REINSURANCE GROUP OF AMERICA INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Results: Reported adjusted operating earnings of $4.99 per share in Q4 2024, with adjusted operating return on equity (excluding notable items) of 15.4% for the past year. Deployed $250 million in Q4 and nearly $1.7 billion full year into in-force transactions.
• Target Updates: Increased intermediate-term operating ROE target to 13%-15% from 12%-14%, raised earnings run rate targets, and reaffirmed 8%-10% intermediate-term growth target. New business at attractive returns, higher interest rates, and balance sheet optimization drive these updates.
• New Business Activity: Strong new business in Asia, US, EMEA, and APAC regions, with creation redeals accounting for the majority of new business value. Examples include transactions in China, UK, Canada, and Japan, leveraging local presence and biometric capabilities.

Segment Performance

• Asia Traditional: Completed four important transactions in Mainland China in Q4 2024, generating meaningful value uplift. Contributes to diversifying RGA's ALM profile.
• US Traditional: Fourth quarter had good new business after strong Q3, with the US market presenting attractive opportunities aligning with underwriting strength. Closed a transaction with a global client including LTC and structured settlements.
• PRT and Longevity Market: In the US, a small PRT transaction was completed; in the UK, a record year was closed with strategic transactions; in Canada, closed the first funded reinsurance PRT transaction, diversifying risk.
• Asia Asset-Intensive: Completed modest transactions, including a landmark $200 million transaction in Japan with a key global client, demonstrating ability to balance both sides of the balance sheet.

Guidance

• Increased intermediate-term adjusted operating ROE target to 13%-15% from 12%-14%.
• Raised earnings run rate targets and reaffirmed 8%-10% intermediate-term growth target. New business at attractive returns, higher interest rates, and balance sheet optimization are key drivers.
• Expect new business to materially contribute to future earnings, incremental benefits from higher interest rates on investments, and positive impacts from balance sheet optimization.

Risks

• Biometric Claims Volatility: Biometric claims experience can be volatile, but recent results seen as normal volatility with no material trends. Favorable underlying claims experience year-to-date in regions like US, EMEA, and APAC.
• Litigation Impacts: Concerns about lawsuits in pension risk transfer market, but Tony Cheng stated claims are baseless and no current evidence of impact on pipeline.

Question and Answer

• Q: Talk about the difference between the economic and financial impacts of the biometric experience and the time frame of favorable experience.

A: Axel Andre stated the economic impact is amortized over a 15+ year period, with favorable experience from 2024 to closing earnings around $167 million.

• Q: Run rate improvements in the financial solutions business as assets are repositioned.

A: Axel Andre mentioned US Financial Solutions has old annuity runoff and new business, taking 12-18 months to reach full run rate as assets are repositioned.

• Q: Deployable capital definition and rating agency approval.

A: Axel Andre explained deployable capital incorporates regulatory, rating agency, and internal frameworks, with rating agencies having signed off.

• Q: Best deployment opportunities in 2025.

A: Tony Cheng said opportunities are across Asia, EMEA, and US, focusing on asset deals with biometric risk in the sweet spot.

• Q: Litigation impacts on pension risk transfer pipeline.

A: Tony Cheng stated no current impact, claims are baseless, and a recent transaction was won, showing no pipeline impact.

• Q: FX assumption and in-force actions in 2025 guidance.

A: Axel Andre said FX is assumed at year-end rates, and current run rates incorporate modest in-force actions.

• Q: Deployable capital utilization and buyback.

A: Axel Andre noted the pipeline is robust, with minimal buyback expected.

• Q: Biometric experience consistency and drivers.

A: Jonathan Porter mentioned favorable post-COVID mortality trends and technological/medical improvements like anti-obesity meds as drivers.

• Q: LTC market and litigation impacts.

A: Tony Cheng said focus is on strategic, modest-sized blocks, with lawsuits not impacting pipeline.

• Q: Capital deployment in 2025 and run rate ranges.

A: Axel Andre expected deployment of $1.5B-$2B, supporting growth rates.

• Q: US Financial Solutions runoff and ramp-up.

A: Axel Andre explained old annuity runoff and new PRT business take time to reposition, expecting ramp-up.

• Q: Deployable capital funding and diversification.

A: Axel Andre said funded from deployable capital, third-party capital, and other tools, with diversification benefits recognized.

• Q: Bridging excess capital to deployable capital.

A: Axel Andre conceptually explained starting from excess capital, considering in-force value.

• Q: Japan ESR change deployment opportunity.

A: Tony Cheng said it's early innings, with transactions occurring in tranches over time, continuing momentum.