美國再保險集團 (RGA) 2017 Q1 法說會逐字稿

Good day, and welcome to the Reinsurance Group of America First Quarter 2017 Results Conference Call.

As a reminder, today's conference is being recorded.

At this time, I would like to introduce Mr. Todd Larson, Senior Executive Vice President and Chief Financial Officer; and Ms. Anna Manning, President and Chief Executive Officer.

Please go ahead, Mr. Larson.

Thank you.

Good morning, everyone, and welcome to RGA's first quarter 2017 conference call.

Joining me here in St.

Louis this morning is Anna Manning, RGA's President and Chief Executive Officer.

Anna and I will discuss the first quarter results after a quick reminder about forward-looking information and non-GAAP financial measures.

Following our prepared remarks, we'll be happy to take your questions.

To help you better understand RGA's business, we'll 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 this call, we will make comments on pretax and after-tax adjusted operating income, which is considered a non-GAAP financial measure under SEC regulations.

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

We have modified the labeling of our non-GAAP measure operating income to adjusted operating income.

This modification does not affect previously reported results.

Please refer to the tables in the press release and quarterly financial supplement for more information on this measure and reconciliations of net income to adjusted operating 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'll turn the call over to Anna for her comments.

Thank you, Todd, and good morning.

As indicated in the earnings release last night, we reported adjusted operating earnings per share of $1.86 compared to $1.85 a year ago.

While the quarter did include some extra volatility amongst the segments, we're satisfied with the overall results and the start to the year.

We did experience elevated seasonal mortality claims in North America that caused weakness in our U.S. Traditional and Canadian traditional segments.

At the same time, Asia and EMEA produced strong results, and Australia was profitable.

A lower effective tax rate reflecting the geographic composition of our earnings also contributed to these results.

We continue to point to our global model and earnings diversification as key strengths.

And this quarter was another good example of that value, where the elevated claims in North America were primarily offset by strong results in other segments.

Premium growth was strong again, up 10% on a reported basis and in constant currencies.

This reflects solid to strong organic growth across most regions, Asia and EMEA in particular.

Now in terms of the higher mortality claims, this was all driven by an elevated number of large claims in both the U.S. and Canada, while non-large claims were slightly better than expected.

We attribute the results to random volatility, which is an inherent part of our business, and we have no reason to believe that there's an underlying negative trend.

In EMEA, underwriting results were favorable, and our financial solutions business had another very strong quarter.

Asia underwriting results were also favorable, and top line growth in this segment was particularly good.

It was a light quarter in terms of executed transactions typical of most first quarters, but we are encouraged with the pipeline activity and remain optimistic on this front.

Now while recognizing some seasonal volatility of segment results, we view this as a satisfactory start to the year, and our overall business momentum remains strong.

We remain confident that we can continue to execute on our strategy and achieve our financial goals and objectives.

We have a proven strategy and approach, and we continue to see strong and good demand for our services and solutions by clients worldwide.

With that, let me turn it back over to Todd.

Thanks, Anna.

I will now provide information on our investment results, capital management and additional details on segment level results.

Starting with investments, the average investment yield, excluding spread business, was down 5 basis points to 4.41% from the first quarter of 2016, reflecting the impact of lower yields on new money and reinvested assets.

The average investment yield was 28 basis points lower than the fourth quarter yield due primarily to the lower level of variable investment income.

We did not close any significant transactions or repurchase any shares this quarter.

Our excess capital position was approximately $1.2 billion at the end of the first quarter, and we are well positioned to pursue deployment opportunities as we move forward.

We continue to take a balanced approach at managing our capital over time, as given the nature of our business, the exact timing of deployment is always difficult to predict.

Turning to our segment results, the U.S. and Latin America traditional business reported pretax adjusted operating income of $28 million versus $53.2 million a year ago.

As Anna indicated, this quarter reflected a high number of large claims, while last year's quarter was generally in line with expectations.

The claims were approximately $30 million above our expectations.

Premiums totaled $1.3 billion, up 6% from the prior year's quarter, reflecting ongoing organic growth.

Our asset-intensive business reported pretax adjusted operating income of $51.6 million this quarter, slightly above the run rate due to favorable spreads and mildly higher equity markets.

Our financial reinsurance line reported pretax adjusted operating income of $17.8 million this period, an increase versus a year ago as we added some new treaties in the quarter.

Our Canadian traditional segment reported pretax adjusted operating income of $16.8 million, down from $19.4 million in the prior-year period.

Both period results reflect modestly unfavorable individual mortality claims, with current quarter results primarily driven by large claims.

Premiums totaled $215.8 million in translated U.S. dollars, basically flat with the year-ago.

The fact that premiums were flat reflects the loss of one higher premium, low-margin treaty.

Otherwise, premiums would've increased a little over 6%.

Canada's financial solutions business, which includes longevity and fee-based transactions, reported pretax adjusted operating income of $3.6 million this period versus $0.6 million a year ago.

Longevity experience was favorable this quarter, whereas last year's experience was unfavorable.

Switching to Europe, Middle East and Africa.

Our Traditional business reported pretax adjusted operating income of $14 million, up from the pretax adjusted operating loss of $1.1 million last year.

This experience was favorable overall this period.

Traditional premiums rose 10%, reflecting some positive impact of new treaties across the number of geographies.

EMEA's Financial Solutions business, which includes asset-intensive longevity and fee-based transactions, continues to perform well.

Reported pretax adjusted operating income was $27.5 million compared to last year's $25.6 million due to favorable, ongoing longevity experience.

Turning to our Asia Pacific Traditional business.

Pretax adjusted operating income totaled $41.7 million compared to $41.1 million in the prior-year period.

Both periods reflect strong results.

Underwriting experience for the current quarter was favorable across most markets, while Australia was in line and profitable.

In the year-ago period, Australia produced a particularly good profit.

Asia Pacific Traditional premiums were up 29%, reflecting healthy growth from new treaties across most of the region, particularly Hong Kong, as well as some catch-up premiums on existing treaties.

The growth rate this quarter was particularly high, reflecting continued success with innovative product development and client solutions combined with growth in the underlying markets.

We are encouraged with these trends.

But recognizing there was also some client reporting catch-up this quarter, we would expect some moderation of the growth rates for the remainder of the year.

Our Asia Pacific Financial Solutions business reported pretax adjusted operating loss of $0.5 million versus pretax operating income of $7.4 million a year ago.

While there continue to be unfavorable experience on a particular treaty that has run off, the experience this quarter improved versus the recent trend and better than our expectations.

The Corporate segment reported pretax adjusted operating loss of $26.6 million compared with $30.3 million a year ago, effectively in line with our expectations when adjusted for seasonal variation.

In summary, while we were disappointed with the North American mortality volatility, our global model and diverse business profile helped us to deliver an overall satisfactory start to 2017.

Before we open up the call for questions, I would like to remind you of our upcoming Investor Day on May 18 in New York.

We hope to see you there.

With that, we thank you and appreciate your support and interest in RGA.

We will now open the call for questions.

(Operator Instructions) And we'll go first to our first question from Jimmy Bhullar with JPMorgan.

First, just on mortality in the U.S. and Canada, and obviously, I understand this is a normal part of your business, but have you looked at the results?

And what sort of gives you confidence that it's not sort of a pricing issue and it's just normal aberration?

So if you could give us some more details in terms of just claims, trends and anything that you've seen.

Maybe there's a spike in claims through a specific cohort in terms of age, vintage year or otherwise.

Jimmy, it's Anna.

The unfavorable mortality was caused by an extra 20 large claims in the quarter.

Now we got off to a good start.

Both January and February claims were essentially in line.

And really, we saw these extra large claims in the month of March.

Those claims were spread out over a few areas, including our [99 04] block.

They were also spread out over and across ages.

So we had large claims, both on our older age business, as well as younger ages.

So the diversity of the age groupings and the concentration of the claims' variants into that single month into March really reinforces our view that this is simply mortality volatility.

And we're not changing any future expectations as a result of this quarter.

And was there any concentration among cedents?

Or was that fairly dispersed as well?

That was also fairly dispersed.

And then similarly, on Canada, have you observed anything there?

Well, the Canada extra large claims -- so in the U.S., there were 20.

In Canada, there were a lot fewer than that.

So the data's just too small to draw any conclusions.

A quarter's worth of variance, you can't really draw any inferences from it.

And I understand.

So -- and secondly, on your share buybacks.

To what extent do you -- I think there was a quote in the release that you might have preserved some capital in anticipation of deals.

Was that the main reason for no buybacks this quarter?

Or was it influenced by the stock price as well?

No.

Jimmy, this is Todd.

We're in a very long-term business, and we need to keep that in mind as we manage our overall capital.

I think as we said it before, we do like to keep a capital cushion of between $300 million and $500 million over time.

And I think we've demonstrated in the past that we've done a pretty good job balancing our overall capital management in a very prudent manner.

So there are going to be periods when our elevated -- our excess capital level increases over time.

But as we've demonstrated in the past, I think we'll deploy that capital back into the business at appropriate returns and deals that meet our risk profile or through share repurchases.

And I would expect that to continue.

And just anything, lastly, on the deal pipeline in the U.S. and international?

Well, our pipelines are active in all our markets.

In terms of competition, we're continuing to see strong competition in all those markets, and that includes both the established players as well as some new entrants.

Now as a generalization, there's less competition for these smaller and mid-sized deals compared to the larger, and there's no to light competition for some of these early bespoke solutions that we're working on.

So what I will say is that the opportunities are there.

It's hard work, but we're used to this type of environment.

We're optimistic.

Over time, we really expect to get our fair share of those deals.

We're in this business really for the long haul, and we think of success along those lines rather than quarter-by-quarter.

We remain patient.

We look for deals that meet our requirements.

And I would note that over the last 5 years, we've demonstrated the success of that approach, Jimmy.

In that period, if you will recall, we deployed on a cumulative basis in excess of $2 billion in capital.

So some years are going to be chunkier than others, and that's something that we accept and we understand.

And I would say we remain optimistic.

And we'll going next to Erik Bass with Anonymous (sic) [Autonomous] Research.

You mentioned that Australia returned to profitability this quarter.

I was just hoping you could comment more specifically on the results in the individual disability block.

Sure.

So the poor performance on our individually -- or sorry, individual disability business in Australia, that emerged in the second half of last year.

That did not continue into this quarter.

If you'll recall, there were 3 factors that worked against us in the third and the fourth quarters of last year.

And those factors were higher incidents, lower terminations and higher average sizes.

All 3 of those factors have returned to more expected levels, and performance tracked our expectations.

It's really hard to say much more based on just this 1 quarter.

It's still too early to conclude much, but I would say it's good to see the recovery from last year.

And then, Anna, you mentioned, in terms of the competition for deals, some new entrants.

I was just hoping maybe you could expand on that a little bit more in terms of kind of what type of new entrants and competitors you're seeing, and what types of deals they're looking at or coming up -- you're coming up against them in.

Well, I would say it's new reinsurers coming into some of our markets.

And it's also some of our clients, some of our insurance companies.

Life insurance companies in specific markets for specific risks are also pursuing some of those block transactions.

Got it.

So primary companies that hadn't historically necessarily booked the block deals?

Correct.

And we'll now go to Humphrey Lee with Dowling & Partners.

Just a follow-up on the M&A pipeline and your appetite.

Given your excess capital right now, I think, at $1.2 billion, and I think in the past you talked about how your sweet spot for a deal will be probably a couple hundred million.

Given the much higher capital position right now, would you be open to doing something in bigger size?

Humphrey, I would say that there are sufficient opportunities in terms of small, middle and larger sizes that I wouldn't expect that, that would be where we would concentrate our efforts.

We have an active pipeline that we're comfortable with and that we're optimistic about.

So in the short-term, I would say, not likely.

Okay.

So you're still going to stick to your sweet spot in terms of deal size?

Yes.

Now that doesn't mean that we won't and are -- wouldn't entertain partnering with a potential buyer to help on the larger deals by either taking some blocks that they aren't particularly attracted to or to provide support in terms of a proportional participation across the board.

That's been part of our acquisition strategy for the last 3 to 5 years.

Okay.

And then in terms of the unfavorable mortality in U.S. and Canada, how much have those 20 additional loss claims affected your numbers this quarter in the U.S., and then also the number of loss claims in Canada for your earnings there?

Yes.

For the -- in the U.S., those additional claims, I think I've mentioned probably generated a $30 million adverse effect to our earnings pretax.

And in Canada?

And in Canada, it's probably around $10 million to $12 million off where our expected results would be.

And we'll go next to Ryan Krueger with KBW.

I was hoping you could give an update on the progress you're making on Solvency II type solutions and in terms of getting more broad acceptance from regulators there.

Well, the demand remains strong for those financial reinsurance solutions in Europe and the U.K., and it is continuing to settle down.

So clients are getting clarity on their own models and with what regulators will accept, and we see high demand and interest.

That's led to these Solvency II motivated deals that are targeting lapse solutions, longevity solutions and others.

Now our deals continue to be on the smaller side.

We haven't yet seen scaling of these deals, but we have no reason to believe that they won't scale.

What we are seeing is that clients and regulators are remaining cautious for now.

What's interesting is we're also noting that the Solvency II opportunities are also shifting to full risk solutions and targeting both in-force business and new business.

And not just in Europe, but other parts of the world where these European companies are active.

So we'll be providing more color on that, on those efforts in 3 weeks in our Investor Day in New York.

Understood.

And then just to follow up on Asia.

I know you mentioned there was some lumpiness in the premium growth, but could you just provide a little bit more color on, I guess, maybe what you view as the underlying growth you're seeing right now there?

Yes.

This is Todd.

Yes.

No, the business fundamentals in Asia are developing quite nicely, so in combination of seeing some of the newer treaties come online.

Some of the existing treaties, where the reporting can be a little bit lumpy, we did see some catch-up this quarter.

So I think we are optimistic that the growth rates are increasing a little bit in Asia, but I wouldn't expect the current quarter-over-quarter increase to continue.

So it's probably trending more towards the higher double digits, maybe close around -- up close to 20%.

And now we'll go to Keith Lee with RBC Capital Markets.

Just a quick follow-up on the mortality claims in U.S. and Canada.

Any way you could give us a sense of the breakdown in claims within either the facultative side or non-facultative side of the business?

The facultative part of our business performed essentially in line with expectations, maybe a little bit better, I would say.

So the extra-large claims were from our automatic part of our business.

Okay, great.

Very helpful.

And just in terms of the very strong premium growth.

You mentioned contributions from EMEA and Asia.

Any way you can quantify those contributions?

And any other drivers for the recent strengths, including like recently acquired blocks?

Yes.

In EMEA, it was really -- it was nice to see, but it was spread across a lot of very different geographies over in Europe.

So it wasn't any one particular spot, but it was sort of a nice contribution from across the -- across Europe.

In Asia, really, I probably made the comments a few minutes ago around Asian growth.

I'm not sure we can really add much more at this point.

Okay, great.

And just one last one.

In terms of housekeeping, it looks like the one treaty in runoff is performing much better than expected.

Last quarter, you gave an expectation for January about $10 million to $14 million in losses for the year.

I'm wondering if that expectation has changed.

Yes.

So yes, that treaty is in runoff.

It did perform better than what we were anticipating this quarter.

And while our expectation for the full year might be a little bit more positive, I still think, based on the information we have right now, that, that -- I think I said $10 million to $14 million loss for the year back in January.

It's still probably within that range, but maybe coming back towards the lower end of the range.

And we'll go now to Dan Bergman with Citi.

The Corporate segment loss seemed a little elevated relative to where it's been running over the past couple of quarters.

Is there any color you can provide?

And any unusual items impacted that segment this quarter?

And any thoughts around the quarterly run rate or seasonality in corporate expenses would be much appreciated.

Yes.

In this quarter, part of the -- I think the miss was we were off a little on what we were expecting on the variable investment income side.

So that decreased the result a little bit for this quarter.

And then we do have some seasonal expenses in the first quarter, where we're true-ing up some accruals and that kind of thing.

But -- so that sort of maybe explains -- it gives a little bit more color on the first quarter.

As far as the run rate, I don't think our view's changed much between that $20 million to $25 million.

We still feel somewhere within that range is appropriate.

Got it.

Then maybe just switching gears a little.

I think you mentioned earlier that Australia individual disability saw an improvement from the trends in the second half of last year, but it's too early to conclude much on that block.

I just wanted to see if there's any sense you can give on how far along you are in the process of reviewing that block, and what time frame you might expect for when there might be a more definitive conclusion in terms of what's driven the recent trends, and whether there's been anything kind of more systematic underlying the results?

Yes.

If you'll remember, the performance in the last part of 2016 was really concentrated on a couple of treaties.

And that business is generally reviewable, and we have been actively managing that portfolio.

And we have price increases coming through -- expected to come through in 2017.

So -- and so we continue to make corrective or take corrective price actions in terms of these rate increases, as appropriate, and we want to make good long-term decisions.

We review results on a quarter-by-quarter basis, but we have to acknowledge and reflect the inherent volatility in that business.

So this quarter's results will get added to prior quarters, and appropriate rate actions will be taken.

And we'll go next to Sam Hoffman with Lincoln Square Capital.

I just wanted to ask if you could review the basic economics of the buyback versus an acquisition.

My understanding of it is that if you buy back stock, that 1.3x book value for an 11% return on equity, and that's versus buying something for cash through an acquisition, what type of IRR or return on equity are you targeting on that type of block?

Usually, overall, when we're looking at deploying another capital back into the business on transactions, we're generally targeting a 13% return or higher in our history.

And we don't really alter that return hurdle all that much over time because, again, our business, we view, is very long-term.

So we want to make sure we're pricing our transactions at a return that we think makes sense over the longer-term, and not just consideration of the current environment.

So do you feel, given your comments earlier today, that the 13% return or higher is available given, as you said, increased competition from some of your clients, and also some of the new players like CM and so forth that you have a tax advantage?

Yes.

So we've been in the business for some time, and I think we've shown a disciplined approach to our -- looking at various transactions over time.

And we're very knowledgeable about which types of businesses we should be in.

And I think we've proven over time that we've been able to deploy capital into the transactions that we like over time.

And I guess, 2 more quick ones.

What is your competitive advantage on what you say are the transactions that fit RGA better than, let's say, one of the annuity reinsurers?

We have many competitive advantages.

I would start with the technical expertise and the knowledge that we have on the underlying risks.

And it's not just the market risks, which is one of the primary risks on, say, asset-intensive business, but it's also the insurance-based risks, mortality, longevity, critical illness, et cetera.

We have a very strong financial position.

So a seller appreciates that RGA is going to be in the business for the long haul.

We have a reputation where when we say that we're going to execute on transactions, we execute on transactions.

We have a good reputation.

We have strong relationships with regulators, where we can create solutions that are customized to the needs of the clients, the needs of the market.

I think we have a number of competitive advantages.

And as we've been saying throughout this call, we remain optimistic.

We've shown over the course of the last 5 years that we can execute on deals.

And we focus on those where, obviously, our competitive advantage becomes a larger part of the decision criteria.

Great.

And my last question is, how do you define large, medium and small in terms of size?

Generally, we think of it with respect to how much capital's deployed in the deals.

So when we think of our large deals, we sometimes call those $100 million, $200 million, $300 million.

I would stay to that range.

Then our midsize deals are double-digit million deals, can range anywhere from $15 million, $20 million up.

And then our smaller deals, and we do a number of small and mid-sized deals, could be a few million dollars.

And we'll now go to Sean Dargan with Wells Fargo.

I recently became acquainted with RGAx, which is your innovation incubator.

I'm just wondering, you haven't really spoken much about that unit.

Are they doing anything that contributes to your bottom line?

So we're going to be -- we hope that you can join us 3 weeks from now in New York at our Investor Day.

We'll be providing more color on RGAx, as well as some of our other innovative solutions across the globe, whether they're product development solutions, accelerated underwriting solutions.

So I would suggest that, that is probably where you'll get a lot more color than I could potentially provide in this short conference call.

Okay, great.

I'll look forward to that.

And then just in terms of where you're interested in deploying capital, there's at least one primary carrier that is leading investors to believe that there are highly rated onshore counterparties who may be willing to take on some legacy long-term care risk.

Is that something that's on your radar screen for capital deployment in doing block deals?

Yes.

So we've looked at a number of in-force legacy LTC blocks over the years, and I think we've been reporting that we just haven't been able to find a legacy block and a transaction that works for us.

So we concluded, after a few years, that the likelihood of finding a deal where we could be successful was pretty low.

So we essentially stopped pursuing those type of deals.

However, we may, from time to time, look at blocks that either don't have all of the risk characteristics of those typical legacy blocks that we've explored time and time again or, perhaps, where a solution may involve the transfer of some of the elements and not all of the elements of the underlying risk, but what I will say is that we've taken a conservative approach at looking at legacy blocks.

And we're going to continue to take that conservative approach to any opportunities that arise, and that's not going to change going forward.

And we'll now go to John Nadel with Credit Suisse.

So I'm curious, your top line growth, and I recognize, Todd, you mentioned there's maybe a little bit of catch-up in a couple of regions driving some of that.

But your top line growth's been very strong.

I'm curious.

If you kept up a pace of high single digit kind of top line growth, what kind of free cash flow are you generating at or around those levels?

Is it still order of magnitude $300 million to $400 million?

Or should we be thinking that you're generating something lower than that?

Well, on free cash flow, I don't have the exact number.

But as that growth continues, just the way some of the underlying financial reporting works, some of the margin that you'll see come to the bottom line sort of expand over time on some of that business.

But on the underlying cash flow, I don't have an exact number.

But the $300 million to $400 million of generation of the sort of free capital, if you will, that we expect over the -- year-over-year over an extended period of time may increase over time if we can continue to keep that level of growth.

So I recognize, right, that over time, a faster level of top line growth ought to drive bottom line growth.

I just -- I thought that, that growth would come with maybe a little bit more capital requirement, at least early on.

And so your free cash flow generation, as you're growing faster, would actually slow.

Am I thinking about that the wrong way?

Well, it depends on the mix of business.

Some of the businesses are more capital-intensive than others.

So it's difficult to really pinpoint exactly what that number is.

But yes, to the extent there's higher growth, there could be some more capital deployment, depending on what the block characteristics look like.

Okay.

And then 2 other questions, if I could.

Anna, I recognize the idea of holding on to capital for the potential, and we've seen this now for quite some time.

I'm curious, though, and I recognize you've raised the dividend a few times over the last few years.

But I'm curious, why not, at least at the margin, take the dividend up and maybe do a more significant level, such that at a minimum, the dividend yield on the stock could be similar to the peer group?

We evaluate all of those options on a regular basis.

And so, annually, we review our dividend levels, and we review them in light of opportunities.

We review them in light of the financial conditions.

We don't want to get ahead of ourselves because we still are a growth company, and I think that there are opportunities out there.

In 2016, although it was a light year for transactions, I would note that we did deploy $130 million.

Now that's on the low side of the average over the 5-year period before that.

But that's something that is not insignificant.

I think when we look at dividends, when we look at share buybacks, we need to think about it on a -- with a longer-term lens, longer-term horizon than maybe 1 more quarter or 2 more quarters.

And this is Todd.

We have, historically, over the past few years, looked at our dividend rate after the second quarter.

So that's what -- so it's probably premature to comment beyond that at this point.

Okay.

I'm just sort of talking philosophy, though.

I think the incremental capital deployed to, let's say, take your dividend yield from 1.25% to 2.5%, wouldn't be that significant.

You'd barely really make a dent in your $1.2 billion of excess capital.

I don't think it would really change your -- I don't think it would change the -- your demand side, what the types of deals that you could potentially be looking at to accomplish.

That's all.

My last question is this.

And I know this is pretty -- this is premature probably, but there is -- Trump is on the table right now with a proposal that, among other things on the tax front, would eliminate the estate tax.

And whether that gets passed or not, who knows?

But if we thought about the in-force business, particularly in the U.S. obviously, what proportion of the in-force life reinsurance do you think is sort of specifically related to estate tax planning?

So as a reinsurer, we have better insights into the purpose of the life insurance sale on our facultative business, less so on our automatic business.

So let me start with the facultative business.

There we do see estate and have seen estate planning cases, but they made up a very small percentage of the submitted cases.

Most of our facultative business is purposed for income replacement with lesser reasons, including things like buy-sell agreements for small business, key man and key woman insurance, and then estate planning.

Now on the automatic side, we don't have that same specific data, right?

But we've looked at proxies for estate planning cases.

Now those proxies aren't going to be exact.

So for example, products used for estate planning are typically permanent products rather than term products.

And the majority of our business is reinsurance of term products as opposed to reinsurance of permanent products.

Also, sales for estate planning are going to be typically high-face amount, right?

So if we look at, say, face amounts in the $3 million to $5 million-plus on permanent products at the slightly older ages, we're not talking about millennials, that really represents a small part of our business.

So putting all that together with the caveats about it's not perfect, the proxies we've used.

But putting all that together, we believe that the elimination of the estate tax isn't going to have a material impact on our U.S. business.

(Operator Instructions) We'll now go to Yaron Kinar with Deutsche Bank.

First, I just had a clarification question around the mortality claims being about $30 million above expectation in the U.S., about $10 million above expectation in Canada.

Are those seasonally adjusted expectations?

This is Todd.

Yes, they are.

They're our best estimate based on how we put our expectations together over the year.

Okay, okay.

And then going back a second to the excess capital position and appetite for deals.

So I recognize that last year was a little bit on the lighter side.

But even if I go to more robust years in terms of a deal activity or transactions, I guess, your current excess capital position basically would fund 2 years worth of that, and maybe even a little more than that.

So is that a product of just seeing more opportunities or a bigger pipeline margin?

Or has your appetite changed?

No, I don't think that's the case.

And although the average, as you say, would fund a couple of years of the average, we've had years where we've deployed $400 million or $500 million of capital.

We like to have a capital cushion for flexibility of $300 million to $500 million.

So the level of capital that we have right now would support another year like the year we had when we had some multiple significant transactions.

Okay.

And are you still -- I understand that the deal transaction side hasn't really changed in terms of the sweet spot that you're looking at.

Are there lines of business or types of liabilities that you are more interested in today?

That hasn't changed from our answers in prior quarters.

It's really mortality.

We would do larger end deals on mortality.

We're comfortable with other insurance-type risks, longevity, lapse, critical illness.

And we have appetite for some market risks.

It appears we have no further questions at this time.

I would now turn the call back to Mr. Larson for any additional or closing remarks.

Okay, thank you.

Well, everyone, thank you for joining us for our first quarter 2017 earnings call.

We appreciate your continued support and interest in RGA.

And please, let us know if you have any questions or follow-up.

Thank you.

And ladies and gentlemen, that does conclude today's conference call.

Thank you for your participation.