Reinsurance Group Of America Inc Q2 FY2021 Earnings Call

Good day, and welcome to the Reinsurance Group of America Second Quarter 2021 Results Conference Call. Today's call is being recorded. At this time, I would like to introduce Mr. Todd Larson, Senior Executive Vice President and Chief Financial Officer; and Ms. Anna Manning, President and Chief Executive Officer. Please go ahead, Mr. Larson.

Thank you. Good morning, and welcome to RGA's Second Quarter 2021 Conference Call. With me this morning on the call is Anna Manning, RGA's President and Chief Executive Officer; Alain Néemeh, Chief Operating Officer; Leslie Barbi, our Chief Investment Officer; Jonathan Porter, Chief Risk Officer; and Jeff Hopson, Head of Investor Relations. We will discuss the second quarter results after a quick reminder about forward-looking information and non-GAAP financial measures. Following our prepared remarks, we'll be happy to take your questions. Some of our comments or answers 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 that could cause actual results to differ materially from expected results. Additionally, during the course of this call, information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation, quarterly financial supplement, and website for a discussion of these terms and reconciliations to GAAP measures. And now, I'll turn the call over to Anna for her comments.

Thank you, Todd. Good morning, everyone, and thank you for joining our call today. Last night, we reported adjusted operating earnings per share of $4. I am very pleased with these results, as we delivered an excellent quarter even in the face of continuing COVID-19 claims. The COVID-19 impact in the quarter was material although at much reduced levels than in the first quarter. Notably, the performance of the rest of our business was more than enough to absorb these costs and deliver the strong quarter we had. This quarter, once again, provides evidence of the strength of our underlying earnings power, the value of our diversified business, and the resilience of our global platform. I am also very proud of the way that the RGA team has responded during the pandemic. Our client-centric, solution-oriented approach, combined with disciplined execution has proven itself over time and served us well. This strategy helps us compete and win. In the quarter, we were very active and successful on new business opportunities in both our organic business and in-force block transactions. Turning to some of the highlights of the quarter. Our GFS business performed extremely well across all our regions and lines of business. In the quarter, we deployed $200 million into in-force transactions, including the Modern Woodmen transaction that we publicly announced. The transaction pipeline remains very robust with opportunities in all our regions. Our Traditional business also performed well overall. As COVID-19 claims were significantly reduced and non-COVID-19 experience was at or better than our expectations across all our segments. The U.S. individual mortality business had a good quarter as the COVID-19 impact was lower than expected and non-COVID-19 experience was in line with our expectations. The U.S. Group and U.S. Individual Health businesses both performed above our expectations. Overall investment performance was very good, and our new money rate increased slightly despite lower market yields. Impairments were minimal, and we realized some nice gains in our limited partnerships and real estate joint ventures. Australia reported a modest profit in the quarter, which is a continuation of the more favorable trend over the last six quarters, reported premium growth was very good, organic growth was solid, and new business momentum has picked up and is encouraging. We increased the quarterly dividend and have lifted the previous suspension of share repurchases. Good indications of the health and future prospects for our business. Looking forward, we expect COVID-19 claims to continue over the near term, but at manageable and decreasing levels. Vaccinations continue to provide very good protection against severe illness, hospitalization, and death, which should mitigate the impact of future waves. Given the vaccine levels in all our key markets of the U.S., the U.K. and Canada, we expect COVID-19 claims to decline in the second half of the year. In India and South Africa, we will likely see some continuation in COVID-19 claims through the remainder of the year but at manageable levels. Jonathan will provide more specific thoughts on this shortly. In closing, I am very pleased with the quarter. We are well positioned with a strong balance sheet and capital levels and positive business fundamentals. We see encouraging signs and increasing momentum on new business. Capital deployment into transactions of $300 million through the first half is an excellent start to the quarter – an excellent start to the year. We believe there is reason for optimism. As we look ahead, we expect to resume our balanced and effective capital management strategy in the coming quarters. We look forward to continuing to deliver attractive financial results and to building on our long-term track record of performance. Thank you for your interest in RGA. I hope you all remain safe and stay well. Let me now turn it over to Todd to go over the detailed financial results.

Thanks, Anna. RGA reported $361 million of pre-tax adjusted operating income for the quarter and adjusted operating earnings per share of $4, which includes a negative COVID-19 impact of $1.44 per share. Our trailing 12 months adjusted operating return on equity is 5.7%, which was net of COVID-19 impacts of 6.9%. These results are evidence of the strength of our underlying earnings power and resilience of our global platform as Anna highlighted in her remarks. Consolidated premiums increased 11% in the quarter and 7% on a constant currency basis. In the U.S., the underlying growth in premiums was solid and this segment also benefited from a modification of the treaty renewal. The EMEA segment premium growth reflects good new business wins, and in Asia, we have started to see new business activity pick up. Australia premiums declined from a combination of actions on underperforming treaties and remaining selective on new business opportunities. The effective tax rate on pre-tax adjusted operating income was 24% for the quarter, in line with our expected range of 23% to 24%. Turning to the segment results listed on Slides 7 and 8 of our earnings presentation, starting with the U.S. segment. The U.S. and Latin America Traditional segment had a very good quarter absorbing COVID-19 claims cost of approximately $57 million. Let me provide a little more detail on the results. For U.S. individual mortality, approximately $45 million of claim costs were attributed to COVID-19, which was below the range for our rules of thumb based on the number of general population deaths. This was primarily due to a lower average size of the COVID-19 claims. Non-COVID-19 claims were in line with expectations and it was a fairly straightforward quarter in terms of large claims experience. The U.S. Group and Individual Health businesses both performed better than our expectations due to favorable experience in the disability and healthcare access lines. Variable investment income was strong in the quarter as both limited partnership performance and real estate joint venture realizations were favorable. The U.S. Asset-Intensive business reported very strong results. The segment had favorable overall experience, including some transaction and other fees, favorable longevity experience in equity markets and higher variable investment income from commercial loan prepayments. We are very happy with the results in the quarter. We still believe that a normal run rate is $60 million to $65 million as some of the variable items in the quarter are not expected to repeat on a regular basis. Moving to the Canadian segment, the Canada Traditional segment results reflected COVID-19 claim cost of approximately $21 million, higher than our expected range based on the number of general population deaths. Non-COVID-19 experience was favorable. The Canada Financial Solutions segment was in line with our expectations for the quarter. In the Europe, Middle East, and Africa segment, the Traditional business results reflected COVID-19 claim costs of approximately $35 million in total, of which $19 million was in the U.K. and $12 million in South Africa. Non-COVID-19 experience was favorable. EMEA's Financial Solutions had a strong quarter as business results reflected favorable longevity experience in the quarter. Turning to our Asia Pacific Traditional business, Asia results reflect COVID-19 claim costs of approximately $55 million, of which approximately $51 million was in India. Non-COVID-19 experience was favorable across the segment. Australia reported a modest profit for the quarter. We are pleased with the ongoing progress in Australia and remain focused on actions to improve results. We're also taking a disciplined approach to new business. Asia-Pacific Financial Solutions business continued to produce good results in the second quarter, reflecting favorable experience on existing treaties and contributions from recent transactions. The Corporate and Other segment reported a pre-tax adjusted operating loss of $39 million. The loss was higher than our quarterly average run rate, primarily due to lower investment income. We expect some volatility quarter to quarter in this segment and continue to believe on average a quarterly estimate of $25 million loss is appropriate. Moving to investments, the non-spread portfolio yield for the quarter was 4.64%, reflecting strong variable investment income, primarily due to realizations from limited partnerships and real estate joint ventures. While hard to predict from a timing perspective, they are a core part of our investment earnings. Investment credit impairments were nominal for the quarter, and we continue to see results below the low end of our stress scenarios. Our new money rate of 3.5% was higher than the first quarter rate of 3.35% reflecting stronger private asset production. Related to capital management, as shown on Slide 11 of our presentation materials, our excess capital position at the end of the quarter remained unchanged at approximately $1.2 billion. Our strong net income funded transaction deployment of $200 million of capital and solid organic growth. We've maintained a prudent capital management approach throughout the pandemic recognizing our strong underlying business fundamentals. Our excess capital position and the expectation of reducing levels of COVID-19 cost going forward, we have increased the quarterly dividend by 4% from $0.70 per quarter to $0.73 per quarter and lifted the suspension of the share buybacks. I will now turn the call over to Jonathan Porter, our Chief Risk Officer, who will provide additional comments on our COVID-19 related experience.

Thanks, Todd. As shown on slide 5, COVID-19 claim costs of $168 million decreased significantly in the quarter as vaccination roll-outs continued and general population deaths in our major markets were down materially from their Q1 peak levels. The U.S., U.K. and Canada accounted for just over 50% of COVID-19 claim costs this quarter. This is a lower proportion of the total than in prior quarters but was expected given the relative levels of vaccinations in these markets. The balance of our global COVID-19 claim costs were driven by higher general population deaths in India and South Africa. As the impact of vaccinations is becoming better understood and claims data continues to develop, we are updating our estimated rules of thumb for future claim costs. In the U.S., we have updated the models to reflect the relative progress of vaccination programs as well as consideration of our claims experience. This has resulted in a lowering of our U.S. range for future claim costs of $10 million to $20 million for every 10,000 general population deaths. We're also widening our estimated ranges to $10 million to $20 million for Canada and $4 million to $8 million for the U.K. These adjustments reflect emerging claims experience, the possibility of more relative quarterly variability as population deaths decrease due to vaccination progress and the weakening of the U.S. dollar since we set rules of thumb last year. Our longevity experience was favorable this quarter with a pre-tax benefit of $38 million. This was driven primarily by lag reporting in the U.K., where our longevity business is concentrated, reflecting higher COVID-19 general population deaths from prior quarters. Given the success of the U.K. vaccination program and the expectation of low COVID-19 deaths through the rest of the year, we would expect to see more modest longevity benefits in future quarters. Real-world data is consistently demonstrating that vaccines are highly effective at preventing severe outcomes and death through COVID-19 variants. We believe this will continue to drive lower general population mortality and therefore lower claim costs in the U.S., U.K. and Canada. This has been demonstrated with the recent Delta variant surge in the U.K., where daily case counts were close to the prior wave peak but deaths were less than 10% of the prior high point. In our markets with lower vaccination levels like India and South Africa, we would expect to see some continuation of COVID-19 claims, but we believe at manageable levels given the nature and size of our business in those countries. We also expect the impact of future waves will be dampened as vaccination levels continue to rise in these markets. I'll hand it back to Todd.

Thank you, Jonathan. Before opening it up for questions, I would like to mention that we will hold a Virtual Investor Meeting on December 9 and hope to have you join us for that discussion. With that, we'll now open it up for questions.

. We will now take our first question from Jimmy Bhullar of JPMorgan. Please go ahead.

Hi, good morning. So first, I just had a question on your announcement of resuming buybacks. Should we assume buybacks in the 3rd quarter or are you waiting for the pandemic to abate further before you start doing it, and any sort of color on the magnitude of potential buybacks over the next year would be helpful as well.

Okay. Jimmy, if you look at our history, we've always followed a prudent and balanced approach to capital management. We don’t aim to fine-tune capital on a quarterly basis. We are in a long-term business, and that perspective also guides how we manage the company and its capital. Historically, we've done a balanced job in deploying capital into transactions that we prefer when the liabilities align and we can achieve a suitable return, supporting our organic growth, maintaining a reliable stream of dividends year after year, and balancing it with share repurchases. Although we are not fully past the pandemic, we are more confident, as Jonathan mentioned, that the vaccines are effectively reducing hospitalizations and deaths, which is encouraging. We believe we have strong earnings potential across our various business segments. Therefore, we are comfortable lifting the share repurchase suspension at this time and will continue to manage capital as we explore different options and considerations.

But you're not willing to comment on whether or not you'll do buybacks in the 3rd quarter or when you will actually resume activity.

I wouldn't say we have a definitive time at this point.

Okay. And then on the...

Jimmy. Can I just add a couple of comments, please? Yes, I would just reiterate we feel good about our business. We're committed to the balanced capital management approach that Todd outlined where we're going to look for the best and most valuable use of our capital, including share buybacks over time. We've demonstrated that over the years if you go back and look at our approach, I think we've done a good job and we expect to do that going forward.

Yes, I would, because you raised equity, and along with that capital, you have been profitable throughout the pandemic, not every quarter, but overall. I doubt there is any new business opportunity that has that type of return on equity like you would get from buybacks at the current stock price. The other reason I was asking is that you have lifted the suspension, which suggests you will begin buying back shares rather than just evaluating potential buybacks. I was uncertain about your position on that. Well, the other question I had is... go on.

No, no, please. Your other question?

Okay. Yes, I was just going to ask on India, you had I think $51 million you mentioned in claims. Should we assume that there is a fairly high IBNR component in there, because, or is it just the actual claims that were submitted to you? And the reason for asking that is, should your losses in India follow what's going on in the market in terms of mortality or is there a lag to where even if mortality begins to improve you will show an improvement later, just given the reporting lag?

Yes. Hi, Jimmy. This is Jonathan. So that $51 million includes IBNR. It's about 60% or so of that $51 million is IBNR, so we have not full claims reporting yet. So as you mentioned, the idea with the IBNR is we accrue up to claims that we think we've incurred but have not been reported yet as of the end of the quarter, trying to sync that up with what's happening in the general population.

We'll take our next question from Humphrey Lee of Dowling and Partners. Please go ahead.

Good morning and thank you for taking my questions. My first question is related to U.S. and Latin America Traditional. If we were to add back the COVID-related impact, earnings would have been $190 million. Clearly, a meaningful portion of the favorable VII would be in this segment. But just can you talk about and size the other favorability that you had in the quarter?

Humphrey, it's Todd. Yes, we saw some real favorable, you mentioned the variable income, and certainly, that was a portion of it. But we also saw it in our group and individual health line as well. Remember, the group line is the line we went through a pretty comprehensive repricing exercise a couple of years ago. We might have lost a little bit of new business, but the profitability has continued to be good. So really, it was across the board and a piece of it was the variable investment income.

And Todd, this is Alain. Sorry, I was just going to add, important to note, I think, our ex-COVID, our U.S. individual claims performance was good, which continues a string of pretty good quarters after COVID.

I was just wondering if you could elaborate on the benefits for VII, the Group, and health benefits.

Yes, the VII, these are rough numbers probably, but it was probably for the traditional business, it was probably in the neighborhood of $40 million, $42 million or so. And that's pretax, above what we would say the average run rate would be.

And then I think Group and Individual Health were somewhere in the $10 million to $15 million range.

That's helpful. And then my second question is while I understand maybe a little premature, but can you just talk about the outlook for potential COVID-19 impact for the third quarter especially for the countries that you don't provide sensitivity like South Africa and India?

Yes. Humphrey, it's Jonathan. So obviously, we continue to closely monitor the spread of the Delta variant. But as we mentioned, we're pretty optimistic that the success of vaccination programs will result in maintaining that effectiveness against severe outcomes and death. So far this quarter, the general population deaths in the U.S., the U.K. and Canada remained at relatively modest levels. Again, that example of the U.K. demonstrates that case counts are not as closely linked to mortality as we've seen in the past. We also believe that based on socioeconomic data in the U.S. that the insurance population take-up rate of vaccinations is likely a little bit higher than the general population, which is part of the reason why we've lowered our rules. For India and South Africa, the vaccination rates are lower, so we still expect to see some impact in the coming quarters. India right now, the daily deaths in the general population are about 15% of what they were at the peak of the prior wave, which is good for this quarter. South Africa case counts were going up at the end of the quarter. They appear to have peaked in early July and are coming down from the most recent waves, and deaths also seemed to have peaked at about 75% of what they were in the past. So again, those are good signs in those markets as well. And again, given the nature and size of our business in those markets, we think that future claims will still be at a manageable level for us.

We'll take our next question from Andrew Kligerman of Credit Suisse.

Just staying on that topic, and I think earlier in the call, I heard you mention that despite the Delta variant, vaccinations should prevent deaths. Maybe you could elaborate a little bit more on that. It seems like you're very confident in one company earlier kind of upped its estimate for mortality claims. So just maybe a little more color around the Delta variants and what you're seeing globally?

Yes. Sure, Andrew. So again, when we look at there are multiple studies, not just one set of data. So there's the real-world example I mentioned from the U.K., but data from Public Health England, New England Journal of Medicine, and the CDC reporting that's recently come out at the end of July all point to very high degrees of effectiveness still for the vaccinations against the Delta variant. Again, we think that will limit or dampen the impact of higher case counts just because the mortality should be quite a bit reduced. And again, as we've talked about already, too, in markets with lower vaccination levels, there will be more potential for those variants to have a larger impact, although another thing to keep in mind is that India has gone through the Delta wave already, so that's not yet to come there. We do think that the increasing levels of vaccinations in those countries, even though they are low at this point, will continue to improve and will result in a dampened effect as well in the future.

Andrew, I would like to add a comment. It's important to note that our business situation is quite complex and influenced by various factors, including underwriting and socioeconomic aspects. The experiences of other companies will largely depend on the specifics of their operations, whether they cater to individuals or groups. Therefore, I wouldn't make a direct comparison between those different scenarios.

Great. Very, very helpful. And then with regard to overall premium growth, very robust net premium growth of 11%. But then probably if you adjust for FX and some other unusuals, maybe it was 4%, which is still very good premium growth. Could you talk about each of your key regions and what kind of premium growth you're expecting over the near and intermediate term?

Andrew, it's Alain Néemeh. Why don't I take a stab at that? Maybe I'll talk a little bit about business volumes as opposed to premium growth just because there are a lot of factors that impact premium growth, as you mentioned, foreign currency. There's also lumpiness in client reporting at times. There's also the type of structure on which we reinsure, for example, whether it's YRT or coinsurance. But generally speaking, I think if we sort of go around the world, we're feeling pretty good about our business. Certainly, in the U.S., we're seeing a meaningful uptick in our production numbers. Now whether that's, I'll say, pent-up demand coming through or a new level of sustained activity, I think, remains to be seen, but we're certainly seeing better production at the direct company level, translating into better reinsurance production for us. Canada, again, is a similar story to the U.S. where we've got very good business production coming through, and that's reflected in reinsurance. In Asia, I think Todd alluded to it in his comments. We are seeing some good activity there. I think in the Hong Kong, China region, we're still a little bit down in terms of production numbers, mainly because a lot of our business in Hong Kong is from Chinese mainlanders that come across. However, generally speaking, good new business. I think there's room to do more. In EMEA, we're seeing good production levels, and maybe the only area where we're still a little bit cautious is in Australia, where we're looking to see some rehabilitation in product terms and conditions, which, by the way, I should add, we're expecting to see later this year. The regulator there has come out with defined terms and conditions on individual business. And that takes hold on October 1. We're starting to see evidence of signs of change there. All in all, I think Anna mentioned earlier, just from a GFS standpoint, right across the board, there is a good level of activity, and we've done some strong deals in the first half of the year, all in all, and I would say there's strong optimism for production in the next half of the year.

We'll now take our next question from Eric Bass of Autonomous Research.

Just wanted to come back to the U.S. asset-intensive segment. I think, Todd, you talked about $60 million to $65 million still being kind of a normal earnings run rate for that segment. I'm just wondering, should that move a little bit higher over time given the Modern Woodmen transaction, as that earns in?

Yes. So again, it was a very strong quarter for the U.S. Asset-Intensive segment for the reasons we went through. I guess one thing we didn't touch upon in the comments is that we also have over time amortization of the existing portfolio because that annuity blocks run down over time, which can be 5% to 10% a year, so it's a very rough estimate. Adding the transaction we did this last quarter helps offset some of that natural amortization over time. So again, a very strong quarter. Nevertheless, as we look through it, I'm very pleased with the result, but still feel, at least sitting here right now, that the $60 million to $65 million is probably a reasonable estimate and hopefully, we'll come at the high end and beat it.

Got it. And then maybe if you could talk a little bit about the outlook for the transactional environment in the second half of the year. Obviously, a good start to the year with $300 million deployed. But if you can talk about what level and types of activity you're seeing? And I guess, thinking both from RGA's perspective but also if there's anything that kind of falls into Langhorne's wheelhouse?

Yes, let me address that question. So I'd start by saying pipelines are very good in all our regions. Starting maybe with the Asia region, the asset-intensive pipeline is good. You saw that in our first quarter, the deal that we completed in the first quarter within that region. We are seeing a few more competitors there, but we believe we have some advantages, which can help us win and are helping us win. We have long-standing relationships as we've been in those markets for many, many years, that also means that we're familiar with and understand the products, the risks, the regulatory environment. Some competitors are still getting operational in some of these markets, so we think we're well positioned there. In the U.S., the asset-intensive pipeline is also very good. Competition is strong and there are a lot more competitors there. Deal sizes vary, as you saw in the second quarter with the announced deal that we did where we may not be fair share. We're also working on the Langhorne deal, specifically to your question. We're optimistic about completing Langhorne transactions. And then on longevity opportunities, again, the pipeline is good. In the U.K. and Netherlands, there are some sizable transactions. There are competitors, but again, we feel good about the business because in part our underwriting expertise is part of the sweet spot of deals that we focus on. So I would say, again, we feel good about the business and we're optimistic as we look forward.

Thanks. And you didn't touch on kind of the biometric pipeline, some mortality, morbidity. Are you seeing blocks there? It does seem like there is more interest at least in the U.S. from some companies in terms of transacting legacy life block.

Yes, I should have mentioned that you're right. There are significant deals with underlying insurance risks again. You need more than just asset expertise for those blocks; you really need underwriting expertise, and we excel in that area.

We'll take our next question from John Barnidge of Piper Sandler. Please go ahead.

Thank you. The delayed longevity benefits certainly seem to derive in the second quarter. Is there any way to get a sense for average date of deaths for that longevity benefit that occurred, just to get a sense of how we should think about in the third quarter? Thank you.

Yes, hi, John, this is Jonathan. I don't have an exact number to give you as far as dates go, but I think it's fair to say that generally speaking, the experience we're seeing in this quarter is probably lagged about four to five months on average. So most of the experience in Q2 would have been from reporting in Q4 and Q1.

Okay, great. And then can you talk about, you talked about group health and individual health that there have been some favorable claims tailwinds and that was repriced in 2019. Can you talk about the expectations around durability of that? Do you view any of that changing claims behavior as somewhat semi-permanent in nature?

Yes, John, it’s Todd. No, that business generally repriced on an annual basis or so, so we can stay close to the claims trends and adjust accordingly. But we think it's a very overall good block of business and as we continue to monitor, we should be able to adjust any trends over time.

John, maybe I'll just add a comment. I think it's fair to say that some of the benefits is potentially a reflection of the deferral of care in our medical line, although it is net of COVID-related medical and group life costs. But overall, we feel that the majority of the performance is really that reflection of the actions we took in the last couple of years and more durable.

We'll take our next question from Ryan Krueger of KBW. Please go ahead.

Hi, thanks, good morning. I just was hoping for a little more detail on the U.S. COVID claims in the quarter. Particularly, can you give us any sense of like the average age of the claimants in the quarter and is that, I guess, relative to prior quarters and is that the main driver of the lower average claim size related to the decline in average rate?

I apologize, but I don't have that information readily available; it might be something we can follow up on. However, the main factor appears to be the impact on the average claim size. In the current quarter, our COVID-related death claims are approximately 35% smaller than those we've previously encountered. We are uncertain if this trend will continue, if it's a fleeting change, or just a quarter's fluctuation, but we will definitely keep an eye on it as we adjust our guidelines going forward.

Thanks for your question. In the past, you have been cautious about coinsuring universal life with secondary guarantees. Are you interested in pursuing a block transaction in that area now, or are you still hesitant?

We are always exploring opportunities, and one example is LTC. We have been observing that market closely. Initially, we chose not to participate because we believed the risk-reward balance did not align with our criteria. However, over time, the situation evolved, and we entered the market. I believe we have managed it well, and that business has proven to be quite valuable for us. This reflects how I approach questions like yours. It’s a continuous reassessment, as conditions in the market can change. If we identify market conditions that align with our criteria, we will take action.

Thanks, and one last question, do you have an updated view of the Asia Pacific run rate earnings you would expect if we exclude the impact of COVID?

Excluding COVID on the Traditional side, I think that $40 million to $45 million pre-tax quarterly rate is good. And then on the, so the Financial Solutions side, which is doing quite well. $15 million, maybe $15 million to $20 million as we go forward, but we'll see how the activity goes.

We'll take our next question from Tom Gallagher of Evercore. Please go ahead.

Just a question on U.S. Traditional. Can you comment on how individual mortality compared to your Group business has been performing? Have you seen a noticeable change in trend between those two? What we've seen from some others is, it seems like almost all of the claims are coming through on the group side now, and it's not nearly as much of a COVID impact for individual, and I'm just curious if you're seeing the same thing. And then relatedly, can you provide some clarity on the mix of individual in-force versus group in-force?

Yes, hi, this is Jonathan. I can just give you some historical context, and what we've seen on the group and individual side. For us by far the larger component that we've seen inception-to-date through the pandemic is on the individual business. So over 90% of our U.S. mortality claims are in the individual line, and less than 10% would be in the group space. That relationship hasn't really changed materially over the course of the pandemic so far.

Got it. Have you noticed any changes in the trend of COVID claims between group and individual policies based on the Q2 results, or should we interpret that there hasn't been a significant change in trend between the two?

Yes, that's right. If I look at the split for Q2 on its own, it's still that 90-10 is approximately the same.

Okay. Regarding the international COVID hotspots, it sounds like you have a more positive outlook on the situation. Are there any areas of concern besides India and South Africa? It seems Latin America is still experiencing higher rates, and some emerging markets in Asia also appear to be elevated. Could you elaborate on any other regions that you're monitoring?

Yes, yes, no, happy to. First, I'll say that all of our regions are always on our watch list, but at this time, we don't have any significant concerns outside of the 5 markets that we've talked about: U.S., U.K., Canada, India, and South Africa. If I look at Latin America, as an example, about 90% of our business there is annually renewable, and a large component of it is health-related. We've been averaging less than $5 million a quarter over the last 5 quarters of COVID costs. Just looking at Southeast Asia, in particular Malaysia Indonesia as an example, where we're seeing higher general population deaths. In Indonesia, our mortality exposure is very small as a lot of our business there is morbidity-related. Malaysia is about 1% or so of our global mortality exposure. It's a relatively young book of business, so only 1% of our businesses over the age of 65 in Malaysia, and vaccination rates are climbing steadily there, which is a good sign as well. They are now about 45% with one dose and 23% fully vaccinated in Malaysia, which should help dampen future impacts as well.

We'll take our next question from Mike Ward of UBS, please go ahead.

Thanks, good morning. I have a question about vaccinations. Do you have any data on recent COVID-related deaths and whether those individuals were vaccinated? Additionally, I am curious about the unvaccinated population in the U.S. and how that demographic might relate to life insurance coverage. I'm trying to understand the geographical distribution of remaining COVID mortality risk in relation to vaccination rates across the country.

I’m happy to share some thoughts on this. We don’t have data on vaccination status for the deaths we report, so we lack that specific information. However, external sources, such as the CDC study I mentioned earlier, clearly indicate that there is a very high level of efficacy and a very low mortality rate among vaccinated individuals. This highlights the significant difference in numbers. I apologize, but I think I may have overlooked the second part of your question. Could you please repeat it?

Yes, no, I guess just geographically in the U.S., it seems like there are lower vaccination rates in the South or the Southeast and wondering about your...

Yes. From a geographic perspective, there's not that much difference sort of in our book versus the U.S. population, but we do think socioeconomically, there will be a benefit when you mentioned that our insured people are more likely to be vaccinated. There are studies that we've seen some other direct study that looks at insured vaccination levels but things that correlate vaccination rates to education level, which is correlated to socioeconomic and also the likelihood to have insurance do demonstrate that it is more likely that we believe that people who have insurance will be more vaccinated. Again, that's partly impacting our reduction in our rule of thumb that we're seeing as well.

Great, thanks. And then I was just wondering about how this pandemic might change your capital model going forward or your pricing targets for new business. Are you pricing new business under the assumption or recognizing the potential for another more frequent pandemics going forward, or is it just too early to tell on that?

Yes, yes, I think the long-term effects it's still a little too early to tell. We're definitely devoting a lot of resources to looking at multiple categories of things that we believe could affect our future mortality. Absolutely in the short term, though, so the current COVID impacts we’re pricing those into all the business that we're actively writing so those are being reflected correctly.

And there are no further questions at this time. I would now like to hand the call back to Mr. Larson for any additional or closing remarks.

Okay, thank you and thank you for everyone for joining us today for our second quarter earnings call, your continued interest in RGA, and we look forward to continuing to talk in the future. So thank you very much.

Thank you. That now concludes the call. Thank you for your participation. You may now disconnect.