Reinsurance Group of America, Incorporated

Good day and welcome to the Reinsurance Group of America Incorporated second quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Jeff Hobson, Head of Investor Relations. Please go ahead.

Thank you. Welcome to RGA's second quarter 2024 conference call. I'm joined on the call this morning by Tony Chang, RGA's Chief Executive Officer, Todd Larson, Chief Financial Officer, Leslie Barbee, Chief Investment Officer, in Jonathan Porter, Chief Risk Officer. A quick reminder before we get started regarding forward-looking information in non-GAAP 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 a list of important factors that could cause actual results to differ from the expected results. Additionally, during the course of this call, the information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation, and quarterly financial supplement, all of which are posted on our website for discussion of these terms and reconciliations to GAAP measures. Throughout the call, we will be referencing slides from the earnings presentation, which again is posted on our website. And now I'll turn the call over to Tony for his comments.

Good morning, everyone, and thank you for joining our call. Last night, we reported adjusted operating earnings of $5.48 per share, continuing our trend of strong bottom line results. In addition, we continue to have strong momentum across all our business lines and geographies worldwide. The pipeline remains robust, reflecting RGA's unique positioning in the market and the dedication of our teams. Our adjusted operating return on equity for the past 12 months was 15.3%, exceeding the intermediate term targets we previously shared. Underwriting results on an economic basis were in line with our expectations across the company. This is also generally the case across each of our business segments. It is pleasing to note that we have now had five straight quarters of positive underwriting results. We have a world-class investment platform that is integral to our business and strategy. We continue to put new money to work at returns well above the current portfolio yield, benefiting from our broad asset completion platform. In terms of new business activity, our recent momentum continued this quarter and our internal measure, new business and better value, strongly exceeded our goals for both the quarter and the year to date. This was driven by both the number of transactions and the expected returns on these transactions. At our Investor Day, we shared many recent examples of innovative forms of new business. These transactions do generate a higher expected return for RJ given the greater value created for all parties. We continue to see the percentage of these transactions well ahead of our internal goals, leading to greater long-term value for RGA. In relation to this, we deployed a material amount of capital into in-force transactions at $307 million, which was a solid follow-up to an especially strong first quarter. We have always shared a preference to redeploy our excess capital back into the business for both financial and strategic reasons. As we know, successful transactions lead to favorable economics and repeat transactions over time. Let's now share some more specifics from our four areas of notable growth, starting with our longevity and PRT business. In the US PRT market, we completed another transaction this quarter, and we remain optimistic about our prospects going forward. In the UK longevity space, where RJ is a market leader, we continue to be highly successful on longevity swaps of all sizes, as well as funded reinsurance transactions. The pipeline remains active in both the US and UK and we expect the rest of the year to be productive. This follows a strong Q1 where we closed the first material longevity deal in Japan and our largest USPRT transaction to date. Our second area of notable growth is the asset-intensive business in Asia. RGA's multifaceted client partnership means we have deep relationships with our clients in many ways. With a large Japanese client, we closed their first asset-intensive transaction after enjoying a long-standing relationship on the biometric side over many years. The client highlighted the numerous positives from this transaction, including risk reduction and the increase of their long-term value. This further strengthens the view that reinsurance is a key tool for capital management reinforcing our positive view towards future opportunities. In addition, in Korea, we closed one of the first asset-intensive transactions in the market, and we are optimistic about further opportunities. This transaction continues RJA's long track record of being a pioneer in asset-intensive reinsurance around the world. In our third area of notable growth, which is our Asia traditional business, we continue to see very positive results. Our focus has long been to package product development with capital and underwriting solutions to fuel our clients' growth and success. This quarter, we have added a technology solution to this package. This is a market-first digital underwriting solution to address the lengthy onboarding process for mainland Chinese visitors buying insurance in Hong Kong. We have successfully launched this with a key client and it is generating strong interest in the market. Finally, our fourth area of notable growth is the U.S. traditional business. Here, RJA has worked in partnership with one of our clients, one of the largest distributors in the U.S., and another reinsurer to develop a new proprietary life product. Each partner brought their own strengths to the table with RJ providing mortality expertise as well as performing all the case underwriting for the business. We expect this will stimulate future growth for RJ in these exclusive transactions. Outside our four areas, we continue to have strong success. In South Africa, we launched a new effort with a large growing bank assurer to offer simplified issue policies to the mass market. This uses RJA's proprietary model and technology to enhance the underwriting journey for customers. This is an important transaction with strategic significance, as we can leverage this solution elsewhere around the world. Finally, as I expressed at Investor Day, in addition to new business activities, we also have other levers to help grow ROE and PTAOI. This quarter, we executed and enforce actions across multiple regions, as well as asset repositioning into higher-yielding investments. These actions in aggregate generated positive PTAOI this quarter and also on an ongoing basis. All in all, I am delighted with yet another quarter where we are firing on all cylinders. Strong financial results in terms of PTAOI and ROE Strong success in the four areas of notable growth continues and other areas are also contributing with strategic transactions. We are increasingly using technology to deploy our intellectual property as we saw in South Africa and Hong Kong. Finally, we saw the successful use of the other levers RJ has available to unlock value in our balance sheet and positively impact profit and ROE. We are the only global reinsurer exclusively focused on life and health business, and thus our platform is unique. In my view, our capabilities are second to none. Success breeds success as the virtuous innovation cycle continues. I am fully confident in our ability to continue to deliver growth at attractive returns to our shareholders for many years to come. I will now turn it over to Todd to discuss the financial results in more detail.

Thanks, Tony. RGA reported pre-tax adjusted operating income of $491 million for the quarter and adjusted operating earnings per share of $5.48. For the trailing 12 months, adjusted operating return on equity was 15.3%. We are pleased with these results and with the continued positive momentum in new business activity and enforced transactions. Reported premiums were up 17.5% for the quarter. This increase includes $282 million from a single premium USPRT transaction in our financial solutions business. Our traditional business premium growth was a healthy 7% for the quarter and 7.6% year-to-date on a constant currency basis. We are pleased with the premium growth, reflecting good results across all regions. The effective tax rate for the quarter was 25.5% on pre-tax adjusted operating income, above the expected range, primarily related to income earned in foreign jurisdictions. For the full year, we expect the effective tax rate to be in the range of 24 to 25%. Before turning to the quarterly segment results, I would like to speak to slide seven in our earnings presentation that displays the total company claims experience and the related financial statement impacts. We have seen positive biometric experience over the last five quarters. In the current period, underlying biometric experience, which includes mortality, morbidity, and longevity, was in line with overall expectations. However, the financial statement impact recognized in the current quarter was a $14 million loss. The difference between the actual experience and the financial statement impact is a function of LDI cohorting and the duration of the business. The U.S. and Latin America traditional segment results reflected favorable enforced management actions, primarily related to a client recapture of a block of business. The financial impacts were recognized in the current period due to the business being a capped cohort. Not only did this lead to favorable current period results, we expect this to reduce some claims volatility going forward. Separately, this favorable impact was partially offset by client reporting adjustments. Overall, claims experience was in line with expectations, with nothing notable in terms of frequency or severity of claims. The US financial solutions results were below expectations due to the timing of recent new business, not yet at a full earnings rate, as well as some one-time items. Canada traditional results reflected modestly unfavorable mortality experience. However, year to date, underlying mortality experience is favorable. The financial solutions business results were in line with expectations. In the Europe, Middle East, and Africa segment, The traditional business results reflected unfavorable experience, primarily in the UK. EMEA's financial solutions business results were favorable, reflecting the impact of strong new business in recent periods and favorable longevity experience. Turning to our Asia-Pacific results, both our Asia traditional and financial solutions businesses performed very well. The traditional business reflected the benefits of enforced management actions, as well as the impact of recent new business in Asia, while financial solutions business reflected favorable overall experience. The corporate and other segment reported a pre-tax adjusted operating loss of $44 million, slightly worse than the expected quarterly average run rate, due to some variable expenses, including higher incentive compensation accruals. For the first half of the year, results were in line with the expected average run rate. Moving on to investments on slides 9 through 12, the non-spread portfolio yield for the quarter was 4.65%, including the impact of lower variable investment income. For non-spread business, our new money rate was 6.22%. This is still well above the portfolio yield and higher than the prior quarter. Credit impairments were minimal, and we believe the portfolio remains well positioned. Related to capital management, As shown on slides 13 and 14, our capital and liquidity position remains strong, and we ended the quarter with excess capital of approximately $1 billion. This includes the impact from the $650 million senior debt issued in the second quarter. We have an active and balanced approach to capital management over time, and we had another solid quarter of $307 million of capital deployed in the enforced transactions across multiple geographies. We also raised our quarterly dividend by 4.7 percent to 89 cents per share. We remain well capitalized and access to multiple forms of capital. We expect to remain active in deploying capital into attractive growth opportunities while balancing returning excess capital to shareholders over time. During the quarter, we continued our long track record of increasing book value per share. As shown on slide 15, our book value per share, excluding AOCI and the impacts of B36 embedded derivatives, increased to $149, which represents a compounded annual growth rate of 10.4% since the beginning of 2021. As we've discussed, we've had a great first half of the year. We continue to see very good opportunities across our geographies and business lines, and we are well positioned to execute on our strategic plan. Our business continues to demonstrate its resilience and underlying earnings power. We are very excited about the future and expect to deliver attractive returns to our shareholders. With that, I'd like to take a moment to thank everyone for your continued interest in RGA. As many of you know, I have announced my planned retirement for the end of this year And this will be my last earnings call as CFO before turning it over to Axel Andre on August 5th. I have enjoyed my nearly 30 years here at RGA and look forward to staying on through the end of the year as special advisor. And I will reiterate what I said at Investor Day. I believe that RGA's future is as bright as ever. This concludes our prepared remarks. We would now like to open it up for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Please limit yourself to only one follow-up question. At this time, we will pause momentarily to assemble our roster. The first question comes from Joel Hurwitz with Doling and Partners. Please go ahead.

Hey, good morning. And first, Todd, congratulations and best wishes in retirement. Thank you. My first question is just on the enforced management actions. What was the earnings benefit in the quarter? And then has there been an increase in sort of enforced actions or is this sort of a one-off?

Well, you know, this is Todd. You know, in-force management is an ongoing part of our, you know, daily activities, right? We're constantly managing the in-force. That's part of what we do. But again, as we've talked about in the past, we do it in very much a partnership approach with our clients. If I take a step back, you know, in the quarter, we had both, you know, positives and negatives across certain areas. I would say if you looked at, on a consolidated basis, the impact of the enforce actions, which was positive, offset by some of these client reporting items and, you know, data catch-ups, that kind of thing. On a consolidated basis, the impact was a positive of about $100 million.

Okay. That's helpful.

And then looking at the Asia-Pacific financial solutions business, it saw favorable experience again this quarter. It feels like a pretty consistent trend. What's been driving the continued favorable experience in that business? And I guess at what point may you start to think that some of the experience could be sustainable?

I'm sorry, which business did you ask about? Oh, Asia Traditional, yeah.

No, Asia Financial Solutions.

Yeah, but Asia Financial Solutions, that business, That business continues to ramp up over the last few years, so we've been very successful bringing on new treaties and new business. So we just continue to see continued strong momentum on that business. Our clients are reacting well with the solutions that we're bringing to them, and those are very much value-added type transactions, so we can generally get some nice margins on those.

Okay, thank you.

Our next question comes from Wes Carmichael with Autonomous Research. Please go ahead.

Hey, good morning. Thanks for taking my questions, and congrats, Todd, on retirement. First, I just wanted to clarify on Joel's question. With the enforce action of $100 million, is that a pre-tax number or is that after-tax?

That's pre-tax, and that's, you know, the consolidated number, and that's... net of some of the other client reporting adjustments and some other things that we did.

Got it. That's helpful. Thanks, Todd. And then just on U.S. Financial Solutions, I think you had a retro session to Ruby Ree in the quarter. Is there any help you can give us with how that impacted the income statement in that segment for the quarter?

Yeah. This is Todd again. Let me clarify. For Ruby Ree, we had the initial seed block retro session in back in December. And we're in the process of doing some additional retro sessions, but we did not have a specific retro session in the second quarter. But we will have some as we go forward.

Right. I guess, you know, the slides also mention, I guess, an earnings impact for timing. Is there something that will change in the third quarter in financial solutions?

Oh, so for Financial Solutions, we had a couple sort of one-time items in the quarter. We had some data catch-up from a client on a treaty that was a negative impact. And then we did have some timing of some fee recognition, which we would expect to be just a timing issue that should come back in the future.

Thank you.

Our next question comes from Jimmy Belar with JP Morgan. Please go ahead.

Hey, good morning. Todd, good luck in the future. I just had a question on financial solutions. I think you mentioned that the depressed level of earnings or the earnings were affected a little bit by just the timing of new business being put on. Is this something that should correct itself beginning next quarter, or is it more of a longer-term issue where the full learning power will emerge maybe into next year?

Yeah, as we've talked about in the past, it depends on the underlying transaction structure, but generally, it starts out a little bit below our ultimate run rate, if you will. We still price the transactions to hit our overall returns, but generally, as we go through and reposition the investments and that type of thing. It generally takes, say, a year to 18 months to ramp up.

Okay.

And then if I go by the sort of unusual benefit you mentioned from the client transaction recaptures offset by some of the other one-time, you get about $1.20 per share. Is that the $1.20 per share as a lower number from what you reported? Is that a good number to use in terms of looking at your earnings going forward, or were there other things that might have depressed your earnings in the second quarter that you didn't include in that?

Yes, the way I would look at it, if I take a step back at a high level, we talked about, and these are pre-tax numbers, we talked about the in-force actions, you know, primarily in U.S. trad and Asia trad, and then offset by some of the financial reporting type items. And then we had, from a financial reporting perspective, we had some negative claims of about $15 million or so, but the underlying claims experience was still fine. That was just the LDTI reporting impact. And then we had some additional Expense accruals that I mentioned, primarily related to incentive comp, that was probably another $20 million or so, and then some small miscellaneous items. So to me, those items add up to, say, $65 or $70 million pre-tax. But I would advocate that things like the in-force actions that we took really created a lot of value to the enterprise, not only in the current period, but go forward.

Well, I mean, just to reiterate that point, I mean, you know, look, during Invest Today, we shared in-force actions is just one of our other levers for growth, for growth in PTOI and ROE. We always do it on a holistic basis. We feel that's stood us in good stead over the medium and long term. And, you know, these are lumpy transactions. So at times we could be working on them for one or two years. But, you know, we are very active in sort of making sure, you know, we execute on our rights in the treaty, but also very much in a partnership fashion to continue to partner with these clients on new business and in-force.

Okay. And if I just ask one more.

Our next question comes from Elise Greenspan with Wells Fargo. Please go ahead.

Hi, thanks. My first question is on Ruby Rhee. You know, you guys obviously seeded business when the entity was set up, but you haven't been seeding ongoing business yet. When would you expect that to change? And I guess, what are you waiting on, you know, just for you guys to be able to seed, you know, current business into the platform?

Yeah, this is Todd. No, we're... Actually working on putting together the going through the process I guess is the best way to do it to retrocede some business too. We've identified some blocks and we're just going through the process of doing the modeling and getting the appropriate approvals and that type of thing. So I would expect that you'll see some retro sessions or sessions out for Ruby the remainder of this year.

Thanks, and then my second question, you guys did issue some debt in the quarter. How do we think about target debt to capital, including hybrids, just when we think about the capacity away from Ruby for additional transactions?

Yeah, so generally we target around 20% or so senior debt to equity, and then all in combined with the hybrids, say 35%, but there's some flexibility there. around that. In addition, again, to the traditional debt markets, we all do spend quite a bit of time looking at what we call alternative forms of capital, of which Ruby Reed or third-party capital is part of that. Historically, we've also done some embedded value securitizations as well as did some strategic retrocessions as well where it makes sense.

Thank you.

Our next question comes from Ryan Kruger with KBW. Please go ahead.

Hey, thanks. Good morning. I'm sorry to harp on this, but I'm going to come back one more time on the underlying earnings power, make it for an interesting call for Todd on his last one. So I think you mentioned the $100 million positives, the $15 million gap claims, $20 million higher expenses. I think beyond that, I believe BII was also weaker and the tax rate was higher, are those the other two things you would consider when trying to kind of come up with more of a run rate earnings power? And if so, how would you quantify those two other items?

I think variable income, by our best estimate, is about a $15 million pre-tax negative impact in the quarter. Then the tax rate was, you know, our previous range was that 23 to 24 percent, so the impact of another, you know, say, point and a half to two points on the tax rate on the pre-tax income of, you know, $491 million. But, you know, we're still, reiterate, comfortable with the run rates that we provided, you know, earlier, you know, in the year and continue to plan to, you know, grow off, provide, you know, deliver the intermediate growth targets that we've provided.

Okay, great, thank you. And then just given the challenges of one of your main competitors, I guess just wanted to give you guys a chance to kind of comment on your confidence in your own reserve assumptions at this point.

Yeah, hi, Ryan, this is Jonathan. Let me take that one. So obviously, you know, we're not in a position to comment directly on other companies' actions, but just a few points from our perspective. The first one, I think, you know, we need to keep in mind that there are differences in the business that each company has. Right. So the underlying business, the premiums that are being charged, the assumptions that are being used from an expectation perspective. So it's not really possible to read through things in that way. Second, I would say we feel that risk management is one of our core strengths at RGA. We've got a very rigorous approach to pricing, and I think we've demonstrated our discipline across multiple markets and product lines. And where we don't see the risk-reward trade-off making sense to us, we don't pursue the business. And then the last point I'll mention is we do regular monitoring and reporting of our experience. Things can move up and down quarter to quarter, but we have been pleased that our underlying biometric experience has been favorable as Todd and Tony both pointed out for the last five quarters.

Tony here, I mean, let me just add, I mean, you know, these actions or these activities happen from time to time. You know, as Jonathan said, our discipline, our risk management, our focus on life and health is critical for us. And at times, this can create opportunities for us. But, you know, we remain incredibly disciplined, focused on life and health, and the risk management principles we have will obviously continue well into the future.

Thanks, Tony.

Our next question comes from Sunit Kamath with Jefferies. Please go ahead.

Thanks. Good morning. So I guess on capital deployment, it looks like you deployed about a billion, you know, year to date, a very healthy number. Should we sort of think about the second half as maybe you guys needing some time to sort of digest what you've deployed or, you know, is it sort of still in doors wide open to do more deployment?

Yeah, maybe I'll take that one, Nate. You know, what I'd, I'd answer it by saying our pipelines are absolutely full. So obviously Q1 was unique or unusually strong, but there's no reason we're slowing down in Q3, Q4. So hopefully that gives you a good sense. Very excited by the pipelines, very excited by how we're positioned strategically. We've got plenty of capital to use to execute on transactions. And, you know, that momentum is only growing stronger.

Got it. And then just maybe shifting gears to the PRT market, you know, obviously we've been seeing some headlines related to some of the deals that were done with the private equity-backed players. Just wondering if that's having an impact on either competition for PRT business or pricing in that business. Thanks.

Yeah, no, thank you. Yeah, I mean, I don't really want to comment on that. the issues relating to some of our competitors indirectly. But for us, once again, same thing. Pipeline's strong, particularly in the jumbo side where we do spend a lot of our focus. Pricing, in my mind, is fair. So a key part of our strategy is the longevity risk broadly, the PRT market in the U.S. Excited by the rest of the year and no reason to think that that's not the case going forward.

Okay, thanks.

Our next question comes from Tom Gallagher with Evercore. Please go ahead.

Good morning. Todd, just back on the $100 million of enforced rate actions benefit, is it all one-time benefit, or would you expect any go-forward earnings impact as well?

Yeah, and again, that's on a consolidated basis, again, and it's netted some of those client reporting adjustments. So I would comment, maybe break it up into two, Tom. The U.S. in-force action had a current year benefit. As I mentioned in my comments, that was on what we call a capped cohort under LDTI, a net premium ratio above 100%. So the impact of that came through the current period. And there really won't be much of an income statement, plus or minus, going forward. But we do believe it'll help decrease some of the claims volatility with that treaty no longer on our books. And then switching over to Asia, that was a rate adjustment that The way it works, that treaty had a net premium ratio less than 100%, so it was an uncapped cohort. So the way you look at that, whatever the change in cash flows based on the new rate structure, you recalculate the net premium ratio and actually apply it back to the inception of the adoption of LDTI. So you get a little bit of a catch-up in the current period, and then some positive impacts going forward.

Gotcha. That's helpful. And then just to put a bow on this run rate of earnings, so $100 million of favorable, and if I added up all the unfavorables, I think it's $60 to $70 million, so a net of $30 to $40 million pre-tax. Does that sound about right?

I guess when I look at the positives and negatives, I get about call it 65 to 70 million pre-tax of positive impact in the quarter. But I would reiterate again a lot of that related to the in-force actions that we took that created quite a bit of value to the enterprise. So I view that as part of our business, if you will.

Got it. So 65 to 70 would be the net benefit in the quarter, and then your tax effect, that would be the way you would adjust.

Yeah, if we're looking at all sort of some of the, whatever you want to call them, one-time items or a little bit of those types of items. But again, every quarter we're going to have some of these positives and negatives, right? And again, a lot of the positives this quarter was related to some good things that we did from the Enforce Management perspective.

Okay, thank you.

Our next question comes from John Barnage with Piper Sandler. Please go ahead.

Good morning. Thanks for the opportunity, and Todd, congrats on reaching this stage. Another quarter above the ROE guided range. I know there's some one-timers that have been discussed. Are we trending from the high end towards above it sustainably, in your opinion? Thank you.

Thanks, John. Yeah, we're happy with our strong performance over the last period of time. We did recently set the intermediate financial targets, and those are meant to be sort of intermediate, which is say over a three-year period. At this point, we're not updating the the targets, but we do feel good about coming in at the higher end of the targeted range, and we'll monitor and consider updating as appropriate going forward.

John, maybe just to add, as we said during Invest Today, we've got all these tailwinds, whether that's the returns on the new business as we focus more and more on innovative, exclusive transactions, Another tailwind, obviously, is new money rates still higher than portfolio yields. So over time, you'd hope we drift up. But at this point, we're happy with where we've signaled our ROE. And we look forward to continually beating and really working hard and creating value for ourselves and our clients.

Thank you for that answer. My follow-up question is, Interestingly enough, it looks like your office portfolio LTV actually improved two basis points in the quarter. As you think of what does that stability in the commercial real estate portfolio pretend for your outlook for gain harvesting and maybe the balance of the year on portions where you have an equity position for VII? Thank you.

Hey, John, this is Leslie Barbie. Yeah. So our, uh, The portfolio overall, the credit quality has been quite stable. We have a very experienced team that is managing that. Related specifically to your comment on the office LTV, it came down about two points. That is primarily due to some new loans closed in the quarter with quite low LTVs and stability on the rest of the portfolio there. And we did have a small amount, $13 million in office that we took into REO that helped contribute a little, but more so the new very low LTV loan. So, you know, we're always, while there's a lot of things going on in the market, certainly there's also been less lending available to the market in general. So we can pick and choose. We're very disciplined. And so as we're doing this transition, we can both, work through any individual issues, but also look for market opportunities.

Thanks.

Our next question comes from Mike Ward with Citi. Please go ahead.

Thank you. Good morning. Congratulations, Todd, and all the best. I was just wondering, all this talk about, for all the dynamics from the in-force actions and whatnot, is there any change in sort of the run rate dollar earnings for the segments, like U.S. Strat or Asia? Or it sounds like not, but just wanted to make sure.

Yeah, no, Todd, I'd say no, you know, nothing material at all.

Okay. And then most of my other questions are asked, but I just, I'm just curious if there's been any sort of underlying changes in U.S. mortality experience that you're kind of, that you've been observing over the last five quarters, call it, you know, post-pandemic, any sort of themes that you've seen?

Yeah, thanks, Mike. This is Jonathan. So, I'd say nothing really new to report relative to what our expectations have been. You know, we continue to be pleased with our underlying economic performance within the business, which has been positive over the last five quarters. No real significant trends to note in Q1 or Q2 of this year at a sub-level when you start to drill into the block of business. You know, we do have an expectation, as I've mentioned before, built into our go forward mortality expectations for excess mortality. And we continue to see that in the population. It is reducing. So it still is trending down. I think we're about 3% to 4% excess relative to pre-pandemic levels for the first half of this year. So that's nice to see that trend continue. But we have built that into our expectation. And as I mentioned, our results have been favorable versus that.

Great. Thank you.

There's a follow-up question from Jimmy Bular.

Please go ahead.

Hey, I just wanted to see if you could just give us an update on what's going on with your Australia business. And I think results have fluctuated over the past several quarters. And just trying to get an idea on the legacy block that's had recurring losses, how big of a part of the business that is, and how do you expect it to run off over time?

Yeah, Jimmy, it's Todd. Year to date, Australia's seen a slight pre-tax profit. That's a little bit under where we would like them to be, but for year to date, that's where they are. We continuously keep a close eye on the in-force there and have not been pushing the team to grow to any great extent. And so for that older legacy block, We see some claims here and there, but nothing material at this point.

And is the new business environment in the market still tough, or is it just the older business that's actually had issues?

Yeah, thanks. I'll take that one, Jimmy. Look, as Todd mentioned, we're very selective on the new business we chose. and it wouldn't surprise you that the new business areas we play in, and it wouldn't surprise you that, you know, we're comfortable with the environment in those areas. You know, and once again, our discipline of, you know, choosing the right areas to play and be part of, and, you know, sometimes you see others leave the market, which create a better pricing environment for those areas. And we patiently wait for those situations and, we're comfortable with the new business pricing in the areas we focus on.

Thank you.

There's a follow-up question from Wes Carmichael. Please go ahead.

Hey, thanks for taking the follow-up. I had a higher-level question, maybe, Tony. In Asia, in asset-intensive, I'm just hoping you could give us some perspective, especially in the Japanese market, how that market's embracing asset-intensive reinsurance, maybe how that's changed over the past couple of years and How are you thinking about that dynamic going forward?

Yeah, thanks for the question. It's fully embracing it. I mean, Asia, we did our first transaction, top of my head, in Japan probably seven or eight years ago on these sort of blocks, asset. Once one reputable company does it, others are studying it. We get phone calls often trying to understand it. I think a few quarters ago, We said we did a first transaction with a more domestic type life insurer and that once again will set off a trend amongst that group of clients. We did a transaction as I mentioned earlier with a client that had never done it before. One would think that could stimulate further transactions with them and once again they're a very strong reputable company which others will look upon and follow. You know, I would say our strength there is the fact that we've been there since 1998. And we've worked with the regulator, gosh, since the early 2000s on some of these rules. And as I mentioned during Investor Day and earlier today, just our multifaceted relationships. You know, the transaction we did this quarter was a client we've been with – you know, I think on the, you know, cancer risk or the mortality risk for 15 years. So obviously that trust is built, those relationships are built when they're looking at, you know, improving their capital efficiency.

It's not surprising that they turn towards us.

Great. Thanks so much.

There's a follow-up question from Tom Gallagher. Please go ahead.

Hey, thanks. Just had a question about the process of these enforced management actions. Is it something that you react to as experience emerges the wrong way, and then you evaluate each treaty? And then then if, you know, if it creates enough pressure, you then go into action. Or do you have a pretty good sense for what treaties you've been seeing pressure on for several years? And so you kind of have a pipeline and you have visibility into it. Like, how does that really work? Do you do you have a big pipeline or is it something you're really just reacting and responding to more, you know, real time?

Yeah, maybe I'll take that and Jonathan add if I miss out on anything. You know, you've got to look at the treaty. I mean, is there actions that can be taken is one. Obviously, you can always try and negotiate extra out of the treaty type arrangements. But, you know, firstly, that would be one. But, you know, like you said, there's a pipeline. in which we focus on, and these transactions are lumpy, can be material, and take time. And, you know, we, if you think about what we do, right, we're obviously a very technical company in nature, so we look at things in great detail. We've got phenomenal relationships with our clients, even during these types of discussions. So we can be very creative in coming up with win-wins with the client. you know, to best manage these situations. So, yeah, that's broadly the process. You know, obviously, if experience is not as strong as we like, that's another area that you'd look. But hopefully it gives you a sense that a lot of energy has to be put into it. It's very hard to predict. It's very lumpy. But it absolutely can allow us to exercise all our strengths of relationship, technical ability, partnership mentality.

Gotcha. Thanks for the call, Tony.

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

Thank you all for your questions and your continued interest in RJ. This was a good quarter following a very strong first quarter. further demonstrating our continued momentum and substantial earning power. Before we go, I want to congratulate Todd on his retirement and thank him for his nearly 30 years at RGA. There is no doubt his contributions over that time has helped shape RGA into the world-class organization it is today, and we will miss him both professionally and personally. Thank you, and this concludes our second quarter call.

The conference is now concluded. Thank you for attending today's presentation.