Reinsurance Group Of America Inc Q1 FY2024 Earnings Call

Good day, and welcome to the Reinsurance Group of America Q1 Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Todd Larson, Senior Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you. Welcome to RGA's First Quarter 2024 Conference Call. I'm joined on the call this morning with Tony Cheng, RGA's President and Chief Executive Officer; Leslie Barbi, Chief Investment Officer; and Jonathan Porter, Chief Risk Officer. A quick reminder before we get started regarding forward-looking information and non-GAAP financial measures. 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, the information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation, and quarterly financial supplement, all of which are posted on our website for a discussion of these terms and reconciliations to GAAP measures. Throughout the call, we will be referencing slides from the earnings presentation which, again, is posted on our website. And now I'll turn the call over to Tony for his comments.

Good morning, everyone, and thank you for joining our call. Last night, we reported adjusted operating earnings of $6.02 per share, which is our highest ever quarterly result. Our adjusted operating return on equity for the past 12 months was 14.8%, exceeding the intermediate targets we previously shared. The record earnings and attractive ROE are not solely from one or two areas of the company. All four geographic regions and both the Traditional and GFS businesses met or exceeded our run rates. In particular, our Traditional results stood out driven by strong underlying experience, notably in the U.S. It was a quarter where many things came together and follows an excellent 2023 for RGA. I am very pleased that we just learned that RGA was rated #1 for the 13th consecutive year on NMG Consulting's Global all respondents Business Capability Index. This is based on 2023 feedback from the life and health insurance companies around the world. In addition to the outstanding earnings and external recognition, our new business activity was very strong. We deployed a record amount of capital into in-force transactions of $737 million. We have always shared a preference to redeploy our excess capital back into the business for both financial and strategic reasons. Successful transactions lead to favorable economics over the long run and can create repeat opportunities from these clients. In addition to the record quantity of new business, we are delighted with the quality of the new business as we continue to see a high percentage of transactions centered around exclusive arrangements with some of the leading life insurers in the world. These transactions are more innovative in nature and create greater value for RGA and its partners. When we see excellent earnings, ROE, new business performance across many parts of the enterprise and external recognition of our capabilities, we know our strategy is working. We know our brand and capabilities are strong, and I know our people and culture are second to none. Combining this incredibly strong foundation with macro tailwinds, we are highly confident in delivering long-term attractive results and shareholder returns. I have previously outlined four areas of notable growth in the company. Let me discuss some of the activities and successes in each of these areas, starting with our longevity and PRT business. Longevity not only diversifies our mortality exposure but also provides favorable opportunities given the increased funding levels of pension funds around the world. In the U.S. PRT market, we announced deals with both of our partners, including our largest PRT transaction to date, and we remain optimistic about our prospects going forward. In the U.K. longevity space, where RGA is a market leader, we built on a very successful 2023 with additional transactions this quarter. The pipeline remains active in both the U.S. and the U.K., and we expect 2024 to be another exciting year. Our second area of notable growth is the asset-intensive business in Asia. During the quarter, we executed a number of important transactions in the region. As announced, we closed an approximately $4.7 billion deal in Japan. Our success shows the powerful position RGA has in many of our markets around the world. This is a client that we have shared a strong business relationship with for over a decade. This is an innovative solution being the first sizable longevity transaction in Japan, leveraging our strengths in the U.K. and the U.S. This transaction demonstrates our integrated approach with our investment and business teams working hand-in-hand to arrive at the right asset solution tailored for these liabilities. Strong local relationships, coupled with worldwide expertise further enhanced by the collaboration amongst our teams is how we win at RGA. In our third area of notable growth, which is our Asia Traditional segment, we continue to see very positive results. Our focus is to package product development with capital and underwriting solutions to fuel our clients' growth and success. In January, we adopted a product from Japan and launched with a major insurer in Korea. Given the success of this product launch, we expect multiple clients to launch with RGA in 2024. In China, we closed an in-force transaction, and we expect this success to lead to further opportunities in this space in the near future. Finally, in Hong Kong, which is our largest Asian market, we continue to be excited by the increased volume of Mainland Chinese visitors buying life insurance. Throughout the past few years, we have increased our share of key products and therefore, we are well-positioned to benefit. And finally, in our U.S. Traditional segment, which is our home market and the largest reinsurance market in the world, we continue to strategically build our offerings in the underwriting space to act as our key differentiator. In the quarter, we launched a partnership to extend our digital underwriting offerings. This complements our full-service facultative and supplemental underwriting programs. It is this ability to offer the full breadth of the underwriting spectrum that positions RGA so well in this market. In addition, we see strong momentum and in-force activity as clients continue derisking their balance sheets, which we believe is a leading indicator for future new business for RGA. Beyond these four areas of growth, we also continue to have tremendous success in other markets. You will have seen our announcements on the USD 4.4 billion transaction in Canada as well as our EUR 900 million asset transaction in Belgium. Both of these transactions create long-term value for the organization and are due to the tremendous work and effort of our local and global teams. You can see that we have won a lot of meaningful transactions this quarter. But what you have not seen are the transactions we have looked at and have chosen not to pursue. We remain disciplined and execute only when the risk-return trade-off meets our requirements. This risk management focus is as important as any other part of our culture in delivering long-term sustainable performance. As proud as I am about all these accomplishments, I am even more excited about the future. My job as CEO is to make sure that we continue to execute today, but also make sure we are in an even better position tomorrow. It's a true privilege to lead this organization, and I am clearly confident in our ability to continue to deliver growth at attractive returns to our shareholders for many years to come. I will now turn it over to Todd to discuss the financial results in more detail.

Thanks, Tony. RGA reported pretax adjusted operating income of $516 million for the quarter and adjusted operating earnings per share of $6.02. For the trailing 12 months, adjusted operating return on equity was 14.8%. We are very pleased with the strong results as well as momentum in new business activity and in-force transactions. Reported premiums were up 58.8% for the quarter. This increase includes $1.9 billion from a single premium U.S. PRT transaction in our Financial Solutions business. Our Traditional business premium growth was a healthy 8.2% for the quarter on a constant currency basis. We are pleased with the premium growth as there are good results across all regions. The effective tax rate for the quarter was 22.4% on pretax adjusted operating income, slightly below the expected range, primarily due to tax benefits received in foreign jurisdictions. Before turning to the quarterly segment results, I would like to point out the addition of Slide 7 in our earnings presentation that displays the current period claims experience and the related financial statement impacts. For the period, underlying biometric experience, which includes experience on our mortality, morbidity, and longevity risks was favorable by $138 million, of which $58 million was recognized in current quarter income. The remaining favorable claims experience will be recognized in income over the life of the underlying business. As we've discussed, under LDTI, the financial impacts from experience can vary based on the product, duration of the business, and whether experience occurs in capped, uncapped, or floored contracts. The U.S. and Latin America Traditional segment results reflected favorable individual life experience as well as favorable health and group results. The individual life favorable experience was broad-based and reflected a lower frequency of large claims. The U.S. Financial Solutions results were slightly below expectations due to lower variable investment income. As you'll notice, starting this quarter, we have combined the U.S. Asset Intensive and U.S. Capital Solutions results into a single segment. This is consistent with our management of these businesses and the presentation for other regions. Canada Traditional results reflected favorable experience in both group and individual life businesses. The Financial Solutions business reflects longevity experience that was in line with expectations. In the Europe, Middle East and Africa segment, the Traditional business results reflected favorable timing impacts due to the earnings recognition on an annual premium treaty and positive contributions from new business. EMEA's Financial Solutions business results were in line with expectations. Turning to our Asia Pacific Traditional business, results reflected favorable experience across the region. The Asia Pacific Financial Solutions business results reflected favorable overall experience. The Corporate and Other segment reported a pretax adjusted operating loss of $38 million, in line with the expected quarterly average run rate. Moving on to investments on Slides 9 through 12. The nonspread portfolio yield for the quarter was 4.7%, including the impact of lower variable investment income. For nonspread business, our new money rate was 6.12%, still well above the portfolio yield, but lower than the prior quarter, primarily reflecting lower average yields available in the market. Credit impairments were modest, and we believe the portfolio is well positioned for the current environment. Related to capital management, as shown on Slides 13 and 14, our capital and liquidity positions remained strong, and we ended the quarter with excess capital of approximately $600 million. We have an active and balanced approach to capital management over time, and as we have communicated in the past, we are comfortable bringing down excess capital given the right opportunities. This was the case in the first quarter as we deployed a record $737 million of capital into in-force transactions. I will note that we do expect to retrocede a share of this to Ruby Re, which is expected to increase available capital by approximately $150 million. We remain well capitalized with access to multiple forms of capital, including debt capacity, retrocessions to Ruby Re, and other forms of alternative capital. We expect to remain active in deploying capital into attractive growth opportunities while balancing returning excess capital to shareholders through dividends and share repurchases over time. During the quarter, we continued our long track record of increasing book value per share. As shown on Slide 15, our book value per share, excluding AOCI and impacts from B36 embedded derivatives, increased to $146.96, which represents a compounded annual growth rate of 10.6% since the beginning of 2021. As we've discussed, the first quarter was a very strong start to the year for RGA. The primary drivers of the results were favorable experience across the globe, strong premium growth, emerging earnings power from active capital deployment in prior periods, and the impact of higher interest rates. Overall, we continue to see very good opportunities across our geographies and business lines and are well positioned to execute on our strategic plan. Our business continues to demonstrate its resilience and underlying earnings power. We are very excited about the future and expect to deliver attractive returns to our shareholders. This concludes our prepared remarks. We would now like to open it up for questions.

The first question comes from John Barnidge with Piper Sandler.

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?

Thanks, John. Exclusives have been a fundamental part of our organization from the very beginning. We used to refer to this as entrepreneurial spirit, which is still very much a part of our culture today. In response to your question, we have established more ambitious targets for the share of exclusives in our business compared to last year, and we are indeed performing exceptionally well against our internal metrics. To provide some additional context, while exclusives may seem challenging, they represent the strength of RGA and our platform, enabling us to leverage our global team and assess risks appropriately worldwide. Often, exclusives emerge from introducing a new type of risk to a product, a new underwriting method, or a new reinsurance structure. RGA is uniquely positioned in that we handle both asset and biometric risks. Many reinsurers focus solely on assets or biometrics, but being the only U.S.-based global life and health reinsurer allows us to manage both sides effectively. This is what we consider our sweet spot. We remain highly optimistic about the increasing share of exclusives we are securing, as it serves as a guiding principle and represents an aspirational culture for us. I believe the positive momentum from this strategy is beginning to impact the entire organization, although we are still in the early stages of realizing the benefits of this change.

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?

John, it's Todd. We manage capital over time, and as Tony mentioned, we like to reinvest in the business when the transaction meets our risk-return criteria. Our dividend has remained stable, and we've balanced that with share buybacks when we haven't had a strong pipeline. As mentioned, we achieved record capital deployment in the first quarter, and our pipeline still looks quite promising for transactions that we favor.

The next question comes from Bob Huang with Morgan Stanley.

First is on your B36 derivative, and actually, the first point is really just the difference between net income and operating income, to broadly think about the overall below the line. I understand that a lot of that came from pension risk transfer deals this quarter due to the one-time impact. As you consider future PRT deals and become more optimistic in that area, are there ways to further reduce the below the line impact from that specific line or not?

Yes. So specific to the PRT, that upfront loss, if you want to call it that, is really as a result of LDTI adoption and accounting because we have to discount the liabilities at a lower rate than what the investment yield is just the way the accounting standard is written. We certainly are looking at ways to see if we can address that somehow. But unfortunately, right now, we do see that upfront loss in net income. But from an operating income perspective, we'll amortize it over time with how the earnings emerge.

Second one is really on your biometrics. Obviously, definitely a lot of tailwinds and even potentially more tailwinds 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?

Yes. Maybe I'll start, and then I'll hand it over to Jonathan to get into more specifics. I mentioned in my comments the many tailwinds we have. And I'll sort of just share with you at a company level, just some of them. One is the interest rates that are higher than historic. One is some of the changing capital regulations that are creating opportunities around the world. But to answer your question on the biometric, the fact that there is still major underinsurance of the population around the world, which gets filled up over time as GDP and incomes grow as well as continued medical technology advances. So I'll hand it over to Jonathan to elaborate more on the biometric side.

Yes. Thanks, Tony. And I agree with you. I think we are seeing widespread opportunities around the world. So being specialists in all of the biometric risks really, so mortality, morbidity, and longevity, gives us the flexibility to pursue the best opportunities globally. And then just to pick up on what Tony mentioned about technological advances and things. I think we remain encouraged by what we're seeing in emerging data relative to weight loss drugs, as an example, GLP-1 type drugs. We think that could lead to measurable improvements in both mortality and morbidity over time. And it's not just limited to that from a technology perspective. So diagnostic tools like liquid biopsies for cancer, AI genetic editing, and advances in protein activity as well in medical science. I think they're all things that are just examples of things that we see that could be a tailwind for mortality going forward. And given our risk exposure and our weight to mortality overall, I think that would bode well for the organization.

The next question comes from Jimmy Bhullar with JPMorgan.

So first, I have a question for Jonathan. Looking at the industry data, it seems that, according to CDC statistics, the numbers are still relatively high, though improved from COVID times, when compared to pre-COVID levels. However, your results appear to be quite positive. What factors are you observing in your business that differ from the broader population trends?

Thank you for the question, Jimmy. You're correct that the CDC data indicates excess mortality remains elevated, at mid-single-digit percentages in 2023 when considering the overall population. Although excess mortality is declining, which has been the trend over the past few years, it becomes more challenging to directly relate this to the insured business. The overall level of excess mortality is lower. This quarter, particularly in the U.S., we experienced favorable large claims, which can be volatile from quarter to quarter. We benefitted from this positive claims experience this quarter. Our expectations have not changed since we reviewed our assumptions last Q3. We still anticipate some level of excess mortality in the intermediate term, as reflected in our reserve assumptions, but we do expect this to decrease over the next few years.

If there are improvements in life expectancy and mortality, you would benefit significantly due to your greater exposure to mortality compared to longevity. However, it seems that companies are not pricing the longevity and pension segments based on anticipated mortality improvements. It's not guaranteed that such improvements will occur. How are you setting your prices for the longevity business? Are you taking into account the possibility of better life expectancy, which might hinder your competitiveness in the market? Alternatively, are you comfortable pricing based on actual data, considering your greater exposure to mortality?

Thank you for the question, Jimmy. The first key point is that our assumptions regarding mortality and longevity are aligned. Ultimately, they are interconnected as they both relate to mortality. Thus, any actions we take concerning mortality will also reflect in our approach to longevity. We are investing considerable effort in analyzing data and conducting medical research and development to better understand potential impacts from medical advancements. Any medical progress we anticipate could significantly benefit RGA since our outlook remains substantially positive on both mortality and longevity.

One point I would add, Jimmy, is that our average age for mortality is younger than that of the longevity business. The average age in the longevity block is higher, which means there's less potential for improvement to take effect.

Yes. Maybe further to add to that. To Todd's point, there's also some socioeconomic differences. So the mortality block tends to be higher socioeconomics, obviously, the first to be able to afford these new medical advances in the drugs.

The next question comes from Joel Hurwitz with Dowling & Partners.

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?

Yes, this is Todd. We included deployment in the transactions when we set the intermediate financial targets last quarter. I would say we're off to a faster start than we expected. Many transactions we had been working on came through this quarter. So we accounted for some of this in our projections, but we're ahead of our intermediate targets.

Okay. 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?

Yes. Overall, we are aligning our pricing with our targeted returns. We expect to see those margins improve over time to our anticipated levels. However, depending on the transaction, it may take one to two years to fully achieve the overall return levels you mentioned. We do some asset repositioning initially, and there may also be other financial reporting effects. Nevertheless, we aim to reach a solid level within a couple of years.

The next question comes from Wes Carmichael with Autonomous Research.

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?

No. Yes. So for qualifying business, which is the U.S. Asset Intensive business, yes, I would think about it as a quota share of 50% or even up to 70% of new transactions that come in that are U.S. Asset Intensive, up to the capacity that Ruby Re has, which will probably be from an equity capital perspective, $450 million to $500 million or so.

Got it. And then thanks for Slide 7, and I just had a question to clarify that. The favorable claim experience that wasn't recognized in the period, is that recognized on a straight-line basis, basically evenly every quarter? Or is it more closer to the period, which declines over time?

It will come in over time of the underlying duration of the business, if you will. It will all depend on the net premium ratio and how that impacts the release of earnings over time.

Yes. And just maybe Todd, to add on to when we look at the weighted average duration of our business, our traditional business, in our GFS business, it's probably in that 10- to 15-year range on average, just to give you a sense of the period over which those earnings would emerge.

The next question comes from Suneet Kamath with Jefferies.

Tony, I wanted to circle back to something you talked about in terms of the deals that you were looking at, but that you didn't end up doing. I don't expect you to give specifics, but just some color around what caused you guys to kind of walk away? Was it the liability profile or the pricing? And to the extent you can comment, were those deals eventually executed in the market?

Thank you for your question. Yes, it's important to note that our culture emphasizes maintaining a disciplined approach to ensuring the risk-return trade-off is appropriate. There are times when a liability may not be entirely suitable, but we take pride in our ability to price most types of liabilities. The key consideration is whether pursuing these deals is beneficial for our shareholders. Additionally, transactions can be unpredictable; they may proceed or not, and clients might need to adapt their approaches. For example, a few years ago, we successfully executed significant longevity deals in the Netherlands, which appeared to happen quickly but were the result of years spent pricing transactions until the risk-return trade-off was favorable. There are many other examples like this.

Got it. And then just relatedly, long-term care is an area that I think historically you've been reluctant to pursue. Just wanted to get your current thoughts. Obviously, we saw a transaction late last year. Rates are higher. Does that change your appetite for that line of business?

Yes, our current focus is on the newer generations of long-term care, which has performed admirably and continues to do so. We consider ourselves experts in managing liabilities within the life and health sector, and long-term care is one area of risk we evaluate. We will approach this with selectivity and discipline. It is not our highest priority, as there are many opportunities where we can leverage our expertise, resources, and capital, especially given the various favorable conditions I mentioned earlier.

The next question comes from Ryan Krueger with KBW.

You recently raised your ROE target to 12% to 14%. However, based on the results from the last few quarters and adjusting for the actual vs. expected biometric results you've shared, it appears that your ROE is closer to 14% to 15%. I just wanted to get your perspective on whether you believe you are operating more towards the higher end of that 12% to 14% range or even above it at this time.

Yes, we have been performing quite well. The mortality and the underlying biometric experience has been strong. We've seen some other positive impacts as well. We recently set our target at 12% to 14%. While we're not ready to make an adjustment just yet, we're pleased to see that we are reaching the high end of that range.

Got it. And then Tony, could you talk more about the Japan opportunity? It seems like things are really starting to open up there, both for you and some of your competitors in terms of in-force transactions in Japan.

Yes, thank you for the question. We greatly value Japan as a market, both in Traditional and GFS sectors. Your question likely focuses more on the GFS aspect. We consider ourselves pioneers in that market, particularly in the Asset Intensive space, with our first transaction occurring around 7 or 8 years ago. We are incredibly well positioned due to our strong local brand. The recent transaction we won was very satisfying, especially considering the relationship and the scale of the deal. I mentioned being a pioneer in many Asian markets; looking back 10 or even 20 years, we were among the few advocating these concepts. The arrival of competition often validates the effectiveness and efficiency of these methods for managing capital and asset risk. Thus, we are seeing increased competition, but we feel confident in our performance, especially following Q1 results, given our extensive experience starting in 1996. There were also additional strategic transactions in Japan during Q1 that we are excited about, so we maintain a positive outlook for this area of our business.

The next question comes from Nick Annitto with Wells Fargo.

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?

That's correct. We examine the overall opportunities in the market from a business standpoint, and the alternative or committed capital provided by a vehicle like Ruby Re supports our overall capital needs for business growth. It also aims to enhance the capital we invest in transactions, improve those returns over time, and gives us the assurance that we have the necessary capital to pursue some larger transactions.

Got it. That's helpful. And then I guess as a follow-up, I think you guys had said that the PRT in the quarter didn't go into Ruby Re. What was the reason for that? And should we be thinking about any sort of like impacts or reasons why there should be Asset-Intensive business that doesn't go into Ruby Re in the future?

I would just bring it back to when we set up Ruby Re, we defined what subject business would automatically go into Ruby Re subject to certain conditions. The subject business is the U.S. asset and intensive business at this point.

The next question comes from Tom Gallagher with Evercore.

I have a few follow-up questions on that topic. I would like to understand how many of the publicly announced deals in Q1 are included in the $737 million of in-force transactions that have deployed capital this quarter. Are there additional deals that didn’t close but will contribute to the deployed capital in Q2? Can you provide some guidance on what the expectations should be based on what has been announced but not yet closed as we head into Q2?

Yes, so all the announced transactions, except for the Canadian transaction, were in the $737 million capital deployment number in the first quarter.

And Tom, to add to your second comment on deals, we haven't closed. All I could say there is the pipeline is incredibly active across the globe in all our businesses. So we don't sort of speculate on which deals we'll be able to close. But as Todd mentioned, we spent so much energy obviously on the front end of our business, but absolutely on the capital management side and finding alternate sources of capital. So we're very happy with our capital levels and believe we have plenty of capital to fund future growth.

Got you. And then, Tony, it seems likely that the $933 million you achieved last year will be surpassed, especially considering the Canadian deal and if you finalize a few more from the pipeline. Would you agree that this is a reasonable conclusion?

I think, yes, that would be the expectation.

I would like to understand your thought process behind potentially funding the growth. You have Ruby Re, and it seems there hasn't been much investment there, indicating there might be significant capacity available as a source of capital. Is there anything else we should consider? Are you planning on pursuing other fundraising opportunities or additional capital sources internationally or otherwise?

Yes. Regarding Ruby Re, as we announced in December last year, we incorporated some existing blocks into Ruby Re late last year. Due to timing and other processes, there has not been any new activity this year, but we plan to add more retro business as the year progresses. In terms of fundraising, as I mentioned earlier, we do have some debt capacity at the HoldCo and at certain operating company levels. In the past, we've explored alternative capital options, including surplus notes issued in 2021 and 2023, as well as embedded value securitizations, with the most recent occurring in 2003. These initiatives help us raise capital and reflect the value of our business. Additionally, we will consider strategic retro sessions where it makes sense.

Yes. To add to that, it requires energy and passion to identify the right source of capital that aligns with the underlying risk return trade-off of the deal and to maximize capital efficiency for our shareholders. We are very active in this area, and as Todd mentioned, there are multiple opportunities and sources available. Over the years, we have developed these options, and we will not hesitate to utilize them as necessary.

The next question comes from Mike Ward with Citi.

Just hoping you could discuss the sort of the competitive landscape for whether it's new business in PRT or Financial Solutions? Just kind of thinking how are you competing when you're sitting down with potential partners and there's competitors out there that might have things like bigger sort of Bermuda subsidiaries or more aggressive investment strategies. Clearly, you're winning new business and doing very well. Just curious if you can help us think through this.

Thank you for the question. It really comes down to the breadth of our platform, our geographical reach, and the variety of risk types we can handle. We have a large client base with hundreds of clients globally, and we maintain close partnerships with them. Our strategy for competing, as you noted, seems to be effective based on our performance in the first quarter and last year. We focus on seeking exclusivities rather than competing directly, and this approach either leads us to secure exclusivities or work alongside other reinsurers, which still positions us well. You might wonder about the significant deal flow we've experienced recently, and I believe there are several factors at play. Ultimately, RGA's competitive edge lies in our customer focus, commitment to serving clients, and innovation. Although these aspects can be challenging to manage over virtual meetings, we have leveraged our core strengths in this changing environment, and you are beginning to see the positive results of that effort.

The next question comes from Wes Carmichael with Autonomous Research.

I have a quick question about Ruby Re. Is there a good guideline for thinking about the leverage there? Todd, you mentioned there’s around $450 million to $500 million of equity capacity. Can that be leveraged 15 times? I'm trying to understand the potential size of the liabilities that could be associated with it. Would it be around $6 billion, $7.5 billion, or potentially more?

To end on the underlying business and so on. I'm not clear if you're asking from a liability perspective or...

I guess where I'm going is I just wanted to figure out if you do a bunch of big PRT deals, how much do you think you could possibly use that sidecar for?

Yes. I think for the current capacity, I'm trying to think in my head, probably 15x is not far off.

The next question comes from Tom Gallagher with Evercore.

Just a follow-up on the biometric slide. Regarding the additional profit of $80 million for the first quarter of 2024 that is being deferred, would you say most of that would appear in statutory cash flow, meaning it wouldn't be deferred like it is under the new GAAP? If that’s the case, might we see a period where your free cash flow is a significantly high percentage of your GAAP earnings as a result?

Yes, the experience can be either favorable or unfavorable depending on the cohorts related to LDTI. Some aspects will be deferred on a GAAP basis, whereas for regulatory or statutory purposes, most of it will be recognized currently, similar to the old GAAP.

Yes. And just to add on, Todd, to, I mean, maybe it's obvious, but clearly, there is also other material differences between GAAP and statutory accounting. So there would be other drivers other than just the claims experience.

This concludes our question-and-answer session. I would like to turn the conference back over to Tony Cheng for any closing remarks.

Thank you for your questions and your continued interest in RGA. This was a very strong quarter to start the year and a record in many ways, further demonstrating the substantial earning power in our business. We remain very well positioned to capitalize on the many growth opportunities ahead, and we are confident in our ability to continue to deliver attractive returns to our shareholders. I look forward to seeing you all once again in June during our Investor Day in New York City. This concludes our first quarter call. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.