Q4 2023 Reinsurance Group of America Inc Earnings Call
Welcome to the reinsurance group of America fourth 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 after today's pres.
Operator: Welcome to the Reinsurance Group of America fourth quarter 2023 earnings conference call. All participants will be in listen only mode.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's prepared remarks, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on your telephone keypad.
Prepared remarks, there will be an opportunity to ask questions. You ask a question you May Press Star then one on your telephone keypad.
Operator: To withdraw your question, please press star, then two. Also, please limit yourself to one question and one follow-up. Please note this event is being recorded. I would now like to turn the conference over to Todd Larson, Senior Executive Vice President and Chief Financial Officer. Thank you.
[noise] withdraw your question. Please press Star then two.
Also please limit yourself to one question and one follow up.
Please note. This event is being recorded I would now like to turn the conference over to Todd Larson Senior Executive Vice President and Chief Financial Officer. Please.
Thank you welcome to Rga's fourth quarter 2023 conference call.
Todd C. Larson: Welcome to RGA's fourth quarter 2023 conference call. I'm joined on the call this morning by Tony Chang, RGA's President and Chief Executive Officer; Leslie Barbee, Chief Investment Officer; and Jonathan Porter, Chief Risk Officer.
Todd C. Larson: I'm joined on the call. This morning, with Tony Chang, Rga's, President and Chief Executive Officer.
Todd Larson: As Lee Barbie, Chief investment Officer, and Jonathan quarter, Chief Risk Officer.
Todd C. Larson: 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, and actual results could differ materially from expected results.
Todd C. Larson: A quick reminder, before we get started regarding forward looking information and non-GAAP financial measures.
Todd C. Larson: Some of our comments or answers to your questions may contain forward looking statements.
Todd C. Larson: Actual results could differ materially from expected results.
Todd C. Larson: 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. Please see our earnings release, earnings presentation, and quarterly financial supplement, all of which are posted on our website, for discussion of these terms and reconciliations to GAAP measures. Throughout the call, we will be referencing slides from the earnings presentation, which is again posted on our website. And now, I'll turn the call over to Tony for his comments.
Todd C. Larson: 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.
Todd C. Larson: Additionally, during the course of this call. The information we provide may include non-GAAP financial measures.
Todd C. Larson: 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 reconciliations to GAAP measures.
Todd C. Larson: Throughout the call, we will be referencing slides from the earnings presentation, which again is posted on our website.
Todd C. Larson: And now I'll turn the call over to Tony for his comments.
Tony Chang: Good morning, everyone and thank you for joining our call.
Tony Chang: Good morning, everyone, and thank you for joining our call. Last night, we reported adjusted operating earnings for the fourth quarter of $4.73 per share and for the full year of $19.88 per share. Our adjusted operating ROE excluding notable items was 14.4% for the year. The quarter included favorable investment and very strong GFS results, along with strong organic new business and in-force transaction volume. Our underwriting experience was in line with expectations across the enterprise. This caps off a very strong, We are excited with the great momentum in our business, with our global platform positioning us for continued growth and success. We entered 2023 with the priorities of delivering on earnings and ROE targets, as well as accelerating our new business growth, all while taking an active and balanced approach to capital management. We have delivered on all three priorities.
Tony Chang: Last night, we reported adjusted operating earnings for the fourth quarter of $4.73 per share.
Tony Chang: And for the full year of $19.88 per share.
Tony Chang: Our adjusted operating ROA, excluding notable items was 14.4% for the year.
Tony Chang: The quarter included favorable investment and very strong Jeff has results along with strong organic new business and in force transaction volume.
Tony Chang: Our underlying underwriting experience was in line with expectation across the enterprise.
Tony Chang: This capped off a very strong year, we are excited with the great momentum in our business without global platform position us for continued growth and success.
Tony Chang: We entered 2023 with the prior priorities of delivering on earnings and ROE targets as well as accelerating our new business growth all while taking an active and balanced approach to capital management.
Tony Chang: We have delivered on all these three priorities.
Tony Chang: Firstly, we produced record EPS and strong ROE results. Second, as measured by our internal metrics, we produced a record level of new business value, which was up significantly from 2022. You will also see on slide 17 in the earnings presentation that the value of business subject to LDTI increased by more than $3 billion in 2023, primarily attributable to new business one during the year. In addition to the volume, I am also very pleased with the breadth and quality of the new business we deliver. We had strong results across many of our businesses and geographies, with a significant percentage of our new business under exclusive arrangements. These types of arrangements create greater strategic value, which gets shared between our clients and RGA. And the third priority we delivered on was our active and balanced capital management. During the quarter, we deployed $346 million of capital into in-force transactions, bringing the year-to-date total to a record $933 million.
Tony Chang: Firstly, we produced a record EPS and strong results.
Tony Chang: Results.
Tony Chang: Second as measured by our internal metrics, we produced a record level of new business value, which was up significantly from 2022.
Tony Chang: You will also see on slide 17 in the earnings presentation that the value of business subject to L. D. T. I increased by more than $3 billion in 2023, primarily attributable to new business won during the year.
Tony Chang: In addition to the volume I am also very pleased with the breadth and quality of the new business we delivered.
Tony Chang: We had strong results across many of our businesses and geographies with a significant percentage of our new business under exclusive arrangement.
Tony Chang: These types of arrangements create greatest strategic value, which gets shared between our clients and RJ.
Tony Chang: And the third priority priority, we delivered on was how active and balanced capital management.
Tony Chang: During the quarter, we deployed $346 million of capital into in force transactions, bringing the year to date total to a record $933 million.
Tony Chang: We were active across the globe with the U S Asia and EMEA, all contributing to our enforce transaction success.
Tony Chang: We were active across the globe, with the U.S., Asia, and EMEA, all contributing to our in-force transaction success. In addition to supporting our clients through deploying capital into our business, we also returned $419 million to shareholders via dividends and buybacks during the year. Finally, we launched Ruby Re, further diversifying our sources of capital to fund our exciting future growth. Our optimism for the future is fueled by our continued success in our four areas of notable growth that we have previously communicated, starting with our Longevity and PRT. In the USPRT market, we closed our third transaction.
Tony Chang: In addition to supporting our clients through deploying capital into our business. We also returned $419 million to shareholders.
<unk> dividends and buybacks during the year.
Tony Chang: Finally, we launched Ruby re further diversifying our sources of capital to fund our exciting future growth.
Tony Chang: Yeah.
Tony Chang: Our optimism for the future is fueled by our continued success in all four areas no notable growth that we have previously communicated.
Tony Chang: Starting with our longevity and PRT business.
Tony Chang: In the U S PRT market, we closed out the transaction.
Tony Chang: In a very short period of time, we have established ourselves as an active and key player in this market, and we are optimistic about our prospects going forward. In the UK longevity space, where RGA is a clear market leader, the team has had an outstanding year, innovating in various segments of the longevity market. Based upon the current environment for global longevity
In a very short period of time, we have established ourselves as an active and key player in this market and we are optimistic about our prospects going forward.
In the U K longevity space, where RJ as a clear market leader.
Tony Chang: Has had an outstanding year innovating in various segments of the longevity market.
Tony Chang: Based upon the current environment for global longevity business, we expect 'twenty 'twenty four to be another very active and productive year.
Tony Chang: We expect 2024 to be another very active and productive year. In our Asia traditional segment, we continue to see positive results bringing product development and underwriting solutions to our clients to help fuel their growth and share in their success. In China, in the fourth quarter, we launched a simplified issue medical product with a major insurer to complement the successful critical illness product we spoke about during Investiday.
Tony Chang: You know Asia traditional segment, we continued to see positive results, bringing product development and underwriting solutions to our clients to help fuel their growth and share in their success.
Tony Chang: In China in the fourth quarter, we launched a simplified issue medical product with a major insurer to complement our successful critical illness product, we spoke about during investor day.
In Hong Kong, we launched a product with a market leader to provide a more inclusive form of critical illness to individual that could not previously gain coverage.
Tony Chang: In Hong Kong, we launched a product with a market leader to provide a more inclusive form of critical illness cover for individuals that could not previously gain coverage. This supports our purpose of making financial protection accessible to all whilst furthering our business strategy. In our third area of notable growth, the asset-intensive business in Asia, we executed transactions that combined our strength of product development with co-insurance and continued to innovate across the region to support a very active transaction pipeline. And finally, in U.S. traditional, we closed some nice enforced blocks in Q4 and also partnered with our clients and distribution entities to drive profitable new business growth. As announced, we also made an investment to further our capabilities to support clients in digital underwriting and fulfill their purpose of closing the protection gap in the middle market. I would be remiss not to also mention the collective group of all our other businesses, where we have incredibly talented teams and market-leading positions.
Tony Chang: This supports our purpose of making financial protection assessable to wall, while furthering our business strategy.
Tony Chang: And our third area of notable growth the asset intensive business in Asia, we executed transactions that combined our strength of product development with coinsurance and continued to innovate across the region to support a very active transaction pipeline.
Tony Chang: And finally in U S. Traditional we closed some nice enforce blocks in Q4, and I and also partnered with our clients and distribution entities to drive profitable new business growth.
Tony Chang: As announced we also made an investment to further our capabilities to support clients in digital underwriting and fulfill and fulfill that purpose of closing the protection gap in the middle market.
I would be remiss not to also mentioned the collective group of all of our other businesses, where we have an incredibly talented team and market leading positions.
Tony Chang: For example, we were able to finalize an attractive asset intensity transaction in the U.S. due to our long-term client relationship and reputation for execution certainty. In addition, we announced yesterday an asset transaction in Belgium, and we are hopeful of seeing other transactions across Europe similar to what we have seen in Asia and North America. I am proud of all these accomplishments. I am even more excited about the future, building on our strong foundation created by the talent, expertise, and integrity of all our people around the world.
Tony Chang: For example, we were able to finalize and attractive asset intensive transaction in the U S. Due to our long term client relationships and reputation for execution certainty.
Tony Chang: In addition, we announced yesterday an asset transaction in Belgium, and we are hopeful of seeing other transactions across Europe similar to what we have seen in Asia and North America.
Tony Chang: As proud as I am about all these accomplishment I.
Tony Chang: I am even more excited about the future.
Building on our strong foundation created by the talent expertise and integrity of all our people around the world.
Tony Chang: Reflecting this positive outlook, we have updated our financial targets, as shown on slide 18. We have provided new earnings run rates and reiterated our intermediate EPS growth targets on this higher base. In addition, we increased our expected ROE range to 12 to 14 percent.
Reflecting this positive outlook, we have updated our financial targets as shown on slide 18.
Tony Chang: We have provided new earnings run rates and reiterated our intermediate EPS growth targets on this higher base.
Tony Chang: In addition, we increased our expect that our OE range to 12% to 14%.
Tony Chang: I am clearly confident in our ability to continue to deliver growth at attractive returns to our shareholders for many years to come.
Tony Chang: I am clearly confident in our ability to continue to deliver growth at attractive returns to our shareholders for many years to come. Our growth prospects are built on our core principles of strong risk management combined with our entrepreneurial spirit to create new, innovative solutions and share with our partners in their success. Thank you for your interest in RGA.
Tony Chang: Our gross prospects are built on our core principles of strong risk management combined with our entrepreneurial spirit to create new innovative solutions and share without partners in that success.
Thank you for your interest in O J I will now turn it over to Todd to discuss the financial results.
Todd C. Larson: I will now turn it over to Todd to discuss the financial results. Tony, moving to the quarterly results, RGA reported pre-tax adjusted operating income of $386 million for the year and Adjusted Operating Earnings Per Share of $4.73. For the full year, we reported a record adjusted operating earnings per share of $19.88. The Adjusted Operating Return on Equity, excluding notable items, was 14.4%.
Todd C. Larson: Thank you, Tony but moving to the quarterly results.
Todd C. Larson: RGA reported pretax adjusted operating income of $386 million for the quarter and adjusted operating earnings per share of $4 73.
Todd C. Larson: For the full year, we reported record adjusted operating earnings per share of $19 88.
Todd C. Larson: For the year adjusted operating return on equity.
Todd C. Larson: Excluding notable items was 14, 4%.
Todd C. Larson: We are very pleased with the strong results, as well as very strong new business volumes and capital. Investment results for the quarter remained favorable. Reported premiums were up 19.2% for the quarter.
We are very pleased with the strong results as well as very strong new business volumes and capital deployment.
Todd C. Larson: Investment results for the quarter remained favorable.
Todd C. Larson: Reported premiums were up 19, 2% for the quarter.
Todd C. Larson: For the year, premiums totaled $15.1 billion dollars, representing an increase of 16.3% on a constant currency basis. The increase includes $500 million in premium from a U.S. PRT transaction in the fourth quarter. PRT premiums for the full year totaled $1.5 billion. As Tony mentioned, we have strong momentum and new business activity, and expect to continue to see attractive premium growth over time. The effective tax rate for the quarter was 18.2% on pre-tax adjusted operating income, below the expected range, primarily due to the distribution of earnings across the globe and generation of certain tax credits. The effective tax rate for the full year was 21.5% on pre-tax adjusted operating income.
Todd C. Larson: For the year premiums totaled $15 $1 billion, representing an increase of 16, 3% on a constant currency basis.
Todd C. Larson: The increase includes $500 million in premium from a U S PRT transaction in the fourth quarter.
Todd C. Larson: PRT premiums for the full year totaled $1 $5 billion.
Todd C. Larson: As Tony mentioned, we have strong momentum in new business activity.
Todd C. Larson: I expect to continue to see attractive premium growth overtime.
Todd C. Larson: The effective tax rate for the quarter was 18, 2% on pretax adjusted operating income below the expected range, primarily due to the distribution of earnings across the globe and generation of certain tax credits the.
Todd C. Larson: The effective tax rate for the full year was 21, 5% on pretax adjusted operating income.
Todd C. Larson: Turning to the quarterly segment results starting on slide seven in our earnings presentation.
Todd C. Larson: According to the quarterly segment results starting on slide 7 in our earnings presentation, the U.S. and Latin America traditional segment results reflected favorable group and individual health experiences and Slightly Unfavorable Claims Experience and Client Reporting Adjustments in Individual Life, which had a larger financial impact due to the mix of experience between capped and uncapped cohorts. As we've previously discussed, under LDTI, experience on CAP cohorts is reported in the current period. For uncapped cohorts, a portion of the underlying mortality experience is reported in the current period earnings, and the remaining experience is spread into the future period. On a year-to-date basis, the underlying experience in the individual life business was favorable. The U.S. asset-intensive business results were strong, reflecting higher investment spreads, including those on floating-rate securities, and our capital solutions business continues to perform in line with our expectations. The candidate traditional results reflected unfavorable group claims experience and impact from a one-time item of approximately $8 million.
Todd C. Larson: U S and Latin America traditional segment results reflected favorable group and individual health experience.
And slightly unfavorable claims experience and client reporting adjustments in individual life.
Which had a larger financial impact due to the mix of experience between capped and uncapped cohorts.
Todd C. Larson: As we've previously discussed under L. D T I experience on cap cohorts as reported in the current period.
Todd C. Larson: For uncapped cohorts a portion of the underlying mortality experience as reported in the current period earnings and the remaining experiences spread into the future periods.
Todd C. Larson: On a year to date basis, the underlying experience in the individual life business was favorable.
Todd C. Larson: The U S asset intensive business results were strong, reflecting higher investment spreads, including those on floating rate securities.
Todd C. Larson: And our capital solutions business continues to perform in line with our expectations.
Todd C. Larson: Our Canada traditional results reflected unfavorable group claims experience and impact from a one time item of approximately $8 million.
Todd C. Larson: The financial solutions business reflected favorable longevity experience, and the Europe, Middle East, and Africa segment. The traditional business results reflected unfavorable mortality experience, most of which was recognized in the current quarter. This was partially offset by a positive impact from new business in continental Europe. The MIA's financial solutions business results reflected favorable longevity and other experience, including improvements in reporting. Turning to our traditional Asia-Pacific business, results reflected favorable underlying claims experience, a small portion of which was recognized in the current period. The Asia-Pacific Financial Solutions Business reflected favorable investment spreads and strong new business. The corporate and other segment reported a pre-tax adjusted operating loss of $23 million, less than the expected quarterly range, primarily due to higher investment in Moving on to investments on slides 10 through 13. The non-spread portfolio yield for the quarter was 4.86%, reflecting higher yields.
Todd C. Larson: The financial solutions business reflected favorable longevity experience.
Todd C. Larson: In the Europe, Middle East and Africa segment.
Todd C. Larson: The traditional business results reflected unfavorable mortality experience most of which was recognized in the current quarter.
Todd C. Larson: This was partially offset.
Todd C. Larson: By a positive impact on new business in Continental Europe.
Emea's financial solutions business reflect results reflected favorable longevity and other experience including improvements in reporting.
Todd C. Larson: Turning to our Asia Pacific traditional business.
Todd C. Larson: It also reflected favorable underlying claims experience.
Small portion of which was recognized in the current period.
Todd C. Larson: Asia Pacific Financial solutions business reflected favorable investment spreads and strong new business.
Todd C. Larson: The corporate and other segment reported a pretax adjusted operating loss of $23 million.
Todd C. Larson: Less than they expected quarterly range, primarily due to higher investment income.
Todd C. Larson: Moving onto investments on slides 10 through 13.
Todd C. Larson: The non spread portfolio yield for the quarter was 4.86% reflecting higher yields.
Todd C. Larson: For the non-spread business, our new money rate rose to 6.65%, reflecting a higher allocation to private assets in the quarter. Credit impairments were minimal, and we believe the portfolio is well-positioned as we move through ongoing economic uncertainty. Related to capital management, as shown on slides 14 and 15, our capital and liquidity positions remain strong, and we ended the quarter with excess capital of approximately $1 billion. In the quarter, we deployed $346 million of capital into in-force transactions, bringing the year-to-date total to a record $933 million. In the quarter, we also returned a total of $106 million of capital to shareholders.
Todd C. Larson: Well, the non spread business, our new money rate rose to $6, six 5%, reflecting a higher allocation to private assets in the quarter.
Todd C. Larson: Credit impairments were minimal and we believe the portfolio is well positioned as we move through ongoing economic uncertainties.
Todd C. Larson: Related to capital management as shown on slides 14, and 15, our capital and liquidity positions remain strong.
Todd C. Larson: We ended the quarter with excess capital of approximately $1 billion.
Todd C. Larson: In the quarter, we deployed $346 million of capital into enforced transactions bring.
Todd C. Larson: Bringing the year to date total to a record $933 million.
Todd C. Larson: In the quarter. We also returned a total of $106 million of capital to shareholders through $15 billion of share repurchases and $56 million in dividends.
Todd C. Larson: $50 million of share repurchase, and $56 million in dividends. We expect to remain active in deploying capital into attractive growth opportunities through our organic flow and enforced block transactions and returning excess capital to shareholders through dividends and share repurchase. As Tony previously mentioned, during the quarter, we successfully launched Ruby Re, a Missouri-Damas filed third-party reinsurance company. Alternative capital has been part of RGA's capital management strategy for a long time, and Ruby Re is another source of capital to support our growth. As part of the launch, RGA executed an initial retrocession of $2.5 billion of existing liabilities.
Todd C. Larson: Spec to remain active in deploying capital into attractive growth opportunities and our organic slow and enforced block transactions.
Todd C. Larson: And returning excess capital to shareholders through dividends and share repurchases.
Todd C. Larson: As Tony previously mentioned during the quarter, we successfully launched Ruby Reed and Missouri Domiciled third party reinsurance company.
Todd C. Larson: Alternative capital has been part of Rga's capital management strategy for a long time and.
Todd C. Larson: And will be read as another source of capital to support our growth.
Todd C. Larson: As part of the launch RJ executed an initial retrocession of $2 $5 billion of existing liabilities.
Todd C. Larson: During the year, we continued our long track record of increasing book value per share.
Todd C. Larson: During the year, we continued our long track record of increasing book value per share. As shown on slide 16, our book value per share, excluding AOCI, increased to $144, which represents a compounded annual growth rate of 10.4% since the beginning of 2021. A metric I want to highlight is the value of business subject to LDTI, as presented on slide 7. This represents the expected unrealized underwriting margin. This demonstrates the long-term value of this business. We introduced this metric back in June at our investor meeting. The unrealized underwriting margin is calculated as the expected present value of Our Future Premiums, Less Present Value of Claim Benefits and Treaty Allowance for the part of our business with reserves subject to LDTI financial. These values are derived from the cash flows used to determine reserves, which are based on current expectations, and are reviewed as part of the annual audit, during 2023.
Todd C. Larson: As shown on slide 16, our book value per share, excluding <unk> increased to $144, which represents a compounded annual growth rate of 10, 4% since the beginning of 2021.
Todd C. Larson: The metric I want to highlight is the value of business subject to L. D. T I as presented on slide 17.
Todd C. Larson: This represents expected unrealized underwriting margins, which demonstrates the long term value of this business.
Todd C. Larson: We introduced this metric back in June at our Investor Day.
Todd C. Larson: The unrealized underwriting margin is calculated as expected present value of our.
Todd C. Larson: Our future premiums less present value of claim benefits and treaty allowances for the part of our business what reserves subject to L. D T I financial reporting.
Todd C. Larson: These values are derived from the cash flows used to determine reserves, which are based on current expectations and are reviewed as part of the annual audit.
Todd C. Larson: During 2023.
Todd C. Larson: This value increased to approximately $27 billion, up $3 billion, or 15% from the end of 2022. The primary driver was the strong new business written during the year. To summarize, based on our current expectations, over $27 billion of pre-tax unrealized underwriting margin exists for the business that is already on our books. These margins don't consider investment income or general expense.
Todd C. Larson: This value increased to approximately $27 billion up $3 billion or 15% from the end of 2022.
The primary driver was the strong new business written during the year.
Todd C. Larson: To summarize based on our current expectations over $27 billion of pretax unrealized underwriting margin exists for the business that is already on our books.
Todd C. Larson: While these margins don't consider investment income or general expenses there.
Todd C. Larson: They are expected to significantly contribute to the future. I want to emphasize again that the current measure only covers business subject to LETI, but it excludes certain acid-intensive and short-duration. As we've discussed, 2023 was very strong for RGA, and results were ahead of. The Intermediate Term Financial Targets and Run Rates Provided at our Investor Day. The primary drivers of the outperformance were favorable impacts of higher interest, strong new business, and favorable experience. Considering these dynamics and the continued strength of our underlying business, we have updated our current run rates and reiterated our intermediate growth targets, as shown on slide 18. We have also increased our intermediate return on equity target range to 12 to 14 percent.
Todd C. Larson: They are expected to significantly contribute to future earnings.
Todd C. Larson: I want to emphasize again the current measure only contains business subject to L. A T I D.
Todd C. Larson: It excludes certain asset intensive and short duration business.
Todd C. Larson: As we've discussed 2023 was very strong for RGA.
Todd C. Larson: And results were ahead of.
Todd C. Larson: The intermediate term financial targets and run rates provided at our Investor day.
Todd C. Larson: The primary drivers of the outperformance were favorable impacts of higher interest rates.
Todd C. Larson: Strong new business and favorable experience.
Considering these dynamics and the continued strength of our underlying business. We have updated our current run rates and reiterated our intermediate growth targets as shown on slide 18.
Todd C. Larson: We have also increased our intermediate return on equity target range to 12% to 14%.
Todd C. Larson: These updated run rates now represent the base from which we expect to achieve our intermediate growth targets.
Operator: These updated run rates now represent the base from which we expect to achieve our intermediate growth target. We believe these updates appropriately reflect our strong momentum and earnings power as we look to the future. We continue to see good opportunities across our geographies and business lines, and we are well positioned to execute on these opportunities and our strategic plan. We are very excited about the future and expect to deliver attractive returns to our shareholders. This concludes our prepared remarks. We would now like to open the floor to questions. We will now begin the question and answer session. Please limit yourself to one question and a single follow-up. If you have any additional questions, you can rejoin the queue. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the button.
Todd C. Larson: We believe these updates appropriately reflect our strong momentum and earnings power as we look to the future.
Todd C. Larson: We continue to see good opportunities across our geographies and business lines, and we are well positioned to execute on these opportunities and our strategic plan.
Todd C. Larson: We are very excited about the future and expect to deliver attractive returns to our shareholders.
Speaker Change: This concludes our prepared remarks.
Speaker Change: I mean now would now like to open it up for questions.
Speaker Change: We will now begin the question and answer session. Please limit yourself to one question and a single follow up.
Speaker Change: If you have any additional questions you can rejoin the queue.
Speaker Change: You ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
Operator: If you would like to withdraw your question, please press star then two. At this time, we will pause momentarily and assemble our roster.
Speaker Change: Withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Your first question comes from Jimmy Buhler with J P. Morgan. Please go ahead.
Jimmy S. Bhullar: The first question comes from Jimmy Bhullar with J.P. Morgan. Please go ahead. Good morning.
Jimmy S. Bhullar: Good morning, So I had a couple of questions first on just the difference between net and operating income I think you had a decent amount of derivative losses and losses on sales of investments. So if you could just give us some color on what really drove each of those items.
Todd C. Larson: So I had a couple of questions. First, on just the difference between net and operating income, I think you had a decent amount of derivatives losses and losses on sales of investments. So if you could just give us some color on what really drove each of those items. Yeah, one item, Jimmy. It's Todd.
Jimmy S. Bhullar: Yeah, why don't I give me, it's Todd one item is.
Todd C. Larson: One item is, I think what we refer to as B36 or the embedded derivative. That's on the funds withheld, type reinsurance treaties that we've had over the years. So that had part of the impact. And then some of the derivatives that we used.
Todd C. Larson: I think what we refer to as <unk> 36, or the embedded derivatives.
Todd C. Larson: On on the funds withheld.
Todd C. Larson: Type reinsurance treaties that we've had over the years.
Todd C. Larson: So that had part of the impact and then some of the derivatives that we use.
Todd C. Larson: In some of our currency investment strategies had a negative impact and then we had some capital losses as well.
Todd C. Larson: Some of our currency investment strategies had a negative impact, and then we had some capital losses as well. Okay, and the caps of the losses on sales are those related to repositioning of the portfolio on deals and stuff? Or is it just normal sales because of credit deterioration? Hi, it's Leslie.
Speaker Change: Okay, and the gap that the losses on sale are those related to repositioning the portfolio on deals and stuff or is it just normal.
Speaker Change: Because the credit deterioration.
Lastly: Hi, It's lastly, yeah on the on the unrealized are unrealized.
Leslie Barbee: Yeah, on the unrealized losses, it was things like extension trades, normal trading, cash management, and relative value. There were a few specific credit exposures we managed, but it's predominantly just normal course decisions and portfolio repositioning. And as you know, the portfolio market values are still somewhat below book values for people generally just because interest rates have risen so much in 2022 and into 2020. Okay, and then just on the portfolio as well, if I look at your new money yield, it was already pretty good. It went up even more in 3Q.
Speaker Change: Realized losses.
Lastly: Things like our extension trade normal trading cash management smell to value the words that I've seen specific credit.
Lastly: Credit exposures he managed but.
Lastly: It's predominantly just normal course decisions and portfolio repositioning.
Lastly: And as you know as you know the portfolio market values are still somewhat below book value and so people generally just because interest rates had risen so much in two.
2022 and into 2023.
Speaker Change: Okay, and then just on the portfolio as well if I look at your new money yield it was already pretty good they went up even more.
Speaker Change: In the Q and I think you were almost 300 basis points above there are then your graduate yielded so you mentioned, Brian that you're doing a lot more private but the yield seems very high so just talk about what.
Leslie Barbee: And I think you're almost 300 basis points above their 10-year treasury yield. So you mentioned private that you're doing a lot more private, but the yield seems very high. So just talk about what it is that you're investing in and your comfort with the credit quality, and What's Really Driving the Increase in Human Yields? Sure, no, thanks for the question.
Speaker Change: What it is that you're investing in and your comfort with the credit quality.
Speaker Change: Hum.
Speaker Change: And what's really driving the increase in new money yields.
Brian: Sure no. Thanks for the question. So there are we in the corner not every quarter is exactly or a target asset allocations over time, but there were.
Leslie Barbee: So there we are, in the quarter, not every quarter is exactly our target asset allocations over time, but there were some great opportunities in private, so disproportionately we had more this quarter. That explained really the full change quarter over quarter. But if you look at the underlying still investment grade corporates were the largest allocation, and we covered a bit on Investor Day. I know we normally don't spend a lot of time talking about investments, but we have a very broad platform, so we do have an excellent mix of opportunities across both public and private, and so there's a lot of premium we can add over just straight publics when we're investing. And on top of that, there are some areas like CMLs where there are still very good opportunities because there are probably more interested borrowers than lenders given banks are backing out of there, and we had really good opportunities there in rate locks, so that's some of it. Thank you. The next question comes from John Barnidge with Piper Sandler. Please go ahead. Good morning.
Speaker Change: Some great opportunities in private so disproportionately we had more of it.
Quarter that.
Speaker Change: Explain are really the low teens quarter over quarter, but if you look at underlying still investment grade corporates at the largest allocation and.
Speaker Change: We had covered a bit in investor day.
Speaker Change: Really don't.
Speaker Change: Spend a lot of time talking about investments, but we have a very broad platform because we do have an excellent.
Speaker Change: Mix of opportunities across both public and private and so there's a lot of premium we can add over.
Speaker Change: Over guess strained public whenever we're in a bad thing and on top of that so yeah.
Speaker Change: Yeah, Theres some areas like Ah, yeah miles, where they're still very good opportunities because theres, probably more interested borrowers than lenders given banks backing out at their end.
Speaker Change: We had you know really good opportunities there in rate lock so.
Speaker Change: You bet.
Thank you.
Speaker Change: The next question comes from John Barnidge with Piper Sandler. Please go ahead.
John Bakewell Barnidge: Good morning, Thank you for the opportunity.
Tony Chang: Thank you for the opportunity. As we think about new business generation, and I'm just trying to think about, how much of that is now coming from more boutique, one-to-one solutions than just winning on price? Maybe leveraging the data and solutions you have to really grow that volume in the flywheel.
John Bakewell Barnidge: As we think about new business generation and I'm, just trying to think about.
John Bakewell Barnidge: How much of that is now coming from more boutique one to one solution than just winning on price maybe leveraging the data and solutions you have to really grow that volume in the flywheel. Thank you.
Tony Chang: Thank you. Let me take that, John, and thank you for the question. Really, I just want to firstly just reiterate our strategy, which hasn't changed, which is, you know, we, as I mentioned in my comments, we've got this incredible risk management and pricing capability. And when you combine it with the entrepreneurial spirit, and the collaboration between our great people, this leads to innovation, which leads to, you know, growing market share. And as I said during Investor Day, it's very important for our growth to continue to grow reinsurance markets and grow underlying insurance markets. So, to answer your question, I'm really delighted with the proportion of our new business that came from, you know, what we call Creation Re. Broadly, you know, it's really pursuing exclusive transactions where we're able to provide the idea, provide the innovative solution, and hopefully give the partner that we partner with an edge to create greater value for that company, and we share in that value.
Speaker Change: Let me take that John.
John Bakewell Barnidge: Morning, and thank you for the question.
Speaker Change: Really I just want to firstly, just reiterate our strategy, which hasn't changed which is you know weight as I mentioned in my comments, we've got this incredible risk management and pricing capability and when you combine it with the entrepreneurial spirit the collaboration between our great people. This leads to innovation leads to you now.
Speaker Change: Rowing market share and as I said during Investor day, it's very important for our growth to continue to grow reinsurance market and grow underlying insurance market. So.
Speaker Change: To answer your question I'm, you know I'm really delighted with the proportion of our new business that came from what we call creation re broadly you know its really pursuing exclusive transactions, where we're able to provide the idea provide the innovative solution.
Speaker Change: Hopefully give the you know the partner that we partner with an edge to create greater value for that company and we share in that value. So you know what I'd say I am not going to give you a specific number we set a target we well exceeded that target during the year, we will obviously upheld targets internally for 2020 fall, but really.
Tony Chang: So, you know, I'm not going to give you a specific number. We set a target. We well exceeded that target during the year. We'll obviously increase our targets internally for 2024, but we're really delighted with how that's going. And it really shows the strength of our strategy, the strength of our people, and, you know, really the excitement within the organization. That's very helpful.
Speaker Change: Delighted with how that's going and it really shows the the.
Speaker Change: The strength of our strategy the strength of our people and and and you know really the excitement within the organization.
Speaker Change: That's very helpful. Thank you and my follow up question variable investment income has been rather relatively strong can you maybe talk about your near term outlook for transaction volume within that thank you.
Leslie Barbee: Thank you. My follow-up question: variable investment income has been relatively relatively strong. Can you maybe talk about your near-term outlook for transaction volume within that? Thank you. Hi, y'all. Thanks. This is Leslie.
Hi, yes. Thanks this is Leslie.
Leslie Barbee: Yeah, so we had a very good quarter, you know, a solid quarter there on variable investment income. It was modestly above what we expected. I think if you think about the composition of our portfolio that drives that, which we have been strategically building over the last 10 years, it's, you know, we get sort of balanced sourcing from private equity and real estate. I would say that, generally, in the market, obviously, with 2023 not an amazing year for M&A and things that tend to drive less activity in the private equity portfolio, and on the real estate front, we have an in-house We're the ones that are thinking about when is the best time to sell them. So I'd say part of 2023, certainly there was probably, in the marketplace, in general, still a separation between buyers and sellers. I think there's some more activity picking up there.
Leslie: Yeah. So we we had a very good core solid quarter there on variable investment income it was modestly above what we expected.
Leslie: Thank you you think that the composition of our portfolio that drives that which we have been strategically building over the last 10 years.
Leslie: We get sort of balanced sourcing from private equity and real estate.
Leslie: I I would say that generally in the market, obviously with 2023 not at amazing year for M&A and things that tends to drive blast activity.
Leslie: Asian, private equity portfolio and on the real estate.
Leslie: You know we have an in house team and we were the ones picking those investments were the ones that are thinking about when is the best time to.
Leslie: Sell them, so I'd say part of 2023 certainly there was probably in the marketplace in general.
Leslie: Still a separation between buyers and sellers are I think there's some more activity picking up there but for us it's really about the specific.
Leslie Barbee: But for us, it's really about the specific holdings that we have and what makes the best sense about when to sell those. So I think, you know, we'll probably continue to have a probably similar year in 2024 in terms of a total VII, possibly a touch lighter, but, you know, we had a couple of years of really, really robust growth. This environment's a little less robust, but we're still moving around that long-term average return that we communicated on investor day of 10 to 12%. Thank you. I appreciate it. The next question comes from Joel Hurwitz with Dowling Partners. Please go ahead. Hey, good morning.
Leslie: <unk> holdings that we have and what makes the best sense about when to sell those so I think you know well well continue to have a probably similar year in 'twenty 'twenty four in terms of total VII, possibly a touch lighter.
Leslie: But you know we had a couple of years of really really robust environment is a little less robust, but we're still moving around that long term average return that we tool kit at Investor day is 10% to 12%.
Thank you appreciate it.
Leslie: The next question comes from Joel Horowitz with Dowling Partners. Please go ahead.
Joel Horowitz: Hey, good morning, So I appreciate the updated disclosure on the unrealized under margins can you just take me through the moving pieces of the 3 billion growth. I think you mentioned 2 billion is as new business I guess, what is the other billion as their net favorable experience.
Todd C. Larson: So I appreciate the updated disclosure on the unrealized under margins. Can you just take me through the moving pieces of the 3 billion growth? I think you mentioned 2 billion is new business. I guess what is the other billion? Is there net favorable experience that flows through that? This is Todd. I'll start, and others can chime in.
Joel Horowitz: That flows through that.
This is Todd I'll start and others can chime in but yeah. So that's a big portion of that 3 billion as you refer to the about $2 billion is due to the value added from the strong new business growth throughout 2023, and then the additional billions, it's really a combination of.
Todd C. Larson: But yeah, so a big portion of that $3 billion, as you referred to, about $2 billion is due to the value added from the strong business growth throughout 2023. Then the additional billion is really a combination of sort of experience assumption adjustments and how they impact future margins, offset a little bit by just runoff. Okay, helpful.
Joel Horowitz: Sort of experience assumption adjustments and how they impact of future margins.
Speaker Change: I'll say it a little bit by just run off natural run off of the enforced business.
Speaker Change: Okay helpful. And then just in terms of current quarter experience in U S individual mortality.
Todd C. Larson: And then just in terms of current quarter experience and U.S. individual mortality, can you just give a breakout of what you saw and the impact between capped and uncapped cohorts? Yes, so I'll start out. This is Todd again.
Speaker Change: Gotta give a breakout of what you saw in the the impact between capped and uncapped cohorts.
Speaker Change: Yeah, So I'll start out hot again.
Speaker Change: The individual life a portion of U S trad.
Todd C. Larson: For the individual life portion of U.S. TRAD, we saw adverse claims of about $20 million, I would say, mainly related to elevated large claims. And as we mentioned, a lot of the unfavorable experience was in the capped cohorts, as there was some off-setting favorable claims experience in some of the uncapped cohorts. So the net financial reporting statement impact, or the income statement impact, was about $40 million negative for the individual life in the. Okay, helpful. Thank you. Yeah, hi. And sorry, this is Jonathan too.
Speaker Change: We saw adverse claims of about $20 million I would say mainly related to elevated large loss claims.
Speaker Change: And as we mentioned a lot of the unfavorable experience was in the capped our cohorts and there was some offsetting favorable claims experience in some of the Uncap cohort. So that the net financial reporting a statement impact for the income statement and an income statement impact was about $40 million negative for the <unk>.
Speaker Change: Individual life in the quarter.
Speaker Change: Yes.
Speaker Change: Okay helpful. Thank you.
Speaker Change: Yeah, Hi, sorry, this is Jonathan just to add in.
Jonathan Porter: Just to add, you know, if you take a step back and look at the year-to-date results for US individual life, our overall underlying claims experience was favorable for the year, as we mentioned in the prepared remarks, about $40 million favorable for individual life on its own. And again, we had some cohort distribution impacts, which resulted in that being, you know, a headwind over the course of the year, but our underlying, and sorry, Joel. And let me just add a few more comments. On your first question, you know, thank you for asking the question around long-term value from LDTI. I'll state the obvious, you know; that is only the business that is under LDTI. There is a significant proportion of our business that is not covered by LDTI.
You take a step back and look at the year to date results for U S. Individual life are overall, our underlying claims experience was favorable for the year as we mentioned in the prepared remarks about $40 million favorable for individual life on its own and again, we had some cohort distribution impacts which resulted in not being a headwind over the course of the year, but our underlying experience with <unk>.
Speaker Change: April.
Speaker Change: And sorry, Jonathan Let me just add a few more comments on your first question yeah. Thank you for asking the question around.
Speaker Change: Long term value from no D T I'll state the obvious.
Speaker Change: That is only the business that's under L. D. T. I. There is a significant portion of our business that is not covered under L. J T I at the moment.
Tony Chang: Got it, thanks. The next question comes from Tom Gallagher with Evercore ISI; please go ahead. Good morning.
Speaker Change: Got it thanks.
Speaker Change: The next question comes from Tom Gallagher with Evercore ISI. Please go ahead.
Thomas Gallagher: Good morning, just first question on the updated run rate earnings guidance is that it.
Thomas Gallagher: Just a first question on the updated run rate earnings guidance. Should we view that as normalized 23 run rates or an exit rate? And so when we think about 24, should we be growing that by your high single-digit rate? Or should we think about that more as a run rate for 24? Hi Tom.
Thomas Gallagher: Should we view that as normalized 23 run rate or exit rate.
Thomas Gallagher: And so when we think about 'twenty for should we be growing that by your high single digit rate or should we think about that more as a run rate for 'twenty four.
Speaker Change: So hi, Tom Thanks, Yeah. So.
Todd C. Larson: Thanks. Yeah, so we did look at 2023 on a more normalized basis as we built up our projections going forward and developed our financial plan, that type of thing, for 2024. So you could look at the updated run rates, more of our expectation of the run rates for 2020. Gotcha. So there's some embedded growth expectation in those ranges. Is that fair, Todd?
Thomas Gallagher: No. We didn't look at 2023 on a sort of on a more normalized basis as we built up a lot.
Thomas Gallagher: Injections going forward in developing our financial plan that type of thing for 2024. So you could look at the updated our run rates more of our expectation of a run rate for 2024.
Speaker Change: Gotcha, so there's some embedded growth expectation in those in those ranges is that fair Todd.
Todd C. Larson: Yes, sir. Yeah, okay. Okay, great. My follow-up question, Tony: I was interested in your comment about a greater percentage of your business coming from exclusive arrangements. You know, not that I'm looking for a history lesson, but just can you provide some perspective on how that's trended over time? Like, historically, most of your reinsurance you've written has been done with pools of other reinsurers. What does that look like now? Is it different between the US and Asia?
Todd C. Larson: Yes, Sir yeah.
Speaker Change: Okay, Okay great.
My follow up Tony I was interested in your comment.
Speaker Change: About a greater percentage of your business coming from exclusive arrangements can you.
No not that I'm looking for a history lesson, but just can you provide some perspective.
Speaker Change: On how that's trended over time like historically its most of your reinsurance.
Tony Chang: It has been done with with pools of all the reinsurers.
Tony Chang: What does that look like now is it different between U S and Asia.
Yeah. Thanks for the question I mean, I'd say you know we haven't kept track of those numbers necessary I mean, it's always been part of our culture really from day. One you know I would say it has you know broadly direction of increased over time and and as you allude to it may differ.
Tony Chang: Yeah, thanks for the question. I mean, I'd say, you know, we haven't kept track of those numbers necessarily. I mean, it's always been part of our culture, really, from day one.
Tony Chang: You know, I would say it has, you know, broadly directionally increased over time. But, as you allude to, it may differ in different geographies around the world and business units. Now, what really delighted me is, you know, as the messaging within the organization under Anna and now myself got stronger, just, you know, the belief in the teams that perhaps were not, you know, pursuing that as vigorously, we obviously asked them to look, that's the direction, give it a try. And there's nothing more fulfilling for any leader to see. You know, teams succeed in that, and they raise their own self-belief that, hey, they can do this.
Tony Chang: In different geographies around the world and business units now what what really delighted me is is you know as as the messaging within the organization under Anaren and now myself got stronger I'm. Just you know the belief in the teams that perhaps we're not pursuing.
Tony Chang: Pursuing that as vigorously.
Tony Chang: We obviously asked them to do that's the direction give it a try and there's nothing more fulfilling for any later to see.
Tony Chang: You know teams succeed and that raised their own self belief that hey, this we can do this and therefore, that's why we're so excited about our prospects in and seeing some of the flywheel of the virtuous cycle really kicking off.
Tony Chang: And therefore, you know, that's why we're so excited about our prospects and seeing some of the flywheel or the virtuous cycle really kicking off. And Tony, just one follow-up question: is the punchline there that the margins are, I presume the margins are a lot better when you do exclusive deals instead of, you know, call them pool deals? Is that you think that's fair?
Speaker Change: And Tony just one follow up is the punch line there, but the margins are I presume the margins are a lot better when you do exclusive deals instead of like you know call. It the pool deals does that do you think that's fair.
Tony Chang: Yeah, no, I mean definitely, the margins are better, but obviously, it's, you know, it's a win-win with us and our clients, right? I mean, we're truly able to give them something that they're willing to commit an exclusive to, so it must be of great value. It's usually first to market or innovative, and then it's a greater value created for us and our partner, and obviously, we're able to share some of that value. Okay, thanks. The next question comes from Suneet Kamath with Jeff. Let's go ahead.
Tony Chang: Yeah, No I mean definitely the margins are better, but obviously, it's it's you know it's a win win with us and our clients right. I mean, we're truly able to give them something that they are willing to commit an exclusive too. So I must be of great value. It's usually first to market or innovative and then it's the greater value created for us and our partner and obviously were.
Tony Chang: Able to share some of that value.
Speaker Change: Okay. Thanks.
Speaker Change: The next question comes from Sydney.
Sydney: <unk> with Jefferies. Please go ahead.
Suneet Kamath: Thanks. Just wanted to follow up on Tom's question, just so I understand the run rate guidance and all that stuff. So, if I look at slide 8, I think it shows that on a normalized basis, you did call it 1.7 billion of pre-tax earnings in 2023. And if I take the midpoint of the range in terms of the run rate, that's also around 1.7.
Sydney: Thanks, just wanted to follow up on Tom's question, just so I understand that the run rate guidance and all that stuff. So if.
Sydney: If I look at slide eight I think it shows that on a normalized basis, you did call. It $1 7 billion of pretax earnings in 2023, and if I take the midpoint of the range in terms of the run rate. That's also around $1 seven and I think what you said Todd is that's probably a good indication of 2024 so is that.
Todd C. Larson: And I think what you said, Todd, is that's probably a good indication of 2024. So, is that right? I mean, basically, what you're saying is 2024's pre-tax earnings should be in line with 2023 normalized. Yeah, normalized.
Right I mean, basically what you're saying is 2024 and its pre tax earnings should be in line with 2023 normalized.
Todd C. Larson: Yeah normalized we've in 2023 we would as we've talked about very strong year very solid underlying earnings but for.
Todd C. Larson: And we've, in 2023, we would, as we've talked about, a very strong year, very solid underlying earnings. But when we came up with the 2024 run rates, we did look at what we would do some, you know, sort of not unusual items, but some one-off type items that we don't expect to repeat and add to the ongoing run rate. That could be some of the impact of the enforced actions or some client reporting adjustments. Sometimes they are related to, you know, experience that kind of.
Todd C. Larson: When we came up with the 2020 four run rates. We did look at what we would do some sort of not unusual items with some one off type items that we don't expect to repeat and add to the ongoing run rate that could be some of the impact.
Todd C. Larson: The impact of the in force actions or some client reporting adjustments, sometimes some related to.
<unk> that kind of thing.
Speaker Change: Okay got it and then I guess on capital I'm, just maybe if I could just parse it into two pieces the 933 million deployed in 2023.
Todd C. Larson: Okay, got it. And then on capital, just maybe if I could just parse it into two pieces. The 933 million deployed in 2023. Like, how quickly should that kind of earn in? Is that, you know, will that take kind of, will that earn in over the course of 2024? Or just because it seems like a lot of that was back-end loaded in terms of the third and fourth quarter.
Speaker Change: How quickly should that kind of earn in is that you know.
Speaker Change: Well that would take kind of let earning over the course of 'twenty 'twenty four or just because it seems like a lot of that was backend loaded in terms of the third and fourth quarter. So just curious about that and then somewhat relatedly in terms of your excess capital right like if I think about what you're earning on that it would that would guess that the drag on ROE is probably like 100 hundred.
Todd C. Larson: So just curious about that and then, somewhat relatedly, in terms of your excess capital, right? Like, if I think about what you're earning on that, I would guess that the drag on ROE is probably like 100, 150 basis points, something like that. So when you say an excess of a billion, is your view that that is fully deployable and that you will take that down over time? Or is a portion of that sort of walled off for, you know, just risk management? Thanks. Yes, so maybe I'll take the latter.
Speaker Change: 50 basis points, something like that so when you say excess of a billion deep is your view that that is fully deployable and that you will take that down over time or is a portion of that sort of walled off for just risk management. Thanks.
Speaker Change: Yeah, So maybe I'll take the latter part of your second question first no we're comfortable taking that excess capital level down what we've talked about in the past know down to the $6 million to $700 million range. We're comfortable with we do want to keep some level of cushion.
Todd C. Larson: We're comfortable taking that excess capital level down, what we've talked about in the past, down to the six, seven hundred million dollar range we're comfortable with. We do want to keep some level of cushion, but all that being said, we've done quite a bit of work over the years developing alternative forms of capital that we can access. You know, fairly, you know, quickly, for example, the Ruby Re transaction that Tony and I mentioned.
Speaker Change: But all that being said you know we've done quite a bit of work over the years developing alternative forms of capital that we can access.
Speaker Change: Fairly quickly for example, the Ruby Reed.
Speaker Change: Transaction that Tony and I mentioned, so for the right transaction the right underlying return profile strategic profile that kind of thing we would be willing to dip down into that excess capital level. When we're confident that we can replenish it.
Todd C. Larson: So, for the right transaction, you know, the right underlying return profile, strategic profile, that kind of thing, we would be willing to dip down into that excess capital level when we're confident that we can replenish it fairly quickly. And then, you know, as we deploy the $933 million of capital throughout the year, the profits on that, and returns tend to ramp up over time, depending on the type of underlying business. So, there will be some contribution in 2024, but it will be increasing over time. Okay, thanks. The next question comes from Ryan Krueger with KBW; please go ahead. Hey, good morning.
Speaker Change: Really quickly and then on the.
You know as we deploy the $933 million of capital throughout the year, yeah that the profits on that return tend to ramp up overtime, depending on the type of underlying business. So there will be some contribution in 2024, but it will be increasing over time.
Speaker Change: Okay. Thanks.
Next question comes from Ryan Krueger with K B W. Please go ahead.
Ryan Krueger: Hey, good morning.
Ryan Krueger: My first question was on individual life mortality in the U.S. I heard your comments that 2023 in total was a bit favorable, but I guess in the overall population, it seems like it's been consistently running unfavorable still at a pre-pandemic level. So I was interested in your thoughts on why you think you're seeing that type of divergence between insured experience versus population experience at this point. Yeah, hi, Ryan,
Ryan Krueger: My first question was on individual life mortality in the U S heard your comments that 2023 on in total was a bit favorable.
Ryan Krueger: In the in the overall population it seems like it.
Ryan Krueger: Instantly running unfavorable spilt that preceded it.
Ryan Krueger: Pandemic levels, though I was interested in your thoughts on why you think youre seeing that type of convergence between <unk>.
Ryan Krueger: Insured excuse Terry did experience spirit is population experience at this point.
Ryan Krueger: Yeah, Hi, Ryan its Jonathan.
Jonathan Porter: I mean, as you mentioned, there is a difference in the populations that we're talking about. So that could be some of why we're seeing different experiences. It is also relative to the expectations that you said as well. So, you know, if you recall, over the last couple years, we have been including excess mortality expectations in our reserving assumptions, in particular under LDTI when we moved to best estimates. So our expectations include our best estimate of what we think that excess mortality will be and, as you said, the results. Okay, thanks. It makes sense.
Jonathan Quarter: I mean as you mentioned there you know there is a difference in the populations that we're talking about so that could be some of why we're seeing different experience and it's also relative to the expectations that you set as well. So you know if you recall over the last couple of years, we have been including excess mortality expectations in our reserving assumptions in particular Andre.
Jonathan Quarter: D C I when we moved to best estimate so our expectations include our best estimate of what we think that excess mortality will be and as you said the results are coming in a little bit favorable relative to those expectations.
Speaker Change: Okay makes sense and then.
Speaker Change: Can you give any rough.
Leslie Barbee: And then... Can you give any rough sensitivity on your exposure to floating rate assets, either just the amount of floating rate assets that you have or the potential impact on earnings from, let's say, you know, a 25 basis point change in short-term rates? Sure, thanks. This is Leslie.
Rough sensitivity on your exposure to floating rate asset either.
Speaker Change: The amount of floating rate assets that you have or the potential impact to earnings from let's say 25 basis point change in short term rate.
Sure. Thanks, [laughter] lastly, so you know a floating rate overall I will I will first say that obviously some decline in rates has been expected for quite a while and so we already have assumption in.
Leslie Barbee: So, you know, floating rates overall. I will first say that obviously, some decline in rates has been expected for quite a while, and so we already have assumptions in the run rate guidance that are similar to where the market is currently. So, you're starting from a fine point there. And then, you know, we have taken actions over 2023 as we thought we were near those peak short-term rates to do some floating to fixed swaps on some of the floaters. And, you know, net in the portfolio, it's less than 4% of the total exposure. So, you're talking on the order of under $10 million over the course of a year for a 50 basis point move. But again, the forwards that already predict, you know, moves down in interest rates this year are already in our guidance. Great, thanks a lot.
Speaker Change: The run rate guidance that are are similar to where the market is currently.
So you're starting from a fine point, there and then.
<unk> taken action over 2023 is that weird near those.
Speaker Change: Short term rates to do some floating to fixed.
Speaker Change: Swaps on floaters and net in the portfolio with less than 4% of the total exposure so you're talking on me.
Speaker Change: Hum.
Speaker Change: <unk> 10 million over the course of a year for a 50 basis point move.
Speaker Change: But again.
Speaker Change: The forward Saturday predict you know moves down in interest rates. This year are already in our guidance.
Speaker Change: Great. Thanks, a lot.
Wilma Burdiss: Our next question comes from Wilma Burdiss with Raymond James. Please go ahead. Hey, good morning.
Speaker Change: Our next question comes from Wilma burden with Raymond James. Please go ahead.
Wilma Burden: Hey, good morning.
Jonathan Porter: I guess, could you talk a little bit about the unfavorable experience in the CAPT cohorts, specifically, if there were any trends you noticed there? And somewhat related to that, could you talk about any mortality trends you're seeing in this kind of winter flu and COVID season? Thank you. Yeah, thanks, Wilma. This is Jonathan.
Wilma Burden: I guess could you talk a little bit about the unfavorable experience in the capped cohorts specifically if there are any trends you noticed there and somewhat related to that.
Wilma Burden: Can you talk about any mortality trends youre seeing in the kind of winter flu and cold season.
Speaker Change: Thank you.
Yeah. Thanks, Let me this is Jonathan.
Jonathan Porter: So for the quarter, when we looked at our experience, we did see some adverse experience in older ages and in larger policy sizes, as Todd mentioned. Volatile, period over period, just sort of the nature of the business. We did, and our experience overall was favorable or in line with other agencies. When we think about the flu, I think so far, based on data that we've seen this year, the flu is expected to be, it's a little earlier than what a sort of a typical season would be, but not nearly as significant as what we saw last year. Based on the trending, it looks like it's probably going to be an average flu season this year, maybe a little bit below average or a little bit better than what we'd see in a typical year, based on deaths and hospitalizations observed so far.
Jonathan Quarter: So for the quarter.
Jonathan Quarter: When we looked at our experience we did see some adverse experience in older ages and in larger policy sizes as Todd mentioned and again those large policies can be volatile period over period, just from the nature of the business.
Jonathan Quarter: We did our experience overall was favorable or in line with with other age groups and sizes, though.
Jonathan Quarter: When we think about the flu I think so far based on data that we've seen this year.
Jonathan Quarter: <unk> is expected to be a it's a little earlier than what I was sort of a typical season would be but not nearly as significant as what we saw last year.
Jonathan Quarter: Based on the trending it looks like it's probably going to be an average flu season. This year, maybe a little bit below average or a little bit better than what we'd see in a typical year are.
Jonathan Quarter: Based on our deaths and hospitalizations observed so far and that's pretty consistent with what we've seen around the globe as well.
Jonathan Porter: And that's pretty consistent with what we've seen around the country and anything to note on COVID. Yeah, I mean, COVID is really... It's difficult to get an accurate count of COVID on its own. So, which is why we look at it more from a total excess mortality perspective. But, you know, based on the data we're able to observe, I think our expectation is that there's no sign of a major fall or winter surge. Again, it's difficult to parse out the COVID.
Jonathan Quarter: Anything to note on Covid.
Speaker Change: Oh, Yeah, I mean COVID-19 is really.
Speaker Change: Difficult to get an accurate count of Covid on its own so which is why we look at it more from a total excess mortality perspective, but you know based on the data and we're able to observe I think our expectation is there's no sign of a major fall or winter surge.
Speaker Change: But it's again, it's difficult to parse out the COVID-19 based on our reporting quality. These days.
Jonathan Porter: Gotcha, and then just one more, if you guys could talk a little bit about how you're thinking about longevity exposure going forward. I know that's something that you used to kind of give some targets around increasing longevity exposure, just maybe you can give us an update there. Yeah, this is Jonathan again. I'll go first, and others can add on.
Speaker Change: Got you and then just one more if you guys could talk a little bit about how you're thinking about longevity exposure going forward and I know that's something that you used to kind of give some targets around increasing longevity exposure. Just maybe you can give us an update there.
Yeah, Hi, this is Jonathan again I'll go first and then others can add on.
Jonathan Porter: I think our expectation is the same as what we would have shared before at Investor Day. You know, we do expect to see our proportion of longevity risk as a percentage of our overall biometric risk increase over the next few years. We expect our mortality and our morbidity business to grow, but we just think there's a great opportunity on the longevity side. So we do think it will increase what it's going to be, you know, moving from more like 10 to 15% of our total biometric risk to 20 to 25%, something of that magnitude. So we'll still be more weighted towards mortality, but just a little bit more balanced, which is a positive from the diversity point of view. Perhaps, let me just add, and I was just going to quote what Jonathan said on diversification. So obviously, you know, we will be mortality long for quite a period of time, but the longevity adds some diversification. But just to get a bit more finer, yeah, our mortality block tends to be higher socioeconomic and younger age; the longevity block obviously tends to be blue collar and retirees.
Jonathan Quarter: I think our expectation is the same as what.
Jonathan Quarter: We would have shared before it at Investor day.
Jonathan Quarter: We do expect to see our proportion of longevity risk as a percentage of our overall biometric risks increase over the next few years, we expect.
Jonathan Quarter: Our mortality and morbidity business to grow, but we just think theres a great opportunity on the longevity side.
Jonathan Quarter: So we do think it will increase at what it's going to be you know moving from more like a 10% to 15% of our total biometric risk to 20% to 25% or something of that magnitude. So it will still be.
More more weighted towards mortality.
Jonathan Quarter: Just a little bit more balanced which is a positive from a diversification perspective, obviously.
Speaker Change: Yeah, perhaps let me just add in I was just gonna kill off what Jonathan said on diversification. So obviously you know.
Yeah.
Speaker Change: We we will be mortality long for quite a period of time.
Speaker Change: But the longevity add some diversification.
Speaker Change: But just to.
Speaker Change: Get a bit more finer yeah mortality block tends to be highest socioeconomics and younger age Oh.
Speaker Change: How long jeopardy block, obviously tends to be blue collar retirees. So you know with medical advances that we would expect to continue to see as we've always seen oh why it favors the mortality block more so than the than.
Tony Chang: So, you know, with medical advances that we would expect to continue to see, as we've always seen, in a way, it favors the mortality block more so than the negative on longevity. Thank you. The next question comes from Alex Scott with Goldman Sachs. Please go ahead. Hi, good morning.
Speaker Change: The negative on the longevity block.
Speaker Change: Thank you.
Speaker Change: The next question comes from Alex Scott with Goldman Sachs. Please go ahead.
Alex Scott: Hi, Good morning, first one I had is on the regulatory front I know in Bermuda I think you know you guys don't use a scenario based approach in.
Alex Scott: The first one I have for you is on the regulatory front. I know in Bermuda, I think you guys don't use the scenario-based approach and, as U.S. taxpayers, so a little less applicable to you, but I guess you're just interested in a broad update. Are you seeing it affect the competitive environment at all for some of the, you know, relationships and transactions you have? I mean, any kind of price sensitivity change related to it? Thanks, Alex. Thanks for the question. I think what we previously shared. You know, we have anecdotally seen some impact on the competition; there was a previous quotation where, you know, due to an announcement in Bermuda overnight, the number of competitors on a certain individual quotation dropped dramatically.
Alex Scott: Your U S taxpayer, so a little less applicable to you, but I guess, you're just interested in a broad update are you seeing it affect the competitive environment at all.
Speaker Change: For some of it.
Speaker Change: Relationships and transactions you have I mean, any kind of price sensitivity change related to it.
Speaker Change: Thanks, Alex Thanks for the question.
We've previously shared.
Alex Scott: You know, we we we have anecdotally I'm seeing some impact on the competition you know there was a previous quotation with due to an announcement in Bermuda or overnight you know the number of competitors on a certain individual quotation dropped dramatically you know we obviously.
Tony Chang: You know, we obviously are very mindful of regulations around the world, Bermuda, the US, even Europe and the UK. We're seeing obviously some discussions, but we're not overly concerned by that; we, you know, always continue to focus on what we're doing. And you know, in some sense, that's why we're very delighted with the Belgium transaction that we did. You know, there is a lot of discussion on regulatory issues across the continent, but we were very delighted with that transaction. We believe it can open up further opportunities in Belgium and wider throughout the continent. I got it.
Alex Scott: We are very mindful of regulations around the world our Bermuda the U S.
Alex Scott: Even Europe and U K with was saying obviously some discussions.
Alex Scott: You know, we're not overly concerned by that we you know.
Alex Scott: We continue to focus on what we're doing and you know some some sense. That's why we're very delighted with the Belgium, a transaction that we did.
You know there's a there is a lot of discussion on regulatory issues in the in the continent.
Alex Scott: But we we're very delighted with that transaction. We believe it can open up further opportunities in Belgium and broader throughout the continent.
Speaker Change: Got it.
Tony Chang: Very, very helpful. And, you know, for my second question, could you just kind of give us a feel for how session rates are trending in the U.S. market? Something I don't track quite as closely, so I'd just be interested if you had an update on sort of where things are moving there. Yeah, maybe I'll take that one.
Speaker Change: Very very helpful.
Speaker Change: Yeah, I guess for for a second question could you just kind of give us a feel for how session rates are trending in the U S market are something I don't know.
That quite as closely so I'd just be interested if you have an update on sort of where things are moving there.
Speaker Change: Yeah, maybe I'll take that one I mean.
Speaker Change: You know I think directionally.
Tony Chang: I mean... You know, I think, directionally, it's in a positive direction. You know, our job is always to, as I mentioned earlier, continue to innovate, find new ways to have a win-win with our partners, so they have a strong, compelling reason to reinsure. I would say session rates are that which is usually tracked on new business.
Speaker Change: It is.
It's in a positive direction, you know al drops he's always stick to as I mentioned earlier, we continue to innovate find.
Speaker Change: New ways to have a win win without partners. So they have a strong compelling reason to two range. So I would say session rates says that you usually track is on new business, what we have seen increasing interest in as as some of the clients. You know you know moved towards a more capital light.
Tony Chang: What we have seen increasing interest in, as some of the clients, you know, move towards a more capital light, de-risking their in-force blocks of business. You know, that creates greater opportunities for us on an in-force perspective. Reinsuring mortality on back-ends, has been very helpful.
Risking their in force blocks of business, Yeah, that's creates greater opportunities for us on a on an in force perspective brain sharing mortality I'm back books and so on.
Speaker Change: Got it very helpful. Thank you.
Tony Chang: Thank you. The next question comes from Mike Ward with Citi. Please go ahead. Thanks, guys. Good morning.
Speaker Change: The next question comes from Mike Ward.
Michael Ward: With Citi. Please go ahead.
Michael Ward: [laughter].
Michael Ward: Thanks, guys good morning.
Michael Ward: So, we have the new run rate guidance, and there's the 8% to 10% earnings growth, which I think is for dollars of earnings and EPS. So, I'm just kind of wondering, is there a component that you can factor in with the 8% to 10%, is there a component in there from, you know, just improved new money yields or just NII in general? Hey Mike, it's Todd.
Michael Ward: So we have the new run rate guidance, and there's the 8% to 10% earnings growth.
Which I think is for dollars of earnings and EPS.
Michael Ward: So I'm just kind of wondering is there a component that you.
Michael Ward: With the 8% to 10% is there a component in there from you know just improved new money yields or just NII in general growing.
Michael Ward: Oh, Hey, Mike, It's Todd I'll, just start out by saying you know the increase in the overall they'll run rates that we provided last night compared to the Investor day back in June there's really three components I would say, there's the higher investment yields and then.
Todd C. Larson: I'd just start out by saying, you know, the increase in the overall, you know, run rates that we provided last night compared to the investor day back in June, there are really three components, I would say. There's the, you know, higher investment yields, and then there's the good experience on the InForce book overall across the diversified platform. And then there's the added margin for the strong new business volumes that we've been able to achieve during the year. And Todd, the only thing I'll add, you know, I know the print for new money rate is particularly high this quarter. That isn't what is assumed for the full year; the assumptions about how much money will I put to work and where it will go are more consistent with current market conditions than that particular print in the fourth quarter.
On Thursday.
Michael Ward: Good experience on the in force book overall across the diversified platform and then there's the added.
Michael Ward: Margin for the strong new business volumes that we've been able to achieve during during the year.
Speaker Change: And Todd the only thing I'll add.
I know the.
Todd C. Larson: The print for new money rate is particularly high this quarter that isn't what is assumed for the full year the assumptions about.
Todd C. Larson: Well, how much money will have put to work and where it will go in a more consistent with current market conditions than that particular point in the fourth quarter.
Todd C. Larson: Okay.
Todd C. Larson: Okay, um, thanks. And then maybe on just capital return, does the 8 to 10% kind of assume, you know, an ongoing, call it 200 million in annual buybacks going forward? Yeah, I would say, you know, it really considers our continued sort of active and balanced capital management. As we've been very consistent over the years, we really like deploying the capital into the transactions that make good returns for the risk return profile, keeping no healthy dividend, and then balancing out with, you know, the share repurchases. So, you know, it's really the continued assumption of that active and balanced approach to capital management. Thank you. The next question comes from Jimmy Bhullar with J.P. Morgan. Please go ahead.
Speaker Change: Thanks, and then maybe on on just on capital return does the does the 8% to 10% kind of assume you know.
Speaker Change: Ongoing call it 200 million of annual buybacks.
Speaker Change: Going forward.
Speaker Change: Yeah, I would say you know it really considers our continued sort of active and balanced capital management between you know what.
Speaker Change: As we've been very consistent over the years, we've really liked deploying the capital into the transactions that make good returns for the risk return profile, keeping a healthy dividend and then balancing out with Oh the share repurchases. So it's.
Speaker Change: Really it's the continued.
Speaker Change: Assumption of that active and balanced approach to the capital management.
Speaker Change: Okay. Thank.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Jim need Mueller with JP Morgan. Please go ahead.
Jimmy S. Bhullar: Hey, I just wanted to see if you could give us some color on what's going on in the Australia business and just how the block performed this quarter and how much of the problematic vintages are already on your books and just your overall comfort level with reserves for that book. Yeah, so, for the quarter, we had a modest loss in, you know, Australia, continuing to, you know, monitor the business, and, overall, you know, market conditions seem to be, you know, okay, but, you know, continue to, you know, keep a close eye on the overall block. But overall, you know, our reserves for most of that business are under LETI, so we're required to be holding best estimates on the balance sheet. Yeah, Jimmy, as we've probably shared previously, you know, Australia is somewhere we pay very close attention to. I guess it was my first time.
Jim Mueller: Hey, I just wanted to see if just a follow up to see if you could give us some color on what's going on in the Australia business and just how the block performed this quarter and how much of the problematic vintages are already on your books and just your overall comfort level with the reserves for that book.
Speaker Change: Yeah. So you know for the quarter, we had a modest loss in Australia continuing to.
Speaker Change: Yeah.
Monitor the business and overall market.
Speaker Change: Market conditions seem to be okay, but you'll continue to.
Speaker Change: Keep a close eye on the overall block, but overall you know our reserves for most of that business are under L. D.
Speaker Change: Required to be the holding best estimate reserves on the on the balance sheet.
Speaker Change: Yeah to me that's why probably.
Speaker Change: Please shed a previously you know Trey there are some where we pay very close attention to I.
Speaker Change: I guess those are my first time.
Tony Chang: You know, really, we, as you would expect, the regulatory environment and the market have improved over time, but we, as you'd expect from RGA, retain our incredibly strong discipline. You know, like I mentioned, it's really that combination of risk management, along with the entrepreneurial spirit, but absolutely the discipline, and, you know, Australia is part of our Asian business, a relatively minor part of the Asian business. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Tony Chang for any closing remarks. Thank you, everyone, for your questions.
You know I rarely are we as you would expect I'm you know the regulatory environment and the market has improved over time, a blue we as you'd expect from us retain our incredibly strong discipline you know like.
Speaker Change: Like I mentioned, it's really that combination of the risk management, along with the entrepreneurial spirit, but absolutely the discipline. Our stride. There is that is part of our Asian business, a relatively minor part of the Asian business.
Speaker Change: Thank you.
This concludes our question and answer session I would like to turn the conference back over to Tony Chang for any closing remarks.
Tony Chang: Thank you everyone for your questions and sincere. Thanks for your continued interest in RGA.
Tony Chang: Sincere thanks for your continued interest in RGA. You know, this was a very, it was a strong quarter, but really completing a very, very strong year. You know, it further demonstrates our substantial earning powers in our business. You know, I think you've seen all the time the incredibly diverse platform we have, whether it's experience, whether it's geography, whether it's our business strategy. And that's really fueling, you know, we feel a very strong pipeline that we obviously have visibility on. So we really remain very well positioned to capitalize on the many growth opportunities ahead. We're absolutely confident in our ability to continue to deliver attractive returns to our shareholders and benefit all our stakeholders.
Tony Chang: Yeah. This was a very strong quarter, but really completing a very very strong year.
Further demonstrates our substantial earning power as you know in our business you know I think you've seen all the time you know that the incredibly diverse platform, we have whether it's experience whether it's geography, whether it's our business strategy.
Tony Chang: And that's really fueling yeah, we feel a very strong pipeline that we obviously have visibility on so we really remain very well positioned to capitalize on the many growth opportunities ahead.
Speaker Change: Absolutely confident in our ability to continue to deliver attractive returns to our shareholders and benefit all our stakeholders. So thank you. Once again this concludes our call.
Tony Chang: So thank you once again. This concludes our conference. Thank you. The conference is now concluded. Thank you for attending today's call. You may now go.
Speaker Change: Okay.
Speaker Change: The conference has now concluded. Thank you for attending today's call you may now disconnect.