Good morning, and welcome to the Reinsurance Group of America's Second Quarter 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Jeff Hopson, Senior Vice President, Investor Relations. Please go ahead.

Thank you. Welcome to RGA's Second Quarter 2025 Conference Call. I'm joined on the call this morning with Tony Cheng, RGA's President and CEO; Axel Andre, Chief Financial 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 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 from the 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 operating EPS of $4.72 per share. Our adjusted operating return on equity for the trailing 12 months, excluding notable items, was 14.3%, which is in line with our intermediate-term targets. The operating results were below expectations due to large claims volatility in U.S. individual life and unfavorable claims in our healthcare excess business, which is one of our four business lines within U.S. Group. The U.S. individual experience reflected a higher level of large claims that offset the favorable experience in Q1. For the year, we are in line with expectations, and our forward-looking views have not changed. On the U.S. group healthcare excess business, claims were unfavorable, consistent with the trends in the market as seen by the experience of other health companies. This is short-term business, the vast majority of which will be repriced by January 2026. At a more strategic level, RGA has achieved one of our best quarters yet in terms of delivering tangible successes. Firstly, during the quarter, there was a significant increase in our excess and deployable capital measures. This will give us considerably more flexibility going forward to fund not only our strong growth but also return capital to shareholders in the form of dividends and share repurchases. Secondly, our business momentum remains very strong in both our financial solutions and traditional businesses. I am delighted with the closing of the Equitable transaction, as we announced yesterday. This transaction has an effective date of April 1. This start date was mutually agreed with Equitable as the experience on the block in Q2 was in line with our expectations. It is not just in the U.S. that we continue to be a market leader in the asset-intensive business. We are having tremendous success in this business line across the globe. I believe this quarter was the first time in our history we have won asset-intensive transactions in five different countries across three continents. This shows the power of RGA's global platform. In the traditional space, for the first six months of the year, our premiums rose by a strong 11% on a constant currency basis while maintaining our robust margins by delivering unique and customized solutions. Whether in the traditional or financial solutions space, the nature of our solutions does vary around the world. But what is consistent throughout and what drives this business momentum is our focus on Creation Re. This focus allows us to continue to exceed our targets in terms of the percentage of business coming from exclusive arrangements. This increases our pricing returns as we create greater value for RGA and our clients. As you know, Creation Re is about our ability to create innovative solutions. It is also about our ability to maintain our strong risk discipline. We speak a fair amount about the business we do win, but as instructive is information about the blocks we do not pursue. This quarter, there were several high-profile brokered transactions in the U.S. that we chose not to participate in. These transactions did not fit within our sweet spot and risk appetite. Our global platform allows us the flexibility to selectively pursue the business we like around the world. Thirdly, another area of strategic success is the continued build-out of our comprehensive asset management platform both in terms of the breadth and depth of capabilities. Our investment results were strong this quarter. The earned rate on the portfolio increased due to the strong variable investment income and higher new money rate. Our efforts over the past year to identify and act on repositioning some existing investments also supported these results. Our success is due to our prudent long-term approach to asset management. We build portfolios to weather the entirety of the investment cycle and have delivered strong returns while remaining well matched to our liability profile. I will now provide more specific details on some of our new business activities in the quarter focused on our four areas of notable growth. In Asia traditional, we had a robust quarter in terms of new treaties with all markets performing well. Our Hong Kong operations continue to shine in a market that showed a 43% increase in life insurance sales for the first quarter to a record high. In Taiwan, which is one of our strongest markets, we have been active in the senior market. Currently, there are six clients in the market offering 14 senior products, all supported by RGA. Finally, in Korea, we continue to have success in the upgrade cycle relating to the next generation of critical illness products. As you can see, each new product development not only leads to greater business within that market but also adds to our library of solutions that we then redeploy across Asia and across the globe. Moving to Asia Financial Solutions, our second area of notable growth. We closed several transactions in Japan, Korea, and Hong Kong. We continue to see regulatory changes as a key tailwind in these and other markets. While the large marquee transactions get the headlines, we also value these more frequent modest-sized flow or block transactions that are often completed without an intense bidding process. RGA, with its many touch points and long-standing relationships, is best positioned to provide these differentiated and more tailored solutions to our clients. Our third area of notable growth is longevity in the PRT market. In the U.K., we had a very active quarter as we closed a number of attractive transactions. We are on pace to meet our targets for new business and believe we are the clear market leader. The highlight of the quarter in the U.K. was an asset-intensive transaction with a new client. We partnered to develop a tailored solution made possible because of RGA's strong ratings, reputation, and execution certainty. In the U.S. PRT market, we are encouraged by the increase in activity at the jumbo end of the market. Given our business pipeline, we expect a pickup in activity in the second half of the year. In the U.S. traditional area, our fourth area of notable growth, we had strong new business, most of which was related to our underwriting initiatives. It was a record quarter for individual underwriting cases, and we made inroads towards underwriting outsourcing with a few important clients. Additionally, our broad array of underwriting services was the primary driver of us winning a leading share in many transactions. This included an in-force transaction where the client increased our share due to the services we provide. When you combine our underwriting and product development services with our partners that provide distribution technology and other services, further coupled with our ability to reinsure both sides of the balance sheet, you can see why we continue to bring holistic solutions generating exclusive business for RGA. Putting it all together, I am very pleased with our continued success in providing significant value to RGA and our clients through our Creation Re efforts. When combined with our balance sheet optimization on the capital side, in-force actions, investment portfolio repositioning, and other management levers, we expect to be successful in driving improved returns for shareholders and therefore, a tailwind to our current ROE. We remain confident about the future of our business prospects as RGA is well positioned in its markets, and we have a proven successful strategy that has stood the test of time. I will now turn it over to our CFO, Axel Andre, to discuss the financial results in more detail.

Thanks, Tony. RGA reported pretax adjusted operating income of $421 million for the quarter or $4.72 per share after tax. For the trailing 12 months, adjusted operating return on equity, excluding notable items, was 14.3%. After a strong first quarter, this quarter's results were below expectations, driven primarily by claims volatility in U.S. individual life and unfavorable claims in one of the businesses within U.S. group, which I'll expand on shortly. Aside from the financial results, we have made good progress on several strategic initiatives in the quarter, including materially improving our capital position. As a result of further balance sheet optimization and the recognition of the additional value of in-force business in certain capital models, our excess capital increased to $3.8 billion at the end of Q2. Pro forma for the Equitable transaction, which I'll discuss in more detail, excess capital was $2.3 billion. Similarly, our deployable capital increased to $3.4 billion at the end of the quarter. During the period, we deployed $276 million into in-force transactions. Our nonspread portfolio yield, excluding variable investment income, was 4.98% in Q2, up 8 basis points from the first quarter. Total variable investment income was strong at $105 million, significantly higher than last quarter and now favorable for the year. The results were primarily due to realizations in our limited partnerships and real estate joint venture sales. The effective tax rate for the quarter was 25.2% on adjusted operating income before taxes, above the expected range of 23% to 24%, primarily due to the establishment of valuation allowances on foreign tax credits. We are still expecting a tax rate of 23% to 24% for the full year. Yesterday, we announced the closing of the previously discussed transaction with Equitable. I would like to provide additional details regarding certain closing terms. The transaction is effective April 1, which was mutually agreed versus an alternative of July 1. When reviewing the Q2 claims experience and overall results on the assumed block, we found it to be in line with our expectations and thus found it beneficial to accept an earlier effective date. Our review of the experience also helped affirm the reasonableness of our actuarial and pricing assumptions. Although it's effective April 1, we will only report 6 months of earnings in our 2025 GAAP results. The Q2 earnings on the block are estimated to be $30 million, in line with our expectations, and these will be deferred and amortized into earnings over the life of the transaction. For the second half of 2025, we still expect pretax operating income contributions of approximately $70 million, increasing to $160 million to $170 million in 2026 and approximately $200 million per year by 2027. Turning to biometric claims experience as outlined on Slide 8 of our earnings presentation. This displays the total company claims experience and the related financial statement impacts on a quarterly basis. As mentioned earlier, claims experience was unfavorable in the quarter, primarily driven by the U.S. Traditional segment. For the company, economic claims experience was lower than expected by $256 million with a corresponding $158 million unfavorable current period financial impact. Claims experience was unfavorable in U.S. individual life primarily due to higher large claims offsetting the favorable experience from Q1. For the year, the economic claims experience for U.S. individual life is broadly in line with expectations. The current period financial impact was significant due to the proportion of claims in capped cohorts. Claims in U.S. group were also higher than expected, driven by our healthcare excess business, consistent with recent industry trends. Other lines within U.S. Group performed in line with expectations. We think that the current challenges within the healthcare excess block can be remediated in a reasonable timeframe given its short tail and our ability to reprice quickly and modify underwriting. We have already begun taking pricing action and expect that the majority of the block will be repriced by January 2026. Looking at the second half of the year, our assumption is that the group business overall will be approximately breakeven versus an expectation of $20 million to $30 million for the remainder of the year. We expect to see improvement in the results as we move through 2026. Claims in Canada and EMEA were modestly unfavorable, while APAC experience was favorable. As we've seen in the first two quarters, volatility on a quarterly basis, both positive and negative, is normal and does not necessarily signal a material trend. As shown on Page 8 of our presentation, on a longer-term basis, economic claims experience for the total company has been favorable by $272 million since the beginning of 2023 as we more fully emerged from COVID. U.S. Individual Life represents approximately $75 million of this favorable experience. As a reminder, the favorable economic experience that has not been recognized through the accounting results will be recognized over the remaining life of the business. As a result of our substantial new business activity year-to-date, the value of in-force business margins totaled $41 billion at the end of the quarter, an increase of approximately $4 billion year-to-date, with approximately $2 billion coming from new business. This excludes the impact of the Equitable transaction, which will be included in our Q3 results. We will provide a more detailed update on the value of in-force business margins with our Q3 results. For the year, consolidated net premiums were up 14% year-over-year when adjusted for the impact from U.S. PRT transactions, which can cause premiums to fluctuate. Our traditional business premium growth was 11% year-to-date on a constant currency basis, which has benefited from strong growth in the U.S., EMEA, and Asia. Premiums are a good indicator of the ongoing strength of our traditional business, and we continue to have strong momentum across our regions. Turning now to capital. Our excess capital increased to an estimated $3.8 billion at the end of Q2 or $2.3 billion pro forma for the Equitable transaction. The increase is primarily due to the recognition within certain capital frameworks of additional value of in-force credits related to business already on our books. We recently satisfied the strict external requirements needed to include these balances in our capital metrics. Note that excess capital considers our three main capital lenses, corresponding to RGA's internal economic capital model, local regulatory capital across our main legal entities, and rating agency capital methodologies. Our deployable capital at Q2 increased to an estimated $3.4 billion due to similar reasons I just highlighted. As a quick reminder, this measure represents management's estimates of the capital available to be deployed in two transactions or returned to shareholders over the next twelve months, taking into account estimated capital sources and committed uses over that forward-looking twelve-month period, including the impact of the Equitable transaction. Our strong balance sheet, capital management toolkit, and current levels of excess and deployable capital position us well to continue to support an attractive new business pipeline with existing capital. We will balance the deployment into the business with returning capital to shareholders through quarterly dividends, which we just increased 4.5% to $0.93 per share, and share repurchases. Regarding share repurchases, our intention in the short to intermediate term is to be active but opportunistic quarter by quarter, depending on our capital position, a forward view of our transaction pipeline, as well as valuation metrics. Over the longer term, we would expect total shareholder return of capital through dividends and share repurchases to range between 20% to 30% of after-tax operating earnings on average, consistent with our long-term history. Moving to the quarterly segment results on Slide 6. The U.S. and Latin America traditional results reflected unfavorable claims experience as previously discussed. For the year, the economic claims experience in U.S. Individual Life is broadly in line with expectations. The U.S. Financial Solutions results were higher than expected due to higher variable investment income and higher investment yields. As a reminder, the Equitable transaction will be recorded within this segment. Canada traditional results reflected modestly unfavorable group results in individual life claims experience. The Financial Solutions results reflected favorable longevity experience. In the Europe, Middle East, and Africa region, the traditional results reflected unfavorable claims experience, partially offset by favorable other experience. EMEA's Financial Solutions results were above expectations, reflecting favorable longevity experience, higher variable investment income, and higher investment margins due to ongoing growth. Turning to our Asia Pacific region. The traditional results were good, reflecting favorable claims experience across the region. Financial Solutions results were favorable, primarily due to higher variable investment income and ongoing growth of the business. Finally, the Corporate and Other segment reported an adjusted operating loss before tax of $32 million, favorable compared to the expected quarterly average run rate. Moving to investments on Slides 9 through 12. The nonspread book yield, excluding variable investment income, rose to 4.98% primarily due to higher new money rates, which increased to 6.53% and remain well above the portfolio yield. The total nonspread portfolio yield for the quarter was 5.31%, up from last quarter, reflecting higher variable investment income and higher new money rates. Variable investment income was strong for the period, driven by increased realizations in limited partnerships and real estate joint venture sales. I'll note that we still hold an above average level of cash that we look to deploy opportunistically over the coming quarters. Importantly, portfolio quality remains high and credit impairments are in line with expectations for the year. And we believe the portfolio remains well positioned. During the quarter, we continued our long track record of increasing book value per share. As shown on Slide 16, our book value per share, excluding AOCI and the impact from B36 embedded derivatives, increased to $156.63, which represents a compounded annual growth rate of 9.7% since the beginning of 2021. To summarize, following a strong first quarter, this quarter's results were impacted by claims experienced in our U.S. traditional segment. Importantly, we continue to advance many strategic objectives. Our long-term strategy remains well on track, and we are confident in our ability to deliver on our intermediate-term financial targets. We continue to see good opportunities across our geographies and business lines and remain well capitalized to execute on our strategic plan. We also believe we are in a position to return excess capital to shareholders through dividends and share repurchases.

Our first question today comes from John Barnidge with Piper Sandler.

Can you elaborate on the additional credit received on the life block? I understand there was a comprehensive analysis conducted across various markets and products. What changes were implemented? Additionally, are you assuming there will be an improvement in the obesity epidemic due to GLP-1 drugs?

John, thank you for the question. We're very pleased, obviously, with the value of in-force credits that we've received in our capital model. As you correctly pointed out, this was the result of a lot of work over a long period of time. And this really represents capturing within available capital models, some portion of the large embedded value in our business, given the long-term nature of our cash flows and the long-term embedded underwriting margins in our business. This is really a reflection of the current book of business with current assumptions and does not reflect any change in our actuarial assumptions at this point.

Yes. Are you considering incorporating that with the third quarter actuarial assumption review, is my follow-up?

It is too early to be talking about the third quarter actuarial assumptions work. This work is still ongoing, and we will be discussing that on the next quarter's earnings call.

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

Can you just unpack the individual life experience in the quarter? Was there some significant lag effect from Q1? And was there any impact from you guys increasing retentions at the beginning of the year?

Yes, Joel, thanks for the question. This is Jonathan. When we review claims experience, we focus on longer time periods before drawing conclusions on trends, positive or negative, because underlying results can be more variable when you look at any one quarter, any one market. So in that context, we're very pleased with our overall biometric experience as Axel talked about in his remarks. Q1 of this year, we had very positive results in our U.S. individual line of business due to large claims volatility being favorable. Q2, we saw the same thing, but in the opposite direction. So on a year-to-date basis, results for U.S. individual are broadly in line with our expectations. The total number of large claims we get in any one quarter is less than 200. So a small change in count or average size can create fluctuations in the experience, and that's really what we saw in Q2. We had a slightly elevated frequency of large claims, so more or less in line with expectations, a little bit higher. But it was really the materiality or the severity of the claims or the average claim size that was higher. I'd characterize the magnitude of the large claims volatility that we've seen in Q1 and Q2 as unusual. I wouldn't expect it to continue at that level on a regular basis. And again, given things are broadly in line on a year-to-date basis, there's nothing from a trend perspective that we're concerned about at this point.

Okay. Got it. And then, Axel, going back to the $2 billion value of in-force credit, can you just unpack that process a little more for me? And sort of what rating agency and regulators were involved and I guess just in your deck, right, you talk about the binding capital framework can change. Was there a change? And then just what would cause that to change?

Yes. Thank you for the question. So you're correct to point out that our capital metrics, whether it's excess capital or deployable capital, consider the three main capital lenses that we evaluate capital on. And that's, of course, RGA's internal economic capital model, the local regulatory capital across legal entities, and rating agency capital models. You're correct to point out that at times, we've talked about how the binding constraint between these three frameworks is what determines for us the excess or the deployable capital. In this case, value of in-force is a process that we pursued with rating agencies. So it says that the rating agency capital framework was the binding constraint and that through this work, which is thorough, which requires third-party review and a thorough process from the rating agency perspective, we now see this value of in-force reflected in our model. We are now in a position where rating agency and regulatory capital are relatively comparable. And then lastly, I just want to point out that this value of in-force recognition is the recognition for only a portion of our in-force block and that there are further opportunities for further recognition down the line.

The next question is from Elyse Greenspan with Wells Fargo.

I was hoping you guys could talk more just about the health experience in the quarter and just thinking about future performance of the block? And then I know you guys touched on rate increases in the prepared remarks. Can you just give us a sense of just the magnitude and the expected impact there as well?

Elyse, this is Jonathan. I'll take that question. We've been in this line of business for quite some time and have developed considerable expertise. It has consistently performed well and remained profitable, even in this quarter. Our U.S. Group business consists of four main lines, with three of them performing as anticipated. The challenges this quarter are linked to our healthcare excess line, which represents about 30% of our anticipated U.S. Group earnings, translating to roughly 3% of our U.S. traditional earnings. The results this quarter are primarily due to increased claims costs arising from various expensive treatments, such as specialty drugs, transplants, premature births, and certain cancer therapies. As Axel mentioned, the business is quickly adjustable and can be repriced annually, allowing us to promptly address any variances in performance, and we expect margins to improve heading into 2026. We have already implemented significant rate increases this year on blocks that have been renewed. While I don't have an exact number for you, the increases we have seen are substantial, and we anticipate that this trend will continue.

And then my second question, I guess, is also just on the excess capital figure. You were talking about getting credit for part of the value in-force. As we think about future deals that get done in the future, how should we think about you guys getting incremental credit there? Is it certain types of deals that would qualify for credit? Do you talk to the rating agencies on a case-by-case basis? Could you just give us a sense for just future transactions and deployable capital credit that you could get?

Yes. Thank you for the question, Elyse. Yes. So we have a long-term track record of working with the rating agencies to obtain credit for the value of in-force. At times in the past, it's been in the context of the securitization of a block of business. But also at times, it doesn't necessarily require that securitization. We have a process where there are certain portions of our business where we are receiving value of in-force credit as we write new business because we have a well-established process and understanding of the nature of the business. And then for other portions of our in-force business, we address it block by block, if you will. So we do expect that over time, we will be constantly looking at our balance sheet and looking for opportunities to create more value of in-force recognition through the rating agency process.

The next question is from Jimmy Bhullar with JPMorgan.

I have a couple of questions. First, regarding the health insurance business, can you discuss the delay in your results compared to what your clients are experiencing? Given that health insurance outcomes have generally declined in the second quarter, should we expect that trend to affect your results in the third or fourth quarters? Even if you adjust part of the portfolio, could things potentially worsen in the short term, possibly not improving until 2026? Secondly, about capital, it seems that your excess or deployable capital is around 20% to 30% of your market cap. However, traditional metrics like debt-to-cap or RBC don’t suggest that much excess capital. Additionally, despite a relatively low multiple, you have not been buying back stock, although you have invested capital in other deals. In my view, excess capital is more of an opinion than a fact. What are your priorities for utilizing that excess capital over the next year or two? Are you more inclined to buy back stock now compared to the past couple of years?

Yes. Thanks, Jimmy. This is Jonathan. I'll take the first question. So with respect to the healthcare excess and the claims lag, I mean as a reinsurer it's possible we might see a little bit longer of a lag in reporting, but a couple of things on that. So we work very closely with our clients, obviously. In fact, we provide services to our clients that help them better manage their claims expectations, and we have a successful track record of demonstrating that value historically as well. Also, these claims because of the nature of them and them being large, they tend to be very known very quickly. So that also helps in addressing any potential lag situation. And then from the perspective of our actuarial liabilities, obviously, we've established reserves from a case perspective as well as IBNR using our best estimate of what we believe the experience has been. So from that perspective, we feel we're appropriately reserved at the end of the quarter.

And Jimmy, let me begin by discussing the capital. As I mentioned in my opening remarks, our business is incredibly strong. The returns we're seeing from new business are contributing positively to our ROE guidance of 13% to 15%, and it actually increased this quarter based on an internal management report. The business is performing as well as ever. However, our objective from an investor perspective is to enhance the ROE, continually work towards improving ROE, and drive EPS growth. We recognize that share repurchases are a very effective tool for supporting EPS growth and, when done at the right price, can also enhance ROE. We're making an effort to balance these two powerful factors. Traditionally, RGA has maintained a balanced approach, and we are currently indicating that this balance involves returning 20% to 30% of our earnings to shareholders. As you may know, we have not repurchased stock for the last six quarters, so it's important to communicate that we are considering stock buyback from this point onward. Axel, if you have anything to add, feel free to take over.

We are very pleased with our current capital position and have the flexibility to invest in the business and return capital to shareholders. We plan to be opportunistic with share buybacks on a quarterly basis, but over the long term, we anticipate a payout ratio of 20% to 30% through dividends and buybacks for shareholders. This will vary each quarter but is aligned with our long-term history. Additionally, I want to highlight that we operate with multiple balance sheets and legal entities in both the U.S. RBC framework and the Bermuda framework. Our capital metrics are assessed on a consolidated basis, taking into account the entirety of our balance sheet and adhering to all regulatory frameworks, which will guide our decisions based on the most binding constraints.

The next question is from Wilma Burdis with Raymond James.

Do you think any of the higher costs you're seeing in excess healthcare on more expensive but more effective treatments could eventually be offset by savings on claims and life down the line?

Yes. Thanks, Wilma. This is Jonathan. I think that's a very valid point. And that's one of the things that excites us about the potential opportunities in the mortality space, right? And that's also another reason why we pursued a diversification from a risk perspective position from the enterprise. So when we see potentially some stress or volatility going in a negative direction in one line of business that can support positivity either in the current period or down the road in another line of business, and that's part of how we think about our mix of risks at the enterprise level.

Yes. Wilma, let me just add. Now, thank you for asking that question. We internally observe that. And we obviously, as an investment community get focused on short-term earnings, but the long-term impact from the medical advances, as Jonathan mentioned, whether it's GLP-1 or other medical advances, we expect to see in the future outweigh the short-term earnings impact quite tremendously. So thank you for the question.

Is RGA close to its retention on the excess healthcare business? I'm trying to evaluate how confident you are about the remaining weakness, especially since many of those claims tend to come in towards the end of the year.

Wilma, this is Jonathan again. As I mentioned earlier, I believe the reserves we set up this quarter, which is leading to the negative result, reflect our best estimate of the claims we expect for the premiums we have already recognized and earned in the income statement. The additional reserves that Axel referred to are those we anticipate setting up as we earn the premium over the rest of the year. However, at this stage, we feel confident that our reserves are suitable for the business.

Yes, it's Tony here. As we mentioned, this is a very short-term business. We've indicated that most of it will be repriced by January 1, and I believe everything will be repriced by the following quarter. January 1 is the primary renewal period, making it a self-contained process. We have actions in place for the July renewals, which Axel has already shared, and we feel confident about our position.

The next question is from Ryan Krueger with KBW.

Just one more follow-up on the value in-force credit. Did you actually have to do anything in regards to borrowing against future in-force value or anything like that? Or is this just more about getting the credit from the rating agencies through the process that you have to go through with them? I just wanted to make sure I understood that.

Yes, thank you for the question. This is really a recognition of the value of in-force that did not require or was not associated with an actual securitization or borrowing. We still have that available to us should we find value in doing that in the future. But this was strictly from a rating agency process perspective.

Yes, Ryan, maybe if you don't mind me adding strategically. I mean, we talk a lot about our long-term value or what we call the value of in-force business margins, which is now at $41 billion. That generates these opportunities, right? If you don't have the embedded value in the company, you can't do these things. So as Axel said, it's a question of us doing the work, focusing on doing the work, getting the satisfactory resources or necessary resources. In the past, that has not been a constraint to our business growth. It became a constraint, which we spent a lot of energy to rectify. And yes, it takes external consultants to verify. Yes, it takes the ratings agency also to agree and kick it off, and it's not uncommon. I mean, other regulatory environments, I believe IFRS already allow for this credit in capital. So we're really excited by what we've achieved, and we believe there's further blocks to come.

Tony, you mentioned some higher profile blocks in the market that you chose not to bid on during the quarter. Just curious if you are referring to deals that have already been announced or if you are talking about deals that are in the market where there haven't been transactions yet.

Yes, thanks, Ryan. That refers to transactions that have taken place. I know there have been questions about the businesses we have taken on, whether they are LTC or ULSG type businesses. I want to assure everyone that we have no intention of increasing the company's focus in that direction. The best way to illustrate this is through our actions. In the first quarter, there was a significant LTC block that was available, but we chose not to participate as it did not align with our strict criteria for LTC. In the second quarter, there were multiple variable annuities and ULSG opportunities, but once again, we were not interested. We have our global platform with businesses around the world that we want to engage with exclusively, and that is where we plan to allocate our capital. This strategy allows us to benefit from our return on equity through pricing and the business we secure. While we are balancing our business, our primary focus is on creating long-term value and achieving growth in earnings per share and return on equity.

The next question is from Suneet Kamath with Jefferies.

Great. I did want to come back to the $2 billion of value in-force credit. Can you just talk to the conservatism that's built into that? Because to me, it sounds like this is another sort of assumption-driven sort of number and if those assumptions end up being too aggressive, then maybe the $2 billion is at risk. And I just want to make sure we don't run into an issue like that down the road as you continue to pursue this source of capital.

Yes. Thank you, Suneet, for the question. Well, as I mentioned, it's a very strict review process for reflecting the value of in-force in the frameworks. So first of all, of course, it starts with our actuarial assumptions that are conservative and that are backed by long history and long term of data and information. But also, you only get partial credit for the value of in-force. You only get, frankly, less than 50% credit for it. So we feel very confident in the amount that is recognized through that framework. As I mentioned, again, it has been reviewed by a third party as well as the rating agency process.

Okay. And then I guess for Tony, if we just take a step back, you've raised the ROE target, you've raised the EPS growth target, you're very bullish about the opportunity, but the stock's multiple is lower than when the ROE target was lower and the growth was lower. And we can debate the reasons why. But I think one of them is there is a view in the market that maybe this new strategy is going to add a lot of risk to the story relative to kind of the RGA of old. And so I just wanted to give you an opportunity to comment on that, because I think that's perhaps a change in the way that people are thinking about your company and about your stock.

Yes, thank you, Suneet, for the question. Looking back at the RGA of the past, I can really highlight Asia, where I played a key role in running the business for 20 years, and this is exactly the strategy we adopted. What is that strategy? It involves being proactive and innovative, identifying opportunities that can help our clients grow and succeed. This, in turn, creates greater value, which we can then share. So, are we more aggressive now? Absolutely, we are taking a much more proactive approach, which I would argue is a less risky one because a commoditized business in the long run is unlikely to help us achieve our long-term objectives. This isn't just limited to Asia; we have had exceptional leadership throughout the entire organization. Our culture, which has been built from the very beginning, emphasizes innovation and proactive solutions, perfectly aligning with our focus on life and health risk. It would be a failure on our part if we couldn’t excel in this area since it is our sole focus, and we've made the necessary investments globally to ensure we have the right talent. We are very proud of our team, and this commitment continues. The market will behave as it will, but our responsibility is to consistently grow EPS and enhance ROE, and we believe the market will align with our efforts in the medium to long term.

The next question is from Tom Gallagher with Evercore ISI.

I have a follow-up regarding the $2 billion capital benefit from the value of in-force. Is there a practical limitation on how much you could leverage, like a maximum amount? I assume it can't go to 100% of equity capital. When considering the $2 billion, would the limit be half of the total actual equity based on credit profile? Can you provide some insights on the framework and what the maximum could theoretically be? That's my first question.

Thank you for the question, Tom. To start, we have a significant embedded value from our in-force business. One way we evaluate this is through the value of in-force business margin, which reflects the long-term underwriting margins inherent in our operations. You're right that from the perspective of rating agencies, there's a cap on how much in-force value credit can be acknowledged. However, it's important to note that we still see opportunities to enhance our value of in-force even within that limit, particularly with the in-force blocks reflected in our current balance sheet. Additionally, we have three capital frameworks to consider: economic capital, regulatory, and rating agency. Currently, the rating agency and regulatory frameworks are similar. Moving forward, we can improve our recognition of in-force value and enhance our regulatory position, which we have previously achieved through methods such as retrocession of business and other capital management strategies that allow us to free up capital for reinvestment in the business.

And then my follow-up is, Tony, really, it's a question about do you think something needs to change here? And the reason I ask you is because you had very favorable experience in Q1. The market didn't reward you for the favorability. Then you fully reverse it in 2Q, and your stock gets pounded. So you seem to be getting only the downside of volatility, not the upside, unfortunately. So the reason I sort of set it up that way, is there anything you can do structurally here to improve the situation from a shareholder standpoint by limiting volatility somewhat? I'll throw out one idea. Would you entertain something like doing a retro cover with Ruby Re which could limit the level of volatility for RGA shareholders but still give you skin in the game for the economics of that business because of your stake in Ruby Re? I'm just trying to understand, I'm getting a lot of frustrated shareholders saying to me what can be done here because they like your story; they really don't like the level of volatility.

Thank you, Tom, for the clear question. There are actions we can take. Typically, volatility arises around the capped cohorts under LDTI, while the other cohorts are smoothed out over time. In theory, we could retrocede those blocks of business and give up some economic value, whether to Ruby or another third party on an arms-length basis. We consider all of these factors, but our resources are finite. An alternative could be to adjust pricing to create additional business or explore other balance sheet optimization options. As I've mentioned, we're focused on our medium to long-term strategy. Year-to-date, our experience in the U.S. individual life sector has been consistent over the last several quarters. Since 2003, our performance has been strong. Ultimately, the market will behave as it does, and we will continue to manage for the right economics, EPS, and ROE growth while keeping your concerns in mind.

The next question is from Wesley Carmichael with Autonomous Research.

Tony, in your prepared remarks, you mentioned an expected pickup in jumbo PRT activity in the second half of the year in the U.S. I guess my question is when I look at the carriers that transacted with plan sponsors where there's a class action lawsuit that's been filed, those carriers have effectively not written any new business over the past few quarters at least. So are those lawsuits not a hurdle that needs to be overcome before you see a meaningful increase in volume to those carriers?

Thank you for the question. To reiterate, the PRT market aligns well with our strategy, considering the biometric aspects, the size of the U.S. business, and the current market dynamics. We are very optimistic about the business in the medium to long term. As you noted, there has been a slowdown in the market for various reasons, but I’m seeing some encouraging signs in our pipeline. Whether this trend continues remains to be seen, but I am hopeful. This business can be unpredictable, especially in the jumbo segment. However, the positive signs I am witnessing were unexpected. We'll have to wait and see if these encouraging signals persist moving forward.

Got you. And then I guess a similar question to some that have been asked, but maybe slightly different. But on the recognition of the value of in-force, just theoretically, if a large transaction comes down the road and you want to deploy a big amount of capital and more than what you have that I'd call liquid or hard capital that you could buy back stock with. Are there steps that you need to take to be able to deploy that into a big deal like securitizations or any other measures?

Thanks for the question. Yes, this deployable capital is indeed available for transactions. Most of it is held within the legal entities as excess capital according to the regulatory requirements for each entity. So it is available to be utilized. Additionally, we manage cash flows at the holding company, which supports our ability to cover holding company expenses, interest on debt, and share repurchases.

The next question is from Michael Ward with UBS.

I was hoping you could help us understand the variability in the results this quarter. I'm also considering how this might impact our earnings potential for 2026, given the factors like equitable accretion, organic and inorganic growth, possible share buybacks, and potential risks from some stop-loss losses in a worst-case scenario. Is there anything else we should consider that could influence our outlook for 2026?

Mike, it's Axel. Thanks for the question. First, I want to express our confidence in the financial targets we set for the intermediate term. We're pleased with the capital we've invested in attractive transactions. Last year, we invested $1.7 billion, and this year, factoring in the Equitable transaction, we've deployed $2.2 billion, which significantly boosts our earnings potential over time. Previously, we communicated our earnings expectations for the Equitable transaction through 2026, with predictions of $160 million to $170 million per year in pretax income. This represents a substantial step toward our target EPS growth. Additionally, as Tony mentioned, we have several positive factors at play. The Creation Re strategy is performing well, allowing us to secure deals that yield returns exceeding our targets. Our investment portfolio is generating higher income as we deploy new funds at significantly better yields. Lastly, optimizing our balance sheet, such as leveraging the value of in-force credit, improves our resource capabilities. In summary, we're very confident about our targets and will not alter our expectations based on short-term volatility.

Okay. That's helpful. And then just on the kind of the biometric or deal pipeline. Curious how you see that today versus financial solutions. And just curious how the regulatory regime changes in Asia maybe are impacting demand?

Sure, let me take that question, Mike. Overall, our business is performing strongly across the board, whether it’s globally or through repeat business with strategic clients. The deals currently in our pipeline are heavily focused on the Creation Re and exclusivity aspects. You brought up our key focus area, which is biometric, for two main reasons. First, it drives our traditional business, which is thriving right now, boasting an 11% growth rate and maintaining robust margins. Second, our asset-intensive business, which is our secondary focus, thrives when there is significant biometric risk involved, enabling us to pursue exclusivity alongside the Creation Re strategy. We’re seeing growth across various areas, but I want to emphasize that when we assess asset transactions, our primary consideration is the level of biometric risk in that block of business. This approach is pivotal for differentiation, securing Creation Re opportunities, and achieving long-term sustainable financial results while strengthening our strategic platform.

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

Well, thank you all for the questions and your continued interest in RGA. It was a great quarter in terms of our strategic successes, which we believe will continue to fuel our future growth and returns. So with this, I want to end today's call. Thank you very much.

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