REINSURANCE GROUP OF AMERICA INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Reported adjusted operating earnings of $5.66 per share and adjusted operating return on equity of 15% for Q1 2025; strong start to the year with favorable claims experience across regions.
• Deployed $418 million into in-force transactions, including the Manulife deal and strategic transactions in Asia; Equitable transaction expected to close mid-year 2025, with expected pre-tax operating income contributions of ~$70 million in 2025 and ~$160-170 million in 2026.
• Notable growth areas:
  • Asia Traditional: Strong new treaties driven by Creation Re product development initiatives, with growth in Hong Kong and new initiatives like simplified issue critical illness products.
  • Asia financial solutions: Closed two block transactions in Japan, leveraging long-standing relationships and local expertise.
  • Longevity and PRT market: Strong UK PRT sales expected, bullish on U.S. PRT market despite temporary pause due to macro uncertainty.
  • U.S. traditional: Active quarter with new treaties and product development, including the Equitable transaction.
• Creation Re flywheel driving growth, with over 50% of new business from creation re over the past two years; in-force management actions modest in Q1 but ongoing initiatives to drive higher returns.

Segment Performance

• U.S. and Latin America traditional: Favorable individual life claims experience driven by lower-than-expected large claims; other experience in line with expectations.
• U.S. financial solutions: Low end of expected range due to lower variable investment income; Equitable transaction expected to contribute pre-tax operating income of ~$70 million in 2025 and ~$160-170 million in 2026 once closed mid-year.
• Canada traditional: Modestly unfavorable lapse experience, partially offset by favorable claims experience; financial solutions: Favorable longevity experience.
• Europe, Middle East, and Africa (EMEA) traditional: Modestly favorable claims experience and favorable timing impacts from earnings recognition of an annual premium treaty; EMEA's financial solutions: Above expectations.
• Asia-Pacific traditional: Good results with favorable overall experience and contributions from new business; financial solutions: Slightly lower-than-expected due to lower variable investment income.
• Corporate and other: Adjusted operating loss before tax of $70 million due to lower-than-expected variable investment income and other one-time items.

Guidance

• Optimistic about business due to disciplined approach, strong strategic focus, risk-taking, and capital management.
• Equitable transaction expected to contribute pre-tax operating income of approximately $70 million in 2025 and $160-170 million in 2026 once closed mid-year.
• Confident in navigating macroeconomic uncertainties and continuing strong momentum, with a focus on leveraging Creation Re flywheel for growth and attractive ROEs.

Risks

• Macro-economic uncertainties could impact business operations.
• Volatility in claims experience, both positive and negative, is normal but requires monitoring.
• Potential earnings volatility from the Equitable transaction due to accounting differences, though balance sheet strength and expertise are expected to manage it effectively.

Question and Answer

Q: Suneet Kamath from Jefferies asked about the disconnect between flu season data and strong underwriting experience in the U.S.

A: Tony Cheng and Jonathan Porter explained favorable large claims experience, some volatility expected, and extra due diligence performed.

Q: Elyse Greenspan from Wells Fargo asked about the current pipeline of transactions and opportunities.

A: Tony Cheng stated there's a strong pipeline across regions, focusing on Creation Re and long-term partnerships.

Q: John Barnidge from Piper Sandler asked about portfolio investing and private asset sourcing.

A: Leslie Barbi discussed rates similar to Q1, good private asset opportunities, and stable liabilities matching.

Q: Jimmy Bhullar asked about competition and P&C market impact.

A: Tony Cheng stated focus on Creation Re, not overly concerned with competition, and strong platform.

Q: Wes Carmichael from Autonomous Research asked about Equitable transaction accounting and LTC.

A: Axel Andre and Jonathan Porter explained accounting considerations, risk-return trade-off, and discipline.

Q: Ryan Krueger from KBW asked about deployable capital and rating agencies.

A: Axel Andre explained excess and deployable capital metrics, progress with rating agencies on in-force value.

Q: Thomas Gallagher from Evercore asked about Equitable transaction earnings volatility.

A: Axel Andre and Jonathan Porter said repricing and balance sheet strength mitigate concerns.

Q: Joel Hurwitz from Dowling Partners asked about variable investment income and in-force initiatives.

A: Axel Andre explained VII expectations, and Tony Cheng mentioned in-force actions are lumpy but ongoing.

Q: Wilma Burdis from Raymond James asked about mortality outlook and Equitable block repricing.

A: Jonathan Porter discussed mortality trends and Tony Cheng explained repricing in the Equitable transaction.

Q: Mike Ward from UBS asked about new business pipeline and third-party capital.

A: Tony Cheng said strong pipeline across regions, and Axel Andre discussed third-party capital and common equity.

Q: Bob Huang from Morgan Stanley asked about Japan reinsurance opportunities.

A: Tony Cheng discussed Japan market, focus on sweet spot with biometric risk, and after-sales service.