美國再保險集團 (RGA) 2020 Q4 法說會逐字稿

Good day, and welcome to the Reinsurance Group of America Fourth Quarter 2020 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, and welcome to RGA's Fourth Quarter 2020 Conference Call. With me this morning on the call is Anna Manning, RGA's President and Chief Executive Officer; Alain Néemeh, Chief Operating Officer; Leslie Barbi, Chief Investment Officer; Jonathan Porter, Chief Risk Officer; and Jeff Hopson, the Head of Investor Relations.

We 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. Some of our comments or answers to your questions may contain forward-looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ materially from expected results. Additionally, during the course of this call, information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation, quarterly financial supplement and website for discussion of these terms and reconciliations to GAAP measures.

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

Thank you, Todd. Good morning, everyone, and thank you for joining our call today. I hope you were all remaining safe and staying healthy. The loss and anxiety caused by the pandemic is extraordinary. And on behalf of everyone at RGA, I would like to express profound appreciation for those on the frontlines in the fight against the pandemic, and offer our deepest sympathies to those who have lost loved ones. Through these tough times, I've remained incredibly proud of the role that RGA has played in an industry that helps to safeguard the financial futures of millions of families from the unforeseen tragedies of life. Our purpose has never been made clearer than during this past year.

Let me now move to our results. Last night, we reported adjusted operating EPS of $1.19, which we consider another solid quarter in the context of the pandemic. In this quarter, we were able to absorb estimated total COVID-19-related claim costs of $300 million globally, and deliver profitable earnings due to the underlying strength in many of our businesses. These include our Asia business, our U.S. Group and individual health operations and our U.S. asset-intensive business. Additionally, excluding the impact of claims attributed to COVID-19, our U.S. individual mortality experience was again favorable this quarter. Reported premium growth was strong driven by results in EMEA and Asia. We completed a number of transactions in the quarter and deployed approximately $100 million of capital. The transaction pipeline is very good overall and includes opportunities in all our regions. Our investment portfolio held up well, and we ended the year with a strong balance sheet and excess capital of $1.3 billion.

Our approach to capital deployment during this crisis remains prudent, disciplined and balanced. As I step back and consider our full year results, we reported adjusted operating EPS of $7.54. This includes absorbing estimated total COVID-19-related claim costs of $720 million globally. And when adjusted for COVID-19-related offsets, including longevity and reduced expenses, we estimate the full year impact of COVID-19 to be roughly $6.80 on adjusted operating EPS.

I'm encouraged by the fact that our underlying fundamental performance and client relationships remain strong. This speaks to the resilience of our global franchise, the benefits of our diversified business, and to the success of our client-focused strategy.

As we look forward, it is clear that COVID-19 remains both a global health and economic challenge, and we expect to see a meaningful level of claims in the first half of 2021. But we believe that the impact will be manageable given our strong balance sheet and our underlying earnings engine. We are optimistic that we will begin to see the benefits from the global vaccination programs as we move into the rest of the year, after which we expect to see some normalization of results. In the meantime, we will continue to remain focused on protecting our employees, serving our clients and supporting the industry and our communities. The quality, strength and resilience of our business give us confidence that we will emerge from the pandemic, positioned to take advantage of the opportunities ahead and continue to build on our long track record of value creation.

Thank you for your interest in RGA. And I hope you all continue to remain safe and well. Let me now turn it over to Todd to go over the detailed financial results.

Thanks, Anna. Beginning with consolidated premiums. For the quarter, we reported premium growth of approximately 9%, somewhat higher than recent quarters as we saw good business growth in some areas, in addition to some client catch-ups that benefited the reported premiums. The effective tax rate on pretax adjusted operating income was 18.3% for the quarter, below the expected range of 23% to 24%, as a result of utilizing foreign tax credits and tax benefits associated with differences in bases in foreign jurisdictions.

Turning to the segment results listed on Slides 8, 9 and 10 of the earnings presentation. The U.S. and Latin America's traditional segment reported pretax adjusted operating loss of $89 million in the quarter. Our individual mortality experience for the quarter, excluding the estimated COVID-19 claim cost, were favorable. Let me provide a little more detail.

Approximately $230 million of claims are attributed to COVID-19, including $100 million of IBNR claims. The approach used to attribute COVID-19 claims is consistent with that used in the second and third quarter, which continues to track quite well. We also continue to see excess mortality in the quarter consistent with CDC reporting of significant levels in the general population. Although we believe a portion of this is likely related to COVID-19, we have chosen not to include it in our estimated COVID-19 claim cost. Overall, when we simply adjust for COVID-19 specific deaths, our experience this quarter would have been favorable, primarily due to lower large claims.

I would also note that our 1999 to 2004 business, excluding COVID-19, continues to perform in line with our mortality expectations as we set back in 2015. Also, our group and individual health business performed well in the quarter. Our asset-intensive business reported a good result for the fourth quarter, benefiting from higher variable investment income and strong equity markets. U.S. Capital Solutions reported fourth quarter pretax adjusted operating results that were better than our expectations, albeit a decrease against the strong prior year period.

Moving to Canada. The Traditional segment fourth quarter results were in line with our expectations and reflected modestly unfavorable individual mortality experience, primarily due to the impact from COVID-19, offset by favorable underwriting experience in other lines of business. Our Financial Solutions segment performed well in the quarter reflecting favorable longevity experience.

In the Europe, Middle East and Africa segment, our Traditional business, fourth quarter results reflected unfavorable mortality experience, partially explained by COVID-19. The COVID-19 claims were concentrated in South Africa and the U.K. Additionally, as we've seen in the U.S., there is significant level of excess mortality experience in the population in South Africa over and above reported COVID-19. EMEA Financial Solutions business fourth quarter results reflected modestly unfavorable longevity experience.

Turning to our Asia Pacific Traditional business. In the fourth quarter, Asia had a favorable underwriting experience across most of the region. While we did see some COVID-19-related impacts, these were offset by favorable non-COVID experience as well as some data catch-ups from client reporting. Australia experienced a loss of approximately $26 million. This reflects a number of one-offs, including an increase in reserves to reflect the recently updated industry table and an IBNR for estimated COVID-19 claims. Without these one-offs, we would have been near breakeven for the quarter. For the year, we saw a much improved result over 2019, and when excluding these Q4 one-offs, would have reported a small profit this year.

While there remains some uncertainty in the Australian market, we saw progress in 2020, and we continue to be prudent about new business and focused on actions to improve results. Our Asia Pacific Financial Solutions business continue to produce good results in the fourth quarter, benefiting from the growth of business in Asia. The Corporate and Other segment reported a pretax adjusted operating loss of $24 million, relatively in line with the average run rate.

Moving to investments. The non spread portfolio yield for the quarter was 4.2%, a significant improvement relative to that in the third quarter, primarily due to above-average run rate for variable investment income, as we experienced a high level of commercial mortgage prepayments and some realizations in our various private partnerships. We believe our portfolio was defensively positioned coming into the crisis, credit performance continues to benefit from diligent security selection as well as economic reopening and policy responses. Our portfolio average quality of A was maintained and credit impairments were minimal in the quarter.

As shown on Slide 13 of our presentation materials, our excess capital position at the end of the quarter was approximately $1.3 billion. RGA's leverage ratios remained stable at the end of the year, following the second quarter senior debt issuance and our liquidity remained strong with cash and cash equivalents of $3.4 billion.

Looking forward, we expect to see some level of ongoing COVID-19 impacts that will negatively affect our earnings until this crisis is resolved. However, we continue to view this as manageable and believe that our strong balance sheet, the power of our earnings engine and the benefits of our global franchise, positions us to emerge from the pandemic in good shape, to continue to produce attractive returns to our shareholders over time.

I'd also like to comment on Slide 15 of the earnings materials. As you know, we are very proud of our track record of book value per share growth over the years. And while 2020 was a difficult year as a result of the pandemic, we have every confidence that we will continue creating value for our shareholders.

I'd also like to comment on the topic of financial guidance. We have historically provided intermediate term financial guidance in conjunction with our fourth quarter results. However, given the near-term uncertainty surrounding the COVID-19 pandemic, we have decided not to provide guidance at this time.

I will now turn the call over to Jonathan Porter, our Chief Risk Officer, who will provide some thoughts and updates on COVID-19.

Thanks, Todd. COVID-19 mortality claim costs for Q4 continue to be towards the lower end of our model expectations, relative to general population reported COVID-19 deaths, and we continue to see lower insured mortality relative to the general population. The U.S. still accounts for the majority of our estimated COVID-19 claim costs. Our ongoing mortality model updates did not result in any material changes in the quarter. So we are reiterating our mortality rules of thumb for our major markets, as shown on Slide 14.

Overall longevity experience was modestly favorable in the quarter, but less than the prior quarter run rate. This lower offset was expected due to lower longevity -- sorry, due to longer longevity reporting lags and differences in country-specific mortality rates over the period. We expect elevated claim costs to continue in the first half of 2021 based on the level of ongoing COVID-19 deaths in the general population. Although uncertainty exists on the ultimate impact of new COVID-19 variance, it is good to see some recent positive signs as well. Many countries are experiencing decreases in new case counts, and deaths from the peak of the holiday season waves and the preliminary data from the global rollout of vaccines looks promising. We expect that vaccines will have a material beneficial impact on general population mortality, in particular, as those that are most vulnerable to severe outcomes are vaccinated. We continue to closely monitor all of these developments and would expect to update our views, if needed, as new data emerges.

Let me now hand it back to Todd.

Thank you, Jonathan. That concludes our prepared remarks. We'd now like to open it up to you for your questions.

(Operator Instructions) We'll now take our first question from Humphrey Lee of Dowling & Partners.

I think you mentioned that you continue to see the difference between the insurer and general population mortality experience. Since many of the primary companies saw worsening results, especially on the group side, I was wondering if that kind of insured versus general population mortality difference remains kind of the same compared to early stages or if you have seen any kind of convergence between the two?

Thank you, Humphrey. May I address that question to Jonathan?

Yes. Humphrey, so in our results, they've been somewhat consistent over the quarters. So I mean, obviously, there's some ups and downs. But the difference between insured and general population with respect to our claims has been relatively the same. And that's kind of evidenced by the fact that we are at the lower end of our rules of thumb. So our expectations are being maintained.

Okay. That's helpful. And then in terms of the non-U.S. COVID-19 claims, they seem to be weaker than the guidance -- what the guidance will imply, especially because they're coming from countries that you don't really have much exposure. Can you provide some color in terms of what you saw in the quarter?

Todd, may I ask you to respond and address that question?

Yes. Humphrey, so -- yes, it was going to spread around a little bit. So for the quarter, and these are estimated numbers, I would say the COVID impact for South Africa was around $13 million; for India, around $19 million; both Canada and the U.K., about $6 million each; Australia, an estimated $8 million; and U.S. Group business, about $13 million.

Yes. Todd, this is Jonathan. Maybe I'll just add on to that. Over the course of the year, so in any 1 quarter, results could go up and down. But when you look at the full year results, it's pretty close to what we expected. So about 80% of our claim costs are in the U.S., about 10% are in the U.K. and Canada and about 10% everywhere else.

We'll now take our next question from Andrew Kligerman of Crédit Suisse.

So 2 questions. So the first one from an accounting standpoint, in Allstate's recent life and annuity block business divestiture, it cited the LDTI impacts would have accounted for half of their book value. And instead, they chose to divest a $3-plus billion loss. Now I know Allstate's business mix is different versus RGA's. But what might make us comfortable that RGA won't take a similar magnitude of charges especially on term business that's now accounted for under FAS 60 when LDTI does come in play in '23? And if possible, maybe discuss the different runs of business and the potential impacts?

Todd, may I ask you to address that question?

Sure. Andrew, so yes, as you mentioned, the standard was deferred again another year into 2023. We're certainly working through everything that we need to do to implement the standard for our existing, what's called the FAS 60 business. One thing that I would point out, the overall economics of the underlying business hasn't really changed with the new accounting standard. It's just how the financial reporting will look like as we go through implementation and then accounting under the new standard as we go forward. It'd be premature for us to provide any numerical information at this point because we're still looking at the various assumptions, applying some of the interpretations that we need to make as a reinsurance company. So as time goes on and we are further along in the implementation, we'll start sharing some information. But at this point, it's very difficult to comment on any impact.

Got it, Todd. Okay. And then if we got...

Andrew, sorry, may I also offer an additional perspective, and that is we have business around the globe. And so our book is different than the book that you referenced. We also have a very long history of performance on mortality -- global mortality business as well as our GFS business and all our other businesses. So I would offer that up for some context as well.

Got it. Got it. And then my other question, I just have 3 data points upfront to the question, and then I'll get to it. So first, in 2015, the then RGA CEO, Greig Woodring, acknowledged the mispricing of the '98 to '04 business. I think, Todd, you mentioned a little earlier in the call that it's performing in line. And at that time, Greig had cited that RGA would -- and I mean, in line with expectations, Greig had said that it would probably lose about $60 million a year over several years. And the second point is that in each of the 3 years before COVID-19, RGA has posted greater than a 10% return on equity. And then the third point is that in contrast, in life reinsurance, 2 of your 3 leading global reinsurance competitors are targeting mid-to-high single-digit returns and the other is targeting 10% to 12%, but all 3 have taken sizable charges on their '98 to '04 blocks. So my question is, how is the $60 million a year evident in your past 10-plus ROEs and your targeted 10% to 12% because it's just not appearing evident?

I will ask both Alain and Todd to address aspects of that question, Andrew. Todd, Alain, if I may?

Sure. Todd, maybe I'll start. Andrew, Alain Néemeh. As you referenced, we did mention that, that block of business was underperforming. I think perhaps when Greig made those comments, there was a sense that, that block was going to get smaller over time. I think that is happening. I would say that the mortality, as Todd alluded to, has been performing in line with our reset expectations. Certainly, though, we've probably been facing some additional interest rate headwinds as we have on the whole of our traditional block of business. I don't know that we necessarily break up the blocks of business to look at actual ROEs. But I'll let Todd comment on sort of ROEs from the totality of our business.

Yes. So -- yes, on ROEs, and certainly, we've produced those ROEs overall from an enterprise perspective. There's going to be some lines that are above, some lines that are below, but overall, we've been able to deliver that level of ROE. And as far as comparing to competitors -- the others, there's different accounting bases that are used that -- then that are directly comparable to ours, so I'm not sure if I can directly reconcile it to.

Yes. The other thing, maybe, Andrew, sorry, it's Alain here again, just to add in. We've talked in the past about taking the long view on our client relationships and certainly looking at the totality. And in that vein, we have, I'll say, worked to identify where there are material imbalances and looked to restore a better balance with those clients. You referenced our competition and some of the charges and some of the actions they've taken. I think we've been pretty clear, we don't have a broad-based rate action strategy. But that doesn't preclude the possibility of taking or having taken rate actions where appropriate. We just prefer to work through those types of issues with clients directly.

We'll now take our next question of Erik Bass of Autonomous Research.

In EMEA, can you talk about results in the Financial Solutions business this quarter and the level of COVID impacts in the longevity business? And then given the delays in reporting you talked about, are we more likely to see the surge in population deaths that occurred in December show up in your first quarter results?

Erik, thank you for the question. I think that's directed to Todd and perhaps, Jonathan?

Yes, we did see, as we mentioned, slightly unfavorable longevity in the quarter. And also in the quarter, as you know, we have pluses and minuses when we get data catch up reporting from our clients. And that was a little bit, not negative, but not as much as we would have expected in the quarter, just due to the -- what information we received. I think taking a step back, given the block, we still view it as very positively, and we'd expect it to continue to perform on average, as you've seen it perform historically, which is quite well.

Yes. Yes, and this is Jonathan, maybe just to talk about the lag in reporting. So I mean, you're right. There are longer lags in longevity reporting, which means the results that we're seeing in Q4, although we can't put into an exact time frame, just given it's a bit variable depending on the treaty, it's really are we being more reflective of the summer level of mortality that we saw. And those rates were generally quite a bit lower than we saw both in Q2 and in Q4. That's a particular issue for the U.K., which is where most of our longevity business is concentrated. There was very little excess mortality actually in the summer months. So we do expect this to be lumpy quarter-to-quarter and due to timing as well and by geography. But sort of our rule of thumb that we've been thinking about longevity business at, which is around 10%, ultimately, relative to mortality, we still feel is a reasonable estimate.

That's helpful. And then maybe sticking with EMEA. Can you provide some more color on a couple of the recent larger block deals that you've done in the region? And do these change your view of the normal quarterly earnings run rate for that business going forward?

I think that's -- Alain, if you could address the transactions and Todd on the run rate?

Sure, Anna. The transaction is very much in line with what we've done previously, so longevity swap type transactions. We've done some Financial Solution type transactions as well outside of EMEA, but in EMEA it's mainly longevity.

Yes. And as far as the updated run rate, Erik, I don't have one at this point, but certainly, it's good to see a couple of nice deals closed there.

We'll now take our next question from Jimmy Bhullar of JPMorgan.

So first, I just had a question on the Asia business. And specifically on Australia, if you could talk about what specifically was that caused the loss this quarter? And any new developments that you've seen in that market?

Yes. Again, I think the first to Todd and the question on the market to Alain.

Yes. So Jimmy, there was a new industry table that was published during the year that the regulators expect the companies to adopt and have provided some updated information on some of the disability income, the termination rates and that type of thing. And once we looked at that table and it provides some experience from the longer duration type claims that may stay on claims for a while. And so we -- once we took a look at that, we did have an increase in our reserve levels. And then we also set up some IBNR claims related to COVID-19. And some of that was partially offset by some changes that went the other way. But the table was a big driver along with the COVID-19. If you back out those one-offs, as I mentioned in my comments, it was right around the breakeven quarter.

And is there any ongoing impact from the new data? Or is it just a catch-up in 1 quarter?

I would view the industry table as more of a catch-up to true up.

Okay. And then if you think about your results, you'd given sensitivity on COVID claims in the U.S. and each of the last 2 quarters, your actual results have been better. Any thoughts you've given to sort of reassessing that sensitivity or -- because it does seem like -- and it's only 2 quarters, but it seems a little bit overly conservative.

Jonathan, may I ask you to address that question?

Yes, yes. I'll take that and then maybe Alain, if you want to talk about the market in Australia again. But yes, no, you're right. I mean, we have been obviously tracking this and we continue to come out towards the lower end. I think exactly what you said, though, it's a couple of quarters. There is some variability, obviously, that we would expect to see in the future. So I think we just feel the appropriate position is to leave it the same for now and reassess as we do regularly each quarter whether a change is required or not going forward.

And Jimmy, this is Alain...

Thank you for that, Jonathan. Back to Alain, if you could address the question on the Australia market?

Sure. Thanks, Anna. The -- we've talked in the past, Jimmy, about the need for the industry to work through some issues. I guess, one positive development is after the regulator has announced new DI product requirements that need to be in place in October of this year with the aim of making disability income products more sustainable, so I think the industry is moving in the right direction. There's still obviously some stress on the financial results across the industry. And I think in that light, we're pretty pleased with our results for the year, which is slightly positive when you back out the industry table and the COVID accrual. Maybe just a little bit more on the industry table. That really was an attempt for the industry to bring into line, I would say, DI termination assumptions in the later durations where there's less information. So to Todd's point, I think we're quite comfortable. This is a catch-up and sort of very comfortable with the balance sheet moving forward.

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

I guess, to start, as we start thinking about the first quarter, that's typically when we see a seasonally high level of flu-related mortality in the U.S. and clearly this year, 1Q results will be significantly pressured by COVID, but I just wanted to see if you had any high-level comments on how we should be thinking about other -- the other non-COVID mortality factors, specifically on the 1 hand, the U.S. have been pressured in recent quarters by the excess population mortality, not directly identified as COVID that you called out. On the other hand, it sounds like factors like masking and social distancing have the potential to make the flu season less severe than typical. Just any thoughts on those 2 opposing trends, what you're seeing? And really any help just thinking about that direction and that impact would be helpful.

Thank you, Dan. I think a very low flu season would obviously be very welcomed, but I think any relief from the flu season would be modest in the context of our pandemic. I'll ask Jonathan maybe to provide a little bit more color in terms of the relative sizes of those pluses and minuses. Jonathan?

Yes. Thanks, Anna. And I mean, you're right. I mean, really what we're seeing in the flu beta is quite incredible so far with essentially 0. And that's not due to lack of testing. In fact, you can see places where testing is actually even higher. So it really is quite amazing that the flu is this low. When you think of the flu season and the impact to us, and I'll talk about -- focus on the U.S. here. Usually, you would see about 15,000 to 60,000 general population deaths in a typical flu season. The range is obviously based on severity. But -- so you can kind of think of that level of general population deaths relative to the amount of COVID deaths that we would incur, plus the excess deaths that you mentioned, but we do expect that. Those will continue as well, just based on what we've seen so far in 2020. So that level of offset if the flu is really close to 0, would be somewhere probably in the middle of that range of 15,000 to 60,000.

Got it. That's very helpful. And then maybe just now, I guess, switching gears a little bit now that we're further into the pandemic. I just wanted to see if there's any update you could provide on life reinsurance market conditions. Are you seeing any impact from COVID on session rates or the demand for life reinsurance? And have you noticed any change in competitive conditions and how you -- or the industry as a whole are thinking about mortality pricing in light of COVID?

Okay. Perhaps I'll turn that one over to Alain. And Jonathan, if you have anything to add, please feel free?

Sure. Thanks, Anna. I think from -- let me start maybe with just life insurance. I think certainly, the pandemic has triggered increased awareness in the population, the need for insurance protection. There's few studies out there from LIMRA and MIB that show that the desire or the thinking about buying insurance is up quite substantially. So for example, about 30% of consumers that were surveyed that are likely to buy insurance in the next 12 months. That's probably a few months dated now. Search traffic for life insurance is quite a bit up on Google search traffic. So I think from a consumer perspective, we're certainly hopeful that, that's going to get traction. Companies have accelerated investments in digital effort to try and reach those consumers. So I think the outlook, I would say, is pretty good from a direct insurance standpoint.

From a reinsurance standpoint, I would say we haven't seen much in the way of ups or downs. I think it continues to progress really along the lines that it has over the last few years. Certainly, I think as reinsurers, we've demonstrated value by working with clients to adapt to the changing conditions through the pandemic, and I think that's generally been well regarded. Transactional activity continues to be good. I think when one thinks of consumer needs and sort of producing different products, our product development area is quite strong. And so I think we can play an important part of that. But I think all that to say, reinsurance demand, I think, continues pretty much as it has.

We'll now take our next question from Tom Gallagher of Evercore.

You had mentioned that you've been getting some selective rate increases, but not something that you had implemented in a broader way across your business. Would you say that -- is a lot of that related to the early to mid-2000s blocks in terms of the rate increases you've gotten? And would you say those are largely done? Or are those still ongoing?

Alain, I turn this one over to you.

Yes. No. Look, I would say, Tom, we're continually evaluating the profitability of our different businesses and the relationships with clients and the balance or imbalance thereon. I would say, for the most part, our underperforming business has been very much isolated to the '99, '04 block. And I'd say it's a continuing activity to monitor and manage that business the way we believe it should be managed.

So is there -- I guess just a follow-up on that. Would you say generally, broadly, like you're closer to the end of the repricing? Or is that just an ongoing adjustment that you think might continue for over a series of years, if you're able to answer it that way?

I would say very much part of our ongoing management of our business.

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

The last couple of quarters, you've had favorable large claims experience in U.S. mortality. I was wondering if you thought that was actually related at all to COVID or if it's just a more random result that you've had in the last couple of quarters?

Yes. We've had this internal conversation ongoing for both the fourth quarter and the third quarter. Ryan, I think you can appreciate that it is very difficult to assess and make any definitive statement about whether it is or isn't. But perhaps I'll ask Jonathan to share some of the observations or some of the opinions or at least what we're thinking about in respect of that. Jonathan?

Yes. Thanks, Anna. Yes, I mean, at this point, again, we believe it's more of just a part of the fluctuations inherent in our business. So these adjustments can go both directions. So in the past, as we've noted, we have seen adverse large claims experience. It's nice to see a couple of quarters now of positive large claims experience, but I wouldn't point to being a trend of anything that we can tie back to. So I'd say it's just part of the fluctuations we would expect to see quarter-to-quarter in our underlying business.

Got it. And then on -- one more on U.S. Traditional. The -- there's obviously a lot -- there were tons of moving parts in that business in 2020. And I know they'll still continue to be impact from COVID, but did you -- is your view of the underlying earnings power of that business once we get out of the pandemic still in that $300 to $320 (technical difficulty) annual earnings range?

Todd, if I could ask you to address that question.

I'm sorry, Anna, was it Todd?

Yes. Sorry, Todd.

So I cut out there a little bit. Yes. So -- no, that's something, certainly, we'll take a look at. As you know, and Alain mentioned this earlier, where we do have some interest rate headwinds for some of the book there. But we'll see. Certainly, it's going to be pressure, but overall, the other -- the U.S. mortality markets, the group and the long-term care business has been performing quite well. So I don't have a direct answer for you, but we'll reassess it as we go through the next quarter or 2 and have a clearer view of the end of the pandemic and the impact of the pandemic.

We'll now take our next question from John Barnidge of Piper Sandler.

Israel has been the country that's been most aggressive in their vaccination program. Do you see any markers early on in the week since it's begun that suggests any insight to how we should be thinking of maybe COVID vaccine programs globally impacting a tapering off of this?

Jonathan, I think this one is for you.

Yes. No. I mean, I think the short answer is we are very encouraged at seeing the rollout of the vaccines happening around the world. One of the things that's starting to emerge in data, you mentioned Israel specifically as well, is that just the real-world validation that the vaccines are showing the same level of efficacy that they did in the clinical trial. So that's positive. In Israel, there are data points that we've looked at, which show that for individuals that had enough time elapsed since receiving the full vaccine, but there are clear indications of a significant reduction in both cases of COVID-19, but also reduced severity and hospitalization. So I think both of these, if they continue, should have a meaningful impact on a reduction in general population mortality, which will then translate to, of course, to insured mortality.

One of the other things to keep in mind with vaccination programs is that, many governments are targeting the most vulnerable groups first, which should accelerate the benefit on mortality. So when you think about sort of the 80-20 rule, 20% or 25% of the population probably account for a large portion of the deaths related to COVID-19. So if those population groups get vaccinated faster, then mortality should also reduce sort of at that same pace. So I think the signs we're seeing now, early, but promising.

Great. And then...

And John, if I -- sorry, John, if I could just add a comment, perhaps a longer-term perspective, optimism about the longer term. And that's in respect of the new technologies that underpin some of these vaccines. We're cautiously optimistic that this isn't going to be a one-and-done, that there's been a lot of money put into the development. And that they could be used potentially for other diseases, perhaps like the flu or perhaps cancers. So I want to also leave you with that longer-term observation. I'm sorry, did you have a follow-up as well?

I did. And it's nice to have some optimistic news, too, out of it. How do you -- I ask this question with all seriousness. How do you view cryptocurrencies within your investment portfolio? We've had an S&P 500 company come out and say it's part of their cash and cash equivalents. We now have other public companies, MicroStrategy, Overstock that have allocations to the -- that in their cash. So I was wondering how RGA views this as well.

Todd, can I ask you to address, please?

I'm sorry, I didn't quite -- John, quite catch the first part of your question.

How do you view cryptocurrencies, i.e., bitcoin or digital gold as a part of your investment portfolio or cash and cash equivalents? There's public companies now allocating a portion of their cash and cash equivalents or their investment portfolio to bitcoin or other cryptocurrencies.

Okay, thanks. Thanks for repeating. Well, from my perspective, and maybe I'll let Leslie chime in. I haven't been in a lot of conversations around investing in that. So from my -- again, sitting here, I haven't had much in the way of any discussions. Leslie, I don't know if you guys have looked at it at all?

Sure. This is Les. Yes, I'm on. So we're not currently investing in cryptocurrency. I think if we looked at it, you'd would think about it as a currency, we tend to more try to match our business currency exposure. And I don't think I'd think of it -- it's cash, but you have currency exposure if you're not doing business in crypto. So I'd leave you with that. And as well that my understanding is currently the accounting is different than other currencies and can create more volatility. So we're not currently doing it. We keep our minds open, looking at all different things, but doesn't currently fit our currency framework.

We'll now take our next question from Brian Meredith.

This is Mike on for Brian. So just following up on the '98 to '04 block. So there's clearly a lot of investor interest are almost concerned about this era. So I'm hoping you can maybe share some more details. But just from my perspective, there are 3 key things to note. One, you retroceded, I think, 35% of the block in 2014. Two, I think you're actually known as a high-priced reinsurer during that period, particularly relative to your European counterparts. And then third, I think it's conceivable that COVID is actually accelerating maybe some of that roll-off of mortality. So maybe if you could -- if you agree with any of these or if you could add anything, I think it would be helpful for investors just because when there's sort of a lack of information, people tend to assume a negative bias.

Thank you for that question, Mike. Alain and Jonathan, would you please address?

Yes. Sure. It's Alain Néemeh. I guess what I would say, a couple of things. First off, the '99, '04 block probably represents a quarter of our U.S. individual block today. It's declining over time. The older issue ages in that block are probably about 4% of the whole. So it's a block that is slowly running off. I think in terms of whether we're a high-priced reinsurer or not. Look, I would say, it's a good solid competitive environment. I think that comment probably draws from the fact that during that period of time our market share would have dropped. So whether we were high-priced or whether we perhaps saw some of the risks or felt that the pricing environment was maybe a little bit too sharp, I don't know. That's sort of a long time back. But I think we tend to look at it in the context of our overall block of business. And when one considers the age of that block and the impact of COVID on our different age groups, I think it is quite possible to think that some of those people are perhaps dying off a little bit more quicker than we might have expected. I don't -- I think it's probably too early to draw any kinds of conclusions, but I'll kind of leave it at that. I don't know, Jonathan, if you want to add anything.

Yes. Just on the acceleration piece, I mean, you're right, it's difficult, just given we don't have current underwriting information to otherwise project how people who will have died from COVID-19, how long they would have lived otherwise. But I think, again, it's reasonable, I believe, to expect that there will be some benefit. It's -- at this point, I think that we feel it will be a modest tailwind for us.

We'll now take our next question from Tom (technical difficulty)

Just a few detailed questions on the U.S. and Lat Am Traditional. What exactly is your Latin American exposure? You're not providing any sensitivity so I assume it's not very high to some of the countries that have been hit hard.

Yes. This is Jonathan. Yes, sorry. Our net amount of risk exposure in Latin America, it's about 1% of our total net amount of risk, so it is very modest. It's also a mix of both morbidity and mortality risks.

Got you. And then the follow-up is, I assume that favorable health was long-term care this quarter. What proportion of your earnings in that segment is coming from long-term care?

Todd?

Yes. So long-term care, it's -- I'm trying to think how best to answer as far as the percentage of the total given the unusual totals this year. Maybe the best way to size that is, the long-term care business, which in the U.S. is individual health, what we call individual health, it's -- our expectations would be around $100 million pretax income on that on an annual basis.

So that's a normal -- under normal conditions. So I assume that's running better than that currently. Is that a fair way to think about it?

Yes, it did run better than that -- the expectation this year. Yes.

So that's like over 1/4 of your U.S. and Lat Am traditional earnings. I didn't realize it was that high.

It's been about that level the last couple of years or so, I would say. But it's not growing significantly just given there's not a lot of new business activity in that line of business.

No further questions at this time. I would like to turn the conference back over to the speakers for any additional or closing remarks.

Okay. Well, thank you, everyone, for joining us today and your continued interest in RGA, and I hope everyone and their families stay safe. Thank you very much.