Good day, and welcome to the Reinsurance Group of America First Quarter 2022 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 first quarter 2022 conference call. With me this morning on the call is Anna Manning, RGA's President and Chief Executive Officer; Leslie Barbi, our Chief Investment Officer; Jonathan Porter, our Chief Risk Officer; and Jeff Hopson, the Head of our Investor Relations. We will discuss the first 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 this morning. Last night, we reported adjusted operating EPS of $0.47, which included a COVID-19 impact of $310 million pretax or $3.48 per share. We are encouraged by the results this quarter as we reported positive operating earnings despite absorbing a meaningful level of COVID-19 claims. There are also many bright spots throughout the business, and I consider this to be a very good start to the year. Before getting into the details of the quarter, I want to emphasize a few key points. Our core business continues to deliver strong underlying results, and that is a testament to the value of our global franchise and is a positive indicator for our future results. We continue to see good new business activity in our markets, both organic new business and through in-force transactions. And that means we've been adding meaningfully to future earnings. We also see encouraging pipelines in both channels. Now turning to the quarter. COVID-19 claims in the quarter were concentrated in the U.S., Canada, and the U.K. Jonathan will provide further insights on our global COVID-19 claims shortly. Our Asia Traditional business had a very strong quarter, reflecting favorable underwriting results even after absorbing a moderate amount of COVID-19 claims. Our GFS business continues to excel and produced results that were above our expectations, led by the EMEA region this quarter. Our U.S. group and U.S. individual health business again reported strong results, continuing the trend of very good performance. The Australia Traditional business reported a profit, the best results in quite a while, and it was profitable across both group and individual businesses. We remain cautiously optimistic about the Australia business and the ongoing market developments as the industry starts to move towards more sustainable conditions. Our investment results were favorable, and the rise in interest rates and new money rates, if sustained, would be a positive tailwind going forward. Capital deployed into in-force and other transactions was $130 million in the quarter, a nice start to the year. As already mentioned, the pipelines remain active and broad-based across risks and geographies. A factor in our long-term success in in-force transactions is having deep local market expertise combined with long and well-established local client relationships. That is having strong local operations. That strategy and positioning have been paying off and are further evident this quarter in Asia, where we deployed a large part of the $130 million of capital into transactions. Our reported premium growth was a strong 8.3%, and that is while some countries are still facing some level of pandemic restrictions. We continue to see good momentum in new business going forward with favorable dynamics for insurance products in many of our traditional markets, and strong demand from clients for our reinsurance solutions. I'm also proud to announce, excuse me. You have to excuse me this morning as I'm getting over a cold. I'm also proud to announce that for the 11th consecutive year, RGA was ranked #1 for global business capabilities by NMG in their 2021 Global Life and Health Reinsurance report. Leveraging our leading capabilities and being a trusted partner as well as a thought leader, has allowed us to deliver value to our clients throughout the years, a point of personal pride in this organization and a tribute to our employees and our culture of client centricity. Looking ahead, I see many reasons to be optimistic. First, although uncertainty remains, evidence shows that COVID-19 deaths are declining in many countries. Second, our value proposition and client partnerships have been strengthened throughout the last two years, and our new business success has added material long-term earnings. Third, our global platform, depth of technical expertise, strength of capabilities and value of client partnerships differentiates us and positions us extremely well to capitalize on the many attractive growth opportunities as we move forward. Thank you for your interest in RGA, and I hope you all remain safe and well. Let me now turn it over to Todd to go over the detailed financial results.

Thanks, Anna. RGA reported pretax adjusted operating income of $59 million for the quarter and adjusted operating EPS of $0.47 per share, which includes a negative COVID-19 impact of $3.48 per share. While we did experience a meaningful level of COVID-19 claims, our underlying non-COVID results were strong. Our trailing 12 months adjusted operating return on equity was 2.1%, which was net of COVID-19 impacts of 8.9%. Consolidated reported premiums increased 8.3% in the quarter. When adjusting for currency effects and onetime items, organic growth was a solid 6.3% for the quarter. The effective tax rate for the quarter was higher than the expected range of 23% to 24%. The items that drove the rate were not large on a dollar basis, and we expect this to even out over the course of the year. Turning to the segment results on Slides 6 and 7 of our earnings presentation. The U.S. and Latin America Traditional segment included approximately $272 million of COVID-19 claim costs, $260 million of which was in our U.S. individual mortality business, with the majority of the balance in our U.S. group business. Our non-COVID excess claim costs were minimal, consistent with the low level of general population excess mortality data. Variable investment income was again favorable this quarter. The U.S. individual health business performed better than our expectations due to favorable experience overall. Our group business result was above expectations as the moderate level of COVID-19 claims was offset by favorable non-COVID-19 experience. The U.S. asset-intensive business reported strong results aided by variable investment income. The Canada Traditional segment results reflected unfavorable individual life mortality experience due to the impact of COVID-19 claim cost of $20 million and quarterly volatility from an above-average level of large claims. The Canada Financial Solutions segment results reflected favorable COVID-19-related longevity experience. In the Europe, Middle East, and Africa segment, the Traditional business results reflected COVID-19 claim costs of $10 million in total, with most of that in the U.K. We also saw some non-COVID-19 excess large mortality claims in the U.K., which we attribute to normal quarterly volatility. EMEA's Financial Solutions had a very good quarter as business results reflected favorable longevity experience and the impact of the growth of the business. Turning to our Asia Pacific Traditional business. Asia results reflected favorable underwriting experience with a moderate COVID-19 impact. Australia reported a profit for the quarter as both group and individual businesses were profitable. The Asia Financial Solutions business results were in line with expectations. The corporate and other segment reported a pretax adjusted operating loss of $22 million, which is modestly better than our quarterly average run rate. Moving to investments. The non-spread portfolio yield for the quarter was 5.29%, reflecting strong variable investment income, primarily due to the real estate joint venture gains. While hard to predict from a timing perspective, variable investment income is a core part of our investment earnings. Additionally, in the quarter, credit impairments were modest and totaled $14 million. Included on Slides 11 and 12 of our earnings presentation, our capital position remained strong, and we ended the quarter with excess capital of approximately $1 billion. We deployed $130 million into in-force and other transactions and returned $74 million to shareholders through dividends and share repurchases. This quarter highlights our balanced approach to capital management and our ability to absorb the impact from COVID-19, fund organic growth, deploy capital into transactions and return capital through share repurchases and dividends. In summary, we believe our well-diversified global platform, strong balance sheet, and underlying earnings power position us to continue to deliver attractive financial returns to our shareholders over time. 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. This morning, I will be covering our global COVID-19 claims experience. Q1 saw an increase in COVID-19 general population deaths in many of our key markets. Compared to Q4 2021, reported general population deaths were up 20% in the U.S., 40% in the U.K., and almost tripled in Canada. Despite these increases, our estimated COVID-19 claim costs were essentially flat from the previous quarter for these three markets and declined approximately 10% across our global portfolio. Starting first with the U.S. Slide 13 shows U.S. general population deaths based on CDC reporting. There are three key observations from the reported data that I wanted to highlight. First, as previously mentioned, reported COVID-19 general population deaths were approximately 155,000 in Q1, up 20% from Q4. Second, although CDC reporting isn't yet complete, it is showing very little excess non-COVID-19 population deaths in the quarter. We believe this is a result of two offsetting factors: the very low levels of influenza deaths when compared to an average year, offset by excess non-COVID-19 mortality that we have seen throughout the pandemic which we believe is likely directly or indirectly related to COVID-19. The third observation I would like to share, and one we have talked about in prior quarters, is regarding the age composition of general population COVID-19 deaths. As you see on the chart on the right-hand side of the slide, the proportion of COVID-19 population deaths at ages below 65, ages where there is more life insurance exposure, declined to 24% from the Q3 2021 peak of 42%. Our U.S. individual mortality results are very consistent with what we are seeing in the general population this quarter. Our COVID-19 mortality claim costs of $260 million were material given the high level of population deaths, but we saw a reduction in our claim cost per 10,000 general population deaths as compared to Q3 and Q4 of 2021. This improvement, we believe, is in part due to the lower proportion of deaths in working ages, as shown in the CDC data. Our excess non-COVID-19 mortality experience in the quarter was minimal, again, consistent with the absence of excess mortality in the general population. There were no notable trends when looking at our underlying U.S. mortality experience by policy size, age, or issue year cohorts. Turning to Canada, and as shown on Slide 15, estimated COVID-19 mortality claims were $20 million or approximately double the prior quarter. This was a lower increase than observed in the general population deaths, and Q1 results also include the impact of one very large COVID-19 claim. Excluding this one claim would result in Q1 COVID-19 impacts in Canada being within our rules of thumb range for claim costs per 10,000 general population deaths. In the U.K., COVID-19 mortality claim costs were also within our expected range based on general population deaths and similar to full-year 2020 results after being elevated for much of 2021. We are maintaining our stated claim cost rules of thumb for the U.S., U.K., and Canada. We are encouraged that Q1 claim costs per 10,000 deaths have decreased relative to the impacts observed during the Delta wave peaks in Q3 and Q4 and are now more in line with the midpoint of our ranges. In India and South Africa, COVID-19 impacts were minimal in the quarter as newly reported claims remained modest and were offset by favorable prior quarter claims development. So far in Q2, COVID-19 general population deaths in the U.S. and other key markets have remained at relatively low levels when compared to Q1, and we are cautiously optimistic that future impacts will continue to decline in severity due to higher population immunity from vaccination and prior infection as well as increasing access to more effective treatments. Uncertainty persists, but we remain confident that impacts will be manageable. Let me now hand it back to Todd.

Thanks, Jonathan. That concludes our prepared remarks. So we now would like to open it up for questions.

We'll go ahead and take our first question from John Barnidge with Piper Sandler.

My question relates to the indirect COVID mortality. Clearly, direct excess mortality has some correlation to COVID. But as we move from pandemic to endemic, how should we be thinking about that indirect mortality prospectively?

John, it's Jon. Yes. So I think with respect to excess mortality, our belief is that this will likely continue while COVID impacts are meaningful. So again, because we believe that there is a connection between the excess mortality and other direct or indirect factors related to COVID-19. So as COVID deaths come down, we have no expectation that excess mortality will continue in a material way.

Okay. And then my follow-up, on floating rate securities with higher rates. Can you talk about how much lift from that you saw in the first quarter as well as how you think about that prospectively?

Leslie, would you like to take that one?

Sure. This is Leslie. Yes, so, as you know, while rates moved meaningfully out the curve, there's a little bit of a lag in actually having the short rates move; you have to have the Fed and other central banks follow through. So we have not yet seen the full impact from the floating rate and cash moves, but there was some contribution in the first quarter, and that will grow out over the years. So it's meaningful.

And we'll go ahead and move on to our next question with Jimmy Bhullar with JPMorgan.

First, I had a question for Anna. Just in terms of your views on long-term demand for reinsurance and whether the pandemic will cause any changes in session rates or buying behavior on the part of primary companies? I know session rates obviously have been declining a lot over the past few decades and seem to have stabilized, but do you think that the pandemic will change demand for reinsurance? And are you seeing any indications that it will move in one direction or another?

Thank you for that question. First, let me set the stage. We've been fairly active in all our regions, and we've seen good wins across the markets. I would start with our facultative business in the U.S. That's seen some nice growth in activity. And remember, this is part of our business where we underwrite the application and keep most of the risk. The thing to note there is that there are fewer reinsurers who can provide that facultative service, so fewer competitors there. Then we are seeing general underlying demand by consumers go up, flowing to our clients, and then we're sharing in that growth. I would also point to many companies that have accelerated their digital efforts, creating opportunities for us to support new products for their new customers, support digitally-based underwriting approaches, and increasing the use of data. So I would say that certainly, over the last two years, not only has this pandemic increased the awareness of the value of insurance, but also our mortality expertise, we are seeing a higher demand from our clients for that expertise. It's paying off, and I expect that benefit will continue post-pandemic. Overall, I see good growth momentum as we come through the pandemic and beyond it.

Okay. And then for Todd, in terms of buybacks, the amount you did this quarter was lower than what you've done the last couple of quarters. Any reasons for that? And then should we assume that you'll get a little bit more proactive with buybacks if it seems like the pandemic's abating? Or do you see other opportunities that are out there that are better and that's the reason you've been reluctant to buy back a lot recently?

So we think we got off to a good start in the first quarter here as far as overall capital deployment, especially considering that we're still in a period of heightened COVID claims. The $130 million deployment into the transaction, we're very pleased with, returning capital through the $25 million of repurchases and the $49 million of dividends. If you look back at our history, we've had a pretty balanced approach over the longer term on how we've managed the capital, combining deploying it into the in-force transactions that we like the underlying risk, getting appropriate return, maintaining a reasonable dividend, and balancing that with share repurchases. We will continue to look on the horizon and see what potential transaction activity is out there and balance out the overall management of the capital base as well as looking at alternative forms of capital beyond equity and debt from the holding company.

And we'll go ahead and move on to our next question from Andrew Kligerman with Credit Suisse.

Just to follow up on what Jimmy asked. Todd, with $1 billion in excess capital, do you plan to keep it centered there? Would you prefer to reduce that amount? How would you like to manage your excess capital as we move forward?

As we go forward and we get back to, I'll call it, more normal times when most of the impact of the pandemic is behind us and we're more confident with the capital generation as we continue to execute on these alternative forms of capital, I mentioned a minute ago, we would be comfortable coming down below that $1 billion of excess capital once we are confident that we can replenish the capital fairly quickly through earnings and alternative forms. So I know we've been at that $1 billion-plus level throughout the last year or two, but we would be comfortable bringing that down in the right situations.

And bringing that down means in like the few hundred million zone? Or where would that comfort level be?

I don't have an exact number, but I would say more probably around, if you need me to mention a number, $700 million to $800 million or so.

I see. That's very helpful, Todd. And then just again with the capital management, what's RGA seeing in terms of a pipeline of acquisitions, same parallel with Langhorne Re? And what areas would you like to be making acquisitions in?

Sorry, maybe I can address the pipeline question, and then you can add on. Jimmy, the pipelines are good for transactions across all our regions. In Asia, if you recall, we've done several nice deals over the last couple of years. Those transactions have been generating increasing interest from other clients in those markets. We expect to see increasing interest that part of the world and also that comes about because of some of the upcoming changes in capital frameworks in many of the countries in that region. When we look at the U.S., U.S. pipelines are good, although there is a lot of competition, especially for the asset-intensive deals. In EMEA, we are seeing continuing longevity interest. Recall last year was a very good year for us where we completed some good longevity deals in the Netherlands. Coming back to the U.S., the U.S. has a big PRT market. You're fully aware of that. There are significant pension liabilities on corporate balance sheets, and they are pretty well funded at this point. Adding in the rise in rates and the volatility in the environment, I believe it is likely increasing sponsors' desires to do a deal. It's a very, very big market, with estimates ranging up to $1 trillion or more in potential demand. That's a really big number, and with current market capacity, that may be a year's worth of opportunities, but it is an attractive growth market for us. While it is highly competitive, what you can expect from us is that we will be disciplined, we'll pick our spots, and I expect us to be active and successful over time. So I see opportunities right across our regions across different risks. We have been in this business for multiple decades.

And we'll go ahead and move on to our next question from Erik Bass with Autonomous Research.

Maybe first, just to follow up on that last point, Anna, about the U.S. PRT opportunity. Would you be interested in doing fully funded deals? Or just longevity transfers? Or both?

We do both. We have engaged in asset-intensive longevity deals as well as swap-type longevity deals. We are very interested in both segments of that market.

And then I was hoping you could talk about how much benefit you could see from the rise in interest rates over time? Or maybe asked another way, how much of lower rates weighed on your ROE in recent years? Rates are now at a level where they're neutral or even positive to ROE going forward.

Yes. This is Todd. I'll start off and then maybe Leslie, you can add on as well. It's good to see rising rates being beneficial for our business. We've had this drag, especially in the U.S. Traditional market for quite some time with the reinvestment rates being below the portfolio, and that's finally starting to get back equivalent and hopefully become a tailwind. So we're optimistic about the rising rate environment. Leslie?

Sure, Todd. Combining that perspective with the other question, I believe our current yield is significantly more favorable than it has been for a long time. This is a positive development. If the current market opportunities persist, we will exceed the yields on maturing securities. This type of dynamic hasn't been seen in the industry for a while. As we mentioned, it will take time to fully realize the impact. However, regarding our cash and floating rate securities, we expect to continue benefiting. The increase hasn't been entirely parallel yet, but we anticipate ongoing advantages in the coming quarters.

And we'll go ahead and move on to our next question from Ryan Krueger with KBW.

Just a follow-up first, how big is the floating rate portfolio?

So I guess when we look at it net of floating rate liabilities, I'd characterize it as a few percent of the total portfolio.

Got it. And then I had a question on capital generation. I guess as things have been skewed as we've gone through the pandemic. But I guess if you think about excluding COVID, do you have an updated view on kind of normalized capital generation in a given year?

Yes. It will be lumpy year-to-year. But prepandemic, we were in that $300 million to $500 million range before deploying it into in-force transactions. As Anna mentioned earlier in her comments, we've continued to add nicely to our block of business over the course of the last couple of years during the pandemic to produce future earnings. I would anticipate as we come out of the pandemic that we will get back to those prepandemic levels, if not even better.

And we'll go ahead and move on to our next question with Dan Bergman with Jefferies.

I guess first, I saw you booked a profit in Australia for, I think it was the second straight quarter. Just wanted to see if you could size the earnings you saw there this quarter. And also any additional color you can give on just the performance across your blocks in the region and any updates on the business and the market would be helpful? Is this now in a position where you think Australia can produce sustained profitability going forward?

For Australia, there were two main lines of business: the individual and the group business. Both segments were profitable in the quarter, which was encouraging. Additionally, there are industry dynamics and changes happening that we believe will enhance the performance of the business in the future. The total profitability for the Australia business was approximately $4 million pretax. There is still potential for further improvement as it develops.

Got it. That's helpful. And then just on your COVID claims in the quarter, is it possible to size the favorable prior quarter development you saw in India and South Africa and kind of what the net COVID impact was in those two countries in the quarter? Is there any more granularity on breaking down that bucket of COVID claims outside your main markets? I think it was $18 million in the quarter.

Yes, Dan, this is Jonathan. For both India and South Africa, the level of claims that we actually had as newly reported claims in the period was around $12 million or so. The release of IBNR from prior quarter favorable development was actually more than that, resulting in a slight positive contribution to earnings. That gives you sort of in the single-digit million range. As far as that other bucket outside of what we pulled out and talked about, I'd say we have some IBNR that we set up in Hong Kong, given the spike in claims there. So that's about $10 million of that number and then smaller pieces in other markets.

And we'll go ahead and move on to our next question from Alex Scott with Goldman Sachs.

The first one I have for you is just back on Asia. I'd be interested in some of the things you're doing there to grow. It seems like some of that is paying off and improving fundamentals. So I'd just be interested if you could provide any details on some of the underlying drivers of some of the places you're deploying capital, etc.?

We have been investing in that region for nearly two decades. Currently, we are in the early stages of market development, which allows us to help shape and structure transactions. This is a key factor in our success there, along with our understanding of the market, products, and underlying risks. With over 20 years of experience and the strong relationships we've built with our clients, all of these elements together contribute to the value we bring to that market, resulting in successful deals.

That's helpful. My follow-up is that one of the primary companies that reported mentioned they are reviewing a mortality study received before their actuarial review. I understand that you update information more continuously rather than all at once. I would like to know if you have reviewed it or if there are any observations from the broader environment that might have led you to adjust expectations for long-term mortality.

Maybe I can start. At this point, we haven't changed our expectations for long-term mortality improvement or trends. Obviously, there's a lot of work that we're doing to look at data as it's emerging relative to COVID. We're also looking at some of the potential knock-on effects of the post-COVID environment, so things like delays in diagnosis, technology advances, changes in personal behavior, but no conclusions in that space yet. What I will say, too, about experience studies is we have a pretty robust framework or process in all of our markets where we look at our assumptions on a very regular basis and review our expectations. To the extent we see something that would be material, we would reflect that in our best estimates going forward. So that's just more of a general statement on how we look at experience. I'm not sure of the exact study you're referring to, though.

And with that, that does conclude our question-and-answer session. I would now like to hand the call back over to Todd Larson for any additional or closing remarks.

Well, thank you for joining our earnings call this morning and for your continued interest and support of RGA. Thank you very much.

And with that, that does conclude today's call. Thank you for your participation. You may now disconnect.