Earnings Call Transcript - RGA Q3 2021

Operator, Operator

Good day, and welcome to the Reinsurance Group of America Third Quarter 2021 Results Conference Call. Today's conference 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.

Todd Larson, CFO

Thank you. Good morning, and welcome to RGA's third quarter 2021 Conference Call. With me this morning on the call is Anna Manning, RGA's President and Chief Executive Officer; Leslie Barbi, Chief Investment Officer; Jonathan Porter, Chief Risk Officer; and Jeff Hopson, Head of Investor Relations. We will discuss the third 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 discussion of these terms and reconciliations to GAAP measures. And now I'll turn the call over to Anna for her comments.

Anna Manning, CEO

Good morning, everyone, and thank you for joining our call today. Last night, we reported a loss of $1.11 in adjusted operating EPS, which included pretax $500 million in COVID-19 impacts or $5.59 per share. Our 12-month trailing ROE was 2.1%, which included 9.8% in COVID-19 impacts. Premium growth was strong at 9.5%, and we ended the quarter with excess capital of $1 billion. This quarter saw elevated COVID-19 claims in the U.S., India, and South Africa, consistent with the levels of general population mortality. In the U.S. Individual Mortality business, COVID-19 claims were $235 million in the quarter, slightly above the high end of our rules of thumb range. We also had a level of excess non-COVID-19 claims, reflecting the elevated levels of excess mortality reported in the general population by the CDC. COVID-19 claims in India and South Africa were $161 million and $64 million, respectively, as those countries also experienced a material Delta wave. And Jonathan will provide further insights on our claims shortly. The performance this quarter ex COVID-19 was strong and featured many highlights, again demonstrating the value of our diversified global business and the strength of our new business franchise. Highlights this quarter include strong earnings across all lines and regions from our GFS business, deployment of $140 million of capital into in-force transactions, including our largest to-date longevity transaction in the Netherlands. This brings the year-to-date capital deployment into in-force transactions to a total of $440 million, putting us on track for a very strong year as our pipelines remain very good with opportunities in all regions. I am particularly pleased with the recent success in our GFS business in Asia. That business has grown from a relatively small base a few years ago to one that has produced $66 million of adjusted operating income through the first 9 months of this year. Our success is in large part the result of our high-caliber local teams, working together with our global product and risk experts, to bring new solutions that best fit the needs of the local markets and clients. We are actively managing our capital position, balancing deployment into organic business and attractive in-force block opportunities with shareholder dividends and, in this quarter, the resumption of share buybacks. And we generated additional capital with the completion of a financially-attractive asset-intensive retrocession transaction. I believe clear evidence on an efficient and effective capital management approach. Investment results were favorable in the quarter despite the continued challenges of the low market yields; impairments were minimal and we realized some nice gains in our limited partnerships and real estate joint ventures. Both our U.S. group and U.S. Individual Health business performed above our expectations, continuing a recent trend. As I think about this quarter and the last 6 quarters of the pandemic, I remain encouraged by the resilience of our global business and by the positive momentum in our new business opportunities and growth prospects. Looking forward, we expect some continuing impact from COVID-19 claims, but believe these will be manageable and point to increasing vaccination rates globally as a reason for optimism. We operate from a position of strength with an outstanding workforce, valued client relationships and healthy business fundamentals. We have a strong balance sheet and a track record of successful execution against our strategy. All this gives me confidence in our business and in our opportunities for growth. Even though a lot of the focus this quarter is on COVID-19 claims, we are accomplishing a lot in terms of adding substantial new long-term value. I am proud of this team and all that we've achieved, and I am excited about the future and look forward to sharing more thoughts at our Investor Day on December 9. Thank you for your interest in RGA, I hope you all remain safe and stay well. And let me now turn it over to Todd to go over the detailed financial results.

Todd Larson, CFO

Thanks, Anna. RGA reported a pretax adjusted operating loss of $89 million for the quarter and adjusted operating EPS loss of $1.11 per share, which includes a negative COVID-19 impact of $5.59 per share. Our trailing 12-month adjusted ROE was 2.1%, which is net of COVID impacts of 9.8%. While we did experience a significant level of COVID-19 impacts, our underlying non-COVID-19 results were strong, as demonstrated by the year-to-date growth in our book value per share excluding AOCI of 4% to $137.60. I would highlight this growth in book value per share is after absorbing approximately $1 billion pretax of COVID-19 claim costs. Consolidated reported premiums increased 9.5% in the quarter or 7.7% on a constant currency basis. The reported premiums did reflect a couple of one-off items. The organic growth was very good and new business activity is encouraging across all regions. The effective tax rate for the quarter was 15.2% on pretax adjusted operating loss, below our expected range of 23% to 24%, primarily due to adjusted operating income in higher tax jurisdictions and losses in tax jurisdictions for which we did not receive a tax benefit. This was partially offset by favorable adjustments from tax returns filed in the quarter. Turning to the segment results. As listed on Slide 6 of the earnings presentation, the U.S. and Latin America Traditional segment included approximately $250 million of COVID-19 claim cost. Approximately $235 million of which was in our U.S. individual Mortality Business and the balance in our U.S. Group business. We saw non-COVID-19 excess claims of approximately $75 million, which is consistent with higher non-COVID-19 population mortality as per CDC reporting. The U.S. Group and Individual Health business both performed better than our expectations due to favorable experience overall, even after reflecting $15 million of COVID-19 claims in our U.S. Group line of business. Variable investment income was strong in the quarter as both limited partnership performance and real estate joint venture realizations were favorable. The U.S. Asset-Intensive business reported very strong results. This segment had favorable overall experience and higher variable investment income. We continue to be pleased with the results in this segment. The Canada Traditional segment results reflected favorable experience in the Group and Creditor lines of business, slightly offset by COVID-19 claim costs in the individual life line of approximately $5 million. The Canada Financial Solutions segment results reflected modestly unfavorable experience. In the Europe, Middle East and Africa segment, the Traditional business results reflected a COVID-19 claim cost of $80 million in total, of which $64 million was in South Africa and $13 million in the U.K. We also saw some excess mortality claims believed to be directly or indirectly COVID-19 related. EMEA's Financial Solutions had a good quarter as business results reflected favorable longevity experience, $4 million attributable to COVID-19. Turning to our Asia Pacific Traditional business. Asia results reflect COVID-19 claim cost of $169 million, of which $161 million was in India. This impact was higher than our expectation, and Jonathan will provide further information in a few minutes. Australia reported a small loss for the quarter. We continue to take necessary actions to manage the business back to consistent profitability. The Asia Financial Solutions business had a good quarter, reflecting favorable experience and strong growth in new business. As Anna mentioned, we continue to be pleased with the growth and contributions from this segment. The Corporate and Other segment reported a pretax adjusted operating loss of $27 million, which is in line with our quarterly average run rate. Moving on to investments. The non-spread portfolio yield for the quarter was 4.95%, reflecting both our well-diversified portfolio allocation and strong variable investment income, primarily due to realizations from limited partnerships and real estate joint ventures. While hard to predict from a timing perspective, variable investment income is a core part of our investment earnings. The investment portfolio average rating was unchanged in the quarter and investment credit impairments were again nominal. Our new money rate increased to 3.7% with the majority of purchases in public investment-grade assets and contributions from strong private asset production. Regarding capital management, our excess capital position at the end of the quarter was approximately $1 billion. Our capital position remains strong, and we have ample liquidity. We deploy $140 million into in-force transactions and repurchased $46 million of shares. Additionally, we entered into an asset-intensive retrocession transaction that generated $94 million of capital and enhanced our returns. This quarter highlights our balanced approach to capital management and our ability to absorb the impacts of COVID-19, fund organic growth, deploy capital into transactions, and return capital through share repurchases and dividends. We'll now turn the call over to Jonathan Porter, our Chief Risk Officer, who will provide additional comments on our COVID-19 related experience.

Jonathan Porter, CRO

Thanks, Todd. I will discuss our Q3 claims experience and our expectations for COVID claim costs in Q4. The rise of the Delta variant has significantly contributed to increased mortality rates in the general population during the quarter. In our previous earnings call, we were hopeful that trends in the U.S. would improve mortality rates for the rest of the year. However, Q3 experienced increases in both COVID-19 and non-COVID-19 mortality. As shown on slide 12 of our earnings presentation, U.S. population graphs illustrate the COVID-19 reported deaths and the excess deaths from non-COVID causes throughout the pandemic. There are three main points to highlight. COVID-19 reported deaths rose considerably this quarter, with deaths under 65 — where we have more life insurance exposure — reaching their highest levels in six quarters. Additionally, non-COVID-19 excess deaths have also peaked at their highest levels since the pandemic began. Our U.S. Individual Mortality claims results align with this general population trend. COVID-19 claim costs for the quarter amounted to $235 million, slightly above our higher estimate. Q3 results reflect increased mortality among those under 65 and larger average claim sizes. Year-to-date, COVID-19 claims are at the midpoint of our projected range. The increase in non-COVID-19 claims was also influenced by a higher frequency of claims, in line with elevated deaths in the general population. Regarding markets outside of U.S. Individual Mortality, COVID-19 claim costs in India reached $161 million, exceeding our previous estimates due to the severe effects of the Q2 Delta wave. Similar to trends in the U.S., the Delta variant has led to increased mortality, particularly among younger, more insured individuals, and larger average claim sizes. In this quarter, $30 million of the impact relates to an increase in IBNR, bringing the COVID-specific IBNR balance for India to $75 million by the end of the quarter. In South Africa, COVID-19 claim costs are estimated at $64 million, influenced by variations in general population deaths across provinces and some volatility in large claims. General population data for Q3 shows that provinces with higher socioeconomic status, and thus more insurance participation and larger policies, faced more significant impacts this quarter. Other markets, including Canada and the U.K., accounted for $30 million in estimated COVID-19 claim costs. As anticipated, our longevity offset was minimal this quarter, given the relatively low levels of general population deaths in the U.K. where our longevity business operates. Looking towards Q4, we see continued elevated excess general population mortality in the U.S. through October, although currently at lower levels than the peak in September and trending downwards. We are maintaining our claim cost estimate of $10 million to $20 million for every 10,000 general population deaths, as well as our estimates for the U.K. and Canada. General population COVID-19 deaths in India and South Africa have remained relatively low through October. Predicting COVID-19 claim costs is still challenging, especially in India where comprehensive data is lacking. Even though vaccination rates in India and South Africa remain below those in our other key markets, they have significantly increased since the start of Q3, which should mitigate the severity of future COVID-19 impacts. We are confident that these impacts will be manageable. Now, I will hand it back to Todd.

Todd Larson, CFO

Thank you, Jonathan. Before opening it up for questions, I would like to remind you of our upcoming Investor Day scheduled for December 9. We hope you can join us for our discussion. We now like to open it up for questions.

Operator, Operator

We will take our first question from Humphrey Lee of Dowling & Partners. Please go ahead. Your line is open.

Humphrey Lee, Analyst

Good morning. And thank you for taking my questions. I guess my first question is about the non-COVID-19 excess mortality in the U.S. Can you provide some color in terms of maybe the age cohorts or average claim size or maybe the cause of deaths based on, kind of, your analysis?

Jonathan Porter, CRO

Our U.S. mortality experience this quarter is primarily influenced by an overall increase in claim frequency, encompassing both COVID and non-COVID cases. We haven't observed any significant trends based on policy cohorts, policy sizes, or client types. Supporting broader population trends, there is a noticeable rise in excess mortality among individuals under 65, which marks a shift we've noted since the early pandemic period. While the overall average claim size in U.S. mortality remains relatively steady from quarter to quarter, it is important to highlight that the claim size specifically related to COVID has risen.

Humphrey Lee, Analyst

Got it. My second question is more about India and South Africa. How much did you normally earn in India and South Africa before the pandemic? Just kind of looking at the claims so far, by my account, the COVID claims from these two countries have been roughly $400 million since the pandemic, pretty much kind of one-third of the claims that you've seen in the U.S. And looking at the kind of the mortality amount of risk disclosure that you provided in the first quarter '20 deck, they can be more than kind of low single-digit percentage points. So can you just help us to kind of get a better perspective of the exposure for this country and how the size of those claims could be relatively large compared to your exposure there?

Jonathan Porter, CRO

Yeah, I'll talk about the exposure from a minimum amount of risk perspective, Humphrey. So India represents about 5% of our global net amount of risk. South Africa is between 1% and 2% of our net amount of risk, just to give you a sense of the scale. As you mentioned, the COVID claims experience has been material in both of those markets. I guess you can say disproportionate to the actual net amount of risk exposure we have. That's really a function of the underlying general population mortality experience that we're seeing. We also routinely, obviously, discuss with clients, what's happening in those markets and what we're seeing in South Africa as an example is consistent with what our clients are seeing. So again, the impacts we're seeing from COVID are really a reflection of what's happening in the general population.

Humphrey Lee, Analyst

Okay, all right. Thanks.

Operator, Operator

We will move on to our next question from Andrew Kligerman of Credit Suisse. Please go ahead. Your line is open.

Andrew Kligerman, Analyst

Hey, good morning. Maybe just start off on capital management. You indicate $1 billion of excess capital. Given the sharp losses this quarter, maybe a little color on your outlook for share repurchases and any other uses of capital? Could you keep the buyback going?

Todd Larson, CFO

Andrew, it's Todd.

Anna Manning, CEO

Apologies, Todd. Maybe I can start and then ask you to add. Andrew, we're in a long-term business and supporting clients, whether on their organic needs or block deals, that's really core to our strategy. So when we think about capital management, we start there. We start by looking at the new business opportunities in the pipelines and how we feel about those opportunities and then the likelihood of winning and what are the return levels we think we can get. And remember, some of our deals do take time to complete. We then weigh that against all the alternatives, returning capital through buybacks and through dividends, really looking for the best and most valuable use of our excess capital. That's how we've approached capital management in the past. It's produced a nice balance. We expect to go back there. And in my mind, this quarter doesn't change that. Todd, would you like to add?

Todd Larson, CFO

I think that covers it. Thanks, Anna.

Andrew Kligerman, Analyst

I have one more major question related to the $94 million of asset-intensive retrocession. You raised $94 million of capital, and I would like to get some insight on the reasoning behind that decision.

Todd Larson, CFO

Andrew, it's Todd. This is a transaction we recently entered into that we really like due to the overall characteristics of the block. We found financially appealing retrocession terms that enhanced our returns on the block, which we found very favorable. By retroceding part of that asset-intensive block, we were able to free up some of the capital we had tied up in it.

Andrew Kligerman, Analyst

Okay. And then just with regard to premium, I mean, U.S. looked really good. You mentioned a one-time restructuring of an existing tree. I wasn't sure what the normalized number would be in the U.S. ex that restructure? And what did it relate to? And with that, why were the premium so strong? That's terrific. I mean Canada and EMEA, they all looked great in terms of growth, but U.S. in particular, why strong?

Todd Larson, CFO

Yes, we recently had a transaction in the U.S. and Latin America segment that shifted from low risk or deposit accounting to taking on more biometric risk. Under GAAP accounting, this change translated into recognizing premiums and benefits on the income statement, which contributed to the premium growth in those regions. If we exclude this adjustment, the growth in the U.S. would likely be around 4% to 5%.

Andrew Kligerman, Analyst

Okay. So more normalized. And Canada...

Todd Larson, CFO

Yes. No, no...

Andrew Kligerman, Analyst

And Canada in the strong. Anything driving that?

Todd Larson, CFO

No, Canada did some transactions and experienced good business growth. For EMEA, it was across the region, and it’s encouraging to see a lot of positive activity.

Anna Manning, CEO

I would add that it's reflecting what I believe to be our approach during the pandemic, which was that we stayed close to our clients. We provided a lot of thought leadership throughout the pandemic and underwriting expertise. I think part of that is translating into the business activities that we're seeing.

Todd Larson, CFO

And Andrew, maybe add on details point is - for Canada and EMEA, there was some positive FX contribution to the reported premium growth.

Operator, Operator

We will move on to our next question from Erik Bass of Autonomous Research. Please go ahead. Your line is open.

Erik Bass, Analyst

Hi, thank you. For the U.S. Traditional block, can you give some more color on the age and product breakdown of your mortality book and where the COVID impacts occurred this quarter? I guess I'm trying to get a sense of why your sensitivity this quarter looks different from what we've seen from a lot of the primary companies and even the other reinsurers where they're seeing less COVID losses in individual life as a percentage of population deaths as the mortality moves to younger ages.

Jonathan Porter, CRO

Yeah, this is Jonathan, Erik. So yes, we have the largest proportion of our business would be in sort of that middle age range. So what I mean is sort of in that 40 to 65 range. So that is a larger proportion of our business relative to the older ages where we're seeing the early impacts from the pandemic. So I think that shift down below 65% is part of that impact there. Also, we tend to have larger policy sizes as well when you move down into those age ranges, which I think is partly what's driving some of the increase in size.

Anna Manning, CEO

And just on the...

Erik Bass, Analyst

With a lot of term block where you may have sort of higher base values or you're taking kind of sort of excess amounts above. So the primary companies are seeding kind of excess risk to you?

Anna Manning, CEO

Erik, I don't think that's necessarily the case. I think the thing to remember when you're comparing our sensitivities or our rules of thumbs against others is that the size of the block matters. Because we're all using per 10,000 deaths in the population. So you would expect that if you're comparing a sensitivity from one firm to another, if there's double and triple the size of the block of business, you would expect to see that in the resulting sensitivities.

Jonathan Porter, CRO

I just want to point out, Anna, that we should also consider potential quarterly volatility. It's difficult to make conclusions based on a single quarter's data since we witnessed a relatively low level in Q2 compared to our typical range. Those figures can fluctuate from quarter to quarter, which is why we prefer to wait for more data to become available before thinking about adjusting our range.

Erik Bass, Analyst

Got It. And if I could just ask one follow-up on the India business? How much of a reporting lag are you seeing in that business? It looked like the population that were actually lower in 3Q than 2Q. So is a lot of this kind of a catch up on kind of deaths that, that actually occurred in earlier periods?

Jonathan Porter, CRO

Yes. Yes. No, that's exactly right. So of the $161 million charge that we took this quarter, the majority of it, so around $130 million or so relates to Q2 experience. So due to these longer reporting lags, we did establish an expectation in IBNR last quarter. But really, that was done pre-Delta wave, right? So we were going on information that we had based on what we had experienced in India, as you recall, is really the first country to have a material Delta wave impact. So that's really what's causing the difference now. So we're seeing the Delta wave moving to younger ages, higher policy size amounts. So most of what we're seeing this quarter relates to last quarter.

Erik Bass, Analyst

Got it. Thank you.

Operator, Operator

We'll move on to our next question from John Barnidge of Piper Sandler. Please go ahead. Your line is open.

John Barnidge, Analyst

Thank you very much. Good morning. The Chief Operating Officer left, was there a charge in the quarter? Or is that going to occur in Q4?

Todd Larson, CFO

There was nothing in the third quarter and as of right now, I'm not expecting anything significant in the fourth quarter.

John Barnidge, Analyst

Okay. And then my follow-up question, maybe asking the buyback question a little bit differently. Can you talk about how the cadence of those buybacks changed as the quarter went along and the Delta variant emerged? Thank you.

Todd Larson, CFO

We wanted to demonstrate our confidence in the business and the value it brings, so we decided to repurchase some shares. I can't recall the exact timing, but it wasn't primarily influenced by the impact of COVID, although it was before we fully understood the extent of that impact.

Operator, Operator

We will move on to our next question from Ryan Krueger of KBW. Please go ahead. Your line is open.

Ryan Krueger, Analyst

Hi, good morning. Back to the U.S. COVID impact. Could you help us understand in a little bit more detail how material the impact was from the higher average claim size versus just higher incidents?

Jonathan Porter, CRO

Yeah. So just to give you a number. So this quarter, our average COVID claim was about 22% higher than what it has been for the first two quarters of the year or through the prior waves.

Ryan Krueger, Analyst

That's helpful. And I mean, I guess, at this point, is there any reason to think that wouldn't continue given the shift in the two younger ages? And I guess what I'm getting at is, is the only reason you're not changing your sensitivity because you want to see more data to increase credibility, but kind of sticking through it, there wouldn't be much reason to think this higher severity issue would really change if the age mix continues as it did in the third quarter?

Jonathan Porter, CRO

Yeah. I think it's too early to draw that conclusion for certain. It's possible we could continue to see higher average claim size and the shift to younger ages. As I mentioned earlier, it does vary a lot quarter-to-quarter, and the prior quarter, which also was showing some increase in COVID mortality into the younger ages, actually was our lowest average claims size quarter for COVID that we had over the course of the pandemic. So I think it is too early to determine how much of this will persist or not. And as we get more data over the course of this quarter, we'll evaluate that to see if we need to update our range.

Ryan Krueger, Analyst

Thanks. And then on block deals, you've been pretty active this year. But can you also comment on Langhorne and activity you might be seeing there at this point?

Anna Manning, CEO

Yes. Let me address your question about Langhorne and provide some insights on our deals. After Langhorne, it remains one of our top priorities. We have dedicated resources actively working on deals, and I am optimistic about finalizing several of them. Regarding the Q3 deals, I'm very satisfied with the quarter's results, with $140 million in capital. When combined with the $300 million from the first quarter, that totals $440 million over three quarters, positioning us for a very strong year, particularly given the current pipeline. I was pleased with the variety of deals we executed, including a life deal in Asia, one in the U.K., and an Asset-Intensive deal in EMEA. Overall, I'm very happy with our progress and remain optimistic about the pipeline.

Ryan Krueger, Analyst

Thank you.

Operator, Operator

We move on to our next question from Michael Ward of UBS. Please go ahead. Your line is open.

Michael Ward, Analyst

Thanks, everyone. Good morning. To elaborate on the buyback timing question, Todd mentioned that the buyback decision was made before fully understanding the extent of the COVID impact. Does this imply that we should anticipate a more cautious approach going forward? Also, have any shares been repurchased in the fourth quarter so far?

Todd Larson, CFO

No. I would say we have a strong balance sheet, and we feel it's important to be prudent and balanced in our capital management. We're definitely monitoring the situation with the pandemic, but as Anna noted earlier, we are looking to invest in transactions where we favor the liability profile and can achieve good returns. We will also keep considering dividends and share repurchases while maintaining a balanced and cautious approach moving forward.

Michael Ward, Analyst

Okay. And then regarding the annuity retrocession deal, you said it was inbound. But can we think about this as maybe the first of more to come? Should we be thinking about RGA as potentially in maybe the derisking bucket? And are there other areas in life or annuities where you could do more of this free up capital and give us maybe a new reason to look at RGA?

Todd Larson, CFO

You want to bring up the inbound transaction. It was an inbound transaction to RGA, and we later transferred a portion of that to a third party. I would not consider the retrocession we did as derisking. From an economic standpoint, it was an appealing transaction for us that improved our overall returns while offering some capital flexibility. Additionally, as we have mentioned before, we are exploring various capital management strategies available to us, and retrocession under what we see as favorable economic terms is certainly one of the options we will consider in the future.

Anna Manning, CEO

And I'd like to emphasize the motivation for that transaction was not to derisk. It was an opportunistic transaction, very attractive financially, and it happened to generate $100 million in capital.

Operator, Operator

We'll move on to our next question from Tom Gallagher of Evercore ISI. Please go ahead. Your line is open.

Tom Gallagher, Analyst

Thank you. My first question is whether the recent experience has led you to implement any rate increases or if you are considering such moves in the U.S. or in international markets like India and South Africa. I'm guessing the loss ratios could be significantly high. It's unclear how much premium you're charging due to the ongoing uncertainty around the pandemic. However, it seems you might have scenarios where loss emergence could seriously impact the combined ratio in these regions over the next year or two. So, I'm interested in your overall perspective on this and whether you plan to enforce rate increases where feasible in the U.S. or other markets.

Jonathan Porter, CRO

Yes. So...

Anna Manning, CEO

I'll start by saying that one of the challenges of these virtual calls is that we're not in the same room. Go ahead, Jonathan. I'll add my comments at the end.

Jonathan Porter, CRO

Okay. Yes. I mean I guess I would just say, first, we are taking action and have been for quite some time to reflect our expectations for COVID and the pricing of new business that we're writing. So that's the first thing I would note. We're also being cautious in markets where we think there is more risk. So that relates to how we're evaluating new business, volume of new business that we're choosing to accept, types of business we're choosing to accept. And we're also applying a thoughtful approach on our underwriting as well, so again, just to manage the risk exposure. So when we do have open treaties, and this applies globally, not just in any one market. We're working with our clients very closely. We're adjusting underwriting rules and taking new data into account as we assess the risks. Anna?

Anna Manning, CEO

Thank you. You've covered it.

Tom Gallagher, Analyst

I appreciate that. But regarding new business, are you not adjusting the pricing of existing treaties based on the emerging experience?

Jonathan Porter, CRO

Yes. I mean certainly, where we have the opportunity to do that, it's being considered. So for group business as an example, which is annually renewable. Generally speaking, that absolutely is being repriced and taking into account the COVID expectations. For longer-term business, I think you have to think of that business in more of a longer-term context as well. And obviously, we have an approach where we consider not just the current period but future periods and what our overall balance of our relationship is with our clients, and we take all of that into account when we consider actions on long-term business.

Tom Gallagher, Analyst

I understand. The next question is about enterprise risk management. Considering the past 1.5 years, many view this experience as a significant catastrophe that hopefully won't repeat soon. Has this led you to reconsider your approach to enterprise risk management? Given what has happened and the variants that have emerged, do you think there's a need to adjust your thinking on risk management overall? Specifically, do you believe there should be a permanent change in the loss ratio that needs to be factored in? In other words, do you think the potential for higher tail risks is greater than you previously assumed, potentially leading to sustained higher losses? If that's the case, how does this influence your perspective on exposure risk management or pricing? This is a high-level question, but I’m interested in your overall view on this experience.

Jonathan Porter, CRO

Yes, I believe a key element of effective risk management is the evaluation of lessons learned. After experiencing an event like this, it is essential to thoroughly analyze the impacts and make future adjustments. This ongoing work is a consistent part of our business assessment. Our strategy to diversify our book of business over the past two decades is a reflection of our risk management thinking and will continue to play a role in our approach. Maintaining a balanced mix of risks across the enterprise has proven beneficial over the last six quarters. Additionally, we are considering factors such as tail risk and capital models. Our capital model has demonstrated to be conservative regarding our expectations for a pandemic event, despite the impacts we've encountered so far. It’s important to evaluate the emerging data and understand its implications, which will influence our pricing and risk management strategies. While this is an ongoing effort, we are actively reflecting on all the aspects you mentioned.

Tom Gallagher, Analyst

Got you. And then just final question, if I could, on that same topic. Any changes you're considering over the near term, whether that's limiting risk to some of these markets that have had very high loss ratios, India, South Africa, et cetera, whether it's utilization of retrocession or cutting the size or any risk mitigants that you're thinking about over the near term? Or are you still got a way to evaluate more experience?

Jonathan Porter, CRO

I want to emphasize that we've already taken action on this. We've been actively addressing this since the beginning of the pandemic, which relates to managing volumes, the types of business we're accepting, and adjusting prices. We have actively implemented all of these strategies throughout the pandemic and will keep doing so.

Operator, Operator

We move on to our next question from James Inglis. Please go ahead. Your line is open.

Unidentified Analyst, Analyst

Hi, good morning. I'm thinking about your ability to generate capital through the retrocessional transaction. And presumably, that is because there is a capital provider who is willing to take a lower return than you folks would, which is good. But I'm just trying to draw a contrast if there is, are there any parallels to be made with the ability - or the availability of capital in the world, if you will, as opposed to your ability to get deals done in Langhorne? I mean it seems to be there's got to be some parallel there. And correct me if I'm wrong.

Anna Manning, CEO

Could you really frame your question because I'm not sure I'm connecting the retrocession transaction, which again, was not motivated by capital to your question about capital.

Unidentified Analyst, Analyst

No. You're correct, Anna. I wasn't suggesting that it was driven by capital, but rather that it was influenced by other capital providers looking for a return on that book of business. The existence of that capital seems to be limiting your ability to make deals in Langhorne.

Anna Manning, CEO

Oh, now I see the connection you're making. Yes, there is significant competition out there, and many capital providers are interested in the types of transactions we’re involved in, particularly the retrocession transaction. Price is a factor in completing deals, but it’s not the only consideration. We don’t solely compete on price; we offer a broader value proposition that includes our expertise. Our expertise in risk and structuring, along with our willingness to take on insurance, life insurance, and biometric risk, sets us apart from the new capital providers who tend to focus on asset-type deals. So while price is important, it’s not everything. I remain optimistic about our ability to close deals in Langhorne.

Unidentified Analyst, Analyst

Okay, great. Thank you. Good luck.

Operator, Operator

We'll take our next question from Michael Ward, UBS. Please go ahead. Your line is open.

Michael Ward, Analyst

Hey, guys, thank you for the follow up. My question is from Langhorne or my question is around the retro session. I wasn't implying that derisking is a negative thing. I think if anything, it's a positive. We've been seeing most companies do this, especially over the last year or two. And even just talking about having a plan to monetize certain assets or block that are maybe more capital intensive and whatnot. That's been a clear positive for those companies or at least our stock. So my question was more along the lines of, do you want to do more of this? I know this was a sort of opportunistic deal, but wondering if this is something that you want to do more of.

Anna Manning, CEO

Right. Thank you for that follow-up question. We're open to considering a future transaction where it makes sense for us. And as we've already mentioned, this was a nice transaction, and it fits in many respects. It isn't something that's new for us. We've done retrocessions and securitizations in the past. And I expect we'll continue to do them as market conditions, as opportunities arise, as the economics make sense for us. It's another tool in our toolkits.

Operator, Operator

We'll move on to our next question from Tom Gallagher of Evercore ISI. Please go ahead. Your line is open.

Tom Gallagher, Analyst

Thank you. My first question is whether the emerging experience has prompted you to implement any rate changes or if you're considering doing so in the U.S. or in international markets like India and South Africa. I'm assuming the loss ratios might be extremely high, possibly reaching 500% or 1,000%. We lack clarity on the premium you're charging due to the ongoing uncertainty surrounding the pandemic. However, you likely have scenarios where the loss emergence could significantly impact the combined ratio for these businesses in the next couple of years. I'm curious about your overall thoughts on this and if you plan to adjust rates where feasible in the U.S. or other markets.

Jonathan Porter, CRO

Yes, I believe an essential part of effective risk management is reflecting on learned lessons. After experiencing events like this, it's crucial to thoroughly analyze the impacts and adjust future strategies accordingly. This ongoing assessment is a fundamental aspect of how we evaluate our business. For example, our efforts over the past two decades to diversify our portfolio have been guided by this approach to risk management. Maintaining a balanced mix of risks across the organization has proven beneficial over the last six quarters. We're also taking into account considerations like tail risk and capital models in our planning.

Operator, Operator

And it appears we have no further questions over the audio. I'd like to turn the conference back for any additional or closing remarks.

Todd Larson, CFO

Okay. Thank you. Thanks, everybody, for joining the call this morning and your continued interest in RGA, and we look forward to seeing you in December at our Investor Day.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.