美國再保險集團 (RGA) 2009 Q4 法說會逐字稿

Thank you again for holding.

Good day, and welcome to the Reinsurance Group of America fourth quarter conference call.

Today's call is being recorded.

At this time, I would like to introduce the President and Chief Executive Officer, Mr.

Greig Woodring and Senior Executive Vice President and Chief Financial Officer, Mr.

Jack Lay.

Please go ahead.

Thank you, and good morning.

Welcome to RGA's fourth quarter 2009 earnings conference call.

Greig Woodring, our CEO, will briefly comment on the results we released yesterday and provide guidance for 2010, and then we will respond to questions from our participants.

I'll turn the call over to Greig after a quick reminder relative to forward-looking information and the use of nonGAAP financial measures.

We will make certain statements and discuss certain subjects during the 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.

You are cautioned that actual results could differ materially from expected results.

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

In addition, during the course of this call, we will make comments about our results based upon operating income, both on a pretax and after tax basis.

Under SEC regulations, operating income is considered a nonGAAP financial measure.

We believe this measure better reflects the ongoing profitability and underlying trends of our continuing operations.

Please refer to the tables in our press release for more information on this measure and reconciliations of operating income to net income for our various business segments.

With that, I'll turn the call over to Greig.

Good morning.

Thank you for joining us.

I will provide some brief comments on a our fourth quarter results, provide some guidance for 2010, and then we will open the line for your questions.

On a consolidated basis, operating income increased 26% for the quarter, $125.8 million on a per share basis operating income for the quarter increased 17% to $1.70 per diluted share versus $1.45 in the fourth quarter of '08.

Foreign currency fluctuations helped the current period by about $0.12 per share compared with the fourth quarter of '08.

For the year, operating income increased 10% to $438 million from $399 million in 2008, on a per share basis, operating income decreased 2% in 2009 and totaled $5.98 per share.

Including an adverse impact for the year of approximately $0.09 from foreign currency.

Operating ROE was 13% in 2009, has averaged 14% over the last three years.

Reported net income for the quarter totaled $112.4 million or $1.52 per diluted share compared to $0.14 last year, which due to very unstable capital markets, reflected significant realized and unrealized losses from investments and derivatives.

Consolidated net premiums totaled $1.6 billion during the quarter, an increase of 9% on an original currency basis and 15% on a reported US dollar basis.

For the year, net premiums increased $5.7 billion or 11% on an original currency basis.

Net investment income totaled $315.2 million, up from the third quarter total of $299.5 million.

Our average investment yield for the year was 5.75%, down considerably from a little over 6% in 2008.

We expect to see the yield trend downward some more in 2010 as we continue to position our portfolio in a conservative manner.

Impairment losses reflected in income totaled $43 million for the quarter were largely offset by net gains from investment sales.

Our effective tax rate was 31.1% this quarter versus 33.6% last year and benefited from an adjustment related to the pending sale of our runoff operations in Argentina.

Turning to our operating segments, first in the US, our US traditional businesses reported pretax operating income of $82.1 million compared to $76.7 million last year, a 7% increase.

Mortality experience improved from last year.

However, claims in the third quarter were approximately $15 million above expectations.

Premiums were up 5% for the quarter and 7% year-over-year, roughly at our expectation.

The US marketplace remains relatively stable in terms of competition and pricing.

We expect business flow and growth in the near term to be consistent with the past couple of years.

Our US asset intensive business continued its strong year by contributing $13.9 million in pretax operating income for the quarter versus a pretax operating loss of $2.8 million last year, the latter being driven primarily by realized losses in the funds withheld portfolios.

The current quarter reflects improved account values and favorable spread performance.

A high level of demand for financial reinsurance will likely continue into 2010.

Turning to Canada, pretax operating income in Canada increased 32% for the quarter, totaling $30.7 million compared to $23.3 million last year.

Excluding the effect of a stronger Canadian dollar, the increase was approximately 10%.

Premiums were up 33% in US dollars and 16% in Canadian dollars.

The competitive environment remains stable, and we continue to be a leading player in the market.

Regarding international operations, Asia Pacific recorded pretax operating income of $24.8 million compared with $22.3 million, an increase of 11% over a strong prior period.

Favorable mortality in Hong Kong and in Japan contributed to this growth along with a $2.9 million boost from foreign currency.

Net premiums increased 5% on an original currency basis for the quarter, 6% for the year.

And reported US dollars premiums were flat for the year, including adverse foreign currency effects of $58 million.

Current year premiums reflect a slow down or cessation in production on several large treaties in South Korean and Japan as the underlying products have reached the end of their life cycles.

This will continue to effect us in 2010 in the form of lower growth rates in those markets than in recent past years.

The pipeline of new business opportunities, though, leads to us believe that these growth rates will pick up after a brief hiatus.

We are a leading reinsurer in many of the Asian markets and therefore, well-positioned to take advantage of opportunities.

Our Europe and South Africa segments reported pretax operating come of $23.9 million for the current quarter versus $26.4 million last year.

Claims were slightly higher than expected in the UK and South Africa during the fourth quarter of 2009.

Results for the quarter were helped by the recapture of one of our retro session arrangements.

On an original currency basis, net premiums increased 33% for the quarter and 26% for the year.

On a US dollars basis, premiums were 10% for the year, despite adverse foreign currency of $107 million.

We experienced growth rates which increased as the year went along and expect that trend to continue into 2010.

Overall, our results met our expectations in 2009 despite various ups and downs and experience in our various operations.

Shorter term mortality volatility is a fundamental part of our business and a risk with which we are entirely comfortable over the long haul.

We continually monitor experience and adjust pricing when appropriate.

We have achieved an operating return on equity that has averaged 14% in the last several years.

Expect that approximate level to continue.

We closed the acquisition of the ReliaStar Group reinsurance business and look forward to contributions from that business in 2010.

We are well positioned in terms of capital.

We continue to evaluate opportunities to deploy that capital.

Finally, as announced yesterday, we have increased our quarterly dividends 33% to $0.12 per share.

Looking ahead to 2010, we have set an operating income target of $6.30 to $6.90 per share and consolidated premium growth of approximately 15%.

We expect ROE to stay between 13% and 14%.

We believe the life reinsurance environment is stable.

We are well-positioned to capitalize on potential opportunities and continue to both increase the value of our franchise and achieve the returns we have exhibited in the past.

We've been moving toward a more neutral investment position, recognizing that there is still a number of difficult economic scenarios that could play out over the next couple of years, and I would characterize our investment philosophy as providing more than usual liquidity and reduced credit risk.

We expect to give up some investment yield as a result of this positioning.

Although the environment may provide opportunities, our guidance assumes no significant deployment of capital for large in force block transactions due to the unpredictable nature of these transactions.

Our guidance reflects premium growth rates on an original currency basis of between 15% and 17% in the US, including the impact of the ReliaStar acquisition, 7% to 12% in Canada, 5% to 10% in Asia Pacific and 12% to 17% in Europe and South Africa.

We have provided additional premium guidance in our QFS, which is posted on our IR website.

We appreciate your support and interest in RGA and will now take any questions you may have.

Thank you, sir.

(Operator Instructions) And we'll take our first question from Steven Schwartz with Raymond James & Associates.

Hey, good morning, everybody.

A couple questions here.

First, just so I'm clear, Greig, did you say that the claims experience, the adverse claims experience in US tread was $15 million for the quarter?

That's always hard to peg exactly.

It's between $15 million and $20 million.

If you look at -- actually the fourth quarter, it looks a lot like the year as a whole and looks a lot like '08, and it looks quite different than '06 and '07.

Now that difference between '06 and '07 and '08 and '09 is not due at all to '08 and '09 issues.

It's simply the same business exhibiting a little bit different characteristics over those time spans.

Okay.

The reason why I asked was that the press release said $20 million, so I just wanted to get that straight.

In the third quarter ,we discussed what was going on with the mortality and your thought was that you were seeing worse than expected mortality in the higher face value sell.

Is that what you saw in the fourth quarter again?

That's almost always the case, David.

The mortality by claims amount -- by policy account with a book our size is pretty rock steady.

The variation almost always comes about because of large claims.

Okay.

And then the assumption that you're using for mortality in the 2010 guidance, does that kind of assume where we've been, or does that assume that things kind of return to what would you consider to be normal?

It's a little between them.

It's a little between them, okay.

It certainly reflects our experience of the last couple of years.

Okay, good.

All right, good.

I'll get back in the queue.

Thanks.

We'll take our next question from Andrew Kligerman with UBS.

Great, good morning.

Just first, real quickly, the tax rate.

What do you think is a good tax rate to use in our estimates going forward over the next year or two?

Andrew, this is Jack.

I think it's going to bounce around from quarter to quarter.

But if I were constructing a model, I would use roughly 34%.

34%, okay.

So the roughly 30% today, that was sort of the benefit between the 34% expectation and the 30% that we roughly got today on operating earnings?

Yes, well, I'm talking about --

I know, that's your going forward, but that would be kind of -- that's a second question, that would be probably a way to estimate how much of a tax benefit you got this quarter, fair?

Yes, fair.

Great.

Now, just in terms of trying to, just from a modeling standpoint thinking about the fact that your $15 million to $20 million of, I guess worse than expected mortality in the quarter in the US, as I look at the benefits ratios per what you provided, you come up with about an 86% benefits ratio in the quarter which is exactly the benefits ratio we've seen over the prior nine months and in '08 as well.

On the flip side, policy and other acquisition costs as a percent of revenue were probably elevated by 100 basis points more than what I've historically seen.

So maybe you can help me deconstruct those numbers and think about where that $15 million, $20 million of adverse mortality might have shown up.

I kind of saw the same type thing in Asia Pacific.

Well Andrew, on the benefits side, on the mortality side, like I said, the fourth quarter was a lot like the year and it was a lot like '08.

So basically, we've been running a consistent level of US mortality in the last two years with some ups and downs in there.

But the fourth quarter looked a lot like it has been.

Your observation is correct.

But you were expecting some type of a drop off, Greig, in the fourth quarter, then?

Well, as I also mentioned, it's quite different than the level of mortality of, same block of business essentially in '06, '07.

So we are still adjusting our sights a bit from the '06, '07 level to what was actually experienced in '08 and '09.

By essentially the same block of business.

I see.

And in Asia Pacific, it was interesting again because you reported very favorable numbers, but the benefits ratio was 86%, offset by, again, that policy and other acquisition cost line item being maybe a good 500 basis points or so lower than what historically that line item has been.

So were the benefits of it maybe reflected in the policy and other acquisition cost?

Is that where the benefit would have appeared in the accounting?

Yes Andrew, this is Jack.

There's always a lot of interplay between the policy acquisition cost line and the claims and reserve change line.

So I would caution to you look at both of those together and maybe you can get a little better feel.

What was the net benefit in the quarter versus expectations in Asia Pacific?

Sort of better than what you thought?

In terms of mortality experience?

Mortality, yes.

It's always hard to peg exactly, but you can think in terms of roughly $5 million.

$5 million, okay, great.

Then lastly, could you throw out an excess capital figure?

Is there any cash that's pretty much redeployable at any moment?

And if so, what would that number be?

We've got a considerable amount of flexibility at this point.

The excess capitalization available is a little bit north of $500 million dollars currently.

And we would love to deploy that in the business in opportunities, Andrew, and we expect to try to do that all year long.

We see some opportunities, but we really didn't have much success in deploying significant chunks of capital in 2009.

So we are not making any bold predictions on that front.

But there are opportunities out there, and hopefully the M&A environment picks up a bit and we can successfully deploy that capital in 2010.

And the $6.30 to $6.90 estimate doesn't encompass any block deployment?

I think you said that a little earlier, Greig.

Almost none, yes.

Almost none.

Thanks.

Moving on to Mark Finkelstein with Macquarie.

Good morning.

I just wanted to go back to the US again and just taking the comment of, I guess three out of four quarters where you have had some elevated mortality experience.

For 2010, you're assuming something between what you've experienced and kind of what you would characterize as a normalized loss ratio.

I guess the question I'm asking is, is there anything that you have seen specific in the blocks that leads you to believe that there is any pricing issues anywhere and that's partly contributing to the higher than expected -- I should say the higher mortality assumption for 2010, or is it more a factor of, we've had these three quarters out of four, and we want to be conservative in that assumption?

Mark, remember a lot of this business was priced in the early part of this decade, in the 90s and even in the 80s and before.

And the business is performing in total better than priced.

Because pricing a long time ago envisioned quite different mortality than we're experiencing today.

I think what you can -- the way you can think of the way we set expectations for the coming year is sort of an average of our experience over the prior periods.

And so if you sort of think about 2010, best guess as being something that takes experience of 2005 through 2009 into account.

You get a mixture of quite different experience on this block of business.

The experience in 2008 and '09 is quite sharply different than '06 and '07.

For whatever reason that may be, it's something we'll probably never understand.

Okay.

But essentially you're not -- there's never that you've seen that leads you to believe that structurally --

No.

Okay.

That's what I was getting at, then.

No, we get large claims from policies issued 20 years ago, and they happen to die in a particular time, and that spikes the mortality rate in that particular time.

But it doesn't necessarily mean anything about the long-term nature of the experience on that business.

Okay.

Fair enough.

Can we just go to Canada real quick?

Obviously a strong result for the creditor business.

It appears that that's where a lot of the growth is.

Loss ratios were extraordinary this quarter, half of what they were the prior quarter.

Can you just kind of give us more color on what exactly you are seeing in terms of the opportunities in that particular business?

And two, is there anything that's specific about the experience that you showed this quarter?

Were there any kind of reserve adjustments or anything that benefited that loss ratio?

There's always a few things like that.

I wouldn't pick out any particular significant items there.

Yes, the growth rate on the creditor business has been something that has bumped up the premium levels, because that tends to have higher premiums, lower profit margins, but more stable profit margins.

And -- because there's a lot of small policies in that.

And overall, it's just helped our Canadian operation to be part of that business as well.

Experience in Canada has been running pretty good over the last several years, and 2009 was no exception.

Okay.

Thank you.

Next question will come from Jeff Schuman with KBW.

Good morning.

I was wondering if you could give us a little more perspective on the changes in the investment portfolio.

I think most of us think of you as having a pretty normal investment portfolio, fairly conservative, not a portfolio that's been burdened with a lot of problems.

So are there certain type of securities that you're trying to sell down a little bit, or what exactly is motivating the change in the investment portfolio, and what exactly have you changed?

Jeff, this is Jack.

Let me take a crack at that.

We are certainly not overhauling the portfolio.

It's more a continuation of a migration that started this year, or started in 2009 I should say, early in the year.

And it's designed to take a little more neutral position in that we continue to have concerns, as a number of people do, on just the potential for some somewhat negative outcomes over the next couple of years that could have significant impacts on investment portfolios.

So I think if you wanted to take a step back, you can think of it as mildly reducing credit risk in certain asset classes and also sitting on a little bit of additional liquidity that better positions the portfolio in what we hope is a fairly broad array of outcomes that could transpire and that we are trying to protect against.

So the decision to hold more liquidity, is that partly kind of a call in market timing?

Would you hope to deploy some of that liquidity into a higher interest rate environment a year from now, is that part of what you're thinking?

Yes, it's quite possible.

We probably should have mentioned, this a fairly dynamic process.

So that if we get more comfortable with the economy or see things changing in terms of relative new money rates then sort of thing, then certainly, we would continually rethink the level of conservatism that we would be building into the portfolio.

Okay, that's helpful.

With regard to Asia Pacific, Greig, I think you talked about South Korea and Japan.

I think Australia is still the biggest piece of that segment.

Can you give us a little color on kind of what the growth outlook is in Australia, please?

Well, we are continually amazing by our production in Australia, considering the population is only 20 million people or so in that country.

We've had very good string of results and expect that to continue, frankly.

We have a strong team and a strong market position as a leading reinsurer in the Australia market and expect that we should continue growth in the 10% range, I believe, in Australia, give or take a bit.

That's been a good market for us.

Okay.

Then lastly, just coming back to the capital position and the potential opportunities to do some block transactions.

As we look over the last year, there was probably less activity than we all expected.

And I think in recent calls you've said that your lower level of activity was attributable primarily just to the fact that things didn't so much come to market, it wasn't that things came to market and that you lost out competitively.

Is that still the case, just less business is in the market, or what's going on?

Yes, I think so.

There was a huge amount of activity on the financial reinsurance side which we participated in towards year end.

There was also a lot of, of course, companies issuing surplus notes and doing other things.

But there was very little true risk transfer in big block in force transactions, which we expected going into the year there might be more of.

We expected it to be a reasonable amount of it, actually, based on what we were seeing at that time.

So we are really not sure what 2010 brings.

We do believe that there's good reasons for some of that in force block activity to happen, but we are not in the predicting game anymore in that arena.

Well, given that there was less than expected activity in 2009, which was obviously the year when balance sheets were under pressure, I guess it seems possible that there won't necessarily be more activity this year.

And it would seem that your kind of core growth plan is one that you can sort of finance without tapping your excess capital.

So what is kind of your time frame for thinking about some of that excess capital capacity and what you might do with it if some of these transactions don't emerge?

Well, I would say as time goes along, we will have to begin to think about that.

We are not particularly worried about that, nor have we really concerned ourselves too much with it in the 2010 operating plan.

If we have deployed no capital and are still sitting on a lot of excess capital at the end of 2010, that's a different story.

We will have to begin to think about what to do with it.

But we really haven't got to the point where we are concerned yet about that.

Great.

Thanks a lot, guys.

We'll take our next question with John Nadel with Sterne Agee.

Good morning, everybody.

One on guidance and then one on capital.

I guess I'm trying to understand the lower end of your 2010 guidance, Greig.

2009 you reported $5.98.

I guess I'd sort of adjust for some noise, maybe mortality, FX, and a few other things, and core looks a little bit higher than that, maybe $6.15 to $6.20.

If I go back to last year and compare your 2009 guidance to 2008 core, you were looking at about 10% to 20% EPS growth.

This year, I think your guidance is implying about 2%to 11%.

I mean, that's a substantial drop.

And I understand your comments on maybe an outlook for lower yield on the net investment income side, but your topline growth rates haven't really changed to get a bump from -- you get a bump from the ReliaStar deal.

I guess I'm trying to understand what could go wrong that gets you all the way down to $6.30, which is essentially no growth?

And I guess conversely, what could go right that gets you to the upper ends or above?

Remember, we have to deal with currency fluctuations, which can have a substantial impact.

You could easily see that that number swinging $0.20 or $0.30 per share on an annual basis one way or the other.

You could see impacts from mortality fluctuations, which we always have.

Business activity, we are pretty confident in in terms of premium growth rates.

We might be off by a percent or two, but we are going to be pretty strong again in 2010.

And generally speaking, that range that we gave is a pretty small range considering the variability and experience results in our business over a four quarter period.

John, this is Jack.

Just a quick comment.

I think we need to be a little bit careful when we try to normalize.

And it gets to be a never ending process, as you know.

But I think we had some things break our way and some thing work against us in 2009.

And we did have some tax reserve adjustments that work to our benefit that we certainly, at least to the extent that they were exhibited in 2009, we wouldn't expect that to repeat itself in 2010.

So you really have to look at all that sort of thing as you normalize the year.

Okay, all right.

Well, I'll follow up with you guys offline, maybe go through that more in detail.

The second question is, just to come back to excess capital and opportunities, not to beat a dead horse here, but last quarter I think you guys mentioned excess capital stood, after the ReliaStar deal, at $200 million to $400 million.

I guess I'm trying to understand why you tapped the debt markets for $400 million this quarter, which all else equal would put your excess capital today just rolling forward at $600 million to $800 million if nothing else has significantly changed, and certainly doesn't look like it has.

So I guess I'd like you to square that with the $500 million excess capital comment in response to Andrew.

And then just sort of, can you give us a sense for why you $400 million debt raise?

I know you had originally targeted $300 million upsized it.

I'm trying to understand why you did that.

John, this is Jack.

Let me take a crack at that.

I think we saw capital markets moving sideways and up and down and every which direction over the prior 18 months or so, prior to our debt offering.

So we probably were more aggressive than we normally would be in terms of reinserting some debt into our long-term capitalization.

Once rates had moderated to a point where we thought it made sense in terms of our long-term cost of capital.

And as you mentioned, we did upsize that offering a little bit.

So think of that more as a long-term adjustment of our capitalization.

And certainly, we are always optimistic that we can deploy, over time, some additional amount of capitalization.

In terms of trying to square previous comments about excess capital versus where we are now, I think maybe I've contributed to some of the confusion there in terms of capital versus capitalization.

That -- obviously, that debt offering did increase the capitalization in what we view as excess capital available for deployment.

So a number a little north of $500 million is a fairly accurate number in terms of our view on the excess capital at this point.

Maybe this is more for offline, but if you took today's excesses capital levels plus your earnings capacity and put that against your organic growth outlook, and let's assume that there's no opportunities for sort of the one time deals.

How long is -- is it a factor of three to five years of growth that you would be able to support as even more than that?

I mean, it seems to me that ex- an opportunity to deploy the capital, either into a deal or buybacks or a special dividend or some other use, it appears to me that you are in the position to support the organic growth for, I don't know, for the foreseeable future.

Yes, this is Greig.

Let me have Jack answer that question, but wanted to insert one thing first.

We are in an environment where the whole life insurance industry capital requirements may be strengthened.

And there's a lot of push to that effect, not only here, but in other parts of the world as well.

So we are facing an uncertain capital requirements future.

But we can rest assured that it won't be lighter capital requirements, it will be, if anything, higher capital requirements, and they are uncertain at this point.

So we are bearing that in mind as we go along here as well.

Okay.

Yes John, just a quick comment.

We certainly do, as we've been discussing here, have a fairly significant amount of available excess capital at this point.

And I think we look, at it and perhaps you could look at it as well as we've got some flexibility to the extent we do have some opportunities that come our way.

Worst case, we've got a couple hundred million dollars of debt to be refinanced next year.

And one could think of the $400 million we raised as if we don't have other opportunities, we would simply advance, refinance some debt that was coming due.

So there's some things that are happening along the way that we'll take care of some of the excess capital, if, in fact, we don't have opportunities to continue to deploy it.

Okay.

All right.

Thanks, guys.

We'll move on to Steven Schwartz with Raymond James & Associates.

Hey there, guys.

A few more.

It wouldn't be a quarterly earnings conference call without some discussion of what was going on in asset intensive and maybe what is a normalized number there.

I'd also like to go back to the guidance.

I'm just wondering about the -- if you've assumed a similar type of tax settlement activity in the third quarter as you saw this year.

And then maybe a discussion of new business trends in US tread.

It looks like it was up a lot in the quarter.

Greig, I think you said it was going to be up a lot.

I'm wondering what's going on in that area right now.

The new business in the US?

Yes.

The new business in the US outlook for 2010 is about the same level as 2009 when you put the whole year together and in fact, if anything, it might be marginally up in our pipeline right now.

So we're pretty -- we feel pretty good about the level of production in US mortality business.

The asset intensive business had a very strong 2009.

The first quarter was, as you might imagine, somewhat challenging, but the rebound and the subsequent business was very strong.

Having said that, we did not do any new asset intensive transactions during the course of the year because we could never close the sort of bid-ask spread on those sorts of transactions, given our caution on the investment front.

Many of the direct riders are stretching to make spreads right now because of the low level of yields, and maybe that's a little bit of a strong statement, but we are certainly on the other end of that.

We are trying to keep very conservative at this stage so that we have flexibility as we see what develops, whether we get into an inflation scenario or something else that is in the future.

I think in the past, Jack, you've said that normalized earnings from asset intensive would be around $12 million per quarter.

Is that still good.?

Going forward on a pretax basis, I think we would expect something a little bit higher than that.

Something higher than that.

Okay, very good.

Yes.

And then the third quarter tax settlement activity, do we expect that to continue?

Yes.

Yes, in terms of the impact of FIN 48 then sort of thing, yes we would, unless we change in connection with when the IRS is reviewing and clearing our returns, unless that changes.

But we wouldn't necessarily expect that.

Okay.

Great.

Thanks.

We'll move on to Sean Rourke with Dowling & Partners.

Good morning.

Could you guys refresh us on your international growth objectives and update us where you are in expanding in Europe as far as in the upcoming new office openings?

And second, just back in the US business, what kind of behavior are you seeing now from the life companies as far as session rates and what factors are driving that?

That's it.

The US session rates, we've seen actually a little bit of pull back of companies retaining more and reinsuring less.

Put that together with my prior statement, though, of we expect our business in 2010 to be about the same level, or maybe very slightly ahead of 2009 levels.

So it is the case that companies are retaining bigger retentions in the direct market and putting less business into the market than they had been.

In terms of European offices, we opened quite a few offices that are still at a fairly fledgling stage.

Offices in France, Italy, Netherlands and Germany, for example, and Poland, I guess you could throw in there as well.

We expect those offices to exhibit pretty good growth because they are starting from a low base, and we have that baked into our expectations for next year that Europe, as you can see, the expectations for Europe are fairly strong in terms of growth rate for next year.

Great, thank you.

Does that answer your question?

Yes, that's great.

Thanks.

(Operator Instructions) We will move on to Eric Berg with Barclays Capital.

Thanks very much.

Greig, good morning to you and your team

Good morning, Eric.

Greig -- thank you.

Maybe you could build on your (inaudible) to Jeff.

Why, in such an improved environment, would you continue to be hopeful about block transactions and putting this money to work?

In other words, I would think that your optimistic is as great as last year and would be less now that insurers are in better shape than they were?

Well, for a couple reasons.

First of all, we think that there's a need for companies to access this type of transaction.

Secondly, we are working on a few.

We don't know whether they will come to fruition or not.

But there is plenty of opportunities and lots of capital deployment in things that we are working on.

That's sort of been the case for a lot of last year, too, and a lot of companies ended up going financial reinsurance routes or something less risk transfer-oriented.

But nevertheless, we continue to believe that the risk transfer transactions actually involve a little bit better outcome in some cases for some of the companies.

So we've not -- certainly, far from given up on that activity and have reason to believe that we will be able to deploy capital over time.

But it's hard to make those predictions in terms of specific times.

My second and final question relates to your Asia Pacific region.

You've laid out why business is slowing down there, products reaching their natural sort of sunset.

But why haven't new products replaced them?

In other words, or to put the question differently, is this slow down consistent with what you've seen in the past out of that region, or is this something new?

This is something new.

In the case of South Korea, for example, it's sort of the first wave of products that we dealt with.

No, there's actually been a slow down in the regulatory authorities in both Korea and Japan in approving new products, approving new arrangements.

Japan is a little bit different.

There was the transition from associations being regulated in one way to a different way and it just has, there's just particularities about our business and exact arrangements that are affected right now.

We don't really expect that this is is anything but just a gap that we need to live through, because there's lots of opportunities in good growth in Asia as a whole.

Thank you.

We'll take a follow-up question from John Nadel with Sterne Agee.

Hey, thanks guys.

Just two quick ones for modeling.

One in Canada.

Can you disclose to us how much of your premiums there is true mortality business versus the creditor insurance business?

I know you give us the loss ratios, but it's pretty difficult to figure out exactly how much the -- one business or the other is driving without the premiums.

John, this is Jack.

If you look at our Qs, as I recall, we do break out each quarter the extent to which that premium is made up of creditor business.

In the 10Q, not the supplement?

In the 10Q, that's right.

And you wouldn't see any dramatic change in that mix in the fourth quarter, so you can probably just do an extrapolation.

Okay, that's helpful.

And last one is just in the corporate and other, I think your interest expense line this quarter reflects a full quarter of the new debt, but I might be wrong on that.

It was two months.

It was two months?

Okay, so it will be a little bit higher as we move forward.

And is investment income there in the quarter a reasonable run rate, or you still have a little bit more to do there?

I think it's reasonable.

Okay, thank you.

We'll take another follow up from Jeff Schuman with KBW.

Hi.

Where do the proceeds from the debt raise reside, and how are those funds invested at this point?

Jeff, ultimately any kind of proceeds from securities that we issue, in terms of our reporting, end up in corporate.

And then as we deploy the capital or as the various business segments grow, then we allocate some of that investment income out to those segments.

So you can think of that right now, the most recent capital raises, primarily being housed in corporate.

In terms of how it's invested --

From a legal entity perspective, is it at the holding company?

That's right, it's at the holding company.

I'm sorry, I interrupted you.

That's quite all right.

Then in terms of how it's invested, we use those proceeds to help in this kind of portfolio repositioning that we addressed earlier.

So you could think of those proceeds as being invested relatively short term and relatively on the near side of any credit quality sort of issue as we gradually rebalance the entire investment portfolio.

So, when you talk about wanting to maintain a higher level of liquidity, would this represent the book of that, or is that number -- is that target even bigger than this $400 million?

No, it's not bigger and it's not even the bulk of that.

It's some portion of those proceeds.

Okay.

So even barring a large transaction or anything of that nature, at some point, there could be accretion just from sort of terming that money out into more traditional investments, I guess.

Yes, there could be to the extent that we are more aggressive as we anticipate as we put our projection together.

Okay, thanks a lot.

We have no further questions.

(Operator Instructions) Mr.

Lay, we have no further questions at this time.

Okay.

Let me comment on one question that came up from Steven Schwartz related to asset intensive that I think I unfortunately misinterpreted.

Because I mentioned that that roughly $12 million run rate would be a little bit higher.

I was mentally including financial reinsurance in that.

And I don't think that was Steven's question.

I think it was solely related to asset intensive.

So the response should have been, yes, that that run rate that he quoted is there roughly what we expect.

So I just want to make sure that there's no miscommunication there.

I guess with that, we will end the call.

Thanks to everybody who has participated today, and you can certainly give us a call here in St.

Louis if any other questions come up.

Ladies and gentlemen, that does conclude today's conference.

Thank you for your participation.