Reinsurance Group of America, Incorporated

Good day and welcome to the Reinsurance Group of America Second Quarter 2022 Results Conference Call. Today's call is being recorded. At this time, I'd like to introduce Mr. Ted 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 2022 Conference Call. I'm joined on the call this morning with Anna Manning, RGA President and Chief Executive Officer, Leslie Barbee, Chief Investment Officer, Jonathan Porter, Chief Risk Officer, and Jeff Hobson, Head of Investor Relations. Now a quick reminder about forward-looking information and gap financial measures. Some of our comments or answers to your questions may contain forward-looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for 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 recommendations to GAAP measures. And now I'll turn the call over to Anne for her comments.

Good morning, and thank you for joining our call this morning. Last night, we reported adjusted operating earnings per share of $5.78. This was a record level of earnings for us, and importantly, it included strong contributions from many of our business segments. Growth in organic new business was good and we had another active quarter for capital deployment into Inforce and other transactions. We also saw COVID claims come down substantially and our underlying non-COVID mortality was favorable in most markets. And while uncertainty remains, we expect future COVID impacts to continue to be more limited given the protection provided by vaccinations and prior infections and by the continued development of new vaccines and treatments. I think this quarter points to many positive signs of the strength of our underlying business, the momentum on new business, and the continuing attractive pipeline of growth opportunities. Turning to some further highlights in the quarter, the U.S. and Latin America traditional business had an excellent quarter, as individual mortality experience was very favorable with both claim frequency and severity better than expected, and premium growth reflected solid underlying demand. The Asia traditional business also had an excellent quarter, with favorable underwriting experience across the region, and I'm very pleased with the range of new business activities, notably product development and other client partnership initiatives that will allow us to continue to deliver profitable growth into the future. Our global financial solutions business also delivered another strong quarter across all their business segments and geographies. The Asia business saw measurable GFS earnings growth, reflecting our success over the past couple of years in deploying meaningful amounts of capital into in-force block transactions. Further, our capital deployment of 121 million into in-force and other transactions puts us roughly on pace to match last year's record capital deployment levels. Our pipelines remain active and broad-based across risks and geographies, and momentum is good as we stand here halfway through the year. Our reported premium growth was 4.3% and 8.1% on a constant FX basis. And we continue to see favorable dynamics for insurance products in many of our traditional markets and strong demand from clients for our insurance risk and capital reinsurance solutions. Our investment results were favorable overall, reflecting the benefit of higher new money yields, and if sustained, higher yields would become a meaningful benefit going forward. I'm also pleased to report that we increased our quarterly dividend by nearly 10%, reflecting our confidence in the strength and sustainability of RGA's underlying earnings. We have a great franchise and are very well positioned around the world. We've demonstrated that we can successfully manage through periods of elevated uncertainty and change, which makes me confident in our ability to continue to create substantial long-term value for our investors. Thank you for your interest in RGA. and I'll hand it over to Todd to review the financial results.

Thanks, Anna. RJ reported pre-tax adjusted operating income of $505 million for the quarter and adjusted operating earnings per share of $5.78, which includes a negative COVID-19 impact of 12 cents per share and a foreign currency headwind of 16 cents per share. We consider this to be a very strong quarter, a record one, as Anna has already mentioned. The effective tax rate for the quarter was 22.5%, just below the expected range of 23% to 24%. Turning to the segment results listed on slide 6 and 7 of our earnings presentation, reported premiums were up 4.3%. After adjusting for the adverse foreign currency impact of $119 million, premiums were up 8.1%. Because of the significant currency move in the quarter, I wanted to give you a region-by-region summary. Canada traditional reported a premium increase of 4.3%, and in constant currency increased 8.1%. EMEA traditional reported a decrease of 1.4% in premiums, However, in constant currency, premiums increased 9%. Asia-Pacific traditional reported a 3.9% increase in premiums. And in constant currency, we're up 10.2%. We are pleased to see the good momentum in our business. Now turning to the segment earning results, the US and Latin America traditional segment results were very strong. reflecting both favorable non-COVID and COVID individual mortality experience. Jonathan will provide further details in a few minutes. Variable investment income was in line with expectations, although below the recent run rate. The U.S. individual health business had favorable experience overall. Our group business result was slightly below our expectations, reflecting unfavorable morbidity claim experience on the COVID-19 IBNR. The U.S. asset-intensive business resulted in favorable overall experience. The U.S. capital solutions business reported very strong results due to a treaty recapture fee of approximately $49 million. The Canada traditional segment results reflected unfavorable individual life mortality experiences due to the quarterly volatility from an from an above-average level of large claims, and the impact of COVID-19 claim costs of $1 million. The Canada financial solution segment results were in line with expectations. In the Europe, Middle East, and Africa segment, the traditional business results reflected unfavorable UK mortality experience, partially offset by favorable results in other markets. COVID-19 claim costs were $5 million per quarter. EMEA's financial solutions had a good quarter, reflecting favorable longevity experience. Turning to our Asia Pacific traditional business, Asia results reflected favorable underwriting experience across the region and absorbed COVID-19 claim costs of $3 million. Australia reported a small loss for the quarter due to $4 million of COVID-19 claim costs. The Asia Pacific financial solutions results were very strong, primarily reflecting business growth and favorable investment yields, partially offset by $4 million of COVID-19 claim costs. The corporate and other segment reported pre-tax adjusted operating loss of $5 million, better than our quarterly average run rate due to higher net investment income, including a positive impact from limited partnership investments. Moving on to investments on slides eight through 10 in our earnings presentation, The non-spread portfolio yield for the quarter was 4.63%, reflecting variable investment income that was in line with expectations, as well as a positive impact from higher rates that we have achieved in the first two quarters, and then some benefit to existing floating rate securities. For non-spread business, our new money rate rose to 5.06% in the quarter, compared to 3.81% in the first quarter. The new money rate benefited from an increase in both risk-free rates and public credit spreads, as well as private investment nation activity. Additionally, in the quarter, credit impairments were modest and totaled $16 million. We believe the portfolio is well-positioned as we move through uncertain economic environment. As shown on slides 11 and 12 of our earnings presentation, our capital position remains strong and we ended the quarter with excess capital of approximately $1 billion. We deployed $121 million into Inforce and other transactions, and $49 million to shareholders through dividends. And as Anna mentioned, we increased the quarterly dividend by nearly 10%. We'll now turn the call over to Jonathan Porter, our Chief Risk Officer, to provide some additional comments.

Thanks, Todd. COVID-19 general population deaths were down this quarter in all of our key markets. Compared to the first quarter, reported general population deaths were down almost 80% in the US, 40% in Canada, and 10% in the UK. Our claims experience was consistent with these population trends as our estimated COVID-19 claim costs were at their lowest level of the pandemic. As shown on slide 13, US COVID-19 general population deaths were approximately 32,000 in the quarter, the lowest quarterly level since the start of the pandemic. And although CDC reporting isn't yet complete, there was a negligible level of excess non-COVID-19 mortality in the US general population in Q2. Finally, we have now seen three consecutive quarters of a declining proportion of general population deaths at ages below 65. ages where there is more life insurance exposure. Turning to our U.S. individual mortality results, non-COVID-19 experience was favorable due to both a lower frequency of claims and a lower average claim size. And COVID-19 mortality experience was a net positive in the quarter due to $40 million of favorable development of prior period IBNR. Excluding the benefit of this IBNR adjustment, COVID-19 claim costs were approximately $9 million per 10,000 general population deaths below the low end of our expected range. We have now seen a decline in our COVID-19 claim costs per 10,000 general population deaths in the US for three consecutive quarters, reflective of the trend in the lower proportion of general population deaths in working ages. To the extent that this trend continues, we would expect to be at the lower end of our range in future quarters. Total COVID-19 claim costs on all other business outside of US individual mortality was modest and is broken out by reporting segment on slide six. We are very encouraged by the favorable trends in COVID-19 claim costs that we have seen over the past several quarters. Although there is still uncertainty on how the pandemic will evolve, we believe that future impacts will continue to be manageable. Evidence suggests that COVID-19 has moved into an endemic phase and will continue to impact future mortality, although to a much lesser extent than seen over the past two and a half years. Population immunity is higher due to vaccinations and significant levels of prior infection, and new vaccines and treatments will continue to improve over time. I'll now hand it back to Todd.

Thanks, Jonathan. I'd like to pivot the discussion to long-duration targeted improvements, or LDTI. As we move closer to the January 1st, 2023 effective date, I want to discuss some of the high-level impacts of the new financial reporting standard. Please note that the information we've disclosed are estimates and could differ upon final adoption. LDTI has many positive features relative to current US GAAP, and we believe the financial community will come to appreciate the new standard over time. We also believe and it will provide further insight into the performance and value of RGA's long-term business. There are five key points that are important to emphasize. First, the economics of RGA's business remain unchanged. Second, reserves will reflect best estimate assumptions, which will be updated on a regular basis. Third, at transition, reserves can only be increased. Fourth, the transition adjustment to retained earnings will lead to higher future income. And finally, earnings volatility from quarterly claims fluctuations will be reduced. Now moving to some of the specific impacts to the balance sheet, as shown on slide 18 of our earnings presentation, we estimate a decrease to retained earnings at December 31st, 2021 of $500 to $800 million. There are a few elements in this adjustment. First, LDTI requires an assessment of profitability at a lower level of granularity and requires the recognition of loss cohorts while not recognizing the gain position in other cohorts. It is important to note that we have a limited number of loss recognition cohorts and have substantial margins in the rest of our business that we expect will produce material future earnings. A second component to this adjustment is the elimination of negative reserves on cohorts which have had very strong performance. This primarily relates to our longevity business, and it is required that these reserves be adjusted to zero at transition. The decrease in retained earnings from eliminating the negative reserves at transition will flow into future earnings. And third, a small portion of the adjustment relates to market risk benefits. Additionally, there are also adjustments to AOCI from unlocking reserve discount rates. Currently, reserve discount rates are generally locked in at issue, whereas under LDTI, reserve discount rates will be reflective of current interest rates and AOCI will be adjusted accordingly. We estimate that this adjustment will decrease AOCI 3.2 to $5.2 billion as of December 31st, 2021. The new reserve liability component of AOCI, when combined with the existing unrealized gain or loss investment component, will result in AOCI that is both smaller and less volatile. Moving to earnings emergence, under US GAAP, claims are the main driver of our operating income volatility. However, under LDTI, earnings volatility from claims variability will be significantly muted compared to current financial reporting. Thus, we expect our income under LDTI to be less volatile, absent any reserve assumption changes. Additionally, we expect to recognize slightly more earnings in early years on new business due to the removal of the provision for adverse deviation in reserves. To conclude, we feel the new standard will provide better insight into RGA's long-term performance and, along with the new disclosures, provide additional transparency to investors. Thank you for your interest in RGA. We'll now open the call for questions.

Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Also, we do ask that you please limit yourself to one question and one follow-up before reentering the queue. Once again, that is star 1 if you would like to ask a question. We'll take our first question from Jimmy Bular with JP Morgan. Please go ahead.

Hey, good morning. I had a couple of questions. The first one's for Todd on buybacks. So you had bought back stock in the last quarter, but nothing this quarter. And I'm wondering if it has to do with just the uncertainty about COVID still lingering in certain parts of the world or is there something else, like in terms of new business opportunities or otherwise, and how are you thinking about buybacks and under what conditions? Could you not do any buybacks for the rest of the year versus maybe do or accelerate versus what you've done in the last few quarters?

Yes.

Hi, Jimmy.

Shown on slide 12 in our presentation and as we've discussed in the past, We follow what we view as a very balanced approach to capital management over time, looking at deployment in the business opportunities and the transactions that we really like, the shareholder dividend and also share buybacks. And we'll continue that approach in the future, which will include share repurchases. Anna mentioned we've got an active pipeline of transactions across various geographies. And having some dry powder in today's type environment will allow us to take advantage of potential opportunities that are out there. But also, again, we'll continue to view share repurchases as part of our overall balanced approach to capital management.

Okay. Okay. And then maybe for Jonathan or for Anna, there's been a lot of discussion on sort of the whole dynamic of full forward of claims and whether that benefits your results in the next few years versus maybe lingering effects of COVID and long COVID and people maybe ignoring screenings and stuff, which could cause worse mortality. once the pandemic ends in the next few years. Do you have any strong views on whether there's going to be a tailwind or a headwind to your margins over the next few years because of the pandemic?

Yeah, thanks for the question, Jimmy. This is Jonathan. I'll talk specifically maybe about the couple of items that you mentioned. So as far as pull forward goes, we've talked about this in prior quarters, and we do expect to see some. It is difficult to directly identify, though, and hard to draw conclusions based on one quarter of results like we've seen favorable results this quarter. One thing I will say is, though, that we did see that our experience in the U.S. was notably favorable in the older ages, older attained ages, which is consistent with where we've seen higher pandemic deaths in the past. With respect to screening and that potential impact and delayed diagnosis, we're monitoring that. Nothing material in our cause of death or in CDC data yet indicates that that's going to change materially. As we get further away from the period of the delay, which is really back in the first year of the pandemic in 2020, I think it's also logical to assume that the screening process will be catching up and there'll be the further you are from that time period, the less likely that there will be a material impact as well. So on balance, I think it's, you know, there's going to be pluses and minuses, like you say, but, you know, specifically for the items that you noted, you know, we're not seeing anything material at this point.

Okay. And maybe just for Todd on the buyback point, I understand your comments on the pipeline, but is the pipeline stronger now than it was maybe two, three quarters ago? Because you did buy back a little bit of stock earlier this year.

Sure, buybacks will continue to be part of our overall capital management, but we are seeing some of these potential opportunities, as I mentioned earlier, across various geographies.

Okay, thanks.

Thank you. We'll take our next question from Eric Bass with Autonomous Research.

Hi. Thank you. In your LDTI disclosure, you show a decline in the hits retained earnings from the transition date to year-end 20. Can you just talk about what's driving this? Is it restating 2021 earnings higher or movements in interest rates in capital markets or something else? And should we expect the retained earnings impact to be smaller by the time of adoption at the end of 2022?

Part of the reason for the decrease in the transition adjustment, if you look at January 1st, 2021 compared to the end of the year in 2021, that decrease in the retained earnings adjustment, part of that is due to higher earnings under LDTI than under current gaps. And that's the way the LDPI works. It smooths out some of the elevated claims related to COVID.

Got it.

So it's two just quick follow-ups there. So one, if that were to be the case again, then I guess it would go down by the end of 2022. But then also, I think based on your LDPI comments, you're saying DAC amortization is not changing materially. And the earnings for blocks with negative reserves should go up prospectively. I guess, should we conclude that overall your earnings are likely to be higher under the new framework?

Yeah, we'll see how the year plays out and how the calculations work. And also, we'll be looking at the year-end 2022 balance sheet and looking at the various assumptions that go into the reserve calculations.

Thank you. We'll take our next question from John Barnage with Piper Sandler.

Thank you very much. If we think back maybe last quarter or a quarter ago, you talked about as you got more comfortable with the health landscape, possibly bringing in excess capital below $1 billion. Given the results are meaningfully better, health landscape remains improved, how should we be thinking about excess capital coming down further and maybe within the framework, how you view annual internal excess capital generation. Thank you.

Yeah, so we would be comfortable going down below the current level of excess capital. As we've talked about in the past as well, we also continue to look at alternative forms of capital to make sure we can remain as flexible as possible as well. We did the The retrocession, the middle part of last year, we did a surplus note towards the end of the year, and we continue to look at other forms of efficient alternative capital. So, yes, we would be willing to go down below the billion-dollar level, and given our comfort that we are able to generate capital ongoing through our global platform, X the impacts of COVID.

Thank you. And then my follow-up on the investment income. Can you maybe size the list from floaters in the quarter where you maybe see that projecting? And then do you have an early look maybe into how you think variable investment income may perform in the third quarter? Thank you for the opportunity to ask the question.

Leslie, would you like to take that one?

Sure. Sure. Let me jump in on that. So on the first part of your question, So the floating rate additional impact in the quarter on the non-spread portion was roughly $3.5 million. On consolidated, it was more in the ballpark of $7.5 million. With respect to your variable investment income question, And the go forward, so, you know, as you know, we've been in a robust period. This quarter was closer to our expectations, but we've just come out of a very robust real estate environment, so we expect some less activity in that going forward. And also, as you know, there's been downward pressure on the equity markets here to date, although some bounce back, particularly in the things like Russell 2000 this quarter. But nonetheless, I would expect some downward pressure on unrealized. So I think that the platform long-term should continue to deliver at the current level, but I do expect some downward pressure in the second half of the year from the factors I mentioned.

Thank you. We'll now move on to our next question from Ryan Creger with KBW.

Hi, thanks. Good morning. First, a follow-up on the last question. Can you talk about interest rates in general, maybe give us a sense of how much of a drag the low interest rate environment had been on the annual earnings and maybe how to think about the potential upside in total in the current environment?

Leslie, if you'd like, I'll take the go forward. So if you look at what we might have expected from net investment income coming into this year, the kinds of levels that we had at year end, broadly, short rates, investment grade yields, all of that are about 200 higher. So If you think about that kind of magnitude, the next 12 months, I would expect something on the order of $70 million additional net investment income versus what we might have expected coming into the year.

That's helpful. Would that all drop to the bottom line, or is there any offset in other areas?

That was a net, so if there's floating rate liabilities and other things, that was factored into that estimate.

Got it, thanks. And then back to LBTI, can you, I guess if you look at the retained earnings impact at year end 21, can you give us a sense of the magnitude within that, the impacts of the underperforming cohorts compared to negative reserves

At the end of 2021, in rough order of magnitude, the market risk-benefits is fairly small. I'd say it's maybe around 10% of the total. The negative reserves are roughly in the neighborhood of maybe 40-ish percent, and then the remainder would be the underperforming cohorts.

Thank you. We'll now move on to our next question from Tracy Bengakai with Barclays.

Good morning. I want to go back to the discussion of the dampening effect from claims under LVTI reserve methodology. So I understand, and I believe you alluded to it, for the dampening effect to work, there'll need to be some margin following retrospective unlocking. And without getting too specific on margin adequacy by line or cohort by cohort, if you could share any high-level thoughts on where you're seeing a margin with respect to your assumptions versus your more recent emerging experience.

So maybe one way to start by answering that, maybe we can then maybe clarify the question, is that the way the new financial reporting and reserving works, If what's called your net premium ratio is above 100%, and we can refer to those as the underperforming blocks, the claim volatility will flow through to the bottom line. It's the cohorts with less net premium ratios below 100% where the elevated claims or the claims volatility will get muted and spread out over the longer period of time of the life of the underlying policy and treaties.

Okay, that's helpful. You've also mentioned that COVID losses should become more limited. So I'm wondering if you're considering a new threshold to call out unfavorable or favorable mortality in any given quarter as the 12 cent EPS impact from COVID pales in comparison of your favorable mortality experience. So I guess my question for this quarter would be, when you think your mortality would have been in the quarter, backing out that favorable experience.

Are you talking specifically about our U.S. business? Just to clarify.

I mean, U.S. is the big one. That would be helpful.

Yeah, yeah. So I can give you some details. So for our U.S. individual business, Our estimate is that excluding the impacts of COVID, that our favorable experience in the quarter would have been about $70 million favorable, and that's split roughly 50-50 between large claims and non-large claims experience. Basically, we saw across the board improvement, whether you look by attained age or by issue year from the prior quarter, so all quite favorable.

Thank you. We'll take our next question from Tom Gallagher with Evercore ISI.

Good morning. I assume you don't have very much SGOL exposure just in light of the prudential charge the other day, but just want to confirm that. How should we think about whether you do have any exposure to that type of product structure?

Hi, this is Todd. We historically have not reinsured the lapse guarantee component of those products. It's just something that we've never gotten comfortable with from a risk perspective. We do reinsure the mortality component on some of those products, but it's just the mortality component only. And change in lapses really don't have a material impact on that performance of that risk. But no, we don't have correct exposure.

Okay, okay, thank you. You know, along with that change in lapsation, Prue mentioned they also changed their ultimate mortality assumptions as part of the charge. Just curious how you're thinking about ultimate mortality. Is that something you're considering changing or, you know, overall thoughts on that?

Yeah, I guess as far as long-term mortality goes, we're quite bullish on long-term mortality improvement for a number of reasons related to medical advancements, genomics, other technology changes. So at this point, we haven't made a change to our long-term expectation. Just like all our business, we regularly review mortality and look at assumptions and emergence, but nothing right now.

Thank you. We'll take our next question from Alex Scott with Goldman Sachs.

The first one I had was just on the PFO growth. I mean, on a local currency basis, it looked pretty good. Can you help us think through the different dynamics that are driving the top line and what you foresee for the next year or two on top line growth across the geographies?

Yeah, maybe...

Go ahead, Todd. I'll provide additional comments once you've commented on the growth.

Okay, Anna, thanks. We're still comfortable, very comfortable with what we've been talking about in the past, that mid to high single-digit growth on the premium side, we think it continues to be achievable. We're really seeing good opportunities in all of our different regions on new business opportunities, product development in Asia, some higher production in the U.S. So it's really across the board that we're very pleased with the opportunities that we're seeing.

If I could add some comments to that, and thank you for the question. Let me start, and I think we've had this conversation in prior quarters, but there are large life insurance or maybe more broadly protection gaps in all our markets, and they're sizable. And our life insurance clients, they want to offer protection to not only their existing consumers, but, you know, new customers. And they want to offer good, simple, affordable products. And many of our clients are also... leaning towards these capital light models. So there we can play and are playing a big role because of, as Todd already mentioned, our product development, our risk transfer, capital efficient solutions. We're already doing that. We have many of the tools and capabilities that the clients need, and I see that continuing. And so, for example, I've spoken about our underwriting expertise, about the depth of it, and our facultative business is a big differentiator. Fewer reinsurers can and do provide that service, and it also has high barriers to entry. So when I look at that and then I layer on our global footprint where we have very strong local teams, they have extensive local market knowledge, they have strong local client relationships, What that does is it enables us to quickly leverage good ideas between markets. And I've shared in the past, it's the new ideas or being early to new market opportunities that generally come with stronger margins or they come with exclusive arrangements where you're not competing against others. And then, you know, further add on the very large longevity and pension risk opportunities around the globe, as well as other enforced block opportunities. Again, good growth opportunities. And I would add, because we're talking about some framework changes, there's a lot happening in capital models around the world and financial reporting models around the world. Just about every country is in the midst of revising their frameworks Now, we think that that will drive further interest in reinsurance, both as a risk and efficient capital management tool. Perhaps not immediately, as you would expect the focus right now is on implementation. So people are busy betting down all these changes. But once that gets completed, then we would expect clients to turn to look for opportunities to optimize portfolios or rebalance portfolios. That's clearly what we saw through Solvency 1 and Solvency 2. And RGA, we have a long history of creating new solutions that respond to the new environment. So you can expect us to continue to do that. So really all of that to say we see attractive growth opportunities in all parts of our business. And I'm confident that we'll continue to deliver on growth in this organization.

I had this sort of high-level question on margins. I mean, if I sort of look at just PFO growth and where it's come in through the pandemic and how much higher PFOs are today, and I look back at the kind of PFO margins you were generating before the pandemic, I mean, is that the right way to think about the potential earnings power here? Can we get back to sort of a full PFO margin the way that you were earning before? before? I mean, is there anything structurally different about the business? Certainly we don't know what's going to happen with COVID, so we'll have to have our estimates around that. But in terms of like, you know, if we set COVID aside for a minute, you know, can you return back to those levels? You know, and, you know, if so, is a good amount of this earnings beat here sustainable? Yeah.

I think, I apologize. Todd, do you want to start again?

I was just going to comment. If you look back to pre-pandemic levels, I think our pre-tax operating income was about $1.2 billion or so. And throughout the last couple of years, throughout the pandemic, we've continued to layer on a profitable new business, deployed record levels of capital into the business. So we feel, as you mentioned, excluding any potential impacts of COVID, we still have that earnings power and more going forward. And then also, given the increasing rate environment, that should also be a tailwind as well.

Thank you.

We'll take our next question from Andrew Kligerman with Credit Suisse.

Hey, good morning. We'd like to follow up on a few earlier questions. With the LDTI 1 to 3 one to $1.3 billion impact at transition on retained earnings. Could you possibly give a little color on what types of cohorts were impacted there by product and vintage?

As you know, it's the lost cohorts where the net premium ratio is above 100%. We're not giving a lot of detail. At this point, we'll provide more over time, but there's a few select pockets around the globe. Clearly, in the U.S., the 99 to 04 block that we've talked about and been pretty transparent about over the last several years as a component of that adjustment.

Thank you for that, Todd. And then, Jonathan, there was some discussion a little earlier about non-COVID-19 mortality, and certainly this quarter it looked like the frequency and severity was quite favorable. COVID-19 mortality I think has been influencing non-COVID-19 mortality. The question is, assuming COVID-19 dissipates and hopefully it dissipates, what might be the lag period in which we could still see this sort of COVID-19 influenced, you know, indirect mortality? You know, how long? Do you think like a year from now you'll be in the clear and we won't expect any more? claims given, you know, lack of medical checkups and so forth?

Yeah, thanks for the question, Andrew. It's, you know, to put a precise timeline is very challenging, as I'm sure you can appreciate. You know, one thing that, you know, that, you know, which is encouraging is when we saw negative excess mortality in the U.S. this quarter. So, again, the CDC data isn't complete yet, but it looks like after backing out the impact of COVID that mortality is actually slightly more favorable than what has been sort of the historic run rate based on the CDC reporting. So that helps, I think, support our belief that most of the general population excess mortality that we've been seeing over the course of the pandemic is directly or indirectly related to COVID-19. And therefore, we would expect a significant normalization as COVID-19 deaths come down. We did talk earlier about the potential for impacts of delayed diagnoses and things. And, you know, as I said before, I think, you know, the further we get away from that delayed period, the less of an impact that there'll be. And, of course, there's other pluses and minuses as well in the mix that are not directly COVID related. But I'd say on balance, you know, again, we haven't seen anything sort of materially emerging yet on the delayed diagnosis item.

And then, Andrew, if I could

Maybe circle back to your question on the LDTI. I commented in my opening comments that on day one, reserves can only be increased. I just want to emphasize that the majority of our businesses do have very significant positive margins in those that are significantly in excess of any of the retained earnings reserve adjustments we made at the transition date. Now, we've got a very long-term business, a very large block, and we have substantial margins on the balance sheet that will be realized going forward.

Thank you. We'll take our next question from Mike Ward with Citi.

Hey, guys. Thanks for the question. I'm just thinking about the potential for COVID to morph into an endemic idea. And I guess I'm just wondering if you guys have like a set number of years of experience or an idea of how long it might take you to form the view that you should adjust mortality assumptions and incorporate those in new business or existing business.

Yeah, thanks for the question. This is Jonathan. Again, let me just start by reiterating that we're encouraged by the favorable trends we've seen over the last few quarters and I think you know consistent with you know expert views we do expect to see future variants and waves of infections and hospitalizations but we also expect that mortality impacts will be much lower than what we've seen in the past you know for the reasons I mentioned in my prepared remarks you know we look at a range of scenarios into the future you know we are we have been and we will continue to reflect you know kind of the uncertainty and the expectation in our pricing so we definitely have made adjustments to prices for new business we've made adjustments to our approach to underwriting to ensure that we're avoiding anti-selection risk relative to COVID and updating based on the newest medical information. So we definitely have been managing the business proactively over the last few years and will continue to do so as new data emerges that we need to take into account.

Okay. Maybe, maybe just following up on, on existing business, have you been adjusting any pricing or, you know, is there a certain level of mortality or number of years that you might need to see before you do that?

Yeah, I mean, I think, you know, thinking of just, you know, broadly changes in mortality, any change that causes an impact to mortality, I mean, to the extent that we see that it is material and longer lasting, you know, we'll review those impacts on a client-by-client basis and take action using the options we have available in our enforced treaties. So, you know, this is a regular process that we go through. You know, the quarterly or at least probably to take an assessment of that. Again, we have taken some actions in the past for various reasons, and we will continue to use that as an option in the future.

Thank you. We'll now move on to our next question from Dan Bergman with Jefferies.

Hi, thanks. Good morning. I guess with the block deal activity pretty elevated for a few quarters now, I wanted to see if there's any more color you can provide on the types of blocks you're acquiring, you know, whether by size, types of risk, geography, and also any update or change in the competitive environment among acquirers and any differences there between what you're seeing on the asset-intensive side versus more kind of core mortality blocks.

Yes. Thanks for the question, Dan. Let me start with the deals in the second quarter. So we won deals in Asia on some savings products. And the deals there were in part driven by statutory relief needs of our clients. We also completed a U.S. asset intensive deal on a deferred annuity block. What's worth noting here in the quarter is that some of these deals were done on an exclusive basis right from the start. and we're working on follow-on transactions with some of the clients and potentially other clients, so working on similar deals. Now, no guarantees, but we are active, and I believe we're in good shape to continue to win deals. As mentioned in my prepared remarks, we've gotten off to a good start so far this year, pretty much on pace with last year, which was a record year for us. In terms of competition, specifically on deals, remains very competitive. I would say particularly on the U.S. asset-intensive deals, competition, our experience is competition varies depending on the size of the deal and the underlying risks. So typically we would have less competition on the larger and more complex risks. And then less competition, the more there's insurance and biometric risks that are in a deal relative to, say, market risks. Demand remains overall very good. We feel we're a good competitor. We have a good competitive position. You've seen us continue to win deals. And I would say that we win deals for some of the factors and many of the factors I've spoken about in the past. So it's not just about price. It's that expertise. that we've spoken about at all levels, local, regional, global. It's around relationships and deal certainty and our structuring ability and the strength of our counterparty, you know, long-term commitments to this business. And I think if you were to ask our clients why they select us, why they choose to partner with RGA, I'm confident that what you'll hear are exactly the same things that I've just said. Great partner, deep risk experts, creative and innovative, solution-oriented, and we deliver on our promises. We execute when we say that we're going to execute. So pipelines are very good right across. We're very active, and we continue to win deals.

Got it. That's really helpful. Thank you. I guess maybe then switching gears a little bit, just to follow up on your commentary regarding Alex's question on premium growth. Now that we're further into the pandemic, are you seeing any increased demand from primary life insurance companies raising their reinsurance coverage, given all the recent volatility and pressure on mortality results due to COVID? I guess, in other words, are you seeing or would you expect any uptick in session rates relative to recent historical levels. Just any commentary on what you're seeing there would be helpful.

Yeah, yeah. So specifically with respect to session rates, we haven't seen a lot of movement in session rates. They've been relatively flat, a little up maybe. But remember, session rates are not the only levers of growth for us. So in addition to reinsurance session rates, the underlying market growth is a growth lever for us if you hold session rates flat. And then the third lever for us is really market share, you know, our ability to gain more of the reinsurance that's taken to market. And I'll tie this back to earlier comments around exclusives and bringing ideas to clients. The Our history and our success about being early in, leveraging new ideas, that translates into exclusive arrangements where all the reinsurance comes to us. So we're not competing for that business on a pool basis. So my caution really is around session rates are something to pay attention to, but they're not the only things that drive our growth.

Thank you. We'll now take a follow-up from Ryan Kruger with KBW.

Hi, thanks. I just wanted to clarify one thing. So I guess on earnings post-LDTI, the removal of pads combined with not much of a change in the pattern for DAC amortization and the adjustments you made to retain earnings, it seems like they virtually have to make future gap earnings higher for some period of time post-LDTI. I just wanted to confirm that I was thinking about that right.

Yeah, I think certainly in the early durations here, I think that's right, because we know some of the existing pads will start being released, and then, as I mentioned on new business, we won't be setting up provision for adverse deviation, so the margins should be a little bit higher early on.

Okay, thanks. Just wanted to clarify.

Thank you. And we'll take another follow-up from Mike Ward with C. Thanks for the follow-up, guys.

Just quickly, Prudential had a slide, and don't worry, this isn't going to be about their mortality charge. It's a slide that they like to point to showing the longevity offset that they have that balances off mortality earnings. I was just thinking, I think this has been at least since I've covered you guys, kind of like a characteristic that you've discussed at Investor Days in terms of your business model. And so, you know, we didn't really see it offset mortality during COVID. I think longevity was in UK pension area, but didn't really help as much. And maybe it's the age delta between your mortality and longevity in the US and such. But just wondering if you've thought about or discussed, you know, making some sort of shift to improve that hedge aspect in the future?

Hi, it's Jonathan. Maybe I'll start, Mike. So I think, you know, if you go back to our Investor Day presentation in December, you know, one of the areas that we see quite a bit of growth opportunity in, well, sorry, first of all, we see growth opportunities everywhere. But we see particularly strong growth opportunities in the US PRT space, which will be longevity risk. And, you know, I think we included a slide in there that showed our distribution of core biometric risks between mortality and morbidity and longevity. And we do expect over the course of our five-year strategy to grow that portion of longevity. Now, again, the reason for the growth is that there's a lot of good margin there, there's a lot of good growth opportunity, but as an added benefit, like you've pointed out, we will see better diversification both from a earnings perspective and also a capital perspective.

Okay, so it's sort of gradual over five years?

Yeah, yeah, I think so. So I can't, off the top of my head, I can't remember the exact number, it's in the slide, but I think our longevity, our proportion of those biometric risks for longevity is, I think it's roughly doubling, you know, give or take over the next five years as it grows at a faster rate than our other businesses are growing.

Thank you, guys.

Thank you. And that does conclude today's question and answer session. I'd like to turn the conference back over to Mr. Larson for any additional or closing remarks.

Well, everyone, thank you for your continued interest and support in RGA. And that concludes our second quarter call. Thank you very much.

Thank you. And that does conclude today's conference. We thank you all for your participation.