Q4 2024 Reinsurance Group of America Inc Earnings Call
Hello, and welcome to the reinsurance group of America's fourth quarter 'twenty 'twenty four 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.
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Speaker Change: I would now like to hand, the call to Jeff Hutton head of Investor Relations. Please go ahead.
Speaker Change: Welcome to Rga's fourth quarter 2024 conference call I'm joined on the call. This morning, with Tony Chang Rga's, President and CEO XO Andre Chief Financial Officer, Leslie Barbie, Chief Investment Officer, Jonathan Porter, Chief Risk Officer.
Speaker Change: Quick reminder, before we could start I'd regarding forward looking information and non-GAAP financial measures some of our comments or answer 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.
Speaker Change: That could cause actual results to differ 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 a discussion of.
These terms and reconciliations to GAAP measures throughout the call we will be referencing slides from the earnings presentation, which again is posted on our website 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: Last night, we reported adjusted operating earnings of $4.99 per share.
Tony Chang: Adjusted operating return on equity excluding notable items for the past year was 415.4%.
Tony Chang: The fourth quarter capped off a great year for Iga as we delivered record operating earnings and many other achievements across our organization.
Tony Chang: In the quarter, our enforced transactions was solid at $250 million of capital deployed and this was accompanied by continued strong momentum in organic business activity in all our key markets around the world.
Tony Chang: We once again successfully executed our balance sheet optimization strategy with various enforce action.
Tony Chang: These actions resulted in not only favorable near term results continued long term financial benefits, but also simultaneously reduced risk faraci such.
Tony Chang: Such actions are very much part of our business strategy, although lumpy in nature.
Tony Chang: For the full year, we deployed just shy of $1 $7 billion into transactions, which far exceeded any other year in our Jay's history.
Tony Chang: Moreover, we entered 2025 with a robust pipeline and are excited about our business prospects across the globe.
Tony Chang: This strong and sustainable business momentum is a result of the RJ strategic platform.
And demonstrated disciplined that way exhibit in both risk management and capital deployment.
Tony Chang: Based upon the strong quarterly and annual results and our confidence in the strong fundamentals of our business. We have increased our intermediate term operating our ROA target to 13% to 15% up from the previous 12% to 14%.
Tony Chang: In addition, we have raised our targets for earnings run rate and reaffirm our 8% to 10% intermediate term growth target on this higher run rate.
Speaker Change: Let me now provide further detail how's all.
Speaker Change: Some of our new business activities in the quarter focused on now all areas of notable growth.
Speaker Change: Commencing without Asia traditional business.
Speaker Change: We have previously shared a number of important transactions, where we play to our strength and our ability to reinsure, both the asset and biometric sides of the balance sheet.
Speaker Change: It has been predominantly in Hong Kong, which is where we first established our strong product development capabilities.
Speaker Change: Q4, 'twenty 'twenty four we extended this strategy with all important transaction in mainland China that generated a meaningful value uplift. These transactions not only help our clients improve their asset liability management profiles, but also optimize our own a L M profile, providing further.
Speaker Change: Diversification barrage yet this is a great example of how our teams are finding creative ways to produce new opportunities to help our clients generate additional value for our J, whilst reducing our risk profile at the same time.
Speaker Change: Our second area of notable growth U S. Traditional the fourth quarter was another good quarter for new business. After a very strong Q3, and the U S market is presenting increasingly attractive opportunities that align with our jays underwriting strength complemented by the increasing use of technology and data.
In addition, as previously reported we closed the transaction with a key global client that included L. T C and a block of structured settlements and an attractive risk return trade off.
Speaker Change: The block of L. T say represented less than 2% of <unk> total liabilities with a consistent risk profile to our existing LTC enforced block that has performed strongly for many years.
Speaker Change: Our third area of notable growth.
Speaker Change: It's the PRT and the longevity market in the U S. P O T market, we completed a small transaction this quarter.
Speaker Change: Pipeline remains strong and we are optimistic about our prospects going forward.
Speaker Change: In the UK, we had a very active quarter to close out a record year as we completed a number of strategic transactions leveraging the strength of our client relationships. This included another large U K director planned longevity swap where the client valued rga's execution certainty.
Speaker Change: With this strong quarter, we surpassed 2020, Three's, new business performance, which was a record year for Rajiv.
Speaker Change: Finally in Canada, we closed our first funded reinsurance PRT transaction, which was done with a strategic partner, we have done a few longevity swap reinsurance deals over the years.
Speaker Change: But this was the first stillwell, we reinsured risks from both sides of the balance sheet to bring new solutions to the market.
Speaker Change: Every dollar of longevity risk has the potential to diversify their overall risk aby J given our substantial mortality business just like the early examples from China, we can generate profitable business and diversify our risk at the same time.
Speaker Change: Our final area of notable growth in our Asia asset intensive business, where we completed a modest number of transactions to cap off a great year in.
Speaker Change: In Japan, we finalize the landmark landmark transaction with one of our key global clients. This is a material biometric asset intensive opportunity with an initial reserve of about 200 million U S. Dollars. This once again demonstrates our ability to reinsure both sides of the balance sheet.
Speaker Change: As you can see in each example in all four areas of notable growth we have been successful in winning exclusive transactions in our sweet spot.
Speaker Change: That is we are able to combine our strong local market presence biometric capabilities asset management platform and ability to reinsure, both sides of the balance sheet, but key clients around the globe. These are very much examples of what we call creation rebuilt.
Speaker Change: These transactions create greater value for RGA and its clients and lead to a virtuous cycle of repeat deals within the same market or in other markets around the Boston Iga network. This strategy is now fully being executed this quarter and for the past two years we are.
Speaker Change: To say that the majority of the new business embedded value comes from creation rebuilt.
Speaker Change: And as previously mentioned in addition to new business, we are able to enhance our ROA and earnings through our balance sheet optimization strategy. This quarter. We completed another reinforced management action, which resulted in a client recapturing several blocks from the 1990 904 era.
Speaker Change: Reducing our exposure to this underperforming period.
Just like the Chinese new business and the longevity transactions. This is yet. Another example of where we can create financial value and simultaneously diversify our enterprise risk.
Speaker Change: As I step back and review the full year's results. It was a tremendous year from both a financial and strategic perspective.
Speaker Change: Record operating EPS of $22.57 per share up 14% from a strong 20 twenty-three record capital deployment into transactions of $1 $7 billion up 80% from 'twenty to 'twenty three record balance sheet optimization delivering $2.1 billion.
Speaker Change: Of long term value record new business value up 70% from 2023, driven by creation rate deals to put a fine point on how historic 'twenty 'twenty four was in terms of business activity.
Speaker Change: We completed the first third and fourth largest transactions in our history.
Speaker Change: Finally, we were able to deliver this success and business performance at an hour away for 2025 of 15, 4%, which is above our intermediate target range.
Speaker Change: I am most proud of many things that RJ, but I'm most proud of the fact that everything we do at RJ is with a disciplined and balanced approach. We are not only about growth and winning new business, but just as much about being disciplined and patient for the right risk return trade off we are.
Speaker Change: Not only focused on the U S. But also just as focused on Asia, and EMEA, which represents over 50% of our earnings we are not only about biometric risk, but as adept in re insuring the asset side of the balance sheet. We achieved this balanced by having an environment for an entrepreneur.
Speaker Change: Spirit to flourish, but also instilling in each of our associates, the vital importance of discipline and strong technical expertise.
Speaker Change: The true heart of the organization is that we are a group of risk managers focused on only one thing, which is life and health risk.
Speaker Change: By continuing to execute this proven formula for over 50 years, we have substantially grown our book value per share and have been able to raise our OE and earnings targets in each of the past two years there.
Speaker Change: Therefore, no matter how proud I am of what we achieved in 2020 full I am fully confident that the best is yet to come.
Andre: Now I'll turn it over to our CFO Andre XO Andre to discuss the financial results in more detail.
Speaker Change: Thank you Tony.
Speaker Change: Oh Gee, a reported pre tax adjusted operating income of $431 million for the quarter or $4.99 per share after tax.
Speaker Change: On a trailing 12 months adjusted operating return on equity excluding notable items was 15, 4%.
Speaker Change: We delivered solid overall results for the quarter and excellent results for the year during 2020 four we added significantly to the long term value of our business, which adds recurring earnings and we continue to execute on our strategic initiatives.
Speaker Change: We deployed $250 million into in force transactions in the quarter and nearly $1 7 billion for the full year.
Also our internal measure of new business value added was very strong for the quarter, an all time high for the year.
Speaker Change: Reported premiums were up one 2% for the quarter relative to the fourth quarter of 2023, However, adjusted adjusting for U S. P O T transactions, which can cause premiums do fluctuate total premiums were up 11%.
Speaker Change: Our traditional business premium growth was nine 5% for the quarter and eight 3% year to date on a constant currency basis.
Speaker Change: Premiums are a good indicator of the ongoing strength of our traditional business and we continue to have good momentum across our regions.
Speaker Change: The effective tax rate for the quarter was 22, 5% on pretax adjusted operating income below the expected range, primarily related to the release of valuation allowances in non U S jurisdictions.
Speaker Change: Our in force management actions in the U S. This quarter again had a favorable impact on results and a positive impact on the future in terms of risk reduction and volatility in earnings.
Speaker Change: The positive impact in the quarter was approximately $84 million.
Speaker Change: In the quarter, we true it up accruals for incentive compensation to reflect the strong full year financial performance and the very strong new business value for the year. The total true up in the quarter was $42 million across the organization impacting the business segments corporate and investment expenses.
Speaker Change: Variable investment income was supposedly is with moderately below our plan.
Speaker Change: Overall, when adjusting for the nonrecurring items I, just mentioned and the financial impact of the biometric claims experience, which was unfavorable $58 million from an accounting perspective.
Speaker Change: What are the results were in line with our expectations.
Speaker Change: Yeah.
Speaker Change: Moving on to our updated financial targets.
Speaker Change: On slide 20 of our earnings presentation, we have updated our financial targets, which include higher current current run rates and increased intermediate term adjusted operating ROE target.
Speaker Change: There are several favorable dynamics driving the increase since our last update a year ago.
Speaker Change: We have added significant new business at attractive returns, which is expected to materially contribute to future earnings.
Additionally, we are seeing the incremental benefits from higher interest rates on new investments and from all continued portfolio repositioning efforts.
Speaker Change: Lastly, the cumulative impact of our ongoing balance sheet optimization and other management actions are having a positive impact to run rate earnings.
Speaker Change: I'll highlight a few segments to provide additional perspective.
Speaker Change: First our Asia traditional and financial solutions businesses continue to achieve significant growth at attractive margins.
We expect the recent success to materially contribute to earnings going forward and believe the recent momentum will continue.
Speaker Change: Next the updated U S. Traditional run rates reflect the positive deal activity impact from management actions and run off of lower margin businesses.
Speaker Change: While it's difficult to predict the timing and size of enforce management actions, we expect them to remain a core part of our strategy and contribute favorably to earnings.
Speaker Change: Moving to U S financial solutions, where we have reset our expectations and adjusted the run rates to capture the current interest rate environment.
Speaker Change: The primary driver of the decline is the run off in our existing annuity business why do we continue to win our share of new business, particularly in the U S. P. A R. T market the earnings emergence is a bit slower compared to the run off.
Speaker Change: However, we expect contributions from new business to increase as portfolios, our repositioned and returns from alternative investments emerge.
Speaker Change: For EMEA, we expect our traditional segments to benefit from our strategic shift from lower margin short term business to longer term higher margin business.
Speaker Change: The increase in EMEA financial solutions run rates reflect our continued growth and success in the regions longevity market.
Speaker Change: Yeah.
Speaker Change: Moving on to value of in force.
Speaker Change: The value of in force the value of our in force business margins as highlighted on slide 19.
Speaker Change: The balance increased by $4 $6 billion or around 14% for the year, driven primarily by new business contributions of $4 $8 billion with strong contributions from both our traditional and financial solutions businesses.
Speaker Change: Also the assumption changes related to the retro recapture contributed $1.5 billion and other management actions contributed $600 million.
Speaker Change: These were partially offset by $1 $1 billion in unfavorable currency impacts towards the end of the year end.
Speaker Change: And $1 billion in expected margin runoff.
Speaker Change: Excluding the impact of FX the value increased 17% for the year.
Speaker Change: For the quarter the value remains relatively flat as new business contributions of $1 billion and management actions of $100 million were offset by the unfavorable FX impacts I just mentioned.
Speaker Change: Deployable capital.
Speaker Change: As discussed last quarter, we have reevaluated, how we view available capital to better account for the multiple frameworks, we manage including regulatory and rating agency requirements.
Speaker Change: Going forward, we will no longer provide a point in time view of excess capital instead, we will disclose our preferred metric of deployable capital, which stands at one $7 billion at the end of the year.
Speaker Change: This metric represents management's estimates of capital above our targeted level of excess capital available for deployment into transactions or available to return to shareholders over the next 12 months.
Speaker Change: This improved view considers our point in time existing capital position relative to the capital frameworks as a starting point as well as management's estimate of capital generation and consumption over a rolling 12 months period.
Speaker Change: Examples of capital sources include retained earnings credit for the value of our in force business and other alternative sources of capital such as Ruby REIT and strategic retro sessions.
Speaker Change: Capital uses include committed capital on flow reinsurance transactions transactions, we have signed but not yet closed shareholder dividends and other holding company capital uses.
Speaker Change: We believe the transition from a point in time view to a forward looking approach provides a better view of our capacity to maintain our current levels of capital deployment and ability to fund future business growth.
Finally, before turning to the quarterly segment results I would like to speak to slide nine this displays the total company claims experience and the related financial statement impacts.
Speaker Change: Are you a metric experience, which includes mortality morbidity longevity was unfavorable by $52 million on an underlying claims experience basis.
Speaker Change: The corresponding financial impacts was $58 million unfavorable.
Speaker Change: We believe these results are primarily due to product of normal volatility and do not indicate any material trends.
Speaker Change: While claims experience can be volatile I want to point you towards the year to date figure that shows significant favorable underlying claims experience driven by experience in U S EMEA and APAC and modestly negative in Canada, the comparable financial impact for the year. It was a slight negative as favorable performance in uncapped cohort.
Speaker Change: We'll get smoothed into the future while the unfavorable performance in captain flawed cohorts was recognized immediately.
Speaker Change: These results are consistent with 2023 claims experience where underlying claims experience was favorable but the financial impact was relatively small.
Speaker Change: Yeah.
Speaker Change: Turning to the quarterly segment results starting on slide seven.
Speaker Change: The U S and Latin America traditional results reflected a favorable enforce management action, partially offset by unfavorable group medical claims.
Speaker Change: For the full year individual life mortality experience was positive on both an economy and financial statement basis.
Speaker Change: The U S financial solutions results were below expectations due to the combined run off of existing annuity business and the earnings emergence from new transactions.
Speaker Change: Canada traditional results reflected modestly unfavorable experience due to adverse large claims experience, mostly mostly offset by favorable experience in group business.
Speaker Change: For the year underwriting experience was modestly unfavorable on both an economic and financial statement impacts.
Speaker Change: The financial solutions results in Canada were in line with expectations.
Speaker Change: Moving on to EMEA.
Speaker Change: In EMEA the traditional results reflected modestly unfavorable claims experience, partially offset by higher fee income from a treaty recapture.
Speaker Change: The underwriting results on an economy basis were close to breakeven, while the financial statement impact reflected negative experience in flawed cohorts.
Speaker Change: For the full year, the economic underwriting experience was favorable but the financial impact was negative again based on the L. D T I cohort thing.
Speaker Change: Emea's financial solutions results were above expectations, reflecting strong new business favorable longevity experience and higher investment margins.
Speaker Change: Turning to our Asia Pacific region.
Speaker Change: The traditional results were below expectations, primarily reflecting adverse high net worth claims on fluid contracts overall underwriting experience was favorable on an economic basis, but the bottomline impact reflected those large claims in Florida cohorts.
Speaker Change: For the full year underwriting results on an economic basis was highly favorable however, only a minimal positive currency impacts due to LTI cohort.
Speaker Change: Financial solutions results were solid in APAC, reflecting favorable overall experience, partially offset by lower variable investment income.
Speaker Change: Yes.
Speaker Change: Finally, the corporate and other segment reported an adjusted operating loss before tax of $71 million unfavorable compared to the expected quarterly average run rate, primarily due to higher general expenses, including the incentive compensation accruals that I mentioned earlier.
Speaker Change: Moving to investments on slides 11 through 14.
Speaker Change: The non spread portfolio yield for the quarter was 4.83% down slightly from the last quarter, primarily reflecting higher incentive compensation accrual true ups as well as lower variable investment income.
Speaker Change: Partially offset by the contribution from new money yields exceeding the portfolio yield.
Speaker Change: If not for the compensation accrual adjustments in the quarter the earned rate, excluding VII would've increased versus the third quarter.
Speaker Change: But non spread business or new money rates was six 4%, which was up from the third quarter and well above the current portfolio yield.
Credit impairments were minimal and we believe the portfolio remains well positioned.
Speaker Change: Related to capital management as shown on slides 15 through 17, our capital and liquidity positions remain strong and as mentioned earlier, we ended the quarter with deployable capital of approximately $1 $7 billion. We had another good quarter of capital deployed into in force transactions across multiple geographies.
Speaker Change: Additionally, there was more good news related to Ruby re photo Ingo successful closing of the final capital raise we completed an additional retrocession of U S asset intensive liabilities to Ruby into fourth quarter.
Speaker Change: During the quarter, we continued our long track record of increasing book value per share as shown on slide 18, our book value per share, excluding a OCI and impacts from B 36 embedded derivatives increased to $151.97, which represents a compounded annual growth rate of nine 9%.
Since the beginning of 2021.
To summarize 2022 'twenty 'twenty four was a great year for RGA, we continue to see very good opportunities across our geographies and business lines and we are well positioned to execute on our strategic plan.
Speaker Change: With that I would like to take a moment to thank everyone for your continued interest in RGA. This concludes our prepared remarks, and we would like to now open the call for questions.
Speaker Change: Uh huh.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: That's a good question you May Press Star then one on your telephone keypad.
If you are using a speaker phone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Speaker Change: In the interest of time, we ask that analysts limit themselves to one question and one follow up.
Speaker Change: We will pause momentarily to assemble our roster.
Speaker Change: Today's first question comes from Bill not burdened with Raymond James. Please go ahead.
Speaker Change: Hi, good morning.
Speaker Change: Between the economic and financial impacts of the biometric expands.
Speaker Change: Over what timeframe do you think.
Speaker Change: $6 million to $7 million.
Speaker Change: Hello biometric.
Speaker Change: Experienced from 2004.
Speaker Change: Thanks.
Speaker Change: Sure I can get started and if Jonathan you have anything to add please go ahead.
Speaker Change: Thank you Matt for the question you typically the way we think about it the economic impact gets amortized ultimately through through the accounting results essentially over the life of the business. So if you think you know probably around 15 years, plus a period would be the period of time over which you would amortize that that economy claim.
Speaker Change: <unk> experienced that hasn't yet flown through the accounting results.
Speaker Change: Okay.
Speaker Change: And then can you talk a little bit about some potential run rate.
Speaker Change: And you've got spring, especially on a lot of the.
Speaker Change: Fire them in.
Speaker Change: The financial solutions business.
In a quarter per quarter basis.
Speaker Change: Thanks.
Speaker Change: Sure for them so for the U S financial solutions business as I mentioned, we've got kind of the old annuity business that that that is running off and then what were adding in terms of new business are you know a number of different asset intensive.
Speaker Change: And U S. P O T business as we take on those transactions are typically we would take on a large portfolio and then we reposition this portfolio over a period of time towards the strategic.
Speaker Change: Strategic asset allocation that that makes sense for that business and that can take some time for for that to happen for those assets to be originated and for the full run rate of investment income essentially to be to be delivered I think we have messaged in the past study.
Speaker Change: To 12 to 18 months is the period of time that it may take to get to that full run rate.
Speaker Change: Thank you. The next question comes from Ryan Krueger with K B W. Please go ahead.
Ryan Krueger: Hey, Thanks, Good morning, a question on the deployable capital definition, I guess, maybe just as a starting point I just wanted to confirm that the rating agencies have all signed off on on this approach given it's maybe slightly different than what we're used to and that you truly believe that you know you could deploy all of about one point.
Speaker Change: <unk> 7 billion.
Speaker Change: And the rating agencies would view that as as acceptable to Arabian.
Ryan Krueger: Thanks, Ryan for the question Yeah. So so this deployable capital metric dusk incorporates both the regulatory read three frameworks to regulatory capital rating agency and our internal economic capital framework.
Ryan Krueger: From the rating agency components of that.
Ryan Krueger: As mentioned in some of the capital sources that we we have planned for over the next 12 months all of the recognition of the value of in force business, we do that based on track record of.
Ryan Krueger: Gaining that's that's a recognition from rating agencies and we we only puts an amount in there that corresponds to what we have high confidence.
Ryan Krueger: Over that 12 months period.
Ryan Krueger: Okay got it and then.
Ryan Krueger: On the run rate I don't expect you to give us an exact number here, but I guess, you've had very very significant capital deployed in 2024 and to enforce deals I guess, just any sense of kind of sums.
Ryan Krueger: Something has a sense of how much you assumed would happen in those run rates are I'm, just trying to understand kind of if you've already projected a pretty healthy amount of deal activity or.
Ryan Krueger: What's the outlook in the pipeline might suggest upside if those come to fruition.
Ryan Krueger: Sure.
Ryan Krueger: So the so the run rates two things right. So there are the run rates reflect a number one significant new.
Ryan Krueger: New business momentum and enforce management actions.
Ryan Krueger: That's we mentioned so during the course of really.
Ryan Krueger: Last half of 'twenty, 'twenty, three and 'twenty 'twenty four so all of those new new deals of course add to their rent to the run rate of earnings.
Ryan Krueger: In addition to that the some of the in force actions that we talked about so we talked about.
Ryan Krueger: This recapture of treaties, which at times can result in an improvement to the run rate of earnings we talked about the retrocession.
Ryan Krueger: Hum.
Ryan Krueger: Sorry the.
Ryan Krueger: The retro recapture.
Ryan Krueger: Which leads.
Ryan Krueger: Leads to a significant improvement in the run rate of earnings over a long period of time. So all of those things factoring that's one second from that point from that 'twenty from those run rates, which represents really to 2020 five run rate, we have a growth of 8% to 10% on top of that that growth comes.
Ryan Krueger: From our assumptions about the devoting with new business that we will we will acquire and essentially where we're.
Ryan Krueger: We're assuming volumes.
Ryan Krueger: Volumes of new business that is that all consistent with or recent business momentum.
Speaker Change: Thank you. The next question comes from John Barnidge with Piper Sandler. Please go ahead.
John Barnidge: Good morning, Thanks for the opportunity to spend some time.
John Barnidge: It's kind of been educated on the value of in force can you talk a bit about how we should think that rolling through the durable earnings power.
John Barnidge: It's not yet well understood by the market So love to hear more about that thank you.
John Barnidge: Sure the value of in force are fundamentally represents the present value of underwriting margins and investment margins.
John Barnidge: Over the life of the business.
John Barnidge: So it is essentially the present value of those profits.
John Barnidge: As we mentioned are an example of how so that they can be quite a big difference between the present value metric and the actual run rate of earnings. If you recall last quarter. When we when we talked about the retro recapture we mentioned that that would increase our you know the the value metric by $1 5 billion.
John Barnidge: Wide from a run rate earnings perspective, it would impact 2025 by $20 million wrapping up too.
John Barnidge: $40 million by 2030, and then wrapping up further to $60 million by 'twenty 40, So we see very long duration of earnings but that business is very long term. So when present valued it does create a large value.
John Barnidge: So the I think there's a there's a there's a retrofit level of consistency between the you know the amount of capital that we deployed the amount of value of in force that that generates that new business adds on to the balance sheet and then ultimately the earnings are that it produces over a long period of time.
John Barnidge: Yeah, John just just to let me add I mean as as the question on the AD side, obviously it is a.
John Barnidge: Good.
John Barnidge: Communication of future profit. It's also you know obviously future profit as is a form of capital and as Axel mentioned, when we do sort of with the value of in force calculations are rating agencies do sort of accept and and appreciate that the two sample proportion.
Speaker Change: Thank you and my follow up question on Pac capital you talked about 12 months to 18 months as a period of time and I think to reach full run rate earnings.
John Barnidge:
John Barnidge: What's the capacity there and does that increase your confidence in the ability to reposition transactions with that expected pace.
John Barnidge: Thank you. Thanks, It's lastly, I don't think we've made any comment about pack of 12 to 18 months, but or generally so.
John Barnidge: We have a very broad asset completion platform, it's really a strong competitive edge for Archie a we have a broad variety of both public and private asset types private asset types, even building out over 20 years and what we want for RGA is to make sure we have the very best and why.
John Barnidge: That's the opportunity sets that we have always used outside partners as part of that sourcing one of those that could just be your traditional kind of external manager relationship, but another sleeve of that broad platform is these strategic partnerships. So packed is one.
John Barnidge: Of those and certainly that is a newer company, but with a very well known a player in this G. P Stakes area. So that's another asset type for US I think it will broaden our network. So far we're very pleased about that and it's one of many things that are helping us continue to scale our asset platform. So we have.
John Barnidge: A very broad variety of private asset typing and and there's a balance suddenly say some transactions can take up to 18 months and that doesn't mean, there's tons of things left to reposition that 18 month, but I think you know we like to quote the broader range, but certainly you know we are focused on making sure we can be.
John Barnidge: As timely as possible in getting transactions to their full earnings. So that's something we'll be focused on thanks.
Speaker Change: Thank you. The next question is from Wes Carmichael with Autonomous Research. Please go ahead.
Wes Carmichael: Hey, Thanks, Good morning, I, just wanted to ask a broader one on capital deployment.
Wes Carmichael: Looking forward I guess, so you're obviously there'll be LTC instruction settlement deal continue to deploy capital at a pretty rapid pace, but as you look forward, Tony where do you see maybe the best deployment opportunities for 2025.
Tony Chang: Yeah. Thanks, so much for the question look it really is across the three regions. So Asia Mi ran in the U S. You know all three are thriving for different reasons, you know you you'll see.
Wes Carmichael: In the U S. You know the activity is very strong.
Wes Carmichael: Well, it probably saying you know obviously block transactions have been increasing over the last five years, we're probably seeing a shift more towards our sweet spot of our asset there was with biometric type risks.
Wes Carmichael: Oh, that's incredibly.
Wes Carmichael: Positive in terms of an environment.
Wes Carmichael: Asia, both our traditional and and and and financial solutions type businesses are fully thriving a testimony to our brand I'm there for many many years over two or three decades, now as well as our worldwide capabilities and in doing this type of business and once again, our sweet spot and where we focus in Asia.
Wes Carmichael: It is very much the the asset deals that would have to buy metric. You know there are a fair amount of asset deals that really don't have much biometric risks I I can't say, we're particularly active in that space given that that potentially thin margins and finally in Europe. It is around obviously the law.
Wes Carmichael: Jeopardy, a business that's predominantly in the U K, we have a very strong market share that and as it's built based on a phenomenally strong team the strong relationships I'm once again the execution certainty so.
Wes Carmichael: So that's predominantly the UK, we're starting to see that broader.
Wes Carmichael: Netherlands is if somebody went down transactions in the past, there's a lot of regulatory change that could be stimulating a further opportunities. We're also seeing some what we call a self a solvency II type solutions around the continent are that are quite attractive. So I wish I could pinpoint one region, but it really is.
Wes Carmichael: Across the board that we're seeing a lot of energy and excitement are fueling the pipeline.
Speaker Change: No that's helpful. Thank you.
Speaker Change: My follow up I guess it was on pension risk transfer and I think you mentioned this in your prepared remarks as a you know a good.
Speaker Change: It's a good growth opportunity, but I wanted to touch on there's been recent lawsuits against plan sponsors that transacted in the market and more recently against when they transact with you in Prudential. So can you talk about the potential impacts of litigation on the market maybe longer term in how youre seeing that pipeline.
Speaker Change: I guess I imagine at the very least claims one doesn't have to think about factoring in potential litigation into pricing, but curious if you have a different view there.
Speaker Change: Sure no. Thank you for the question appreciate it look even even though we weren't named obviously in the law suits. We do believe the claims are baseless.
Speaker Change: You know and and just speaking about ourselves. We're obviously incredibly strong hub for this type of risk where it would regulate it obviously in and in the U S. We've got a U S vehicle you know double a minus rating life and health focused since ourself also to answer your question, we're really not seeing any current evidence of impact on pipes.
Speaker Change: It's such a strong compelling case as to why pension funds would derisk on this matter and to be honest, we want a transaction just a couple of days ago. So it.
Speaker Change: It is showing that at least you know obviously with this news out it hasnt impacted our at least the evidence of that transaction hasn't impacted our ability to be viewed as a very strong counterparty.
Speaker Change: Thank you. The next question comes from Elyse Greenspan with Wells Fargo. Please go ahead.
Speaker Change: Hi, Thanks, My first question on the 2025 like the earnings Guide that you guys provided what are you assuming for.
Speaker Change: FX and also are you assuming any additional enforced actions in the guide.
Thank you for the question so far.
Speaker Change: It takes actually we've assumed basically a year and yearend exchange rates Interestingly you know there was a large movements in law strengthening of the dollar essentially in the fourth quarter. So if we were to use a beginning of the year beginning of 'twenty 'twenty four are at fixed rates or even.
Speaker Change: Beginning of the.
Speaker Change: Quarter, the earnings run rate, we'd probably have been higher by about $40 million to $50 million. So it does have an impact.
Speaker Change: And then second in terms of in force actions. The current run rates are incorporates really very modest level of our in force actions are I would say you know no more than $15 million or so.
Speaker Change:
Speaker Change: Which you know, which which which means that there's a potential to to have more than that but as we've mentioned before it is enforced actions are difficult to predict.
Speaker Change: They can be lumpy that can be again difficult to predict if we go back and look at 2020 three we had about $75 million in total enforce action twenty-twenty for about $250 million, but in 2023 most of that action happened in the first quarter and then we had four consecutive quarters with almost <unk>.
Speaker Change: Zero dollar impact from in force actions. So it kind of gives you a flavor of how predictable and and again lumpy are those can be yeah and at least maybe if you don't mind I'd just says sure a broader strategic view of all of that I mean.
Speaker Change: Axel said, you know kind of garage characterize it is lumpy, but it is very much part of our strategy because it uses all of the real strengths of our J I'll technical ability of our partnership mentality out holistic view, our global platform. All of these have aided historically enough rarely finding creative solutions for fall.
Speaker Change: These situations that and we're pretty patient with that but ultimately you know a lot of times. We go through these conversations with our clients and we ended up with even further new business, which is sort of a reflection of how they felt with dealt with the situation.
Speaker Change: Thanks, and then my second question Hum Deployable capital I guess, a follow up there right on that you guys have been pretty active over the past year right. So using capital for transactions of all of them are not buying back stock as you launch the new definition.
Speaker Change: Do you think the deal flow.
Speaker Change: Hum.
Speaker Change: The deployable capital or you know would you have to stop doesn't think out 12 months a year.
Speaker Change: There'll be some level of ballpark.
Speaker Change: 25.
Speaker Change: Yep.
Speaker Change: The pipeline continues to be a very robust I'm very pleased with that and so as you know assuming that continues to be the case. We will have we will have us too for all of that deployable capital.
Speaker Change: And therefore, we would expect to be minimal in terms of amount of share buybacks for the foreseeable future.
Speaker Change: Okay.
Speaker Change: Thank you. The next question comes from Jimmy Buhler with J P. Morgan. Please go ahead.
Jimmy Buhler: First just a question for Tony if we looked at your biometric experience, it's been generally favorable.
Speaker Change: Consistently over the past several quarters.
Speaker Change: Do you think that that's just normal sort of aberration in volatility and mortality morbidity that's going in the right direction or are there any sort of underlying dynamics that might be driving the consistently via public students.
Speaker Change: Yeah. Thanks, Jamie for that question and Jonathan Please add on top afterwards, but look my view is as you rightly pointed out you know.
Speaker Change: One two year period, you get a better look at experience versus a quarter to quarter, which we all know will fluctuate even one to two years is is is still a relatively short period of time to look at experience is there any fundamental changes underlying you know and and you know look we've always viewed.
Speaker Change: Mortality and biometric risk is a very long time proposition.
Speaker Change: In the last two years could it be some pull forward from Covid you know, we we don't copy the other direction. It just put out its hard to put a number on that but it definitely you know it would be a favorable impact one would think but Jonathan shaffer other views and maybe some of the long term drivers are that way mall.
Speaker Change: Focused on.
Speaker Change: Yeah sure Tony Happy to I, what I would point to I guess population experience on what we're seeing so you know kind of post Covid results. We are continuing to see declines in the trends of the excess mortality in the general population. So for example in the U S. In 2024, we're estimating excess mortality.
Tony Chang: Relative to pre pandemic was just over 1% and that was down from about three 5% in 2023. So I'd say those trends are generally favorable they vary a bit from country to country, but I can see a sense of some of the of the tailwind we're seeing from a mortality perspective, and then as Tony mentioned we are.
Tony Chang: Looking at a continuing technological and medical improvements I mean, the one we've talked about at Investor day and on prior calls.
Tony Chang: Relates to anti obesity medication still.
Tony Chang: Examining clinical data in airports and and looking at those results, but you know we generally remain optimistic that that will be a tailwind for us over the longer term horizon as well.
Tony Chang: Okay, and then just on growth potential there's a lot of debate over.
Tony Chang: The deal pipeline and the supply demand and competition, but just wondering if you could talk about your appetite for long term care you did do one deal and that's one of the markets where there is.
Tony Chang: Arguably a lot more supply of potential business than there has been demand in the past, but what's.
Tony Chang: What's your interest in L. D C either as a standalone risk or packaged them, but there are other types of business.
Jami: Thank you for the question Jami well firstly.
Speaker Change: I don't want to put strict criteria, but historically you know what we've done and you can see in the transaction, we just completed.
Speaker Change: Look what we're very focused on it being in line with our current in force block of business, which has performed historically very well I think now for over a decade and it's it's.
Speaker Change: It's business that we were very patient are in the long term care market. Historically, we did not enter until the characteristics of those newer vintages arose and we thought okay. This is something we feel comfortable pricing and and and and managing that risk. So our.
Speaker Change: First and foremost look we're looking at is it in line with what we've done we've got the experience doesn't mean, we wouldn't consider other things, but that is obviously something that we're comfortable with secondly, it has to be a straight strategic transaction right and as you've seen in most of the transactions if not all have been in conjunction with other blocks of business.
Speaker Change: Obviously in this case it was.
Speaker Change: Also with the structured settlement law, but with a very important strategic client. So we obviously contemplate risk return trade off of the transaction, but also the strategic impact.
Speaker Change: Thirdly, I would say, we would be looking no because of modest size blocks of business. You know that we've got as you can see plenty of opportunities around the world.
Speaker Change: This is a risk that does you know to some extent diversify our balance sheet, even though.
Speaker Change: It is a small risks that we have a relatively speaking a but you know we we wouldn't we would at this point be looking only at modest size blocks of business as we have done historically.
Speaker Change: Thank you. The next question comes from Tom Gallagher with Evercore. Please go ahead.
Yeah.
Speaker Change: Good morning wanted to come back to a question Bryan asked just on the billing in seven of capital deployed in 2024.
Speaker Change: Did the updated run rate range is in your guide assume that you would deploy 1 billion $1 7 billion again in 2025.
Speaker Change: Or if not what what does that number because that I think that's a huge swing factor in terms of what what are you trying to convey in these run rate. Thanks.
Speaker Change: Sure. Thanks for the question Yeah, I think you know in order to get to those those growth rates. So from from 'twenty to 'twenty five onwards level of capital deployment of you know call. It about one 1.5, maybe up to $2 billion would be you know what.
Speaker Change: B the amounts that are that delivers those growth rates. So given the pipeline given our track record of 'twenty 'twenty, four and the ability to accelerate its where that used to 2020 three we feel pretty good about about those odds.
Speaker Change: And I thought maybe if I could add you know obviously the volume of capital is an important determinant.
Speaker Change: The reason we spend so much time sharing about the strategic platform the position we feel the strong position we feel we're in.
Speaker Change: <unk> is obviously the return on the capital we deploy in these transactions.
Speaker Change: And we're so focused on creating win wins without cloud because then obviously creates greater value for the two parties to share I'm sorry, that's the the drive towards the creation of <unk> type business as I mentioned in my comments are that has for the last two years now exceeded over the.
Speaker Change: So it was a 50% of our total value creation is coming from this line of business. It's very much the culture, we're driving and and what we're very pleased with the success of executing that strategy.
Speaker Change: Got you. That's that's helpful color and then my follow up is just the big reduction in U S financial solutions I've heard I heard the commentary there about the runoff of some I guess profitable our annuity business and then it sounds like theres a bit of a timing.
Speaker Change: Disconnect here, where you're right you had old profitable business that ran off and you put a lot of PRT and the other business that is not yet fully earned in and so if that's the right way to think about this.
Speaker Change: Are you still only going to grow that segment, 4% to 7%.
Speaker Change: Or will we have a well we have a bigger ramp up.
Speaker Change: Then then that 47% implies.
Speaker Change: Yeah. So thanks for the question Yeah. So that's right. So the you know if you think of the makeup of that block of that of that segments U S financial solutions in the in the past you know all of the annuity blocks.
Speaker Change: Just kind of how we've built that partly how we've built datasets asset intensive business over the years and it's kind of switched as we entered the U S. P. O T market into more of a P. O T focus those pure annuity deals obviously heavily competed and they don't include a lot of biometric risks, so they're not necessarily such a great strategic fit going.
Speaker Change: Forward in terms of replacing that business desperately that's running off that's so that's one dynamic and the other dynamic which you you you pointed out is that the with the PRT blocks.
Speaker Change: We are taking in a portfolio of assets as well and we are repositioning that it takes a bit of time to get that repositioning them and and flowing and so that that's also the reason why we took that run rate down from this point onwards, we feel we feel very confident about about the ability.
Speaker Change: You hit those grown those run rates and those growth rates, given our pipeline and given.
Speaker Change: The.
Speaker Change: The types of businesses, we're adding it.
Speaker Change: Thank you. The next question comes from Alex Scott with Barclays. Please go ahead.
Alex Scott: Hey, good morning, I had a follow up the Tom's follow Ryans question.
Speaker Change: So when you talk about how.
Speaker Change: You know you run rates assumed deployment of call it between one five and $2 billion.
Speaker Change: Does that assume drawing down some of that one seven.
Speaker Change: Global capital and the reason I ask I think you know you guys earn call it plus or minus 150. So if its in excess of that we were simply then.
Speaker Change: It assumes some draw down to that and I I. Just you know as we analyze that deployable capital and think about accretion associated with the deployment and I just want to make sure I'm not sure that won't credit or something.
Speaker Change: If true.
Speaker Change: Yeah. Thank you for the question. So yeah. So it really is so how do we fund how do we fund that pipeline.
Speaker Change: So, yes, so starting from a deployable capital to excess capital and the expectation over the next 12 months of the net of the capital generation versus the capital consumption.
Speaker Change: That's the first place we go to as we evaluate given our pipeline how are we going to fund those deals.
Speaker Change: We also want to remind them that as part of the deployable capital metric, we all taking into account third party capital that we have access to use or such as the amount of capital that's left to be deployed from Ruby Reed.
Speaker Change: I think I mentioned from the rating agency capital component of that framework of the embedded value securitization that that we can we can put into that that source of available capital.
And then lastly, you know as far as as part of the older tools in the toolkit of course, we we have you know traditional.
Speaker Change: Our public market debt senior hybrids as well of course, that's public equity.
Speaker Change: We consider all of those tools as part of our toolkit and make decisions based on the relative pros and cons Ah and facts and circumstances.
Speaker Change: Got it.
Speaker Change: Really helpful.
Speaker Change: Second question I have views on.
Speaker Change: One 7 billion and as you as you think about deploying it when you look at these deals I mean, it seems like your capital model gives us more credit for diversification now so to the extent youre looking at longevity based deals.
Speaker Change: With that sort of significantly.
Speaker Change: And you know the amount of required capital that goes into the yields I mean, we all have.
Speaker Change: Our rules of thumb that'd be think of like 567% of liabilities that asset in terms of like the capital just Gotta go behind these deals, but did that might actually be lower just based on this model, maybe diversification benefit being overweight mortality risk.
Speaker Change: Yeah. Thanks for the question. So so so we still obviously very much more.
Speaker Change: More long mortality than than we our longevity. So there's plenty of runway to go in terms of benefiting from that diversification benefit. The diversification is really best recognized through our internal economic capital framework, a raging agency models or regulatory models will have typically a different view.
Speaker Change: You, sometimes no recognition of diversification.
Speaker Change: But our approach to that is it's consistent it's it's been consistent for a while.
Speaker Change: And so I would not you know we're not sitting up change of approach just as the continuation of what of what we've done. It's just a refinement of the metric the deployable metric as I mentioned to really reflect not only where are we today point in time, but given the what we can see what we can forecast over the next 12 months how.
Speaker Change: How much capacity do we have to sustain that business momentum.
Speaker Change: Thank you. The next question comes from Sydney to come up with Jefferies. Please go ahead.
Speaker Change: Thanks, Good morning, I wanted to come back to the deployable capital is just so I can understand this a little bit better. So I was hoping to try to bridge to the 700 million of excess capital that you gave us last quarter and so it was the right way to think about it you had the 700 million you deployed to 50 I guess in this quarter. So that would get you down to 450 and then the difference between the <unk>.
Speaker Change: 50, and the one seven is sort of the capital that you expect you'll generate plus the flexibility and the Securitizations and Ruby Reed and all the rest of that stuff is that the right way to think about it.
Speaker Change: At a high level at a high level, yes, that's that's a decent way of thinking about it the starting excess capital metrics, though as I mentioned last quarter.
Speaker Change: Reflected a relatively conservative in that it didn't didn't necessarily reflect the value of value of the in force.
Speaker Change: That we already get recognition from from the rating agencies, all but yeah conceptually you're correct that so that's how we think about it okay and then.
Speaker Change: We just think about the deployment opportunities I mean, one of them that a lot of folks have talked about is the ESR change in Japan, and just you know how that's going to create this sort of windfall of deals I'm. Just curious like where are we in that you know that opportunity is it is it happening now or is it you know over the next year or so are we thinking about maybe.
Speaker Change: Even longer than that just wanted to get a sense of how big of a deployment opportunity that is for you. Thanks.
Speaker Change: Oh, Thanks, Nate look I.
Speaker Change: I think we're still in the early innings for for a couple of reasons and look you know.
Speaker Change: Is it happening now well definitely for us it's happening and it's been a very thriving area of business for us, particularly the area a way where mortality sorry, with biometric risks overlaps with with with our asset risk on our sweet spot, but you know I felt a couple of reasons. It is still.
Relatively early because I'm, obviously as one is increasingly a play does these types of transactions than others follow so where were you know that's been happening probably for the last five years, but people continue to follow and secondly, when when someone's stop doing this.
Speaker Change: That I'd do it all in one go and they do it in tranches over.
Gosh it could be 10 15 years. They just do you know, it's a bit like dollar cost average averaging they just do a tranche by tranche by tranche. So I think we did our first tranche of our client I think it was probably now about eight years ago and they continue to launch tranches every year. So given those factors I'd still say, it's it's it's relatively early.
Speaker Change: <unk> are in the in the situation.
Speaker Change: Thank you. This concludes our question and answer session I would now like to turn the call back over to Tony Cheng for closing remarks.
Speaker Change: Well. Thank you all for your questions and your continued strong interest in RGA. This was a good quarter and a phenomenally great year further demonstrating our continued momentum and substantial earnings power.
Speaker Change: Thank you very much this concludes our fourth quarter call.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Speaker Change: [music].