Reinsurance Group of America - Earnings Call - Q4 2020
February 9, 2021
Transcript
Speaker 0
Good day and welcome to the Reinsurance Group of America Fourth Quarter twenty twenty Results Conference Call. Today's call is being recorded. At this time, I would like to introduce Mr. Todd Lawson, Senior Executive Vice President and Chief Financial Officer and Ms. Anna Manning, President and Chief Executive Officer.
Please go ahead, Mr. Lawson.
Speaker 1
Thank you. Good morning, and welcome to RGA's fourth quarter twenty twenty Conference Call. With me this morning on the call is Anna Manning, RGA's President and Chief Executive Officer Alain Niemi, Chief Operating Officer Leslie Barbee, Chief Investment Officer Jonathan Porter, Chief Risk Officer and Jeff Hopson, the Head of Investor Relations. We will discuss the fourth quarter results after a quick reminder about forward looking information and non GAAP financial measures. Following our prepared remarks, we'll be happy to take your questions.
Some of our comments or answers to your questions may contain forward looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ materially from expected results. Additionally, during the course of this call, information we provide may include non GAAP financial measures. Please see our earnings release, earnings presentation, quarterly financial supplement and website for discussion of these terms and reconciliations to GAAP measures.
And now I'll turn the call over to Anna for her comments.
Speaker 2
Thank you, Todd. Good morning, everyone, and thank you for joining our call today. I hope you are all remaining safe and staying healthy. The loss and anxiety caused by the pandemic is extraordinary. And on behalf of everyone at RGA, I would like to express profound appreciation for those on the front lines in the fight against the pandemic and offer our deepest sympathies to those who have lost loved ones.
Through these tough times, I have remained incredibly proud of the role that RGA has played in an industry that helps to safeguard the financial futures of millions of families from the unforeseen tragedies of life. Our purpose has never been made clearer than during this past year. Let me now move to our results. Last night, we reported adjusted operating EPS of $1.19 which we consider another solid quarter in the context of the pandemic. In this quarter, we were able to absorb estimated total COVID nineteen related claim costs of $300,000,000 globally and deliver profitable earnings due to the underlying strength in many of our businesses.
These include our Asia business, our US group and individual health operations, and our US asset intensive business. Additionally, excluding the impact of claims attributed to COVID nineteen, our US individual mortality experience was again favorable this quarter. Reported premium growth was strong driven by results in EMEA and Asia. We completed a number of transactions in the quarter and deployed approximately $100,000,000 of capital. The transaction pipeline is very good overall and includes opportunities in all our regions.
Our investment portfolio held up well, and we ended the year with a strong balance sheet and excess capital of $1,300,000,000. Our approach to capital deployment during this crisis remains prudent, disciplined, and balanced. If I step back and consider our full year results, we reported adjusted operating EPS of $7.54. This includes absorbing estimated total COVID nineteen related claim costs of $720,000,000 globally. And when adjusted for COVID nineteen related offsets, including longevity and reduced expenses, we estimate the full year impact of COVID nineteen to be roughly $6.80 on adjusted operating EPS.
I'm encouraged by the fact that our underlying fundamental performance and client relationships remain strong. It speaks to the resilience of our global franchise, the benefits of our diversified business, and to the success of our client focused strategy. As we look forward, it is clear that COVID nineteen remains both a global health and economic challenge, and we expect to see a meaningful level of claims in the first half of twenty twenty one. But we believe that the impact will be manageable given our strong balance sheet and our underlying earnings engine. We are optimistic that we will begin to see the benefits from the global vaccination programs as we move into the rest of the year, after which we expect to see some normalization of results.
In the meantime, we will continue to remain focused on protecting our employees, serving our clients, and supporting the industry and our communities. The quality, strength, and resilience of our business give us confidence that we will emerge from the pandemic positioned to take advantage of the opportunities ahead and continue to build on our long track record of value creation. Thank you for your interest in RGA, and I hope you all continue to remain safe and well. Let me now turn it over to Todd to go over the detailed financial results.
Speaker 1
Thanks, Anna. Beginning with consolidated premiums. For the quarter, we reported premium growth of approximately 9%, somewhat higher than recent quarters as we saw good business growth in some areas in addition to some client catch ups that benefited the reported premiums. The effective tax rate on pretax adjusted operating income was 18.3% for the quarter, below the expected range of 23% to 24% as a result of utilizing foreign tax credits and tax benefits associated with differences in bases in foreign jurisdictions. Turning to the segment results listed on Slides eight, nine and ten of the earnings presentation.
The U. S. And Latin America Traditional segment reported pretax adjusted operating loss of $89,000,000 in the quarter. Our individual mortality experience for the quarter, excluding the estimated COVID-nineteen claim cost, were favorable. Let me provide a little more detail.
Approximately $230,000,000 of claims are attributed to COVID-nineteen, including $100,000,000 of IBNR claims. The approach used to attribute COVID-nineteen claims is consistent with that used in the second and third quarter, which continues to track quite well. We also continue to see excess mortality in the quarter consistent with CDC reporting of significant levels in the general population. Although we believe a portion of this is likely related to COVID-nineteen, we have chosen not to include it in our estimated COVID-nineteen claim costs. Overall, when we simply adjust for COVID-nineteen specific deaths, our experience this quarter would have been favorable primarily due to lower large claims.
I would also note that our 1999 to 2004 business, excluding COVID-nineteen, continues to perform in line with our mortality expectations as we set back in 2015. Also, our group and individual health business performed well in the quarter. Our asset intensive business reported a good result for the fourth quarter, benefiting from higher variable investment income and strong equity markets. U. S.
Capital Solutions reported fourth quarter pretax adjusted operating results that were better than our expectations, albeit a decrease against the strong prior year period. Moving to Canada. The Traditional segment fourth quarter results were in line with our expectations and reflected modestly unfavorable individual mortality experience, primarily due to the impact from COVID-nineteen, offset by favorable underwriting experience in other lines of business. Our Financial Solutions segment performed well in the quarter, reflecting favorable longevity experience. In the Europe, Middle East and Africa segment, our traditional business fourth quarter results reflected unfavorable mortality experience, partially explained by COVID-nineteen.
The COVID-nineteen claims are concentrated in South Africa and The UK. Additionally, as we've seen in The U. S, there is significant level of excess mortality experienced in the population in South Africa over and above reported COVID-nineteen. EMEA Financial Solutions business fourth quarter results reflected modestly unfavorable longevity experience. Turning to our Asia Pacific Traditional business.
In the fourth quarter, Asia had a favorable underwriting experience across most of the region. While we did see some COVID-nineteen related impacts, these were offset by favorable non COVID experience as well as some data catch ups from client reporting. Australia experienced a loss of approximately $26,000,000 This reflects a number of one offs, including an increase in reserves to reflect a recently updated industry table and an IBNR for estimated COVID-nineteen claims. Without these one offs, we would have been near breakeven for the quarter. For the year, we saw a much improved result over 2019 and when excluding the Q4 one offs, would have reported a small profit this year.
While there remains some uncertainty in the Australian market, we saw progress in 2020, and we continue to be prudent about new business and focused on actions to improve results. Our Asia Pacific Financial Solutions business continued to produce good results in the fourth quarter, benefiting from the growth of business in Asia. The Corporate and Other segment reported a pretax adjusted operating loss of $24,000,000 relatively in line with the average run rate. Moving to investments. The non spread portfolio yield for the quarter was 4.2%, a significant improvement relative to that in the third quarter, primarily due to above average run rate for variable investment income as we experienced a high level of commercial mortgage prepayments and some realizations in our various private partnerships.
We believe our portfolio was defensively positioned coming into the crisis. Credit performance continues to benefit from diligent security selection as well as economic reopening and policy responses. Our portfolio average quality of A was maintained, and credit impairments were minimal in the quarter. As shown on Slide 13 of our presentation materials, our excess capital position at the end of the quarter was approximately $1,300,000,000 RGA's leverage ratios remained stable at the end of the year, following the second quarter senior debt issuance, and our liquidity remains strong with cash and cash equivalents of $3,400,000,000 Looking forward, we expect to see some level of ongoing COVID-nineteen impacts that will negatively affect our earnings until this crisis is resolved. However, we continue to view this as manageable and believe that our strong balance sheet, the power of our earnings engine and the benefits of our global franchise positions us to emerge from the pandemic in good shape to continue to produce attractive returns to our shareholders over time.
I'd also like to comment on Slide 15 of the earnings materials. As you know, we are very proud of our track record of book value per share growth over the years. And while 2020 was a difficult year as a result of the pandemic, we have every confidence that we will continue creating value for our shareholders. I also want to comment on the topic of financial guidance. We have historically provided intermediate term financial guidance in conjunction with our fourth quarter results.
However, given the near term uncertainty surrounding the COVID-nineteen pandemic, we have decided not to provide guidance at this time. I will now turn the call over to Jonathan Porter, our Chief Risk Officer, who will provide some thoughts and updates on COVID-nineteen.
Speaker 3
Thanks, Todd. COVID-nineteen mortality claim costs for Q4 continue to be towards the lower end of our model expectations relative to general population reported COVID nineteen deaths, and we continue to see lower insured mortality relative to the general population. The US still accounts for the majority of our estimated COVID nineteen claim costs. Our ongoing mortality model updates did not resolve material changes in the quarter, so we are reiterating our mortality rules of thumb for our major markets as shown on Slide 14. Overall, longevity experience was modestly favorable in the quarter, but less than the prior quarter run rate.
This lower offset was expected due to lower longevity sorry, due to longer longevity reporting lags and differences in country specific mortality rates over the period. We expect elevated claim costs to continue in the 2021 based on the level of ongoing COVID nineteen deaths in the general population. Although uncertainty exists on the ultimate impact of new COVID nineteen variants, it is good to see some recent positive signs as well. Many countries are experiencing decreases in new case counts and deaths from the peak of the holiday season waves, and the preliminary data from the global rollout of vaccines looks promising. We expect that vaccines will have a material beneficial impact on general population mortality, in particular, as those that are most vulnerable to severe outcomes are vaccinated.
We continue to closely monitor all of these developments and would expect to update our views if needed as new data emerges. Let me now hand it back to Todd.
Speaker 1
Thank you, Jonathan. That concludes our prepared remarks. We'd now like to open it up to you for your questions.
Speaker 0
Thank you. We'll now take our first question from Humphrey Lee of Dowling and Partners.
Speaker 4
Questions. I think you mentioned that you continue to see the difference between the insured and general population mortality experience. Since many of the primary companies saw worsening results, especially on the group side, I was wondering if that kind of insured versus general population mortality difference remains kind of the same compared to early stages or if you have seen any kind of conversions between the two.
Speaker 2
Good morning. Thank you, Humphrey. May I may I address that question to Jonathan?
Speaker 3
Yeah. Hi, Humphrey. Know, so in our results, they've been, you know, somewhat consistent over I mean, obviously, there's some ups and downs, but the difference between insured and general population with respect to our claims has been relatively the same. And that's, you know, kind of evidenced by the fact that we are at the lower end of our rules of thumb.
So so our expectations are being maintained.
Speaker 4
Okay. That's helpful. And then in terms of the non US COVID nineteen claims, they seem to be weaker than the guidance, what the guidance would imply, especially because they they're coming from countries that you don't really have much exposure. Can you provide some colors in terms of what you saw in in the quarter?
Speaker 2
Uh-huh. Todd, may I ask you to respond and address that question?
Speaker 1
Yeah. Hi, Humphrey. So, yeah, it's gonna spread around a little bit. So for the quarter and these are, you know, estimated numbers. I would say the COVID impact for South Africa was around thirteen million.
For India, around nineteen. Both Canada and The UK, about six million each. Australia, an estimated, eight million. And US US group business, about thirteen.
Speaker 3
Todd, this is Jonathan. Maybe I'll just add on to that. Over the course of the year, so in any one quarter, results could go up and down. But when you look at the full year results, it's pretty close to what we expected. So about 80% of our claim costs are in The U.
S, about 10% are in The UK and Canada and about 10% everywhere else.
Speaker 0
Thank you. We'll now take our next question from Andrew Kligerman of Credit Suisse. Please go ahead.
Speaker 5
Thank you. Good morning. So two questions. So the first one, from an accounting standpoint, in Allstate's recent life and annuity business divestiture, it cited that LBTI impacts would have accounted for half of their book value, and instead they chose to divest in a $3 plus billion loss. Now I know Allstate's business mix is different versus RGA's, but what might make us comfortable that RGA won't take a similar magnitude of charges, especially on term of business that's now accounted for in the $5.60 when LDTI does come in
Speaker 3
play in '23?
Speaker 5
And if possible, maybe discuss the different runs of business and potential impacts.
Speaker 2
Todd, may I ask you to address that question?
Speaker 1
Sure. Hi, Andrew. So, yes, as as you mentioned, you know, the, the standard was, you know, deferred again, in another year into 02/2023. You know, we're certainly, you know, working through everything we need to do to implement, you know, the standard for our existing, what's called the five sixty business. You know, one thing that I would point out, the overall economics of the underlying business haven't really changed with the new accounting standard.
It's just how the financial reporting will will look like as we, go through implementation and then, you accounting under the new standard as we, go forward. It'd be premature for us to provide any, you know, numerical information at this point because we're still, you know, looking at the various assumptions, applying some of the interpretations that we need to make, as a lead insurance company. So as time goes on and we are further along in the implementation, we'll start, you know, sharing some information. But at this point, it's very difficult to to comment on any, impact.
Speaker 3
Got it, Todd. Okay. Thank you. And and then with regard Andrew, may I Mhmm.
Speaker 2
Sorry. May I may I also offer an additional perspective? And that is we have business around the globe. And so our our, you know, our book is different than the book that you referenced. We also have very long history of performance on on mortality global mortality business as well as our GFS business and and all our other businesses.
So I would offer that up for some context as well.
Speaker 5
Got it. Got it. Thank you, Anna. And then my other question, I just have three data points upfront to the question, and then I'll get to it. So first, in 2015, the NRGA CEO, Greg Woodring, acknowledged the mispricing of the 98 to o four business.
I think, Todd, you mentioned a little earlier in the call that it's performing line. And at the time, Greg had cited that RGA would would and I mean, in line with expectations, Greg had said that it would probably lose about 60,000,000 a year over several years. And the second point is that in each of the three years before COVID nineteen, RGA has posted greater than a 10% return on equity. And then the third point is that in contrast, in life reinsurance, two of your three leading global, reinsurance competitors are targeting mid to high single digit returns, and the other is targeting 10 to 12%. But all three have taken sizable charges on their 98,204 blocks.
So my question is, how is the $60,000,000 a year evidence in your past, 10 plus ROEs and your targeted, 10% to 12% because it's it's just not appearing evident.
Speaker 2
I will ask both Alen and Todd to address aspects of that question, Andrew. Todd, Owen, if I may.
Speaker 5
Thank you.
Speaker 1
Sure. Todd, maybe I'll start. Hi, Andrew, Alan and me. As referenced, we did mention that, that block of business was underperforming. I think perhaps when Greg made those comments, there was a sense that that block was going to get smaller over time.
I think that that is happening. I would say that the mortality, as Todd alluded to, has been performing in line with our reset expectations. Certainly, though, we've probably been facing some additional interest rate headwinds as we have on the whole of our traditional block of business. I don't know that we necessarily break up the blocks of business to look at actual ROEs, but I'll let Todd comment on sort of ROEs and the totality of our business. Yeah.
So yeah. On ROEs, and we certainly you know, we've produced those ROEs overall from an enterprise, you know, perspective. There's gonna be some lines that are above some lines that are below, but overall, we've been able to deliver that level ROE. And as far as comparing to competitors, you know, those there's different accounting, you know, bases that are used that that are directly comparable to ours. I'm not sure if I can directly, reconcile the two.
The other thing maybe, Andrew, sorry, it's Alan and Megan, just to add in. We've talked in the past about taking a long view on our client relationships and certainly looking at the totality. In that vein, we have, I'll say, worked to identify where there are material imbalances and look to restore a better balance with those clients. You referenced our competition and some of the charges and some of the actions they've taken. I think we've been pretty clear.
We don't have a broad based rate action strategy, but that doesn't preclude the possibility of taking or having taken rate actions where appropriate. We just prefer to work through those types of issues with clients directly.
Speaker 0
Thank you. We'll now take our next question of Erik Bass of Autonomous Research. Please go ahead.
Speaker 6
Hi, thank you. In EMEA, can you
Speaker 7
talk about results in the Financial Solutions business this quarter and the level of COVID impacts in the longevity business? And then given the delays in reporting you talked about, are we more likely to see the surge in population deaths that occurred in December show up in your first quarter results?
Speaker 2
Eric, thank you for the question. I think that's directed to Todd and perhaps Jonathan.
Speaker 1
Yeah. We did see, as we mentioned, slightly unfavorable longevity in the quarter. And also in the quarter, as you know, we have pluses and minuses when we get data catch up reporting from our our clients. And that was a a little bit, not negative, but not as much as we would have expected, in the quarter just due to the about information I think taking a step back, given the block, we still view it as very positively and would expect it to continue to perform on average as you've seen it perform historically, which is quite well.
Speaker 3
Yes. And this is Jonathan. Maybe just to talk about the lag in reporting. So I mean, you're right. There are longer lags in longevity reporting, which means the results that we're seeing in q four, although we can't connect to an exact time frame, you know, just given it's it's a big variable depending on the treaty, is really are really more reflective of the summer level of mortality that we saw.
And those, you know, those rates were were generally quite a bit lower than we saw both in q two and in q four. That's particularly true for The UK, which is where most of our longevity business is concentrated. There was very little excess mortality actually in summer months. You know? So we do expect this to be lumpy quarter to quarter due to timing as well and by geography.
But sort of our rule of thumb that we've been thinking about longevity business at, which is around ten percent ultimately relative to mortality, we still feel is a reasonable estimate.
Speaker 6
Thank you. That's helpful. And then maybe sticking with EMEA,
Speaker 7
can you provide some more color on a couple of the recent larger block deals that you've done in the region? And do these change your view of the normal quarterly earnings run rate for that business going forward?
Speaker 2
I think that's Helene, if you could address the transactions and Todd on the run rate.
Speaker 1
Sure, Anna. The transaction's very much in line with what we've done previously, so longevity swap type transaction. We've done some financial solution type transactions as well outside of EMEA. But in EMEA, it's mainly longevity. And as far as the, associated run run rate, Eric, I don't have any one at one at this point, but certainly, it's it's good to see a couple of nice deals, closed there.
Speaker 0
Thank you. We'll now take our next question from Jimmy Bhullaw of JPMorgan. Please go ahead. JPMorgan, I apologize. Please go ahead.
Speaker 8
No, that's okay. So first, I just had a question on the Asia business and specifically on Australia. If you could talk about what specifically it was that caused the loss this quarter and any new developments that you've seen in that market.
Speaker 2
Yeah. Again, I think the first to Todd and the the question on the market to Alen.
Speaker 1
Yeah. So, Jimmy, there was a new industry table that was published during the year that the regulators expect the companies to adopt, and it provided some updated information on some of the disability income, the termination rates, and that type of thing. And once we looked at that, you know, table, and it provides some experience on a longer duration type claim claims that may stay on claim for a while. And so we once we took a look at that, we did have a increase in our reserve levels, and then we also set up some IBNR claims related to COVID nineteen. And some and some of that was partially offset by some some changes that went the other way.
But the the the table was a a big driver along with the the COVID nineteen. If you if you back out those one offs, as I mentioned in my comments, it was right around the breakeven quarter.
Speaker 8
And is there any ongoing impact from the new data, or is it just a catch up in one quarter?
Speaker 1
I would give the industry table as more of a catch up, a true up.
Speaker 8
Okay. And then if you think about your results, you'd given sensitivity on COVID claims in The US, and each of the last two quarters, your actual results, have been better. Any thoughts you've given to sort of reassessing that sensitivity? Or because it does seem like and it's only two quarters, but it seems a little bit overly conservative.
Speaker 2
Jonathan, may I ask you to address that question?
Speaker 3
Yeah. Yeah. I'll I'll say that, and then maybe, Alena, if you wanna talk about the market in Australia again. But yeah. No.
You're right. I mean, we've you know, we have been obviously tracking this, and we continue to come up towards the lower end. I think exactly what you said, though, you know, it's it's a couple of quarters. You know, there is some variability, obviously, that we would expect to see in the future. So I think we just feel, you know, the appropriate position is to leave it the same for now and, you know, reassess as we do regularly each quarter whether a change is required or not going forward.
Jimmy, this is Elena.
Speaker 2
So, back back to Elena, if you could address the question on the Australia market.
Speaker 1
Sure. Thanks, Anna. The we've talked in the past, Jimmy, about the need for the industry to work through some issues. Think I guess one positive development is APA, the regulator, has announced new DI product requirements that need to be in place in October, with the aim of making disability income products more sustainable. So I think the industry moving in the right direction.
There's still obviously some, stress on on the financial results across the industry. And I think in that light, we're pretty pleased with our results for the year, which is, you know, slightly slightly positive when you back out the industry table and the COVID accrual. Maybe just a little bit more on the industry table. That really was an attempt for the industry to bring into line, I would say, DI termination assumptions in the later durations where there's less information. So to Todd's point, I think we're quite comfortable this is a catch up and sort of very comfortable with the balance sheet moving forward.
Speaker 0
Thank you. We'll now take our next question from Dan Bergmann of Citi. Please go ahead.
Speaker 9
Thanks. Good morning. I guess to start, as we start thinking about the first quarter, that's typically when we'd see a seasonally high level of flu related mortality in The U. S. And clearly, year, 1Q results will be significantly pressured by COVID.
But I just wanted to see if you had any high level comments on how we should be thinking about other the other non COVID mortality factors. You know, specifically, on the one hand, you know, The U. Have been pressured in recent quarters by the excess population mortality not directly identified as COVID that you called out. But on the other hand, it sounds like factors like masking and social distancing have the potential to make the flu season less severe than typical. Just any thoughts on those two opposing trends, what you're seeing?
And really any help just thinking about that directional net impact would be helpful.
Speaker 2
Thank you, Dan. I I think a very low flu season would obviously be very welcomed, but I think any relief from the flu season would be modest in the context of our pandemic. I'll ask Jonathan maybe to provide a little bit more color in terms of the relative sizes of those pluses and minuses. Jonathan?
Speaker 3
Yeah. Thanks, Anna. And, I mean, you're right. I mean, really, what we're seeing in the flu data is is quite incredible, so far, you know, with essentially zero. And that's, you know, that's not due to a lack of testing.
In fact, you can see places where testing is actually even higher. So so it really is, you know, quite amazing that the flu is slow. When you think of the flu season and the impact to us, and I'll talk we'll focus on The US here. Usually, you'd see about fifteen thousand to sixty thousand general population deaths in a typical flu season. You know, it ranges obviously based on severity.
But you know? So you can kind of, I think, think of that level of general population deaths relative to the amount of COVID deaths that we would incur, plus the excess deaths that you mentioned. You know, we do expect that those will continue as well just based on what we've seen so far in 2020. So that level of offset, if the flu is really close to zero, would be somewhere probably the middle of that range of fifteen to sixty.
Speaker 9
Got it. That's very helpful. And then maybe just now switching gears a little bit now that we're further into the pandemic. I just wanted to see if there's any update you could provide on life reinsurance market conditions. Are you seeing any impact from COVID on session rates or the demand for life reinsurance?
And have you noticed any change in competitive conditions and how you, you know, or the industry as a whole are thinking about mortality pricing in light of COVID?
Speaker 2
Perhaps I'll turn that one over to Alwyn and Jonathan. If you have anything to add, please feel free.
Speaker 1
Sure. Thanks, Anna. Think from a let me start maybe with just life insurance. I think certainly, the pandemic has triggered increased awareness in the population, the need for insurance protection. There's a few studies out there from LUMRA and MIB that show that or the thinking about buying insurance is up quite substantially.
So, for example, it's about thirty percent of consumers that were surveyed that are likely to buy insurance in the next twelve months. That's probably a few months dated now. Search traffic for life insurance is quite a bit up on Google search traffic. So I think from a consumer perspective, we're certainly hopeful that that's going to get traction. Companies have accelerated investments in digital effort to try and reach those consumers.
So I think the outlook, I would say, is pretty good from a direct insurance standpoint. From a reinsurance standpoint, I would say, we haven't seen much in the way of ups or downs. I think it continues to progress really along the lines that it has over the last few years. Certainly, think as reinsurers, we've demonstrated value by working with clients to adapt to the changing conditions through the pandemic. And I think that's generally been well regarded.
Transactional activity continues to be good. I think when one thinks of consumer needs and sort of producing different products, our product development area is quite strong. And so I think we can play an important part of that. But I think all that to say, reinsurance demand, I think, continues pretty much as it has.
Speaker 0
Thank you. We'll now take our next question from Tom Gallagher of Evercore. Please go ahead.
Speaker 7
Good morning. You had mentioned that you've been getting some selective rate increases, but not something that you had implemented in a broader way across your business. Would you say that you know, is a lot of that related to the early to mid '2 thousands blocks, in terms of the rate increases you've gotten? And would you say those are largely done, or are those still ongoing?
Speaker 2
Ellen, I try to have some number two.
Speaker 3
Yeah. No. I I look.
Speaker 1
I would say, Tom, you know, we're we're continually evaluating, the profitability of our different businesses and the the relationships with clients and the balance or imbalance thereon. I would say, for the most part, our underperforming business has been very much isolated to the 9904 block. And, I'd say it's a continuing, activity to, monitor and manage that business, the way we believe it should be managed.
Speaker 7
So is there, I guess, just a follow-up on that. Would you would you say generally, broadly, like, you're closer to the end of the repricing, or is that just an ongoing adjustment that you think might continue for for over a series of years, if if you're able to answer it that way?
Speaker 1
I would say very much part of our ongoing management of our business.
Speaker 0
Thank you. We'll now take our next question of Ryan Krueger from KBW. Please go ahead.
Speaker 10
Hi. Good morning. The last couple of quarters, you've had favorable large claims experience in U. S. Mortality.
I was wondering if you thought that was actually related at all to COVID or if it's just a a more random, result that you've had in the last couple of quarters.
Speaker 2
Yes. We've had this, internal conversation ongoing for, both the fourth quarter and the third quarter line, I think you can appreciate that it is very difficult to assess and and make any definitive statement about whether it is or isn't. But perhaps I'll I'll ask Jonathan to share some of the of the observations or some of the opinions or at least what we're thinking about in respect of that. Jonathan?
Speaker 3
Yes. Thanks, Anna. I mean, at this point, you know, again, it's we believe it's it's more of just a part of the fluctuations inherent in our business. So, you know, these adjustments can go both directions. So, you know, in the past, as we've noted, we have seen, adverse large claims experience.
You know, it's nice to see a couple of quarters now, of positive large claims experience, but, I wouldn't, point to it being being a trend of anything that we can tie back to. So I'd say it's just part of the the fluctuations we would expect to see quarter to quarter in our underlying business.
Speaker 0
Got it.
Speaker 10
And then one more on U. S. Traditional. There's
Speaker 1
obviously a
Speaker 10
lot there were some of moving parts in that business in 2020, and I know they'll still continue to be impacted from COVID. But your is your view of the the underlying earnings power of that business once we get out of the pandemic still in that 300 to $325, annual earnings range?
Speaker 2
Todd, if I could ask you to address that question.
Speaker 1
I'm sorry. Anna, do you was that Todd?
Speaker 2
Yes. Sorry, Todd.
Speaker 1
That's it. So I cut out a little bit. Yeah. So, you know, that's something certainly we'll we'll take a take a look at. As you know and Alan mentioned this earlier, we do have some, you interest rate headwinds for for some of the the book there.
But we'll see. You know, certainly, it's gonna be, you know, pressured. But overall, you know, the other The U. Mortality markets, the group and the long term care business has been performing quite well. So I don't have a direct answer for you, but we'll reassess it as we go through the next quarter or two and have a clearer view of the end of the pandemic and the impact of the pandemic.
Speaker 0
Got it. Thank you. Thank you. We'll now take our next question from John Barnidge of Piper Sandler. Please go ahead.
Speaker 1
Thank you. Israel has been
Speaker 11
the country that's been most aggressive in their vaccination program.
Speaker 1
Do you see any markers early on in
Speaker 11
the week since it's begun that suggest any insight to how we should be thinking of maybe COVID vaccine programs globally impacting a tapering off of deaths?
Speaker 2
Jonathan, I think this one's for you.
Speaker 3
Yep. Yeah. I mean, I think the the the short answer is we are very encouraged, at seeing the rollout of the vaccines happening around the world. You know, one of the things that's, you know, starting to emerge in data, you know, you mentioned Israel specifically as well, is that, you know, just the real world validation that the vaccines are showing the same level of efficacy that they did in the clinical trial, so that's positive. You know, in Israel, there are data points that we've looked at, which show that for individuals, that have had enough time elapsed since receiving the full vaccine, that there are clear indications of a significant reduction in both cases of COVID nineteen, but also reduced severity and hospitalization.
So, you know, I think both of these, you know, if they continue, should have a, you know, meaningful impact on a reduction in general population mortality, which would then translate through, you know, of course, to insured mortality. One of
Speaker 2
the other things to keep
Speaker 3
in mind with vaccination programs is that, you know, many governments are targeting the most vulnerable groups first, which should accelerate the benefit on mortality. So, you know, when you think of it sort of the 8020 rule, you know, twenty or twenty five percent of the population probably account for a large portion of the deaths related to COVID nineteen. So if those population groups get vaccinated faster, then mortality should should also reduce sort of at that same pace. So so I think, you know, signs you're seeing now early, but, but promising.
Speaker 1
Yeah. Great. And then And,
Speaker 2
John, if if I could Yeah. Sorry, John. If I could just, add a comment, a longer term perspective, optimism about the longer term, and that's in respect of the new technologies that underpin some of these vaccines. You know, we're cautiously optimistic that this isn't going to be a one and done, that there's been a lot of money put into the development and that they could be used potentially for other diseases, perhaps like the flu or perhaps cancers. So I I wanna also leave you with that longer term observation.
I'm sorry. I I did you have a follow-up as well?
Speaker 11
I did, and it's nice to have some optimistic news too out of it.
Speaker 1
How do you I asked this question
Speaker 11
with all seriousness. How do you view cryptocurrencies within your investment portfolio? We've had, you know, an S and P 500 company come out and say it's part of their cash and cash equivalents. We now have other public companies, MicroStrategy, Overstock that have allocations to the that in their cash. So I was wondering how RGA views this as well.
Speaker 2
Todd, may I ask you to address, please?
Speaker 1
I'm sorry. I didn't quite, John, quite catch the first part of your question. How do you view cryptocurrencies, I.
Speaker 11
E. Bitcoin or digital gold, as a part of your investment portfolio or cash and cash equivalents These public companies now allocating a portion of their cash and cash equivalents for the investment portfolio to Bitcoin or other cryptocurrencies.
Speaker 1
Okay. Thanks. Thanks for repeating. Well, I you know, from my perspective, and maybe I'll let Leslie chime in. I haven't been in a lot of conversations around, you know, investing in in that in in that.
So, you know, from my, again, sitting here, we I haven't had much in the way of any discussions. Likely, I don't know if you guys have looked at it at all.
Speaker 12
Sure. Hi. This is Leslie. Oh, yep. Come on.
So we're we're not currently investing in cryptocurrency. I I think if we looked at it, you would think about it as a currency. We tend to more try to match our business currency exposure. And, you know, I don't think I'd think of it it's it's cash, but you you have currency exposure if you're not doing business in crypto. So I'd leave you with that and as well that my understanding is currently the accounting is different than other, currencies and can create more volatility.
So we're not currently doing it. We keep our minds open looking at all different things, but it doesn't currently fit our currency framework.
Speaker 0
Thank you. We'll now take our next question from Brian Meredith. Please go ahead.
Speaker 13
Thanks guys. This is Mike on for Brian. So just following up on the '98 to o '4 block. So there's clearly a lot of, you know, investor interest or almost concern about this era. So I'm hoping you can maybe share some more details.
But just from my perspective, there are three key things to note. One, you've retroceded, I think, 35 of the block in 2014. Two, I think you're actually known as a high priced reinsurer during that period, particularly relative to your European counterparts. And then, sir, I think it's conceivable that COVID is actually accelerating maybe some of that roll off of of mortality. So maybe if you could you know, if you agree with any of these or if you could add anything, I think it would be helpful for investors just because, when there's sort of a lack of information, people tend to assume a negative bias.
Thanks.
Speaker 2
Thank you for that question, Mike. Alena and Jonathan, would you please address?
Speaker 1
Yeah. Sure. It's Alan and May. I guess what I would say, a couple of things. First off, the $99.00 4 block probably represents about of our quarter of our our US individual block today.
It's declining over time. The older issue ages in that block are probably about 4% of the whole. So it's a block that is slowly running off. I think in terms of whether we're a high price reinsurer or not, I would say it's a good, solid competitive environment. I think that comment probably draws from the fact that during that period of time, our market share would have dropped.
So whether we were high priced or whether we, perhaps saw some of the risks or felt that the pricing environment was maybe a little bit too sharp. I don't know. That's sort of a long time back. But I think we tend to look at it in the context of our overall block of business. And when one considers the age of that block and, you know, the the impact of COVID on our our different age groups, I think it is, quite possible to think that, some of those people are, perhaps dying off a little bit more quicker than, you know, we we we might have expected.
I don't I think it's probably too early to draw any kinds of conclusions, but I'll kinda leave it at that. I don't Jonathan, if you wanna add anything.
Speaker 3
Yeah. Just on the acceleration piece, I mean, you're right. It it's just given we don't have current underwriting information to otherwise project to how people who will have died from COVID nineteen, how long they would have lived otherwise. But but I think, you know, again, it's it's reasonable. I believe to expect that there will be some benefit.
It's you know, at at this point, think that we feel it'll be, you know, a modest, tailwind for us.
Speaker 8
Thanks, guys.
Speaker 0
Thank you. We'll now take our next question from Tom.
Speaker 7
Hi. Thanks for the follow-up. Just a few detailed questions on the, U. S. And LatAm traditional.
What exactly is your Latin American exposure? You're not providing any sensitivity, so I assume it's not very high to some of the countries that have been hit hard.
Speaker 3
Yeah. This this is Jonathan. Yeah. Oh, yeah. Sorry.
Our our our net amount of risk exposure in Latin America, it's about 1% of our total net amount of risk, so it is very modest. It's also a mix of both morbidity and mortality risks.
Speaker 7
Got you. And then the follow-up is, I assume the favorable health was long term care this quarter. What proportion of your earnings in that segment is coming from long term care?
Speaker 12
Yes. For long term care, it's
Speaker 1
right. So I'm trying to think how best to answer as far as the percentage of the total given the unusual totals this year. I maybe the best way to, you know, size it is in the long term care business, which in The US is individual, you know, health, what we call individual health. You know, it's you know, we our expectations would be, you know, around a 100,000,000 pretax income on that on an annual basis.
Speaker 7
That's that so that's a that's a normal under normal conditions. So I assume that's running better than that currently. Is that a fair way to think about it?
Speaker 1
Yes. It did run better than that, the expectation this year. Yes.
Speaker 7
So that's like over a quarter of your U. S. And LatAm traditional earnings. I didn't realize it was that high.
Speaker 1
And it's been about that level the last couple years or so, I would say. But it it's not growing significantly just given there's not a lot of new business activity in that line of business.
Speaker 7
Okay. Thank you.
Speaker 0
Thank you. No further questions at this time. I would like to turn the conference back over to the speakers for any additional or closing remarks. Thank you.
Speaker 1
Okay. Well, thank you, everyone, for joining us today and your continued interest in RGA. And I hope everyone and their families stay safe. Thank you very much.