美國再保險集團 (RGA) 2013 Q4 法說會逐字稿

Good day, everyone, and welcome to the Reinsurance Group of America fourth-quarter 2013 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.

Thank you.

Good morning to everyone joining us for RGA's fourth-quarter 2013 conference call.

Joining me this morning is Greig Woodring, our CEO.

I will turn the call over to Greig after a quick reminder about 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 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 the call we will make comments on pre-tax and after-tax operating income, which are 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 RGARE.com.

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

Thank you, Jack.

And good morning, everyone.

Thanks for joining us.

We are pleased to report another good quarter as fourth-quarter operating EPS totaled $2.17 although down from an unusually good quarter a year ago.

Virtually every segment this quarter reported strong bottom-line results highlighted by the strong individual mortality results in the US and Canada and the strong performance in our global financial solutions business.

Our international segment together also performed well overall.

Asia-Pacific was particularly strong, although Europe and South Africa was slightly week.

On a global basis, mortality was favorable and vibrant financial markets provided a boost as well, collectively more than offsetting a higher tax rate and currency headwinds.

Full-year operating income totaled $358 million or $4.95 per diluted share compared to $515 million or $6.96 per share last year.

The full-year results included, of course, the $184 million after-tax charge taken in the second quarter related to our Australian operation, a disappointing event that detracted from an otherwise very good year.

Reported net premiums were up 1.5% for the quarter and 4% for the full year.

In original currencies, those increases were 4% and 6%, respectively.

Total revenues topped $10 billion in 2013, a record level, and book value per share excluding AOCI increased 7% this year to $69.66.

Our average investment portfolio yield was 4.7% this period, down 15 basis points quarter over quarter and 25 basis points year over year.

With rates stabilizing recently at a new money rate above 4%, the downward pressure on earnings could moderate somewhat over the intermediate term.

We instituted a more aggressive capital management effort that added to EPS.

We returned 9% of the beginning of the year market caps with combined share repurchases in dividends through the year, [excess] capital now is $600 million and we continue to evaluate the most efficient uses for that capital.

Turning now to our segment results, the US Traditional sub-segment had another strong quarter in terms of premium growth and profits.

Pretax operating income of $121 million benefited from favorable individual mortality, stronger investment income and controlled expenses.

US traditional premiums grew 7% quarter over quarter, better than expected, and helped by strength in our individual health in group lines.

We still expect some moderation of US traditional premium growth going forward, absent the acquired blocks.

Over the past few years, premiums have benefited from robust growth in individual health business, which we believe could moderate.

Our asset-intensive business in the US maintained its recent momentum, again exceeding its expected run rate this quarter with pretax operating income of $42 million.

Favorable financial markets boosted results, so we still expect this business to produce $35 million to $40 million in pretax operating income per quarter.

Continued growth in the financial reinsurance operation boosted fee income, resulting in pretax operating income of $14 million this quarter.

In Canada, claims experience was better than expected and pretax operating income totaled $47 million, not quite as strong as last year's fourth quarter but a good result.

You may recall that the fourth quarter in 2012 included a $16 million pretax reserve adjustment and a pretax operating income of $54 million.

A relatively stronger US dollar produced -- reduced top- and bottomline results this quarter, as it has all year.

Translated premiums were down slightly quarter over quarter, totaling $243 million, net of a $14 million foreign currency headwind.

Premiums grew 4% in Canadian dollars year to date; excluding currency fluctuations, premiums grew a solid 8%.

Asia-Pacific also had a very good quarter, pretax operating income of $27 million, with particularly good results in Japan as well as in Hong Kong in Southeast Asia.

All Asian markets performed well this quarter and Australia was roughly breakeven, as expected.

There were no major developments in the Australian group market this quarter.

We expect that situation will take some time to play out.

Our situation remains stable in that market since we increased reserves in the second quarter.

Segment-wide net premiums were up 12% quarter over quarter in original currencies.

A generally stronger US dollar adversely affected reported premiums by $33 million, resulting in an increase of only 3% in recorded premiums.

In our Europe and South Africa segment, results were similar to the prior-year fourth quarter, both periods reflecting some adverse critical illness claims experienced in the UK.

That segment of the market continues to be very competitive and we are not winning many new quotes there.

Pretax operating income totaled $14 million for the quarter with strong operating performances in Spain and Italy, reflecting typical claims volatility.

Net premiums were down quarter over quarter, primarily due to single premium enforced transactions in Italy in the prior year.

Those transactions added nearly $100 million to 2012's fourth-quarter premiums.

Our corporate segment reported a pretax operating loss of about $22 million this period, reflecting lower investment income coupled with increases in interest expense and other operating expenses.

Our quarterly effective tax rate of 36.8% was above expectations, due primarily to our inability to defer US taxes on certain foreign earnings.

Overall we are pleased with the fourth quarter, consider 2013 to be a very good year in many respects.

Our US traditional in Canada operations posted solid results, as did many of our international operations.

Our global financial solutions business performed particularly well.

In a period when our US mortality business has faced a slowdown we continue to see good opportunities in other areas and we now have scale and enhanced capabilities on a global basis.

Having said that, we intended to be disciplined and opportunistic in putting capital to work.

As expected, interest rates were a net negative to us but there was some moderation in this trend.

The charge taken in the second quarter to increase reserves for the Australian group business was a major disappointment, but this was necessary to address the problems there and the trends in the market there support our decision.

We continue to think that it will take multiple years to restore industry fundamentals and our defensive strategy is unchanged.

Ongoing execution of our capital management strategies continue to pay benefits in the form of improved return metrics for our shareholders.

At this time I will turn it back over to Jack to discuss forward-looking expectations.

Okay, similar to last year we're providing guidance regarding our expectations over the intermediate term, given the challenges associated with determining when capital will potentially be deployed into the business, when we may take advantage of opportunities to repurchase shares, etc.

We expect operating EPS growth to be in the range of 5% to 8% and operating return on equity to be in the range of 11% to 12% going forward.

These targets are consistent with last year and assume they continue low although stabilizing interest rate environment and continued execution of our capital management strategies.

The continuing low interest rate environment is expected to have an adverse effect of about $0.10 per share in 2014 versus 2013.

Premium growth in the near-term will likely reflect a reduction from our group business in Australia.

We would estimate that effect to be about something in excess of 1% of our premium-based growth rate, although our bottom-line results should not be affected (inaudible).

We have essentially in our view stabilizes those results with the charge we took in the second quarter.

Net premiums are expected to grow in the mid-single-digit range over the intermediate term.

Favorable financial markets provided a modest boost to our bottom line in 2013, and some of the extra income might not repeat itself, depending on how those markets perform going forward.

The vast majority of our success in the intermediate term will continue to be driven by our underwriting results.

Foreign currency is also a consideration and it's hard to predict over time, but our near-term expectation is that it will present a mild headwind.

We expect a normalized effective tax rate to be in the range of 34% to 35% over the intermediate term, reflecting anticipated shift of earnings in our operations with various tax rates involved.

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

(Operator Instructions) Jimmy Bhullar with J.P. Morgan.

First, you mentioned Australia in your comments.

But obviously it will take a few years to determine reserve adequacy.

But you have had a couple of quarters with a large charge, so I just want to get an idea on how claims are actually trending versus the assumptions that you had embedded in your charge.

And then secondly, maybe if you could discuss your use of captives and offshore subsidiaries.

You got the Bermudas company, you have got [Timberlake REIT].

How dependent is your business on these and what with the impact be if there was a change in regulation in terms of captives?

This is Jack.

Let me start.

Relative to the Australia claims experience it is pretty much playing out as we would have expected.

So certainly we don't have any inclination to change our reserve.

It will take some period of time before we get a better feel but certainly we think we are adequately reserved at this point.

On the captives issue, first of all, our suspicion is that captives are really not abused within the life insurance and reinsurance industry.

So I think there has been a lot of talk and consideration and deliberation around how companies are using captives.

We don't really think there will be any major changes on that front.

There will likely be a lot more disclosure, which is appropriate so that investors and others have a better feel for how captives are being used.

But we don't really think there will be any major changes there.

And to the extent there were changes, that would have an impact on pricing within the industry, but that would essentially effective everybody, so we don't see any significant issues associated solely with RGA and how its prices [post].

Do you have a number in terms of how much of a benefit your RBC ratio has in it because they use a captive?

This is a hard one to answer.

Keep in mind RBC relates only to RGA Re, our US (multiple speakers) we're writing business all around the world.

So certainly there is a benefit but it's kind of hard to quantify.

I think it may be ultimately a meaningless number because any risk that is moved, as all reinsurers do, will not ultimately come back to the US operating subsidiary.

Okay, and then if I could ask one more, you didn't repurchase stock in the fourth quarter.

You obviously did have the capital during the quarter as well.

So you mentioned $200 million to $400 million in terms of your capital deployment goal on an annual basis.

Should we assume that if there isn't a new deal than at some point during the year you would start using that for buying back stock?

Or has the increase in the stock price made buybacks less likely?

I think your former statement is appropriate.

To the extent we don't see opportunities to deploy capital into the business, that would make stock buybacks more attractive.

We don't have a particular point at which we do or don't buy back stock.

We just try to do it opportunistically.

But as I said, if we don't have other opportunities to use capital, then the buyback becomes more attractive.

Nigel Dally with Morgan Stanley.

First question, just to follow up on the capital, excess capital at $600 million didn't change despite the strength of results?

If you could discuss why we didn't see any growth this quarter?

This is Jack, I'll take that.

It actually did increase.

We peg excess capital right now at probably $650 million to $700 million.

We had indicated that we were in excess of $600 million in our industry comments but it's likely closer to $700 million.

And I say likely because we haven't yet modeled -- we don't have all information available yet to model exactly at year end.

But you can presume the excess capital did increase during the fourth quarter because of the earnings retained within the capital structure.

And then second question, on the guidance of the EPS growth to be in the range of 5% to 8%.

That comment was made that it should be applied to non-life EPS?

Obviously there's a lot of noise in 2013, Australia being the most obvious, they also have the strength in markets from taxation distortion, (inaudible).

Can you help us come out with what a normalized basis EPS in 2013 would be?

Sure.

That always gets to be a difficult process because at some point you don't know what should be pulled on and what should not.

Obviously, the situation in Australia was significant and just reflecting that added back into earnings would take the operating result into the mid-$750 million range or so.

On top of that you can layer on the extent to which we benefited from positive mortality somewhat during the year, certainly the positive capital markets.

We wouldn't necessarily expect that to repeat itself.

So as I said, it's hard to determine where to stop, but I think maybe a run rate for 2014 would have been in the $750 million to $760 million range.

2013 is what I meant to say.

Erik Bass with Citi.

Can you talk a little bit about the level of activity you are seeing in the block transaction market right now and maybe how has competition for transactions picked up, given either the entrance of private equity or just the relatively high level of excess capital across the industry right now?

Yes.

We have been looking at a few small blocks, very small blocks, and we have actually closed a few of those minor transactions during the course of 2013.

We were happy to see that.

It's supplemented our normal business activity in the US mortality market.

We haven't really seen any real good opportunities for us in the annuity space recently.

There is heavy competition from some of the private equity people who take a little bit more aggressive posture on investing than we do.

So that's a pretty tough competitive landscape in terms of growth in transactions on the asset-intensive side.

But overall, we normally expect to see a flow of transactions enforce blocks of one sort or another that present themselves.

Some are small, some are large.

The larger they are, the more difficult it is to predict whether it's going to happen in any given period of time or at all.

The smaller transactions tend to close a little easier with less muss and fuss.

So generally speaking, I think 2013 was a year where we were a little bit light on enforced transactions.

But we did do quite a number of them.

They tended to be small, though.

Okay, that's helpful.

Has the type of properties available changed at all?

Are you seeing more blocks that have guarantees or other features that may make them either more or less attractive?

Oh, yes.

The blocks have changed a little bit over time.

Clearly, there's a lot in the market of variable annuity business.

We weren't particularly interested in those blocks.

So, it depends on what companies are looking to divest and in what direction they want their future core businesses to function.

So we are seeing a little bit of activity in lines of business that are probably problematical for some.

And that has been the case the last couple years.

Actually I think we are getting towards the end of that.

We are seeing less of that and more what I would call normal blocks a little bit more in line with strategy decisions made by the companies that want to divest as opposed to getting out from under problem situations.

We are seeing a little bit of a change there, but I wouldn't go too far with it.

Sarah DeWitt with Barclays.

Just following up on the last question, so what lines of business or geographies, in particular, are you seeing the most opportunity for M&A or large block deals?

There's certainly a lot of activity in Europe.

There's a fair amount in North America as well, but I think there's quite a bit in Europe.

And it tends to run the gamut.

There's really not a lot of commonality, it seems, with a lot of these blocks.

We see blocks of all different types that emerge, and sometimes blocks together, different types of business.

So I am not sure I can give you a good answer in terms of what kind of business stand out.

Like I said there was a period of time when variable annuities were pushed around the marketplace and structured settlement annuities, some things that didn't seem to have too many buyers.

But we're not seeing much of that at the moment.

We're seeing more traditional type situations.

It's still complicated.

Okay, so are you seeing mortality business:

Mortality tends to be a smaller component in most of the blocks that we see, although, like I said, we did close a couple of small mortality blocks in 2013 that were strictly mortality.

So there's a little bit of that activity that has to do with some special things going on in the marketplace.

Mostly it's asset-related.

Okay, great.

And then just following up on your interest rate comments, how high would interest rates need to rise before that would become a tailwind to your earnings?

This is Jack.

We would probably need another 35 basis points or so.

Humphrey Lee with UBS.

Just a question on the [issue of Pacific] -- so can you remind us what percentage of the segment's premiums now come from Australia, given the strong growth that you have seen in other regions [flow] in 2013?

The premium base is roughly $700 million.

Okay, and then looking at Australia's performance was breakeven for both 3Q in 4Q and then for the other markets in the regions reported strong performance for both quarters, however the operating earnings more than double in the fourth quarter.

Can you provide some color in terms of the variance between the third and fourth quarter and how should we think about it on an [annualized] basis, assuming Australia is say [breakeven]?

This is Jack.

I think we would characterize fourth-quarter results as a little bit higher than a typical run rate.

But I think that's probably the best way I can respond to that.

We're in a number of markets there and you see variances in every market but if you put it all together we would characterize the run rate in Australia as probably exceeding our expectations (inaudible) in Asia.

One last question on Europe and South Africa.

So for UK, (inaudible) unfavorable [mobility] and it's nothing (inaudible).

Are you concerned with the experience as you say and want to see, what's the major cost of this trend.

How should we think about this going forward?

Yes we've been watching the critical illness experience especially in the UK for some time and have done a couple of extra studies on that.

We've concluded that fluctuations we've seen so far within the range of just fluctuations although it is concerning that the business has not performed in the longer term to our pricing expectation, we've not been terribly competitive in that marketplace for some time and our assumptions are fairly high as far as the market standards go.

But still they don't seem to be quite performing -- so it's not a situation like Australia where this business is explosive.

We're just seeing less profit than we would have priced for and would have liked.

We've had some good quarters in the same -- I think the third quarter of this year was exceptionally good in the UK.

So it's been a little bit ups and downs and it's gone both ways.

But generally, we were not really thrilled about the -- especially the critical risk experience in the UK in three or four years.

If we put it all together it's not terrible but it's not what we would like.

Usually one of the terms for these treaties, are they -- have any repricing opportunity for you or how do they work?

How do the treaties work?

(multiple speakers) for the block, do you have any opportunity to reprice?

We have some limited opportunities to reprice and we take advantage of those when we have them.

But mostly the business is not guaranteed for the longer term, but there's certain limitations into how much you can change premiums and so forth but we are looking at all those repricing possibilities in the UK book.

Operator: Jeff Schuman, KBW.

A little clarification on the tax rate outlook.

I assume your new tax rate guidance contemplates eventual renewal of the [AFE], is that correct?

Yes it does.

Can you give us any rough sense at all of what that's worth to you at this point, the AFE?

Jack Lay^ AFE is not as significant as it was at one time, I would argue it's probably less than $10 million impact at this time.

Then, Jack you made a couple of comments about the top line.

I was hoping to review those and tie it all together.

Last year at Investor Day you talked about intermediate term expectation of 5 to 8% topline growth.

You've talked about maybe a few headwinds have emerged, obviously Australia is more defensive.

US mortality continues to mature.

I think there was a comment about US health maybe moderating from here.

Then I think I heard you say something about mid single digits.

So is it fair to say maybe the intermediate term expectation is maybe 1 point or 2 maybe off the range you articulated a year ago or how are you thinking about that?

Yes I think that's fair.

It's always hard to call because it's hard to determine what block opportunities will present themselves.

But I think if you take a step back -- because there are certain headwinds -- I think it's fair to characterize it as perhaps 1 point or 2 off at that prior range.

I think it's worth pointing out in 2013 if you take away the effect of enforced blocks and you take away that happened in 2012 and you take away the currency effects we're closer to the top end of the range.

I would expect we'd be closer to the bottom of the range for 2014 because of the currency headwinds and because of the retrenchment in Australia.

Okay, because you said earlier the constant currency for 2013 (inaudible) 6% but if you adjusted for differences in block transactions it actually would've been higher than 6.

Yes, remember, for example, those $100 million of single premium Italian business that came in December of last year.

You start taking those blocks and maybe add a little for the mortality blocks we added in 2012 back in you are still a number closer to the top end of that range.

Operator: Ryan Krueger, Dowling & Partners.

I was hoping to get an update on the repricing effort on the individual business in Australia.

Yes, I think our business work has been done there so negotiations -- I think -- are mostly concluded if not entirely included.

Not all the effects have been seen at all in the fourth quarter.

I expect we'll see some effects going into 2014 and some of the effective dates may stagger out through the earlier part of the year.

The upshot is we will collect a little bit more premium on the business.

We also had some business recapture and so net net, I think we're going to be happier with the position we find ourselves in on the individual side in Australia in 2014 than we had been.

Is the expectation for Australia in 2014 still breakeven overall or did the individual repricing cause a little bit of an upside to that?

We would expect -- the best way to characterize it is a modest profit in 2014 in Australia.

Okay and then just a quick one on the corporate segment.

It seemed like there were some moving parts in the fourth quarter.

Can you give us some sense for what a more normalized level of earnings in that segment would be?

Yes, this is Jack again.

That does bounce around quite a bit quarter to quarter.

I think, if you -- going into 2014 I think a run rate -- and it will vary every quarter.

But likely at the end of the year it will be close to this.

A run rate would be about a $10 million loss pretax on a quarterly basis.

Steven Schwartz with Raymond James.

Good morning, everybody.

Jack, Greig mentioned a number of times about really strong individual mortality results in both US trad and Canada.

Could you put numbers on that, how much you think you benefited from better-than-expected mortality?

If you look solely at the US it was probably for the quarter, $0.17 or so per share.

All right, $0.17.

In Canada?

Certainly less than that, I'd say.

$0.05 to $0.06 positive.

Okay, and then I take it from -- I take it from Jeff Schuman's question that active financing exemption was not renewed in the fourth quarter.

It sounds like your guidance is -- assuming it gets renewed to take care of this year.

Do you assume, I guess, 2 -- you get both the benefit from this year and for 2014?

Yes.

Well, it didn't affect 2013.

It needs to be extended in 2014.

And yes, as you suggested we are presuming that will be extended.

Even if it's not, because of our mix of business, it doesn't have as significant of an effect as it would have had a couple years ago.

But as I said, we do expect an extension this year.

Okay, I get that.

And then finally a more general question -- the question of captives came up early.

You do have a Barbados captive.

A number of companies lately have read redomesticated their offshore captives from Bermuda or Barbados.

I guess the question would be for what's the advantage today of having that captive in Barbados as opposed to bring it back on shore?

The primary advantage -- and we have several companies in Barbados.

The primary advantage is you get more of an economic look at reserves and capital requirements and that sort of thing.

Much more capital efficient.

My understanding is that whatever reserves you seed over there -- my understanding was you seed -- US statutory reserves -- you still have to have some type of asset that equals the reserve that you seeded on a US statutory basis.

Is that true?

Yes, you have to have collateral.

Yes, you have to have collateral in the forms of assets in trust or letters of credit or something that will back those liabilities.

But it's much more efficient than --

I guess I don't understand why that would be, if you don't really -- you don't really think of yourself that way in terms of consolidated RBC and excess capital.

I understand the reserves might be less, but that really helps you?

You are right; we have our own economic capital formula and we run our business using that formula.

But in terms of capitalizing individual operating subsidiaries, we do look for the most efficient possible because that means less financing cost, if we didn't move business around.

So it is part of our operating model and we are not alone in that respect.

But we do take a step back and run the Company and price business more broadly using our own economic capital methodology.

Mark Finkelstein with Evercore Partners.

I actually wanted to go back to the captive but maybe from a different angle, which is, is this in any way influencing -- and I understand your points, Jack, and your view on it.

But is it in any way influencing your discussion with counterparties?

And if so, is it having any positive or negative effect on your outlook for the US business?

The answer is no.

It really doesn't, in terms of -- when you say counterparties are you talking about our clients, I present?

Your clients, yes.

Yes.

No, it rarely comes up.

Our clients presume that we will finance and back our business, whatever is most appropriate under the circumstances.

No, it's not part of that discussion.

I'm more thinking about in terms of how they think about their own captives and their use of XXX and AXXX support?

We have not been coinsuring AXXX, ever.

We have not been coinsuring much XXX business for a while.

Because the market has moved away, there's cheaper ways for primary companies to finance that rather than to put it into the reinsurers and have them refinance it.

So we get a little bit of that but not a lot.

And I don't think it makes that much difference if that disappears.

It has been a little bit of a financial reinsurance benefit for us to participating in the marketplace on XXX and AXXX business.

But that's not something that's not really critical.

Okay.

Can you just give the outlook on the financial reinsurance business?

I know you did the bigger transaction in the third quarter, retroactive to 1/1.

What is your outlook on that and where do you see the opportunities?

On the financial reinsurance, we have done financial reinsurance now pretty globally.

There's a fair amount of it that we do in Asia.

There's an increased activity in the US over the last couple of years, in particular, and a little bit now in Europe.

And we see that that marketplace has become more active.

It's a very sophisticated market.

I think we have a lot of expertise in that and it plays very well with discussions with companies are continuing along.

We did a lot of transactions in the fourth quarter our financial reinsurance basis.

Some of them will not even take effect until the beginning of this year or early parts of this year.

And so I think we are very pleased with that.

We never can predict how that business is going to grow.

Sometimes it grows quickly and sometimes it stagnates for a while.

It depends on needs in the marketplace, and those vary from time to time.

Sean Dargan with Macquarie.

I just have a question about your capital generation.

So it sounds like your outlook for topline growth has just moderated.

When we think about the $200 million to $400 million of excess capital deployment baked into your guidance, should we think that you are capable of generating that much above what you need to invest in your business?

This is Jack.

Our run rate is probably right about $300 million.

That can vary year-to-year but that's -- let's call that redundant capital above and beyond what we would need to support the business.

So yes, we certainly would expect in a normal year to generate that amount of additional capital.

And then, question about asset-intensive.

I'm sure 2013 results benefited from prepayments and probably some favorable market activity.

But nevertheless, it seems like every quarter came in above what you were talking about as run rate before.

What should we think about in terms of run rate earnings progression in that line of business going forward?

^ This is Jack again.

Our best estimate would be in the $35 million to $40 million range per quarter.

John Nadel with Sterne Agee.

Just -- so many questions have been asked and answered.

So Grieg, I'll just ask this question.

You just made the comment that you haven't really done anything in terms of coinsurance universal life with secondary guarantees or AXXX type business.

And you have done a whole lot less on the XXX side over the last couple of years.

I'm just interested in your opinion as to whether all the pricing adjustments in the universal life insurance market, especially here over the last 12 months or so -- does it make you a little bit more interested in reinsuring new business there, should you get opportunities?

Or do we still have further to go, in your opinion?

That's a good question, John.

I'm not sure I have an informed answer on that because I haven't looked at exactly what it would take to reinsurance those blocks of business.

We have not been comfortable with the lapse rates that we would have to assume in the policy holder behavior assumptions we would have to make to get comfortable with such long-term risks as AXXX.

Now, we will do some way out of the money cat business on AXXX and feel very comfortable with that.

But the modeling on some of the newer benefits is getting closer to realistic, but I don't know how far we are off from that.

And I would hesitate to guess on it.

There's no active project on RGA's part to try to look at that, either.

It's just not on our radar to try to ensure at the moment.

I think that says enough all by itself.

Well, maybe we are missing an opportunity.

But maybe we are just not comfortable with where it is.

And then I would like to ask the -- I'm actually more interested in the other side of this captive discussion.

You know, because my guess is the primary companies, to the extent that there's really any scrutiny incrementally from here, it's really -- it's going to be on the primary insurers, I think.

I could be wrong on that, obviously.

But are you seeing any new opportunities for deal flow?

You mentioned financial reinsurance, but thinking more about traditional reinsurance, as a result of some of the companies here really making some changes, bringing the offshores onshore?

Met has got, obviously, the big project that they are consolidating several insurance subsidiaries, things of that sort.

Obviously, I wouldn't expect you to talk about a specific name but wondering if you are seeing any incremental opportunities just as a result of that flow.

No.

I don't think there's much incremental opportunity from that trend.

I think we have seen some financial reinsurance opportunities that come about because companies are trying to get everything buttoned down in anticipation of where the future might be, get out ahead of everything.

And so there has been a little bit of a land rush at the last minute.

So that's part of what's driving some good strong financial reinsurance demand at the moment.

In terms of generating more risk transfer mortality business in the regular marketplace, we continue to believe that overall the amount of mortality risk we insure is going to continue to drop a little bit.

It's dropping at a much reduced rate from a number of years ago, but it's still not increasing.

It's pretty flat.

And that's a US comment, Greig?

That's a US comment.

It's also a little bit of a Canadian comment.

It's definitely not an Asian comment, where we are seeing good growth in mortality risk acceptance and transfer.

But it's part of the reality of the marketplace right now.

Available US business is going down, mix -- competition is actually causing us a little bit of a concern right now.

It looks a little bit like a mild version of what we saw in the 1999-2004 years or 1997-2003 years, depending on when the competition was, a number of competitors in the US market competing for a smaller amount of business.

It's heating up competition a lot.

And if I could sneak one last one in, just thinking about capital management, capital allocation, I know you guys have spent more time, I think, incrementally more time over the last 12 months or so really thinking about this, particularly given the free cash flow generation in the business.

Do you have a payout ratio or some kind of way that we should be thinking about your return of capital, particularly on the dividend side, that you and the Board have come to any conclusions there?

This is Jack.

I don't think we have quite sharpened our pencils to the point where we can articulate it as a payout ratio.

Keep in mind that that sort of thing is influenced by other opportunities, per capital deployment, and I'm talking about the dividend rate as I make these comments.

The buyback opportunities and the opportunities to deploy into the business also have an effect.

So I don't think we have quite gotten it down to a payout ratio.

Perhaps we will, in the future, but we are not quite there now.

(Operator Instructions).

Tom Gallagher with Credit Suisse.

Just one question on US and another one on Japan -- to US mortality, I know you mentioned it was favorable this quarter.

But if you look at trends that we've seen over the last few years, on the primary side actual to expected, it has gotten worse across the board.

Swiss Re, I know, has taken some pain on US mortality.

Just curious what you are seeing underneath the covers on trend there including this quarter but also, more important, over the last few years.

And then, secondly, Japan -- can you comment on what drove the better results there?

Was it volume?

Was it margin?

Was it both?

Sure.

Mortality for the quarter was good but mortality for the year was good as well.

This is the second year in a row where US mortality has been generally favorable.

In particular, the fourth quarters have been extremely favorable compared to other quarters in terms of just the raw experience.

It's a strange phenomenon, maybe, but there's one particular month that has been very good for the last two years.

And you never know how those things are going to work out.

No; we are happy with the US mortality.

We have a lot of data and a lot of information.

Our blocks are very stable.

We can look at our experience on that troubled 1999-2004 business and we can say we are making money on that block, it's just not as good a return as we would like.

But we know where that is.

It is a mature block of business and it has now gotten very stable.

So we think that the impact of that block has gotten less over time and so that has created some pretty good results in the last two years and we expect that slowly returns on our US mortality business are actually moving upward.

In terms of Japan, you're right.

It's a little of both.

Business flow has been nice.

There's been some very strong developments in terms of new treaties, new flows of business in 2013, generating quite a bit of business that has performed better than expected.

The business is a mix there of the financial reinsurance, some facultative business and some other special product development or special program features.

And together they are all performing well.

It has been a good market for us and it is expected to continue.

So the outlook for growth in Japan continues to look pretty good?

Yes, we think so.

It's such a big industry there and companies have historically not reinsured very much.

But we are slowly -- and I emphasize slowly because it's not something that's happening at anything like the pace we would like to see, but it's slowly happening that companies are beginning to see the advantages of tapping into expertise and knowledge that reinsurers may have.

Got it.

And then just one final follow-up, just -- and I know you had mentioned earlier competition is heating up a bit.

And I'm not sure exactly which markets you are referring to.

Can you talk a little bit about where there is the best opportunity for the best margins that you see, in which regions and how is that influencing your business plan?

Let me phrase it this way.

I was speaking of the US, in particular.

Competition has gotten heated in the US.

We still expect to collect our margins.

We still expect to stay very disciplined in all these markets.

The UK has been a tough market for the last many years, very competitive, very difficult.

But I would say the Asian markets and other markets have been generally favorable for us.

We see markets that are growing and appreciate the things we bring to the table as ones where we can collect a little bit better margins than where it comes a commoditized price competition -- sometimes that happens.

And that right now looks like where the US is starting to head and the UK has been in that mode for a number of years.

Got it, thanks.

gentlemen, we have no further questions at this time.

I will turn the call back over to you for any additional our closing remarks.

Thanks, everyone who joined us this morning.

To the extent any other questions come up, feel free to give us a call here in St.

Louis.

With that we will end the fourth-quarter conference call.

Thanks again.

Thank you.

And that does conclude today's conference.

Thank you for your participation.