美國再保險集團 (RGA) 2014 Q1 法說會逐字稿

Good day, and welcome to the Reinsurance Group of America first-quarter 2014 results conference call.

Today's call is being recorded.

At this time I would like to introduce the President and Chief Executive Officer, Mr. Grieg 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 first-quarter 2014 conference call.

Joining me this morning is Grieg Woodring, our CEO.

We'll discuss the first-quarter results after a quick reminder about forward-looking information and non-GAAP financial measures.

Following our prepared comments, 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 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 the expected results.

A list of important factors that could cause actual results to differ materially from the 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 is considered a non-GAAP financial measure under RITC 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 information may be found on our investor relations website at RGAre.com.

We have aligned certain business operations and management responsibilities to better fit within our geographic-based segments, two of which have also been renamed.

All comparable prior-period results have been adjusted to conform with the new reporting alignment.

With that, I will turn the call over to Grieg for his comments.

Thank you, Jack, and good morning, everyone, and thanks for joining us this morning.

I will provide some general comments on the quarter and some industry dynamics, then Jack will go over the financials, and finally we'll open it up for Q&A.

This quarter was a bit below our expectations.

We experienced adverse mortality results in our North American operations.

It's common for our business to have volatility in claims in the short-term, but the magnitude of the event this quarter was on the high end of historical and expected ranges.

Our first quarter often has some seasonal effect, too, and we generally have had higher mortality claims that indicate some relationship to the winter months in the Northern Hemisphere.

We will have some additional comments on the claims shortly.

But, otherwise, the results reflected premium growth that was on the high end of our expectations in the US, continued momentum from global financial solutions, and strong overall results and the Asia-Pacific operations.

Our results in Europe were somewhat weak overall, with slightly adverse mortality results in the UK, offsetting the strength in continental Europe and South Africa.

We benefited from a lower-than-expected effective tax rate and lower corporate expenses, while currency fluctuations had a fairly material negative effect to both the top line and the bottom line.

Our Australian operation had another quarter with bottom line and reserve development were more or less in line with the assumptions we laid out in the second quarter of last year.

Moving back to the mortality results for a second, I'd like to provide some additional thoughts, based upon our analysis to date.

Underwriting experience was about $30 million worse than expected in the US; about $15 million worse than expected in Canada.

Canada's severity was the main issue, as a relatively small number of large claims accounted for the shortfall.

In the US, frequency of claims increased in the first quarter, but severity was the bigger issue, with a number of large claims -- large claims being defined as $1 million and over -- coming in at about 125 claims, versus an average of 90.

These larger claims were concentrated in our facultative book.

There was a particular performance from older issue aged policies and long-duration policies.

These policies were well seasoned, but came from various different periods of our history.

Our facultative policies are individually underwritten and tend to be larger in size; hence, providing more volatile results.

But this has always been an important part of our business, and our results over time from the facultative book have been excellent.

We're not concerned with the performance this quarter; and, historically, our mortality fluctuations smooth out nicely over time.

We have not identified any other issues in terms of concentration by client cause of death or otherwise, and we do not see this quarter as negative trend beginning, or of a systematic problem.

Given the severe winter that we had this year, we suspect it was an unusually prominent seasonal effect, but this is always typical by ascribed cause and effect.

We believe that there will be some natural recovery or reversal in future quarters.

While short-term negative claims volatility can be frustrating at times, remember this as an integral part of our business; and, in fact, an important part of the value proposition we provide to our clients.

We are quite comfortable accepting short-term volatility risk, when considering the longer-term nature of our business.

We remain confident in the long-term performance by [patients] of that business.

In terms of industry dynamics, we see no significant major changes in the environment in the various regions in which we operate.

Noting that the US large business remains somewhat competitive, we continue to find ways to be helpful to clients, and our premiums have been tracking a bit ahead of expectations.

Annual Society of Actuaries survey for North America showed that life reinsurance premiums were basically flat in 2013, after multiple years of decline.

And we note this is a positive environmental factor.

As I mentioned, premium growth in the US traditional segment was above expectations.

It benefited from better persistency in the underlying policies, a somewhat recent trend that we hope is one that continues.

In terms of M&A, we have continued to be actively evaluating opportunities, but don't have anything material to announce this quarter.

On the other hand, we're not sitting on our capital, and we're fairly aggressive in share buybacks during the first quarter.

With that, I will turn it back over to Jack to discuss financial and segment results.

Jack?

Okay, thanks.

We reported operating income of $115 million this quarter, or $1.61 per diluted share.

That's down from $123 million or $1.65 per share a year ago, primarily reflecting the items that Grieg just described.

As we indicated, our relatively stronger US dollar affected our results to some extent, as we gave up about $0.06 per share in operating earnings when compared to last year's first quarter because of that foreign currency translation difference.

Net premium growth was solid, and increased 6% for the quarter in translated US dollars, and 9% in original currencies.

Book value per share, excluding AOCI, increased to $71.51.

Our average investment portfolio yield was about 4.7% this period, which reflects a decrease of about 9 basis points quarter-over-quarter.

Our new money rate was just below 4% this quarter, and a bit below that we reflected in the fourth quarter.

as investment yields retracted a little bit during the first quarter of this year.

We continued to successfully execute our capital management strategy, and bought back 1.45 million shares for about $113 million during the quarter.

We estimated our current excess capital position to be at roughly $550 million, and we continue to evaluate the most efficient uses for the capital.

Turning now to our segment results, the US and Latin America traditional sub-segment reported pre-tax operating income of $48 million compared to $72 million last year, reflecting the adverse mortality upon which Grieg commented earlier.

Premium growth was strong, increasing 8% quarter-over-quarter, a little better than we expected.

And we also had a little bit better expected result in our individual health and mortality lines.

Our asset-intensive business in the US reported pre-tax operating income of $41 million, primarily reflecting favorable spread performance in the fixed annuity reinsurance.

Our financial reinsurance line showed continued fee income growth, and added about $12 million to our pre-tax operating income in this quarter.

Canada also experienced adverse mortality, as was mentioned earlier, and posted pre-tax operating income of $22 million.

Similar to the US, the adverse experience was [different] primarily by large claim volatility.

The relatively stronger US dollar versus the Canadian dollar reduced top- and bottom-line results to some extent.

Translated premiums fell 5% quarter-over-quarter to $231 million, including $22 million of foreign currency headwinds.

Local currency premiums increased 4% over the last year, which was a difficult comparison, considering a favorable accrual adjustment in last year's creditor business premium.

In our Europe, Middle East, and Africa segment, pre-tax operating income of $14 million was stronger than last year's fourth quarter.

But both periods fell short of our expectations due to adverse claims experience in the UK, as mortality claims were higher than we expected.

Segment-wide, our net claims experience was about $12 million pre-tax worse than we would have expected.

We had favorable experience in France and South Africa, which offset, in part, the shortfall.

(technical difficulty)

Please stand by.

Okay.

This is Jack Lay again.

My apologies.

We currently were disconnected.

I'm going to pick up with my comments.

I was starting to comment on Europe, Middle East, and Africa segment.

Pre-tax operating income of $14 million was stronger than last year's first quarter, but both periods fell short of our expectations, due to the adverse claims experience in the UK, as mortality claims were higher than we expected.

Segment-wide, our claims experience was about $12 million pre-tax worse than expected.

We had favorable experience in France and South Africa, which was offset, in part, by the experience in the UK.

EMEA premium growth was strong, with premiums increasing 16% quarter-over-quarter, and original currencies premiums were up 13%.

Asia-Pacific had another good quarter, with pre-tax operating income of $25 million.

Nearly every market in the segment performed better than expected, led by strong performances in our India and Japan businesses.

Segment-wide, net premiums totaled $382 million, up 9% in original currencies.

Our corporate segment reported pre-tax operating income of $3 million this period, a notable improvement versus last year in the fourth quarter, as there were various moving parts, with the most prominent being lower corporate expenses due to accrual adjustments, related to the refinement of our annual incentive compensation, since it is paid out in the first quarter for the prior year.

Our effective tax rate of 30.7% was below our expected rate of 34% to 35%.

I would suggest that that rate is continually affected by the cash flows underlying some of our international treaties, so it's always a little difficult for us to project that effective tax rate on a quarterly basis.

It's a little easier task to reflect what we expect on an annual basis.

And I would say, at this point, probably for entire year 2014, roughly a 34% effective tax rate would be our best estimate.

Overall, then, adverse short-term mortality volatility, investment yields, and foreign currency fluctuations went against us this quarter, but we were pleased with continued strong performance in many markets.

We are not concerned with the period's mortality experience, and expect the volatility to level out over time.

We are also pleased to report the ongoing successful execution of our capital management strategies, and we continue to simultaneously evaluate global block acquisitions and return of capital opportunities.

As a reminder, we are hosting an Investor Day conference in New York on May 20.

We hope to see many of you there.

We thank you for your time this morning, and appreciate your support.

And with that, we'll open the lines for questions.

(Operator Instructions).

Nigel Dally, Morgan Stanley.

So, obviously, adverse mortality (inaudible) severe weather conditions.

Were the claims types focused more on the Northeast, where the weather was more severe than other locations?

Or did you see any patterns (technical difficulty) mortality?

(technical difficulty)

Please stand by.

Mr. Dally, you may continue with your question.

Right, thanks.

Just on the adverse mortality (inaudible) to the severe weather.

Where the claims types focused in the Northeast, or some of the other areas that had the severe weather?

Or any patterns with regards to the cause of mortality (inaudible) to weather related factors [such influence], or any color there would be helpful.

Yes, Nigel, I actually don't know the answer to that.

I don't know that we really studied it.

In fact, the seasonality of claims is not usually more pronounced in the cold areas.

And it's actually more pronounced in, say, the Southern states of the US, which have warm summers and cold winters.

But I don't actually know, this quarter, where they came from.

And like I said, it's really difficult to connect the dots with any confidence that the cold winter caused it.

When you're dealing with an extra 35 deaths of large cases, that can happen any quarter, I suppose.

It just often does happen in these quarters, and nothing we're overly concerned, about because when you look over a reasonably short period of time, all those things smooth out, and we'll be back on expected overall.

Yes, Nigel, this is Jack.

Maybe I could just add that as we get the claims in, it's not always clear where the individual was residing at the time of their death.

So it gets a little difficult, as Grieg was intimating, to confine it to various regions.

I'd also point out that really it wasn't just the Northeast region; it was the entire US, for the most part, that had a very difficult winter.

So, I think it's likely not going to be -- to the extent we do get better information, it's not likely going to be a regional issue.

But certainly from the standpoint of the Northern Hemisphere going through a fairly cold winter, that we suspect that we did have some -- that that did have some implication on our claims [bump].

Okay, thanks.

And then, just second question with regard to your capital management strategy.

You're clearly active in buying back stock, but your debt to capital ratios are amongst the highest in the industry.

Can you discuss where debt reduction stands in terms of your priorities as well?

Yes, this is Jack, I'll take that.

Our leverage, we don't view it as particularly high.

But we also, in terms of our ratings, don't think we have a whole lot of leveragability right now.

And when you take a look at our leverage ratios, some of that is hybrid securities, which have a more benign treatment from the rating agencies than some of the just pure senior debt.

So, we don't feel overlevered, but we don't have a whole lot of leveragability at this point.

And in fact, if we were to go out and try to finance a large acquisition that needed financing above and beyond our current redundant capital, likely we would want to take a look at a security that did have some equity treatment, like a hybrid.

Great.

Thanks a lot.

Jimmy Bhullar, JPMorgan.

First on just the mortality, just following up on the previous question.

Was there anything related to any specific vintages?

Or was it spread across -- like, I just want to get a feel for whether this business that experienced poor results was related to what you sold in the late 1990s or early 2000s.

And then how much of this do you expect to continue, or have you seen it continue, into this month?

And then, secondly, on buybacks, do you expect to remain active throughout the year?

Or, given what you've done already in the first quarter, are you going to wait and see what the other opportunities are, before pursuing buybacks?

And then, finally, on the 34% tax rate, does that -- I'm assuming that you're implying that that's with the renewal of the active premium finance legislation.

So if it isn't renewed, how much would the impact would be on the tax rate, then?

Okay, Jimmy, let me talk about the mortality.

The mortality was spread over all the areas.

As I said, it tended to be a little bit more facultative business than automatic business.

A lot of it was some very profitable eras that go back into the mid-90s and earlier.

So I don't think we draw any conclusions about where this was coming from.

Policies had been in force, generally speaking, an average of a long time.

So, pretty good on that front.

So we don't really draw any conclusions from that, from what we've seen.

Yes, Jimmy, on the buybacks, I'm sure you're aware we've got an authorization for about $300 million for the year, so that's likely the maximum amount we would want to buy back during the year.

And certainly, going forward, we're always influenced by the extent to which we think we have other opportunities; for instance, investing in merger and acquisition support and that sort of thing.

So, we had a fairly robust buyback in the first quarter.

We will pick our spots going forward.

And we'll be influenced by how much redundant capital we're generating, and the extent to which we expect to have other opportunities for deployment.

So, hopefully (multiple speakers).

Just on that, is it fair to assume that you would intend to complete the authorization this year, or not necessarily?

I wouldn't put too fine a point on that.

In other words, the goal is not necessarily to complete the whole $300 million.

The goal more is to make sure that we don't continue to build up a lot of redundant capital.

So, $300 million is not a bad estimate.

But I will tell you the goal -- we won't be disappointed if we don't buy back all $300 million.

On the other hand, if we don't deploy into other opportunities, it's likely we will take advantage of much, perhaps all, of that authorization.

In terms of your question on the tax rate, yes, the active financing exception had not been extended.

It's being discussed currently.

I think based upon the input that we get, we kind of expect it to be extended this year.

So my comment on an expected tax rate does reflect an expectation that there will be an extension there.

For the first quarter, it didn't have a dramatic affect on us, because certainly it hadn't been extended, so we couldn't reflect that in our tax provision.

And that actually drove up our tax provision by a little less than 1%, in terms of the effective tax rate.

Now, that was overtaken by other issues that drove the effective tax rate back down, but that decides that that was the amount of additional provision we had to provide.

Okay, then finally, I recognize it's early, but have you seen the elevated claims continue into April as well, or not?

The trend of spend each month has been a little bit better than the preceding month this year.

But, of course, that doesn't form any pattern that you can rely on.

Things bounce around, and so forth.

April is okay so far.

Okay, thank you.

Erik Bass, Citi.

You talked on the call, I think, last quarter, about seeing increased competition in the US and Canada.

And can you just some provide more detail on what's driving this?

Whether it's just a function of the market shrinking over the past few years, or is it more aggressive competition from some of the newer players?

And in terms of the impact on RGA, are you seeing it in terms of lower close rates, or is there pressure on new business margins?

Sticking with our margins, we don't see any reduction in margins.

It's an increased environment mainly due to the fact that the US -- in the US -- and mainly due to the fact that the overall market size is shrinking a bit, and people are competing harder over what's left in a smaller pond.

We've seen our market share fall over the last couple of years.

And we're okay with that.

We're not too concerned about that, for the moment.

The fact is that this environment is a little bit more competitive, but we wouldn't carry that thought too far.

It's not, by any means, the worst market we've seen or anything like that.

In Canada, the situation is a little different in that there's a couple new entrants that are occasionally taking some business, making it a little bit more competitive than it had been.

But, again, it's still a very attractive market in Canada.

Okay.

And premiums in US and Latin America were up about 8% this quarter.

And, in general, your comments, I think, on new business seemed relatively positive.

So you can you just talk about where you are seeing growth opportunities in the US, particularly in light of the competitive dynamics?

We have done a few small in-force blocks.

We have seen pretty steady growth in our group business and in our long-term care business, and both of them had excellent results in the first quarter.

The effect of the persistency that I mentioned in my earlier comments I think is also a little bit different.

We've seen that for nine months or so, where persistency has just gotten a little bit better, industry-wide; which with our cross-section, helps us considerably.

And so that has been a nice feature, and we're happy to see that.

All those things combined to make it a reasonably strong, by our estimation, premium growth quarter for the US.

Okay, thank you.

Sarah DeWitt, Barclays.

Just following up on the competitive landscape, are you seeing any increased competition from European reinsurers?

Because I know, historically, as P&C reinsurance prices have softened, they tend to be a bit more competitive in life reinsurance.

Are you seeing that dynamic at all?

Most of our competition is European-based, so yes, I guess we're saying competition is increased a little bit over the last little while.

It's basically from the same group of people that have been here for years.

But having said that, there isn't a sharp uptick.

Don't get that impression.

It's just a slow, gradual buildup over the last couple of years, I suppose.

Nobody is changing character in rapid fashion, or exhibiting characteristics that are different from one quarter to the next in a big way.

It's just a slow buildup over time.

Okay, great.

And then do you expect any -- are there any applications of Wilton Re being acquired by the Canadian pension plan for your business, whether that's increased competition on block deals, or even existing business?

Well, I suppose that could happen in any specific situation.

Wilton is a good company, and I think they are undoubtedly pleased with where they've ended up in this funding round.

So it could happen, but I'm not expecting that we're going to see it as a major factor at all in the next little while.

Okay, great.

Thank you.

Sean Dargan, Macquarie.

As we think about demand for life reinsurance over the next few years, with principle-based reserving being implemented -- and then in New York, it appears that Lawsky will change the reserving requirements for XXX, so the companies have to hold less redundant reserves.

Is that going to be a factor?

Does that factor into the reasons why primary carriers buy life reinsurance?

I don't really expect it to have a big impact.

In fact, most direct carriers reinsure their XXX business, not on a coinsurance basis.

In other words, they don't transfer that redundant reserve to the reinsurers.

They keep that redundant reserve, and have used captives and other things to help finance that themselves.

It works out to be a little bit cheaper for them to do it that way.

So I don't really expect that to have a big impact on the overall size of the marketplace.

It could have a little bit, and there could be some business that is lost due to the principles-based reserving.

But if there is a movement to restrict new captives, and the primary carriers do not use captives to the extent they have in recent years, would that benefit your business?

Well, again, it depends on what the reserve level that they have to hold.

There's a trade-off to eliminate the redundancy of the reserve, and that's the piece that makes everybody accept the prohibition of captives in that use.

Then, yes, it doesn't change much of anything.

Okay, thanks.

And just a modeling question.

I think you said Asia-Pacific was more or less normalized this quarter, and I think some countries were moved around between segments.

What should we think of as perhaps run rate in the Asia-Pacific segment?

Asia-Pacific had another very good quarter.

They've had a growth story for the last couple of years.

It has been a little bit nasty because we had Australia reported in that segment for a while, for part of that period.

And when you take Australia out, though, you can see the nice results coming out of Asia-Pacific.

And, in fact, good results across the board there.

So, we expect this was a little bit better than we expected in the first quarter, but we do expect to have pretty good results in Asia-Pacific this year.

Okay, thank you.

Mark Finkelstein, Evercore.

Grieg, you talked about persistency as being one of the drivers of better growth in the US, and I'll have a second question on that, but how are you looking at this improved persistency?

On the one hand, you've got YRT, which will probably benefit from the other coinsurance life-supported products like -- do we look at this improving persistency as a net positive for margins?

Or how are you thinking about that?

Yes, it's absolutely a net positive for margins.

Not only do you collect more premiums over time, but the more persistent, the better the mortality on a block of business, and conversely.

Most of our business is YRT.

There's some coinsurance, but it's predominantly YRT.

So, good persistency is a good thing.

Okay.

And then just on the growth, I guess I'm still struggling a little bit with just the size of the growth.

I get it on the LTC newer area, you're growing that reasonably rapidly.

Group business, I also understand.

But it still is a life-dominated block.

And when you think about the growth rates and you think about persistency not being a seismic change, I assume, but rather a steadier improvement, I guess I'm still struggling with why the growth was so strong in what is a structurally declining, at least for new business, reinsurance market.

Well, I would say that in any given quarter, there's always a bit of noise due to policies reinstated.

Reporting that sometimes get caught up where we don't get a report in one month, but we'll get two in the next month, and we're estimating the first one of those.

And so there's always a little bit of noise in there.

So, it's hard to peg anything much on one quarter.

But I think our message is, we were quite pleased with it, with the level of premium growth in the quarter, and that we noticed a few effects that were causing (technical difficulty) too, what we hope are sustainable cause [agents].

Okay.

And then just one more quick one.

Jack, I think you framed out capital as over $500 million.

Last quarter, you gave of framework for how much over.

I think it was $600 million.

Any sense, on this quarter, how much over the $500 million?

Yes, I think the best estimate is about $550 million over right now.

That is $550 million of redundant capital.

Okay.

Thank you.

Tom Gallagher, Credit Suisse.

Just a question on the large claim issue in the US, over $1 million, as being the primary cause of the weaker results this quarter.

I get the frequency/seasonality, but not exactly sure what's happening on this larger claims issue.

Because we've heard the same issue pop up for a few other companies over the last year or two.

And just curious if that's something you've spent any time focused on, analyzing, in terms of what's driving that.

Yes, we do, Tom.

But really the answer is that we do get spikes like that, and then we get also periods where it's a lot less.

It's pretty predictable.

If you look at, say, any 24-month period, large claims are pretty much right on track.

So if they die in the winter, they don't die again; they don't die in the summertime.

(multiple speakers) We haven't seen sustained, elevated large claim pattern.

We can get it for three quarters in a year, and as above average.

That can easily happen.

But we don't really see any two-, three-year runs of large claims, over expected.

I guess where I was going what that is, if you look at over a multi-year period, it's actually not that larger claims are becoming a larger portion of the overall pool, if you will.

It's that you're just seeing greater standard deviation of those, or --?

Yes, our mortality results in the US have been very good for the last two years.

And the driver of good or bad in a given period of time is always large claims.

It's not really frequency; that's quite predictable, with the millions of policies we have in force.

But when you're talking about the difference that 35 extra claims make, that's a pretty small number.

And you can't predict that from quarter to quarter.

Understood.

So you don't see this as being a solely [aioli] issue that's now coming more into fruition, or anything like that?

No, we really don't.

That average amount of the large claims of the US, that 90, will tend to rise over time, as you get more and more big policies issued.

So that's the driver of it.

It's not -- and as those large policies start to reach people age 80, even age 90, they will die eventually, and they will become claims.

And that's what we're in the business for.

Okay.

And then just a question, as well -- if you can comment on what are you seeing from the primaries, in terms of retention and pricing?

And I know you said the market has been somewhat competitive, but how about from the primary side?

Are companies generally ceding more, retaining more?

What has been happening on that end?

Well, as I mentioned earlier, the overall marketplace was about level in 2013 over 2012.

It was very close to the prior year.

So companies are neither retaining much more or reinsuring much more.

It's pretty steady.

We don't see -- the competition in the marketplace is not so strong that companies feel that they should reinsure lots of business because the reinsurers are taking business at a loss.

There's not a movement to reinsure vast quantities into a marketplace that's too hot.

So it's a fairly normal, but still a little bit elevated temperature, competitive environment.

I think that would be how the primaries mostly see it.

Okay, thanks.

Humphrey Lee, UBS.

There has been quite a bit of coverage on the US mortality.

I was just wondering (technical difficulty) talk about a little bit more on the Canadian (technical difficulty) mortality for the quarter?

On the Canadian side, again, they had elevated mortality due to a few large claims.

The Canadian business has had wonderful experience for a long stretch of time.

We really haven't had too many wobbles in the Canadian experience, but this quarter was one of them, and they do have a lot of large cases in force as well, just like the US.

It's a market that in many ways is similar to the US.

It has its differences, but in many ways it's very similar to the US, and smaller.

But you can get quarters like this, and we just had a result that reflected a pretty bad experience in the book this quarter.

Okay.

And in particular, you saw it concentrated in southern vintages?

Or how do those claims spread for the block?

Yes, I don't think the numbers we're talking about are big enough to really draw any conclusions at all, Humphrey.

I think that in Canada, the business is pretty well spread out over the marketplace.

We have a big block of business.

But these extra claims, these extra-large claims, were coming from -- were not enough to draw any conclusions from where they are coming from, or how they're coming, at this stage.

Okay.

Shifting to (technical difficulty), so I think you mentioned in the past the run rate would be somewhere between $35 million and $40 million a quarter.

And then the first quarter equity market was not as positive (technical difficulty).

I was a bit surprised by the (technical difficulty) performance that you (technical difficulty) suggested run rate.

Is there any color for this kind of strong results for the quarter?

(technical difficulty)

Yes, Humphrey, you cut out a little bit, so I'm not sure I got the whole question there, but I think you were referencing the run rate on asset-intensive, and what can we expect.

Our best estimate right now would be a run rate of about $150 million for the entire year, so a little bit stronger performance then we would've expected in 1Q.

But if we had to peg it right now, that's the best estimate I could give you.

And the second part was (technical difficulty) payment in terms of benefit for this quarter.

Why we got that performance, Humphrey?

No, no, no, no.

(multiple speakers) I mean, did you get any like a bond prepayment in the quarter?

(technical difficulty)

Please stand by.

Caller, you may continue with your question.

Yes, this is Jack.

Let me apologize.

I'm not sure why we continually get disconnected here.

I know it's very frustrating for everybody on the call.

But, hopefully, we'll get it resolved before the next quarter's call.

Yes, I think the second part of my question was bond prepayment of [benefit] for the quarter.

Humphrey, could you repeat that?

The connection isn't real good here.

Okay.

Did you get any bond prepayments in the quarter?

Yes, we got some, but not above and beyond what we would expect.

So I would say, in terms of that variability on investment income, it was pretty much as predicted.

Okay.

If I can sneak in one more.

So, for Australia, in the press release you mentioned that it was in line with your expectations, so was it slightly profitable in the quarter?

Yes, it was.

We earned several million dollars there, which was about what we expected.

So it wasn't dramatic, but it was pretty much on the run rate that we expected.

Okay, got it.

Thanks.

John Nadel, Sterne, Agee.

A couple of quick questions.

Grieg, I'm just wondering how you're thinking about acquisition opportunities at this point, relative, for instance, to, let's say a year or two or even three ago.

My sense is that the competition out there for potential deals is significantly heated up, relative to where it has been.

And in particular the new entrant, if you can isolate on one, is of course Resolution, which has made it very clear that they have huge interest in acquiring existing blocks of business.

So I'm just wondering, if you had to think about -- you had to sort of tag the probability of getting a transaction done today versus even of couple of years ago, I'm assuming that probability is lower.

Maybe you can comment.

Yes, John.

And I think that's a fair observation; that if you're looking at the large, headline type acquisitions, the number of people that are interested in that marketplace is increasing a bit.

We actually expect that there's going to be more opportunities on the smaller end that we'll be tackling.

Some of them may not even rise to things we will announce, because they're not that big.

Others might be things that we notice, we use chunk of capital that's noticeable for us, that falls well below the radar screen of other places.

Okay.

We continue to expect and see the beginnings of a lot of the companies in Europe beginning to address their changing strategy with respect to mix of business after Solvency II becomes effective.

And many of those companies, we expect, will be looking to sell pieces of their business, or blocks of their business.

And those may be small enough that they don't attract widespread competition; maybe two or three bidders at a given time.

And we think that market is going to be pretty active in the next few years.

Maybe not so much this year, but really opening up in 2015 and beyond.

Okay.

I assume there's already -- you're already having a lot of discussions with some of these management teams, setting that process up, I assume?

Yes, we are.

We are.

Okay.

Maybe it's more of an accounting question, and it might be better to take offline, but I'm just curious about this.

In larger death claims -- or, frankly, just in death claims in general -- at older ages, I'm curious why we even see that show up in your numbers, just given that I think I would imagine that the death benefit reserve, by the time you get to an older age like that, should be at a point where it's all but covering the actual death claim.

Am I wrong on that?

Yes, you're wrong on that.

That's probably true for the primary companies, just that they show universal life or whole life policies.

Remember, most of our business is YRT, and our reserve is basically --.

Got it.

(Multiple speakers) premium.

Yes.

So, our premiums go up every year, and premiums get fairly large, but they get nowhere close to 1000 per 1000.

Okay, that's helpful.

And then just a numbers question; ballpark number would be helpful.

Just in general, when you're talking about 90-ish on average larger claims per quarter -- so, 350, 360 for the year -- how does that compare to the overall number of policies you've got on -- in the facultative book?

In the facultative -- well.

It's only 5% or --.

Yes, let me say that in the -- the last number I remember on the number of large policies -- and I really haven't got that number updated recently, that I remember hearing -- it was in the tens of thousands.

It's not a small number, but it's not a huge -- it's not in the millions.

Okay.

All right, that's helpful.

And then I just wanted to comment that I'm scared enough about dying once; I'm so glad we won't be able to die twice.

(laughter).

Yes, well, that's good.

Thanks.

Steven Schwartz, Raymond James.

Jack, first, a couple of numbers questions.

The tax rate that you talked about, 34%, is that for the year, or is that for the remaining nine months?

No, I was trying to give an annual sort of estimate, so that would be for all four quarters.

Okay.

And did you know, off the top of your head, the accrual that occurred that you cited in corporate and other?

The refinement of accruals in corporate?

Yes, you mentioned that that was --.

Yes, yes, yes.

That was roughly $8 million or so, pre-tax.

$8 million pre-tax, okay.

Thanks.

And then just to follow up on the comment, Grieg, that you just gave to John.

This does explain, because these are generally, I would assume, older people, because this is vintages that were written in the 1980s and 1990s.

I would assume that this explains why we haven't really seen this from the primaries, because if this was written on a whole life, then the reserve would be there.

You write on a YRT, therefore you take a hit, given how you write these policies.

Is that an accurate statement of really what's going on, and why we're not seeing this on the primary side?

Yes, a couple things.

It could be, Steven.

It also is the case that on facultative business, the ceding company very often doesn't keep any of the case.

Okay, that was my other question.

(multiple speakers)

We underwrite the case; it's our underwriting.

We keep the entire risk, so they wouldn't have these particular policies, necessarily.

Okay.

And one might think that older people -- just trying to connect the dots.

One might think that older people might be in the South.

Jack mentioned that you tend to see this in the South, and of course older people are going to be more susceptible to things.

Well, yes.

And let me -- if I left the wrong impression, let me correct it.

This business was spread out a bit.

It does have a lot of contribution from those older vintages that you mentioned, but there is some newer ones, too.

Okay.

All right.

That's all I had right now.

Thanks, guys.

Randy Krueger, KBW.

Good morning, it's Ryan.

Just one follow-up question on the Canadian pension plan acquisition of Wilton Re.

Less about that specific transaction, but more broad.

We've seen a lot of pension money come into the property/casualty space.

It would seem like, given that pension plans have a lot of longevity risk, that mortality risk would be a natural offset.

So I'm just curious if you think, longer-term, we'll see more pension money come into the life reinsurance space.

Well, I don't know how to answer that, Randy.

It could well be.

It's hard to guess.

There's always a lot of basis risk when you try to match up their longevity risk of with the -- an underwritten insured population mortality book.

It's generally reverse correlated, but it's not a direct offset.

And it depends; you could probably guess as well as I can what people will do, especially if the trend starts and people start following you.

Yes, Ryan.

This is Jack.

We could probably build a case that we'll see some accelerated opportunities there, but you could build a case that would have really very little influence.

So it's just a hard one to call.

Okay.

It sounds like this is a one-off transaction at this point with (multiple speakers).

Well, at this point, yes, that's what we'd say.

Okay, thank you.

And it appears we have no further questions at this time.

All right.

(technical difficulty)

You're live with your listening audience.

Yes, I don't know if anyone is left on the line.

This is Jack.

I was just going to suggest that we wanted to thank everybody for joining us.

Sorry for all the technical problems here.

We'll try to get that resolved going forward.

But to the extent you have any questions, feel free to give us a call here in St.

Louis.

And with that, we'll end the call.

Thank you.

That does conclude today's conference.

We appreciate your participation.

You may now disconnect.