today's conference 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 Rga's third quarter 2021 conference call.
With me this morning on the call is Anna Manning, Rga's, President and Chief Executive Officer.
Leslie Barbie Chief investment Officer.
Jonathan Porter, 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 and non-GAAP financial measures.
Following our prepared remarks, we'll be happy to take your questions.
Some of 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.
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.
<unk> financial supplement and website for discussion of these terms and reconciliations to GAAP measures.
And now I will turn the call over to Anna for her comments.
Good morning, everyone.
Thank you for joining our call today.
Last night, we reported a loss of $1 11, and adjusted operating EPS, which included pre tax $500 million and COVID-19 impacts or $5 59 per share.
Our 12 month trailing ROA was two 1%, which included 9.8% in COVID-19 impacts.
Premium growth was strong at nine 5% and we.
We ended the quarter with excess capital of $1 billion.
This quarter saw elevated COVID-19 claims in the U S, India, and South Africa, consistent with the levels of general population mortality.
In the U S individual mortality business COVID-19 claims with $235 million in the quarter.
Slightly above the high end of our rules of thumb range.
We also had a level of excess non COVID-19 claims.
Letting the elevated levels of excess mortality reported in the general population by the CDC.
COVID-19 claims in India, and South Africa were 161 million and $64 million, respectively. As those countries also experienced a material delta weight and.
And Jonathan will provide further insights on our claims shortly.
Performance this quarter ex COVID-19 was strong and featured many highlights.
Again, demonstrating the value of our diversified global business and the strength of our new business franchise.
Highlights this quarter include strong earnings across all lines and regions from our GFS business.
Deployment of $140 million of capital into enforced transactions, including our largest to date longevity transaction in the Netherlands.
This brings the year to date capital deployment into in force transactions to a total of $440 million.
Putting us on track for a very strong year as our pipelines remain very good with opportunities in all regions.
I am, particularly pleased with the recent success and our GFS business in Asia.
That business has grown from a relatively small base a few years ago.
The one that has produced 66 million of adjusted operating income through the first nine months of this year.
Our success is a large part the result of our high caliber local teams working together with our global product and risk experts to bring new solutions that best fit the needs of the local markets and clients.
We are actively managing our capital position balancing deployment into organic business and attractive enforced block opportunities with shareholder dividends and in this quarter the resumption of share buybacks.
We generated additional capital with the completion of a financially attractive asset intensive retrocession transaction.
I believe clear evidence of an efficient and effective capital management approach.
Investment results were favorable in the quarter. Despite the continued challenges of the low market yields.
Parents were minimal and we realized some nice gains in our limited partnerships and real estate joint ventures.
Both our U S group and U S individual health business performed above our expectations continuing a recent trend.
As I think about this quarter and the last six six quarters of the pandemic I remain encouraged by the resilience of our global business and by the positive momentum in our new business opportunities and growth prospects.
Looking forward, we expect some continuing impact from COVID-19 claims, but believe these will be manageable and point to increasing vaccination rates globally as a reason for optimism.
We operate from a position of strength with an outstanding workforce valued client relationships and healthy business fundamentals.
We have a strong balance sheet and a track record of successful execution against our strategy.
All this gives me confidence in our business and in our opportunities for growth.
Even though a lot of the focus this quarter is on COVID-19 claims we are accomplishing a lot in terms of adding substantial new long term value.
I am proud of this team and all of that we've achieved and I am excited about the future and look forward to sharing more thoughts at our Investor day on December the ninth.
Thank you for your interest in RGA.
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 pretax adjusted operating loss of $89 million for the quarter and adjusted operating EPS loss of $1 11 per share, which includes a negative COVID-19 impact of $5 59.
<unk> per share.
Our trailing 12 months adjusted ROE was two 1%, which is net of COVID-19 impacts of nine 8%.
While we did experience a significant level of COVID-19 impacts.
Our underlying non COVID-19 results were strong.
Demonstrated by the year to date growth in our book value per share excluding the OCI.
4% to $137 60.
I would highlight this growth in book value per share is after absorbing approximately 1 billion pretax of COVID-19 claim costs.
Consolidated reported premiums increased nine five.
<unk>, 5% in the quarter were seven 7% on a constant currency basis.
Reported premiums did reflect a couple of one off items, where organic growth was very good and new business activity is encouraging across all regions.
The effective tax rate for the quarter was 15, 2% on pretax adjusted operating loss.
Below our expected range of 23% to 24% primarily due to adjusted operating income in higher tax jurisdictions.
Losses in tax jurisdictions for which we did not receive a tax benefit.
This was partially offset by favorable adjustments from tax returns filed in the quarter.
Turning to the segment results.
On slide six of the earnings presentation.
The U S and Latin America traditional segment included approximately $250 million of COVID-19 claim cost.
Approximately $235 million of which was in our U S individual mortality business and the balance in our U S group business.
We saw non COVID-19, excess claims of approximately $75 million.
Which is consistent with higher non COVID-19 population mortality as per CDC reporting.
The U S group and individual health business, both performed better than our expectations due to favorable experience overall, even after reflecting $15 million of COVID-19 claims in our U S group line of business.
Variable investment income was strong in the quarter as both limited partnership performance and real estate.
<unk> venture realizations were favorable.
The U S asset intensive business reported very strong results.
<unk> had favorable overall experience and higher variable investment income we continue to be pleased with the results in this segment.
Canada traditional segment results reflected favorable experience in the group and creditor lines of business.
Slightly offset by COVID-19 claim cost in the individual life line of approximately $5 million.
Yeah.
The Canada financial solutions segment results reflected modestly unfavorable experience.
In the Europe Middle East and Africa segment, the traditional business results reflected COVID-19 claim cost of $80 million in total of.
Of which $64 million was in South Africa, and $13 million in the U K.
We also saw some excess mortality claims believed to be directly or indirectly COVID-19 related.
Emea's financial solutions had a good quarter as business results reflected favorable longevity experience 4 million attributable to COVID-19.
Turning to our Asia Pacific traditional business.
Asia results reflect COVID-19 claim cost of $169 million.
Of which a $161 million was in India.
This impact was higher than our expectation and Jonathan will provide further information in a few minutes.
Australia reported a small loss for the quarter.
We continue to take necessary actions to manage the business back to consistent profitability.
The Asia financial solutions business had a good quarter, reflecting favorable experience and strong growth in new business as Anna mentioned, we continue to be pleased with the growth and contributions from this segment.
The corporate and other segment reported pretax adjusted operating loss of $27 million, which is in line with our quarterly average run rate.
Moving onto investments the non spread portfolio yield for the quarter was 495%.
Reflecting both our well diversified portfolio allocation.
And strong variable investment income.
Primarily due to realizations from limited partnerships and real estate joint ventures.
While hard to predict from a timing perspective.
Variable investment income as a core part of our investment earnings.
The investment portfolio average rating was unchanged in the quarter and investment credit impairments were again nominal.
Our new money rate increased to three 7% with the majority of purchases in public investment grade assets.
And contributions from strong private asset production.
Regarding capital management, our excess capital position at the end of the quarter was approximately $1 billion.
Our capital position remains strong and we have ample liquidity we.
We deployed $140 million into in force transactions and repurchased $46 million of shares.
Additionally, we entered into an asset intensive retrocession transaction that generated.
<unk> $94 million of capital and enhanced our returns.
This quarter highlights our balanced approach to capital management.
And our ability to absorb the impacts of COVID-19.
Fund organic growth deploy capital into transactions.
And return capital through share repurchases and dividends.
I will now turn the call over to Jonathan Porter, Our Chief risk Officer, who will provide additional comments on our COVID-19 related experience.
Thanks Todd.
I am going to review, our Q3 claims experience and then provide some views on our Covid claims cost expectations for Q4.
The global emergence of the Delta variant has been a key driver of higher general population mortality in the quarter.
We are optimistic in our last earnings call that trends in the U S would lead to an improvement in mortality over the remainder of the year. However, Q3 saw increases in both COVID-19, and non COVID-19 general population mortality.
As Youll see on slide 12 of our earnings presentation. The U S population graphs show the level of COVID-19 reported deaths and the number of non COVID-19 excess deaths over the course of the pandemic.
There are three key takeaways.
COVID-19 reported deaths increased substantially in the quarter.
COVID-19 debts under the age of 65 ages, where there is more life insurance exposure were at their highest point over the past six quarters.
Non COVID-19 excess deaths were at their highest relative and absolute level since the start of the pandemic.
Our individual mortality claims results.
Sorry U S. Individual mortality claims results are consistent with what was happening in the general population.
COVID-19 claim costs were $235 million in the quarter slightly above the higher end of our rule of thumb.
Q3 results reflect higher mortality in ages under 65 and larger average claim sizes.
On a year to date basis COVID-19 claims are at the midpoint of our range.
Our excess non COVID-19 experience was also driven by higher claims frequency consistent with the elevated deaths in the general population.
Turning to markets other than U S. Individual mortality COVID-19 claim costs of $161 million in India were higher than our prior estimates, reflecting the more adverse impact of the Q2 Delta ways.
So what we are observing in the U S. The Delta variance has resulted in higher general population deaths, a shift of depths to younger more insured agents and a larger average claim size.
$30 million of this impact.
In the quarter relates to an increase in IV NR, resulting in a COVID-19 specific items on our balance for India of $75 million at the end of the quarter.
COVID-19 claim cost in South Africa are estimated at $64 million in the quarter, reflecting a change in the distribution of general population deaths by province, as well as some large claims volatility.
Q3 general population data indicates that provinces with higher socioeconomic levels and therefore more insurance penetration in larger sized policies were more adversely impacted this quarter.
Other markets, including Canada, and the U K accounted for $30 million of estimated COVID-19 claim costs.
As expected our longevity offset was modest in the quarter given relatively low levels of general population deaths in the U K, where our longevity business is concentrated.
Looking ahead to Q4 elevated levels of excess general population mortality are continuing in the U S. Through October although currently running at lower levels and experienced at their peak in September and trending downward.
We are maintaining our claim cost rule of thumb of 10 million to $20 million for every 10000 general population deaths.
We're also maintaining our rule of thumb for the U K and Canada at this time.
General population COVID-19 deaths in India, and South Africa have been relatively modest through October.
Victor COVID-19 claim cost continues to be challenging in particular in India, where comprehensive data is not available.
Although India South Africa vaccination levels are still below our other key markets they've increased materially in both countries since the beginning of Q3, which will reduce the severity of future COVID-19 impacts.
We remain confident.
That the impacts will be manageable.
Let me now hand, it back to Todd.
Thank you Jonathan before opening it up for questions I would like to remind you of our upcoming Investor day scheduled for December nine.
I hope you can join us for our discussion.
We now like to open it up for questions.
Okay.
Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star followed by one.
It is star one to queue for a question.
In the interest of time, please keep it to one question with one follow up.
We will take our first question from Humphrey Lee of Dowling <unk> Partners. Please go ahead. Your line is open.
Good morning, and thank you for taking my questions. I guess my first question is about the non COVID-19 excess mortality in the U S. Can you provide some color in terms of maybe the age cohorts with average claim size. So let me be it cost of staff based on Tommy.
Your analysis.
Yes, Humphrey it's Jonathan.
Take that so our U S mortality experienced this quarter is really driven by broad based higher frequency of claims and that's COVID-19 and non COVID-19. So the whole the whole piece.
There is no notable patterns by issue year cohort or policy size our client.
Consistent with general population data, we are seeing an overall increase in excess mortality at ages less than 65.
Which is really a change that we've highlighted from earlier in the pandemic.
The average claim size.
At the.
Sorry aggregate level across the us mortality is actually relatively stable quarter to quarter.
But as I mentioned earlier, the Covid specific claim size has increased.
Got it.
My second question is more about India and South Africa.
How much did you normally earn in India, and South Africa before the pandemic just kind of looking at the claims so far by my count. The Covid claims from these two countries have been roughly 400 million since the pandemic pretty much kind of one third of the claims that you've seen in the U S.
And looking at the kind of the mortality amount of risk disclosure that you provided in the first quarter 'twenty deck, they can be more than kind of a low single digit percentage points. So can you just help us to kind of get a better perspective of the exposure for this country and how the data.
Size of those claims could be relatively large compared to you.
Your exposure there.
Yes.
Yes.
I'll talk about the <unk>.
<unk> from a from a net amount at risk perspective, Humphrey So India represents about 5% of our global net amount at risk South Africa, and south between 1% and 2% our net amount at risk with TV scale.
As you mentioned the Covid claims experiences has been material from both of those markets.
I guess, you could say disproportionate to the actual net amount at risk exposure we have.
Really a function of the underlying general population mortality experience that we're seeing.
Also routinely obviously discuss with clients what's happening in those markets and what we're seeing in South Africa as an example.
Consistent with what our clients are seeing so again it's.
The impacts we're seeing from Covid.
As.
Really a reflection of what's happening in the general population.
Okay alright. Thanks.
We will move onto our next question from Andrew <unk> of Credit Suisse. Please go ahead. Your line is open.
Hey, good morning, maybe just start off on.
Capital management, you indicate a billion of excess capital given the sharp losses this quarter, maybe a little color on your outlook for share repurchases.
And any other uses of capital.
Could you keep the buyback going.
Hey, Andrew it's Todd.
Apologies Todd.
Maybe I can start and then and then ask you to add.
Andrew we're in a long term business and supporting clients, whether on their organic needs or block deals.
That's really core to our strategy. So when we think about capital management, we start there let's start by looking at that.
New business opportunities in the pipeline and how we feel about those opportunities and then the likelihood of winning and what are the return levels. We think we can get and remember some of our deals do take time to complete.
We then weigh that against all the alternatives returning capital through buybacks and through dividends really looking for the best and most valuable use of our excess capital. That's how we've approached capital management in the past. It's produced nice balance we expect to go back there and in my mind this quarter.
It doesn't change that.
Yes.
Yeah.
She'd like to add and I think that covers it thanks Shannon.
Okay and just.
I actually have one more major question on this isn't a side related to that.
$94 million of asset intensive retrocession Cu, you raised $94 million.
Capital, maybe a little color on why that was done.
Yes, Andrew it's Todd so yes.
Yes.
This was a transaction that we entered in the inbound transaction we've entered into fairly.
Recently, when we like the.
Overall characteristics of the block, but we were able to find.
Financially attractive retrocession terms that actually help enhance our returns overall.
The block, which we thought was very.
Attractive and when we retro ceded part of that.
Asset intensive block it freed up some of the capital that we had against the against the block.
Okay, and then just with regard to premium I mean U S looked really good you mentioned, a one time restructuring of an existing treaty I wasn't sure what the normalized number would be in the U S.
That restructure and and what did it relate to.
Yes.
And with that why we are the premium so strong.
Terrific I mean, Canada.
Canada near they all looked great in terms of growth like the U S. In particular was strong.
Yes.
The first part of your question, Yes, we had a transaction that had been in place for a little bit of time.
In the U S and Latin America segment.
That converted from what we call sort of low risk or deposit accounting, where we took more of a biometric risks.
Risks and under GAAP accounting.
Turned and translated into risk accounting, we recognize the premiums and benefits and that type of thing on the.
On the income statement, so that added to the the premium growth in the U S and Latin America segment. If you back that out I think the growth in the U S is probably between 4% and 5%.
Okay, so more normalized.
Yes.
In Canada.
Really strong anything driving that.
No not really.
So Canada did some some transactions and felt good business growth and then really for EMEA it was across the.
Across the region.
It's good to see just a lot of good activity.
I would add Andrew Yes, Andrew I would add.
Reflecting what I believe.
To be.
Reflecting our approach during the pandemic, which was we stayed close to our clients.
We.
Provided a lot of thought leadership throughout the pandemic underwriting expertise.
And I think part of that is translating into business activities that we're seeing.
Thanks, So much and then Andrew maybe add ons detailed point is in.
For Canada EMEA, there was some positive FX contribution to the reported premium growth.
Alright, so that in the release thanks.
We will move on to our next question from Erik Bass of Autonomous Research. Please go ahead. Your line is open.
Hi, Thank you for the U S. Traditional block can you give us some more color on the age and product breakdown of your mortality book and where the Covid impacts occurred this quarter I guess I'm trying to get a sense of why your sensitivity this quarter looks different from what we've seen from a lot of the primary companies and even the other reinsurers on where they are seeing less COVID-19.
Losses in individual life as the percentage of population deaths.
Yes, the mortality moves the younger ages.
Yes. This is Jonathan Eric So, yes, so we have the largest proportion of our business would be in sort of that middle age range. So what I mean is sort of in that.
40 to 65.
Range, so that is a larger proportion of our business.
Relative to the older Ages, where we're seeing the early impact from the pension. So I think that shift down below 65 as part of that impact. There also we tend to have larger policy sizes as well when you move down as those age ranges, which I think is partly what's driving some of the increase in size.
There's a lot of the.
The term block where you may have.
Sort of a higher base salaries of where you're taking kind of.
Excess amounts about.
So the primary companies are seeing kind of excess risk to you.
Hi, Eric I don't think that's necessarily the <unk>.
Casey I think the thing to remember when you're comparing our sensitivities there are rules of funds against others.
Is that the size of the block matters, because we're all using per 10000 deaths in the population. So you would expect that is.
You are comparing a sensitivity from one firm to another.
If there is double and triple the size of the block of business you would expect to see that in the resulting sensitivities.
Got it no I was looking at relative to in ranges where.
Others were coming in sort of at the lower end of the ranges versus yours.
Slightly above the high end.
The absolute number but the relative.
Alright.
Thanks.
I was going to say and I just one more thing to keep in mind too is that we do think theres potentially some quarterly volatility here as well so.
It's hard to draw conclusions from based on one quarters information just.
Kind of an immediate.
Something Thats occurred recently Q2, we actually saw quite a low level relative to our range. So it can move around quarter to quarter. So thats why.
We want to see some more data emerge before we would consider making a change to our range.
Got it thank you and if I could just ask one follow up on the India business, how much of a reporting lag are you seeing in that business as it looked like the population thats were actually lower in <unk> than <unk>. So it was a lot of this kind of a catch up on kind of desperate it actually occurred and in earlier periods.
Yes, yes, yes, no that's exactly right so of the $161 million charge that we took this quarter.
The majority of it so around $138 million or so relates to Q2 experience.
So due to these longer reporting lags, we did establish an expectation and in our last quarter, but really that was done pre delta waves right. So we were going on information that we have based on what we had experienced in India. As you recall is really the first country to have a material delta with impact.
So that's really what's causing the difference now so we're seeing adult away from moving to younger ages higher policy size amounts. So most of what we're seeing this quarter relates to last quarter.
Got it thank you.
We will move onto our next question from John Barnidge of Piper Sandler. Please go ahead. Your line is open.
Thank you very much and good morning.
The Chief operating officer left.
Was there a charge in the quarter or is that going to occur in <unk>.
Hi, John It's Scott there is nothing in the.
And three you and I.
As of right now I'm not expecting anything material.
In the fourth quarter.
Okay.
And then my follow up question, maybe asking the buyback question a little bit differently can you talk about how the cadence of those buybacks changed as the quarter went along and the Delta Varian emerged thanks for the answers.
No.
The buybacks, we wanted to show our confidence in the in the.
And the business and the value proposition of our enterprise. So we decided to go ahead and takes repurchased some shares and.
I'm trying to think back of the exact timing but.
It wasn't a huge consideration related to the.
The COVID-19 impact, but what it was before.
Significant.
I guess impact that we saw.
About how significant the impact was.
Thank you.
Okay.
We will move on to our next question from Ryan Krueger of <unk> W. Please go ahead. Your line is open.
Hi, good morning.
Back to the U S. Covid impact could you help us understand a little in a little bit more detail how material the impact was from the higher average claim size.
Versus just higher incidents.
Okay.
Yes, just to give you.
A number so this quarter our average COVID-19 claim was about 22% higher than what it has been for the first two quarters of the year with a through the prior week.
That's helpful and I guess at this point.
And is there any reason to think that wouldn't continue given the shift in the two younger ages and I guess, what I'm getting at is is the only reason you're not changing your sensitivity because you want to see more data increased credibility, but.
Yes.
And through it there wouldn't be much reason to think.
Are you a severity issue would really change if the age mix continues as it did in the third quarter.
Yes, I think it's too early to draw that conclusion for certain.
Possible, we could continue to see higher average claim size and.
This shift to younger ages as I mentioned earlier, it does vary a lot quarter to quarter in the <unk>.
Near quarter, which also we're showing some increase in COVID-19 mortality into the younger ages actually was our lowest average claims size quarter for Covid that we've had over the course of the pandemic. So I think.
It is too early to.
So did you see determined how much of this will.
Will persist or not and as we get more data over the course of this quarter.
We'll evaluate that to see if we need to update our range.
Thanks, and then on block deals you've been pretty active this year.
But can you can you also comment on Langhorne.
Activity you might be seeing there at this point.
Yes.
Let me take that one so first let me start with your Langhorne question than perhaps all I can provide some color on our deals.
We're remaining after that langhorne.
It's one of our top priorities.
We have dedicated resources that are actively at work on deals and I remain optimistic about.
Getting one across the line getting more than one across the line.
On the Q3 deals there.
We are pleased with the quarter's deals.
As Todd mentioned $140 million of capital and if you add the $300 million in the first quarter that brings us to $440 million for the three quarters.
That puts us on track for a very strong year, especially given the state of the pipelines.
I was pleased with that.
Distribution of the deals we did a lifestyle in Asia, one in the U K and then.
I'd.
Asset intensive deals in EMEA.
And overall I'm very happy with the deal and optimistic on the pipeline.
Thank you.
Yes.
We'll move onto our next question from Michael <unk> of UBS. Please go ahead. Your line is open.
Thanks, guys. Good morning, maybe to expand on the buyback cadence question. So you said the buyback decision Todd was before you realized how kind of bad debt Covid impact would be so I guess does that mean, we should think youll be more cautious going forward and have you bought back any shares in <unk> to date.
No.
The way I would look at it is we have we continue to have a strong balance sheet.
And we feel we can be prudent and balanced around our overall capital management, certainly we're going to keep an eye on what's unfolding with the pandemic, but certainly as Anna mentioned earlier, we'll look at deploying capital into transactions, where we like the liability profile and we can get attractive.
Turns.
And we will continue to look at.
The dividend and.
Share repurchases.
We will continue.
Continue that sort of a balanced and prudent approach as we.
Go forward.
Okay.
And then regarding the annuity retrocession deal you said it was inbound.
But can we think about this as maybe the first of more to come it should be thinking about RGA is potentially in maybe the derisking bucket and are there other areas in life for annuities, where you could do more of this free up capital.
And give us maybe a new reason to look at RGA. Thanks.
When I mentioned, the inbound transaction that was it.
It was an inbound transactions RJ and then re retro a portion of that.
To a third party.
I would not view it.
The retrocession that we did is de risking it was more.
We were able to from an economic perspective, it was an attractive <unk>.
<unk> for us to do in an enhanced our overall returns while providing some capital flexibility and certainly it's something as we've mentioned in the past we are looking at our various capital management toolkit items that we can have access to them.
Retrocession at what we would view as favorable economic terms is certainly one of those things that will keep in mind over time.
Okay.
And I'd like to emphasize the motivation for that transaction was not to de risk it was.
Opportunistic.
Transaction very attractive financially and it happened to generate $100 million in capital.
Yeah.
Thank you.
We'll move onto our next question from Tom Gallagher of Evercore ISI ISI. Please go ahead. Your line is open.
Thank you.
Yes, My first question is.
Has the emerging experience cause you to.
To push through any rate or are you contemplating pushing to any rate whether thats in the U S or some of these international markets were.
Particularly India, South Africa, Im assuming the loss ratios might be 500%, 1000%, we don't know how much premium you're charging.
Because there's obviously a lot of uncertainty with where the pandemic is going to go but you.
You probably have some scenarios where.
The loss emergence here could really.
Really pressure.
What the combined ratio would be in these businesses for the next year or two.
So just curious overall how are you thinking about that and are you.
You're planning on pushing through rate, where you can either U S or some of these other markets.
Okay.
With Oh, sorry, Okay one.
One of the difficulties that these virtual calls is very hot.
Go ahead, Jonathan I'll add too I'll add my comments at the end.
Okay. Thanks.
I would just say.
First where we are taking action it has been for quite some time to.
To reflect our expectations for Covid in the pricing of new business that we're writing.
First thing I would note.
We're also being cautious in markets, where we think there is more risk so that.
<unk> two how we're evaluating new business volumes and new business that we're choosing to accept types of business. We're choosing takes up and we're also applying.
A thoughtful approach on our underwriting as well so.
Again, just to manage the risk exposures and when we do have open treaties and this applies globally not just in any one market.
We're working with our clients very closely we're adjusting underwriting rules.
Taking new data into account as we assess the risks.
Yeah.
Hi, Thank you you've covered it.
Okay.
So.
I appreciate that and that's just on new business, so you're not repricing the existing treaties.
For this emerging experience at all.
Yes, I mean, certainly where we have the opportunity to do that it's being considered so for group business as an example, which is annually renewable.
Really speaking.
That absolutely is being repriced and taking into account the COVID-19 expectations.
For longer term business I think you have to think of that business and more of a longer term context as well.
And obviously we.
Have an approach where we consider.
Not just the countries, but future periods and what our overall balance of our relationships with our clients and we take all that into account as we consider actions on on that long term business.
Got you and.
I guess the other day.
Next question is sort of enterprise risk management to do you know.
Now obviously this experience I think most people are viewing this whole emerging experience like a catastrophe that's lasted a year and a half is essentially and not likely to recur hopefully beyond much beyond the current timeframe, but does it cause you to rethink enterprise risk <unk>.
You made it all like do you think now given this experience.
Kind of the variance.
That have occurred does that does that cause you to rethink how youre thinking about risk management overall, meaning.
Is there some permanent change.
In loss ratio, you think that needs to be factored in and maybe it's the.
Maybe maybe a better way is the tail risk here now a lot higher than you would have previously thought.
That could be.
Be sustained higher losses, and if so how.
How does that kind of inform your view on either exposure risk management or pricing.
Kind of a high level question, but just curious how youre looking at this whole experience.
Yes, yes, I know and I think.
A hallmark of a good risk management process and hopefully we can put ourselves in that bucket.
Really looking at lessons learned right. So.
After you go through an event like this.
Rising what the impacts were and making adjustments in the future. So we're not that work is ongoing and really always always happening when we analyze and look at our business. So.
Things like our process over the last two decades to diversify our book of business. I think has been part of that thinking around risk management and I think we will continue to be an element of what we think about as far as our having a.
A solid mix of risks across the enterprise, which has proven itself I think over the last six quarters thats been a very helpful position to be in.
Things like you mentioned about tail risk and capital models.
Those are elements that we're considering as well.
I think our capital model, even with these impacts we had so far has proven out to be conservative.
And what our expectations were for a pandemic events, but I think you need to look at the data. That's emerging you need to consider what that means and obviously that will push them into pricing to risk management.
So I think it is a work in progress.
But I think everything you mentioned are things, we're thinking of it as well.
Okay.
Got you and then just final question if I could on that same topic any any any changes youre considering over the near term whether that's.
Limiting risk to some of these markets that have had very high loss ratios, India, South Africa, et cetera, whether its utilization of retrocession or or.
Or cutting the size or any any any risk mitigates that youre thinking about over the near term or are you still going to wait to evaluate more experience.
Yeah, No I mean, I think I'll point out again.
Done right. So this is something that we've been taking active positions on since the start of the pandemic really goes into what you were saying about managing volumes managing type of business that we're accepting changing prices.
So all of those things have been things we've been actively over the course of the pandemic and we will continue to do.
Okay. Thank you.
We'll move on to our next question from James Inglis. Please go ahead. Your line is open.
Okay.
Hi, good morning, I'm looking I'm thinking about your.
Ability to generate capital through the <unk>.
Professional transaction.
Presumably that is because there is a capital provider whose.
Willing to take a lower return than you folks would which is which is good but.
But I'm just trying to.
Brought contracts. If there is are there any parallels to be made with the ability or the.
Availability of capital.
Yeah.
In the World if you will.
As opposed to your ability to get deals done in Langhorne I mean, it seems to be there's got to be some parallel there and correct me if I'm wrong.
Could you.
Could you let me frame your question because I'm not sure I'm connecting the retrocession.
Transaction, which again was not motivated by capital to your question about capital.
No Youre correct.
I wasn't making the analogy that it was motivated by capital, but it was I was trying to make there was motivated by by other capital providers interest in getting a return on that.
On that book of business and how that must be limiting the fact that the does that capital available out there must be limiting your available ability to do deals in langhorne.
Oh Wow.
Now I see the connection that Youre, drawing yes, there is a lot of competition out there.
And there are a lot of capital providers, who are interested in the type of transactions that are that.
While the transaction in particular that we did.
We did the retrocession transaction.
Look I think price is a factor in doing deals, but it's not the only factor we don't just compete on price.
We compete on a broader value proposition and that's around expertise.
Our risk expertise and our structuring expertise and in particular, our appetite to take insurance life insurance.
Biometric risk as opposed to the asset.
Type of deals, which I think is generally where there's new capital providers are focused.
Yes, the prices it is a.
Factor, but it's not the only factor.
I remain optimistic about getting deals done in langhorne.
Okay, great. Thank you good luck.
We'll take our next question from Michael Ward of UBS. Please go ahead. Your line is open.
Hey, guys. Thank you for the follow up.
My question <unk> My question around the retrocession that wasn't implying that derisking as a negative thing I think if anything it's a positive we've been seeing life companies do this.
Especially over the last year or two.
And even just talking about having a plan to monetize certain assets are blocks that are maybe more capital intensive and whatnot. That's been a clear positive for those companies or at least their stock. So my question was more along the lines of <unk>.
Do you want to do more of this.
I know this was sort of opportunistic deal, but I'm wondering if this is something that you want to do more of.
Alright. Thank you for that thank you for that follow up question.
We're open to consider considering future transaction, where it makes sense for us.
And as we've already mentioned this was a nice transaction.
And it fits.
In many respects it isn't something that's new for US we've done retro session.
And securitization has in the past and I expect we'll continue to do.
As you know with market conditions as opportunities arise the economics makes sense for us.
It's another tool in our toolkit.
Yeah.
Yeah.
Thank you.
And it appears we have no further questions over the audio I would like to turn the conference back for any additional or closing remarks.
Okay. Thank you thank everybody for that.
Joining the call. This morning, and your continued interest in RGA and we look forward to seeing you in December at our Investor Day.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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Yes.
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