Good day, everyone, and welcome to the Reinsurance Group of America Second Quarter 2016 Results Conference Call. Today’s conference is being recorded. At this time, I’d like to introduce Mr. Greig Woodring, Chief Executive Officer; Mr. Todd Larson, Senior Executive Vice President and Chief Financial Officer and Ms. Anna Manning, President. Mr.

Larson, please go ahead, sir..

Thank you. Good morning everyone, and welcome to RGA’s second quarter 2016 conference call. Joining me in St. Louis this morning is Greig Woodring, RGA’s Chief Executive Officer, as well as Anna Manning, our President.

Greig, Ann and I will discuss the second quarter results after a quick reminder about forward-looking information and non-GAAP financial measures. Following our prepared remarks, we will be happy to take your questions.

To help you better understand RGA’s business we will make certain statements and discuss certain subjects during this call that will contain forward-looking information, including among other things, investment performance, statements relating to projections of revenue or earnings, and future financial performance and growth potential of RGA and its subsidiaries.

Keep in mind that actual results could differ materially from expected results. A list of important factors that could cause actual results to differ materially from expected results is included in the earnings release we issued yesterday.

In addition, during the course of this call, we will make comments on pre-tax and after-tax operating income, which is considered a non-GAAP financial measure under SEC regulations. We believe this measure better reflects the ongoing profitability and underlying trends of our business.

Please refer to the tables in the Press Release and Quarterly Financial Supplement for more information on this measure and reconciliations of operating earnings to net income for our various business segments. These documents and additional information may be found on our Investor Relations website at, rgare.com.

With that, I’ll turn the call over to Greig for his comments..

Thanks, Todd. As indicated in the earnings release last night, we reporting operating EPS of $2.80 compared to $1.94 a year ago, this result showed strength across most segments and geographies with strong top-line growth and favorable investment results.

Further we achieved these results in spite of a challenging overall environment, highlighting the resilience of our operating model, and our ability to capitalize on opportunities and a strong market position.

This quarter’s results included $0.12 per share benefit for a tax related adjustment related to the expected settlement of several tax positions, while the negative effect of foreign currency translation was equal to $0.04 in the quarter. Highlights of the quarter include particularly strong results in our U.S.

and our Canadian traditional segments, the U.S. non-traditional segment and the Asia Pacific traditional segment. Our variable investment income was higher than an average run rate, we have several gains from longer-term alternative investments.

Reported premium growth was 10%, 12% on a constant currency basis due to both solid organic growth as well as the additive effect of more recent in-force transactions. In the U.S.

traditional business the strong results reflected higher variable investment income and contributions from recent in-force transactions, while mortality experience was in line with expectation. In Canada the positive results were driven primarily by favorable mortality.

Our Asia Pacific operations exhibited a strong top-line from new business and Australia was modestly profitable. In EMEA our non-traditional business had a solid quarter, while the traditional operation was below expectations due to some unfavorable mortality and morbidity.

While we did not execute any major transactions during the quarter, we did close on a number of small block transactions and our overall pipeline activity remains very good. With the recent debt offerings we have abundant capital to execute on a range of opportunities should.

With strong results in the second quarter after a solid first quarter our year-to-date EPS and our operating exceed the year ago period by a conservable amount despite ongoing headwinds from lower interest rates and the strong dollar. The negative effects of foreign currency translation equal $0.14 year-to-date per diluted share..

Thanks, Greig. I will now provide some information on our investment results, capital management and additional details on segment level results.

Turning to investments, the average investment yield of 4.71%, which excludes our spread business was down 17 basis points from the second quarter of 2015, reflecting the ongoing negative effect of lower yields on new money and reinvested assets. Both periods had above average levels of variable investment income.

The average investment yield this quarter was 25 basis points higher than the first quarter yield, due primarily to the fact that variable investment income was below average in the first quarter and above average this quarter, however, approximately in line year-to-date.

The higher variable investment income this quarter reflected investment gains on certain long-term alternative investments that were above the recent run rate and by their nature generate returns that are lumpy in terms of quarter-to-quarter results. Alternative investments are not a very large portion of the overall portfolio.

The longer-term nature of these investments are such that there was typically variability in returns from quarter-to-quarter and this quarter’s impact was greater than most approximately $0.10 for the company with most of this showing up in the U.S. traditional segment.

The company realized investment gains in the quarter primarily due to some portfolio repositioning, while impairments were minimal for the quarter. We repurchased 11 million of our shares leaving us roughly $280 million remaining in our share repurchase authorization that we announced earlier this year.

We deployed capital into numerous smaller transactions during the quarter and our excess capital position is approximately $1 billion at the end of the quarter, which reflects the proceeds from the recent debt offerings. In addition our Board of Directors approved an increase to our quarterly dividend of 11% to $0.41 per share from $0.37 per share.

Now turning to our segment results, the U.S. and Latin America traditional business reported pre-tax operating income of $112.3 million versus $79.4 million a year ago. This quarter’s earnings benefited from higher than normal variable investment income and the effect of recent in-force transactions.

Current period mortality results were in line with our expectations, whereas last year’s quarter reflected poor mortality experience. Premium growth was a strong, up 12% quarter-over-quarter totaling $1.3 billion, reflecting a consistent level of ongoing organic growth.

The effective recent in-force transactions and some lumpy effects from client reporting and new treaties. Our asset intensive business reported pre-tax operating income of $54.3 million this quarter, which was ahead of expectations. Strong results this period reflects stable investment spreads and the effect of a new smaller in-force block.

Our financial reinsurance line continue to perform well, reporting pre-tax operating income of $14.9 million this period, up slightly from $14.6 million last year. Our Canadian Traditional segment reported pre-tax operating income of $40.9 million, up from $23.8 million in the prior year period.

Results were strong this quarter reflecting favorable mortality experience. Premiums totaled $240.1 million, up 7% in U.S. dollar terms with $11.6 million in adverse currency fluctuation.

Non-Traditional business in Canada, which includes longevity and fee based transactions, reported pre-tax operating income of $2.1 million this period versus $3.1 million a year ago. Switching to Europe, Middle East and Africa, our Traditional business reported pre-tax operating income of $6.8 million, down from $9.2 million last year.

As Greig indicated this quarter’s result reflect unfavorable mortality and morbidity most notably in the UK and South Africa, overall claims experience was in line with expectations in last year’s quarter.

Non-Traditional EMEA business, which includes Asset-Intensive, longevity, and fee-based transactions, performed well this quarter, reporting pre-tax operating income of 26.1 million compared to last year’s $31.8 million. EMEA’s asset-intensive and longevity continues to perform well with last year’s second quarter experience particularly favorable.

Turning to our Asia Pacific Traditional business, pre-tax operating income totaled $34.5 million compared to $4.3 million in the prior year period. Overall positive performance particularly in Hong Kong contributed to the solid quarter, whereas last year’s quarter reflected poor results in Australia.

Our non-Traditional Asia Pacific business reported a pre-tax operating loss of $6 million versus pre-tax operating income of $0.7 million a year ago, primarily due to less favorable experience on a few treaties.

The Corporate segment reported pre-tax operating loss of $12.8 million compared to a pre-tax operating loss of $9.9 million in last year’s quarter.

This quarter’s results were better than the expected loss run rate of $20 million, primarily due a reduction in interest expense that related to the previously mentioned tax adjustment from the effective settlement of uncertain tax positions.

In summary, this was a very good quarter for us, as we produced strong results across most segments, geographies and product lines. Our top-line results were strong reflective of solid organic growth and in-force transactions and our investment results were favorable.

We are well positioned financially as we move forward in an environment that has some level of challenges and uncertainties, but also considerable opportunities. And now I would like to turn it over to Anna..

Thank you, Todd. RGA’s unique ability to create solutions for our clients keeps us well positioned for continued success.

In this quarter we executed on a number of new treaties and transactions including a financial reinsurance treaty that is in compliance with actuarial guideline 48 commonly referred to as AG48, as well as a couple of Solvency II compliant transactions in Europe.

The recent Brexit vote has added additional uncertainty to the overall environment in Europe, but at this point there is little noticeable effect on our business or client decision making other than currency effects. We will anticipate and adapt to changes in regulations or environment as the issue continues to develop.

We see solid organic growth opportunities overall, as well as abundant opportunities for transactions. Our transaction deal pipeline is strong and we are actively pursuing multiple opportunities across our geographic markets.

As we have previously commented investors should not expect any dramatic changes in strategy or direction in the shorter term, as we continue to be optimistic about our global positioning, the market opportunities and on our ability to execute.

We’ve had a good first half to the year and we remain confident that we can continue to deliver strong financial results. We thank you and appreciate your support and interest in RGA. And operator we’ll open up the call for questions..

Thank you. [Operator Instructions] and we’ll go first to Jimmy Bhullar with JPMorgan..

Hi, I had a few questions. First on the, if you could talk about the loss in the ‘99 to 2004 traditional U.S. book how that did versus your expectations and also on Australia I think you mentioned it generated a small profit, but if you could just give us some more details on those two blocks..

Jimmy, it’s Anna. I’ll take the first question on the U.S. mortality. Claims, as we said claims were in line with expectations now in terms of the errors we generally had less favorable experience in recent vintage the ‘06 to ‘10 vintage and more favorable experience in the older vintages the pre ‘94.

The ‘99 to ‘04 block in particular was benign it was essentially on expectations and this is the second quarter in a row if you recall the first quarter that block also was in line with our epxectations..

Jimmy, this is Greig. In terms of Australia our experience in the second quarter in terms of mortality morbidity was weak. Consistent with prior periods, prior years where we have struggling second quarter good first quarter a lot of seasonality that goes in the opposite direction of the U.S.

So year-to-date we are sort of on what we expect there was some positive administrative noise that actually helped to mitigate a little bit of that the experience in the second quarter. But overall we are very pleased with where Australia is, we don’t expect that it to be anything other than a work-in-progress still. But we are making good headway..

And then on share buybacks you did relatively modest amount of buybacks this quarter.

I’m not sure if that - was that because of any specific reason related to deal pipeline or your view on the stock price or is it some other reason that you slowed down buybacks dramatically?.

Yeah Jimmy this is Todd. As you know - we try to take a balance approach of balancing the share buyback with business opportunity et cetera and we did buy a little back when the stock dip down a little bit. But we’ll continue to manage it overall on a balance basis..

And then lastly on premium growth. I think you reported 10% growth in premiums, almost 12% ex-currency and double-digit growth in the U.S. market. That seems like a very unusually strong number especially in the U.S.

But wondering if you could give us some details on what drove that and to what extent it’s sustainable in the next few quarters?.

We do view it as a very nice very strong premium quarter and as you mentioned it was about 12% ex-currency. But if you look at the in-force block activity and that’s where we’re looking at the business that was reflected this quarter that wasn’t there last year this time and that was probably about 4% of the overall growth.

And then there were some other nice treaty activity that came through makes cash up on some organic treaty. So if you back that away you get down maybe to the higher single-digits, which we view as probably a good way to look at the longer term run rate at this time..

Okay.

And then just on the buyback comment if the stock slows to its highs so should be assume that if it stays close to in the high 90s close 100 bucks you would be somewhat slow in pursuing buybacks or would you still do buyback regardless if you don’t find alternative uses?.

Jimmy, we would not hold on to access capital. We would buy back stock at this level potentially although obviously we prefer to buy it back when it’s cheaper. But we are balancing this with all the other opportunities we have, but we wouldn't rule anything out..

Okay, thank you..

And we'll take our next question from Ryan Krueger with KBW..

Hey, good morning. In U.S. tradition like if I normalize for the variable investment if I assumed all the variable investment income $0.10 of above normal was in that segment. I think it still implies around $100 million or so of earnings in the quarter, which was quite a bit above what it generally been running at for quite a few quarters now.

I know you commented that mortality was in line with your expectations, I’m just curious is roughly a $100 million kind of the right way to think about what your expectations would be for earnings at this point?.

Ryan this is Greig. Yeah, mortality was right around the 100% of expected. So it’s very close not - it wasn’t a great quarter in terms of mortality, just a good solid quarter in terms of mortality. We did have some positive experience in Latin America, which is a small piece, we had decent group results and long-term care results.

And so, you put that all together it was a pretty good quarter on the traditional side. And in terms of a run rate this is kind of what we would expect if everything works well and we’ve fallen short of that in the last year or so, but we would expect to get back to sort of a normal rate at some point in the future..

Okay, thanks.

And then Asia premium growth picked up pretty substantially, can you give a little bit more color on that?.

Yeah, Asia premium growth a lot of it is organic - almost all of it is organic growth, we have gotten good results out of Asia both in terms of growth and profitability, we continue to be very optimistic about the prospects in that region of the world and it’s a growing insurance marketplace in addition to a growing middle class part of the world where insurance is bought more.

So we are very optimistic about that and happy to see everything jumping along just fine there..

Okay, thank you..

And we’ll take our next question from Humphrey Lee with Dowling & Partners..

Good morning and thank you for taking my questions.

Just on the capital side so with the $1 billion of excess capital and you mentioned the pipeline is too attractive, but give your kind of capital position right now how - does it change, how you think about the sweet spot in terms of deal size that you would pursue?.

Humphrey, hi, it’s Anna. With respect to our pipelines it’s only difficult to handicap where and when wins will occur. We are certainly seeing a lot of activity in respect of life, longevity and annuity blocks and sizes small, medium and large and geographies North America, Europe and UK.

We didn’t close on a large transaction in this quarter, but as mentioned we did close on a number of smaller and medium size transactions. And we are actively working on a number of these opportunities. And so, we take a pretty patient view of these.

We want to make sure that the deals that we do are attractive deals that they meet our return expectations and if we don’t we will walk away from them. So that causes our deal success rate to be lumpy.

But if you look at our historic over the last four or five years, I think we have done a very good job in balancing capital deployment back into the business as well as prepayment through dividends and share repurchases..

But given your capital position right now, would you be open to doing transactions that are a little bit bigger than you historically has done?.

We consider our sweet spot transactions in the let’s say $100 million to $250 million capital deployment, and I think those are - there are a number of those that are in the pipeline that could be very attractive for us..

Okay.

And then in terms of the Asia Pacific non-Traditional business, I know you mentioned there were some kind of a little under performance, but I was hoping we can provide a little bit color on what happen there and how should we think about for the rest of the year?.

Sure, this is Todd. Most of that performance in the non-traditional Asia Pacific segment relates to a particular treaty that we’ve had for some now that actually performed quite well over that period of time that we’ve had it, but it’s starting to turn around and be in more of a run off mode.

And so we do expect to see a little bit more in loss going forward on that, but we think it’s a very manageable and it is starting to be in the run-off mode..

So kind of since it is in one-off mode would it kind of put you in a position kind of having a negative number in the near future?.

Yeah we would expect there’ll be some negative results for the next - at least the next couple of quarters if not a little bit beyond that..

Okay, all right. Thank you..

And we’ll take our next question from Yaron Kinar with Deutsche Bank..

Good morning, everybody.

Could you give us a number for how much capital you deployed through transactions this last quarter?.

It was fairly small, in the less than $50 million category..

Okay.

And we should presumably expect additional deals then over the next few quarters especially with that billion dollar capital position?.

Well we certainly expect that we will do transactions now a lot of them don’t make the radar screen, they end up being small and we’d love to do a bigger transaction that’s noticeable. But we will have undoubtedly have some activity of some sort of other yes..

Okay. And then in U.S.

traditional the premium growth there was that predominantly from prior transactions?.

This is Todd it was really a combination of good organic growth as well as some transactional activity. I think if I have a direct for the quarter about let’s call it 4% or so was from transactions then we had a little bit more from just reflecting some organic 3Ds and some of the catch up on those, but it’s really a combination of both..

I thought that your previously commentary was for overall premiums not for the U.S. traditional sorry I apologize..

But it holds true for the U.S. as well..

Okay. So where is the organic growth coming from in U.S.

traditional just given the mortality market and you actually wouldn’t expect much growth?.

Well we’re talking about 4% and we get that from just the ongoing mortality market business it’s actually the insurance industry is up a little bit now as millennials’ are moving into the buying ages, but hard to read that we are in the early stages of that. But we’re just seeing a little bit of a pickup in our organic business.

It’s not that great of a pickup, but it’s a little bit..

And also to clarify that number also include some of our group business as well as the long-term care and some of the other product lines that roll up into traditional..

Okay. And then one final question. I think this is a second quarter now that you talk about some elevated claims experience and more recent blocks in U.S.

Traditional can you offer a little more color as to where the pressure points are coming from or where the elevated claims are coming from in the 2006 to 2010 book?.

When I mentioned earlier slightly elevated claims that was essentially one or two extra-large claims. Looking at all the years in this period they were close to or they were in line with expectations either up a couple of million here or there or down a couple of million, but generally very benign across all our areas..

Okay so mostly severity driven within a couple of policies?.

Well it’s regular volatility, if you think about the business couple of extra claims per quarter is really to be expected that’s the nature of our business..

Got it, thank you very much..

[Operator Instructions] We’ll go next to Dan Bergman with UBS..

Hi, it look like asset-intensive pretty strong earnings quarter and you mentioned to recently added new in-force block there I just wanted to see if you could provide any additional color on that new block maybe what types of policies are in there? And any color bigger picture maybe around whether the prior guidance, I believe our quarterly run rate around $50 million is still unchanged?.

Yeah this is Todd, on the second half of that I think we still view the $50 million run rate is about the right number to be thinking about..

Yeah and with respect to the first part of the question we did a follow-up block of deferred annuities in that quarter..

All right. Okay great thanks. And maybe switching gears to a little bit more of a bigger picture question, I mean, given it sounds like a consolidated premium growth run rate might be somewhere in the high single-digits and then so maybe layer on some further benefit from capital deployment whether the buybacks or blocked.

I just wanted to see if you thought there might be upside potential to the current 5% to 8% medium term EPS growth guidance. Particularly if or when FX and interest rate headwinds received. Any thought about how we - color on how we should think about that would be really helpful..

Certainly when the U.S. dollar turns around and goes a different direction that will pick it up. But we don’t really think that we are going to break out of that 5% to 8% on a regular basis at the moment. It would be nice to see that happen, but right now we are basically comfortable talking about our premium growth rate in that range..

Okay, great.

So I mean, I guess is the right way to think about it that even though the premium growth rate maybe a little bit higher than EPS, the comparably EPS guidance that it’s kind of interest rates and FX would kind of push you back into that range is there anything else missing or those kind of the main moving pieces?.

No, those are the main pieces..

Okay, great. Thanks very much..

[Operator Instructions] We’ll go next to Michael Kovac with Goldman Sachs..

Great, thanks for taking the question. Just wanted to ask sort of first a high level question as we see a lot of uncertainty in the market today on low interest rates, Solvency II and the Brexit. Just in terms of deals that you are seeing in the market today.

Is there any shift to maybe a couple of years ago deals that companies are maybe waiting for higher interest rates to get out of that potentially RGA seeing more attractive either deals come to market than they did in the past or more attractive pricing on deals that come to market?.

I don’t think there has been a wholesale shift in the type. There might be a small trend into longer term type of business coming to market compared to perhaps the last few years. But nothing material..

That’s helpful. And then as we think about kind of a target ROEs on the new deals versus the ROE for the current enforce block.

Can you help us size those I think in the past you sort of targeted somewhere around 13% I believe on new deals, is that still accurate today or do you feel like there is potential for that to be either higher or lower?.

No, that’s been our historic target and we don’t see a change in the near-term to that target. We are happy with deals in that range..

Sure. And then just sort of one last follow-up on it.

What are you seeing in terms of the competitive dynamics in the marketplace obviously some consolidation and a lot of your largest competitors in Europe, any shift in that?.

No, again it’s been the same level of competition I would say in the last couple of quarters and generally the same competitors that we see on the various opportunity. So not a material shift that we can perceive..

Thanks..

And we’ll take our next question Kenneth Lee with RBC Capital Market..

Hi, good morning. Thanks for taking my question. Just want to ask a question about the premium growth just from a different angle.

In terms of high single-digit run rate going forward how much would that be from let’s say annual step wise premium increases from like the YRT business for example versus either rate increases and does that high single-digit include any kind of assumptions for new business? Thanks..

The increasing premiums on YRT scales add a little bit to the premium growth and it varies by market. So candid it might be little bit higher than it is in the U.S. which is still higher than it is in other places.

But we are talking about a minimal add-on percent or so to the base, most of that just comes from new production that is new risks accepted either through block transfers or through organic new policy issues..

Got you.

And just one more question, in terms of the variable investment income would it be fair to say that most of those gains you put in this quarter was maybe from the private equity kind of asset class versus hedge funds and looking forward is the expectation that variable investment income overall would be lower this year versus let’s say last year?.

Yeah, for this quarter the variable investment income a good chunk of it came from realization from some joint venture partnerships shits that we were in.

And as we mentioned it will be lumpy from quarter-to-quarter, but we did have a - is actually I think a couple of partnership shifts that we realized and gains on and where the accounting works on those it would came to investment income this quarter..

Okay, got you. Thank you very much..

And we have no further questions in queue. At this time, I’ll turn the call back to our speakers for any additional or closing remarks..

Okay. This is Todd. Well, thank you everyone for joining us on our second quarter. We very much appreciate it and if there is any other questions please feel free to contact us. Thank you very much..

Thank you. And that does conclude today’s conference. Thank you for your participation. You may now disconnect..