Reinsurance Group of America, Incorporated

Good day and welcome to the Reinsurance Group of America second quarter 2021 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 2021 conference call. With me this morning on the call is Anna Manning, RGA's President and Chief Executive Officer, Elaine Nimi, Chief Operating Officer, Leslie Barbee, our Chief Investment Officer, Jonathan Porter, Chief Risk Officer, and Jeff Hobson, Head of 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, everyone. and thank you for joining our call today. Last night, we reported adjusted operating earnings per share of $4. I am very pleased with these results, as we delivered an excellent quarter, even in the face of continuing COVID-19 claims. The COVID-19 impact in the quarter was material, although at much reduced levels than in the first quarter. And notably, the performance of the rest of our business was more than enough to absorb these costs and deliver the strong quarter we had. This quarter, once again, provides evidence of the strength of our underlying earnings power, the value of our diversified business, and the resilience of our global platform. I am also very proud of the way that the RGA team has responded during the pandemic. Our client-centric solution-oriented approach combined with disciplined execution has proven itself over time and served us well. This strategy helps us compete and win. In the quarter, we were very active and successful on new business opportunities in both our organic business and on enforced lock transactions. Turning to some of the highlights of the quarter, Our GFS business performed extremely well across all our regions and lines of business. In the quarter, we deployed $200 million into in-force transactions, including the modern Woodman transaction that we publicly announced. The transaction pipeline remains there with opportunities in all our regions. Our traditional business also performed well overall. as COVID-19 claims were significantly reduced and non-COVID-19 experience was apt or better than our expectations across all our segments. The U.S. individual mortality business had a good quarter as the COVID-19 impact was lower than expected and non-COVID-19 experience was in line with our expectations. The U.S. group and U.S. individual health businesses both performed above our expectations. Overall investment performance was very good and our new money rate increased slightly despite lower market yields. Impairments were minimal and we realized some nice gains in our limited partnerships and real estate joint ventures. Australia reported a modest profit in the quarter, which is a continuation of the more favorable trend over the last six quarters. Reported premium growth was very good. organic growth was solid, and new business momentum has picked up and is encouraging. And we increased the quarterly dividend and have lifted the previous suspension of share repurchases, good indications of the health and future prospects for our business. Looking forward, we expect COVID-19 claims to continue over the near term, but at manageable and decreasing levels. Vaccinations continue to provide very good protection against severe illness, hospitalization, and death, which should mitigate the impact of future waves. Given the vaccine levels in all our key markets of the US, the UK, and Canada, we expect COVID-19 claims to decline in the second half of the year. In India and South Africa, we will likely see some continuation in COVID-19 claims through the remainder of the year. but at manageable levels. Jonathan will provide more specific thoughts on this shortly. In closing, I am very pleased with the quarter. We are well positioned with a strong balance sheet and capital levels and with positive business fundamentals. We see encouraging signs and increasing momentum on new business. Capital deployments into transactions of $300 million through the first half is an excellent start to the quarter, so an excellent start to the year. We believe there's reason for optimism as we look ahead, and as such, we expect to resume our balanced and effective capital management strategy in the coming quarters. We look forward to continuing to deliver attractive financial results and to building on our long-term track record of performance. Thank you for your interest in RGA. I hope you all remain safe. and stay well. Let me now turn it over to Todd to go over the detailed financial results.

Thanks, Anna. RGA reported $361 million of pre-tax adjusted operating income for the quarter and adjusted operating earnings per share of $4, which includes a negative COVID-19 impact of $1.44 per share. Our trailing 12 months adjusted operating return on equity is 5.7%, which was net of COVID-19 impacts of 6.9%. These results are evidence of the strength of our underlying earnings power and resilience of our global platform, as Anna highlighted in her remarks. Consolidated premiums increased 11% in the quarter, and 7% on a constant currency basis. In the U.S., the underlying growth in premiums was solid, and the segment also benefited from a modification of the treaty renewal. EMEA segment premium growth reflects good new business wins, and in Asia, we have started to see new business activity pick up. Australia premiums declined from a combination of actions on underperforming treaties, and remaining selective on new business opportunities. The effective tax rate on pre-tax adjusted operating income was 24% for the quarter, in line with our expected range of 23 to 24%. Turning to the segment results listed on slides seven and eight of our earnings presentation, starting with the U.S. segment, The U.S. and Latin America traditional segment had a very good quarter, absorbing COVID-19 claims cost of approximately $57 million. Let me provide a little more detail on the results. For U.S. individual mortality, approximately $45 million of claim costs were attributed to COVID-19, which was below the range for our rules of thumb based on the number of general population deaths. This was primarily due to a lower average size of the COVID-19 claims. Non-COVID-19 claims were in line with expectations, and it was a fairly straightforward quarter in terms of large claims experience. The U.S. group and individual health businesses both performed better than our expectations due to favorable experience in the disability and healthcare excess lines. Variable investment income was strong in the quarter. as both limited partnership performance and real estate joint venture realizations were favorable. The US asset-intensive business reported very strong results. The segment had favorable overall experience, including some transaction and other fees, favorable longevity experience in equity markets, and higher variable investment income from commercial loan prepayments. We are very happy with the results in the quarter. we still believe that a normal run rate is 60 to 65 million, as some of the variable items in the quarter are not expected to repeat on a regular basis. Moving to the Canadian segment, the Canada traditional segment results reflected COVID-19 claim cost of approximately $21 million, higher than our expected range based on the number of general population deaths. Non-COVID-19 experience was favorable. The Canada Financial Solutions segment was in line with our expectations for the quarter. In the Europe, Middle East, and Africa segment, the traditional business results reflected COVID-19 claim costs of approximately $35 million in total, of which $19 million was in the UK and $12 million in South Africa. Non-COVID-19 experience was favorable. EMEA's financial solutions had a strong quarter as business results reflected favorable longevity experience in the quarter. Turning to our Asia-Pacific traditional business, Asia results reflect COVID-19 claim costs of approximately $55 million, of which approximately $51 million was in India. Non-COVID-19 experience was favorable across the segments. Australia reported a modest profit for the quarter. We are pleased with the ongoing progress in Australia and remain focused on actions to improve results while also taking a disciplined approach to new business. The Asia Pacific Financial Solutions business continued to produce good results in the second quarter, reflecting favorable experience on existing treaties and contributions from recent transactions. The corporate and other segment reported pre-tax adjusted operating loss of $39 million. The loss was higher than our quarterly average run rate, primarily due to lower investment income. We expect some volatility quarter to quarter in this segment and continue to believe, on average, a quarterly estimate of $25 million loss is appropriate. Moving to investments. The non-spread portfolio yield for the quarter was 4.64%, reflecting strong variable investment income, primarily due to realizations from limited partnerships and real estate joint ventures. While hard to predict from a timing perspective, they are a core part of our investment earnings. Investment credit impairments were nominal for the quarter, and we continue to see results below the low end of our stress scenarios. Our new money rate of 3.5% was higher than the first quarter rate of 3.35%, reflecting stronger private asset production. Related to capital management, as shown on slide 11 of our presentation materials, our excess capital positions at the end of the quarter remained unchanged at approximately $1.2 billion. Our strong net income funded transaction deployment of $200 million of capital was and solid organic growth. We've maintained a prudent capital management approach throughout the pandemic, recognizing our strong underlying business fundamentals, our excess capital position, and the expectation of reducing levels of COVID-19 costs going forward. We have increased the quarterly dividend by 4% from $0.70 per quarter to $0.73 per quarter and lifted the suspension of the share by buybacks. I will now turn the call over to Jonathan Porter, our Chief Risk Officer, who will provide additional comments on our COVID-19 related experience.

Thanks, Todd. As shown on slide 5, COVID-19 plane costs of $168 million decreased significantly in the quarter as vaccination rollouts continued and general population deaths in our major markets were down materially from their Q1 peak levels. The U.S., U.K., and Canada accounted for just over 50% of COVID-19 claim costs this quarter. This is a lower proportion of the total than in prior quarters, but was expected given the relative levels of vaccinations in these markets. The balance of our global COVID-19 claim costs were driven by higher general population deaths in India and South Africa. As the impact of vaccinations is becoming better understood and claims data continues to develop, we are updating our estimated rules of thumb for future claim costs. In the US, we have updated the models to reflect the relative progress of vaccination programs, as well as consideration of our claims experience. This has resulted in a lowering of our US range for future claim costs to $10 million to $20 million for every 10,000 general population deaths. We're also widening our estimated ranges to $10 million to $20 million for Canada and $4 million to $8 million for the UK. These adjustments reflect emerging claims experience, possibility of more relative quarterly variability as population deaths decrease due to vaccination progress, and the weakening of the U.S. dollar since we set rules of thumb last year. Our longevity experience is favorable this quarter, with a pre-tax benefit of $38 million. This is driven primarily by lag reporting in the U.K., where our longevity business is concentrated, reflecting higher COVID-19 general population deaths from prior quarters. Given the success of the UK vaccination program and the expectation of low COVID-19 deaths through the rest of the year, we would expect to see more modest longevity benefits in future quarters. Real-world data is consistently demonstrating that vaccines are highly effective at preventing severe outcomes and deaths from COVID-19 variants. We believe this will continue to drive lower general population mortality and therefore lower claim costs in the US, UK, and Canada. This has been demonstrated with the recent Delta variant surge in the UK and where daily case counts were close to the prior wave peak, the deaths were less than 10% of the prior high point. In our markets with lower vaccination levels, like India and South Africa, we would expect to see some continuation of COVID-19 claims, but we believe at manageable levels given the nature and size of our business in those countries. We also expect the impact of future waves will be dampened as vaccination levels continue to rise in these markets. I'll hand it back to Todd.

Thank you, Jonathan. Before opening it up for questions, I would like to mention that we will hold a virtual investor meeting on December 9th and hope to have you join us for that discussion. With that, we'll now open it up for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad, and we ask that you please limit yourselves to one question and one follow-up question. We will now take our first question from Jimmy Buller of J.P. Morgan. Please go ahead.

Hi, good morning. So first, I just had a question on your announcement of resuming buybacks. Should we assume buybacks in the third quarter, or are you waiting for the pandemic to abate further before you start doing it? And any sort of color on the magnitude of potential buybacks over the next year would be helpful as well.

Yeah, Jimmy. You know, if you look at our history, we've always sort of followed a prudence and balanced capital management approach over time. We don't try to fine-tune capital quarter to quarter. We're in a very long-term business, and that's also how we view how we manage the company, including capital. And I think if you look at our history as well, we've done a pretty balanced job in deploying capital into in-force transactions when we like the liabilities and we can get an appropriate return on the transactions, funding our organic growth, maintaining a nice stream of dividends year after year, and then balancing it out with share repurchases. While we're not out of the pandemic yet, we are more confident as Jonathan was mentioning that the vaccines are protecting, you know, more against hospitalizations and, you know, ultimate deaths, which is a good sign. You know, we feel we've got a strong earnings power across our, you know, various business segments. So we are comfortable at this time, you know, lifting the share repurchase suspension. And we'll continue to, you know, manage capital over time. you know, as we, you know, view those different alternatives and, you know, consider other items.

But you're not willing to comment on whether or not you'll do buybacks in the third quarter? Or when you'll actually resume that activity?

I wouldn't say we have a definitive time at this point. Okay.

And then on India, can you... Jimmy, can I just add a couple of comments, please? Yeah, I would just reiterate, we feel good about our business. We're committed to the balanced capital management approach that Todd outlined, where we're going to look for the best and the most valuable use of our capital, and that's going to include share buybacks over time. We've demonstrated that. If you go back and look at our approach, I think we've done a good job, and we expect to do that going forward.

Yeah, because the reason is you did raise equity. And in addition to having that capital, you've been profitable throughout the pandemic on not every quarter, but overall. And I doubt that there's any new business opportunity that has the type of ROE or return that you'd get from buybacks at the current stock price. But the other reason I was asking is you have resumed. Resumed, I would assume, means that you're going to – or lifting the suspension would mean that you're going to start buying back as opposed to just starting to evaluate potential buybacks. So I wasn't sure where you stood in that respect. But the other question I had – go on.

No, no, please. Your other question? Okay, yeah.

Yeah, I was just going to ask on India. You had, I think, $51 million you mentioned in claims. Should we assume that there's a fairly high IBNR component in there, or is it just the actual claims that were submitted to you? And the reason for asking that is that should your losses in India follow what's going on in the market in terms of mortality, or is there a lag there? where even if mortality begins or once mortality begins to improve, you'll show an improvement later just given the reporting lag.

Yeah. Hi, Jimmy. This is Jonathan. So that $51 million includes IBNR. It's about 60% or so of that $51 million is IBNR. So we have, you know, not full claims reporting yet. So, you know, as you mentioned, the idea with the IBNR is we accrue up to claims that we think we've – but hadn't been reported to us yet as at the end of the quarter. So we're trying to sync that up with what's happening in the general population.

Got it. Thank you.

We'll take our next question from Humphrey Lee of Darling and Partners. Please go ahead.

Good morning, and thank you for taking my questions. My first question is related to U.S. and Latin American tradition, though. If we were to add back the COVID-related impact, earnings would have been $190 million. Clearly, a meaningful portion of the favorable VII would be in this segment. But just can you talk about and size the other favorability that you had in the quarter?

Yeah, hi, Humphrey. It's Todd.

Yeah, we saw some – The very favorability, you mentioned the variable income and certainly that was a portion of it, but we also saw it in our group and individual health line as well. Remember, the group line is the line we went through a pretty comprehensive repricing exercise a couple years ago. We might have lost a little bit of new business there, but the profitability has continued to be good. So really, it was across the board, and a piece of it was the variable investment income.

Sorry, I was just going to add, important to note, I think our ex-COVID, our U.S. individual claims, performance was good, which sort of continues a string of pretty good quarters after COVID.

Thanks. I was just wondering, can you size the, I guess, the benefit for the VII and the group and health benefit?

Yeah, the VII, these are, you know, rough numbers probably, but it was probably for the traditional you know, business, it was probably in the neighborhood of $40 million, $42 million or so. And that's pre-tax. Above what we would say the average run rate would be.

And then I think group and individual health were somewhere in the $10 to $15 million range.

That's helpful. And then my second question is, While I understand maybe a little premature, but can you just talk about the outlook for potential COVID-19 impacts for the third quarter, especially for the countries that you don't have – you don't provide sensitivity, like South Africa and India?

Yeah. Hi, Humphrey. It's Jonathan. So, you know, obviously we continue to closely monitor COVID. the spread of the Delta variant. But as we mentioned, you know, we're pretty optimistic that the success of vaccination programs will result in maintaining that effectiveness against severe outcome and death. So, so far this quarter, the general population deaths in the US, the UK and Canada remained at relatively modest levels. You know, again, that example of the UK demonstration of case counts are not as closely linked to mortality as we've seen in the past. So we also believe that based on socioeconomic data, in the U.S., that the insurance population take-up rate of vaccinations is likely a little bit higher than the general population, which is part of the reason why we've lowered our rules of thumb. For India and South Africa, you know, the vaccination rates are lower, so we still expect to see some impact in the coming quarters. India, right now, the daily deaths are, the general population are about 15% of what they were at the peak of the prior wave. which is good for this quarter. South Africa case counts were going up at the end of the quarter. They appear to have peaked in early July and are coming down now from the most recent wave. And deaths also seem to have peaked at about 75% of what they were in the past. So, again, those are two good signs in those markets as well. And, again, given the nature and size of our business in those markets, we think that future claims will still be at a

Our next question from Andrew Tickerman of Credit Suisse. Please go ahead.

Yeah, hey, good morning. And just staying on that topic, and I think earlier in the call, I heard you mention that, you know, despite the Delta variant, vaccinations should prevent deaths. Maybe you could elaborate a little bit more on that. It seems like you're very confident. One company earlier kind of up its estimate for mortality claims. So, just maybe a little more color around the Delta variant and what you're seeing globally.

Yeah, sure, Andrew. So, you know, again, when we look at, you know, there's multiple studies, not just one set of data. So, there's the real-life example I mentioned from the UK, but, you know, data from Public Health England, you know, New England Journal of Medicine, the CDC reporting that's recently come out at the end of July. they all point to very high degrees of effectiveness still for the vaccinations against the Delta variant. So, you know, again, we think that will make the or limit or dampen the impact of higher case counts just because the mortality should be quite a bit reduced. And again, as we talked about already too, in markets with lower vaccination levels, there will be more potential for those variants to have a larger impact, although Another thing to keep in mind is that India has gone through the Delta wave already, or their first Delta wave. So, you know, that's not yet to come there. And we do think that the increasing levels of vaccinations in those countries, even though they are low at this point, will keep improving and will result in a dampened effect as well in the future.

Yeah, Andrew, if I can just add a comment. Yeah, maybe to add one other comment. comment, Andrew, in terms of our business and how what we're seeing out there translates into our business. Very complex, lots of factors, underwriting, socioeconomic, and what other companies are seeing is going to very much depend on the nature of their underlying business, whether it's individual or whether it's group. So I wouldn't draw too direct a line between those two.

Very, very helpful. And then with regard to overall premium growth, you know, a very robust net premium growth of 11%, but then probably if you adjust for FX and some other unusuals, maybe it was 4%, which is still very good premium growth. Could you talk about each of your key regions and what kind of premium growth you're expecting over the near and intermediate term?

Andrew, Alan, Mimi, why don't I take a stab at that? Maybe I'll talk a little bit about business volumes as opposed to premium growth, just because of a lot of factors that impact premium growth. As you mentioned, foreign currency. There's also lumpiness in client reporting at times. There's also the type of structure on which we reinsure, for example, whether it's YRT or coinsurance, but Generally speaking, I think if we sort of go around the world, we're feeling pretty good about our business. Certainly in the U.S., we're seeing a meaningful uptick in our production numbers. Now, whether that's, you know, I'll say pent-up demand coming through or a new level of sustained activity, I think remains to be seen. But we're certainly seeing, you know, better production at the direct company level, and that's translating into better reinsurance production for us. Canada, again, similar story to the U.S., where we've got very good business production coming through, and that's reflected in reinsurance. In Asia, I think Todd alluded to it in his comments. We are seeing some good activity there, I think. You know, in the sort of Hong Kong, China region, we're still a little bit down in terms of production numbers, and it's mainly because a lot of our business in Hong Kong is Chinese mainlanders that come across. But generally speaking, good new business. I think there's room to do more. In EMEA, we're seeing good production levels, and maybe the only – area where you know still a little bit cautious is in Australia where we're looking to see some rehabilitation and product terms and conditions which by the way I should add we're expecting to see later this year the regulator there has come out with defined terms and conditions on individual business and that takes hold October 1st and so we're starting to see evidence of signs of change there so All in all, and I think Anna mentioned earlier, just from a GFS standpoint right across the board, good level of activity, certainly good deals done in the first half of the year, and all in all, as I would say, some strong optimism for production in the next half of the year.

We'll now take our next question from Eric Bass of Autonomous Research. Please go ahead.

Hi, thank you. I just wanted to come back to the U.S. asset intensive segment. I think, Todd, you talked about $60 to $65 million still being kind of a normal earnings run rate for that segment. I'm just wondering, should that move a little bit higher over time, given the modern Woodman transaction as that earns in?

Yeah, so, again, it was a very strong quarter for the U.S., you know, asset-intensive segment for the reasons, you know, we went through. I guess one thing we didn't touch upon in the comments is that we also have, you know, over time amortization of the existing, you know, portfolio because that annuity blocks run down over time, and that can be 5% to 10% a year, so it's a very, you know, rough estimate. So, Adding the transaction we did this last quarter helps, you know, offset some of that natural, you know, amortization over time. So, again, a very strong quarter. But as we look through it, you know, very pleased with the result. We still feel, we're sitting here right now, that $60 to $65 million is probably a reasonable estimate, and hopefully we'll, you know, come up to high end and beat it.

Got it. Thank you. And maybe if you could talk a little bit about the outlook for the transactional environment in the second half of the year. Obviously, a good start to the year with 300 million deployed. But if you could talk about what level types of activity you're seeing and, I guess, thinking both from RGA's perspective, but also if there's anything that kind of falls into Lane Corn's wheelhouse.

Yes. Let me address that question. So I start by saying pipelines are very good in all our regions. Starting maybe with the Asia region, acid-intensive pipeline, the pipeline is good. You saw that in our first quarter. The deal that we completed in the first quarter was in that region. We are seeing a few more competitors there, but we believe we have some advantages which can help us win and are helping us win. We have longstanding relationships as we've been in those markets for many, many years. That also means that we're familiar with and we understand the products, the risks, the regulatory environment. Some competitors are still getting operational in some of these markets. So we think we're well positioned there. In the U.S., the asset intensive pipeline is also very good. Competition is strong and there are a lot more competitors there. Deal sizes vary. As you saw in the second quarter with the announced deal that we did, we're winning our fair share. We're also working on the Langhorne deal. So And we're optimistic about completing Langhorne transactions. And then on the longevity and PRT opportunities, again, pipeline's good in the UK, Netherlands. There are some sizable transactions. There are competitors. But, again, we feel good about the business because, in part, our underwriting expertise, And, you know, they're really part of the sweet spot of deals that we focus on. So I would say, again, we feel good about the business and we're optimistic as we look forward.

Thanks. You didn't touch on kind of biometric pipelines for mortality, morbidity. Are you seeing blocks there? It does seem like there's more interest, at least in the U.S., from some companies in terms of transacting legacy lifeblocks.

Yes, I should have added that. You're exactly right. There are deals and sizable deals with underlying insurance risks where, again, from, you know, you need more than just the asset expertise on those blocks. You really need the underwriting expertise, and we are very strong in that respect.

We'll take our next question from John Barnage of Piper Sunder. Please go ahead.

Thank you. The delayed longevity benefit certainly seems to have arrived in the second quarter. Is there any way to get a sense for average date of death for that longevity benefit that occurred, just to get a sense of how we should think about it in the third quarter? Thank you.

Yeah. Hi, John. This is Jonathan. I don't have an exact number to give you as far as dates go, but I think it's fair to say that generally speaking, the experience we're seeing in this quarter is probably lagged about four to five months on average. So most of the experience in Q2 would have been from reporting in Q4 and Q1.

Okay, great. And then can you talk about, you talked about group health and individual health, that there have been some favorable claims tailwinds, and that was repriced in 2019. Can you talk about the expectations around durability of that? Do you view any of the changing claims behavior as somewhat semi-permanent in nature?

Yeah, John, Todd.

No, you know, that business does generally reprice on an annual basis or so, so we can stay close to the claims trends and adjust accordingly. But, you know, we think it's a very overall good block of business. And, you know, as we continue to monitor, we should be able to adjust any trends over time.

Okay. John, maybe I'll just add a comment. I think it's fair to say that some of the benefit is potentially a reflection of the deferral of care in our medical line, although it is net of COVID-related medical and costs and group life costs. But overall, we feel the majority of the performance is really that reflection of the actions we took in the last couple of years and more durable.

Thank you.

We'll take our next question from Ryan Kruger of KBW. Please go ahead.

Hi, thanks. Good morning. I guess I was hoping for a little more detail on the U.S. COVID claims in the quarter. Particularly, can you give us any sense of the average age of the claimants in the quarter? I mean, is that... I guess, relative to prior quarters. And is that the main driver of the lower average claim size is the decline in that average?

Yeah, sorry, I don't have that at my fingertips. Maybe something we can follow up with. But yeah, I mean, you know, the number, how it's translated through. to lower average claim size is really the driver. So we're seeing in the current quarter, our COVID cause of death claims are about 35% or so lower in size than what we've seen in the past. So we don't know whether that's, you know, the start of, or is a change that will persist or if it's just something that is, you know, some volatility in the quarter, but that's something that we'll obviously continue to monitor as we think about our rules of thumb going forward.

Thanks. Second question was, In the past, you've shied away, I think, from co-insuring universal life with secondary guarantees. Would you be interested in block transactions there at this point, or are you still more cautious on that line?

I would say that we constantly are looking at opportunities. And the example I'll offer up is LTC. We watched that market. We didn't participate because we just felt that the risk-reward profile at that time just didn't fit. But over time, that moved, and we entered the market, and I think we've done a very good job, and that business has been very valuable for us. That's how I think about questions like the one you've just posed. It's a constant reevaluation because conditions change. And if we see conditions in the market that we feel are appropriate and, you know, and at the right levels for us, we will engage.

Thanks. And quick last one. Do you have an updated view of the Asia-Pacific run rate earnings you'd expect if we exclude COVID impacts?

Yeah, excluding COVID, on the traditional side, I think that $40 million to $45 million free tax really rates good. And then on the financial solutions side, which is doing quite well, $15 million, maybe $15 million to $20 million as we go forward. We'll see how the activity goes.

All right, great. Thanks a lot.

We'll take our next question from Tom Goddard of Ibercor. Please go ahead.

Good morning. Just a question on U.S. traditional. Can you comment on how individual mortality compared to your group business has been performing, group life business has been performing? Have you seen a noticeable change in trend between those two? What we've seen from some others is Seems like almost all of the claims are coming through on the group side now, and it's not nearly as much of a COVID impact for individual. And just curious if you're seeing the same thing. And then relatedly, can you provide some clarity on the mix of individual in force versus group in force? Sure.

Yeah, hi, this is Jonathan. I can just give you some historical context, I guess, for what we've seen on the group and individual side. So, you know, for us, you know, by far the larger component that we've seen inception to date through the pandemic is on the individual business. So, you know, over 90% of our U.S. mortality claims are in the individual line and less than 10% would be in the group space. That relationship hasn't really changed materially over the course of the pandemic so far.

Got it. But on an underlying basis, if you look at Q2 results, was there a noticeable change in trend for COVID claims that were group versus individual, or should we just take the answer at face value and say you haven't really seen a change in trend between the two?

Yeah, that's right. If I look at the split for Q2 on its own, it still is at 90-10, is approximately the same.

Okay. And just in terms of the COVID hotspots internationally, it sounds like you're feeling better overall about how you see that developing. Are there any areas, you know, we see, you know, Latin America seems to be still running on the high side, some emerging areas. growth countries in Asia also seem to be a bit elevated. Can you just talk a little bit about, are there any other regions that are kind of on your watch list outside of India and South Africa, which both sound like they're getting better?

Yeah, yeah, no, happy to. And, you know, I guess first off, I'll say that, you know, all of our regions are always on our watch list. But at this time, we don't have you know, any significant concerns outside of the five markets that we've talked about, U.S., U.K., Canada, India, and South Africa. So, you know, if I look at Latin America as an example, about 90% of our business there is annually reviewable, and a large component of it is health-related. You know, we've been averaging, you know, less than $5 million a quarter over the last five quarters of COVID costs. And then just looking at Southeast Asia, so in particular, Malaysia and Indonesia, as an example, are where we're seeing higher general population death Indonesia, our mortality exposure is very small, as a lot of our business there is morbidity-related. Malaysia is about 1% or so of our global mortality exposure. It's a relatively young book of business, so only about 1% of our business is over the age of 65 in Malaysia. And, you know, vaccination rates are climbing steadily there, which is a good sign as well. So they're now about 45% with one dose and 23% fully vaccinated in Malaysia, which should help dampen future impacts as well.

Okay, thanks.

We'll take our next question from Mike Ward of UBS. Please go ahead.

Thanks. Good morning. I just had a question on vaccinations overall. I was wondering if you have any data on the new mortalities, COVID mortalities still coming in and whether or not they have been vaccinated. On the other side of that, the remaining population that isn't vaccinated or doesn't want to get vaccinated, at least in the U.S., You think that demographic is maybe less likely to have life insurance in the first place? Just trying to think about the geography of your remaining COVID mortality exposure relative to the parts of the country that are more or less vaccinated.

Yeah, yeah, no, happy to give a few thoughts there. So we don't have vaccination status on death that we get, so that's not information we have. You know, we can look at external sources of data. You know, again, the CDC study that I mentioned before, you know, it's pretty clearly showing that there's a, you know, very high level of efficacy and very low level of death or mortality for people who have been vaccinated. So I think the numbers are something like, you know, 163 million people have been vaccinated and to date there's only been 6,600 people that have been in the hospital or have died who have been fully vaccinated. So that just gives you a sense of the magnitude of the difference in the numbers there for sure. And sorry, I just, I temporarily forgot the second part of your question. Could you just repeat it?

Yeah, no, I guess just geographically, you know, in the U.S., it seems like there's lower vaccination rates in the south or the southeast and wondering about your... Yeah, so from a geographic perspective, there's not that much difference sort of in our book versus the U.S.

population. But we do think socioeconomically, there will be a benefit, you know, from when you mentioned that our insured people more likely to be vaccinated. There is studies that we've seen, it's not a direct study that looks at insured vaccination levels, but, you know, things that correlate vaccination rates to education level, which is correlated to socioeconomic and also, you know, likelihood to have insurance, do demonstrate that, you know, that it is more likely that we believe that people who have insurance will be more vaccinated. And again, that's partly impacting our reduction in our rule of thumb that we're saying as well.

Great. Thanks. And then I was just wondering about how this pandemic might change your capital model going forward or your pricing targets for new business. Are you pricing new business under the assumption or recognizing the potential for another and more frequent pandemics going forward, or is it just too early to tell on that?

Yeah, I think the long-term effects, it's still a little too early to tell. We're definitely devoting a lot of resources to looking at, you know, multiple categories of things that we believe could affect future mortality. Absolutely in the short term, though, so the current COVID impacts, we're pricing those into all the business that we're actively writing. So those are being reflected correctly.

Thanks very much.

And there are no further questions at this time. I would now like to hand the call back to Mr. Larson for any additional or closing remarks.

Okay, thank you. And thank you for everyone for joining us today for our second quarter earnings call, your continued interest in RGA. And we look forward to continue to talk in the future. So thank you very much.

Thank you. That now concludes the call. Thank you for your participation. You may now disconnect.