Reinsurance Group of America, Incorporated

Welcome to the Reinsurance Group of America Second Quarter 2020 Results Conference Call. Today's call is being recorded. At this time, I would like to introduce Mr. Todd Larson, Senior Executive Vice President and Chief Financial Officer, and Ms. Anna Manning, President and Chief Executive Officer. Please go ahead, Mr. Larson.

Thank you. Good morning, and welcome to RGA's Second Quarter 2020 Conference Call. With me this morning on the call are Anna Manning, RGA's President and Chief Executive Officer, Elaine Nimi, Chief Operating Officer, Leslie Barbee, Chief Investment Officer, Jonathan Porter, Global Chief Risk Officer, and Jeff Hobson, Head of our Investor Relations. We will discuss the second quarter results after a quick reminder about forward-looking information and non-GAAP financial measures. Following our prepared remarks, we'll be happy to take your questions. Some of our comments or answers to your questions may contain forward-looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ materially from expected results. Additionally, During the course of this call, information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation, quarterly financial supplement, and website for discussion of these terms and reconciliations to GAAP measures. And now, I'll turn the call over to Anna for her comments.

Thank you, Todd. Good morning, and welcome to everyone on the call. I hope you are all well and staying healthy. Let me take a moment to express my heartfelt sympathy to everyone who has lost a member of their family or friends, and to all who are suffering from the devastating economic consequences of this pandemic. The health and safety of RGA's employees and their families continues to be a top priority. and I would like to express my ongoing appreciation for their dedication and commitment to ensuring that our global operations continue to run smoothly and productively. Throughout the quarter, RGA's teams provided uninterrupted and seamless services and support to our clients. We shared our expertise and knowledge through numerous webinars, virtual meetings, and published articles, all of which were well received and much appreciated. We are proud of these ongoing contributions to thought leadership during this crisis. Turning to the quarter results, we reported adjusted operating EPS of $1.36 for the quarter and are pleased with these results in the context of this pandemic environment. Specifically reported COVID-19 claims in the quarter totaled 161 million, of which 128 million were in the U.S. Adjusting for cause of deaths reporting legs and IBNR, total COVID-19 related claim costs in the quarter are estimated to be $300 million globally, of which $240 million were in the U.S. individual mortality business. The remaining $60 million claim costs were mainly in the U.K. and Canada. COVID-19 claims outside of the U.S. individual business were in large part offset by favorable morbidity and non-COVID-19 related mortality experience. We have revised our mortality model assumptions and scenarios to reflect our own emerging experience, updated information and data on the pandemic, and in consideration of the ongoing uncertainty on the future path of the virus. These updates have resulted in an overall modest decrease in the estimated impact on our results despite projecting a higher ultimate level of U.S. population deaths, reflecting some of the conservatism we previously highlighted when describing our model. Jonathan Porter, our Global Chief Risk Officer, will provide additional information on the model updates shortly. Beyond the effects of COVID-19, We were pleased with the performance of our business as results for most operations were in line or better than expected and some operations performed particularly well. We have long highlighted the power of the earnings engine that has been built over the last five decades and highlighted the diversification benefits from our global platform. This quarter again reinforced the resilience and the value of that platform. We completed several capital-motivated financial reinsurance transactions in the quarter. This quarter, we deployed a minimal amount of capital into in-force transactions, in part reflecting increasing competition, especially on U.S. asset intensive opportunities. We continue to see opportunities in North America, Europe, and Asia. We're taking a prudent, balanced, and disciplined approach to capital deployment during this crisis by carefully weighing opportunities against long-term financial and strategic value. We have been and will continue to be very good long-term stewards of our investors' capital. Although there remain some challenges and unknowns, RGA entered the pandemic in a position of strength. During the quarter, we took proactive and measured actions to raise capital to further strengthen our balance sheet and build additional buffers. We also reduced risk in our investment portfolio, increased our liquidity, and ended the quarter with excess capital of $1.4 billion. I think there's plenty of evidence in our results this quarter to demonstrate that our underlying earnings power is largely intact and that we are well positioned to successfully manage through a period of continuing uncertainty for the virus and the global economy. We are well-placed to emerge from this pandemic in good shape to capitalize on opportunities and to continue to build on our strong track record of creating long-term value. I remain confident in the long-term value of our business, in the RGA team, and in the strength of the RGA franchise. We are leaders in the life and health reinsurance industry and expect to remain so for many years to come. Thank you for your interest in RGA. and I hope you all remain safe and well. Let me now turn it back over to Todd to go over the detailed financial results.

Thanks, Anna. I will review the financial results, make some comments on investments in RGA's capital and liquidity position. Beginning with consolidated premiums, we reported premium growth of 1% for the quarter organic growth on a constant currency basis was approximately 2%, down from the mid to high single digits of prior periods, reflecting apart a temporary slowdown of growth in Asia markets from the lockdown actions, as well as expected reduction in Australia. Turning to the segment results listed on slides 6 and 7 of the earnings presentation, starting with the U.S. segment, The U.S. and Latin American traditional business was negatively affected by excess individual mortality claim costs of approximately $240 million. We believe that the excess mortality is related to COVID-19 based on our analysis of emerging data. Specifically, a significant amount of the claims this quarter have been reported with COVID-19 as the cause of death. And we assume a similar percentage across the remaining claims where we did not have a known cause of death yet. The majority of excess claims were concentrated in policies over the age of 70 and policies underwritten more than 15 years ago, which are consistent with the wearing off of underwriting selection and the potential for more comorbidities. And We also saw the highest mortality ratios in states that recorded the highest general population COVID-19 deaths, specifically New York and New Jersey. Mortality ratios in those states were significantly elevated when compared to other states. Our conclusions are also consistent with CDC reports of significant levels of excess deaths in the quarter that indicate that the vast majority of these are believed to be COVID-19 related. Also in our U.S. traditional segment, both our U.S. group and individual health lines of the business reported results that were modestly better than our expectations. Our U.S. and Latin America asset intensive business reported a good result, benefiting from the rebound in the equity market. U.S. and Latin America's capital solutions reported an increase in adjusted operating income, resulting from new business growth. Moving to Canada, The traditional segment had another good quarter. This reflected a moderate amount of COVID-19 claims, partially offset by favorable performance by our group business. Absent the impact of COVID-19, Canada's traditional segment would have had another solid quarter. In the Europe, Middle East, and Africa segment, our traditional business performed in line with our expectations overall. This segment was impacted by a moderate amount of COVID-19 claims in the UK, but this was offset by favorable morbidity results across the region and favorable mortality in continental Europe. But MIA's financial solutions business had a very good quarter, reflecting favorable longevity, including some client catch-up reporting. Due to the lags in reporting, we don't believe results reflect any material impact from COVID-19, but we would expect to start seeing some benefit in the second half of the year. Turning to our Asia-Pacific traditional business, Asia had a solid quarter, benefiting from in-line underwriting experience with most geographies in-line and no real outliers. Results in Australia were better than expected at break-even as the group business was profitable but individual disability was at a loss. Our Asia-Pacific financial solution had another very good quarter, benefiting from the growing in-force and new business activity. The corporate and other segments reported pre-tax adjusted operating loss of $11 million, lower than the average run rate, primarily from lower incentive compensation and travel-related expenses. The effective tax rate on pre-tax adjusted operating income was 20.3% for the quarter, below the expected range of 23% to 24%, primarily due to the geographic mix of earnings, lower global intangible low tax income, or GILTI, and favorable adjustments from filed tax returns. Looking at slides 8, 9, and 10 in the earnings presentation, as we expected, we saw the reversal of certain first quarter below-the-line items based upon a rebound in the financial markets and their influence to hedging and embedded derivatives. The non-spread portfolio investment yield ended the quarter at 4.07%, relatively unchanged versus March 31st. Our increased cash levels put some downward pressure on yields, as did a lower new money rate. Variable investment income improved slightly versus the first quarter, but was still below the average run rate that we would expect. We believe our investment portfolio was defensively positioned coming into the crisis. Overall, the portfolio credit impairments were relatively modest in the quarter. Our portfolio average quality of A rating was maintained. We also took actions to reposition public security where we assessed the risk-reward outlook had become less favorable. On slide 11, our excess capital position has increased to $1.4 billion. following the capital raise of $500 million of common stock and the net $200 million of senior debt issuance. I'd like to point out that our earnings engine was strong enough to absorb the impact of COVID-19 this quarter, fund our organic growth, and fund our dividends. We had considerable liquidity at the end of the first quarter. When we added to that in the second quarter, cash and cash equivalents increased to $4.3 billion, some $2.8 billion at the end of the first quarter. RGA's leverage ratios are at a comfortable level relative to our targets and limits. Our current liquidity and capital levels, combined with the underlying earnings power of our business, reinforces our confidence that we are in a position to manage the uncertainty of the current environment and to capitalize on opportunities, support our clients, and continue our strong track record of creating long-term values. Looking forward, we expect to see some level of ongoing COVID-19 impact that will negatively affect our earnings, although at this time it is difficult to accurately predict the timing and the ultimate impact. We expect that RGA's strong franchise will continue to produce long-term value for our shareholders. However, given the obvious hurdles and uncertainty, it will be difficult to achieve our intermediate targets in the near term. We will provide more information as we gain greater insight into the ultimate impact of the pandemic. I'll now turn the call over to Jonathan Porter, our Global Chief Risk Officer, who will provide some thoughts on how we view COVID-19 exposure looking forward. Thanks, Todd. This morning, I'll provide an update on our assessment of the potential future impact of COVID-19 on our global mortality businesses. As Anna mentioned, Our estimated mortality claim cost for each general population death has improved, but this is expected to be partially offset by a higher plausible range of general population deaths, in particular in the U.S. Let me walk through this in a little more detail. Recall last quarter we provided an illustration of the potential impact of COVID-19 on global mortality claims based on a scenario which included 100,000 deaths in the U.S. At that time, our estimate of the extra pre-tax mortality claim costs for this scenario was between $400 million and $500 million. We have updated our model, and for the same number of general population deaths, we are now estimating a range of $200 to $300 million pre-tax of additional mortality claim costs, a decrease of approximately $200 million. These figures are shown on slide 13 in the presentation material. Several key assumptions that are used to estimate the impact of general population deaths on our insured book of business were updated based on our own emerging claims experience, as well as reviewing multiple other data sources. The most impactful model change that drove this reduction in estimates is a larger assumed selection factor between insured lives and general population lives. In other words, we expect that the COVID-19 related mortality of individuals who own life insurance will be lower than we had previously assumed. We also made other refinements, including applying country-specific age and gender mortality rates to our insured book. These impacts were less material, some resulting in increases to future claims and some resulting in reductions. Overall, we believe that these updates better calibrate our models to the experience we are seeing in the general population in the markets in which we operate. As you can appreciate, our model is based on a number of underlying assumptions, which are set based on analysis of external data, our own claims experience, as well as the application of expert judgments. and therefore estimates are subject to a range of uncertainty. As provided last quarter and shown again on slide 13 of the material, our mortality exposure is globally diversified with more than half of our amount at risk outside of the US. However, given the current global course of the virus and the underlying demographics of our country exposures, we expect the US will continue to be the key driver of COVID-19 mortality claims for RGA in the near term. The next largest mortality claim costs are expected to be in the UK and Canada, although both are expected to be considerably lower than the U.S. Slide 13 also shows estimates to our model for every 10,000 population deaths for these three countries in order to calibrate our claims estimates for future additional COVID-19 general population deaths. Slide 14 takes these estimates for the U.S., U.K., and Canada, as well as estimates for all other countries where we have mortality exposure and applies them to a scenario for additional general population deaths starting in Q3 2020 and beyond, of 200,000 in the US, 50,000 in the UK, 10,000 in Canada, and representative amounts in other geographies. In this scenario, we would estimate future additional pre-tax mortality claim costs between $400 million and $600 million. Obviously, there remains a level of uncertainty regarding the future path of the virus and how it ultimately impacts global population mortality. Finally, it is worth noting that our modeling continues to assume that all COVID-19 claims are marginal extra claims and not accelerations of claims that otherwise would occur over the short or medium term, as this impact is unknown and difficult to estimate at this time. Additionally, the range of mortality claims provided does not include any future benefit from our longevity business, although we would expect to see a positive impact of earnings as experience emerges. With that, I'll hand it back to Todd. Thanks, Jonathan. That concludes our prepared remarks. We'd now like to open it up for questions.

Thank you. Ladies and gentlemen, if you'd like to ask a question over the phone today, please press star and then 1 at this time. If you are using a speakerphone, it might be necessary for you to pick up your handset or depress the mute function so the signal can reach our equipment. In the interest of time, we will try to limit the questions to one question and one follow-up question. And we'll take our first question from Humphrey Lee from Dowling and Partners.

Good morning. Thank you for taking that question. Todd, in your kind of prepared remarks, you talked about you didn't really see much of a longevity offset from COVID-19 this quarter, but expect that to emerge in the second half. But I think last quarter, you guys talked about 10% as a potential offset. Is this kind of how you think about the potential benefits? Is this still the right number to think about given the revised downward training sensitivity? I sort of missed the last part of your question, Humphrey, but yeah, we didn't see a lot in the first half of the year because there's no reporting lag on that business. It has to go from the underlying scheme to the insurance comes in ultimately to us. But as far as the potential offset, we still view that So the 10% range, as far as an offset to the mortality, is still a reasonable estimate of how to look at it. OK, got it. And then, Anna, in your remarks, you talked about the field pipeline in the US for effort in terms of becoming more competitive, but then you see opportunities in Asia and other countries Can you just maybe elaborate a little more in terms of your outlook for potential capital deployment for the second half of the year?

Sure. Thanks. Good morning, Humphrey. I would say and reemphasize, overall, we see a generally healthy pipeline. I'm going to ask Alain to provide a little bit more color on the pipeline and the competitive environment. Alain?

Sure. Thanks, Anna. I think, Humphrey, in normal times, the deal process is fairly lumpy, and I think that applies here as well. Generally speaking, we are, as Todd mentioned, seeing a very healthy pipeline, although we've got different levels of competition at different times. I think generally speaking, the Asian business, as you alluded to, I think is pretty strong. And while in the U.S. there's a certain level of competition, I wouldn't diminish the fact that we do have opportunities and we're looking at them. Similarly, in India, I think there's a reasonably healthy pipeline as well. But I want to reiterate, in these times, I think we're going to see some lumpiness in terms of closing those transactions.

And let me provide some additional comments, if I may, Humphrey. We've shown in the past that we navigate periods and pockets of changing competition. We do that by focusing on opportunities that place our sweet spot, like our capital efficient solutions. We're very good at those solutions, and we had a very good quarter in executing on those transactions. And then as I look at this low interest rate environment, if we're facing this for a protracted period of time, would expect to see greater demand for those solutions and for general product innovation as well as continuing demand for innovation in the underwriting process. All of that really plays to our strengths, our strengths in product development, in underwriting. So I would echo Olen's comments. They're somewhat lumpy, but we are remaining very focused, and we are playing two sweet spots where we do have an advantage.

Do you think the current environment will make it more lumpy just given the current environment and would that present a headwind to your premium growth in the next couple of years?

I'm sorry. I didn't catch the last part of that question. It was about is the lumpiness increasing? Do we expect the lumpiness to Is that the premise of your question?

No, so do you think the current environment makes the lumpiness worse, and so does that affect the material impact to your premium growth outlook?

The lumpiness we're referring to are in-force transactions. Our premium growth is in large part driven by our underlying organic flow business. because these in-course transactions are in large part fee-based or spread-based transactions, although we do do mortality blocks as well. In terms of the organic premium growth, I think it's a reflection of the temporary environment, the lockdowns in most parts of the world. would expect that as we come out of the crisis to pick back up, potentially even stronger with some 10-step demand. Does that address the question you were asking?

Yes.

Thank you for that. Okay.

And we'll take our next question from Andrew Figerman with FedFedHTC.

Good morning. I'd like to start on APAC. I noticed in slide 13 that there's no mortality claim cost sensitivity. And I'm wondering if I should take that, especially if you don't, and you anticipate a very low mortality level from COVID-19 in APAC. And then part of the question, it looked like Australia was break even and Todd said on the call that the number was better than expected. So should we think that this group business profitability will revert backwards or we'll start to see losses again or is this a good runway?

Good morning, Andrew. I'll turn the first question over to Jonathan, your mortality question, and then ask Todd and to Len to address your Australia specific question. Jonathan, can we start with the mortality question, please?

Yeah, so we have provided, as you noted, the calibrated impacts to the US, the UK, and Canada on COVID-19. At this point, we're estimating that the three of those countries combined will account for about 90% of our COVID-19 mortality. claims costs. That's why we didn't break out all over the other countries. So I think your assumption that our current projection is that the impact of the relatively modest or small in Asia is correct. And that's sort of just to add, that's a function of both our exposure amounts as well as the demographic distribution of our business and the efforts and the relative mortality rates in some of those countries. I see. Go ahead, Todd. Hi, Andrew. This is Todd. On Australia, we are very pleased to see the results that we've seen through the first six months, given what we're seeing in the last year or two. But I think it's too premature to suggest that we turn the corner. We're continuing to manage the in-force very closely, managing claims very closely. And it's good to see the group performing better. But the individual disability is still, you know, reporting some losses. So we still need to continue to keep an eye on the entire, you know, block of business. And we'll continue to, you know, perform rate increases to the extent we can. So in summary, it's good to see the results so far. But I'm hesitant to say that we've turned the corner and we still need to keep an eye on it going forward. And we still could you know, likely see some volatility. I see. And just a quick follow-up. You know, in slide 14, you cite an additional 200,000 U.S. general population deaths starting in 3-2. And I'm wondering, you know, is that just kind of a random scenario, or is that what you think is likely to occur? And if so, what are your underlying assumptions? Let me take that one. Again, because of the uncertainty that exists around all of the aspects of COVID-19, we don't think of just one scenario. We think of it across a range of outcomes that we're considering. The 400 to 600 million scenario that was listed here with the underlying assumption, it's a range that we think is plausible or reasonable. But, you know, no one, including ourselves, can really predict ultimately where this is going to end up. So it was meant to provide an illustration of a plausible outcome from our perspective. Which kind of leads me to wonder, like, 200 is a very big number moving forward. Any assumptions that, you know, you're assuming like a big second wave of COVID-19. Is that right? Again, we look at multiple views on second wave, slow burn, various conditions. Really, from our perspective, the timing of that or the incidence of whether it's a second wave or not doesn't make that much difference. It really is ultimately the number of deaths that occur that drives our results. We consider multiple options. you know, given, you know, kind of where we're at now and the potential for what could happen in the future, again, we feel like this is a scenario that's plausible to have come. Yeah, and maybe just to add on to that real quick, you know, it is very difficult. I don't think anyone should predict the ultimate, you know, outcome, you know, given just everything that's going on in the uncertainty. And that's why we did provide, so you can sort of take your own view on the ultimate death. We provided at least our best estimate at this point what every 10 000 the general population best means as far as potential you know claims activity got it thank you hopefully that's conservative like your original sensitivities we'll move on to our next question from jimmy fuller from

Hi, good morning. My first question is just on how you define excess capital. It's odd when companies talk about excess capital, they're raising equity at the same time. So maybe, and you've mentioned an excess capital number in the past as well, but haven't given a lot of clarity on how you compute the number. So that's the first thing. And then relatedly, how do you think about deploying the capital if let's say COVID ends up being a manageable risk from a mortality standpoint and credit is put in mind with your expectations, clearly then you've got more capital with the raise than would have been absorbed by these things. So how do you think about deploying that? When do you start to become more proactive in starting to deploy?

I'll ask Todd to address your first question on how we define excess capital. And I'll come back and provide some thoughts on your second question around capital management and also ask Todd if he has any additional comments to provide. So, Todd, can you start with a definition?

Yeah, so what we do, first and foremost, we need to make sure all the various, you know, operating companies around the world have adequate capital to meet the local, you know, regulatory needs. And then also we look at our own economic capital models that we use, you know, internally to look at various levels of capital and also that helps form our view of some of our underlying risk limits. And then we also pay a lot of attention to the rating agency, you know, models because ratings are very important to us because we want to be viewed as a very solid long-term counterparty to our you know, clients who are in a long-term business, so it's important for them to view us as a very strong counterparty. So looking at all those things and maybe tilted a little bit towards the rating agency models, we want to make sure we'll always appropriately capitalize to maintain our ratings and keep our operating companies where they need to be from a local perspective. Okay.

And then on your second question, I'd start by saying that during this crisis, in this crisis, we continue to work on opportunities where we've been active. I fully expect us to continue to be active, but we're balancing that with being prudent so that we do remain well positioned to weather true. Now, in terms of you know, when does that balance potentially start to shift? I would say we would need certainty and clarity around the virus, around the economic impact, and then some stability and outlook as well. And, you know, as we look out, we don't expect that to happen in the short term. So we'll continue along the way we have been since this crisis started, We're continuing to support our clients, actively engage. Haven't seen any change in that activity, anything perhaps pick up a bit. And we will be very prudent and look for good long-term opportunities and balance that against the continuation of the environment. Todd, is there anything else that you would like to add?

No, but I think you covered it, Anna. Thanks.

Maybe I'll just ask one more on the mortality that you've seen primarily in the U.S. business this quarter. Have you looked deeper into the average age and other factors of the claims to sort of discern if clearly all the claims are pulled forward, right, at some point? every claim comes through in the life business. But if you try to determine how many of them are maybe pulled forward by like a year or two years versus 10, 15 years, and obviously the older the population, the more recent the pull forward is. But any comments on how that affects your view of earnings over the next couple of years, positively or negatively?

I'll start and I'll ask if Jonathan or Totter would like to add. The question about do we think any of the claims are accelerations of the future period claims, very hard to answer that question, very hard to estimate that at this point. We think it's certainly possible that we have some accelerations of claims, given that a very large part, the majority of our extra deaths were concentrated at ages 70 plus, and in particular 80 plus. But, and at the end of the day, obviously people can only die once. But at this point, it's very difficult to put a figure on it as to how much of that we would have expected to see, you know, over the course of the next few periods. Jonathan or Todd?

Yeah, no, I think that's exactly right, Anna, and that's, you know, again, just another reason why for our extra mortality projections on a go-forward basis, we have an assumed acceleration consistent with what's expected. The only thing I would add is I view what we're going through now as a temporary period of elevated claim activity. And when we get through it, we may be able to see that some of it was an acceleration. But that being said, I think the overall earning power of the organization, probably including the traditional mortality business, will be intact when we get to the other side.

Yeah, I would actually say to the extent that the claims are pulled forward from one or two years, the present value future earnings is lower, but the earnings next year would actually be higher, not lower, right? Obviously, that assumption assumes that the claims are, in fact, pulled forward one or two years. But if that is true, then all else being equal, your earnings should be better next year than they would have been otherwise.

Correct? Correct. Like we said, it's hard to gauge.

Thank you.

And we'll take our next question from Ryan Kruger from KPW.

Hi, good morning. I had a question on longevity in the UK. I know you reiterated the rough assumption of about a 10% offset from longevity to your overall performance. I'll be with, but given that there has been much of your longevity risk in the UK where the deaths have been pretty significant, can you expect, I guess in the near term, a more elevated longevity offset given that dynamic?

Brian, I'd say difficult to categorically state, yes, but we think it's likely to be the case. given what we've seen in the UK. But as Todd mentioned earlier, with the lags, we haven't seen any of that to date. And it'll be more, you know, a situation going forward.

Got it. And I guess, could you give any detail, maybe just focus on the US? I guess, what... typically expect for insured versus population mortality and then how you think it's coming through for COVID relative to kind of the normal difference between those?

Yeah, for that question, I'm going to turn it over to Jonathan.

Yeah, so in our go-forward projections, what we're assuming now across most markets we're in is that the difference between insured and general population for COVID-specific deaths will be basically the same or equivalent to what we're seeing just for all-cause mortality. So that's the assumption that we weren't sure when we determined our model Last quarter, just due to the lack of data, but now we're more comfortable applying that full differential that we would otherwise not receive for all-cause mortality, again, based on our own experience as well as the information that we're looking at externally.

Thank you.

And we'll take our next question from Eric Bath from Autonomous Research.

Hi, thank you. Just a follow-up on the longevity experience in EMEA. I think this is something you've seen as a favorable trend for a bit now. I was hoping you could maybe quantify the amount of the benefit or catch-up this quarter and then talk about what is a typical lag so that the experience you're seeing now, when was it actually incurred and how long does it take to come through your results?

Yeah, let me ask Todd to respond to your question.

Okay, yeah, you know, you're right, Eric. Over time, there's been some lumpiness in the UK longevity business given, you know, we get patched up in reporting and that type of thing. So I think you need to look at it a little bit more over a longer period of time. We still think, you know, the run rate that we've been mentioning for the past a couple of quarters at least, with total EMEA in that $50 to $65 million range is still sort of the appropriate run rate to target in on. So that really hasn't changed at this point. It's just we do see from time to time the client catch up, and fortunately they're usually to the positive because it's usually getting updated information and truing up the inventory and those types of things. So it's I don't have the exact quantification of the specific true-up for the quarter, but again, I tie back to looking at that total and the run rate of that $50 to $55 million. Got it. That's helpful. I mean, I guess in general, the trend has been pretty consistently favorable, I think, relative to your pricing assumptions. What do you see as driving that?

And does it seem like something that may continue?

Well, I would offer up part of the answer may be that the temporary slowdown in mortality improvements and how they're impacting, obviously, in the other direction, the underlying longevity business there. It could be part of the reason. It's very difficult, Eric, to really... provide very detailed attribution. It's just that when we price long-term business, we have to set long-term assumptions, and they don't necessarily come in lockstep, smooth. There's some volatility, both short-term, intermediate-term, but we're very comfortable with the performance of that business. And as Todd mentioned and as you alluded to, it's been performing favorably for a good period of time.

Thanks. And then if we could just switch to Asia. I'm just curious about the near-term organic growth outlook and also if you could talk about any potential impacts from some of the uncertainty and market disruptions in Hong Kong.

Thank you. Let me ask Alain to address your question if I may, Alain.

Yeah, thanks, Anna. You know, I think as you point out, there has been quite a bit of disruption, particularly in Hong Kong over the last year, even pre-COVID. So, you know, I think we can expect that the near term might continue to be a little bit below our normal run rate, but we fully expect over the course of, say the next year or more, that our new business would ramp back up to expected levels. Got it. Thank you.

And we'll take our next question from Tom Gallagher from Evercore.

Good morning. First question, do you think the pandemic will impact session rates significantly at all for the primary life insurers? Are you seeing any changes there? And also, do you expect any impact on the terms and conditions on both new treaties and enforce treaty renewals in the wake of what's happened here? Or does that continue to be pretty stable?

I would respond by saying it's too early to really gauge what will happen to session rates. I could certainly offer up that the value of reinsurance has been highlighted during this pandemic and so expect that both growth in the underlying insurance market itself, you know, consumers seeing the value of insurance as well as our clients, the life insurance companies, seeing the value of not just risk transfer, but also other reinsurance solutions. So, yes, I think we could see that. I would expect to see that, but it's purely to say that we, certainly on the session side, that we're seeing it on the session side. Perhaps I'll also ask, Elaine, any further thoughts that you would like to add?

Yeah, I think you're right, Anne. As you mentioned, there's really been no impact on session rates so far, and at this point, no reason to believe that there'd be any downward pressure on that. In terms of terms and conditions, again, probably too early to tell, but, you know, at the end of the day, I think we are reinsuring a life, and whether that life dies through the course of the flu or a pandemic, I wouldn't see us... and certainly insurance companies on the front end excluding that. So I wouldn't expect any significant changes in terms and conditions. Okay, and then my follow-up I guess is kind of a follow-up to what Jimmy asked before about the way you're thinking about capital adequacy, risk, and force. You know, does this cause you to reconsider how you're viewing just overall enterprise risk relative to the capital you hold, you know, given the equity raise here. I guess just a related question, would you consider materially growing some offsetting risks to mortality, whether that's adding more longevity or morbidity risks to the book? as a way to better balance it out to, you know, call it less than the pandemic net exposure that you would have? Or how are you thinking about that overall? And have you even rethought the strategy just given that you ended up raising equity?

All right. Let me take parts of those questions. So let me address the raise equity question. And then I'll ask Jonathan to speak to your capital questions. So specifically to why we raised equity. I'll start by saying when we looked out at the crisis, we couldn't see a quick end. We felt this pandemic would likely continue until there were therapies or treatments or vaccines And the timing of those vaccines and therapies was highly uncertain. And in addition to the virus, the picture was developing on the impact to the global economy on just how much damage was being done and on the uncertainty around how and when and over how long a period of time we would see a recovery. So facing that, we felt it was prudent to increase our capital buffers. because we're in a long-term business, and strength and stability are important for protecting the valuable franchise we've spoken about this morning and in making sure that we're well-positioned to pursue these attractive opportunities, growth, long-term value opportunities. As I look out today, as we look out today, not a lot has resolved, and we continue to believe that increasing our buffers was the right decision, was a prudent choice, And it's consistent with how we've managed shareholder capital over the long term. Look, we're not at the end of this. And I'd end by saying I think it's premature to draw any conclusions at this point. And maybe with that, I'll ask Jonathan to address the rest of your questions.

Yeah, Anna, thanks. So from a capital perspective, I'm still quite comfortable with the level of required capital that we have set up from our internal economic basis to handle or account for pandemic exposure. So no concerns there. And then diversification, and I think you're asking about diversification strategy. I guess I would say that over the last several decades, I think we have been employing a strategy of diversification strategy. And, you know, looking at things like longevity, morbidity, and different geographies, as you point out. So I think that, you know, has served us well in this environment. And, you know, I guess the experience we're having now, I'm sure will factor into our thinking on a go-forward basis too.

Yeah. And maybe I can add one other, maybe I can add just one other thought, which is, you know, from time to time, we have looked at buying some type of pandemic protection. be that a cap bond or some other instrument. What we always found that was to get a meaningful amount of protection, given just the scale of our mortality business, it was hard to find capacity. And then the costs were too expensive for the protection provided. So we didn't and continue not to see good benefit cost options. So the way we look at it, and as Jonathan highlighted is it's, It's by using diversification. It's by managing risk appetite. That's the risk framework through which we look at our business, and we'll continue to do so going forward.

Okay, thanks.

Our next question comes from Dan Bergman from Citi.

Thanks. Good morning. To start, I guess, excluding the capital raises, it looks like excess capital was roughly flat quarter over quarter. So looking forward, if buybacks and block reinsurance deals remain minimal and premium growth remains around the current level, is the second quarter earnings a decent proxy for the level of earnings you'll need to generate to keep excess capital flat going forward, or are there other adjustments or factors we should be thinking about?

Todd, can I ask you to address the question, please?

Dan, I don't think that's probably not a bad way to look at it. I think if you look out at what our earnings power can be, you know, ex-COVID over the remainder of the year, and then, you know, we went through what our estimate is over time for COVID, and you can estimate how much of that would be, you know, in the second half of the year. You know, I think we have the earnings that, you know, fund organic growth as well as, you know, fund the dividend and, And then the sort of unknown would be how much capital we potentially deploy into any imports transactions that look attractive.

Got it. That's really helpful. And then maybe just a quick one on corporate. Should we expect the loss there to remain favorable to prior guidance near term with travel and maybe some other expenses remaining depressed? Or is that prior kind of quarterly loss guidance still a reasonable expectation?

Yeah, so for now I would say the 25 million loss on average per quarter is still reasonable. We did have a little bit additional reduction in the loss in the second quarter here. But I think we'll be maybe hopefully coming a little bit under that as we go forward. But I wouldn't provide sort of an updated average loss at this point. But some of the items like travel, should maintain a lower level, obviously, through the rest of the year.

Got it. Thanks so much for taking the questions.

And our next question comes from Costas Agrogiannis from Legal & General.

Hi, good morning. I guess my question goes regarding for capital development, so I'm going to have 10 minutes. Regarding the excess capital and ratings, I think you mentioned that you would have expected the COVID-19 losses to have been absorbed by the current earnings ability. While the previous capital buffer, around 700 million, from what I was reading from the Edison reports, would have maintained the ratings, the S&P has still a stable outlook. Therefore, I'm going back to capital deployments. And I'm kind of asking whether, do you expect to have a much worse Q3, Q4 claims experience if you also consider the reporting, the lag reporting?

I think that the lag reporting comment was in respect of our business, which we expect should be net positive to earnings, we have on our mortality business, we have all of the incurred claims in the quarter and do not have any lag that would then be felt in the following quarter. I'm understanding the question. Todd, am I thinking about that question correctly?

I think that's right. Based on your answer, I agree, or your comments, I agree. I did not completely hear all the questions I was breaking out.

Costas, does that address your question?

Yes, it does. It was mostly about future capital deployments. I'm kind of lagging on reporting, but yeah, it does address it. Thank you.

Thank you.

And we'll take our next question from Brian Meredith from UBS.

Hey, guys. This is Mike Ward on for Brian. I guess kind of extending on that natural hedge phenomenon that we've spoken about in the past, So you mentioned, you know, when we've got elevated mortality like this, of course it comes through in the period that it occurs. Maybe there's a little lag. But just kind of wondering how long does it usually take for that benefit to flow through in the longevity piece? You know, does it take quarters or years? Just kind of curious how we should frame that, thinking about that benefit, that offset. Yes.

It's closer to the first, which is quarters. It is not lagged for years. Obviously, it depends. We have a number of transactions, and that means a number of clients, and clients have different operations. And then the underlying schemes, the pension schemes themselves also have underlying operational processes. So on average, in general, I think we're looking at it from a few quarters perspective, not years perspective necessarily. Todd, correct me, or John?

No, I agree with your comment.

Yes. Okay. And so that's helpful. So I'm just thinking about, you know, so you said you didn't have any of that longevity benefit this quarter, but if we, if we back out the 300 million of excess COVID claims, I think, you know, that would translate into an EPS for the quarter over $5 per share. And maybe, maybe I'm wrong on that, but I'm just curious if you could help us understand or quantify the other favorability that, that contributed this quarter.

Yeah, there were other things going in other directions, so I'm going to ask Todd to give you just some high-level overview of some of the other items to help frame that calculation you just did.

Yeah, you need to, in addition to just looking at the, say, the elevated mortality impacts that you could add back, you also need to look at there were some expense savings in the quarter that would need to be added back and adjusted related to, you know, travel as well as a significant component of the expense savings related to compensation and within the compensation related to, you know, sort of variable compensation and longer-term incentive compensation type adjustments that we made given this underlying experience that we're going to see this year, it's going to impact some of those longer-term, you know, programs we need to do adjust to that. So you need to maybe reduce the mortality savings by some additional expenses. And I'd put the maybe the expenses, they're a rough number, but maybe it's around 50 cents a share.

And I would add one other thought, and that is 300 is the global estimated cost, 240 in the U.S. individual. The other 60 outside of that operation recall that it was offset in large part due to favorable performance in the morbidity business and other non-mortality operations. I think that, you know, adjusting back up for that 60 is somewhat aggressive because it would suggest, you know, permanent contribution from, you know, and continuing contribution from that overperformance. And although we'd love for that to be the case, that could be somewhat aggressive.

Thanks very much.

And unfortunately, ladies and gentlemen, that is all the time we have for questions today. I would like to turn the call back over to Mr. Todd Larson for any concluding remarks.

Okay, thank you. Well, everyone, thank you for joining us on our second quarter earnings call today. As always, we appreciate the continued support and look forward to the continued dialogue as we go forward. Thank you very much.

once again ladies and gentlemen that concludes today's conference we appreciate your participation today