美國再保險集團 (RGA) 2019 Q4 法說會逐字稿

Good day, everyone.

Welcome to the Reinsurance Group of America Fourth Quarter 2019 Results Conference Call.

Today's call 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 Fourth Quarter 2019 Conference Call.

With me this morning in St.

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

Anna and I will discuss the fourth 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 revenues, premiums or earnings and future financial performance and growth potential of RGA and its subsidiaries.

Please 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'll 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.

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.

And now I'll turn the call over to Anna for her comments.

Thank you, Todd, and good morning.

As indicated in our press release last evening, we reported adjusted operating EPS of $3.43 for the quarter compared to $3.46 a year ago.

While the quarter was modestly below expectations, the full year exceeded our expectations.

Overall strength in the underlying business, combined with strong organic growth and active capital deployment contributed to the full year growth in adjusted operating EPS of over 10%.

Highlights for the quarter include strong overall results in EMEA, excellent results from our Financial Solutions businesses across all geographies, and our U.S. group business performance continued its rebound from 2018 and exceeded expectations.

These areas of strength partly offset a loss in Australia and unfavorable U.S. individual mortality experience.

Todd will have additional comments regarding the quarter, but let me step back and provide some broader thoughts.

U.S. Individual Mortality was unfavorable in the quarter and for the full year primarily due to a higher volume of large claims.

Our ongoing evaluation of the performance of this business leads us to believe that the majority of the unfavorable experience can be attributed to volatility, especially at the larger policy size amounts.

Absorbing short-term claims volatility is a key component of the value that we provide to our clients and the impact on our financial results tends to smooth out over longer periods of time.

As mentioned previously, we also expect that there is likely some influence from the slowdown in mortality improvements that we have seen in the U.S. population statistics in the last few years, although we expect that the impact to our portfolio of reinsured lives should be less than what has been observed in the general population.

In the current quarter and for the full year, we believe the main driver of the excess claims is random volatility with some lower, more moderate contribution from slower mortality improvements.

We remain bullish on mortality trends over the longer-term and continue to believe that medical advancements provide a nice tailwind that will help deliver favorable mortality improvement in the future.

Turning to Australia.

It was an unfavorable quarter for us with a loss that was about equal to the loss in the third quarter.

We are focused on remediating our business and continue to move forward with rate actions, as appropriate.

As has been reported, the Australia Prudential Regulation authority has implemented regulatory actions in regard to the individual disability business that is intended to spur changes in products, terms and conditions to make for a more sustainable market.

We view this as a good start and a positive sign.

Turning back to the full year results.

We had very strong performance in 2019 in many of our business lines, particularly U.S. asset-intensive and U.S. capital solutions, our overall Canadian business, both segments in EMEA and our Asia Financial Solutions business gained considerable momentum.

In addition, we were pleased with the rebound in our U.S. Group business.

In Asia, top line growth remained strong and profits were in line with our expectations.

We continue to be optimistic about the growth potential in this region based upon the underlying market dynamics, RGA's differentiated position, and with a very good momentum on our hybrid solutions, which are leveraging our expertise in both financial and traditional risk solutions.

Looking forward, we have a strong and resilient global platform.

Our business is well diversified by geography, product and risk.

This diversification helps us absorb volatility that is inherent in our business.

Our global platform allows us to remain flexible in markets as opportunities or market conditions change.

Invariably, there are some segments of our business that will perform better or worse than others for a variety of reasons at any given time.

2019, again, demonstrated the resilience of our business as we delivered another year of record earnings despite having underperformance in some areas.

As we look ahead to 2020, we see a number of challenges facing the global life insurance industry, but each challenge also creates opportunities for a reinsurer like RGA.

We have a proven strategy and a long track record of creating and delivering solutions to address many of our clients' challenges.

Our business outlook remains favorable, and we are well positioned to continue to deliver on our strategy and to continue to deliver attractive financial results.

With that, I'll hand it back to Todd to provide more detail on our results.

Thanks, Anna.

I'll touch on a few financial metrics and provide a highlight of our segment results.

First, a quick comment.

Just wanted to mention that we did change the name of our U.S. and Latin America Financial Reinsurance business to U.S. and Latin America Capital Solutions.

This is just a main change that better aligns the product offerings within this business, and it doesn't affect any previously reported results.

Our adjusted operating return on equity for the full year was 10.5%, which is within our guidance range of 10% to 12%.

Net foreign currency fluctuations were relatively small for the quarter, having a favorable effect of $0.01 per share on earnings as compared with the prior year.

However, for the full year, net foreign currency fluctuations were more meaningful with an adverse effect of $0.18 per share on earnings.

Our top line premium growth was 7% for the year, as organic growth was strong at approximately 8%.

Our strategy of providing broad-based solutions to our clients through our risk and capital expertise continues to deliver.

We deployed approximately $465 million of capital in the transactions for the year, exceeding the strong results in 2018.

The transactions we executed in 2019 were diverse, both by product type and by region.

We ended the period with an excess capital position of approximately $900 million.

The pipeline remains active, and we are optimistic about opportunities to continue to deploy capital and the transactions into 2020.

The effective tax rate on pretax adjusted operating income was 23.1% for the quarter, and for the full year was 22.4%, within the expected range of 21% to 24%.

Moving on to investments.

The average investment yield, excluding spread business, was 4.55%, up 11 basis points from a year ago primarily due to higher variable income this quarter.

Our new money rate was 3.7%, down from 3.8% in the third quarter.

Now turning to our segments.

The U.S. and Latin America traditional business reported pretax adjusted operating income of $83 million compared to $92 million a year ago.

Results reflect above average variable investment income and favorable group experience.

This was offset by unfavorable individual mortality experience, driven by large claims.

Reported premium growth was up 4%.

Our asset-intensive business reported pretax adjusted operating income of $65 million this quarter, above the expected range, benefiting from effects of new transactions, favorable equity markets and stable investment spreads.

Our Capital Solutions line reported pretax adjusted operating income of $26 million this period, up over the prior year quarter primarily due to the impact of new business.

Moving to Canada.

The traditional segment was down over the prior year quarter, with pretax adjusted operating income of $27 million.

Results this quarter reflected modestly unfavorable individual mortality experience due to large claims.

The year ago period reflected favorable individual mortality experience and the contribution of income from in-force transactions written during that year.

Premiums were up 3% on a reported and constant currency basis.

Canada Financial Solutions reported pretax adjusted operating income of $7 million compared to $2 million a year ago, with the current period reflecting income from a new fee-based transaction.

In the Europe, Middle East and Africa segment, our Traditional business reported pretax adjusted operating income of $23 million, reflecting favorable underwriting experience across the region.

Reported premiums totaled $368 million, up 4% on a reported basis versus a year ago, and up 5% on a constant currency basis.

EMEA's Financial Solutions business, which includes asset-intensive, longevity and fee-based transactions, reported pretax adjusted operating income of $73 million compared with last year's $45 million, reflecting continued favorable longevity experience, including positive contributions from data catch-ups and the recapture fee.

Turning to our Asia Pacific business.

Pretax adjusted operating income totaled $12 million compared to $34 million in the prior year period.

This quarter reflects results in Asia that were relatively in line with our expectations offset by a loss in Australia of approximately $23 million.

The year-ago period had favorable underwriting experience in Asia and a smaller loss in Australia.

We are disappointed with the loss in Australia.

The individual business improved compared to the third quarter, reporting a small loss.

We saw some adverse experience primarily in 2 of our group treaties that rate action has been taken, and we will see that come through in the early part of 2020.

As Anna mentioned, our efforts remain focused on the remediation of the existing business, and we consider the earnings headwind to be manageable.

Reported Asia Pacific traditional premiums were up 7%, reflecting 18% growth in Asia, offset by a decline in Australia.

Our Asia Pacific Financial Solutions business reported pretax adjusted operating income of $8 million, up from $2 million in the year ago quarter, reflecting new business in Asia, where we continue to provide broad-based solutions to our clients by combining our capabilities and product development and financial solutions.

We continue to see growth opportunities in Asia and these solutions generated $38 million of premium in the current quarter.

The corporate segment reported pretax adjusted operating loss of $40 million, higher than the expected run rate primarily due to the costs related to higher incentive-based compensation and higher costs related to strategic initiatives.

We have historically provided intermediate term guidance at this time of the year.

With that in mind, we expect, over the intermediate term, growth in adjusted operating income per share to be in the range of 5% to 8% and adjusted operating return on equity of 10% to 12%.

We expect our effective tax rate to be approximately 23% to 24%, up from the previous expected range of 21% to 24%.

As you can see from our 2019 results, there can be volatility in our various segments of our business.

However, we -- as we mentioned earlier, we feel we can absorb this volatility and still achieve our financial objectives.

Let me mention a few things to consider.

For our U.S. Traditional segment, with the continuing negative influence from low interest rates in some -- and some likely negative effects from the recent slowdown in mortality improvements, we now expect a current annual run rate for this segment at approximately $325 million.

However, we do anticipate some volatility around this number.

In addition, as our U.S. block ages, we expect an increase of seasonality.

However, this is just a timing issue with Q1 being the seasonably weakest quarter.

Considering the strong ongoing capital deployment that we have achieved, the earnings run rates for various segments continue to improve.

For our U.S. asset-intensive segment, we believe an appropriate quarterly run rate for this segment is approximately $60 million to $62 million.

For our EMEA segment in total, we expect the quarterly run rate at approximately $60 million to $65 million.

For the corporate segment, we expect no change to the average quarterly run rate of $25 million.

In conclusion, we view this as a good year with many positives to highlight.

We have continued to deliver strong organic growth and have successfully executed on in-force transactions.

We are very pleased with the higher level of capital deployment for the year.

Our bottom line continues to benefit from a diversity of earnings, both by geography and by product.

Based on the strong business fundamentals and despite some ongoing headwinds and challenges, we expect to continue to deliver attractive financial results over time.

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

And now we'll open the call for questions.

(Operator Instructions) We will take our first question from Humphrey Lee with Dowling & Partners.

I appreciate the color in terms of the U.S. mortality and the kind of run rate earnings expectation.

But again, we're looking at 5 quarters in a row of unfavorable mortality.

And while I understand it, there's a long tail business, and you have to look at the performance over an extended period of time.

Is there anything that you can share in terms of why do you don't think this is a trend or why you feel like the -- your confidence levels are still comfortable?

Yes, Humphrey, it's Todd.

Let me start out.

No, what we've seen, especially in the second half of the year, was an elevated number, really a small number, I should say, a small number of larger claims.

And when I say larger claims this time, sort of, in excess of $5 million -- between $5 million and $8 million.

So a very small number of claims above our expected in the second half of the year, really resulted in some of that volatility we saw in the third and the fourth quarter.

But then if I take a step back and why we're comfortable over the longer term, we do have a lot of information and data, given our history of being in the business.

We do continue an extensive analysis on our experience studies by clients and by era, et cetera.

So if you take -- maybe just take a quick step back, if you look at 2017, I would say that year performance was in line with our expectations, if not, maybe slightly favorable.

And then if you look at 2018, we commented that in total, for the full year, we were off about $30 million on claims experience.

On a base of benefit payments, it's over $4 billion.

So then turning into '19 here, we're not happy to see that 4 quarters in a row of unfavorable experience.

Again, when we look at it, there was some slight misses in the first and second quarter, but really, the big deviation came in the second half of the year.

And based on all the analysis that we've been able to do it, most of that flow does come down to volatility in the number of these small number of these larger claims.

Yes.

And Humphrey, if I may add a comment.

Recall at our recent Investor Day, we shared some CDC data with you that showed a return to positive improvement in 2018 in the general population.

We're also seeing early CDC data through the middle of 2019 that are showing an acceleration in those improvements.

And we're viewing this as a positive indicator in the U.S.

That's helpful.

Shifting gear to Australia.

So I understand that you are looking at rate increases to remediate both the Group and Individual blocks.

But looking at just the earnings for this year, if my math is correct, I think Australia was a loss of kind of over $60 million for the full year.

I think the original guidance for '19 was kind of breakeven or maybe it was like positive.

So as you think about 2020, like what is your expectation of Australia given the repricing?

Should we expect maybe elevated losses to carry forward for maybe the first half before the rate increases benefit to kick in?

Yes.

Your -- first Humphrey, your math is pretty close.

It was around -- about a $50 million pretax loss for the year.

And yes, so we do have some rate actions that will be coming online really between March and July, I think, of next year.

So that's going to -- should be positive to the overall results.

Giving you a sort of exact or solid prediction for where next year will come out is sort of difficult as we still have to work through the experience on some of the older business.

But we are, again, repricing as quickly as we can on any of the open treaties, both on the group side and on the individual side.

So I would suspect we'll come in below the current year 2019 loss of about $60 million.

Hopefully, substantially better, but it's really hard to give you an exact figure.

And we'll take our next question from Andrew Kligerman with Crédit Suisse.

As I look at the deployment of excess capital, and I see at the end of the -- you said you're going to deploy $300 million to $400 million of excess capital, on average, annually.

And then I look at the fourth quarter, no share repurchases.

So looking out to 2020, do you think that you'll likely spend the excess capital, mostly on transactions and potentially not buy any shares back?

And with that question, what transactions are you seeing that are most likely, maybe just tie line 1 into it as well.

I know that's not going to be on balance sheet, but tie it in as well?

Yes, Andrew.

Yes.

First, we would like to continue to deploy the capital generation actions to transactions.

And again, it's transactions that fit our sweet spot on that we can get what we view as an appropriate level of return.

So I don't see any significant change in our approach to the extent that we don't think we're going to be successful on transactions.

We'll counterbalance out with looking at share repurchases.

And we may look at share repurchase as well as part of the overall mix.

So again, we're positive, and we would like to deploy the capital back into nice transactions like we've been doing the last few years.

And on the pipeline question, Andrew.

We have an active pipeline in all of our regions.

EMEA is particularly active with respect to pension risk transfer and asset-intensive opportunities so longevity-type opportunities.

We've spoken about the momentum in Asia Pacific.

We're seeing a good pipeline for asset-intensive and for financial reinsurance opportunities in part I think driven by the impact of low rates -- the continuing impact of low rates on the company's local statutory balance sheets.

Canada, good pipeline, good demand for LICAT-type solution.

In the U.S., I think we mentioned in the third quarter, and we're seeing it again in the fourth quarter, a bit of a pause on the medium to larger asset-intensive opportunities.

We think this is more a temporary low.

But as we look at our pipeline, it's a very good pipeline.

And it's also a good pipeline for the larger transactions that would be directed at Langhorne.

So a continuation, I would say, generally a continuation from the third quarter.

Got it.

And then just -- there's been clearly a lot of interest in the coronavirus.

And I'm curious about how RGA is thinking about that in terms of its exposure and anything else you might add?

Yes.

Well, it's too early to provide much in terms of the virus itself.

What we can share and what we'll share is some high order estimates of our exposure.

So obviously, our primary exposure is associated with our Traditional Mortality business.

And we estimate that approximately 12% of our global pandemic exposure is in Asia.

And of that, we have a very small operation in China.

So of that 12%, we estimate 1% to 2% would be in China.

The remainder of our global pandemic exposure, that would be just over 50% in the U.S., 35% between Canada and EMEA, and then the rest, the small residual in all of our other operations.

And we'll take a question from Jimmy Bhullar with JPMorgan.

First question on just the Australia business.

Have the results in the past couple of quarters affected your views on what -- how -- what your losses or earnings are going to be for that business, especially in the short-term, over the coming year?

Certainly, the last couple of quarters, we saw a little bit of deterioration on the group business.

But again, as I mentioned earlier, those are the ones that we're -- we've already taken some rate action on.

So I would say nothing that's happened in the last couple of quarters that materially changes.

Our view of the numbers I talked about earlier, going into 2020.

But certainly, we'll continue to, as Anna mentioned, as I mentioned in my comments, do whatever we can to remediate the in-force block.

And I think you lost about $45 million in Australia in the second half of the year.

What was the drag from the business for all of 2019?

For Australia?

Yes.

Yes, the total pretax loss for Australia for the year was right around $63 million or $64 million.

Okay.

And then it seems like the commentary in the press, sort of, suggests that the flu season is shaping up to be worse than the last few years.

Have you -- were sort of 1/3 through the quarter.

Have you seen any indication of that as it relates to your 1Q results?

Yes.

We've seen similar reports in the press, and they're generally based on earlier activity, increased earlier activity than in the prior periods.

It's too early to predict what that means from a mortality impact for the season.

Interestingly, we did see something similar in the Australia flu season.

It also began earlier, but it ended fairly quietly and with what is an average mortality season.

So that got a lot of attention as well.

Hopefully, the U.S. will have a similar mortality outcome, but much too early to say, and we wouldn't expect to have seen much impact in our 4Q mortality results from the flu.

And then just lastly, it seems like competition for block transactions has been picking up a little bit.

You obviously haven't been active in the Langhorne JV.

But what's your -- any comments you have on competition, both for blocks, and then also on the ongoing flow business on the reinsurance side?

Why don't I start with competition in the organic, in the flow business.

And I'll start in the U.S. There's an awful lot of requoting activity in 2019 on open treaties.

And it was driven, in large part, because of the need to reprice because of changes to PBR and the new mortality tables.

I would say the competition was robust.

Wouldn't expect to see a lot of change in the overall market share positions.

So continuing rational, robust competition.

In Canada, EMEA and Asia, our organic competition remains strong, but recall our strategy, especially in Asia, is really to try to limit competition or eliminate competition through our product development services, and now we're combining that product development with capital management.

And you can see the results of that in the growth rates that we're enjoying in our organic business.

So overall, I would say, on the organic side, we're in good shape against the competition, and we expect to see continuing growth in that traditional business.

Now on the transaction side, yes.

Competition is very strong on the transaction side, and there's also continuing interests from new players.

So not only are there lots of competitors, but increasing number of competitors.

And we're seeing them both from established companies and relatively recent new players.

There's a lot of interest on this part of our business.

There are lots of large opportunities, but we continue to be successful.

And in large part because of the package that we are providing this package of technical risk and structuring expertise, the relationships, execution counterparty.

We're holding our own.

And if I look at capital deployment levels in 2019, we had a very strong year.

We ended the year deploying $465 million into these in-force block transactions, and that followed what I thought was a strong year in 2018, where we deployed just slightly south of $450 million.

So we're doing -- we're getting our fair share of those transactions.

And we'll move on to our next question from Erik Bass with Autonomous Research.

I want to go back to U.S. Mortality.

And just given the trend in results, have you brought in any outside experts or done anything else to take a fresh look at the data to make sure that recent claims are just volatility and not part of the more systemic trend?

And I know you mentioned that in the second half of the year, it's really around a few larger claims, but are there any specific data points that you could share with us just to support the conclusion that it's just volatility?

Well, the specific answer to your question, as it relates to the fourth quarter, we have not had outside expertise look at our fourth quarter results.

But having said that, we -- our experts are in constant communication with industry colleagues.

They participate in many of the industry groups.

We have outside experts, medical doctors come in to speak to our medical doctors as we build out our views on mortality.

So I would say no.

Obviously, the specific answer to your question about fourth quarter is no.

But generally, we do take advice and we do use outside experts in addition to what we think are very strong and very expert teams within RGA.

Got it.

And I mean any specific data you can give on just kind of the number of particularly large claims?

Or was it a case of a few near max claims, or anything else that just kind of supports the volatility case?

Yes.

It was probably in the second half of the year on those probably an extra a handful of claims each quarter in that $5 million to $8 million range.

As you know, our maximum retention is $8 million.

So in that, $5 million to $8 million range, I'd call it, about a handful on average over the last 2 quarters.

Got it.

And then maybe shifting to Asia x Australia.

Can you just talk about how the results there compare versus your assumptions?

And maybe how we should think about the run rate for that business and the seasonality as well?

Yes.

So for Asia x Australia on the traditional side.

For the quarter, and I would say for the full year, it was right around our expectations across the -- for the segment.

So good to see there.

As far as the average quarterly run rate for the traditional segment in Asia, I'd put that at between $40 million and $45 million.

So...

Got it.

And is there any material seasonality in that?

Maybe a little bit, where you'd see the first quarter and the fourth quarter be a little bit softer than the middle 2 quarters.

We'll take our next question from Dan Bergman with Citi.

In the press release there, I believe you commented the full year 2019 results were somewhat above expectations.

So I just wanted to see, when we think about that 5% to 8% medium-term EPS growth guidance, is the $13.35 that you reported in 2019 a good baseline to grow off of?

Or should we be thinking about a materially different starting points?

Any thoughts on that would be helpful.

Yes, it's probably not a bad starting point.

The -- again, pluses and minuses in our business.

And that was -- exceeded our plan by a little bit, somewhat driven by the lower tax rate.

But overall, it's not a bad place to start.

Like I say, you can fine-tune it all you want, but it was a pretty good result.

Great.

And then maybe just moving to the U.S. Group business.

I just wanted to see if you could quantify how favorable results were relative to your expectations?

And maybe a little bit of color on kind of the main drivers and lines of business.

And should we be thinking about this as likely back to full margins in 2020, or is that a little bit further out?

Yes.

So again, we're pleased with how the group business rebounded in 2019.

For the quarter, it was about -- probably about $5 million ahead of expectations and a little bit more than that for the full year.

So all the business has been repriced at this point that we had talked about throughout the course of last year that we're going to go through repricing efforts.

Most of the lines within the U.S. group business performed pretty well or exceeded expectations.

I think there was 1 line that was a little bit below expectations.

And I think we've commented before, 30 to 35-ish or maybe a little bit higher run rate at full profitability is about right, for that line, depending on how much we retain in renewals and so on.

But we would expect, based on what we saw in 2019, and as we have talked about previous quarters that 2020 should be back to our expected margins.

We'll take our next question from Ryan Krueger from KBW.

In terms of the larger transactions in the pipeline that would be more likely to go to Langhorne, is there a particular regional concentration on those larger potential transactions?

I would say that the EMEA region would be a region that has some attractive opportunities for Langhorne.

And we are also seeing a few opportunities that are not necessarily focused on the PRT-type risks, but are focused on different underlying biometric risks.

So generally, I would point to the EMEA region for these larger transactions.

And you've likely seen the press release this morning about one of the PRT deals that has been announced.

Not an RGA deal, but one of the PRT deals that has been announced in the market.

And then on U.S. mortality, I guess outside of the large claims, you did talk about some headwinds from the slowdown in mortality improvement in the U.S. recently.

And does that make -- I guess have you rethought at all your stance on not going back to the -- through the seed in to renegotiate some of the poorly performing experience from the '99 to '04 block, I guess, as more experience has emerged that perhaps is a bit worse than it had been before?

Yes.

As we've discussed in the past, we -- this is a long-term business, and we have long-term relationships.

So what we do from a repricing strategy as we look at these balance of relationships with our clients across all of their businesses and across all of their countries over long period of time, which mutes this short-term volatility.

And so as we look at this, we wouldn't expect to change or take short-term or take actions because of these short-term results.

(Operator Instructions) We'll move on to Alex Scott from Goldman Sachs.

First question I had was just kind of a housekeeping item, but on the tax rate guide going up a little bit at the low end of the range.

Could you provide any commentary on what's driving that?

Sure.

Yes.

No.

As we've gotten a little bit more familiar and as the regulations from the original tax reform have come out, again, as we better understand them and as we look at our mix of business operations around the world and under tax reform, there can be some moving parts due to the foreign operations with some of the unique aspects of the tax reform.

And again, based on, again, everything that we can see and project, we think the 23% to 24% rate is more realistic for our -- for RGA and our overall business profile.

Hopefully, we'll be able to manage below that 23% rate.

But we think, again, the 23% to 24% is probably the most appropriate range to guide you to.

Okay.

And then maybe a follow-up question on the Australia business.

I mean it's about a 8% drag on earnings now.

I was just hoping maybe you could provide any kind of details around the level of disability claim reserves that we should be considering in terms of the reserves that are experiencing some unfavorable development, the amount of open treaties that you have out there in disability.

And how much of premiums are coming from that?

Anything that would be useful for us to, sort of, box in what the negative valuation is that we should be associating with this issue.

Because I think just looking at earnings, I don't think it's 8% -- is a good way to think about it necessarily, but at the same time, I don't really have any of the details around that business because of the disclosure to box it in.

Yes.

So the individual DI business in Australia is the worst-performing business.

And one point is that we're not quoting on new business in that product line.

We are just -- we're working through the treaties that we have.

So most of that's, sort of, close off as far as any new business goes.

As far as the actual reserve numbers, that's not something that we have necessarily shared, maybe we'll take that away to give some thought to.

But overall -- and I think you are pressing me a little bit.

If I had to sit here and give you what we think the impact on earnings could be in 2020, I would say, it's called a loss of $40-ish million pretax, again, coming in better than what we experienced in 2019 of a $64 million loss.

And then hopefully keep whittling away and reducing that as we go forward in time.

Got it.

Okay.

And then maybe one more on U.S. mortality.

Just thinking through what you said about the CDC data, mortality does appear to be getting a little better for the overall population in '19.

And then your takeaway on the results is that it is sort of random volatility to some degree.

But I guess what was your underlying driver then of taking the $350 million run rate guide down to $325 million.

Is it just -- there is some element that is sort of normal?

Or how should I interpret that?

Yes.

And just as a quick reminder, that's for the entire U.S. traditional segment.

So it's the U.S. mortality markets, the individual health, the group business and then a relatively small operation in Latin America.

But probably the primary drivers of reducing from what we had been at the $350 million run rate down to the $325 million level.

And again, it's going to be volatile around that number.

That's really a combination of the continued headwind from the lower interest rates as well as there is an impact from the slowdown in mortality improvements more recently.

And our next question comes from Thomas Gallagher with Evercore ISI.

Anna, just a follow-up on Jimmy's question from earlier.

You had said there was a real pickup in requoting activity in 4Q due to PBR and the new mortality tables.

With that pickup in requoting, did prices go up or down, stay flat?

Can you give some perspective on what those changes meant for the requoting?

Yes.

And just to clarify, the activity was throughout 2019.

It wasn't necessarily focused exclusively in the fourth quarter.

And it was requoting of open treaties.

In terms of prices, that's a difficult question to answer because there was so much activity.

So in some cases, you wouldn't be surprised to see some rate increases.

In other cases, depending on the underwriting performance and the quality of the business, it could trend down.

What I can say universally, though, is that we were pricing business with our margins.

We were pricing business to achieve our overall margins.

Okay.

So there wasn't any -- based on the PBR and new mortality tables, there was no meaningful, obvious change in either direction.

It really would have been dependent on each contract.

Is that a fair way to describe it?

They would have been -- PBR -- the impact of PBR and the impact of the new mortality tables would have been elements of -- part of the elements, but there were other elements that were involved in this exercise as well.

Okay.

And then just kind of a broader question on your comments from earlier about the slowdown in the mortality improvement.

So if we -- if you did end up, I guess, determining that that was sort of a permanent trend, would we be talking about an earnings impact?

Would there -- would it be a reserved balance sheet impact?

Is there any way to kind of dimension based on the trend that, I guess, the broader population trends that you've seen for the last few years, if you were to extrapolate that?

And I know you're not assuming that now.

But just to dimension it a bit, if you were to, with that, if that were to be determined a trend, are we talking about a big balance sheet adjustment?

Or I don't know if you can give some perspective on that?

I guess it would depend on how long you assume that this trend continues, and how long it would take for the trend to potentially reverse, and what your view is on long-term mortality improvements.

I'm not trying to not answer your question, I just think it's a question that is very complicated to answer.

I will say that we have a lot of provisions or a lot of margins in our balance sheet reserves for mortality business.

We've demonstrated that every time that we provide -- or that we do our asset adequacy testing or cash flow testing.

So there's a lot of room in those reserves before something like a long-term trend or -- sorry, a short-term slowdown would hit.

Yes.

This is Todd.

I would echo that [statement].

In the near term, we're looking at it as earnings headwind, not any type of sort of balance sheet issue.

Yes.

And I just want to reiterate, we are bullish on long-term improvements.

And we've stated, and I'll repeat it, we're bullish because of future medical advancements and new treatments and technologies and things like new cholesterol medications and new stroke treatments and personalized medicine from genomics, anti-aging.

So our view hasn't changed in terms of the long-term mortality improvements.

Got you.

And then just one final one, if I could.

Just -- Anna I presume your comments around the mortality improvement was, in part, maybe driven by the Society of Actuary study.

Anyway, was one I'd read and I talked about how the, I guess, from in 2009 to 2016 or 2017, the patient mortality improvement was running about a full percentage point less than it was in the decade before.

Is that kind of the study that you were addressing?

Or is it something else that you were looking at?

My comment was with respect to what we call the -- what's called the rapid release CDC data through the second quarter of 2019.

Our next question comes from Ivan Bokhmat with Barclays.

We'll move on to Peter Deutsch with Fidelity Investments.

Just wanted to ask a question about how you think about your pandemic PML side.

I know kind of a standard stress test is to assume 1.5 additional deaths per 1,000 lives.

So just trying to think what that means for your block of business, if you had -- I know that would be a pretty clean example.

But just based on what you said, is it half of your risk within the U.S.?

I thought, just off the top of my head, you had 1.5 trillion of mortality exposure.

So if you had that level of excess, would we be looking at like a $4.5 billion P&L?

Or how should we think about that?

So we think of our stress scenarios as 1-in-200-year events.

And they're not too far from the 1.5 extra deaths that you've just mentioned.

You're correct.

Of our total global mortality amounts, half are in the U.S. And so we have 3.3 trillion globally, one, let's call it, 1.2 trillion in the U.S. And so [cross] multiplication, absolutely, would -- your rough math is correct is what I'm trying to get at, before those are prepacks and before any benefit from diversification.

Okay.

And then just when you think about your stress test, you would -- in terms of liquidity, you would address that how?

Yes.

Part of our enterprise risk management framework, we would look at and do look at pandemic -- different pandemic-type scenarios and make sure that we're comfortable that we would have the amount of liquidity on hand or access to liquidity to support that type of scenario over time.

Yes.

And that does conclude today's Q&A session.

I would like to turn the conference back over to our speakers for any concluding remarks.

Thank you.

Yes, thank you, everyone, for joining our call today and your continued support for RGA.

Thank you very much.

Once again, ladies and gentlemen, that concludes today's conference.

We appreciate your participation today.