Reinsurance Group of America - Earnings Call - Q2 2021
August 4, 2021
Transcript
Speaker 0
Good day, and welcome to the Reinsurance Group of America Second Quarter twenty twenty one Results Conference Call. Today's call is being recorded. At this time, I would like to introduce Mr. Todd Larson, Senior Executive Vice President and Chief Financial Officer and Ms. Anna Manning, President and Chief Executive Officer.
Please go ahead, Mr. Larson.
Speaker 1
Thank you. Good morning, and welcome to RGA's second quarter twenty twenty one conference call. With me this morning on the call is Anna Manning, RGA's President and Chief Executive Officer Elaine Niemi, Chief Operating Officer Leslie Barbee, our Chief Investment Officer Jonathan Porter, Chief Risk Officer and Jeff Hopson, Head of Investor Relations. We will discuss the second quarter results after a quick reminder about forward looking information and non GAAP financial measures. Following our prepared remarks, we'll be happy to take your questions.
Some of our comments or answers to your questions may contain forward looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ materially from expected results. Additionally, during the course of this call, information we provide may include non GAAP financial measures. Please see our earnings release, earnings presentation, quarterly financial supplement and website for a discussion of these terms and reconciliations to GAAP measures.
And now I'll turn the call over to Anna for her comments.
Speaker 2
Thank you, Todd. Good morning, everyone, and thank you for joining our call today. Last night, we reported adjusted operating earnings per share of $4 I am very pleased with these results as we delivered an excellent quarter even in the face of continuing COVID-nineteen claims. The COVID-nineteen impact in the quarter was material, although at much reduced levels than in the first quarter. And notably, the performance of the rest of our business was more than enough to absorb these costs and deliver the strong quarter we had.
This quarter once again provides evidence of the strength of our underlying earnings power, the value of our diversified business and the resilience of our global platform. I am also very proud of the way that the RGA team has responded during the pandemic. Our client centric solution oriented approach combined with disciplined execution has proven itself over time and serves us well. This strategy helps us compete and win. In the quarter, we were very active and successful on new business opportunities in both our organic business and on in force block transactions.
Turning to some of the highlights of the quarter. Our GFS business performed extremely well across all our regions and lines of business. In the quarter, we deployed $200,000,000 into in force transactions, including the Modern Woodman transaction that we publicly announced. The transaction pipeline remains very good with opportunities in all our regions. Our traditional business also performed well overall as COVID-nineteen claims were significantly reduced and non COVID-nineteen experience was at or better than our expectations across all our segments.
The U. S. Individual mortality business had a good quarter as the COVID-nineteen impact was lower than expected and non COVID-nineteen experience was in line with our expectations. The U. S.
Group and U. S. Individual health businesses both performed above our expectations. Overall investment performance was very good, and our new money rate increased slightly despite lower market yields. Impairments were minimal, and we realized some nice gains in our limited partnerships and real estate joint ventures.
Australia reported a modest profit in the quarter, which is a continuation of the more favorable trend over the last six quarters. Reported premium growth was very good, organic growth was solid and new business momentum has picked up and is encouraging. And we increased the quarterly dividend and have lifted the previous suspension of share repurchases, good indications of the health and future prospects for our business. Looking forward, we expect COVID nineteen claims to continue over the near term, but at manageable and decreasing levels. Vaccinations continue to provide very good protection against severe illness, hospitalization, and death, which should mitigate the impact of future waves.
Given the vaccine levels in all our key markets of The US, The UK, and Canada, we expect COVID-nineteen claims to decline in the second half of the year. In India and South Africa, we will likely see some continuation in COVID-nineteen claims through the remainder of the year, but at manageable levels. Jonathan will provide more specific thoughts on this shortly. In closing, I am very pleased with the quarter. We are well positioned with a strong balance sheet and capital levels and with positive business fundamentals.
We see encouraging signs and increasing momentum on new business. Capital deployments into transactions of 300,000,000 through the first half is an excellent start the quarter so an excellent start to the year. We believe there's reason for optimism as we look ahead. And as such, we expect to resume our balanced and effective capital management strategy in the coming quarters. We look forward to continuing to deliver attractive financial results and to building on our long term track record of performance.
Thank you for your interest in RGA. I hope you all remain safe and stay well. Let me now turn it over to Todd to go over the detailed financial results.
Speaker 1
Thanks, Anna. RGA reported $361,000,000 of pretax adjusted operating income for the quarter and adjusted operating earnings per share of $4 which includes a negative COVID-nineteen impact of $1.44 per share. Our trailing twelve months adjusted operating return on equity is 5.7 percent, which was net of COVID-nineteen impacts of 6.9%. These results are evidence of the strength of our underlying earnings power and resilience of our global platform, as Anna highlighted in her remarks. Consolidated premiums increased 11% in the quarter and 7% on a constant currency basis.
In The U. S, the underlying growth in premiums was solid and this segment also benefited from a modification of the treaty renewal. EMEA segment premium growth reflects good new business wins. And in Asia, we have started to see new business activity pick up. Australia premiums declined from a combination of actions on underperforming treaties and remaining selective on new business opportunities.
The effective tax rate on pretax adjusted operating income was 24% for the quarter, in line with our expected range of 23% to 24%. Turning to the segment results listed on Slides seven and eight of our earnings presentation, Starting with The U. S. Segment. The U.
S. And Latin America Traditional segment had a very good quarter, absorbing COVID-nineteen claims cost of approximately $57,000,000 Let me provide a little more detail on the results. For US individual mortality, approximately $45,000,000 of claim costs were attributed to COVID nineteen, which was below the range per our rules of thumb based on the number of general population deaths. This was primarily due to a lower average size of the COVID-nineteen claims. Non COVID-nineteen claims were in line with expectations, and it was a fairly straightforward quarter in terms of large claims experience.
The US group and individual health businesses both performed better than our expectations due to favorable experience in the disability and health care excess lines. Variable investment income was strong in the quarter as both limited partnership performance and real estate joint venture realizations were favorable. The U. S. Asset Intensive business reported very strong results.
The segment had favorable overall experience, including some transaction and other fees, favorable longevity experience in equity markets and higher variable investment income from commercial loan prepayments. We are very happy with the results in the quarter. We still believe that a normal run rate is 60,000,000 to 65,000,000 as
Speaker 3
some
Speaker 1
of the variable items in the quarter are not expected to repeat on a regular basis. Moving to the Canadian segment. The Canada Traditional segment results reflected COVID nineteen claim cost of approximately $21,000,000 higher than our expected range based on the number of general population deaths. Non COVID nineteen experience was favorable. The Canada Financial Solutions segment was in line with our expectations for the quarter.
In the Europe, Middle East and Africa segment, the traditional business results reflected COVID-nineteen claim cost of approximately $35,000,000 in total, of which $19,000,000 was in The UK and $12,000,000 in South Africa. Non COVID-nineteen experience was favorable. EMEA's Financial Solutions had a strong quarter as business results reflected favorable longevity experience in the quarter. Turning to our Asia Pacific traditional business. Asia results reflect COVID-nineteen claim costs of approximately $55,000,000 of which approximately $51,000,000 was in India.
Non COVID-nineteen experience was favorable across the segment. Australia reported a modest profit for the quarter. We are pleased with the ongoing progress in Australia and remain focused on actions to improve results while also taking a disciplined approach to new business. The Asia Pacific Financial Solutions business continued to produce good results in the second quarter, reflecting favorable experience on existing treaties and contributions from recent transactions. The Corporate and Other segment reported pretax adjusted operating loss of $39,000,000 The loss was higher than our quarterly average run rate, primarily due to lower investment income.
We expect some volatility quarter to quarter in this segment and continue to believe on average a quarterly estimate of $25,000,000 loss Moving to investments. The non spread portfolio yield for the quarter was 4.64%, reflecting strong variable investment income, primarily due to realizations from limited partnerships and real estate joint ventures. While hard to predict from a timing perspective, they are a core part of our investment earnings. Investment credit impairments were nominal for the quarter, and we continue to see results below the low end of our stress scenarios.
Our new money rate of 3.5% was higher than the first quarter rate of 3.35%, reflecting stronger private asset production. Related to capital management, as shown on Slide 11 of our presentation materials, our excess capital position at the end of the quarter remained unchanged at approximately $1,200,000,000 Our strong net income funded transaction deployment of $200,000,000 of capital and solid organic growth. We've maintained a prudent capital management approach throughout the pandemic. Recognizing our strong underlying business fundamentals, our excess capital position and the expectation of reducing levels of COVID-nineteen costs going forward. We have increased the quarterly dividend by 4% from $0.70 per quarter to $0.73 per quarter and lifted the suspension of the share buybacks.
Will now turn the call over to Jonathan Porter, our Chief Risk Officer, who will provide additional comments on our COVID-nineteen related experience.
Speaker 3
Thanks, Todd. As shown on Slide five, COVID-nineteen claim costs of $168,000,000 decreased significantly in the quarter as vaccination rollouts continued and general population deaths in our major markets were down materially from their Q1 peak levels. The U. S, UK and Canada accounted for just over fifty percent of COVID-nineteen claim costs this quarter. This is a lower proportion of the total than in prior quarters, but was expected given the relative levels of vaccinations in these markets.
The balance of our global COVID-nineteen claim costs were driven by higher general population deaths in India and South Africa. As the impact of vaccinations is becoming better understood and claims data continues to develop, we are updating our estimated rules of thumb for future claim costs. In The US, we have updated the models to reflect the relative progress of vaccination programs as well as consideration of our claims experience. This has resulted in a lowering of our US range for future claim costs to 10,000,000 to $20,000,000 for every 10,000 general population deaths. We're also widening our estimated ranges to 10,000,000 to $20,000,000 for Canada and 4,000,000 to $8,000,000 for The UK.
These adjustments reflect emerging claims experience, the possibility of more relative quarterly variability as population deaths decrease due to vaccination progress, and the weakening of the US dollar since we set rules of thumb last year. Our longevity experience was favorable this quarter with a pretax benefit of $38,000,000 This is driven primarily by lag reporting in The UK where our longevity business is concentrated, reflecting higher COVID-nineteen general population deaths from prior quarters. Given the success of The UK vaccination program and the expectation of low COVID nineteen deaths through the rest of the year, we would expect to see more modest longevity benefits in future quarters. Real world data is consistently demonstrating that vaccines are highly effective at preventing severe outcomes and deaths from COVID nineteen variants. We believe this will continue to drive lower general population mortality and therefore lower claim costs in The US, UK, and Canada.
This has been demonstrated with the recent delta variant surge in The UK where daily case counts were close to the prior wave peak, but deaths were less than ten percent of the prior high point. In our markets with lower vaccination levels, like India and South Africa, we would expect to see some continuation of COVID nineteen claims, but we believe at manageable levels given the mature or sorry, given the nature and size of our business in those countries. We also expect the impact of future waves will be dampened as vaccination levels continue to rise in these markets. I'll hand it back to Todd.
Speaker 1
Thank you, Jonathan. Before opening it up for questions, I would like to mention that we will hold a virtual investor meeting on December 9 and hope to have you join us for that discussion. With that, we'll now open it up for questions.
Speaker 0
Thank you. We will now take our first question from Jimmy Bhullar of JPMorgan. Please go ahead.
Speaker 4
Hi, good morning. So first, I just had a question on your announcement of resuming buybacks. Should we assume buybacks in the third quarter, or are you waiting for the pandemic to abate further before you start doing it? And any sort of color on the magnitude of potential buybacks over the next year would be helpful as well.
Speaker 1
Yeah. Yeah, Jimmy. You know, we've if you look at our, you know, history, we've always sort of followed a, you know, prudent and balanced capital management approach, you know, over time. We don't try to fine tune, capital quarter to quarter. We're in a very long term business, and that's also how we view how we manage the company, including capital.
And I think if you look at our history as well, we've done a pretty balanced job in, deploying capital into in force transactions when we like the liabilities, and we we can get an appropriate return on the transactions, you know, funding our organic growth, maintaining a nice stream of dividends, year after year, and then balancing it out with share repurchases. While we're not out of the pandemic yet, we are, you know, more confident, as Jonathan was mentioning, that the vaccines are protecting, you know, more against hospitalizations and, you know, ultimate deaths, which is is a good sign. You know, we feel we've got a strong earnings power across our various business segments. So we are comfortable at this time lifting the share repurchase suspension, and we'll continue to you know, manage capital over time, you know, as we, you know, view those different alternatives and, you know, consider other items.
Speaker 4
But you're not willing to comment on whether or not you'll do buybacks in the third quarter or when you'll actually resume that activity?
Speaker 1
Yeah. I wouldn't say we have a definitive time at this point.
Speaker 4
Okay. Then on Jimmy, the you Sorry.
Speaker 2
Jimmy, can I can I just add a couple of comments, please? Yeah. I would just reiterate. We feel good about our business. We're committed to the balanced capital management approach that Todd outlined, where we're going to look for the best and the most valuable use of our capital, and that's going to include share buybacks over time.
We've demonstrated that. If you go back and look at our approach, I think we've done a good job, and we expect to do that going forward.
Speaker 4
Yeah. I would because the reason is you did raise equity. And in addition to having that capital, you've been profitable throughout the pandemic on not every quarter, but overall. And I doubt that there's any new business opportunity that has the type of ROE or return that your buybacks would that you'd get from buybacks at the current stock price. But the the the other reason I was asking is you have resumed.
Resumed, I would assume, means that you're gonna or lifting the suspension would mean that you're gonna start buying back as opposed to just starting to evaluate potential buybacks. So I wasn't sure we are used to them in that respect. We're both question I had go on. Go on.
Speaker 2
No. No. Please. Your other question?
Speaker 4
Okay. Yeah. I was just gonna ask on on India. You had, I think, $51,000,000 you mentioned in claims. Should we assume that there's a fairly high IBNR component in there?
Because or is it just the actual claims that were submitted to you? And the reason for asking that is that should your, losses in India follow what's going on in the market in terms of mortality, or is there a lag to where even if mortality begin or once mortality begins to improve, you'll show an improvement later, just given the reporting lag.
Speaker 3
Yeah. Hi, Jimmy. This is Jonathan. So that 51,000,000 includes IBNR. It's about 60% or so of that, 51,000,000 is IBNR.
So we have, you know, not full claims reporting yet. So the you know, as you mentioned, the idea with the IBNR is we accrue up to claims that we think we've, incurred but haven't been reported since yet as of the end of the quarter. So we're trying to sync that up with what's happening in the general population.
Speaker 4
Got it. Thank you.
Speaker 0
We'll take our next question from Humphrey Lee of Dowling and Partners. Please go ahead.
Speaker 5
Good morning, and thank you for taking my questions. My first question is related to US and Latin America traditional. If we were to add back the COVID related impact, earnings would have been $190,000,000 Clearly, a meaningful portion of the favorable VII would be in this segment. But can you talk about, in size fee, the other favorability that you had in the quarter?
Speaker 1
Humphrey, it's Todd. We saw some know, You you mentioned the variable income, and certainly that was a, you know, a portion of it. But we also saw it, in our, the group and individual health line as well. Remember, the group line is the way we went the line we went through a pretty comprehensive repricing exercise, you know, a couple years ago.
We might have lost a little bit of, new business there, but the profitability has continued to be, good. So really, it was across the board, and a piece of it was the variable investment income.
Speaker 3
And Todd,
Speaker 4
Sorry,
Speaker 0
to there
Speaker 6
was just going to add, important to note, I think our ex COVID, our US, individual claims, performance was, good, which, sort of continues a string of pretty good quarters after COVID.
Speaker 5
Thanks. But I was just wondering, can you size the, I guess, the benefit for the the VII and the the group and health benefit?
Speaker 1
Yeah. The VII, these are, you know, rough numbers probably, but it was probably for the, traditional, you know, business. It was probably in the neighborhood of forty million, forty two million or so. And that's that's pretax above what we would say the average run rate would be.
Speaker 6
And then I think group and individual health were somewhere in the 10,000,000 to $15,000,000 range.
Speaker 5
That's helpful. And then my second question is, while I understand maybe a little premature, but can you just talk about the outlook for potential COVID-nineteen impacts for the third quarter, especially for the countries that you don't have, you don't provide sensitivity, like South Africa and India?
Speaker 3
Yeah. Hi, Humphrey. It's Jonathan. So, you know, obviously, we continue to closely monitor the spread of the Delta variant. But as we mentioned, you know, we're pretty optimistic that successive vaccination programs, will result, in maintaining that effectiveness against severe outcome and death.
So far this quarter, the general population deaths in The US, The UK, and Canada remained at relatively modest levels. You know, again, that example of The UK demonstration of case counts are not as closely linked to to mortality as we've seen in the past. So we also believe that based on socioeconomic data in The US, that the insurance population take up rate of vaccinations is likely, a little bit higher, than the general population, which is part of the reason why we've lowered our rules of thumb. For India and South Africa, you know, the vaccination rates are lower, so we still expect to see some impact, in the coming quarters. India, right now, the daily deaths are the general population are about fifteen percent of what they were at the peak of the prior wave, which is good for for this quarter.
South Africa case counts were going up at the end of the quarter. They appear to have peaked in early July and are coming down now from the most recent wave, and deaths also seem to have peaked at about seventy five percent of what they were in the past. So so, again, those are, two good signs in those markets as well. And, again, given the nature and size of our business, in those markets, we think that, future claims will still be at a manageable level for us.
Speaker 0
We'll take our next question from Andrew Tigerman of Credit Suisse. Please go ahead. Yeah.
Speaker 7
Hey. Good morning. And just just staying on that topic. And I I think earlier in the call, I heard you mention that, you know, despite the delta variant, vaccinations should should prevent deaths. Maybe you could elaborate a little bit more on that.
It it seems like you're you're very confident. One company earlier, kind of upped its its, estimate for mortality claims. So just maybe a little more color around the delta variant and and what you're seeing globally.
Speaker 3
Yeah. Sure, Andrew. So, you know, again, when we look at, you know, there's multiple studies, not just one set of data. So there's the real life example I mentioned from The UK, but, you know, data from Public Health England, you know, New England Journal of Medicine, the CDC reporting that's recently come out at the July, they all point to very high degrees of effectiveness still for for, the the vaccinations against the Delta variant. So, you know, again, we think that will, you know, make make the, or or limit or dampen the impact of higher case counts just because mortality should be quite a bit reduced.
And again, as we talked about already too, in in markets with lower vaccination levels, there there will be more potential for those variants to have a larger impact. Although another thing to keep in mind is that India has gone through the delta wave already or the first delta wave. So, you know, that's not yet to come there. And we do think that the increasing levels of vaccinations in those countries, though they are low at this point, will keep improving and will result in a dampened effect as well in the future.
Speaker 2
Yeah. Andrew, if I can just add a comment. Mhmm. Yeah. Maybe to to add one other comment, Andrew, in terms of, you know, our business and how what we're seeing out there translates into our business.
Very complex, lots of factors, underwriting, socioeconomic. And what other companies are seeing is going to very much depend on the nature of their underlying business, whether it's individual or whether it's group. So I wouldn't draw too, direct a line, between those two.
Speaker 7
Great. Very, very helpful. And and then with regard to overall premium growth, you know, a very very robust net premium growth of 11%, but then probably if you adjust for FX and some other unusuals, maybe it was 4%, which is still very good premium growth. Could you talk about each of your key regions and what kind of premium growth you're expecting over the near and intermediate term?
Speaker 6
Andrew, it's Alan Nieme. Why don't I take a stab at that? Maybe I'll talk a little bit about business volumes as opposed to premium growth, just because of a lot of factors that impact premium growth. As you mentioned, foreign currency, there's also lumpiness in client reporting at times. There's also the type of structure on which we reinsure, for example, whether it's YRT or coinsurance.
But generally speaking, I think if we sort of go around the world, we're feeling pretty good about our business. Certainly in The US, we're seeing a meaningful uptick in our production numbers. Now whether that's, you know, I'll say pent up demand coming through or a new level of sustained activity, I think remains to be seen. But we're certainly seeing, you know, better production at the direct company level, and that's translating into, better reinsurance production for us. Canada, again, similar story to The US, where we've got very good business production coming through, and that's reflected in reinsurance.
In Asia, I think, Todd alluded to it in his comments. We are seeing some good activity there. I think, you know, in the sort of Hong Kong, China region, we're still a little bit down in terms of production numbers, and it's mainly because a lot of our business in Hong Kong is, you know, Chinese mainlanders that come across. But generally speaking, good new business. I think there's room to do more.
In EMEA, we're seeing, good production levels. And maybe the only area where still a little bit cautious is in Australia, where we're looking to see some rehabilitation and product terms and conditions, which by the way, should add, we're expecting to see later this year. The regulator there has come out with defined terms and conditions on individual business. And that takes hold October 1, and so we're starting to see evidence of signs of change there. So all in all, and I think Anna mentioned earlier, just from a GFS standpoint, right across the board, good level of activity, certainly good deals done in the first half of the year, and all in all, I would say, some strong optimism for production the next half of the year.
Speaker 0
We'll now take our next question from Eric Bass of Autonomous Research. Please go ahead.
Speaker 8
Hi, thank you. Just wanted to come back to The U. S. Asset Intensive segment. I think, Todd, you talked about 60,000,000 to $65,000,000 still being kind of a normal earnings run rate for that segment.
So I'm just wondering, should that move a little bit higher over time given the Modern Woodman transaction as that earns in?
Speaker 1
Yes. So again, it was a very strong quarter for The U. S. Asset intensive segment for the reasons we went through. I guess one thing we didn't touch upon in the comments is that we also have, over time, amortization of the existing portfolio because that annuity blocks run down over time.
That And can be 5% to 10% a year or so is a very rough estimate. So adding the transaction we did this last quarter helps offset some of that natural amortization over time. So again, a very strong quarter. But as we look through it, very pleased with the results. Still feel, at least sitting here right now, that 60,000,000 to $65,000,000 is probably a reasonable estimate, and hopefully, we'll come at the high end and beat it.
Speaker 8
Got it. And then maybe if you could talk a little bit about the outlook for the transactional environment in the second half of the year? Obviously, a good start to the year with 300,000,000 deployed, but maybe if you could talk about what level types of activity you're seeing, and I guess thinking both from RGA's perspective, but also if there's anything that kind of falls into Langhorne's wheelhouse.
Speaker 2
Yeah. Let me address that question. So I'd start by saying pipelines are very good in all our regions. Starting maybe with the Asia region, acid intensive pipeline, the pipeline is good. You saw that in our first quarter, the deal that we completed in the first quarter was in that region.
We are seeing a few more competitors there, but we believe we have some advantages which can help us win and are helping us win. We have long standing relationships as we've been in those markets for many, many years. That also means that we're familiar with and we understand the products, the risks, the regulatory environment. Some competitors are still, you know, getting operational in some of these markets. So we think we think we're well positioned there.
In The US, the asset intensive pipeline is also very good. Competition is strong, and there are a lot more competitors there. Deal sizes vary. As you saw in the second quarter with the announced deal that we did, we're we're winning our fair share. We're also working on the Langhorne deal.
Specifically to your question, and we're optimistic about completing Langhorne transactions. And then in, on the longevity and PRT opportunities, again, pipeline's good. In The UK, Netherlands, There are some sizable transactions. There are competitors. But, again, we feel good about the business, because in part, our underwriting expertise and and, you know, they're really part of the sweet spot of of deals that, we, we focus on.
So I would say, again, we feel good about the business, and we're optimistic, as we look forward.
Speaker 8
Thanks. And you didn't touch on kind of biometric pipeline, so mortality, morbidity. Are you seeing blocks there? It does seem like there's more interest, at least in The US from some companies in terms of transacting legacy life blocks.
Speaker 2
Yes. I should have added that. You're exactly right. There there are deals and sizable deals with underlying insurance risks where, again, from you know, you need more than just the asset expertise on those blocks. You really need the underwriting expertise.
We are very strong in that respect.
Speaker 0
We'll take our next question from John Barnidge of Piper Sandler. Please go ahead.
Speaker 9
Thank you. The delayed longevity benefit certainly seems to have arrived in the second quarter. Is there any way to get a sense for average date of death for that longevity benefit that occurred just to get a sense of how we should think about it in the third quarter? Thank you.
Speaker 3
Yeah. Hi, John. This is Jonathan. I don't have an exact, number to give you as far as dates go, but I think it's fair to say that generally speaking, the experience we're seeing in this quarter has probably lagged about four to five months on average. So most of the experience in q two would have been from reporting in q four and q one.
Speaker 9
Okay. Great. And then can you talk about you talked about group health and individual health that there have been some favorable claims tailwinds, and that was repriced in 2019. Can you talk about the expectations around durability of that? Do you view any of the changing claims behavior as somewhat semi permanent in nature?
Speaker 1
Yeah. John, it's Todd. No. You know, that that business, does they're generally repriced on a, you know, annual basis or so so we can stay close close
Speaker 4
to
Speaker 1
the claims trends and, you know, adjust accordingly. But, you know, we think it's a very the overall good block of business. And, you as we continue to monitor, we should be able to adjust any trends over time.
Speaker 2
Yeah. John, maybe I'll just add a comment. I think it's fair to say some of the benefit is potentially a reflection of the deferral of care in our medical line. Although it is net of COVID related medical costs and group life costs. But but overall, we feel the majority of the performance is really that reflection of what the actions we took in the last couple of years and more durable.
Speaker 9
Thank you.
Speaker 0
We'll take our next question from Ryan Krueger of KBW. Please go ahead.
Speaker 10
Hi, thanks. Good morning. Guess I was hoping for a little more detail on The U. S. COVID claims in the quarter.
Speaker 1
Particularly, can you give
Speaker 10
us any sense of, like, the average age of the claimants in the quarter? And is that, I guess, relative to prior quarters? And is is that the main driver of the lower average claim size is the the decline in average rate?
Speaker 3
Yeah. Sorry. I I don't have that at my fingertips. So that's maybe something we can follow-up with. But but yeah.
I I think, you know, the the the number, how it's translated through to lower average claim size is is really the driver. So we're seeing in the current quarter, our COVID cause of death claims are about thirty five percent or so lower in size than what we've seen in the past. So we don't know whether that's, you know, the start of of or is a change that will persist or if it's just something that is, some you volatility in the quarter, but that's something that we'll obviously continue to to monitor as we think about our rules of thumb going forward.
Speaker 10
Thanks. Second question was, I don't in the past, you've shied away, I think, from co insuring universal life with secondary guarantees. Are you would you be interested in block transactions there at this point? Are you still more cautious on that line?
Speaker 2
I would say that we constantly are looking at opportunities. And the example I'll I'll offer up, is LTC. You know, we watched that market. We didn't participate because we just felt that the risk reward profile at that time just didn't fit. But over time, that moved.
And we entered the market, and I think we've done a very good job, and that business has been very, valuable for us. That's how I think about questions like the one you've just posed. It's a constant reevaluation because conditions change. And if we see conditions, in the market that we feel are appropriate and, you know, and at the right levels for us, we will engage.
Speaker 10
Thanks. And quick last one. Do you have an updated view of the Asia Pacific run rate, earnings you'd expect if we if we exclude COVID impact?
Speaker 1
Yeah. Excluding COVID, the traditional side, I think that 40 to 45,000,000 of pretax quarterly rate's good. And then on the the financial solutions side, which is, you know, doing quite well, we're, you know, 15, maybe 15 to 20,000,000 as we go forward. We'll see how the activity goes.
Speaker 10
All right, great. Thanks a lot.
Speaker 0
We'll take our next question from Tom Gotoher of Evercore. Please go ahead.
Speaker 11
Good morning. Just a question on U. S. Traditional. Can you comment on how individual mortality compared to your group business has been performing group life business has been performing?
Have you seen a noticeable change in trend between those two? What we've seen from some others is, it seems like almost all of the claims are coming through on the group side now, and it's not nearly as much of a COVID impact for individual. And just curious if you're seeing the same thing. And then relatedly, can you provide some clarity on the mix of individual in force versus group in force?
Speaker 3
Yeah. Hi. This is, Jonathan. I can just give you some historical context, guess, for what we've seen on the group and individual side. So, you know, for us, you know, the by far, the the larger component that we've seen inception to date through the pandemic is on the individual business.
So, you know, over over ninety percent of our US mortality claims are in the individual line, and, you know, less than ten percent would be in the group space. That relationship hasn't really changed materially, over the course of the pandemic so far.
Speaker 11
Got it. Have you but on an underlying basis, if if you look at 2Q results, was was there a noticeable change in trend for COVID claims that were group versus individual? Or is your answer should we just take the answer at face value and say you haven't really seen a change in trend between the two?
Speaker 3
Yeah. That's right. If I look at the the split for q two on its own, it still is at 9010 is is approximately the same. Yeah.
Speaker 11
Okay. And the, just in terms of the COVID hotspots internationally, it sounds like you're feeling better overall about how you see that developing. Are there any areas we see Latin America seems to be still running on the high side, some emerging growth countries in Asia also seem to be a bit elevated. Can you just talk a little bit about are there any other regions that are kind of on your watch list, outside of India and South Africa, which both sound like they're getting better?
Speaker 3
Yeah. Yeah. No. Happy to. And, you know, I guess, first off, I'll say that, you know, all of our regions are always on our watch list.
But, at this time, we don't have, you know, any significant concerns outside of the five markets that we've talked about, US, UK, Canada, India, South Africa. So, you know, if I look at Latin America as an example, about 90% of our business there is annually reviewable, and a large component of it is health related. You know, we've been averaging, you know, less than 5,000,000 a quarter over the last five quarters of COVID costs. And then just looking at Southeast Asia, so in particular, Malaysia and Indonesia as an example of where we're seeing higher general population deaths. Indonesia, mortality exposure is very small as a lot of our business there is morbidity related.
Malaysia is about one percent or so of our global mortality exposure. It's a relatively young book of business, so only about one percent of our business is over the age of 65 in Malaysia. And, you know, vaccination rates are climbing steadily there, which is a good sign as well. They're now about forty five percent with one dose and twenty three percent fully vaccinated in Malaysia, which should help, dampen future impacts as well.
Speaker 11
Okay, thanks.
Speaker 0
We'll take our next question from Mike Ward of UBS. Please go ahead.
Speaker 12
Thanks. Good morning. I just had a question on vaccinations overall. I was wondering if you have any data on the new mortalities, COVID mortalities still coming in and whether or not they have been vaccinated. On the other side of that, the remaining population that isn't vaccinated or doesn't want to get vaccinated, at least in The U.
S, do you think that demographic is maybe less likely to have life insurance in the first place? Just trying to think about the geography of your remaining COVID mortality exposure relative to the parts of the country that are more or less vaccinated.
Speaker 3
Yeah. Yeah. No. Happy to give a few thoughts there. So the we so we don't have vaccination status, on death that we get.
So that's not information we have. You know, we can look at external sources of data. Again, the CDC study that I mentioned before is pretty clearly showing that there's a very high level of efficacy and very low level of death for mortality for people who have been vaccinated. So I think the numbers are something like you know, a hundred and sixty three million people have been vaccinated. And to date, there's only been sixty six hundred people that have been in the hospital or have died who have been fully vaccinated.
So that just gives you a sense of the magnitude of the difference, in the numbers there, And sorry. I I just I temporarily forgot the second part of your question. Could you just repeat it?
Speaker 12
Yep. No. I guess just geographically, you know, in The US, it seems like there's lower vaccination rates in the in the South or the Southeast. I'm wondering about your your
Speaker 4
yeah.
Speaker 3
Yeah. So from a geographic perspective, there's not that much difference, sort of in our book versus The US population. But we do think socioeconomically, there will be a benefit, you know, from when you mentioned that, are insured people more likely to be vaccinated. There is studies that we've seen, some other direct study that looks at insured vaccination levels. But, you know, so, things that correlate vaccination rates to education level, is correlated to socioeconomic and also, you know, or likelihood to have insurance, do demonstrate that, you know, that it is more likely that we believe that people who have insurance will be more vaccinated.
And, that's partly impacting our reduction in our rule of thumb that we're saying as well.
Speaker 12
Great. Thanks. And then I was just wondering about how this pandemic might change your capital model going forward or your pricing targets for new business. Are you pricing new business under the assumption or recognizing the potential for another more frequent pandemics going forward, or or is it just too early to tell on that?
Speaker 3
Yeah. Yeah. I think, the long term effects, it's still a little too early to tell. We're definitely devoting a lot of resources to looking at, you know, multiple categories of things that we believe could affect future mortality. Absolutely, the short term, though, so the current COVID impacts are we're pricing those into all the business that we're we're actively writing, so those are being reflected correctly.
Speaker 12
Thanks very much.
Speaker 0
And there are no further questions at this time. I would now like to hand the call back to Mr. Larson for any additional or closing remarks.
Speaker 1
Okay. Thank you. And thank you for everyone for joining us today for our second quarter earnings call, your continued interest in RGA, and we look forward to continue to you know, talk in the future. So thank you very much.
Speaker 0
Thank you. That now concludes the call. Thank you for your participation. You may now disconnect.