美國再保險集團 (RGA) 2015 Q4 法說會逐字稿

Good day and welcome to the Reinsurance Group of America fourth-quarter 2015 results conference call.

Today's call is being recorded.

At this time, I would like to introduce Chief Executive Officer Mr. Greig Woodring and Senior Executive Vice President and Chief Financial Officer, Mr. Jack Lay.

Mr. Lay, you may begin.

Thank you.

Good morning and welcome, everyone, to RGA's fourth-quarter 2015 conference call.

Joining me in St.

Louis this morning is Greig Woodring, our Chief Executive Officer.

Greig and I will discuss the fourth-quarter results after a quick reminder of our forward-looking information and non-GAAP financial measures.

Following our prepared remarks, we will be happy to take 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 for 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 pre-tax and after-tax operating income, which is considered a non-GAAP financial measure under SEC regulation.

We believe this measure better reflects the ongoing profitability and underwriting trends of our business.

Please refer to the tables in the 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.

With that, I will turn it over to Greig for his comments.

Thanks, Jack.

Our fourth-quarter results were strong and it is nice to end the year on a high note.

For the quarter, operating EPS was $2.84, including $0.36 in tax benefits from the reversal of the Active Financing Exception.

For the full year, operating EPS was $8.43, down compared to last year's very strong result of $9.12, which included some unusual tax-related benefits, which boosted that result by $0.55 per share.

But up against the $8.30 that we had discussed last year, that is a more normalized result.

This was another quarter in which our international segments performed well overall, with Asia and Canada having excellent quarters.

Our US mortality business had another quarter that was not up to par, but there was some recovery versus Q3 and we benefited from a more significant contribution from the various in-force transactions that we have completed in the last couple of years.

Fourth-quarter reported premiums were up just modestly due to foreign currency headwinds, but excluding those effects, premium growth was 10% for the quarter.

So our top-line growth remains quite healthy.

As I step back and view the full year, I want to highlight a few things.

First, from a top-line standpoint, excluding the effect of a large retrocession agreement executed in the fourth quarter of 2014, original currency premiums were up 8% year over year.

We also consider this to be a solid year from an earnings standpoint, given the macro headwinds that we faced.

In particular, the effect of weak foreign currencies was even more significant than we expected and had a negative effect on operating EPS and ROE of $0.53 per share and 7.7%, respectively.

Further, we accomplished these results despite the fact that US traditional business had an unusually challenging year as we have benefited from the broad diversity of earnings that has come with the successful development of our global operating model over time.

Particularly important is the fact that both our Asian and EMEA segments have reached the next level of success and are now producing strong consistent results that are adding meaningfully to our total.

These segments have been helped by the growing importance of global financial solutions, or GFS, to the strategic and financial success of the global effort.

Strong performances by these segments in 2015, along with a nice rebound in earnings from Canada, were the key drivers to our results for the year.

We expect the strong momentum of our international and GFS segments to continue for the foreseeable future, given favorable market environments and our strong position in those markets.

As for the US traditional business, we expect a rebound in results at some point to reflect our view that most of the unfavorable experience was unusual volatility.

We also recognize that the large case older issue-age business is expected to continue to be somewhat of a drag on these results going forward.

In addition, the US group business, part of US traditional, had a disappointing Q4 and year, but we also expect a rebound in this business as well, given its shorter-term nature and ability to reprice annually.

Based upon the nature of that business, we expect it to show some degree of volatility from year to year.

We had another strong year in terms of in-force and other transactions, including substantial activity and success in Q4 as we deployed around $250 million in the quarter and $500 million for the year.

Thus, on top of a strong 2014, we have been fortunate to execute on a range of opportunities that present themselves, something that we expect to be the case in the future, given the ongoing regulatory and macro challenges our clients continually face and the resulting increase in number of opportunities being presented.

Looking forward, we continue to be optimistic about our global positioning, our market opportunities, and our ability to execute.

Jack will provide some more specific comments on our financial guidance, but our underlying business momentum remains strong as we continue to see nice demand for our services and solutions by clients worldwide, who navigate a challenging economic and regulatory environment.

We see solid organic growth potential overall as well as abundant opportunities for transactions.

Our organic growth reflects modest growth in certain mature markets, but high growth in other geographies and for some non-mortality products.

Transactional opportunities continue to present themselves in many markets in the wake of major regulatory changes and a challenging economic environment and this will continue with Solvency II in Europe being a prominent driving force.

The life insurance industry on a global basis is going through a lot of change, which we expect to continue, if not accelerate.

Our business model is dynamic and fluid and we have been able to anticipate and respond well in this environment.

We have positioned ourselves quite well for the future by continually developing our management team.

The team is already deep and broad.

On that note, we recently named Anna Manning as President and she will become CEO when I formally step down and retire at the end of this year.

Besides being very capable and talented, Anna understands and has played an important role at our unique culture and she will sustain this culture and RGA's momentum going forward.

With that, let me turn it back over to Jack to discuss our financial and segment results.

Okay.

Thanks, Greig.

I will give you a quick synopsis of the fourth-quarter financial results and then comment on our intermediate-term guidance and add some additional forward-looking thoughts.

We are pleased with the strong fourth quarter, with operating income of $188 million or $2.84 per diluted share.

As Greig mentioned, the fourth-quarter results reflected strong operating results in most markets and the reversal of accruals related to the AFE legislation.

Reported premiums totaled $2.3 billion, increasing 5% in translated US dollars and 10% in original currencies.

The premium growth includes new transactions layered on throughout 2015.

Our investment portfolio continues to grow while feeling the effects of the ongoing low interest rate environment.

Our average portfolio yield, excluding the spread business, was 4.96% this quarter, in line with the year-ago quarter.

Both periods were boosted by variable investment income and prepayments as well as some additional investment income related to the closing of an in-force transaction late in this year's quarter.

We repurchased about $51 million worth of shares and deployed $250 million into block transactions during the fourth quarter.

For the full year, execution of our capital management strategy was well balanced as we repurchased $375 million of shares and deployed a little over $500 million into block transactions.

It is worth mentioning that we have used just over $1.2 billion of excess capital over the past two years for deployment and repurchases.

Our Board approved a $400 million share repurchase authorization that replaces the old one.

The current excess capital position is approximately $600 million at this time.

Our transaction teams remain very busy and the pipeline and outlook for deal flow remains healthy.

Now turning to our individual segments.

The US and Latin America traditional segment reported pre-tax operating income of $79 million versus a strong result of $134 million a year ago.

Current-period results were hampered by poor experience in group reinsurance and somewhat higher-than-expected individual mortality claim.

The group reinsurance business was primarily responsible for the quarter's subpar results, coming in about $20 million below expectation, driven by the group disability and managed care components of that business.

The individual mortality business saw higher average claim sizes on policies under $1 million.

The older issue-age large policies that plagued the previous couple of quarters in 2015 were more in line with our expectations this quarter.

Contributions from recent block transactions helped offset some of this adverse experience.

Premium growth was strong in the US traditional operation, up 12% quarter over quarter and totaling $1.4 billion.

Without new block transactions, premiums would have been up 6%.

Our asset-intensive business in the US continued to perform at a high level, with pre-tax operating income of $48 million this quarter, reflecting favorable spread performance on existing annuity reinsurance along with contributions from newer business.

Last year's fourth-quarter results were also very strong and included significant prepayment fees, with pre-tax operating income totaling $56 million at that time.

Our financial reinsurance line reported pre-tax operating income of $16 million this period versus $13 million last year.

This fee-based business continues to perform well and consistently adds to our bottom line.

Our Canadian traditional segment reported favorable individual mortality experience for the third consecutive quarter and posted $45 million in pre-tax operating income, up from $18.2 million in last year's fourth quarter.

Fourth-quarter claims experience was better than expected.

Premiums totaled $201 million and were down 2% quarter over quarter in local currency, primarily due to a sharp reduction in lower mark and creditor business in the current quarter.

In translated US dollars, premiums were off 16% with over $35 million in adverse currency fluctuation.

Nontraditional business in Canada, which includes longevity and fee-based transactions, reported pre-tax operating income of $3 million this period versus $2 million a year ago.

Switching to Europe, Middle East, and Africa, our traditional business reported pre-tax operating income of $13 million, up from $10 million last year.

Overall, claims experience was in line with our expectations, with strong performances in Continental Europe, offsetting somewhat weaker mortality and morbidity results in the UK.

EMEA traditional premiums increased 13% in local currencies, while translated currencies were up 4% this quarter, totaling $300 million.

The net adverse currency effect on reported premiums was $24 million this period.

Nontraditional EMEA business, which includes asset-intensive, longevity, and fee-based transactions, reported a solid pre-tax operating income total of $19 million compared to last year's $24 million quarter, which was unusually small.

Asset-intensive and longevity transactions continue to contribute solid bottom-line results to the EMEA segment and we continue to evaluate attractive opportunities in this market.

Turning to our Asia-Pacific traditional business, pre-tax operating income totaled $36 million, nearly double the prior-year quarter, reflecting better-than-expected claims experience in most markets, including Australia.

We continue to expect some degree of quarterly volatility in Australia going forward, as was the case throughout 2015.

Asia-Pacific traditional premiums increased 11% in local currencies quarter over quarter.

The relatively stronger US dollar resulted in a $43 million net reduction in translated premiums, which totaled $389 million and were relatively even with the prior-year quarter.

Our nontraditional Asia-Pacific business includes asset-intensive, fee-based, and various other transactions and reported over $5 million in fourth-quarter pre-tax operating income, down from $7 million a year ago, primarily due to the unfavorable experience on a Japanese treaty in this year's results.

Our corporate segment reported pre-tax operating loss of about $17 million this quarter versus a pre-tax operating income total of $23 million a year ago when this segment reported significant reduction in tax-related interest expense.

Going forward, we believe a fair run rate for the pre-tax operating income -- pre-tax operating losses in this segment is about $15 million per quarter.

As you know, we have historically provided intermediate-term guidance at this time of year and I want to give you a perspective on the various issues that might affect our results going forward.

Over the intermediate term, we again expect growth in operating income per share to be in the range of 5% to 8% and operating return on equity to be in the range of 10% to 12%.

The EPS growth target is unchanged versus that of the previous year -- or previous years.

And I would like to point out that our outlook is right on the trend line of what we have reported since we started giving intermediate-term guidance several years ago.

We have reduced the lower end of the ROE target to 10% from 11%.

This change reflects the fact that we expect to continue to face macro headwinds, notably weak foreign currencies and sustained lower interest rates.

The effect of the weak foreign currencies has had a negative impact on operating ROE of about 1.5% on a cumulative basis over the last several years.

So it is natural for us to consider -- or rather to increase the range to reflect the reality, given the possibility that this issue may persist for an extended period.

However, we continue to believe that our EPS range is appropriate.

And we expect the combination of organic growth, the execution of block transactions, and efficient capital management to more than offset the macro headwinds and allow us to reach our financial targets.

So going forward, as Greig discussed, our underlying business momentum remains strong.

So we expect continued solid organic growth along with a boost in transactional opportunities and further effective capital management.

Our strong excess capital position has allowed us to deploy capital and to in-force block and other transactions as well as repurchase shares as appropriate.

We will continue to seek a balanced approach to our capital management strategy, but it will always be difficult to predict ahead of time the amount and mix of the deployment versus repurchases.

Against this positive backdrop, we expect to see continued significant headwinds from low interest rates and weak foreign currencies.

As indicated, FX has penalized our results by a material amount and we expect that negative effect to continue, at least to some extent.

Interest rates are expected to remain low for an extended period of time, but the negative effect from rates has recently been offset by accelerated income from bond and mortgage loan prepayments.

Thus, while the level of prepayments was down somewhat in 2015 compared to 2014, it was still higher than expected, so we did not see the full effect of the lower rates.

For 2016, we expect a lower portfolio yield due to lower payments and continued lower new money rates.

We thank you for your attention and we appreciate your support and interest in RGA.

And with that, we will open the call for questions.

(Operator Instructions) Jimmy Bhullar, JPMorgan.

First question is just on the deal pipeline.

A lot of the deals, obviously, that you do typically are smaller, but a number of larger deals have come up in the US market with what is going on with AIG and MetLife.

And so my question is do you see an opportunity in this?

And what are your options to raise capital in case you win any of these large deals?

And also if you could remind us on what typically would be the return hurdles when you look at deals in the US or internationally.

Yes.

Taking the last part first, our return hurdles for transactions are similar to what our returns are for organic business.

13% is sort of the lifetime return on the business.

In terms of transactions in the US, there are some very large ones.

I am not sure that we would entertain being a buyer for big, large properties, but we would certainly could team with people and be part of it.

That happens from time to time and we get into discussions on various different things, Jimmy, but I think that we set our sights more on the transactions that involve anywhere from, say, $100 million to $500 million of capital.

If we had to raise capital, we demonstrated last year that we can securitize embedded value out of the Company and raised significant amounts of capital if we have a need to do so.

And that would be assuming market conditions are receptive.

That would be certainly an avenue we would look at.

And then secondly on Australia, you have had some good quarters as you went through 2015.

The last quarter was pretty good, but weak quarters prior to that.

What is your comfort level with the reserve charge you took a couple of years ago as you have seen experience emerge over the last two years?

Jimmy, this is Jack.

We still are comfortable with the reserves that we have established.

You will recall that was primarily on the group business and it does take longer than you would expect for that business to roll off.

But we don't have any issues.

We think we are appropriately reserved at this point.

And then just one more lastly, if I could.

The investment losses seemed elevated this quarter, so what were the drivers of that?

And then also if you could give us any numbers around your energy exposure in the portfolio.

Yes.

I will take that.

Yes.

They were a little bit elevated.

In fact, the last two quarters they were a little bit elevated in terms of impairments compared to our more recent run rate.

You mentioned energy credits and they were behind the lion's share of our impairments.

We impaired about $28 million or so during the fourth quarter; most of that was energy related.

For instance, securities that we have earmarked for sale, if in fact, we haven't sold a portion of those already.

So that was behind it.

In terms of our total exposure, we are about $2.1 billion in total energy exposure in the portfolio at year end.

Erik Bass, Citi.

Can you provide some more color on the US group results, both for this quarter and for 2015?

And is how big a component of traditional earnings is group typically and what is the typical quarterly volatility that you would expect?

Erik, I will take that.

I would characterize the entire year as we had a negative result.

We were well off our plan.

We ended up with positive earnings, but it wasn't particularly significant.

I think we probably missed our plan by $30 million or so pre-tax for the year.

So that hopefully gives you some indication.

A run rate on earnings for that line is between $30 million and $40 million in terms of expectation.

For the year?

[That's 56].

Yes.

I'm sorry.

For the year.

Actually, that group line has four lines of business within it.

The problems centered this year around this LTD business, which enjoyed a very strong result in 2014.

So it is a volatile line of business and it is a volatile business, period.

This was about as severe as we would ever expect the LTD business to be.

Got it.

And then maybe switching to Canada, you have now had several quarters of favorable mortality experience after a tough 2014.

Has this changed your view at all about the outlook for this block?

We always had a strong view on the outlook for the Canadian block.

I can't say that we really understand completely how it switched on and off very suddenly, but it went from a long string of extremely good results to struggle for a period of 18 months or so and it has turned around sharply and suddenly after that.

I guess you could say that is really the nature of that mortality business, that you can go through somewhat extended periods where you just have very positive or negative mortality results.

Okay.

I guess I thought you had sort of characterized the end of last year that you had felt like some of the weakness could continue and now it has turned around.

Would you be back to sort of -- would you say the block is sort of on track with your long-term expectations now?

Yes.

Erik, you are right.

We did express some concern at the end of last year because we had had a -- unfortunately, a fairly consistent negative pattern for several quarters.

So we did comment that we were looking very closely at it and did have some concern, but then it did turn around after the first quarter of this year.

Michael Kovac, Goldman Sachs.

Just a question on the excess capital position here.

So you are sitting at $600 million following a pretty active year, down from about $1.2 billion last year.

And I believe in the past, you've discussed about $300 million of annual free cash flow that you are generating.

If I roll forward the repurchase announcement and kind of a similar level of deals to what you have done this year, you are kind of at that whole excess capital position by the end of 2016.

So my question is do you expect to go into the capital markets for the type of retrocessional transaction or any capital paying activity that you saw last year?

And do you see the market as fairly receptive to those types of deals today?

I think the answer is yes.

And I will remind you that the last two years -- really 2014 and 2015 -- were really relatively high years in terms of capital deployment.

So I think your math is right.

If we were to continue at that level, we would eat into the excess capital that we have on the balance sheet at year end.

We do have -- Greig had mentioned we have the opportunity to go through another embedded value securitization if we thought that was the appropriate thing to do.

We also feel we have capacity to issue, for instance, hybrid securities to some degree.

So there's several levers we could pull if we felt the opportunities were attractive enough that we wanted to raise some level of capital.

Great.

And then in terms of the thing about the asset-intensive earnings, which they have slowed this quarter in the US, in the past, the run rate had been somewhere around $50 million, I think.

In terms of both the macro environment from an interest rate and volatile equity market to certainly to start the year, do you think that that is still a sustainable rate in 2016 and forward?

And sort of thinking if we mark-to-market it today, given certain moves that we have seen year to date, what do you think is the outlook for that business?

I think that we are comfortable.

That $50 million or so per quarter is a reasonable run rate going forward.

We don't feel we are overly exposed to the equity markets.

A lot of that is simply spread business, SPDA-backed business and that sort of thing.

So we wouldn't back off on expectation of earning $50 million a quarter or so.

And bear in mind, Michael, most of that business is done on a bulk basis on a closed block basis.

And so match assets and liabilities, we don't really have to worry so much about what interest rates do after that if we have done a good job of matching assets and liabilities.

Makes sense.

And one last numbers question for you.

So you broke out the $20 million, I believe, of unfavorable in the group life part of the US traditional business.

Do you have a similar breakout for the favorable benefit in Canada?

My recollection is in Canada, the favorable benefit was around $10 million or so pre-tax.

Yarin Kinar, Deutsche Bank.

First question, going back to the US group, could you give us a sense of -- I think you said it was a pretty significant delta between expectations and results this quarter.

Can you give us a sense of in terms of -- is it a one standard deviation event?

Is it more or less than that?

Yes.

I don't know the answer to that offhand.

We continually are repricing that business and it comes up for renewal every year.

So it was probably more than a standard deviation, but I am not sure exactly how I would quantify that or if we have really done the work to quantify that.

We view that as a situation that fixes itself because it will all be repriced as quickly as it can be.

And speaking of that repricing, it seems like it was already performing below expectations going into the quarter.

So how much of the book is being repriced for 2016 renewals?

Well, it will all be priced within -- repriced within a year if there is a problem with it.

As I said, 2014 results were strongly positive in terms of delta and in 2015, the results were strongly negative and much strongly negative.

So all of that is a continual work by the group team in Minneapolis to stay on top of things and they do an excellent job of that.

Okay.

And then switching to the other side of US traditional, the individual mortality.

So am I correct to understand that the elevated claims there were not from the 1998 to 2004 events, each block?

Yes.

That was probably the best performing era in this particular quarter.

It shows the volatility of things.

So things go up and down from quarter to quarter.

Okay.

But could you give us maybe a little more color as to what the pressure points were in individual mortality?

It was all the other eras.

It was predominantly much across the board.

And predominantly, you can think of it as not the large cases that were the big contributors.

It was more -- and we characterize large cases $1 million or more.

So it is really -- claims flow for smaller cases that contributed.

Okay.

And this was not something that you had seen in previous quarters?

No (multiple speakers).

We saw it certainly in the first quarter last year, where we had what looks to be like a lot of flu cases last year.

Okay.

And finally, one question on capital deployment.

So clearly very strong deployment into in-force blocks.

But with the stock price at current levels and excess capital still at $600 million, why wouldn't you consider buying back more shares this quarter?

Well, we may.

As we noted, we have got a $400 million authorization and the stock has traded off fairly dramatically, but that has been a relatively recent occurrence here.

And we have been in a blackout period.

So we will consist strongly consider all the alternatives in terms of whether it makes sense to take out additional shares early on versus what is in the pipeline over potential block transactions.

Steven Schwartz, Raymond James.

First, a follow-up.

Jack, on the energy portfolio, I think you said you had $2.1 billion in total.

Could you tell us at the end of the year how much of that was below investment grade?

Yes.

I think about -- I think roughly $1.9 billion was investment grade.

So $200 million or so would have been high yield.

Okay.

Thank you on that.

And then just a couple more.

Could you -- you mentioned in the press release that there was interest income coming on a retrospective basis from a deal.

How much was that and can you say what deal that was?

Well, it is not an announced deal, so we wouldn't want to indicate which client, but that was about $13 million.

And that -- Steven, that is not particularly unusual, where we will develop a block transaction and then have it retroactively effective.

So we will get two or more quarters of earnings associated with that deal.

And that was the case on this particular deal.

It was a little different in that a lot -- the way the deal was structured, a lot of that performance prior to actually executing the deal came through as investment income.

And yet because we didn't have the investments in portfolio, it had kind of a inordinate affect on our overall investment yield.

So that is why we tried to break that out and comment on it.

Okay.

The assets are now in portfolio?

That is right.

Okay.

And then just looking at US traditional ordinary flow business as opposed to in-force transactions, would you have that number and could you compare it to 4Q 2014?

Are you talking about an in-force number or new business production or --?

New business production, Jack.

I know we have got back in the QFS.

That's available on the website.

All right.

I will find it.

Okay.

Sean Dargan, Macquarie.

I have a question about Japan.

Japan Post, also known as Kampo Life, recently received approval to get a reinsurance license.

I was wondering what the implications of that are for your business in Japan?

We don't think much of any implication at all.

There are a lot of national and start-up type reinsurers in various markets around the world, but it is really not likely that we will see major competition or anything of the sort from Kampo, nor will it detract from our business momentum in Japan, which is quite strong.

Even given their unique place in the market there and having [remuted] --?

Yes.

They have also restrictions on size of risk they will take and types of things they can do.

And if anything is they might be somebody we can key team up with on certain transactions.

Who knows?

But we don't do view them as -- that event as significant in terms of the competitive landscape, at this point, anyway.

Okay.

And then another question about the investment portfolio.

Your GAAP book value per share has been declining every quarter this year and that is driven, it looks like, in large part by the unrealized gain position on the balance sheet shrinking.

It is roughly half of what it was in the first quarter.

Is that due to your energy exposure or what is driving that?

It is more changes in rates than it is the energy exposure because the energy exposure, while the value has changed, it is really not enough to meaningfully change the amount of unrealized appreciation and AOCI.

So it is really more a reflection of the macro environment.

Okay.

But are those US assets?

Because US interest rates haven't fallen that much.

Well, it is really all assets, including the large portfolio in Canada.

John Nadel, Piper Jaffray.

I have maybe a housekeeping question first.

And that is there is a lot of moving parts in your 2015 EPS, but if we think about the $8.43 that you reported, is that the way you would characterize the base line as we think about a 5% to 8% growth outlook on an intermediate-term basis, Jack?

Yes, John, I think that is fair.

And you are right and we see it every year.

It is the nature of our business.

There are a lot of moving parts and some move in different directions.

But yes, I think we don't feel a need to try to recharacterize and give a more normalized view of the 2015 run rate.

So I would agree with you.

Okay.

And then if I think about the shorter-term -- maybe the one-year portion of that intermediate-term outlook, would I be wrong if I was thinking about that as perhaps having a higher probability of delivering above the 5% to 8% as opposed to below?

And the reason I would think that way, Jack, is that you deployed probably more than two times what your intermediate-term outlook would call for you to deploy on an annual basis.

You have, obviously, this group weakness in 2015 that should set up for a reasonably easy comparison.

You have a lot of FX headwind that is already sort of in the baseline.

So I'm just trying to -- and obviously your organic growth has been pretty good.

So is there anything I am missing there?

No.

I don't think you are.

It is always hard to project the next 12 months and I think you commented on some of the major macro headwinds.

And we worry about the investment yield and we worry about FX in terms of providing a headwind.

You are also correct that as we layer on these transactions, they have incrementally a positive impact on our earnings expectation going forward.

So you throw all that together and obviously we think that the positives are going to outweigh the negatives or we wouldn't be projecting the growth in EPS.

But I think it may be putting too fine a point in terms of where in that range -- what characterizes pretty much down the middle of the range as we enter the year would be our expectation.

It is not where we will end up.

We will be a little north or south of that, just by the nature of our business.

Okay.

Understood.

Thank you very much.

That is all helpful.

Humphrey Lee, Dowling & Partners.

Just have a question regarding your organic growth in US traditional.

So looking at fourth quarter, pretty strong premium growth there, even when you strip out the in-force transactions.

So maybe can you comment on the organic growth in the quarter, what are you seeing?

And then also in terms of the outlook for 2016?

Humphrey, I will take that.

Yes, I guess I would characterize fourth quarter as a little bit stronger than a run rate, if you call out the impact of any in-force transactions and that sort of thing.

So yes, I think our expectation would be a run rate throughout 2016 a little bit lighter than we reflected or reported in the fourth quarter 2015.

Is there reason why the stronger run -- [resell] in the fourth quarter?

Is it just simply there are more activities by the primary carriers or it is just random?

Yes.

Humphrey, I think it is really difficult to look at a quarter and wash out the noise: the reporting noise fee, the issue noise, and so forth that happens.

And it is clear that that business is not growing at real strong rates on the traditional mortality business.

There is some growth in the group business and long-term care business is growing a little bit, not through new issues as much as just continuing to add on to the level.

There is no lapses in that business.

And so you see some incremental changes, but it is not the robust growth that we experienced back in the 1990s and the early part of the 2000s.

And it is hard to see that returning in the short term, that sort of growth.

So we are expecting that the ability to supplement organic growth with occasional block transactions has been very beneficial for us and it has kept that business vitality up to a reasonable level.

Understood.

Shifting gears to Australia, so on a full-year basis, it appears to be profitable, even though there was some volatility throughout 2015.

Can you maybe size of the total earnings contribution from Australia in 2015?

And how should we think about the improvement in 2016?

Humphrey, I will take that.

For the entire year of pre-tax, it was about $20 million in terms of earnings level.

We would not expect that -- that was actually a little bit higher than our expectation coming into the year.

That is higher than our plan.

We wouldn't expect any sort of significant increase in that level.

I think we would be happy with a result similar to 2015 and 2016.

Our results over the last little while in Australia have been -- the last several years have not only been volatile, but have shown a lot of seasonality, with fourth quarter and first quarter tending to be good and the second quarter in particular tending to be bad.

So you are looking at it right off of a very good quarter.

It's, as Jack said, $20 million.

A lot of that $20 million occurred in the fourth quarter.

So I wouldn't read too much into projecting a run rate based on what you see.

It is the case that from time to time, we are going to have good quarters and bad quarters in Australia, but we are hoping to bring that operation back up to performance over the course of time.

Dan Bergman, UBS.

First, I just wanted to see if you could give any update on the block acquisition pipeline and level of activity you are seeing in the market.

And specifically looking forward, if the recent global market weakness and volatility continues, I just wanted to see how you might expect this to impact the outlook potential for future block deals, if at all?

I would say the pipeline is okay right now.

I guess we have gotten accustomed to having a very strong pipeline with a lot of activity, given all of the change and disruption in the industry and a lot of re-shifting, refocusing.

And I would say it is not as strong as it has been at times, but still much stronger than it was a number of years ago.

So we expect that things like new capital standards are going to spur a significant amount of transactional opportunity over the next several years.

And this will just keep coming.

A lot of them will be small and you won't hear about them in a major way.

And some of them will even be done privately.

And then others will be noticeable large transactions.

And so we are very happy with the way the transactional business opportunity set looks right now.

Great.

And then switching a tiny bit, I guess.

In terms of the $250 million of capital you deployed in block M&A in the fourth quarter, I think a couple of US traditional deals have been previously disclosed or announced, but I wanted to see if you give any more color on the types of deals that comprised the remainder of the fourth quarter deployment and maybe what geographies there?

And any additional color would be helpful.

Thanks.

This is Jack.

Towards that $250 million was the Voya transaction that we had previously announced.

So that deployed round numbers about $100 million of capital.

We also did a large payout annuity -- relatively large payout annuity transaction in the UK that deployed a little over $100 million of capital.

And that is not announced and so we are not comfortable indicating who the counterparties are.

But between the two of those, that is the lion's share of the deployment in the fourth quarter.

(Operator Instructions) Ryan Krueger, Keefe, Bruyette & Woods.

First question was on US session rates.

I know the industry data hasn't been published yet, but when you look back to this year, do you think they remain pretty stable or did you think there was much of a change?

Well, I don't know that we expect much of a change.

I think that, if anything, the rates will be within a very close range of where they were last year.

They might be a little up or might be a little bit down, but we are waiting for those results as well.

And we will see them in a very short time now.

Okay.

Thanks.

And then principle-based reserving, I guess this should be impacted in 2017.

How do you see that impacting RGA?

Again, when there is change like that, there is opportunities when business was priced under one set of assumptions and suddenly something changes.

It looks a little different and a lot of times, companies want to restructure -- change the nature of their balance sheet and their in-force blocks.

And so we view it as an opportunity set for us.

At the same time, we will be subject to our own principles-based capital regime, so we will have some things to concern ourselves with on that front as well.

But generally speaking, when there is change like that, we view that as more opportunity than not.

Okay.

And then just a last one.

Do you have an estimate of how much low interest rates would impact 2016 results?

Yes, it is always hard to call because you have to make a call on prepayments and that sort of thing.

But we expect certainly that will be a headwind and could have an impact of 15 basis points to 20 basis points on the yield.

And there are no other questions at this time.

I would like to turn things back to our speakers for any additional or closing remarks.

Thanks to everyone who joined us for the call today.

With that, we will go ahead and complete the call and are available for any other questions.

By the way, I would just add before we close that Anna Manning is actually traveling in Asia this week.

And future calls, the newly named president will join us.

Thank you very much for your attention today.

Thank you, everyone.

That does conclude today's conference.

We thank you for your participation.