REINSURANCE GROUP OF AMERICA INC Q1 FY2024 earnings call

• Earnings and ROE: Adjusted operating earnings of $6.02 per share, highest ever; adjusted operating return on equity 14.8% exceeding intermediate targets. - New Business and In-Force: Record $737 million in-force transactions; strong new business activity with exclusive arrangements. - Geographic Growth: Longevity and PRT: U.S. and U.K. activities, optimistic prospects; Asia Asset-Intensive: $4.7 billion deal in Japan, innovative solution; Asia Traditional: Positive results, product launches in Korea and China; U.S. Traditional: Launched digital underwriting partnership, strong in-force activity. - Other Markets: Notable transactions in Canada and Belgium. - Risk Management: Disciplined approach, only pursue transactions with favorable risk return trade-off.

RGA reported pretax adjusted operating income of $516 million for the quarter. Traditional segments: U.S. and Latin America had favorable individual life, health, and group results; Canada had favorable experience in group and individual life; Europe, Middle East, Africa had favorable timing impacts and new business contributions; Asia Pacific had favorable experience across the region. Financial Solutions segments: U.S. was slightly below expectations due to lower variable investment income; Canada's longevity experience was in line with expectations; Asia Pacific had favorable overall experience; Corporate and Other had a pretax adjusted operating loss of $38 million, in line with expected run rate. Reported premiums were up 58.8% for the quarter, with Traditional business premium growth at 8.2% on a constant currency basis.

• Factored in in-force transaction deployment into intermediate financial targets; Q1 deployment faster than anticipated. - Expect earnings from transactions to emerge over time, with margins reaching targeted returns within 1-2 years.

• Risk return trade-off must meet requirements; disciplined execution of transactions. - Potential impacts of medical advances on mortality and longevity assumptions, and their effects on financial results.

Q: In your comments, you talked about transactions not considered and talked about exclusive transactions. Can you maybe expound on that a little bit? How much of growth is coming from exclusive? And with others talking about a more competitive environment for certain parts of the institutional market, should exclusive continue to grow as I know you like creation RE?

A: Tony Cheng discussed exclusives being part of RGA's DNA, higher goals on exclusive proportion, RGA's unique position in taking both asset and biometric risk, and bullish on exclusive growth.

Q: My follow-up question, I know there was record deployment of capital into in-force, and I think you said $150 million improvement in excess capital as that ceded. But how should we be thinking about buybacks within the framework of the capital allocation? Is it more of a timing with that ceding? Or can you talk about that a little bit?

A: Todd Larson mentioned managing capital over time, maintaining steady dividend, balancing with share repurchases when no active pipeline, and record deployment in Q1 with healthy pipeline.

Q: First is on your B36 derivative, and actually, not -- so first one is really just the difference between net income and operating income, just to broadly think about the below the line overall. I understand that a lot of that came from pension risk transfer deals this quarter because of the onetime impact. But as you think about future PRT deals, as you think about becoming more optimistic in that area, are there ways to further minimize the impact of the below the line from that particular line or no?

A: Todd Larson explained that upfront loss in net income due to LDTI adoption and accounting, but operating income will amortize it over time.

Q: Second one is really on your biometrics. Obviously, definitely a lot of tailwind and even potentially more tailwind coming up from biometrics. But can you maybe give us a little bit more details in terms of how you think about the potentials of the biometrics going forward and other potential risks there as well, either a specific geography where you think you can take more advantage of the biometrics? Or are there any regulatory risks that we should be aware of going forward?

A: Tony Cheng and Jonathan Porter discussed biometric tailwinds, medical advances, and socioeconomic differences affecting mortality and longevity blocks Q: So first, just a question for Jonathan. If we look at industry or population that's -- it seems like based on CDC data that they're still fairly elevated -- improved from COVID times, but still elevated versus pre-COVID, but it seems like your results have actually been pretty good. So what is it that you're seeing in your business that's different than the general population trends?

A: Jonathan Porter discussed favorable large claims experience in U.S., lower absolute excess mortality in insured book vs. general population, and expected decline in excess mortality over next several years Q: And then maybe for Tony. If there are improvements in life expectancy and mortality, you obviously would be a big beneficiary given that you've got a lot more exposure to mortality versus longevity. But it doesn't seem like companies are pricing the longevity business and pension business based on expected improvements in mortality. And obviously, they're not -- it's not a given that, that would happen as well. But how are you pricing your longevity business? Are you baking in the cushion for potential better life expectancy because if you were, then you'd have a hard time being competitive in the market? Or are you okay pricing based on the actual data given that you've got more exposure to mortality anyway?

A: Tony Cheng and Todd Larson discussed differences in mortality and longevity blocks, average ages, socioeconomic differences, and medical advances impact Q: So last quarter, you guys provided updated financial targets and earnings outlook, and you since followed it up with this record quarter of in-force transactions. I guess how much deployment did you factor into those targets? And was most of this actively known and factored into those earnings and growth outlooks? Are we looking at some solid upside to what you provided?

A: Todd Larson said deployment was factored into intermediate targets, Q1 deployment faster than anticipated, with some upside to projections Q: And then, Todd, can you just talk about how to think about the earnings emergence from all these transactions? Like how long does it typically take for you guys to redeploy the assets and whatnot?

A: Todd Larson explained that margins come in over time at expected levels, taking 1-2 years to ramp up to targeted returns, with asset repositioning early on Q: You talked about some of the capital relief from the Ruby Re retro session that's planned. Should we continue to think about Ruby Re being effectively kind of a quota share for 50% of U.S. asset intensive? I know now that's I think within U.S. Financial Solutions, but is there any change to the thinking there?

A: Todd Larson said Ruby Re is a quota share for U.S. asset intensive business, up to $450-$500 million equity capacity Q: The -- just want to understand what -- of the deals that were publicly announced, there were several in Q1, how many of those showed up this quarter in that $737 million of in-force transactions have deployed capital into that? Are there a bunch more that -- of those that didn't close that will show up in the deployed capital in 2Q? Can you just give a sense for what the expectation should be based on what you've announced, but maybe not yet closed heading into 2Q?

A: Todd Larson said all announced transactions except Canadian were in $737 million, pipeline active globally, no speculation on closed deals Q: Both of my questions center more towards Ruby Re. The first being, I guess, should we think of Ruby Re and any subsequent sidecars raised as replacing any growth capital that RGA would have to raise on its own?

A: Todd Larson said alternative capital like Ruby Re helps with capital need for business growth, leverages returns and confidence for large transactions Q: I'm on for Elyse. Both of my questions center more towards Ruby Re. The first being, I guess, should we think of Ruby Re and any subsequent sidecars raised as replacing any growth capital that RGA would have to raise on its own?

A: Todd Larson said alternative capital like Ruby Re helps with capital need for business growth, leverages returns and confidence for large transactions Q: A few follow-ups on that similar theme. The -- just want to understand what -- of the deals that were publicly announced, there were several in Q1, how many of those showed up this quarter in that $737 million of in-force transactions have deployed capital into that? Are there a bunch more that -- of those that didn't close that will show up in the deployed capital in 2Q? Can you just give a sense for what the expectation should be based on what you've announced, but maybe not yet closed heading into 2Q?

A: Todd Larson said all announced transactions except Canadian were in $737 million, pipeline active globally, no speculation on closed deals Q: Just one quick one on Ruby Re. Is there a good rule of thumb to think about the leverage there? I think, Todd, you said that there's $450 million or $500 million of equity capacity there. Is there -- can you lever that 15x? I'm just trying to get a sense for the size of liabilities that might fit there? Is it $6 billion, $7.5 billion or is it something north of that?

A: Todd Larson said 15x leverage not far off for current capacity Q: Just a follow-up on the biometric slide. The -- so the extra profit of $80 million for 1Q '24 that are getting deferred, when I think about GAAP versus your statutory cash flow, would you say most of that would be coming through in statutory, meaning not getting deferred the way it is under the new GAAP? And if so, are we potentially going to see a period where your GAAP earnings or your free cash flow, I should say, end up being like a very high percentage of your GAAP earnings as a result of that?

A: Todd Larson and Jonathan Porter discussed differences between GAAP and statutory accounting, with some experience deferred under GAAP but coming through in statutory, and other material differences affecting results