Q1 2023 Reinsurance Group of America Incorporated Earnings Call
Good day and welcome to the reinsurance Group of America, Inc. First quarter 2023 earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touch sensor to withdraw your question. Please press Star then two please note. This event is being recorded.
Now I'd 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 first quarter 2023 conference call.
I'm joined on the call. This morning, with Anna Manning Rga's, Chief Executive Officer, Tony Chang President.
Leslie Barbie, Chief investment Officer, and Jonathan Porter, Chief Risk Officer.
As 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. The information we provide may include non-GAAP financial measures.
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 reconciliations to GAAP measures.
And now I'll turn the call over to Anna for her comments.
Todd.
Good morning, and thank you for joining our call. This morning last night, we reported first quarter adjusted operating earnings of $5.16 per share.
A strong quarter that included very good performance in many regions and product lines. Some nice enforced block wins and good momentum on organic new business across our markets.
I'm very pleased with this quarter and with the start to the year.
On the capital management front, we had another active and successful quarter deploying $194 million into enforcement other transactions and that success was across many of our geographies and products.
To provide a little more perspective on the breadth of our wins, we completed deals in Canada, The UK Europe Asia, and our first U S PRT transaction.
We haven't been in the longevity reinsurance business for close to 15 15 years and over those years have built a sizeable and valuable global longevity business. We are in active reinsurer and all the major longevity markets and in 'twenty two 'twenty three we expanded our approach and solutions in the U S.
P. R. T market shall include a side by side partnership model to capitalize on our strengths and expertise on both sides of the balance sheet.
We are partnering with a couple of well established visible and high quality insurance partners with broad access to PRT opportunities, including at the very large end of the market.
We are active on a number of opportunities in the pipeline and we are excited and confident that the U S. PRT market will be an attractive growth segment for RGA going forward.
Beyond the U S PRT opportunities our pipelines are very healthy and include opportunities in many markets and different products.
And our organic reinsurance business, we see opportunities across the globe.
In Asia, we are the leader in combining product development underwriting and capital solutions and as a result, when many treaties on an exclusive basis.
This is timely as we see early signs of a strong rebound in business activity in Hong Kong and throughout Asia as travel believe regimes.
In North America, we continue to win new business by leveraging our signature underwriting strength, including facultative services and other targeted underwriting programs and expertise.
I believe this breadth of opportunities provides us an advantage as our risk expertise enables us to assess then engage in the more complex risks and structures.
I also believe our global footprint and strong client relationships provide additional advantages as we can allocate resources to the most attractive opportunities regardless of geography or product.
We have an established long history of not only winning transactions.
But equally important our long track record of performance from those transactions.
On the asset side overall investment performance in the quarter was good.
Variable investment income was solid new money rates remained attractive and impairments were modest.
We believe that our investment portfolio is well positioned to withstand a more uncertain period going forward.
This was a strong quarter across the board and a very good start for our milestone year as we celebrate rga's 50th anniversary in 2023.
We are well positioned our business is resilient and the need for financial protection is clear.
Our strategy of creating innovative new solutions is a win for consumers a win for our clients and a win for RGA.
Our clients recognize and respect all that RGA can do to help navigate increasing economic uncertainty evolving regulatory and accounting changes and shifting consumer needs and competitive dynamics.
Partnerships with RGA provide trusted expertise to succeed in these environments.
Throughout my time at RGA I can't recall another period, when we saw this level of opportunity and momentum.
And when you add to that the underlying earnings power in the business and the talented global team. It gives me a great deal of confidence in Rga's ability to continue to deliver growth and attractive returns to our shareholders.
You for your continued support and interest in RGA and I will now hand, it over to Todd to go over the financial results.
Thanks, Ana before commenting on results there are a couple of items I would like to mention.
First effective January one we adopted the new long duration targeted improvements accounting standard or L DTI and.
In April we provided a recast 2022 quarterly financial supplement.
In the presentation that reflected the adoption of L. DTI.
We believe that over time, the new accounting standard will provide better insight into rga's long term business performance.
And along with the new disclosures provide additional transparency to investors.
Second you may have noticed that we did not make specific reference to COVID-19 and our quarterly materials.
Covid impacts have diminished and the reliability of Covid reporting continues to decline.
Going forward, we will address our quarterly results without breaking covert out separately.
Turning to the quarter's results RGA.
RGA reported pretax adjusted operating income of $456 million for the quarter.
And adjusted operating earnings per share of $5 16.
Which includes a foreign currency headwind of <unk> 18 per share.
The trailing 12 months adjusted operating return on equity was 11, 2%.
Excluding the 2020 to assumption changes referred to as notable items. The trailing 12 months adjusted operating return on equity was 13, 1%.
We are pleased with our strong quarterly results.
And in other key metrics, such as new business production.
Constant currency premium growth.
The capital deployed into enforced and other transactions and investment results.
Reported premiums were up seven 3% for the quarter.
After adjusting for adverse foreign currency impacts.
Premiums were up 10, 8% on a constant currency basis.
We continue to see good momentum across our business segments.
Turning to the quarterly segment results starting on slide six in our earnings presentation that can be found on Rga's Investor Relations website.
The U S and Latin America traditional segment reflected favorable overall results in our individual mortality business.
Primarily due to enforce management actions and higher investment income.
Our individual mortality claims frequency was favorable consistent with the general population data that showed a declining impact of COVID-19.
And negative non COVID-19 excess mortality.
Likely due to an early peak of the flu season in the fourth quarter of last year.
These positives were partially offset by unfavorable large claims volatility in certain cohorts with a net premium ratio over 100%.
Noting experience on these cohorts is reflected currently in income.
Individual health and group business, both had favorable experience, including favorable mortality in our group business.
The U S asset intensive business results were strong, reflecting favorable investment spreads, including higher yields on floating rate securities.
And our U S capital solutions business continues to perform in line with our expectations.
Our Canada traditional results were inline with expectations and the financial solutions business reflected favorable longevity experience.
In Europe , Middle East and Africa segment.
Traditional business results reflected moderately unfavorable experience.
Primarily due to the estimated mortality and morbidity claims of $8 million related to the earthquake in Turkey.
Emea's financial solutions business reflected favorable longevity experience.
Turning to our Asia Pacific traditional business.
Results reflected favorable overall experience across the region, the Asia Pacific Financial solutions business performed well, reflecting contributions from recent strong new business activity.
The corporate and other segment reported a pretax adjusted operating loss of $25 million less.
Less than the expected quarterly range, primarily due to higher investment income.
Moving onto capital management as shown on slides 12, and 13 of our earnings presentation.
Our capital and liquidity positions remain strong.
And we ended the quarter with excess capital of approximately $1 $4 billion.
In the quarter, we deployed $194 million of capital in the in force and other transactions.
And continue to see a very healthy pipeline.
We also returned a total of $103 million of capital to shareholders.
Through 50 million of share repurchases and 53 million in dividends.
We expect to remain active in deploying capital and to enforce and other transactions.
And returning excess capital to shareholders through dividends and share repurchases.
I will now turn the call over to Leslie Barbie, our Chief investment Officer, and she will discuss current market conditions and our investment results.
Thanks Todd.
We had favorable investment results in the first quarter across investment income new money rates and credit performance.
On slide eight in the presentation, we show that the non spread portfolio yield for the quarter was $4 seven 1%, reflecting solid variable investment income and higher yield.
Looking at the Bayfield, meaning before variable investment income the non spread portfolio increased to 4.45%.
Up from three 8% in the first quarter of last year.
Our new money rate in the first quarter with 5.56% well above the portfolio base yield so new money and Reinvestments at current levels continue to support a higher portfolio yield.
Yeah, I was modestly above our expectations coming from real estate real estate joint ventures.
We continue to benefit from higher yields on floating rate securities and cash and also we have taken advantage of the environment over the last year with actions such as extension trades and more recently swapping some of our floating rate assets with fixed rates in order to lock in attractive yields for a longer period of time.
We believe the portfolio is well positioned to withstand a more uncertain period going forward slide.
Slide nine of the earnings presentation covers the investment portfolio.
Our investment strategy balances risk and return to build a portfolio to weather cycles and produce long term value.
Our overall portfolio credit quality with steady to slightly improving and has an average rating of AA.
Over 94% of the portfolio is investment grade rated and our high yield holdings are primarily in the double B category.
Credit performance was strong in the first quarter ratings upgrades outpaced ratings downgrades and impairments were modest at $41 million.
Moving to slide 10, and 11, we've added additional information to our earnings presentation on commercial real estate and office exposure in Pittsburgh in particular.
Our portfolio is structured to provide us with solid returns and a lot of protection.
We have an experienced team that has managed well through cycles and they originate the loans that we put in our portfolio with eight regional offices thinking about boots on the ground intelligence and surveillance.
Hold $6 $9 billion of commercial mortgage loans for CML.
The portfolio is high quality with 56% average LTV I mean, there's generally a lot of equity ahead of our loans that would absorb property price declines before our loan amounts would be at risk.
Valuations are reviewed at least annually.
We further mitigate risks with a well ladder maturity profile only 2% of the CML as mature in the balance of this year and 6% mature in 2024.
Another strong sign is that there's just one delinquent loan in the portfolio as of March 31st that's one loan out of about 700 and represents less than 3% of the commercial mortgage loan portfolio.
The office portion of the CML portfolio is $1 7 billion.
Our strategy focuses on suburban office properties not skyscrapers in major cities central business districts.
The office portfolio has an average LTV of 57% and is diversified across more than 115, along with an average loan size of about $11 million.
Our investments are located across more than 50 metropolitan statistical areas, providing strong geographical diversification as well.
We are realistic about the environment and as you would expect from RGA. We are actively monitoring our office portfolio and our process includes proactive engagement with borrowers as maturities or less or lease explorations approach or where we see changing portfolio metrics.
All this environment of transition in an office use presented some market challenges I'm confident that we have the portfolio people and process to navigate through this period of adjustment.
In summary, our overall investment results have continued to be strong.
Our strategic approach to investments the quality of the portfolio are diligent underwriting and our proactive surveillance actions gives me confidence that we are well prepared to manage through changing market condition.
Now I will pass it back to Todd.
Thanks Leslie.
To summarize we are pleased with the strong start to the year.
The strength of our business.
And underlying earnings power.
And now we'd be happy to open it up for your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone you withdraw your question. Please press Star then two.
Also please limit yourself to one question and one follow up.
Re queue to ask additional questions at this time, we will pause momentarily to assemble our roster.
Our first question comes from Jimmy Mueller with JP Morgan. Please go ahead.
Hey, good morning. So first just had a question on your margins in the traditional U S business they were higher than they'd been under L. D D or in any of the quarters. So wondering if you could talk about what are some of the sort of Woodward the contributors to the strong margins and what do you view as sort of.
Sustainable contributors versus maybe one off.
The things that might have lifted results this quarter.
Hi, Jimmy it's Todd.
Maybe helpful, but maybe talk about some of the pieces within the U S. No traditional line.
Had a very strong quarter overall performance or experience is very good.
And let me break it down a little bit to give you the.
So that's the moving pieces for better understanding of the quarter I think it would be helpful.
One is we did have some enforce management actions during the quarter and as we've talked about and over the past few years, we're constantly monitoring the performance of the underlying business and where we see someone imbalances, we will work with our clients to.
So to get the balance back in order through various enforced actions, which could.
Could include rate actions and other activities. So we did have some execution of some enforce management actions in the quarter, which did flow through to the bottom line because of the way the.
T I accounting works, where historically these rate actions would've been spread out over time of the underlying treaty.
Given that the rate actions a lot of them are on the cohorts that had the net premium ratio.
Above 100% the economic value of those rate actions came through currently in the quarter I want to highlight to us that's.
Really a positive because it brings and increased our book value right away and a realization of that value that we created through those actions.
Actions.
Offsetting that a little bit was we.
Normal.
Large claim volatility from quarter to quarter, and as you've seen and heard us talk about again historically, we'll have some good experience on large claims and also some unfavorable experience on the on the larger claims but over time, all that evens out and we did have some negative of large claim experience.
In the quarter and I would say overall the enforced actions and the large came what large claim volatility really canceled each other out for the most part.
And then our as I commented in my remarks, we did have some favorable group.
And individual health experience in the quarter and I would size that is about a $25 million positive.
Okay, and then what if you could give us some insight into what went into your thinking and doing more in buybacks this quarter.
That's where we're exiting the pandemic feeling very good about our earnings power and capital generation. They're still also looking at a very healthy pipeline as we are in the deal pipeline as we mentioned as well yeah. So we I think we Opportunistically took advantage of one the share price was off a little bit.
The two again, we're confident with our capital generation.
Wanted to make sure.
You know, we're actively manage the overall capital base and as we've.
You mentioned more recently, we're very comfortable managing the excess capital level down below its current level.
Thank you.
Operator, we're ready for.
Next question.
Yeah.
Okay. The next question comes from John .
Barnidge with Piper Sandler. Please go ahead.
Thank you very much for the opportunity and good morning it.
It looks like you racked up some frequent flyer miles all over the world, but those in force transactions in the first quarter can you maybe talk a little bit more about the pipeline.
Side by side expertise in partnerships on.
Oh on the PRT side with insurance carriers. Thank you.
Thank you for the question it's Anna.
Yes frequent flyer miles are racking up.
Let me take a step back Oh I'll address your PRT question first let me take a step back if I may.
We've been in the longevity reinsurance business for many years and across many markets and we completed a nice five longevity deal in the first quarter in the U K market.
So over that over the years. This business has grown quite nicely and it's consistently performed well.
Recall, our I mentioned in the fourth quarter call that we're now at a stage, where we cover roughly 2 million pensioners and have in excess of $70 billion worth of expected lifetime benefits.
There is strong demand continuing strong demand for those longevity solutions and we have over the last 15 years, it's been providing both pure longevity solutions as well as full asset.
Solutions.
Now where.
Well, we've added another leg to our strategy and that's this side by side model in the U S, where we no longer sit behind the client, but rather we sit side by side with them as their PRT partners.
That market is very sizeable theres a lot of demand, we see extending out for many years and we expect to grow.
This business.
And what we like about this partnership model is that it really leverages some of our core strengths.
We have access to data and insights, especially regarding the older age mortality remember we are the older age mortality expert we know that very well that's our knowledge advantage and then when you consider the diversification advantage that we have because of the.
Large mortality business.
Something that all players in the PRT market can break and and so that the combination of those two plus our financial strain. Our you know our reputation for delivering on commitments. We just think this additional leg to our stool is.
Very very attractive and we expect that it will over time be successful and help us grow in to and from the PRT market now the rest of the pipeline I think I said in my prepared remarks, I can't recall a time.
That I've seen this much in terms of opportunity and momentum and it's not just in the transactions. It's also in our organic our reinsurance business across the globe, we're really coming out of the pandemic very strong and very well positioned and then here's my final comment.
With the capital levels following up on the question that Todd addressed with the capital levels and with potentially increasing market dislocations look we have the flexibility and we're set up to benefit from these growth opportunities. We're in really good shape to add to our long track record.
Thank you very much for the answer to that and my follow up goes back to maybe Jimmy's question, how much of <unk> performance do you view as run ratable versus some over earning I mean, obviously mortality results have improved some cash received in the bank on real estate transactions, but also more capital being deployed.
The top line.
I mean, just trying to help dimension that a little bit it seems like it's closer to five quarterly than it is for but would love some help there. Thank you.
Okay.
Yeah.
If I could John this is Tom I'd like to maybe kicked out a little bit too as far as a more in depth detailed discussion around forward looking guidance that kind of thing to our investor day, that's coming up.
Next month, you know it was a very it was a strong quarter a lot of good things that.
What happened in the quarter and we're very optimistic.
Our underlying business and underlying earnings power going forward, but really would prefer not to get into the details on this call and get more in depth. The next month.
I understand thanks for the answers and look forward to that.
The next question comes from Ryan Krueger with K BW. Please go ahead.
Hi, Thanks, good morning.
I think you mentioned some favorable results in both Asia and EMEA in the quarter was hoping you could give some sort of perspective on the size of those.
Oh, Hi, Ryan It's Todd Yeah, no yeah. So Asia I think we commented very good very strong performance in.
That underlie it was underlying good experience with some higher investment income as well and I would say it's pretty much across.
Across the region as well Australia had a positive result was a positive of about $8 million pre tax for the quarter. So it's good to see Australia, it'll probably have a good good quarter. So Asia was strong and you'll hopefully will.
Continue to sustain that Oh level and again, we'll provide some more meaningful guidance for free.
For everybody.
In a few weeks here.
Got it and I guess on <unk>.
Interest rates.
Past you had talked about the benefit youre getting from reinvesting new money above the portfolio yield.
Now that we're in the new year can you help us think about the ongoing tailwind maybe over the next year from potentially higher investment income.
Alright. Thanks, Brian This is Leslie Yeah, we had you're right. We had talked last couple of quarters about the Mt rates had moved and that would point to this.
$25 million ish per quarter.
The ballpark I had been giving and and that's really what the first quarter. It did look like that cumulative benefit of all the changes last year.
What what I would think going forward is that it's all rates move in parallel.
Our you know sensitivity is around 15 million per 50 basis points.
But I will note that as we said we had been taking actions to.
Extend maturities and lock in.
Moving some of those.
Floating rate to fixed so heighten the entire yields are good for us and we want to make sure we take advantage of them.
Great. Thank you.
Next question comes from Andrew Gill Germann with Credit Suisse. Please go ahead.
Thanks, and good morning.
A few follow up.
Very curious about your mention of pension risk transfer partners.
Is that.
Your primary clients that are interested are they outside private capital I'm not quite clear on that so we'd love to hear you elaborate a bit.
Hi, Andrew It's Anna Yes are the partners are life insurance companies they are not.
Private equity or other alternative.
Organizations, there are our long standing clients.
And then so it's kind of a setup program, where you know if you see something.
Same kind of <unk>.
<unk> will be involved in each transaction is that the right way to think about so it's sort of a structured.
<unk> to the pension risk transfers.
I think that's a good description of structured approach and I would also ask that we defer this for our Investor day, where we will be providing a dish all information on on the partnerships.
Got it deferred it is and and then.
The in force actions.
I kind of I'm not quite clear on that either like what what types of in force.
Transactions occurred in the quarter, maybe just a little color a little picture of what that might have been and.
And the actual earnings benefit.
Yeah, Andrew it's Todd.
Again, as we've talked about historically, there's a variety of things that we can do and we work with our clients to make sure that the relationships and balance that can include you know rate actions.
Maybe winning shares of treaties and other parts of the world potential Recaptures. It was a variety of things in the quarter. There was the impact of some rate action activity that we executed on along with some other things and that the overall impact of the enforced.
Actions for the quarter was about $50 million and that was relatively offset as I mentioned earlier.
Earlier by the the additional large claims in the quarter.
There's some positives and negatives, but again overall business performance was.
It was good and I think our ongoing enforced actions contributed quite a bit of value to the organization.
I see and just just to kind of clarify that that'll.
That'll be my final.
So you you had some unfavorable mortality and offset it but isn't that smoothed out.
And the underlying experience under the new accounting, so I just kind of.
Wanted to make sure that.
Clear on that.
So there was some actual mortality that.
That they took away from the benefit of the rate actions, even though it's it's it's smoother under L. D. T. I know Andrew Thanks for asking that yes for the the large claim volatility that we saw in the quarter was primarily from the cohorts that had that have net net premium ratio.
Greater than 100%.
So under L. D T R that that variance goes through currently and income if it would've been on cohorts less than 100% of the net premium ratio less than 100% it would have been spread out.
Thank you Tom Thank you.
Yes, sorry, Andrew This is Jonathan maybe just one more point to add is that.
Some of the favorable frequency variance that we had actually was on cohorts that were with an N. P. A net premium ratio less than 100%. So some of that positive benefit was spread out into future periods, just as Todd mentioned, thanks for that.
The next question comes from Dan Bergman with Jefferies. Please go ahead.
Hi, Thanks, Good morning, I guess to start well premium growth was quite strong in the quarter. It seemed like some of this was driven by outsized growth in U S asset intensive. So so just given that all the deal activity you saw in the quarter I wanted to see if you can give an estimate on where they.
Core organic premium growth rate shook out in the first quarter and just given what youre seeing in all the business momentum that you discussed earlier are there any further thoughts you can give on how you'd expect that to trend as we move through the rest of the year.
Hi, Dan It's Todd Yeah.
Again overall premium growth very happy with very strong I think your question is you'll absent maybe the PRT transaction, what's the normal.
Growth of expected growth, but we still expect overall, though we have our underlying business. We have the ability to continue to grow premiums at mid to.
High single digits.
With contributions around the globe it.
Dan This is Tony let me just add to that.
As Anna mentioned look we're optimistic about.
Pretty much right across the whole globe, both on the transactional and the flow business.
We as I mentioned, we're incredibly broad in what we do are geographically, but also both on the asset and liability side.
So the balance sheet.
So whether it's in Asia, we see a lot of tailwind behind the growth.
We're experiencing yeah that could be the reopening of the travel are the discipline with with exhibited are dealing.
Dealing with any.
Any blocks that.
Well not for my favorite we deal with them very quickly and the change in capital frameworks Route all of Asia, That's a huge tailwind behind all of that growth.
And then you say in the U S.
Market, where our brand is just so incredibly strong and I'll call. It a signature strength of underwriting we've been able to essentially amplify that color strength in numerous ways that.
Number one we win business directly through that and then number two is.
<unk> improves to continuously improve our incredibly strong brand and therefore, we went out more than fair share of of just the traditional flow of business there.
Got it that's really helpful. Thank you and then maybe if I could just one more maybe moving directions, a little bit, but just before I'll DTI for you all to each others seem to be a clear seasonality to your claims with lower earnings.
The first quarter, and then higher profitability as we move through the year, particularly in North America, all else equal. So I just wanted to see if there.
There is there any guidance you can give on how you'd expect the seasonal pattern to look post El DTI shall we expect the same typical seasonal cadence to earnings or is there any change to the magnitude of that seasonality given some of the smoothing of you discussed earlier any color there would be very helpful.
Yeah, Hi, Dennis Jonathan Let me take that one.
I think big picture, we would expect to see some dampening of the seasonality effects given the mechanism is under <unk> that you talked about as Todd already mentioned for this quarter. It is dependent though on.
What cohorts have positive or negative variances in the period so.
It's not fully predictable.
Just keep that in mind as well, but I think big picture, we would expect that seasonality would be a little bit less going forward.
Got it thanks, so much.
The next question comes from Tracy.
And then Google.
With Barclays. Please go ahead.
Yeah. Good morning, I would like to touch upon your Chesterfield reach 500 million surplus note issuance for Apollo with the sole investor behind that this.
This is an embedded value deal does that mean, there were reserve redundancies in the structure allows you to unlock part part of that what we have.
The key driver of your third party actuarial opinion that determined in embedded value on this subject term life block.
Hi, Tracy, it's Todd Yeah, no yeah, we executed the.
The surplus note in the first quarter collateralized by the embedded value of.
A portion of our business actually where our appraisal and I'm not sure. If you can talk about the details, but it would be done based on our normal actuarial appraisal of.
Traditional block of mortality.
Business, we like the transaction quite a bit because it's down you don't have the operating company level provides regulatory capital out of there on a very efficient.
Basis.
Okay.
Do you see yourself doing more of these types of transactions.
Oh, Yeah, no. It's part of our alternative capital strategy, if you'll recall I think I get my years wrong, but I think 2014, we did our embedded value security.
Securitization that we ultimately have paid off fairly recently so.
So we have done one in the past and so yeah, we think it's a.
Good way to help finance our growth as well as it demonstrates the value that's in our book of business. That's a you know on our books.
And you talked about repricing in your in force action can you just share what product and vintage years, Youre able to reprice I'm, assuming it was under a Y R. A T.
Oh, Hi, Tracy as Todd I don't think we're prepared to go down into the the level of detail as far as which individual blocks and errors in that type of thing.
Okay. Thank you looking forward to Investor day.
Thank you.
Our next question comes from Tom Gallagher with Evercore. Please go ahead.
Yeah.
Good morning, Joe.
I just wanted to be clear on some of these accounting differences.
So the experience on the U S trad business that gets smoothed.
It sounds like that was favorable in the quarter and if so will we continue to see a little bit of the benefit of that flow through in future periods.
Andy.
Part of the book that's in I guess.
Above 100%.
Or are in loss would had adverse experience up around $50 million on large claims so that came during the current quarter.
I just wanted to make sure im understanding those two pieces correctly and then also if you can comment on what percentage of your book is in the immediate recognition part.
That's been more of a loss.
Position versus what percent of your book is.
Is assumed to be at a profit that's getting smoothed.
Yeah I'll start out.
This is Todd.
Oh on the contracts that are enough.
Less than 100% net premium ratio that is where we saw the favorable mortality experience primarily from the lower frequency of claims and that does get spread out so that will come back in in the future.
And then on the a greater than 100 again to clarify what happened in the quarter is we did have some higher large claims in the quarter and those were primarily in the cohorts with the net premium ratio above 100%. So those did flow through currently.
But as well as.
During the call and in the remarks, we had some in force rate actions that took place that we're on and actually also on cohorts greater than a 100%. So that came through currently in the.
The impact of the in force rate actions and the claims pretty much offset each other.
Got you and Todd how much of your book is in the above 100% net net premium level.
That would be coming through immediately just like ballpark what percentage of your book.
I would say this is tod again, probably it's hard to exactly quantify it.
Certainly in the minority.
Minority part of the overall book or in force.
To quantify it say in the 15 to 20 percentage points, but it's I don't have the exact figure.
With me right now.
Got you.
Okay.
If I can if I could.
Just if I can add to that for a minute sure.
Yeah that the adverse mortality in the quarter was large claim volatility and so we expect large claim volatility to go out and go down but to smooth out over time.
And.
In those cohorts, yes, we have been when we have positive quarters, you will see it also go directly down into earnings so in dose cohorts, where the net premium ratios over 100%, it's essentially similar to the other.
Full GAAP accounting, where you saw that experience in the quarter just go directly down.
That's helpful.
And then my follow up was.
What about the experience in the quarter for the majority of your block that is below 100%.
How favorable was that I mean.
No we're not seeing it flow through now based on the new accounting, but was that greater than 50 million like any any way of quantifying that.
No it wasn't a greater than 50 million. It was measurable I would say you know maybe in that.
$20 million range.
Gotcha.
It's helpful and then just one.
The next question comes from Alex Scott with Goldman Sachs. Please go ahead.
Hi, My first one I just had to an accounting follow up you know when you will do in force.
Actions on product its over 100 net premium ratio I assume that would probably be enough pricing to potentially take it down below 100.
If that's the case I get there's a immediate benefit.
But is there also still an improvement to the run rate of earnings looking forward from those kind of actions.
Because you have a N P or below 100 kind of going forward.
Yeah, Alex this is Jonathan.
It really depends on how material the subset of the cohort is where the adjustments are occurring so I would say generally speaking changes wouldn't be probably large enough to affect the whole cohort over the course of time as you do if theres multiple adjustments that could compound to be enough to bring it under 100%.
But because this would be a portion of our cohort it's unlucky that it would move it in a period below.
Got it okay.
And then when I think about these enforce management actions going forward, you know where where are we with that I mean is there still a pipeline of things you have to take care of there I mean, what what portion of the stuff over 100 M P or would you be looking to.
Try to improve profitability on.
Hey, Thanks for the question this is Tony.
This is not a new strategy for us. This is something we've been doing for quite some time and obviously a key part of <unk> its risk management and we're always monitoring these blocks always refining our views towards states blocks.
Then, making judgments and assessments as Todd mentioned.
We will always work in a partnership manner and we've got the luxury of working across the globe.
And probably more leave us and then others in terms of dealing with these situations.
Hard to quantify where we are in the earnings given the environment continues to change but.
But we will continually and consistently.
Implement this strategy and I think we've done a great job in balancing.
Our partnership as well as our ability to enforce our rights in the treaties.
Thank you.
The next question comes from Erik Bass with Autonomous Research. Please go ahead.
Hi, Thank you, but wanted to ask you a bit about the variable investment income drivers.
He stood out versus peers as being a little better than expected. This quarter. I think you said, it's coming from real estate partnerships. So just hoping to get more detail on kind of whats driving those and if it is from real estate and we start to go into a period, where valuations are under pressure.
Is that a potential headwind for VII going forward.
Oh, Hey, Eric This is Leslie thanks for that question.
So.
When I referred to real estate that was the big variance, but it's not just real estate driving VII. So we have a couple of different components and I.
I guess did stand out a bit I would say, yes, there was real estate activity, but.
Our private equity strategy I think we focus more on middle market, which may be a little different from some and we also have other types of funds in there says it little more diversification.
So I think that.
Our base case, we're thinking we're at a solid.
Level going forward, but obviously there could be some dampening of valuations given the cumulative impact of rising rates and tightening of liquidity and so forth. So.
That's possible, but I don't think it would be it's not as if it's all dependent on real estate. It is diversified and that was just the activity up follow up with the expectation not as if it were the whole driver.
Got it. Thank you and then and then maybe going back to your comments about <unk>.
Being very bullish on the outlook for growth and you talked about the inorganic but on the organic side is that just more growth in the primary markets Youre seeing post COVID-19 or changes in session rates in demand from.
From your insurance counterparts.
Thanks for that question, Eric I think I'm going to turn that question over to Tony.
Great. Thanks, Eric.
The short answer is we are very excited about the prospects on the organic business around the world and to answer your question its both.
Mentioned in past Investor days at least in Asia, We sold post post Sars, just a strong underpinning of the insurance the awareness and the importance of insurance, which is obviously wonderful for al.
Industry.
But then I would say.
The reinsurance penetration obviously these numbers come out regularly but strategically over the longer time.
The importance of reinsurance clearly has been saying throughout the pandemic. So I would expect as reinsurers like Oh Gee I continue to find creative ways in which we can help grow the underlying market helped our clients use reinsurance in a more modern fashion.
As well as the.
Fact that Jay is obviously, one of the leading life and health reinsurance in the world.
And it's in a pandemic shows anything it's it's really you need a very strong partner in times of challenge. So I think Oh, we would expect to see over the medium and long run.
Slide towards the high quality reinsurers also sought.
Everything is pointing in the right direction towards that strong organic growth.
Thank you.
The next question.
<unk> comes from Mark Dwelle with RBC. Please go ahead.
Yes. Good morning, just a couple of really quick ones was all over the U S. PRT transaction within the asset intensive segment or was any of it recorded within traditional.
Hey, Mark it's Todd Yeah. It was in the U S. A.
Financial solutions asset intensive area.
Got it.
And then it was mentioned that.
When.
Investment discussion that there was a $41 million.
The impairment what asset class was was that related to.
Hey, Mark this is Leslie so.
The AR that was primarily driven by our exposures to.
Two of the the two banks that failed in March in the U S.
So our exposure there was a modest <unk> our portfolio.
Folio strategy, Jeff cause that highlights our question and in the news.
Our strategy really in U S banks is to focus on global.
It's definitely important banks that two thirds of the portfolio and if you looked at all the other types of exposure in there.
The average of the rest of the portfolio is about $25 million per credit so very manageable amounts and I'll note that theres been a handful of names and then in the news last week or so and across.
All three of those we have 10 million total book value exposure, so very manageable.
Thank you for that that's all my questions.
Our next question comes from Mike Ward with Citi. Please go ahead.
Thanks, guys. Good morning, I was just wondering on PRT.
Trying to think about it strategically because as you know this has been a pretty decent market for the industry.
Tree.
Post crisis, I'd say, they're just kind of wondering what might have changed.
Economics with the structure of the market.
Brought you guys then.
Because I would've thought that the.
There's been a pretty good demand for for a while.
I Hi, it's Anna again, I'm I would say that it wasn't a result of the change it was an expansion in our strategy. We have been very successful as reinsurers longevity reinsurers as I said for close to 15 years. It just was a night.
<unk> extension and the structure that this third leg of our stool. We think is a very attractive proposition and an opportunity for both RGA and our partners.
Thanks, Dan.
Then tangential question on the office CRE, maybe for Leslie.
Just wondering if you could discuss the strategy on favoring suburban offices over skyscrapers in major cities.
Well, we've got some insurance companies that are that are highlighting the fact that that's where they are it seems kind of debated just curious to your perspective. Thanks.
Oh sure Thanks for that question.
You know I mean, you have to have a strategy and an expertise I think that we see a lot of.
Value in a suburban locations and right now I guess another advantage of that is just that they tend to be more.
Types of businesses that can't work remote and cause I guess, if you wanted to work at home you wouldn't get an office nearby. So we've always had the strategy that there is an opportunity there.
Focus on.
Apis and other types of things near these suburban population densities and just making sure. It's a good location very usable and there tend to be manageable sizes. So it's not.
Hard to to replace our tenants if something does turnover I'm, sorry, I think.
Different I guess different firms can have different strategies, but you know right now that theres certainly a lot of the big uncertainty is really around the work from home. So I think it's our strategy.
Putting us in a good position right now.
Totally makes sense thanks, Mike.
This concludes our question and answer session I would like to turn the conference over to Anna Manning Chief Executive Officer for any closing remarks.
And your continued interest in RGA. This was a strong quarter demonstrating the substantial earnings power in our business. We are a global leader, we're well positioned in our markets to capitalize on the growth opportunities that we've highlighted through the course of this call and I remain.
Confident that RJ will continue to deliver substantial long term value for our shareholders. So thank you and that concludes our first quarter call.
Yes.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.