RGA - NYSE

Good day and welcome to Reinsurance Group of America First Quarter 2025 Earnings Conference Call. All participants will be in lesson-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to Jeff Hopson, Senior Vice President of Investor Relations. Please go ahead.

Thank you. Welcome to RGA's first quarter 2025 conference call. I'm joined on the call this morning by Tony Cheng, RGA's President and CEO; Axel Andre, Chief Financial Officer; Leslie Barbi, Chief Investment Officer, and Jonathan Porter, Chief Risk Officer. A quick reminder before we get going regarding forward-looking information and non-GAAP financial measures. Some of our comments today may contain forward-looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ from expected results. Additionally, during the course of this call, the information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation, and quarterly financial supplement, all of which are posted on our website, for a discussion of these terms and reconciliations to GAAP measures. Throughout the call, we will be referencing slides from the earnings presentation, which, again, is posted on our website. And now I'll turn the call over to Tony for his comments.

Good morning, everyone, and thank you for joining our call. Last night, we reported adjusted operating earnings of $5.66 per share. Our adjusted operating return on equity, excluding notable items, was 15%. I consider this to be a very good quarter, and it provides a strong start to the year. We achieved these results through a balance of strong performances across many of our geographic regions and products. The most significant driver of the results was the favorable claims experience, which is a continuation of our strong underwriting results over the past couple of years. Despite ongoing macroeconomic uncertainties, we are not seeing a significant impact on our business. Our asset portfolio remains well-positioned, and our capital position remains strong. Therefore, we are highly confident we can successfully navigate the current environment without losing any of our strong momentum. I am very proud to announce that for the 14th year in a row, RGA was number one in terms of the NMG Consulting's Business Capability Index, with particular strength in underwriting, actuarial, product innovation, and relationship management. We believe the backbone to our success is our biometric expertise. In other words, we are second to none in terms of pricing, underwriting, and ongoing risk management of mortality, morbidity, and longevity risks. As you know, this expertise either directly leads to more biometric reinsurance, or indirectly is our key differentiator in the asset-intensive blocks that we pursue. Our biometric expertise has also led to strong claims experience over RGA's history. Since the end of 2022, our cumulative underwriting claims experience has been highly favourable compared to expectations. And finally, with regards to this quarter, all of our key geographic regions reported favourable claims experience on both an economic and GAAP income statement basis. In terms of in-force transactions, we had a strong quarter, with $418 million of capital deployed. This includes the previously announced Manulife deal that closed at the beginning of the quarter, as well as two more modest-sized strategic transactions in Asia. Additionally, in February, we announced a strategic transaction with Equitable. The actual capital deployment for this deal will be recorded when it closes, which is expected mid-year. As a reminder, this transaction is in our wheelhouse of mortality risk, and we expect the financial returns to be within our targeted range. I will now provide details on some of our new business activities in the quarter, focused on our four areas of notable growth. In Asia Traditional, we had a strong quarter in terms of new treaties, with all markets performing well. Importantly, nearly all of its success is related to Creation Re product development initiatives. Creation Re refers to our ability to partner with clients on a more exclusive basis to deliver new products and create greater value for both our clients and RGA. These partnerships have allowed RGA to grow together with our clients, and in many cases, help them win industry awards and gain market leadership. For RGA, this leads to quality repeat business and also larger transactions as our clients grow in scale. This is best illustrated by the fact that since 2021, the new business embedded value per transaction for Asia has tripled in size. This is due not only to larger-sized transactions, but also due to higher expected underwriting profitability as we create new products with little competition. More strategically, each new product not only leads to more business, more data, and a stronger brand, but also deepens our library of solutions. These solutions are then adapted and replicated across different markets, creating further new products, and the Creation Re flywheel continues. Let me highlight this with our largest traditional business in Asia. The Hong Kong underlying life insurance market remains very strong, achieving record sales in 2024, increasing over 21% from 2023. This is due to the rapid growth in mainland Chinese visitors buying insurance, the aging population, and Hong Kong being a major high-net-worth wealth management center. In response to these trends, we recently launched three new initiatives. The first is our simplified issue critical illness product catered to the senior market. Second, we continue to be highly successful in delivering the more complex underwriting services needed for the high net worth segment. And third, we developed the MedScreen+ underwriting system, which simplifies the process for mainland Chinese visitors coming to Hong Kong. This underwriting system won its second award during the quarter and is fast being recognized as a competitive advantage for our clients. These innovations drive the creation rate business in Hong Kong, lead to deeper market penetration, and further create our library of solutions that we tailor for other markets with similar needs across Asia. Moving to Asia financial solutions, our second area of notable growth. We closed two block transactions in Japan. For both these transactions, RGA has had a long-standing relationship for more than a decade. Japan is one of our most exciting business opportunities as a result of the new ESR capital framework. Our local teams not only provide quotes on a timely manner, but also provide the after sales service in the local language and adhering to local cultures. We feel this gives RGA a distinct edge in this market segment. We of course tremendously value the large marquee transactions, but as important are these more frequent modest size blocks that play towards our sweet spot of biometric expertise and strong local teams. These more modest-sized transactions are often completed without an intense bidding process and RGA with its many touch points and long-standing relationships is best positioned to benefit. Our third area of notable growth is the longevity and PRT market. Starting with the UK, we expect strong levels of PRT sales once again during the year. Similar to Japan, our local UK team has, in my view, a comparable combination of expertise, data, relationships and experience in the longevity market, which is why they have long been the market leader. Similar to Hong Kong, we have a market-leading underwriting system for the individual retail annuity segment that ensures we win more than our fair share of business. Our pipeline remains very strong, and we expect another successful year. The U.S. PRT market has been less vibrant recently, which may be reflecting the effects of market uncertainty, resulting in less deal activity at the upper end of the market. We do expect this to be temporary and for the market to recover, and we remain very bullish on this business line. Finally, in the U.S. traditional area, our fourth area of notable growth, we have another active quarter as we added a number of new treaties, most of them related to our underwriting initiatives. As demonstrated with the equitable transaction, we not only do large block transactions, but we also provide product development and underwriting outsourcing services to support new business. When you couple this with our partners that provide distribution technology and other services, it is clear that together we bring holistic solutions, generating exclusive business for RGA. I trust you can see our business playbook of creating and perpetuating the creation flywheel is very consistent across the world. Strong local teams that learn from each other and are empowered to partner and deliver unique solutions for our clients, such that we can grow together and become market leaders. Through our global network and often with the same global client, we then spread and adapt these new solutions to different markets, creating more new solutions, and the virtuous cycle continues. This business generates greater value for our clients and higher returns for RGA. We have executed this strategy ahead of schedule over the past two years, resulting in greater than 50% of our new business coming from creation read over this period of time. Continuing this success will provide a tailwind to our current ROE levels once the earnings power from this new business fully materializes. With regards to in-force management actions, as we have discussed previously, in addition to attractive new business, we are able to enhance ROE and earnings through our balance sheet optimization strategy and other management actions and levers. This is very much part of our business, but is lumpy in nature. The impact of in-force actions was modest in Q1, but we continue to move forward on a number of initiatives that we expect to help drive higher returns over time. Looking forward, we continue to be very optimistic about our business due to our strong focus on being disciplined. We have strong strategic discipline of sticking to what we know and what we are great at. Just as important is our risk-taking and being patient for the right risk-return trade-off to emerge. And the third important area of discipline is in capital management and finding efficient new sources of capital. As we know, building a sustainably successful business takes a total company effort. And by applying this disciplined approach with our culture of collaboration and innovation, we are very optimistic that we will continue to deliver on both growth and attractive ROEs. This is even more important during the current period of heightened uncertainties in the macro environment. Our disciplined, proactive business approach and acceleration of the Creation Re flywheel means RGA continues to be nimble and we are well-positioned to take advantage of the new opportunities that often arise during uncertain times. Thus, it is without doubt that I remain fully confident that the best is yet to come. I will now turn it over to our CFO, Axel Andre, to discuss the financial results in more detail.

Thank you, Tony. RGA reported pre-tax adjusted operating income of $485 million for the quarter or $5.66 per share after tax. For the trailing 12 months, adjusted operating return on equity, excluding notable items, was 15%. We delivered strong overall results for the quarter. We deployed $418 million into in-force transactions, have excess capital of $1.9 billion before the equitable transaction, and our deployable capital is an estimated $1.3 billion at the end of the quarter. The economic impact in our biometric claims experience was favorable by $196 million and positive across all regions, and the financial impact was favorable by $58 million. Our non-spread portfolio yield, excluding variable investment income, was 4.9% in Q1, up 10 basis points from the fourth quarter. Variable investment income was below our expectation by approximately $30 million, primarily due to lower mark-to-market adjustments on our limited partnerships and timing of real estate joint venture sales. The effective tax rate for the quarter was 21.9% on adjusted operating income before taxes, below the expected range of 23% to 24%, primarily due to U.S. tax benefits received from taxes paid in foreign jurisdictions. We are still expecting a tax rate of 23% to 24% for the remainder of the year. New business was strong and contributed around $1.1 billion to the value of enforced business margins. Consolidated net premiums were up 13% year-over-year when adjusted for the impact from U.S. PRT transactions, which can cause premiums to fluctuate. Our traditional business premium growth was 11.2% for the quarter on a constant currency basis, which benefited from strong growth in the U.S. and Asia. Premiums are a good indicator of the ongoing strength of our traditional business, and we continue to have strong momentum across our regions. Turning to biometric claims experience, as outlined on Slide 8 of our earnings presentation. This displays the total company claims experience and the related financial statement impact on a quarterly basis. As mentioned earlier, claims experience was favorable in the quarterly results. Economic claims experience was favorable by $196 million, with a corresponding $58 million favorable current period financial impact. The remaining favorable experience will be recognized in income over the life of the underlying business. Claims experience was particularly strong in the U.S., primarily due to lower-than-expected large claims. It is also noteworthy that there was favorable economic experience in every geographic region. I'll point out that some volatility on a quarterly basis, both positive and negative, is normal and does not necessarily indicate a material trend. Turning now to capital. Our excess capital is estimated to be approximately $1.9 billion at the end of Q1 2025, based on rolling forward our year-end excess capital of $1.3 billion as previously disclosed, and considering capital generation, capital deployed, and debt financing activities during the quarter. As a reminder, this is before taking into account the announced transaction with Equitable, which is expected to close mid-year 2025. Note that the excess capital considers our three main capital lenses corresponding to RGA's internal economic capital model, local regulatory capital across our main legal entities, and rating agency capital methodologies. Our deployable capital at Q1 2025 is estimated to be $1.3 billion and represents management's estimate of the capital available to be deployed into transactions or returned to shareholders over the next 12 months, taking into account estimated capital sources and committed uses over that forward-looking 12-month period, including the impact of the Equitable transaction. We are always looking to efficiently manage risks and capital across our different frameworks. This includes utilizing tools such as third-party capital, strategic retrocession, internal retrocession, and recognition of the significance of our in-force business. As demonstrated during the first quarter, this enabled us to efficiently fund the capital expected to be deployed into the Equitable transaction with a mix of excess capital and hybrid debt financing. Our strong balance sheet, capital management toolkit, and current levels of excess and deployable capital positions as well to continue to support an attractive new business pipeline across the various business segments. Turning to the quarterly segment results on Slide 6. The U.S. and Latin America traditional results reflected favorable individual life claims experience, driven by a lower-than-expected number of large claims. Other experience in the segment was in line with expectations. The U.S. financial solutions results were at the low end of the expected range due to lower variable investment income of roughly $7 million. As a reminder, the Equitable transaction is expected to be recorded within this segment once closed. Assuming a mid-year close, we expect pre-tax operating income contributions of approximately $70 million in 2025, and $160 million to $170 million in 2026, as previously disclosed. Canada traditional results reflected modestly unfavorable lapse experience, partially offset by favorable claims experience. The financial solutions results reflected favorable longevity experience. In the Europe, Middle East, and Africa region, the traditional results reflected modestly favorable claims experience, as well as favorable timing impacts from the earnings recognition of an annual premium treaty. EMEA's financial solutions results were above expectations, reflecting favorable overall experience. Turning to our Asia-Pacific region, the traditional results were good, reflecting favorable overall experience and contributions from new business. Underlying claims experience was again favorable in the quarter. Financial solutions results were slightly lower-than-expected, primarily due to lower variable investment income of around $6 million. We expect the segment results to increase over the course of the year, reflecting the earnings emergence from recent transactions and planned timing of new business. Finally, the corporate and other segments reported an adjusted operating loss before tax of $70 million, unfavorable compared to the expected quarterly average run rate. This was primarily due to lower-than-expected variable investment income of around $15 million and a few other smaller one-time items. Overall, we are pleased with the results this quarter, and we remain confident in our ability to deliver on our intermediate-term financial targets. Moving to investments on Slides 9 through 12, the non-spread book yield, excluding variable investment income, rose to 4.9%, primarily due to higher new money rates, which increased to 6.39% and remains well above the portfolio yield. The total non-spread portfolio yield for the quarter was 4.64%, down slightly from last quarter, reflecting lower variable investment income and a higher balance of cash and cash equivalents, partially offset by higher new money rates. Variable investment income was modestly negative for the period and approximately $30 million below expectations, driven by lower valuations on limited partnerships and timing of real estate joint venture sales. I'll note that we still hold an above average level of cash that we look to deploy opportunistically over the coming quarters. Importantly, portfolio quality remains high and credit impairments were again minimal, and we believe the portfolio remains well positioned. During the quarter, we continued our long track record of increasing book value per share. As shown on Slide 16, our book value per share, excluding AOCI and impacts from B36 embedded derivatives, increased to $154.60, which represents a compounded annual growth rate of 9.8% since the beginning of 2021. To summarize, a strong first quarter is a good start for the year, following a record 2024. We continue to see very good opportunities across our geographies and business lines. We are well-positioned and remain appropriately capitalized to execute on our strategic plan. With that, I would like to thank everyone for your continued interest in RGA. This concludes our prepared remarks. We would now like to open it up for questions.

We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Suneet Kamath from Jefferies. Please go ahead.

Great. Thank you. I was hoping you could help us understand the mortality experience, particularly in the U.S. Obviously, we've seen the flu season data. We know that there was a single large case in the first quarter. We're seeing it at other companies, yet you're showing very strong underwriting experience. And then there's a disconnect there that I'd like to try to understand if you can comment. Thanks.

Sure, I can get started on that. So, we saw a large positive experience in particular driven by lower than expected large claims in the U.S... I want to remind you that some volatility on claims experience is expected, both to the positive and the negative. Excluding the large claims experience, so for smaller claims experience, our overall U.S. mortality claims were slightly higher than expected, consistent with a flu season, an elevated flu season. In terms of, obviously, our process, we are, of course, very confident in our claims process. In fact, this quarter, we perform extra due diligence to ensure that all claims are collected. As you can imagine, for large claims, there's an extra incentive for students to notify us. And of course, we hear from companies, from students, whenever they experience large claims and ensure that we verify whether we see the similar data in our data.

Yeah, and this is Jonathan. Maybe just to add specifically on that large case you referenced that's been mentioned on other calls, that experience is reflected in our Q1 results.

Correct, thanks. And then I guess the other question, I've been struggling with this since you announced the Equitable deal. For those of us that cover Equitable, we look at that business and it's, I think, a fair way to describe it would be challenged. Then all of a sudden, you take it over and you're able to turn it into 13% to 15% ROE business per your comments about it being in line with your target. So, I'm just trying to understand how does that happen. Is there an expense piece or a capital piece or something? Because the earnings should be the same, I would think, other than what you do on the investment portfolio. So, how do you take this challenged business and make it a good return business? Thanks.

Let me just kick it off strategically. I'm sure others have areas to involve. I mean, obviously, like I said, in my comments or previous comments, I mean, the big block obviously is a big part of the transaction. And we feel that's totally priced appropriately. And then there are other components that made the transaction so strategically valuable for both parties, and then adds to the value we create. But let me hand it over to Axel and Jonathan to provide any further comments on your question.

So, I think a few things, just to remind you. When we announce a transaction, obviously, this is a large block of business, mortality business. However, we've been in business for over 50 years. And so, when we look at our total mortality exposure across the globe, the impact of the transaction is to increase that exposure by about 5%. That's point number one. Point number two, like Tony said, we, of course, when we execute a transaction, get to reprice the business. Fundamentally, we benefit from all of our experience, all of the treasure of data that we have available on that, and also the specific experience for that block of business that is part of the due diligence that we perform when we underwrite the block. We expect some volatility of claims on the business, but we believe that is very manageable given our balance sheet and our expertise.

And I think just to add further, I think the synergies you do highlight, I mean, whether it's capital or whether it's expense or whether it's the asset side, I think they all play parts of it. It's very hard for us to opine, given we obviously don't know exactly what Ecuador used to do with this business. But for us, once again, it fits very well within our wheelhouse. It's all risks and operations that we have established already to manage going forward. Very comfortable with the pricing as we look through it all.

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

Thanks. Good morning. My first question, I was hoping that you guys could just talk about just the current pipeline of transactions and where you guys are seeing the most opportunity?

Sure, happy to do that. Thank you for the question. Look, I think in our comments we've described it as attractive, and I think it's the appropriate word because when we think of attractive, the quantity is nice. But really, our word is trying to characterize more the quality of the pipeline. Obviously, since the recently announced transactions and RGA's brand and history, we've been in the enviable position to work with many, many great companies. The way we describe the quality of the pipeline is really around who are the partners. Are they long-term partners? Are they ideally sizable? But as long as they're really a long-term partnership mentality. To answer your question on the breadth, we run our business with a heavy focus in all the three major regions of EMEA, Asia and North America, and it's each of those pipelines that are very robust and strong, so it's across the board breadth is great. And then the third element, as I've alluded to, is does it fit within our strategy? And our strategy is very simple. We call it creation rate, but really it's a focus on getting not only repeat business, but repeat exclusive business, because if we're able to solve a client's opportunity or problem, or hopefully even an industry opportunity or problem, then others will come to us to solve that same issue, and then we can use our global network to just spread that around the world, because life insurance markets around the world seem different, but to be honest, the underlying drivers are very, very similar, the underlying needs. So, our global platform allows us to really solve these across the board.

And then my follow-up, in your prepared remarks, you were talking about PRT and just there being an impact of some of the market uncertainty there. How do you expect, and I know you said it would be temporary, do you see this as becoming a greater opportunity later this year, or just how do you see things playing out on the PRT side, just given the volatility we're dealing with right now?

Yeah, absolutely. This is, as you've suggested, a longer-term story that's already started. So absolutely do we believe that this is a temporary pause, let's say, that there's uncertainty in the macro environment in general. A lot of the bigger schemes would have been down this journey of de-risking for many years already, so it's not a question of stopping, it's a question of really pausing it, perhaps. But we're very bullish on this. We're looking at some other strategies also to highlight our strengths in other segments of the market that really have not paused at all. That was part of our broader strategic direction anyway. So, we're very bullish about this market in the medium term and the longer term, and we do expect it to pick up in the second half of the year.

Thank you.

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

Good morning. Thanks for the opportunity. With portfolio investing ahead for that elevated cash balance, can you talk about how those new money rates maybe have trended so far in the second quarter for you? Thank you.

Hey, John. This is Leslie Barbi. Thanks for the question. Yeah, so as you know, there's been a lot of movement up and down, but really the rates currently are similar to the first quarter. I guess only time will tell if that plays out, but yields came down, but spreads widened, so there's still a good opportunity set to put that cash to work.

My follow-up question, sticking with the portfolio, you talked about increased private asset sourcing. Has that also continued to be favorable as well? Thank you.

Thanks. Yeah, so we have a very broad platform across many public and private asset types, and we've been building that private asset capability for over 20 years, and we had attractive opportunities in the first quarter, and I'll just note that those are also a good match for our stable liabilities, and given the portfolio growth overall, we've had some room to invest. I think your question also got to the fact that with market volatility, issuance had paused in public markets and may be slower in privates. It's certainly coming back in publics, and we still had a good pipeline in place for privates. So, I still think there'll be a good set of opportunities, although if volatility continues, it may be somewhat slower.

Thanks.

We're not hearing any questions. Operator, we're ready for the next question. I apologize, everybody. Please hang tight. We are finding the operator. Thank you for your patience. We should be getting there shortly.

The next question comes from the line of Jimmy Bhullar. Please go ahead.

So, first, I had a question for Tony just on if you could just talk about competition across your various businesses. Many of your competitors are P&C companies or have P&C reinsurance businesses as well, and it seems like the market's a little softer there. When it was hardening a lot, there were comments from RGA that that might actually improve things in life reinsurance as well, as some of those companies would be focusing more on the P&C side of their business. Are you seeing the reverse of that now, and how are competitive conditions across various markets given that dynamic and also the fact that in some of the product lines, you're seeing a lot more activity by some of the PE-backed companies?

Sure. Thanks, Jimmy, for the question. I guess I'll kick it off with the obvious, which is our focus and strategy is this Creation Re. So, we honestly look at our competition, observe what they do, and any great things they're doing that are successful, we obviously consider. But our focus is really not to compete, but I've sort of shared with you that view in the past. To answer your question more directly, I think around the fringes, you could say it's always hard, and I think the different property and casualty companies may act differently depending on a softening and hardening market. So, I don't think it's particularly conclusive as to how the P&C market hardness or softness impacts their attitudes necessarily to life and health. What I would say is that what it does show is we are consistently in the market, right? We're not in and out or even having any view towards that or any consideration because that's all we do is life and health. So -- and that means we can just consistently build our platform, right? And such that right at this point, the competition intensity, whether it's with the traditional business, which is more the P&C [indiscernible] felt before, we don't feel it's particularly overwhelming level of competition.

Okay. Just wanted to let you know. I think there's some issue with the call because your comments were paused for a few minutes. I don't know. Can you hear me okay?

We can hear you.

Yes. So, there might be some issue. You could address that later as well. I don't know, but maybe go on with your answer if you're going to [indiscernible].

Now.

Just the word now.

Okay. Can I try it now?

Sure, go ahead.

All right. Okay. So, I mean, Jimmy, to answer your question, like I said, look, our focus really is not to compete. That's the Creation Re focus the fact that we can continually stay in the life and health market given that's all we do in reinsurance. We don't believe the level of intensity of competition has increased materially or noticeably with regards to the blocks or the traditional business that we see from the more pens orientated reinsurers, the hardness or the softness of the market, if it impacts their attitude towards Life and Health, it really is around the fringes. We continue to just strengthen our platform. We believe that we're in a very, very strong position, and that's why we're so optimistic about our future.

Okay. And then just another one on the Equitable transaction along the lines of the question previously. They're basically losing around $100 million of income per year. And you've said that you could pick up close to $200 million eventually from that block. And I think a big chunk of that is just you guys repositioning the portfolio. So, since Leslie is on the call, what is it actually that you're doing with the portfolio that's different than how they've invested it because I think there's a lot of confusion in the market about how one company is losing a lot less business than the other one is picking up from the same block. So.

Well, I know others will want to jump in. It's not all asset portfolio, and we're sticking to our discipline. It will be a reasonable amount of risk, and there will also be some of the assets still managed by Alliance Bernstein. But at the crux of it, where we will be adding value. We do have quite a broad platform, including a broad private asset platform. So that is where some of the value is coming in, but it's not the entire value for the transaction.

And Leslie, I would just add. I mean, of course, the expense footprint is, of course, going to be very different for equitable versus us that, of course, could explain that difference. And then the very last piece would be the accounting, the underlying accounting for that block of business as a reinsurer also looks different to the way that the -- it's more of an earnings emergence point rather than the, of course, underlying economics. But all of these factors probably play in.

Thank you.

Thank you.

Next question comes from the line of Wes Carmichael from Autonomous Research. Please go ahead.

Good morning. I wanted to follow up on the point on Equitable in the accounting. I think there's probably a good reason to think that, that might be bit less volatility. Is that because when you reprice the business and it changes hands, I think the way I understand it is with LDTI accounting, the net premium ratio may be reset and then you have less of the cap cohort volatility coming through. Is that basically the dynamic do have that right?

Wes, so just to clarify, there's some part of the business may be subject to LDTI, but a big part of it will not be subject to LDTI. So that's not necessarily the driver. I think there could be some smoothing of claims experience through reinsurance accounting. So, it's not directly related to LDTI, but it's kind of something like that, essentially something along those lines.

Okay. And I guess we saw a pretty material long-term care reinsurance transaction since the last call. And I believe our European reinsurer took the morbidity risk, with annuity pact reinsurer taking the assets. Does RGA have appetite for structures like that because LTC is obviously a gigantic liability set for the industry and the potential opportunity.

Wes, let me take that. Look, our attitude to long-term care [indiscernible] is very clear. Number one, obviously, given our market position, we do see, I would believe, every opportunity that arises in the market. So that's point number one. But point number two, as I emphasized, real critical, one of the, if not the most important reasons for our success is our discipline. So, I think I've shared sort of by criteria, at least that we look at with regards to long-term care blocks. The first one would be, is it a strategically important or value or long-term partner? So that's point number one. Point number 2 would be the risk-return trade-off within the block, but also being paid appropriately for any risk that we take, obviously. Point number three, does any other blocks of business, non-long-term care, come along with the transaction. Point number four is really critical is, look, we have done long-term capital for a number of years. We've got a very modest-sized block. But it's within it's the newer type of business because that's the business that we have the risk tolerance for. We stayed out of the market for many years until the products moved that way, and that's the only time that we started entering the market many years ago. So, the fourth element of it is the risk tolerance. And then the final is the site. Yes, we like diversification, but the size of the long-term care block characterizes it as new blocks that if and when we do potentially take it with those other criteria, would be modest in size. So hopefully, that gives you a bit of clarity. The one that across the wires recently, we obviously did not have a share of that block of business.

Next question comes from Ryan Krueger from KBW. Please go ahead.

In the deployable capital disclosures, it looks like the capital sources increased at least a few hundred million from what you had laid out in the Equitable transaction slides. Can you give some more color on what drove that higher?

Ryan, thanks for the question. So just -- I mean, just first to take a step back, we updated both metrics this quarter, excess capital and deployable capital. I want to give some clarity why we're doing that. We think really of those two metrics as kind of serving two different purposes. Excess capital is kind of the defensive metric, point in time, strength of the balance sheet, resilience and destress, et cetera. Deployable capital and looks forward, of course, starting from excess capital and taking into account how much capital are we organically generating over the next 12 months sources of third-party capital and in what committed uses do we have against that, that gives us the idea of, okay, how much can we deploy over the next 12 months into a pipeline of opportunities. So, on Slide 15, we have a reconciliation. You're correct to pick up that the capital sources and uses is a little bit bigger than what we had in the Equitable disclosure. That's really a reflection of two things. As you roll forward, we're now picking up over the next 12 months, we're picking up Q1 26, and we dropped off Q1 '25. So, given our momentum, business momentum and our earnings growth, we're picking up that incremental earnings. And then the rest is really kind of model update, if you will, refinement of our projections, which will be part of our updates on this.

And then I think the value of in-force is one thing you've been working to get included with rating agencies for capital sources in the future. Is there a material amount that is currently included for that? Or -- and how has the progress been with talking to -- with the rating agencies?

Yes. So, thanks for that. Yes, so the value of in-force is an important concept, right? Because as you know, depending on the framework, it is recognized or it's not recognized, and we have a substantial value of in-force as measured, for example, by our value of in-force business margins. We have a track record of actually execution of securitization of value of in-force block. So, we can really demonstrate that -- it's -- there's actual analysis that backs it, but ultimately, we can get a third party to lend us money against it, for example, or take a piece of it. So that's very important because that's really a validator of what we see. And from a rating agency perspective, that enables rating agencies to use that. So, we actually have that already on the portion of our business. And then what we're doing is really just maintaining our dialogue with rating agencies to continue to increase that portion that is recognized within the framework. And so, we're working on that. It's part of the actions that we're constantly pursuing in terms of improving our capital position. And so, at the appropriate time, we'll update you if there's a significant change there.

Your next question comes from Tom Gallagher from Evercore. Please go ahead.

Good morning. Just a couple of quick ones. First on that -- you said you booked part of that industry syndicated contract, the $200 million large claim. How much was your share of that? And then secondly, can you unpack some of the underlying experience in U.S. trade between mortality, long-term care, any other risks like medical stop loss, just a little bit behind the scenes, how things trended.

Jonathan, you want to take that?

Yes. Thanks, Axel. Tom, we're not going to give out specifics on the claim. Again, I'll just reiterate that the full impact of that syndicated claim that you talked about was recognized in our Q1 statement, so it's already been recorded. With respect to the experience within the traditional business, as Axel has already mentioned, really, the key driver is the large claims favorability in the U.S. individual line. There were some other pluses and minuses across Latin America Group and U.S. or individual health, but they're all relatively small.

Okay. And then...

Sorry, Tom, on the long term, I mean broadly, yes, we didn't see anything. I mean, that was just normal on track experience.

Got you. One other one for you on the equitable transaction. And Axel, you had mentioned the majority of that book is not captured under LDTI and the majority of your business is. So, I presume that means on a proportionate basis that's going to increase your earnings volatility somewhat. And I know Equitable had a pretty high level of earnings volatility in that block. How much of a consideration was that for you? Or did you kind of ignore the earnings volatility and just focus more on the economic returns?

Let me get started on that. So, look, Tom, of course, we said, we repriced the transaction, right? So that's absolutely critical repricing means, of course, we assess the underlying economic risks -- but of course, the earnings signature and the accounting impact, including not just base case but stress analysis and evaluation of the potential volatility. Ultimately, like I said, the overall mortality risk was increased by about 5%, even if the accounting may be more volatile, for example, our balance sheet is very large or sources of earnings perfectly can accommodate that level of volatility. So not really a concern, something that we entered into with open eyes and not particularly worried about it.

I don't know if you've got -- go ahead.

Yes. Sorry, maybe just one more thing to add on to that. When you think about the Equitable block being added into our existing book of mortality business, we do get a diversification -- a broader diversification benefit across the whole book, which will help from a relative volatility perspective.

Great. Thanks.

The next question comes from the line of Joel Hurwitz from Dowling Partners. Please go ahead.

Good morning. So first one to touch on variable investment income. And can you just walk through what's sort of embedded in your operating earnings targets? And did the earnings targets outlined last quarter assume 6% returns or your long term 10% to 12%. And then just I think some of your alternative income flows through operating and some flows through [indiscernible]. Can you just provide some color on what pieces flow to operating versus net income?

Sure. Thank you for the question, Joel. To start with in the targets that we put out recently that start from the 2025 run rate, the VII expectation that's built in there is a 6% return. So that is, of course -- it reflected what we understood of the market environment, our expectation about realizations on LPs and, of course, the real estate joint venture sales and that 6% relative to what our long-term return of 10% to 12% would be. Like we said, when we look forward from here for the next 12 months and looking forward, a 6% return for that VII is our expectation, continues to be our expectation. And then lastly, in terms of the accounting, it's really to do with a portion of the limited partnerships. I accounted such that the unrealized portion of it would be would be below the line, nonoperating. But I want to make it clear that when there's a realization or realization flow through operating income. So ultimately, all of the ultimate return will flow through operating income.

Okay. Very helpful. And then, Tony, I know you said in your prepared remarks that in-force actions were modest in the quarter, but you sounded pretty positive on a number of initiatives. Could you just elaborate on some of these initiatives and how much of a potential benefit there could be?

Yes. No, I mean, it is just part of our business. So, and it's an area, anything we explore, then we're interested and excited by. So, the team works on that, and we've got teams dedicated on that, and purely to enforce our rights in the treaty in a win-win fashion. So, I just want to highlight, as I've said previously, it is lumpy in nature. But we continue to explore it and would be hopeful some falls through by the end of the year, but it's business as usual for us on that.

Okay. Thank you.

Your next question comes from the line of Wilma Burdis from Raymond James. Please go ahead.

Could you just give us an update on your outlook for mortality now? It seems like one thing I've been hearing is that it's a little bit better. At younger ages below 9 years so and then at older ages a little bit worse than pre-COVID. And then are you seeing any changes with GLP-1s or others now that we have a little bit more experience.

This is Jonathan. Yes, certainly, we're encouraged by what we're seeing in the general population. So, if you look at 2024 experience as reported by the CDC, excess mortality was down to about 1% in the U.S. relative to about 3.5% excess in 2023. That's across all ages. So that's a positive trend that's good to see coming out of COVID. Specifically, on GLP-1s, I think we continue to be very encouraged by the potential benefits given data that is emerging in anticipation of improvements in both effectiveness and accessibility. So recently, there was just a news article about an oral version of GLP-1 drugs that could further enhance that accessibility and take-up rates as an example. We continue to devote significant resources for ongoing analysis and looking at data in clinical literature. And our expectation would be to incorporate any of those impacts into our assumptions when appropriate. But at this point, we have not explicitly reflected those impacts.

And could you just give a little bit more detail on the ability to price and how that changes the as you think about.

I'm really sorry to interrupt. Wilma, we are not getting audio correctly from your end. It was breaking. your line was breaking. If you can repeat the question.

Yes, sure. On the Equitable block, could you give us more detail on the ability to reprice and how that changes post-acquisition?

Yes. I mean, well -- I mean, definitely, on the reprices, what we're referring to there is predominantly the initial reprice. So obviously, these blocks of business was written by equitable in the past, we get to do a fresh look and use our pricing assumptions as we price the transaction. Obviously, when we do that, we look at their data, we also look at our data and there's many actuarial techniques to co-mingle the data and work out what we think is the right price, not only in the short term, but don't forget these are longer-term businesses that we have to make assumptions for the future, but that's really the bread and butter business that we've been doing for over 50 years now and doing very well.

Thank you.

Your next question comes from Mike Ward from UBS. Please go ahead.

I was just wondering on the new business pipeline that you guys do see. Is there any areas where you see more or less opportunity? And did the -- does the equitable deal sort of like ratchet you up on the U.S. side, so we should expect more deals on the international side? Or is that -- do you not sort of set that framework?

Thanks for the question, Mike. Yes. sort of repeating a bit, I mean, it really is across the board, the three regions are just each and every one of them is strong. So different size type transactions, as I mentioned, in Asia, and even in EMEA, there's probably more regular flow of not only the new business sort of traditional business, but even the blocks more modest in size, but we just leverage off the fact that we have these incredibly strong local partnerships. In the U.S., obviously, the Equitable transaction is strategically significant for the market. So obviously, we've had a lot of inquiries and talking to clients potentially about how we can also assist them strategically fulfilling those endeavors. These things take time. The equitable transaction was a particularly sizable one. So once again, in the U.S., we're very excited also about the pipeline there. And all three very strong and all three learn from each other. So, there's no reason why some of the things we've done in the U.S. or in Asia are not absolutely being transplanted into the other regions because that's what we do is make sure our global platform is very well connected strategically and find those new solutions that work for those different markets.

And then just back to the sources of capital. I'm curious how active is the third-party capital, I guess, pipeline and your ability to establish more details. And then just confirming there is a slide deck mentioned potential capital markets issuances, but just wanted to confirm that common equity is low on the totem pole in terms of capital sources.

Great. Thank you for the question. So, let me start with Ruby Re, we're, of course, very focused on fulfilling our commitment to those investors. We didn't see business in the first quarter, that's really waiting for year-end statutory financials to be available, but we're constantly working on that and we expect -- again, we continue to be optimistic that the majority of that capital will be deployed by the end of the year. And so that enables us to really build upon that. It's a nice track record. It's a nice supplement to our own capital in enabling us to access the global pipeline of opportunities that we have -- and so we certainly were interested in continuing to build on that track record. In terms of the footnote that kind of describes sources of capital, potential capital issuance, that's a catch all is not kind of signaling anything specific and imminent. And to your point on common equity. It's one of the things that we look at. And of course, it requires a high hurdle rate for it to make sense.

Thanks, helpful.

Our next question comes from Bob Huang from Morgan Stanley. Please go ahead.

Good morning. I know we're out of time, so I'll keep it to one question. Maybe if you can give us a little bit more color on the Japan reinsurance opportunities. I know you touched on it in your prepared remarks. It feels not just like a new opportunity for you, but a broader set of opportunity for the industry and the addressable market seems to be very large. Can you maybe, one, talk about that opportunity, but also to talk about just the competitive environment from that area.

Sure, happy to. The way things work in Japan is -- number one, yes, it's a very exciting. Number two, I think we believe we're still relatively early in the cycle. I mean, they don't -- the Japanese clients don't tend to do everything at once, right? They'll do many, many tranches business. One client, we've done numerous tranches with over numerous years. So, every year, it's sort of one more tranche. So that's point number one. Point number two, in terms of competitiveness, we don't go after everything. I mean there is a particularly material asset-only type market there with very little what we call biometric risk. And we don't particularly pursue that. We don't think we would be particularly competitive in that. So, where we really focus is our sweet spot, which is those asset transactions with very long-term loyal clients. That may be more modest in size, right? But they're more bilateral in nature. And they have that biometric risk that helps us distinguish ourselves. So -- they're in a very exciting market. It does take time to play out. And it also takes some after sales service. There's 1 thing doing the transaction, we all get excited by that. But we've got over, I believe, over 100 people based in Tokyo now that would also assist in the aftersales service in the local language with long-term relationships there. So, we really do believe that's a critical edge medium, longer term as these transactions firstly get consummated and then secondly, get [indiscernible] over decades. That's what it's going to take to be sustainably successful in this business.

Thank you. This concludes our question-and-answer session. I would now like to turn the conference back over to Tony Cheng for closing remarks.

Well, thank you all very much for your questions and your very strong interest and continued interest in RGA. This was a very good quarter and the start of what we believe will be a great year. further demonstrating our very strong and continued momentum and substantial earnings power. So, have a great day, and we look forward to talking to you next time. Bye-bye.