Reinsurance Group of America, Incorporated

Welcome to the RGA's second quarter 2026 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's prepared remarks, 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. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more detail on the risks and uncertainties, please refer to the risk factors discussed in RGA's periodic reports to the SEC for reconciliation of the non-GAAP measures discussed on this call Good morning, everyone, and thank you for joining today's call. We appreciate your continued interest in RJA.

I am delighted to share that we have delivered a record result, building on the strong momentum established at the start of the year. Results were excellent across all regions and business lines, driven by the recent new business placed over the past few years. This quarter benefited from strong investment returns and modestly favorable claims, extending a trend of steady results that demonstrate success on both sides of the balance sheet. Consistent with the past number of quarters, the results showed our strengths at work, which include deep biometric expertise, strong asset management capabilities, a global platform of local offices, market-leading brand, and flexibility to partner across the industry. Our focus is clear. We aim for balanced earnings growth, The smart use of capital and attractive returns over the long term. Let me walk through the highlights from the quarter. Asia Pacific produced another excellent quarter, driven by continued earnings contribution from new business and additional investment income. Leading with biometric expertise, local experience, and long-standing client relationships, we closed several notable deals in the region led by Hong Kong and Japan. These deals were in our sweet spot as they covered both in-force and flow business, leveraged both sides of the balance sheet and showcased the expertise of our exceptional local teams. EMEA earnings outperformed our expectations. Higher investment income contributed to results and overall claims trends were in line. We also continued to build momentum with new business, completing several transactions across the region and expanded in our existing markets. In the US, results continued to be impressive, with meaningful contributions from new business and investment income. New business activity in individual life remained steady, driven in part by the breadth of our underwriting services that make risk selection faster and Smarter for Clients. U.S. Group results also met expectations and continued to benefit from pricing actions taken earlier this year. This quarter demonstrates the advantages of our global reach and flexibility. We deployed capital into in-force transactions and organic flow business across all three of our regions and across a range of products. Just as important, we were selective. Declining opportunities that did not fit our risk return profile. This discipline is central to how we operate. For the new business closed both year to date and for the quarter, the expected returns met or exceeded our targets. Now let me take a step back and remind you of the strategy driving RGA forward. Once again, RGA's distinctive strengths include Deep expertise in biometric risk, proven asset management capabilities, global reach, the leading life and health brand, and the flexibility to work with partners across the industry. We apply these strengths in combination across key areas of focus. First, creating win-win transactions that generate higher returns for RJ and greater value for clients. Our five decades of experience, global footprint, and local market insight enable us to serve clients in our sweet spot, combining best-in-class biometric expertise with diversified investment capabilities. Next, scouring our global platform to meet the rising demand for risk and capital solutions. Our strong balance sheet and global brand sets us apart as a trusted counterparty. And then third, We are also optimizing our balance sheet through enforced liability management, better risk-adjusted investment returns, and both internal and third-party capital sources. And finally, we focus on capital stewardship, striking the right balance between investing in attractive opportunities and returning capital to shareholders. Here are three examples of win-win solutions from around the world In the U.S., growth is in part driven by our strategic underwriting programs, where volumes are on track to double from last year. This matters because these opportunities are, by nature, reinsurance exclusives. RGA's underwriting capabilities are expanding from a value-added service into a primary driver of reinsurance value. For example, one client started by asking for underwriting support, which grew into a broader, long-term, in-force transaction. This shows how our top-tier underwriting capabilities can be the reason a carrier chooses RGA. In Asia, we closed a Hong Kong flow coinsurance treaty that helped a key client launch a new product addressing growing longevity needs. leveraging both RJ's differentiated biometric and investment capabilities. The transaction showcases our ability to combine product development leadership, biometric expertise, risk sharing design, and local execution to deliver innovative client solutions. In EMEA, we added to our asset intensive markets in continental Europe with a new transaction this quarter. Another important step in growing our regional presence. This showcases our differentiated asset capabilities and the strength of our brand and teams in the region. Turning to capital allocation, we have deployed nearly $500 million year-to-date into in-force transactions, and this quarter we returned $111 million to shareholders, including $50 million in share repurchases and $61 million of dividends. We also announced a 5.4% increase in our dividend to be paid in the third quarter. We maintained a strong balance sheet, ending the quarter with $2.2 billion of excess capital. Balanced use of excess capital is a key part of how we build long-term shareholder value. Looking ahead, Our confidence in 2026 and beyond remains high. Our fundamentals remain strong and our pipeline remains healthy. Our advantages are durable and our strategy is consistent with what has created value at RJ for over five decades. We are confident we will meet or exceed our intermediate term financial targets and deliver long-term value for shareholders. Before I turn the call over to Laura, I want to take a moment to congratulate her on her new role. Laura is a remarkable RJA success story and an outstanding leader. In her 26 years with the company, she has advanced through multiple levels within the finance organization, including leading finance for the largest business unit and serving as deputy CFO. In her latest position as Chief Strategy Officer, she played a central role in sharpening the enterprise strategy and reinforcing our strong focus on disciplined execution. Having worked closely with Laura for now over two decades, I have every confidence that she will excel as our new CFO. With that, I'll turn the call over to Laura to share her comments on the quarter.

Thank you for the introduction, Tony, and good morning everyone. Before I start with the results, I want to say how honored I am to take on the CFO role. I am very excited to continue working alongside Tony and our leadership team, and I look forward to developing relationships with our external stakeholders and continuing to deliver on our strategy. As for the results, RGA earned pre-tax adjusted operating income of $761 million for the quarter or $8.89 per share after tax. Over the trailing 12 months, our adjusted operating return on equity was 18.4% excluding AOCI and notable items. This was a record operating quarter built on discipline execution across our businesses. Two drivers stood out. First, investment results were excellent due to higher new money yields and strong variable investment income. And second, earnings continued to benefit from new business we wrote in recent years consistent with our expectations. As Tony said, we are successfully leveraging our strategic advantages to deliver strong results and we are confident in our targets for 2026 and beyond. Now to the segment results. In the U.S. and Latin America, traditional results reflected favorable individual life claims experience and strong variable investment income. Claims in U.S. Group were in line with our updated view, and our repricing work is on track to deliver solid results through 2026. In financial solutions, results were favorable primarily due to VII, in-force actions, and longevity experience. In Canada, traditional earnings were in line with expectations, and financial solutions were favorable due to strong VII. In Europe, the Middle East, and Africa, traditional results were favorable, driven by one-time items, and financial solutions results were favorable, driven by higher investment income. In Asia Pacific, traditional had another healthy quarter, driven by new business, and financial solutions reflected favorable VII and the strong contribution of new business. Finally, our corporate and other segment reported adjusted operating loss before tax of $35 million. This was better than our expectations due to, again, strong VII and lower financing costs. Now turning to premium growth. Our traditional premiums grew 2.2% or 0.9% constant currency, which were impacted in part by previously noted in-force management actions. For total premiums excluding PRT, year-to-date premiums grew 10.5% or 9.3% constant currency. A growing number of deals within financial solutions are tied to biometric underwriting, so focusing on traditional premium growth has become a less informative indicator of biometric underwriting growth at the company. This quarter we executed additional in-force actions, and while they did not have a notable overall impact to consolidated earnings, they did cut our exposure to capped blocks. In the U.S., that exposure is down by 25% since we adopted LDTI three and a half years ago. Reducing our exposure to capped cohorts is a priority as it reduces earnings volatility and improves the overall profile and returns of our business. Our approach here is simple. We partner with clients to build value. That work can take many forms. It can mean new transactions, premium rate changes, or recaptures. The expectation is always to improve the long-term value of our business. Transitioning to claims. On an economic basis, claims came in $31 million better than expectations. The benefit to current period earnings was $14 million. Since 2023, economic claims for the company have run favorable by $375 million, primarily driven by U.S. individual life and Asia traditional, as well as contributions from financial solutions. As a reminder, the portion not yet in our reported results will flow into earnings over the life of the business. In our earnings presentation on slide seven, we highlight key items for the quarter, including claims experience, VII, in-force management actions, and other items. The other bucket represents a mix of small adjustments across the portfolio that occur every quarter. Sometimes these items help earnings and sometimes they hurt. This quarter, almost all of them benefited RGA. Over time, we expect these items to net closer to zero. The effective tax rate for the quarter was 23.1% on adjusted operating income before taxes, generally in line with our expected range of 22 to 23%. I'll now turn to investments. The yield on our core portfolio, excluding VII, was 4.96% in the quarter. Our new money rate was 6.02%, An increase due to higher market yields and higher allocation to investment-grade private assets compared to last quarter. Our strategic asset allocation is designed to take advantage of the higher reinvestment environment in a capital-efficient manner. The new money rate remains above our portfolio yield, supporting steady growth in investment income. Annualized returns for BII were strong at 15% for the quarter and 11% year-to-date. Well above our 7% planned return for 2026. The outperformance was driven by a combination of realized gains and broad-based alternative equity outperformance. The results reflect sustainable value creation from our diversified alternative equity portfolio. For full year 2026, our strong year-to-date results raise our confidence that we can meet and potentially exceed our 7% target. Overall, portfolio fundamentals are healthy and credit performance is in line with expectations. Our globally integrated investment platform continues to leverage proprietary expertise and strategic asset manager partners to deliver superior liability-driven returns. Now to capital. We put $158 million to work this quarter into in-force transactions. We are especially pleased with the quality of these deals as we expect returns from this new business to meet or exceed our targets. We returned $111 million to shareholders this quarter, including $50 million in share repurchases. That brings total buybacks to $225 million since restarting our repurchase program in the third quarter of last year. We closed the quarter with about $2.2 billion of excess capital broadly in line versus last quarter. Our excess capital is calculated annually and adjusted periodically to reflect quarterly activity and update to assumptions. We manage capital through several lenses. These include our internal economic capital, regulatory, and rating agency frameworks. We remain well capitalized across all our frameworks, supporting our counterparty strength and providing financial flexibility. We will continue balancing capital invested in the business with capital we return to shareholders through dividends and buybacks. Over the intermediate term, we continue to target a 20% to 30% payout ratio, but will remain opportunistic. As previously noted, we expect to use $400 million of excess capital to pay down debt this September. Turning to book value, we extended our long record of growing book value per share. In the quarter, excluding AOCI and B36 effects, our book value per share rose to $174.11. This reflects a compound growth rate of 10.1% since the start of 2021. To sum up, this was a record operating quarter, supported by continuous execution of our strategy. The fundamentals continue to be solid. New business momentum is healthy. Investment results continue to contribute steadily to earnings growth. Capital deployment remains disciplined, and we are focusing on deals that meet or exceed our return standards and fit our risk limits while also returning capital to shareholders. Our priorities are unchanged. Deliver attractive, sustainable returns, manage risk well, and deploy capital where we see the best long-term value. Thank you for your continued interest in RGA. This concludes our prepared remarks. We would now like to open it up for questions.