Q4 2022 Reinsurance Group of America Inc Earnings Call
[music].
Good day and welcome to the reinsurance group of America fourth quarter 2022 earnings Conference call.
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I would now like to turn the conference over to Todd Larson Senior Executive Vice President and Chief Financial Officer. Please go ahead.
Thank you welcome to Rga's fourth quarter 2022 conference call.
I'm joined on the call. This morning, with Anna Manning Rga's, Chief Executive Officer.
Leslie Barbie, our Chief investment Officer, Jonathan Porter, our Chief Risk Officer, and Jeff Hopson head of Investor Relations.
A quick reminder, before we get started regarding forward looking information and non-GAAP financial measures.
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, and quarterly financial supplement all of which are posted on our website for a discussion of these terms and reconcile so reconciliation to GAAP measures.
And now I will turn the call over to Anna for her comments.
Good morning, and thank you for joining our call.
Last night, we reported adjusted operating earnings for the fourth quarter and full year of $2.99 per share and $14.43 per share respectively.
This was a solid quarter that included favorable performance across many of our segments and business.
Areas of particular strength. This quarter include our global financial solutions business in all regions and product lines Asia Pacific traditional and U S group and individual health.
We continue to see very good new business activity and momentum with notable premium growth on a constant currency basis.
Our product development capabilities capital solutions and underwriting expertise, our particular strengths that serve as valuable differentiators and are leading to first to market an exclusive new business opportunities.
Our overall investment performance was good and the quarter saw minimal impairments.
This was also a solid quarter for capital deployment with $80 million deployed into enforcing other transactions across a range of geographies and product lines, which.
Which brings the year to date total to $430 million another successful year.
The transaction pipelines remain very active and broad based across our many risks in geographies and we expect this strong demand to continue.
As I look back on 2022.
I'm proud of our many accomplishments first we achieved record adjusted operating EPS of $14 43.
Light absorbing $5 in two sense of COVID-19 claims and 53 cents, a foreign currency headwinds demonstrating the strength of the underlying earnings power of our business.
Second our client centric solutions oriented strategy is driving good quality new business opportunities.
Third.
Global non Covid underwriting experience was favorable led by our U S individual mortality business and our Asia Pacific traditional segment.
Fourth global financial solutions had another record performance here, we completed many transactions at attractive returns, adding to the substantial underlying earnings power and the diversification of our business.
Best investment results were favorable in part benefiting from higher available yields and some nice realized gains on our real estate joint ventures in limited partnerships.
Interest rates have shifted from a multiyear headwind to a tailwind and we are seeing a measurable benefit.
And finally I am proud of the progress we made on our ESG efforts in 'twenty to 'twenty. Two we published our first sustainability report, providing transparency into our ESG strategy targets, an accomplishment and demonstrating our ongoing commitment.
But as proud as I am of these accomplishments I'm, even more excited about the future of.
The life insurance industry delivered on its purpose during the course of the last three years and RGA demonstrated its leadership position and the strength of our business and long term client partnerships. We have a great franchise have highly engaged and talented teams and are very well positioned in all our markets are.
Business is resilient and our strategy is delivering value to our clients and returns to our shareholders and I am optimistic about our future growth prospects.
After 17 years with RGA and more than 42 years in the insurance industry I will be retiring at the end of 2023.
You've heard me say over many years one of our key strengths is the depth and breadth of our leadership team and that was certainly highlighted with the recent announcement that Tony Cheng who has been with RGA for more than 25 years was named President and will become CEO on January one 2020.
For upon my retirement.
Tony Besides being a very capable and talented executive has played an instrumental role in the growth of our business in Asia and more recently in his leadership role overseeing EMEA and Australia.
He understands and appreciates, our many strengths and our unique culture and I'm confident that RGA will be in great hands.
Thank you for your interest in RGA and I'll now turn it over to Todd to review the detailed financial results.
Thanks Anna.
RJ reported pretax adjusted operating income of $245 million for the quarter and.
And adjusted operating earnings per share of $2 99.
Which includes the COVID-19 impact of <unk> 78 per share and a foreign currency headwind of 22 per share.
The full year, we reported we reported record adjusted operating earnings per share of $14 43.
Which includes a COVID-19 impact of $5 <unk> per share.
And a foreign currency headwind of <unk> 53 per share.
The trailing 12 months adjusted operating return on equity was 10, 3%.
Which is net of estimated COVID-19 impact of one 5%.
We are pleased with the solid quarterly results produced across the organization.
And in other fundamental metrics, such as new business production.
Constant currency premium growth capital deployed into enforced and other transactions and investment returns.
For the full year, our book value per share excluding a OCI grew four 8% a $146.22.
This was achieved after absorbing $447 million of COVID-19 claim impacts.
Reported premiums were up one 1% for the quarter.
After adjusting for adverse foreign currency impacts premiums were up 6% on a constant currency basis.
For the full year premiums totaled $13 1 billion.
And an increase of eight 4% on a constant currency basis.
We continue to see good momentum across our various business segments.
Turning to the quarterly segment results starting on slide seven in our earnings presentation that can be found on Rga's Investor Relations website.
The U S and Latin America traditional segment results reflected both unfavorable individual mortality experience.
And COVID-19 claims that totaled approximately $48 million.
We believe some of the excess mortality relates to the early flu season.
Jonathan will provide some additional insights in a minute.
Variable investment income was a positive contribution although below the recent run rate.
The U S individual health business had favorable experience in our group business results were above our expectations as most lines performed well.
The U S asset intensive business results were strong reflecting favorable investment spreads and our capital solutions business continues to be within our expectations.
The Canada traditional results reflected unfavorable experience in the group life and disability business.
With COVID-19 claim cost totaling $3 million.
The financial solutions business was above expectations due to favorable longevity experience.
In the Europe Middle East and Africa segment, the traditional business results were in line with expectations.
Selecting unfavorable mortality in the U K offset by favorable overall experience otherwise.
COVID-19 claim costs were $2 million for the quarter.
Emea's financial solutions business results reflected modestly favorable experience.
Turning to our Asia Pacific traditional business.
Asia results reflected favorable underwriting experience across the region.
Absorbing COVID-19 claim cost of $13 million.
Australia reported another good quarter with a pretax profit of $6 million driven by favorable group experience.
The Asia Pacific Financial solutions business results were very strong, reflecting strong new business and favorable investment spreads.
We also saw a decline in the COVID-19 costs related to medical hospitalization claims in Japan.
The corporate and other segment reported a pretax adjusted operating loss of $89 million.
Higher than our expected quarterly.
Range due to higher general expenses, and some elevated financing costs.
Included in the higher general expenses are some incentive compensation true ups consulting fees and a number of one off items.
Moving on to investments on slide 13 through 15, and our earnings presentation.
The non spread portfolio yield for the quarter was 445%.
Reflecting the positive contribution from variable investment income.
Although lower than the recent run rate.
The quarter was also positively impacted by higher new money rates as well as some benefit from existing floating rate securities.
For non spread business, our new money rate was 5.05% in the quarter.
Compared to 331% in the fourth quarter of last year.
Our new money rate was modestly lower than the third quarter due to a more conservative asset allocation of new money and some lower spreads available.
Looking at the base yield before variable investment income.
We have moved from 378% in the fourth quarter of last year to $4 one 4% in this quarter.
Meanwhile, credit impairments were minimal.
And we believe the portfolio is well positioned as we move through a more uncertain economic environment.
We have taken action recently to lower our high yield bond exposure.
We are also selectively extended duration to lock in higher interest rates.
As shown on slide 16, and 17 of our earnings presentation, our capital and liquidity position remains strong.
And we ended the quarter with excess capital of approximately $1 $2 billion.
In the quarter, we deployed 80 million of capital into in force and other transactions and continue to see a very active deal pipeline.
We also returned a total of $78 million of capital to shareholders through share repurchases and dividends.
For the full year, we deployed $430 million of capital in the in force and other transactions and returned $280 million of capital to shareholders through share repurchases and dividends.
As we emerge from the pandemic and a strong 2022.
We are confident in our earnings power and capital generation and.
And we expect to be active in deploying of capital into in force and other transactions and returning excess capital to shareholders through dividends and share repurchases.
We have included some updated <unk> information in the earnings presentation on slide 21.
The <unk> adjustments as of January and December of 2021 are consistent with our previously provided ranges.
As of September 32022, we estimate a decrease in retained earnings of $500 million to $800 million after tax compared to current financial reporting.
We estimate an increase of <unk>, 2.1% to $4 1 billion.
Reflecting the higher interest rate environment.
As we have previously commented we believe the new financial reporting standard will provide better insight into Rga's long term performance.
And along with the new disclosures provide additional transparency of our business to investors.
We are excited about the future and believe our well diversified global platform and underlying earnings power <unk>.
<unk> positions us to continue to support our clients and deliver attractive financial returns to shareholders overtime.
I will now turn the call over to Jonathan Porter, our Chief risk Officer.
Yeah.
Thanks Todd.
As indicated on slide eight aggregate non COVID-19 underwriting experience was modestly unfavorable in the quarter, we continue to.
Benefit from globally diversified book of risks and higher claims in some markets. We're in large part offset by favorable underwriting experience in others.
COVID-19 impacts continuing to remain moderate totaling $70 million pretax across all segments.
Starting first with U S individual mortality, we experienced elevated non COVID-19 claim costs due to higher claims frequency.
Large claim experience was in line with our expectations. After two very favorable quarters in Q2 and Q3.
Our higher frequency of claims is directionally consistent with the excess levels of U S. General population mortality as reported by the CDC.
Non COVID-19 population deaths continue to remain elevated.
Which was compounded by the first material influenza season since the start of the pandemic.
Although total flu cases in estimated mortality appear to be in line with an average pre pandemic flu season influenza cases peaked about eight to 10 weeks earlier than historic norms, which we believe shifted the majority of deaths into the fourth quarter.
U S. General population data continues to show COVID-19 deaths are primarily at ages above 65, where there is less life insurance exposure.
In the quarter and our U S individual mortality business estimated COVID-19 claim costs of $44 million.
Which is $13 million for 10000 general population deaths was at the lower end of our rule of thumb range.
Aggregate underwriting results in all other markets were favorable driven by strong performance across Asia as.
As expected, we saw material quarter over quarter reduction in medical claim costs in Japan to $11 million consistent with the narrowing of eligibility for at home COVID-19 claims reimbursement that occurred at the end of September.
Turning to slide 10, and the earnings presentation, our overall year to date non COVID-19 underwriting results were strong.
U S individual mortality had both favorable large claims experience and lower overall claims frequency and Asia Pacific traditional also had very positive underwriting results across the region.
U S individual health and U S Group results were ahead of expectations and global financial solutions underwriting results were also positive primarily due to better than expected longevity experience.
These favorable results were partially offset by unfavorable mortality experience in Canada and the U K.
Due to both higher frequency and severity.
Full year, COVID-19 claim costs of $447 million with the majority of the U S. Individual mortality was a substantial decrease from 2021.
That concludes our prepared remarks, we would now like to open it up for questions.
Okay.
We will now begin the question and answer session.
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Okay.
The first question today comes from Jamie.
<unk> with Jpmorgan. Please go ahead.
Thanks, Hey, good morning, I had a question first.
On just capital deployment.
Should we assume sort of a similar allocation.
Green deals and buybacks.
This coming year as you've had in the past year.
So this is Todd.
Be somewhat dependent on the level of deal activity that we see and right now the pipeline looks very active around our different.
<unk> and I think if you look back historically, it's we've.
Hello to all the different levers between capital deployment into the transactions.
Share buybacks and dividends and I think youll see us continue that going forward, but we.
<unk> intend to be active to the extent there are not attractive transactions to deploy the capital we will look to bring down that excess capital level overtime through share repurchases and the dividend level.
And have you do you see a similar environment in terms of competition for deals because it seems like in the non mortality like asset intensive businesses Theres just a lot more interest in those blocks from companies backed by alternative asset managers.
Thank you for the question Jimmy It's Anna.
First let me shape out the pipelines as Tom mentioned.
Our pipelines are very good.
Strong demand across.
Everything that we do and right across our geographies and various regions now from a competitive environment, yes deal environment is competitive.
<unk> by size.
And it varies by the underlying risks. So we typically will see and do you see less competition. When there are more complex elements of the deal or as you mentioned when there's more insurance risks. These biometric risks and also we tend to see less competition on the larger size deals.
Now in terms of our competitive positioning.
The way I think about the Jimmy Israeli.
Proposition is all about bringing a complete package to the table.
It's in part how we differentiate from our competitors. So the package, including we have an excellent brand you know we have a reputation for getting things done for being creative for finding new solutions and we also have a reputation on delivering we honor.
And meet our commitments.
And we you know we have very long and strong well established client relationships you add the strength of Rga's counterparty and our long term commitment to this business, that's a pretty complete package and that's how we compete and that's how we win deals.
<unk> seen it time and time again, you've seen that through the the entire time of the pandemic and our approach is really to prioritize them pick our sweet spots and we expect to continue to be competitive be active and be successful.
Your next question comes from John Barnidge with Piper Sandler. Please go ahead.
Thank you very much.
Premium growth in Asia decline no. There is some <unk> true ups that occurred last year, given elevated mortality that didn't this time Fortunately.
Now that we're arriving at a period of general improved mortality, how should we be thinking about this impacting premium growth given that dynamic in Asia going forward, but also in other geographies. Thank you.
Thank you for the question I'll start.
I would say the dynamics in Asia also.
Reflected that in some markets through most of 2022, there were still COVID-19 related restrictions that were being that.
That were causing new business to be at lower levels than we had seen historically.
Most if not all those restrictions have now been lifted so we see momentum really picking up in.
In terms of growth globally as I think about.
Growth for our traditional business.
We're driving a fair amount of that growth.
With the work, we do with our clients on new underwriting programs.
Things like simplified issue or accelerated or automated programs, but it's not just these programs itself. So providing the underwriting services for cases that are rejected or fallout of the programs.
And as we've shared many times in the past providing the more traditional facultative services. Those are for cases that require fluids or that are more complex and then we layer on product development, where we combine all of those services all of that expertise to generate.
New products and new underwriting methods, it's that ability to support all of their needs that is an advantage for us I see that contributing to growth, we see that contributing to growth and we see momentum picking up as we get into 2023 and beyond.
Thank you.
My follow up question.
You talked about a number of onetime items in consulting fees in the prepared remarks is there a way to categorize that the degree or dimension. The size of that and was any of that related to kind of work for replacement vehicle to langhorne great. Thank you.
Yes, it was a variety of as far as the other one off type items. You know there were some fees related to the push.
To get.
The L D T I.
The implementation ready to go for 2023, there was some.
Various sort of local and state tax items that don't necessarily flow through the income tax line, but.
Flow through the <unk>.
Income.
Expense.
General expense line, and just a variety of little things that added up.
Would say that going forward as our business grows.
And you know as we mentioned there is some.
Elevated.
Finance expenses, including interest expense, we do expect the corporate loss average run rate to increase.
And for now the size that I would say going forward.
I would expect it to be more in the.
The average quarterly loss rate to be more in the range is call it $30 million to $40 million and we can revisit that as we go forward, but certainly we are seeing an increase in that quarterly.
Loss rate from the sort of the.
$25 million to $30 million, we were seeing previously.
The next question comes from Ryan Krueger with K VW. Please go ahead.
Hi, Thanks, good morning.
Yes, when you look back at.
For the full year 2022.
In the U S. Traditional business are you able to give us.
Just a rough sense of of how mortality experience was relative to your typical expectation.
Yeah, Hi, Ryan this is Jonathan.
But I think overall, we had great results for the year. So we're very happy with the results in the US mortality. It was a combination of both.
<unk> claims frequency relative to our expectations as well as some favorable large claims experience in particular in Q2 and Q3 that I mentioned of course, that's excluding the impact of Covid.
<unk>, which again I think came in at the lower end of our ranges. So for there as we've seen the impact of Covid mortality go more into the older age groups that also resulted in staying at the low end of our 10 to 20 million range, which is also positive.
Do you have any quantification.
The deviation versus expected.
Yes.
I think if you again, if you pull out COVID-19 relative to our expected for 2022, which would have included some assumption for excess mortality it would be in the high double digit millions.
The next question comes from Dan Bergman with Jefferies. Please go ahead.
Thanks, Doug good morning.
I think in the past you've talked about a 60% to $65 million or so of expected quarterly earnings range for the U S asset intensive business just given the block has outperformed this range for a number of quarters in a row now I just wanted to see if you could give any more color on the drivers of the recent strong performance. How much is from one time items versus maybe more sustainable tailwind like the bench.
<unk> from higher interest rates, but just trying to get a sense of 60 to 65 is still the right range, we should be thinking about or has that run rate moved higher.
Yes, a lot of the variance in the quarter was due to some higher investment spread and the impact of some of the higher a higher income on the floating rate assets allocated to that portfolio I will remind you that.
The asset intensive business is up a little bit of a shorter duration. So there is some amortization off each year as well that we need to replace with new business.
I think the range of $60 million to $65 million on a quarterly rate I think as I would stick with that for now, but certainly we'll update that as appropriate as we go forward.
Got it thanks, and then maybe just shifting gears.
Australia I just wanted to see if you can give any update or more color on what youre seeing seeing there. It looks like Australia has been profitable I think was for the last five quarters by my Count. So are you at the point now where you would expect consistent profitability in Australia and is there a path for that business, maybe to become a more meaningful earnings generator overtime.
Color you can give there would be great.
Yeah, Hi, it's Todd no its very good to see Australia producing consistent.
No profitability, we've got a very strong team there very well.
And in the in the market in Australia, we're seeing part of positive signs in the industry as well as far as making it a more sustainable.
<unk> environment. So that's that's good as well so we're optimistic.
Optimistic positive going forward that we can continue to improve the profitability.
In Australia, and I would add on your question about meaningful making it meaningful Uh huh.
Meaningfully higher.
In the past.
We have not.
From a competitive position <unk> been successful on the new business side in Australia, we were just.
Our view of the risk return was just quite a bit different than the clearing prices in the market. We are starting to see that come back to us. So we haven't changed right.
Views on risk return, we haven't changed our targets, but we are seeing a full towards us from the competition and expect that you know gradually and prudently and with discipline, we will reengage and start to grow that business.
The next question comes from Erik Bass with Autonomous Research. Please go ahead.
Hi, Thank you I was hoping you could talk a bit more about the higher non COVID-19 mortality in the U S. This quarter and are you able to link the elevated claims frequency to the flu that you talked about I think you mentioned the CDC data, indicating an.
Earlier than normal flu season. This year. So do you view some of this is a pull forward of claims that you would typically expect to see in the first quarter.
Yeah, Eric Thanks for the question this is Jonathan.
So again just to reiterate what I said in my prepared remarks. This is the first material flu season since the start of the pandemic and there is clear evidence in the general population that claims had been accelerated probably about eight to 10 weeks or so I think consistent with what's showing up in the CDC data, we did see an increase in our frequency and our own claims in the second.
Half of the quarter and that was factored into our year end IV in our calculation and therefore impacted Q4 results. What we've seen so far through January updated reporting for deaths occurring prior to the end of the year, it's consistent with our IV in our assumptions, which is good and then looking ahead to Q1 since the flu appears to.
It peaked in December and it's fallen off sharply in January we would expect that the impact in Q1 would be lower than our normal historical flu season as the majority of the deaths likely have been shifted to Q4.
Thank you and maybe one for Todd I mean, you've mentioned in the past quarterly results should be smoother under <unk> accounting. So is this an example of a quarter where under L. D. T. I you wouldn't have seen as a material decline in the U S. Traditional earnings since the variance in actual versus expected mortality.
Back to your future assumptions for claims.
Hi, Eric Yeah, So we do expect.
With any of the claims volatility of the majority of the claims volatility will be smooth or muted under L. D T I.
Will be somewhat dependent on the underlying cohorts that the claims where the claims are incurred but.
Under <unk>, we do expect the volatility to be muted and smooth over time.
And just to just to add it we expect a smoothing will be both on volatility which is severity, but it'll also be on the frequency. So.
Performance, plus or minus all cause will over time get smooth because of the new accounting standard.
The next question comes from Tom Gallagher with Evercore ISI. Please go ahead.
Good morning, just a follow up to Eric's question on the on the change in volatility so.
Is it fair to say then on the new accounting, we're not going to see as much seasonality.
During.
From a historic perspective.
You would have dramatically different earnings patterns throughout the quarters, with obviously <unk> being much stronger.
That seasonality also be smoothed out to we're going to see kind of a more consistent quarterly earnings pattern here and and also can you dimension. It all for US when you say reduced volatility.
If we compare last quarter $5 this quarter $3.
Are we talking about dramatically reduce volatility or.
As you get it going to get cut in half.
Any any way you can dimension that thanks.
Certainly I can qualitatively I can provide some comments.
So as we've always discussed in the past our business is a very long term.
Business, so the impact of the new financial reporting standard it does take a more of a look at that a long term nature of the business and looks at the experience and the profitability over time on the on the business versus letting the short term volatility flow through.
To the bottom line is current GAAP accounting does so we certainly do intend to see and we will see a smoothing of the both the positives and the negatives as far as the claims activity under the new financial reporting I don't have specific.
Dollar quantification for you on the call today, However, we do plan.
Towards the late February early March timeframe to provide restated.
L D Ti.
Information and have a call to discuss some of those results that should give you more information and detail behind what the impacts.
And the differences are between sort of old GAAP and the new L. D Ti financial reporting so.
So again, we will plan to discuss that later on in March early April timeframe.
Okay. Thanks, and then my follow up is can you comment on related to the flu mortality in Q4, how much <unk> did you put up.
Dollar wise and.
The range of 13% to 43 K is a big range did you should we assume you assumed the middle of that.
Where did you come in with your estimate.
Yeah, Hi, this is Jonathan.
So rather than give you the sort of the IV and harvest that includes changes for for things other than the flu maybe I can give you a sort of an estimate of what we're thinking for the flu itself.
So you know there's a wide range like you pointed out around the estimate of the population flu deaths are theres also a basis difference between how that translates into our book of business, but having said that I think you can think of it sort of using our COVID-19 will a thumb on the CDC population estimates is probably not an unreasonable way to think about the impact of that maybe that would be included.
And the total ABR change that we put through so if you do that calculation. It works out to probably be in the range of 30 to 50 million pretax of additional recognition in Q4, that's been pulled forward from Q1.
Yeah.
We're going to answer the question from.
The next question comes from Tracy <unk> with Barclays. Please go ahead.
Good morning.
We usually see lower mortality for the insured population versus the general population yet you mentioned that your non COVID-19 deaths on the frequency side and in the fourth quarter Directionally consistent with the U S. General population. So I'm wondering what is driving that.
Yeah, no and you're.
Your initial comment is totally correct, we definitely see lower population.
On our insured book versus the general population I guess as a relative percentage difference, though is what I meant when I say directionally. So absolutely our mortality is better than the general population, but when you see the percentage of general population deaths go up that increase sort of comes through in our book of business on a relative basis.
Can you just help me.
Just one more comment you can use the rule of thumb that we've provided for COVID-19 as a way to sort of estimate that impact.
Alright got it.
I'm also I'm wondering if you share the same view on escalating feature mortality law on U S term wire T Treaty.
European Reinsurers that are basically be ensuring the same business for instance, one of your European reinsurer competitors recently called that out with respect to <unk> 17 adoption.
Yes, so maybe on that I mean, just to go back a little bit of time as an organization, we've actually been on the forefront of of research and an activity looking at post hold times. So we performed.
The early studies related to this came up with.
Some Easter information, which is used I think broadly across the industry. So I think we consider ourselves to be experts in this space.
What we're seeing on our post level term business is that it's performing as expected.
After adjusting for Covid so.
There's nothing specific I would point out I guess at this point.
The next question comes from Mike Ward with Citi. Please go ahead.
Thank you guys good morning.
I I was wondering if you could help us thinking about the underlying annual kind of run rate earnings power for the U S traditional business.
I think last quarter, you mentioned you might have some incremental quantification on this.
But.
No specific.
Update on the run rate, we certainly will be updating as I mentioned earlier when we provide the updated L. DTI information, we can provide some more expectations under the new financial reporting standard, but we are.
I feel very comfortable with that business, we do see continued positives from the higher interest rates.
Environment and good momentum around the new business generation as well in the U S.
Our segment, so I wouldn't certainly will provide you better and more updated information in a few weeks here.
Okay. Thanks Todd.
And so I guess, if we think about Asia overall as a growth opportunity for RGA.
Curious about the strategy should we should we think about growth in Asia as a potential maybe offset to the natural match maturation of the traditional U S business that you guys have spoken about in prior years.
And could growth in Asia over time change Rj's Roe or capital return strategy.
Thanks for that question very good question.
So let me piece it out I think there were a few components to that question.
Strategy in Asia, So both on our traditional business and then I'll speak to the strategy on our GFS business.
The traditional business really I mentioned it before it's around bringing a package, it's about introducing new products supporting them with underwriting programs and services. It leads to a much better competitive position for us in fact many of.
Of the deals that in transactions that we work on our exclusive because we're taking the idea to the clients and in exchange, we get agreement to get all of the reinsurance on that business. That's been that's not a new strategy that's been a growth strategy in that Asia for.
Quite a while and it's been as you can see a successful growth strategy, but further because of our global footprint in Asia, we can elaborate but the idea is the successful ideas market to market. So so again another growth lever on the GFS Hubert so scene.
We've been successful and we've been growing that business and I would point to it's an earlier stage of development and really it requires.
Very deep knowledge of the business and also the conditions and and for US. What is an advantage is we've been there for many many years decades, we and we have boots on the ground local teams who are very familiar very experienced so another growth.
Engine for Us in Asia.
But I would say that also is in other markets the that strategy of product development and underwriting programs and expertise and being creative on the GFS side look we see momentum and we see good growth opportunities, Yes Asia.
<unk> will have on balance higher rates of growth, but we fully expect to grow our business in all our regions as we move forward.
The next question comes from Andrew <unk> with Credit Suisse. Please go ahead.
Good morning.
I'm still trying to kind of get clarity around.
<unk> numbers I know it came up in the last few questions but.
If we look at the midpoint of your <unk>.
Estimate, it's about 29000, and if we look back historically at the flu season deaths from say 2010 through 2019 it was around <unk>.
A 36000 so.
He was.
Was the unfavorable mortality in the quarter due to flu or was it something else. That's what I'm trying to get a handle on and then I think Tom was asking the question about <unk>.
It'd be an hour and so forth and the pull forward.
So have you lowered your assumptions next quarter four.
Flu flu mortality.
Two parts.
Yeah, Hi, Andrew This is Jonathan let me take a crack at that.
So I think you're right what we're seeing in the food data now is about the same level as a typical average flu season pre pandemic I guess the key differences those deaths largely have appeared in Q4 is it close to Q1. So it's not that the absolute amount of the flu impact will be that different probably.
That it's just it's occurred earlier, which is why we've adjusted our ABR at the end of it at the end of the quarter and then that's also the reason why we were talking about the pull forward effects. So yes, I would expect all else being equal to see lower seasonality in Q1. It doesn't mean there'll be zero seasonality because there are other things other than the flu just the winter weather.
Things affect mortality in the first quarter of a year or two so but.
Some portion of that we think has been shifted to Q4, one other thing to keep in mind of course is as we switch.
Our accounting basis as Todd has talked about already today to L. DTI that will again.
You mean, the full experience impacts of any seasonality will be smoothed out largely over time as well. So that will also impact that shows up in Q1.
And with that new accounting will you share with the actual mortality is that one of the disclosures that will be required under L. DTI.
Andrew Yes.
Certainly you start seeing some more <unk>.
<unk> parents here on what's going on with the underlying book of business, including when we've updated and any material manner. Our underlying assumption. So you'll start seeing some of that transparency and we can talk to that.
Going forward.
The next question comes from Alex Scott with Goldman Sachs. Please go ahead.
Hi, everyone first one I had is just on the leadership changes I was wondering yes. Appreciate we still have some time I was wondering if you could sort of unpack the direction of the company and sort of how Tony you know fits into all of that high level as we as we think through that transition.
Good morning, Alex Thanks for the question.
I expect that Tony well continue our partnership approach you'll continue our solutions approach.
I believe he will continue the focus on technical expertise and strong risk management and risk culture.
Tony has been with us for 25 years, he knows our people our business. He knows our clients he knows the industry really well, but rather than me answering the question Farhan, you'll have many opportunities through the course of this year to hear directly from him so including on these call he'll be joining.
Our call starting with the Q1 call.
And he will be at our Investor day, which we are hosting in New York in the summer and Tony and I will also spend the remaining 11 months of the transition going out to see our clients to see investors and he is so.
I you know I great question, Thank you, but I'll leave it there and leave it for Tony to answer.
Okay fair enough.
Second one I had views just on the sort of block transaction environment in the U S. I mean, we've heard from some companies that have had RBC impacts whether it's from like legacy asked you all type stuff or are you know other impacts I think even related into <unk> in term life and things like.
That under principal base reserving and so forth. So you know I was just interested if you're seeing any increased activity around that to help some of these companies optimize their balance sheets a bit yeah.
Yep Yep.
Yes.
We have seen them.
More demand.
Products like.
Like U S Universal life with the U S. L G.
U L S G.
And and.
I would say that on that risk in particular, we have in the past looked at it on both a flow bay, our flow new business basis and on an in force block basis.
Having completed any deals.
In large part because we were too far apart from what our clients were looking for their expectations and our expectations.
Just werent compatible.
But we are starting to see so I would say our participation on products like that has been limited to providing reinsurance on just the mortality risk element and we've been successful and as part of our business and it's performing.
I would say that what we're seeing in addition to higher demand higher interest is we're starting to see some clients adjust their expectations. So we're taking another look we're.
We're not changing our strategy, we're not going to change.
Risk return approach are our targets so not sure yet if we're close to <unk>.
But I would say the demand is there we have all of the knowledge and capabilities to do it would love to be able to support our clients and for the right opportunity.
The next question comes from Ryan Krueger with K VW. Please go ahead.
Hey, thanks for the follow up.
I just had one more question I know, we have got that youre going to give it some more LPTA info later, but just.
If we if we just remain an endemic state and you kind of have some level of ongoing excess mortality for a period of time.
Under L. DTI would would that have a material impact on your reported.
Results or is this smooth smoothing aspect so meaningful that it wouldn't really we wouldn't see that come through as much anymore.
No no.
So we would expect.
Again, the way the underlying.
Do reporting.
Works, we would expect.
Both any adverse mortality or pause, but mortality as well to be smoothed out over time and again, we always do mentioned as well, though so some of it may come through currently depending on the underlying cohort where the claim activity or experience.
Is but.
The point of the new accounting is given it's a long term business to smooth out some of the shorter term our experience.
And I know, Brian I don't like to point out.
We have other business.
Yes, we have a substantial book of mortality business, but we also have a sizeable book of longevity business.
We're at a stage now where we cover roughly 2 million pensioners.
And have you know.
Present value of future benefits in the order of 70 plus billion dollars.
So with the environment that you've sort of sketched out.
There are offsets in other parts of our business and then when we consider that yeah.
<unk> have turned available yields have turned from a multi decade handle it headwind for us to this tailwind we were really confident in the power of the of the earnings in this global business.
Great. Thank you.
This concludes our question and answer session I.
I would like to turn the conference back over to Anna Manning for any closing remarks.
Thank you for your questions and your continued interest in RGA.
As we stated throughout this call this was a solid quarter.
And 2022 was a very strong year.
It demonstrates the continued resilience and earnings power of our business, we're well positioned in our markets to capitalize on the growth opportunities, we see right across our global platform.
And I remain confident that we will continue to deliver substantial long term value for our investors.
Thank you and that concludes our fourth quarter call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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