美國再保險集團 (RGA) 2012 Q2 法說會逐字稿

Good day and welcome to the Reinsurance Group of America second-quarter 2012 results 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, Mr. Lay.

Okay, thank you.

Good morning to everyone and welcome to RGA's second-quarter 2012 conference call.

Joining me this morning is Greig Woodring, our CEO.

I will turn the call over to Greig after a quick reminder about our forward-looking information and non-GAAP financial measures.

Following Greig's prepared remarks, we will open the line for 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 fiscal or financial performance and growth potential of RGA and its subsidiaries.

Keep in mind that actual results could differ materially from the 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 the call, we will make comments on pretax 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 our press release and quarterly financial supplement for more information on this measure and reconciliations of operating income to net income for our various business segments.

These documents and additional financial information may be found on our Investor Relations website at www.rgare.com.

With that, I will turn the call over to Greig.

Thank you, Jack and good morning to everyone.

Yesterday, we reported second-quarter after-tax operating income of $122 million or $1.65 per diluted share, up $0.05 from $1.60 per share last year.

Foreign currency fluctuations adversely affected the current quarter by about $0.03 per share and the slightly higher effective tax rate had an adverse impact of another $0.03.

Overall, second-quarter results were stable, but a bit below our expectations, primarily due to mixed claim results in some of our key markets, but we did have several bright spots during the quarter as well.

Despite foreign currency headwinds, reported net premiums were solid, increasing 9% quarter over quarter and ignoring those currency effects, premium rose 12%.

Our US group and individual health lines performed well this quarter and we executed a significant deferred annuity reinsurance transaction in our US asset-intensive subsegment.

Financial reinsurance business continues to thrive both domestically as well as abroad.

Claims experience in Canada was in line with expectations as it was for most of our markets.

We did see somewhat higher than expected claims in the US, individual mortality, as well as in the UK and in Australia this quarter.

Investment income decreased $9 million, or 3%, quarter over quarter, including a $45 million decline in the fair value option contracts supporting equity indexed annuities and an increase from the new annuity transaction that I mentioned.

Excluding those items, investment income was flat compared to the second quarter of 2011 as the increase in invested assets was offset by the drag of declining new money yields.

The average portfolio yield remained at 5.05% as it was last quarter, which is down 30 basis points from last year's second quarter.

Our balance sheet and overall capitalization remained strong.

We are pleased to report a 33% increase in our quarterly dividend per share, which, as announced yesterday, rises from $0.18 to $0.24 per share.

Book value per share increased to $84.75, including AOCI and to $60.34 without it.

Turning now to our segment results, our US traditional business reported pretax operating income of $96 million, an increase of 5% over last year's $91 million.

Individual mortality experience was slightly adverse, but the group and individual health lines performed well.

Premiums were up 11% quarter over quarter benefiting from an in force transaction executed in the first quarter of this year.

Our US asset-intensive subsegment posted pretax operating income of $17 million, down from $20 million last year, reflecting relatively weak equity market performance in the current period.

Current quarter also includes the results of a large fixed deferred annuity reinsurance transaction.

We invested approximately $350 million in capital in that transaction and expect to earn a 13% return over the life of the business, earning a bit less than the first several quarters while we reposition the investment portfolio.

For the second quarter, the annualized ROE on this transaction was approximately 7% and we expect the return on the transaction to total 10% overall for 2012.

Our financial reinsurance business continues to perform well growing pretax operating income to $10 million this quarter, up from $7 million a year ago.

Turning to Canada, pretax operating income declined to $31 million in the second quarter from $42 million last year.

Current period claims experience was in line with expectations while claims were better than expected last year.

Foreign currency movements adversely affected pretax operating income by $3 million.

Reported premiums increased 5% in Canada to $221 million this quarter and in local currency, premiums were up 10%.

Turning to our international operations, first in Asia-Pacific, pretax operating income totaled $23 million this quarter, a sharp increase over $5 million produced in last year's second quarter when we had adverse claims experience in Australia and Japan.

This quarter, we experienced slightly higher than expected claims in Australia, but all of the other Asia-Pacific markets produced good results, including good growth in financial reinsurance fees.

Net premiums increased 5% to $332 million, including adverse foreign exchange effects of $13 million.

Excluding currency fluctuations, premiums were up 9% quarter over quarter in original currency terms.

Next, in Europe and South Africa, pretax operating income was $18 million this period, up from $12 million last year.

Claims were slightly elevated in the UK, but several other European markets benefited from favorable claims experience.

Reported premiums were $310 million, a 10% increase over last year.

Original currency premiums were up a strong 18% over the second quarter of 2011.

Our corporate segment results have been trending below prior-year comparables this year as we have allocated relatively more assets and investment income to support our other segment's growing capital requirements, which are based on an internal capital model.

We expect this trend to continue throughout 2012 and believe the second-quarter results in the corporate segment serve as a reasonable estimate of what to expect going forward.

On a consolidated basis, investment income is in line with expectations through the first six months of the year.

The effective tax rate during the second quarter was 34.9%, somewhat higher than anticipated, driven in part by an increase to the total tax provision associated with the expiration of active financing exceptions or AFE.

So overall, we are pleased with the second quarter, which generated an annualized operating return on equity of 11%.

For the trailing 12 months, operating ROE was 12% despite the ongoing effect of lower investment yields.

We continue to benefit from our geographic diversification.

On a year-to-date basis, our premiums and bottom line are generally in line with our expectations.

We invested a significant amount of our deployable capital into the fixed annuity transaction and expect to earn an attractive long-term return on that capital.

Following that transaction, we still have some flexibility with $100 million to $200 million of excess capital remaining and that amount should continue to build.

Further, we feel we have some capacity to issue additional senior debt as well.

The annuity transaction adds over $5 billion of invested assets to our balance sheet.

However, RGA's asset leverage remains below the average for the life insurance industry.

We expect our relative sensitivity to equity and interest rate movements to continue to be less than the average life insurance company as well.

Our success will still be driven primarily by our ability to effectively price mortality and morbidity risks.

Our life insurance assumed in force has grown to almost $2.8 trillion and we continue to review a number of block and in force opportunities with various markets around the world.

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

(Operator Instructions).

Jimmy Bhullar, JPMorgan.

Hi, good morning.

I was wondering if you could give us a little bit more granularity in terms of results in the asset-intensive business.

If you assume that the acquired block had a 7% ROE annualized in the second quarter, it means that maybe earnings were around $6 million or so.

And you take that out of the $17 million you reported in the second quarter in asset-intensive, it seems like the legacy RGA business performed very poorly.

So what happened there?

What your expectations are going forward?

And then secondly, you have had elevated mortality in the US business for several quarters or the last couple of quarters, but with a relatively high degree of frequency over the last year or two years as well.

So if you have seen anything in the underlying book that might make you rethink what your long-term margin expectations are for the US business?

Jimmy, this is Jack.

Let me respond to the asset-intensive business results question.

I think you have got the relative contribution from the large block transaction pegged pretty closely.

We did -- well, the legacy business -- I wouldn't suggest that it -- I don't remember your exact words -- underperformed significantly or something like that.

It was a little weaker than our typical run rate, which I would characterize at about $70 million per year pretax on that business.

And we have no reason to believe it won't be in and around that number for the year.

That is the business other than the block that we put on this quarter.

So we are quite comfortable with it.

Sometimes the lapse rates will spike in earnings a little bit from quarter to quarter, so it is not unusual for that to move around a little bit.

But we are very comfortable with the overall performance of that underlying business.

In terms of mortality, Jimmy, the US has not had a particularly good run in the last, I would say, five or six quarters.

There has been some good periods and some bleaker periods.

We continue to see elevated claims from the period of issues in the last couple of years of the '90s and the early parts of the 2000s.

And when we get a surge in those claims, it seems to be the biggest culprit of our in force block.

And that was particularly the case here in the second quarter too.

This was a little odd in the second quarter since it was more of a frequency than severity issue in the second quarter.

But we believe that we have a good handle on what to expect going forward and we are still fighting though with that particular band of issues from, as we have mentioned a couple times in the past, from around '97 or '98 to about 2003 or so.

And then just one more on the European business.

The margins there were slightly weaker as well.

I think you mentioned you might have had high UK claims, but wondering if that was -- was that mortality or was that critical illness again?

In the second quarter, it was more mortality than critical illness I believe.

The UK was a little bit off, not terrible, but again it is one of our bigger businesses, so we really had -- none of our four largest businesses -- US, UK, Canada or Australia -- performing exceptionally well.

Canada was in line, which was a deviation for them because they are usually better than expected in recent years and Australia had a good bounceback on the disability side.

So very good results on the disability side, but disappointing results in terms of mortality and lump-sum business.

Okay, thank you.

Nigel Dally, Morgan Stanley.

Great, thanks, good morning.

First, on the Hancock transaction, I think you mentioned it was a 7% ROE this quarter.

Hoping for it to be at 10% for the full year.

I think that is a lot lower than many investors would have expected.

So if you can discuss where you ultimately expect that ROE to get to, perhaps discuss some of the steps that you are taking to improve those returns and whether the low interest rates are a potential headwind to achieve those returns.

Second, given the transaction, you have used a significant portion of your excess capital, but I believe the pipeline of potential block transactions is still very robust.

So if there are attractive opportunities, how would you expect to finance any further transactions?

Thanks.

First of all, on the John Hancock transaction, we booked essentially a fairly small amount of profit this quarter or a small portion of the quarter.

We need to reposition the portfolio to be a little longer because of the way we manage these assets compared to how they were managed before, so that will take a little while.

We expect this -- if you think about our mix of capital and debt to be a return that exceeds most of our pricing returns that we are pricing for today, we are talking about an unlevered return of 13% and a levered return of something in excess of 15% ultimately, but we will be essentially lengthening the portfolio a little bit as the year goes on.

We expect to get the assets next week now that everything seems to be in order to get that transfer over.

So until we get that, we can't reposition the portfolio.

The level of rates where they are today was built into all of our pricing and we have -- I think we have every confidence this business is going to perform quite well for us.

In terms of our excess capital, yes, we do have a bursting pipeline.

I can let Jack comment on the level of capital and how he sees that going forward in terms of additions to it and so forth, but we do have a bursting pipeline, lots of opportunities.

They run the gamut both geographically and in size.

And so we are very carefully watching that and hope to do more transactions.

The pipeline to which Greig refers is activity underway; it is not signed deals, but there is certainly a lot of activity, as he indicated.

In terms of how we would finance that, it really depends on the size of the deal.

You can almost look at our underlying generic growth rate as -- if you look at it historically, it has moderated quite a bit over the last six, eight years or so.

So we are really enhancing the growth rate with any kind of block or M&A sort of deals.

And to the extent that those deals are modest in size, we likely, unless we pile up quite a few all at once, we can likely finance those internally.

Now if we do any large M&A deals, and I think it is probably more obvious we can't necessarily finance that internally and we would have to go to the capital markets and with some mixture of capital, and it all depends on the deal and the relative return in terms of how we would finance.

But it would have to be a fairly large deal before we would have to go to the capital markets.

Okay, very helpful.

Just a couple of other questions, numbers questions as well.

Tax rate, what should we expect over the remainder of the year?

And also corporate expenses remain high.

It has been at this level for several quarters now.

Should we view this level of losses as an appropriate run rate?

Okay, first, on the tax rate, unfortunately, it does tend to bounce around from quarter to quarter.

That is why we are reluctant to give an estimate per quarter what you should expect.

But annually, it really should settle in between 33% and 34%.

You could almost cut it right down the middle at 33.5% would be probably our best estimate at this point going forward.

We will probably likely not see that in any particular quarter, but over time that is what we would expect.

In terms of the corporate segment, we have, because of the growing business volumes in all the operating segments, we tend to allocate more capital, which drives the investment income allocation.

So we have allocated more capital to those segments.

As a result, we are attributing more of the investment income to those segments and as a result, there is less attributed to the corporate segment.

So I think going forward, you could almost expect something around a breakeven sort of performance and it won't be there in any one quarter, but over time, because there is a little bit of volatility there, but over time, that is probably the best estimate at this point.

Okay, very helpful.

Thanks.

Jeff Schuman, KBW.

Thanks, good morning.

I wanted to circle back with a few more questions on the Hancock transaction.

A little bit confused by some simple stupid arithmetic I guess.

Greig, it sounded like you were telling us that it would take a while to ramp to 13%, but I guess simple arithmetic would say if you're going to do 10% over the second half and you did 7% this quarter that you would have to ramp pretty quickly towards the 13%.

So a little unclear about the trajectory I guess.

This is Jack.

Maybe I could help with that.

As Greig said, during the second quarter, we didn't have our hands on those assets so to speak.

They weren't (technical difficulty).

Hello?

This is the operator.

It looks like we have lost connection with our speakers.

Just remain on the line and I will let everyone know when they have rejoined us.

Our speakers have rejoined us at this time.

Operator, this is Jack.

We are back online then?

You are back online with your participants.

Okay.

Sorry about that.

It is not real clear where we dropped off or where the malfunction was.

Jeff, maybe you could comment on how much you heard of my response.

Operator?

I just reopened your line, sir.

Thank you.

Okay, Jack, can you hear me now?

Yes, I can.

Okay, so yes, I'm sorry, I didn't really hear most of your -- I don't think I heard much of your response.

So my question, which I didn't ask terribly well, was just trying to get a better fix on the exact ramp of those returns on the Hancock business.

Because it seems like if you're going to start at 7% and do 10% for the year, that you might actually ramp pretty quickly towards 13%.

Yes, well, that, in fact, is the case.

We haven't received those assets yet.

We should early next week actually execute the transfer of the assets and until that happens, we couldn't reposition the portfolio.

So we will, in short order, take a look at repositioning roughly 30% of that portfolio or so and we would expect to do that reasonably quickly.

You don't do that in a week, but we think by -- a lot of it will take place in the third quarter, the remainder in the fourth quarter so that by the end of the fourth quarter, we will be at roughly a run rate, so to speak, in terms of ROE.

Okay.

And just to be clear, kind of economics versus GAAP, one would think that if you are selling assets and reinvesting in this environment that that kind of hurts what you print for GAAP operating income, but would generate net income in the form of some gains.

But when you talk about the 10% or the 13%, that is what we would actually see emerge on an operating basis with the new lower coupons, is that right?

Yes, that is right.

Okay.

And the other thing I wanted to ask about, just to get a little bit finer point on I guess the capital capacity, I think you threw out $100 million to $200 million, but we have never known you to go push really hard against the envelope.

I am wondering to what extent all that is really available.

And then I don't have the metrics in front of me.

I was thinking debt to cap was around 25%.

Maybe you can remind us what it is and kind of what your cap is.

Yes, well, in terms of the first part of that question, we would not be reluctant to use that capital if the right opportunities came along.

And keep in mind, we are adding to that base of $50 million or more per quarter.

So I would think that that is capital that can be deployed into the business.

In terms of leverage rates and that sort of thing, and it depends on which ratio you are using and which rating agency you are focusing upon, but we think we probably have $200 million to $300 million, probably closer to $300 million of leveragability at this point that is capacity to issue additional senior notes of some sort.

And what is current debt to cap?

It is a little less than 25%.

And the $300 million would get you to what?

Well, it depends.

Like I said, it depends on which ratio you're looking at.

It would modestly exceed at least one of the agency's ratios, but we think we would be able to whittle it down pretty quickly just because of the earnings power of the Company.

So that is a best guess without broader discussions with the agencies.

But that is our feel right now in terms of leveragability.

Okay, thanks a lot, guys.

Ryan Krueger, Dowling & Partners.

Hey, good morning.

I was just hoping that if you could quantify how far above your expectation claims were this quarter on a consolidated level.

Ryan, this is Jack.

If you want to convert it to a cents per share, it is in the probably $0.13 to $0.15 per share range.

Does that include the asset-intensive segment as well or is that simply mortality?

Think of that as just the mortality and health businesses.

Okay.

So some additional increment on top of that from the weaker equity market and variable annuities?

That's right.

Okay.

And then just on the transaction pipeline, it sounds like a lot is going on.

Can you give us some sense of is it across the globe?

Is it focused in certain geographic areas?

And also kind of the type of products you are looking at.

Yes, it is around the globe, it is various different products.

Mostly we love to get as much mortality risk as we can, so our focus in many cases is on the mortality portfolios.

That is not always available, but whenever it is, that is our primary focus.

We are very often supporting companies that are making acquisitions when they are very large acquisitions and at the same time, we are bidding on closed blocks ourselves.

So there is a wide range and a combination of different possibilities that we are looking at, but the people who work on those sorts of things are very busy right now.

And that has been the case for the last six months or so.

These things take a long time to move through to a completed stage, but we are pushing a lot of them through.

Thank you.

John Nadel, Sterne Agee.

Hi, good morning, everybody.

I just want to get a clarification on the fixed annuity deal.

There has been -- I guess during this call, there has been talk of both 13% and then 15% levered or unlevered.

As you are deploying $350 million of capital here, that doesn't sound like it is $350 million of equity.

So shouldn't we be thinking more about the 10% for this year guiding or gliding up to 15% as opposed to 13%?

Yes, John, that's true.

If you wanted to say what is the levered return, that is using the same mix of debt and equity that backs all of our other liabilities, you would be more in the 15% camp.

If you look at it marginally incrementally, we are putting capital to work unlevered at 13% or so.

So yes, that's right.

Okay, okay.

So then if my math is reasonable and I am thinking about that 10% ROE, is that for the three quarters I assume that that would contribute to this year?

Then that is about $0.30, $0.35 a share.

I am wondering how we should think about your guidance that you provided to us a couple of quarters ago of $6.70 to $7.30?

One comment on your calculation.

We are using existing capital, which was earning at some investment rate.

So you have got to be careful that you look at incremental earnings versus just the absolute return on that transaction.

Okay, that is helpful.

Our guidance did not contemplate any -- it contemplated some degree of block deals, but not of that size.

So yes, I think your point is -- our original guidance didn't necessarily include that Hancock transaction and that would be accurate.

Okay.

And then just again sort of thinking about guidance, over the last week or so, as we have sort of launched into second-quarter earnings for this sector, it is pretty clear that, given the decline in both interest rates and I guess investment rates over the past three or six months, that most companies either formally or informally have sort of been talking about this incremental pressure that wasn't necessarily baked into or at least not at this length baked into that original guidance.

Should we think about some incremental pressure relative to what you had been baking into that guidance as well?

I think you should, but it is not dramatic.

I think we contemplated that lower rates would hurt us by $0.15 per share or so if you just looked year over year during 2012.

And rates -- new money rates have come down somewhat compared to what we use to go through that calculation, but not dramatically.

So it is a little more headwind, maybe $0.02 or $0.03 more, but not a whole lot.

Yes, that difference is likely dwarfed by just the statistical fluctuation of actual experience.

Yes, okay.

That was my sense.

Good to get the clarification.

And then finally, just can you discuss the financial reinsurance business a bit more?

I mean particularly in Asia-Pacific where I am not sure if that is entirely driven by the financial reinsurance business, but the other revenue line in Asia-Pacific was very, very strong this quarter.

How should we think about that business?

Is that sort of one-time fee revenues or is that something that should continue?

John, it should continue, but I am glad you raised that point because, in the Asia-Pacific segment, some of the -- if you just look at ratios compared to premium, they look a little odd and it is not driven all that much by -- or it is driven very little, I should say, by financial reinsurance.

We had one client that wanted to recap their treaties primarily because of administrative issues on their end.

So the treaties were recaptured and rewritten in a way that was easier for the client company to administer.

And unfortunately, it created some noise.

There was no bottom-line impact, but it did create some noise in the Asia-Pacific segment P&L.

And let me give you a feel for the type of noise I am referencing.

Other revenue increased by $12 million, solely associated with that recapture.

So there is $12 million -- you could think of that as unusual or one-time in other revenues associated with that recapture.

At the same time, the reserve line or the claims and policy benefits line was reduced by about $23 million and the policy acquisition costs was really the difference as that line was increased by about $35 million.

So those all net to zero, and it created some noise, but unfortunately that was the appropriate way to handle it in terms of GAAP reporting.

So that is just one of those things, but it did create noise in that particular segment's operating results.

All right.

Thank you very much.

That is very helpful.

And just overall sort of expectations for the financial reinsurance business?

Even if you just look at the domestic business, it looks like the fee revenues continue and it sounds like, at a minimum, StanCorp, which I believe you guys did a deal with them last year and it sounds like they are looking to do another one this year.

What is your outlook there, Greig?

Our financial reinsurance business is very robust and very strong right now, especially in Asia and to some extent in the US.

Europe is less so, but a little bit of activity there as well and we see that continuing.

Financial reinsurance provides a nice fee income basis.

It is a very technical business.

It is important to structure those transactions appropriately and correctly and we have a good team that does that.

Thanks very much, guys.

Stephen Schwartz, Raymond James.

Hey, good morning, everybody.

A lot of them were asked already.

Just a few.

Jack, third quarter, the tax settlement FIN 48 benefit, just thoughts on whether we will be seeing that or not.

Steven, best estimate right now is we will not have a year or multiple years' returns roll off in the third quarter.

So I would expect to have no impact associated with FIN 48 -- no positive impact I should say.

If I remember correctly, there wasn't one last year either.

Is there anything in particular going on?

Well, yes, there kind of is something going on.

I mean not negative, but we are no longer part of the -- we were at one time, as you can imagine, part of the MetLife consolidated IRS examination process.

We are not at this point, so then the IRS has determined, and they never examined specifically our US tax returns and they have asked for extensions so that they can get the team up to speed and that sort of thing.

And as a result, we have had kind of a discontinuity relative to FIN 48 and years rolling off.

It is not -- it's nothing alarming or anything; it is more a timing situation.

Okay.

And then just so I am clear here, the amount of money that you were saying was excess capital, $100 million to $200 million, that was north of some buffer or not?

No, that ignores any kind of a buffer or a cushion that we would want to maintain.

As we have said in the past, the cushion is kind of a long-term this is nice to have.

It is not something that we really kind of live by day today in terms of making capital allocation or I should say capital deployment decisions.

Okay.

And then one more if I may.

Greig, with regards to your comment that there was a lot of deal activity both in products and geography, I am kind of wondering if some of this, maybe a lot of this is in Europe and may be driven by Solvency II considerations?

Yes, some of it is driven by Solvency II, although we haven't seen a lot of Solvency II-motivated transactions move their way through the pipeline yet.

But certainly that is something that the Europeans especially are focusing on and we are beginning to see a little bit more activity there.

But that is just part of the puzzle.

Okay.

All right, thank you, guys.

(Operator Instructions).

Humphrey Lee, UBS.

Good morning, everybody.

Just a couple of questions.

For the dividend with this increase, I am just kind of looking at from a long-term perspective what is your dividend payout ratio that you target at?

I think we have had sort of a modest dividend payout ratio.

As we start to generate distributable earnings in greater quantity, even though we have a lot of opportunities, we have been bumping up the dividends and you will notice if you put the last couple years together, it has been a pretty nice increase in the dividend payout of the Company.

Our ratio is still not on the high side; it is on the lower side.

And we believe that -- obviously we believe that that is a sustainable number for us as we sit here today.

And we would hope that we have more flexibility in the future even, but our philosophy is to try to use our capital efficiently and try to reward our shareholders effectively.

And so we have moved the dividend considerably if you look over the last two years now.

Okay.

And then another question regarding the premium growth.

Overall, the premium growth has been stronger than what the guidance would suggest.

So I just want to get a sense of how the top line would trend for the balance of the year.

Yes, the premium growth has been strong.

A lot of that had to do with some things that we did towards the end of the year and in the first quarter of this year.

It has been a very rewarding period of time and as we indicated, we have a lot of unusual transactions in the pipeline.

Now our background behind all that, of course, is that companies are -- that is our client companies -- are retaining more business, reinsuring less business on an organic basis.

And so as we were putting our guidance together, we were looking at that picture as well and trying to balance what was going to happen in terms of the unusual transactions in force deals and other things that add on to that story.

And it is always a little bit hard to predict, but we are very pleased with the strong growth we are getting really in all of our segments.

In Asia, we have had, as some of you will remember over conversations of the last several quarters, we have been refilling pipelines in both Korea and Japan and that exercise continues.

Those were resulting from contracts that ran their natural course of life or are no longer producing and we had to replace significant contracts flow in each of those markets.

And I think we are probably at the point where we can say we are doing that in Korea and Japan is still chasing the replacement, but we are getting there.

So Asia is actually a place of very strong growth outside of that.

So that has not come through the numbers very well either.

Once we get to the other side, I think you'll see good growth in Asia.

So from kind of a modern perspective, should I look at it for the rest of the year, the pace will still remain strong across regions and a little bit stronger pick-up in Asia-Pacific?

Yes, I think we should expect Asia-Pacific to pick up.

The Europe segment has been real strong last year and is strong again this year.

The US is a little stronger than we would expect it to be and part of that is because of timing of different flows in the first part of the year, a little bit of improvement on lapses.

That has helped around the edges.

So we are actually a little bit higher than we would expect the run rate to be in the US, but overall this premium growth in the 12% range is probably a little on the high side, but I would expect would be close to 10% on a run rate these days and feel pretty good about that sort of a forecast.

All right, this is helpful.

Thanks.

Sarah DeWitt, Barclays.

Hi, good morning.

I just wanted to follow up on the EPS guidance for 2012 of $6.70 to $7.30.

I know you typically don't update that during the year, but just given that we are tracking so far year to date pretty far below that, could you just give us a sense at least directionally of whether you still think that is achievable and why?

Sarah, this is Jack.

As you stated, we really don't update our guidance after we issue it early in the year, but I think Greig had commented earlier that while the results for the first had been soft, they are not far from our expectations.

So we don't view the year to date as being dramatically off where we would expect it to be.

In fact, it is reasonably close to where we would have expected to be.

So you can kind of take that as a baseline for where we would expect to be in terms of (multiple speakers).

Historically, the second half of the year is bigger numbers than the first half of the year, but we really don't like to change our guidance after we do it once a year.

Okay, great.

Thanks.

Mark Finkelstein, Evercore.

Good morning.

One question or two questions actually on the Hancock trade.

What is the duration of the assets that you are taking on and what is the effective duration of the liabilities?

And then where do you expect the asset duration to go?

The liability duration is roughly 7 and the asset duration, as I recall, that we are taking on is a little less than 5. So we will be lengthening that.

I guess are you trying to get the two to match or are you going to go long assets?

No, we will try to match.

Okay.

And then is there any anticipated change in asset mix in terms of what you're going to buy versus the credit quality of what you are taking on?

Well, certainly, there will be some changes just because there was a fairly generic portfolio, fairly generic, fairly short portfolio that we took on.

But we will end up with an asset mix in terms of credit quality with which we are very comfortable.

Okay, all right, thank you.

There are no other questions at this time.

I would like to turn the conference back to our speakers for any closing remarks.

Actually we did just have one other question come in.

Sean Dargan, Macquarie.

Thank you.

Good morning.

I just have one question; it's a follow-up to asset-intensive.

What exactly is the impact from lower equity markets?

Where do we see that flow through the income statement?

Because the markets weren't down -- I mean it wasn't a terrible quarter for the equity markets.

No, it wasn't.

And I think we mentioned earlier that, to the extent that we had somewhat of a soft result, it was due in part to equity market performance, but also to lapsation issues and all the drivers that typically have an effect on that business.

And one block that has performed very well historically for us, we had a little bit of a spike in lapses this particular quarter.

That caused us to earn less than we expected on that block.

But that is the biggest part of what happened in this quarter.

Okay, can you just remind us what your exposure to variable annuities are?

I mean I know you break out your death benefit and living benefit exposure, but what exactly are you I guess guaranteeing with those contracts?

I may want to direct you to the QFS that is on our website where we -- I think it is on page 8 -- we do a pretty good breakdown and we have got the BA business and the various living benefit writers there and the relative proportion of each.

And the largest proportion is GMWBs or withdrawal benefits.

Okay.

The balances are a couple billion dollars on that business with benefits.

Okay, thank you.

There are no other questions at this time.

Okay, well, thanks, everyone, for joining us this morning.

Sorry for the technical glitch earlier and we appreciate your support and interest and if you have any other questions, feel free to call us here in St.

Louis.

And with that, we will end the call.

Thank you, everyone.

That does conclude today's conference.

We thank you for your participation.