美國再保險集團 (RGA) 2013 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the Reinsurance Group of America second-quarter 2013 results conference call.

Today's conference 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 and welcome to RGA's second-quarter 2013 conference call.

Joining me this morning are Greig Woodring, our CEO; as well as Alain Neemeh, who heads our Canada and Australia operations.

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

Following Greig's prepared remarks, we'll open the line for your questions.

To help you better understand RGA's business, 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.

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 a pretax and after-tax basis for operating income.

This 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 and a press release and quarterly financial supplement for more information on this measure and reconciliations of operating income to net income to our various business segments.

These documents and additional financial information may be found on our website on the Investor Relation portion of the website at RGARE.com.

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

Thank you, Jack.

Good morning, everyone.

Thanks for joining us on short notice this morning.

I'm going to discuss the situation in Australia in depth, then briefly cover our other operations.

To begin, we're very disappointed with the charge we took in Australia, where the group business in particular has been problematic for several years now.

However, with our actions this quarter, we believe we have aggressively addressed the situation such that our future earnings profile should be more stable.

We have excess capital of approximately $200 million and expect to generate additional capital from future operating performance.

Capital management will continue to be an area of focus.

We've increased our dividend by 25% and also added $100 million additional capacity to our share buyback authorization.

Turning now to Australia, as a reminder, with our Australian group business, we reinsure lump sum products, which include both mortality and total permanent disability, as well as a disability income protection, which pays a monthly benefit.

A significant part of that group market is driven by superannuation funds, which are mandatory retirement funds providing their members access to life and disability coverages.

As a result of a recently completed claims study, we have substantially increased our liability position.

Unlike previous increases, which generally recognized elevated claims levels to the date of the analysis, this quarter increase also provides for continued expected deterioration throughout the guaranteed premium periods.

In this most recent claims study, we examined the data more comprehensively than we have in the past.

It reflected additional trending we've seen and continued to see in the Australian industry.

And with this quarter's increase, we have effectively doubled our group liabilities, which now exceed $535 million.

We believe, in other words, that we have aggressively dealt with the issue of reserve and liability adequacy.

The roughly $184 million after-tax charge this quarter relates primarily to the total and permanent disability, or TPD product, which is typically offered as a rider to the mortality product.

We do not reinsure this product to any material extent anywhere else in the world.

The charge also covers, to a lesser extent, adverse experience on disability income benefits.

In our opinion, the group TPD market in Australia became extremely competitive about 5 years ago -- about the same time that insured benefits became richer and terms and conditions weaker in the marketplace.

Looking back, we realize we missed a fundamental change in the market and the impact it should have had on pricing.

We also believe that the claims adjudication process needs to be improved, and we are working with clients in that regard.

At this time we're suspending quoting activities for group TPD benefits in Australia and exercising extreme caution in other aspects of the group market until the situation stabilizes.

We believe our experience is symptomatic of a larger trend in the market, and we will continue to work towards influencing positive industry change.

As for the rest of our operations, we're pleased to report strong asset-intensive results as well as continued execution of our capital management strategy.

Outside of Australia, our overall claims experience, although mixed by market, was mostly in line with what we expected, with slightly elevated claims in Canada and the UK.

After-tax operating losses totaled $72 million or $0.99 per diluted share, including the charge in Australia.

In operations other than Australia, we earned approximately $1.70 per share.

That's generally in line with our expectations.

Consolidated premiums are up more than 5% in original currencies quarter over quarter.

Our average portfolio yield was 4.77%, down 29 basis points from last year's second quarter and 6 basis points from the first quarter.

Excluding the currency benefit associated with the losses in Australia, a relatively stronger US dollar lowered after-tax operating income by $2.3 million or $0.03 per share.

Our effective tax rate of 33.7% also benefited from the losses in Australia.

We remained very active on the capital management front during the quarter, buying back an additional $182 million of outstanding shares.

That brings our year-to-date total of share repurchases to $230 million.

As previously mentioned, we announced increases to our quarterly shareholder dividends and our current stock repurchase authorization.

Our excess capital position of approximately $200 million reflects the buybacks and our second-quarter results.

We will continue to opportunistically repurchase shares while we evaluate other attractive uses of our excess capital.

Turning now to a high-level discussion of second-quarter segment results, in our US Traditional business we reported pretax operating income of $86 million.

Individual mortality claims were in line with expectation.

Policy acquisition costs were slightly elevated this quarter.

Premiums exceeded $1.1 billion and grew 4% quarter over quarter, a good growth rate for this business.

The US asset-intensive sub-segment continues to perform above its quarterly expected run rate of $30 million to $35 million in pretax operating income, in this case producing $40 million this quarter.

The strong performance was primarily driven by equity indexed and fixed annuities.

Our US Financial Reinsurance operation also continues to grow nicely and reported $12 million of pretax operating earnings this quarter.

In Canada, claims were slightly adverse, and pretax operating income totaled $32 million for the quarter.

Foreign currency fluctuations lowered pretax operating income by about $400,000.

Premiums grew 8%, totaling $240 million net of the $3.1 million foreign currency headwind.

Premium growth was 10% without the currency headwind.

In Asia-Pacific, excluding Australia, we had a good quarter, with all of the markets outperforming expectations.

Hong Kong and Southeast Asia had a particularly good quarter.

Including Australia, Asia-wide net premiums totaled $340 million, increasing 5% in original currencies.

Moving on to Europe and South Africa, results continued to be driven by UK operations, which experienced slightly higher than expected mortality claims this quarter due to normal volatility.

Segment pretax operating income totaled $15 million, including a drag of $1 million from currency compared to the prior year.

And net premiums grew to $319 million, and that's an increase of 3% quarter over quarter in US dollars and 6% in original currency.

The corporate segment reported a pretax operating loss of $7.5 million this period, consistent with expectations and in line with the last several quarters.

So in conclusion, we're disappointed with the charge to earnings this quarter.

We believe our actions have addressed the situation, and we'll improve our earnings profile and stability going forward.

We will continue to take actions to improve the environment in Australia.

We are managing through this situation.

We believe this to be an isolated situation, with a unique environment in Australia involving a product we reinsure nowhere else in the world to any material extent.

We do not foresee any similar circumstances occurring in any other markets, in other words, in which we operate across the globe.

We thank you and appreciate your support and interest in RGA.

And we will now take your questions.

(Operator Instructions).

Nigel Dally, Morgan Stanley.

So hoping you can discuss the implications of the charge for your plans to repurchase stock over the remainder of the year.

You said in your comments that you remain opportunistic, but given the excess capital is down to $300 million, isn't rebuilding your buffer a key priority?

And if that's true, would it be fair to say that any buybacks in the next couple of quarters would only be nominal in nature?

Thanks.

Nigel, this is Jack.

I'll take that question.

Let me start with the buffer.

We typically have commented in the past that we normally target a cushion in terms of excess capital of roughly $300 million.

What we've also cautioned or tried to suggest in the past that that is kind of a long-term goal.

That we don't feel it's a priority to maintain $300 million, and if there's opportunities to attractively deploy capital, whether it be through repurchase of stock at attractive prices or deployment into the businesses for attractive returns, we would do that even if we don't yet have a $300 million cushion.

So maybe that's another way of saying that in terms of the repurchase, we're happy to have in total a $400 million total authorization.

As you know, we've already bought back $230 million to date.

So we have been reasonably aggressive.

But the redundant capital -- that is, the excess capital level -- is down compared to where it was 3 and 6 months ago.

So we may be a little more selective in terms of the repurchase than we have been in the past.

But it remains to be seen.

We will just have to weigh the opportunities as they present themselves.

Okay, then.

Just a follow-up on Australia and the underlying assumptions you built into the charge.

You mentioned that you had built in additional deterioration into the reserves that you established.

Can we get some details as to exactly how much additional deterioration, or any other details that you can provide that will give the comfort that the reserves established are now conservative?

We'll let Alain Neemeh answer that one.

Nigel, I think you can think of the additional deterioration as representing a majority of the reserves that we've booked.

A natural question could be, why is it that we've got such a big charge since Investor Day?

And essentially, we completed a very comprehensive claims study, and the results, I will say, were materially worse than we expected.

So as a result, we took, as Greig alluded to, a much more aggressive approach this time around.

You can think of it in terms of two buckets.

One is reflecting the observed deterioration; but then additionally, we have changed our expectation to allow for additional potential future deterioration on both the existing blocks.

We've also applied that to the premiums not yet received to the end of the premium guarantee periods.

So that latter part is a majority of the reserve increase.

Erik Bass, Citi.

So I guess the first one -- just to follow-up on the last point in terms of what changed from Investor Day, when I think your comment was that you expected Australia to be modestly profitable in 2013.

So is it something new that you saw in the market?

Or was this a claims study that you had planned to undertake but just hadn't completed at the time of Investor Day?

It is more of the latter.

You could almost say that we are constantly doing claims studies when we get enough data.

But we were completing a major claims study.

And it isn't so much that we saw a surge of actual claims as much as we saw older claims and an increase in incidents, and when we triangle it out we get a clear picture of continued deterioration.

I think it's also fair to add -- so not only is there the increased incidence, but there is the delay in reporting lag, which is increasing.

We've also factored in additional industry information on the back of the results of our claims study.

Okay.

And then if you could just touch a little bit more on the individual business in Australia?

I think that had been weak this quarter, and I think you've also seen some volatile results in recent quarters.

Just talk about the confidence you have in reserves for that business.

And just to clarify, I think that you said there was no adjustment for individual reserves this quarter.

Is that correct?

That is correct.

So results this quarter were weak on the back of a couple of large claims.

In terms of the reserving adequacy, we do believe that the reserve is adequate.

I did, however, mention at Investor Day that we are going through a repricing exercise of about two-thirds of that block of business, and that is ongoing right now.

But certainly in terms of reserve adequacy, we are comfortable with the reserves that we have.

Steven Schwartz, Raymond James & Associates.

Australia and accounting -- is this a premium deficiency reserve?

This is Jack.

Yes, part of the total reserve does relate to what we would characterize as a premium deficiency reserve.

So, Jack, the accounting here -- I'm straining to remember.

Basically, you've already assumed a loss on this business.

Does that -- I think, if I got my accounting correct.

Does that imply that Australia should return to profitability in the near future, just because of the accounting?

Well, I think a better way to look at it is that we wouldn't expect any additional reserve additions, that we've fully contemplated that sort of thing.

But yes, when you think of a premium deficiency reserve or similar sorts of reserves, what that really means is we've extended the development of our loss ratios out into all the future premiums that we expect to receive.

And essentially through booking additional reserves that recognized any potential loss for future -- presumably accrued the future premiums.

We've recognized that loss now.

So any loss comes out of the reserves.

So basically the in-force is going to be breakeven.

Yes, that would be the (inaudible) case.

Okay.

All right.

And then if you can, here, I'm just trying to understand.

I know from Investor Day, from listening to Investor Day, that superannuation funds are extraordinarily important, and they have some serious market power over there.

And obviously, they have more power than the sellers of the product.

Is that what's going on here with the TPD product?

Or is there something special about the TPD product?

Because you've been stressing that you don't sell TPD in other places; you weren't stressing that there aren't superannuation funds in other places.

So if you can help on that?

This is Alain.

I think it's a bit of both.

The industry funds certainly are large buyers of the business, and as long as companies compete, that can drive prices down.

I think one of the issues, though, with the TPD product is if you go back in time, we saw good profitability on this business through to the end of 2008.

And right around that time, as Greig mentioned, there were some benefit improvements; coverage increases; and, frankly, pricing decreases as we go back and review our files and look at the industry activity.

And it was all at the same time as the economic fallout started.

I think we saw over time a more informed insured group and longer and longer reporting delays.

And that's really the one, I think, that's driving a large part of the uncertainty.

Because when you go back in time and look at the data we used to price, and then look at that data today, it has changed because of those lengthening reporting delays.

And it is fair to say we didn't catch that in the pricing.

Okay.

Alain, what is the difference between TPD and DI?

If you can remind us?

TPD is a lump-sum payment on total permanent disability, as opposed to the recurring payments that you would see with disability income.

Okay.

And then if I may, one more.

Just moving to the US, you noted in the press release, Jack or Greig, that the benefit ratio in the US was pretty much similar to what it was a year ago.

But in my notes I have the year-ago results -- you saying that they were adverse, unexpectedly adverse.

Higher than -- the mortality results were worse than you would expect.

Can you talk to this quarter?

Mortality was pretty much in line with expectations this quarter, Steve.

The benefit ratio is adverse.

It's due to either the mix of business, changing the acquisition cost, and/or there's some administration noise coming through because of reporting.

John Nadel, Sterne, Agee.

I was hoping that you could help us understand, maybe, a little bit more granularity of the $274 million, I think it was, pretax reserve increase in Australia.

I think you mentioned that maybe a smaller portion of that reflects the experience that you've already viewed in terms of the deterioration of the business.

And maybe a much larger portion of the $274 million reflects an expectation that there is further deterioration from here.

Could you give us a little more granularity on that?

How much of the $274 million is just taking reserves to the level based on the experience that you've actually seen, versus how much is on further deterioration expected?

This is Alain.

You can think of the existing deterioration as being about $50 million of that.

And then the rest of it is being further deterioration, as well as pushing that out through the premiums to be received right through to the end of the premium guarantee periods.

Okay, that's helpful.

And can you just remind us what the -- from June 30, let's say, through the end of the premium guarantee period, how much longer do we have to go?

We've got about $55 million.

And I'm talking now in terms of the big industry funds, which really are the majority of the problem.

We've got about $55 million in premiums rolling off in November of this year; about $70 million July 1, 2014; and then about $90 million July 1, 2015.

Jeff Schuman, KBW investments.

Was wondering if we could get a little bit better understanding of the nature of the higher disability claims.

Clearly it has something to do with pricing in terms and underwriting.

But I'm wondering to what extent there is actually a secular issue here, as well.

I think in the past you have talked more about termination rates.

I think now you're talking about higher incidence rates.

So is there actually a secular change in Australia?

I think fair to say, yes.

We believe there has been what I term a material dislocation in the underlying market.

I just want to be clear, when we talk about termination rates, we're talking about the disability income monthly-type benefits.

Understood.

The TPD is sort of one and done.

We have seen increased incidence on TPD, but a larger part of the problem is the lengthening delays, where on average now we're seeing about 2-year delays in reporting of claims.

But for one fund in particular, that has lengthened out to about 3.5, close to 4 years now.

So in those terms I think that's probably the single biggest issue we would have missed when we go back in time and look at our pricing.

And it's not something that we appropriately contemplated, and frankly, not something I think we would have expected.

But that's part of the reason why we are suspending the quoting activity at this point, because until we better understand what the underlying drivers are and how to fix that issue, this is just not a business that we want to continue participating in.

Okay, then to follow on, just to be clear what's happening on the renewals.

You made it very clear that you are not quoting on new business.

You've given us kind of a renewal schedule.

So what is going to happen with these upcoming renewals?

Are you going to see big price increases?

Or you're just going to let the business go?

Or what is actually the strategy for those renewals?

Well, there's a requirement in the Australian marketplace to provide renewal quotes.

So we will be providing renewal quotes.

However, if I go back to my earlier point, until we either influence a change in the underlying products or better understand the lengthening of the reporting delays, I think you can walk away thinking that we will be unsuccessful in those renewals.

(Operator Instructions) Ryan Krueger, Dowling & Partners.

On Australia, it looked like outside of the reserve addition there may have also been about a $25 million loss in the remaining businesses.

Was that all individual, or was a portion of that group as well?

No, it was actually all individual.

I think in my numbers, actually, the number was actually slightly lower.

It was a $17 million loss.

But yes, it was all individual.

Individual.

Okay.

And then just thinking about going forward, it seems like if your projections come true in the group business, you're expecting essentially breakeven earnings there.

But, I guess, how should we think about the individual business?

It seemed like -- has anything changed since Investor Day on the individual side, or are you still expecting that to also be in the ballpark of breakeven near-term?

No, I would think of it in terms of breakeven.

As we continue to go through a repricing exercise, which we would expect we'd have a better handle on where that lands us by the end of the year.

The individual business in Australia has exhibited a pretty volatile up and down pattern over different quarters.

Sometimes it's been very good; sometimes it's been very high.

But this particular quarter is not good.

Humphrey Lee, UBS.

Just another follow-up on the whole reserve build issue.

So how much of a buffer are you creating with this reserve?

So in other words, under what circumstances will another reserve strengthening be necessary?

I think maybe Jack can address the question, but before that, I just want to say -- I don't think we can ever say we've got it all, but we have addressed it very aggressively.

As I mentioned, we have recognized the existing deterioration.

We've also assumed potential future deterioration, and again, right through the end of the guaranteed premium periods.

Yes, Humphrey, this is Jack.

I would certainly agree with that.

We don't look at it as setting up a reserve and then putting a buffer on top of that.

But when we look at the underlying assumptions, that is the assumptions that underlie the reserve calculation, we think we have been very aggressive in setting those assumptions.

So we end up with the reserve addition that we think accommodates the situation.

We don't expect to be going back to the situation.

So maybe to think about it in that way, in terms of the future deterioration, are you assuming at a worse pace than the current deterioration?

Or kind of like something that is more in line with what you're seeing, but further out?

No.

You can think of that further deterioration as we take a look at what we experienced to date; that is what we observed historically.

And then we, in our assumptions, presume that it could get worse.

Markedly worse.

So we have been, in our view, fairly aggressively looking at further deterioration, potential deterioration.

Sean Dargan, Macquarie.

Thanks.

Following up on Australia, the environmental factors you referred to, just to be clear, you're talking about the environment of the insurance market and pricing?

And I asked the question because my colleagues in Australia say that there have been upticks in mental health claims.

I just want to make sure there's nothing going on in the actual environment that is causing mental illness.

No, I didn't mean to imply that.

I think when I talked about the environment, I talked about products that have perhaps gotten ahead of themselves.

Pricing that isn't commensurate with the risk on those products.

You're correct that there has been an uptick in mental health claimants, but no, I did not mean to imply that there was anything in the Australian environment that is causing mental health.

Got it, thank you.

And just one follow-up.

Regarding the individual products in Australia, I think we've seen some local primary carriers, including AMP, provision for future losses.

And they've cited incorrect assumptions around lapsation.

I just want to get it from your mouths that we are not going to see another shoe drop on the individual side.

We do not believe -- let me say, we believe that we are adequately reserved.

And we have taken some lumps on individual in the past, but we don't believe there is anything coming.

Mark Finkelstein, Evercore.

Maybe just another question in thinking through this.

I think, Greig, in your opening remarks you talked about missing a fundamental change in the market.

But then you subsequently suggested that you weren't seeing anything in other parts of the world.

And I guess when you think about RGA, it is obviously a very broad company, a lot of different regions, some different products, many mortality-based.

But a lot of smaller areas that aren't fully developed yet.

And I guess the question I have is, how do you get comfortable that a situation like this isn't present in another part of the world that you just haven't figured out yet?

And does this experience force you to change how you manage the business, how you manage the Company, how you think about risk management?

A good question, Mark.

First of all, this situation is unique for a couple of reasons.

First of all, the prominence of these superannuation funds, who are big purchasers of large transactions, does not exhibit itself in other markets that I can think of in anywhere close to the same sort of prominence.

And this particular product is one that is sold commonly in Australia.

It's bundled with life insurance.

And nowhere else do you see this product sold in the same quantities or achieving the same level of prominence, nor do we have big concentrations of it.

So that is the basis of the comments we make.

We obviously do look at everything we do.

And you're right that we are into a lot of different markets -- all have their unique characteristics, their unique distribution systems, their unique products.

And we have to have a very vigilant and active product development and risk management capability.

In this particular case, in retrospect, as we sit here today, as several years ago, this business in Australia was in my opinion unpriceable.

Because the data we had was irrelevant.

It was changing under our feet in ways that we couldn't understand or anticipate.

The data we had that was used to price was not only not helpful; it was actually misleading us, because the world was changing in Australia.

The patterns of claims were changing.

People are becoming much more aware of these benefits.

There's been a cottage industry in trying to steer people to the superfunds, which give them the best benefit package for their particular needs.

There is a lot of anti-select.

And there's a lot of things going on in the market that changed.

And so while we have been in the market for more than a dozen years, and it went very well for a while, it has changed.

And it has become unpriceable, in our opinion.

Okay.

And just back to the individual business in Australia -- apologies; I think you have hit this pretty well.

But I guess what I'm still little bit confused about is, did the experience that you showed in the quarter change your view on the individual business in Australia going forward from what you previously thought?

Or is it more volatility that you typically see, and you are repricing it to improve it?

But there's nothing that you saw that really changed it?

I'm trying to understand what has changed, if anything, in terms of your outlook on the individual block.

Nothing fundamental has changed, Mark.

It was not a good quarter.

There were some large claims.

And you remember, the second quarter last year was like that.

Overall, the year for individual lump-sum business was pretty much as expected, but it was up and down a lot last year.

This is the analogue to the fourth quarter in North America, but there's a little bit potentially of seasonality in claims.

At least, we've seen it in last couple of years.

It was not a good quarter, and every bit of new information does color our future outlook to some extent, but we have not had a fundamental shift in our understanding or our viewpoint on where this business is going longer-term.

We recognize that this is not a business without its challenges, and we're working through a lot of those.

But it's not like the group business.

(Operator Instructions).

John Nadel, Sterne, Agee.

Thanks for taking the follow-up.

I don't know why I got cut off so quickly.

The follow-up questions that I had were -- I think upfront, Greig, you mentioned that ex the charge, you viewed EPS in the quarter at around $1.70.

I don't get that number.

I get something more in the $1.54, $1.55 range.

I was just hoping you could reconcile the two.

Is really the big difference there the individual DI losses in Australia on top of the reserve charge?

John, let me take that.

That is exactly right.

The $1.70 is ex Australia operations, not just ex the charge.

Okay, ex all of Australia.

Okay.

And then --

And then I would just clarify, John, it's not just disability in Australia.

It's more lump-sum -- more individual death claims, then.

Okay, understood.

And then my other question for you is -- I wanted to go back to the rolloff of this business, the premiums coming off in July of 2014, final level -- final amount of premium coming off in July of 2015, it sounded like.

Can you just help us understand, do your liabilities remain ongoing front there?

Or once the business -- once the premiums stop coming in, you are no longer on the hook for claims from that point forward?

Well, we are certainly not on the hook for claims looking forward to the extent that the event date happens after the date we come off.

But we have a sizable IBNR to deal with claims that haven't been reported.

So any claim where the event date happens before would be ours, even if they are reported afterwards.

So then maybe just a last question for you in terms of follow up there is, when you think about the total reserves for this business, I think Greig mentioned earlier on in the call that it's something in the neighborhood of $530 million.

What portion of that is IBNR?

It would be about two-thirds.

Steven Schwartz, Raymond James & Associates.

More on Australia.

The individual adverse mortality, Greig, can you put a number on that?

I guess it is mortality and morbidity.

Yes, mostly mortality.

I think it was about $17 million.

For the quarter.

Okay.

And Alain, if you can explain to us -- something you said kind of caught me by surprise.

There is normally a 2-year lag in the reporting of these TPD claims.

And you've got one fund that is having a 4-year lag.

Why in the world does it take somebody 2 years, or 4 years, or whatever it is for a TPD claim?

That is definitely something that we have been struggling with over the last little while.

You can maybe think about it in terms, sometimes, of someone going on disability, and they go on short-term disability first.

So that would be your monthly income benefit.

And then they roll onto a long-term disability benefit.

And then only after a certain period of time do they become totally and permanently disabled enough to claim the lump sum.

But frankly, even with that in mind, the delays are extremely long.

And Greig alluded to the cottage industry of lawyers looking for some of these older claims.

It is one of the things, I would say, that we are aggressively working on to try and figure out how to rein that back in.

But at this point it does puzzle the mind a little bit to think why someone would wait that long to claim.

Okay, the lawyer thing is interesting.

And then just -- I think Sean alluded to it, maybe, with the mental claims.

There are reports, at least -- I'm not going to claim that I know what's going on in Australia, but there are reports, at least, that the economy is deteriorating over there.

Do you see anything stemming from that?

Well, that would have been worked into our estimates or changing view, if you wish, of the future deterioration that might occur.

Humphrey Lee, UBS.

I just want to shift the topic a little bit.

So looking at Europe and South Africa, the UK mortality experience was weak this quarter.

Just -- if you can quantify the drag for this particular quarter.

Humphrey, this is Jack.

Without putting too fine a point on it, it was roughly $6 million.

All right, got it.

And then back to Australia, just more from a background information, what is your market share in the TPD market in Australia?

I don't know that I have that.

Our market share overall would be in the low 20s.

And I expect that on TPD, we would probably be somewhat similar to that.

But I don't know that I can point to a number.

I don't know that we've got industry data enough to come down on a market share for a particular benefit, particularly if it is a rider on life products.

Typically everything is packaged together.

Ryan Krueger, Dowling & Partners.

First, could you just quantify the dollar amount of reserves for the individual business in Australia?

I don't know if we have the individual total reserve amount, Ryan.

We will get back to you on that.

John Hayden will get back to you.

Okay.

And then related to that, I think lapse rates have been an ongoing issue on the individual business there.

What can you tell us to get comfortable with the fact that -- in other words, how has that been projected into the existing reserves?

And is there any potential that as you continue to study what's going on in the individual side, that you may need to make changes in projections, some things like lapse rates that could have similar impacts after you further study the group business?

I think what I will say to that, Ryan, it is go back to the Investor Day comments.

We are going through a repricing exercise on that business.

One of the key factors, though, that I think that is very different on the individual side is we have confidence in the underlying data that we are using to price and to move forward, and we don't see the reporting lags that we're seeing on this group TPD business.

So I don't -- my perspective is, as I said earlier, we are comfortable with the reserving, and we do not believe that there is something working in the background that we are not aware of.

Jeff Schuman, KBW investments.

Just one further clarification.

I look forward to the additional reserve data that you just mentioned to Ryan.

But to be clear, the $530 million, that is the total group reserve?

Is that what the $530 million is?

Correct.

Correct.

Okay, that is what that is.

Okay.

And then on capital management, you've been very active buying back stock this year.

Does that reflect less availability of interesting transactions, or is it more the case that there really are some pretty relevant transactions, but when you penciled everything out, that the share repurchase was just the better way to go?

Yes, Jeff, this is Jack.

I think the way you should look at that is we still have a fairly broad array of potential M&A or block deals that we are constantly reviewing.

So that hasn't changed in any meaningful way.

But as you know, it's very difficult to project if we will execute, if we will be successful, and so on and so forth.

So we don't want to be in a mode of continually waiting to see which block deals will be attractive and which we think we can execute and win, and so on and so forth.

So we've been, as you suggested, more active in terms of deploying capital into buybacks.

We also think we have some degree of financing availability, so that if we did have, for instance, a block transaction that was relatively sizable that we thought was attractive, we think we can add further financing to attract it.

And when I say financing, I'm really not talking about equity issuance; I'm talking about senior debt and hybrid issuance.

John Nadel, Sterne, Agee.

I think this is the first call I've ever done a second follow-up on.

The question I wanted to ask is just a little bit more about how the TPD reinsurance works.

Is this more like a stop loss, where the primary insurance carriers are taking, let's say, the first -- I don't know -- $0.20 of losses on the $1.00?

And RGA and maybe a few others are taking some level above that?

Or is this a coinsurance type arrangement, where losses come in and you just get a certain percentage of them; it doesn't matter whether it passes a threshold.

It is the latter, John, and it's always the case that the direct insurer has at least as much risk as we have.

And then the question for you, just because I don't know whole lot about this particular piece of the market in Australia -- how many direct or primary riders are really active in this business?

I think you mentioned that it's really a business that is coupled with group life, or packaged with group life.

How many carriers are really in that business?

Or maybe said a different way, how many carriers do you have reinsurance arrangements with?

Probably, I think, in terms of about 10 to 12 on the direct side.

In terms of who we do business with, a number that is slightly smaller than that.

Any household names that we would know about?

Yes, you would know some of the names.

Okay.

Thank you.

I just wanted to come back on the individual reserve number.

I've had some time to just flip through my notes.

About $250 million of individual reserves at the end of second quarter, of which about $160 million would be individual DI.

And then $90 million would be individual lump sum.

Sean Dargan, Macquarie.

I just wanted to follow up on something Steven brought up, and that is the economic environment.

I think up until now, it's been over two decades since Australia was last in a recession.

I'm just wondering what kind of assumptions you are baking in for average deviation?

If things get really worse from here, and the mines close, do you have any experience?

Or can you look to what happened the last time there was a recession to see what happened to TPD claims?

I'm not sure we're on any miner groups, first of all.

But the economy in Australia for a while has been very uneven.

In places, it's been strong; in other places it's been quite weak.

And that's been the case since the financial crisis started.

But we are factoring in all of our knowledge about what's going on in Australia and how it is changing into the reserve estimation that we did.

Thank you.

And that concludes today's question-and-answer session.

I'd like to turn the call back over to you, Mr. Lay, for any additional or closing remarks.

Okay.

Well, thanks to everyone who joined us on relatively short notice here.

We appreciate the interest.

And with that, we will end the second-quarter earnings call.

Thank you very much.

Again, ladies and gentlemen, that concludes today's call.

Thank you, everyone, for joining us.